This Insurance Stock Is Basically a Money-Printing Machine

Key Points

• Progressive has delivered annualized returns of nearly 19% since 1990.

• It committed to profitable underwriting decades ago and continued to maintain strict discipline.

• 10 stocks we like better than Progressive ›

Investing in the stock market is a great way to build wealth. Diversifying your holdings by including some high-quality stocks with proven track records of success can be a smart decision. You want to seek out companies with sound businesses, strong competitive advantages, and the ability to basically print cash year in and year out.

Progressive (NYSE: PGR) is one company that fits this bill. The insurer is a dominant player in the industry, and its performance has been incredible. Investors who bought $1,000 worth of Progressive in 1990 would've seen their investment grow to $4.69 million today. Here's what makes it such a great stock.

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Disciplined underwriting has propelled Progressive higher

Progressive bucked a trend in the insurance industry in 1965. Unlike many insurers that traditionally aimed to break even on policies and profit mainly from investments, Progressive, under then-CEO Peter B. Lewis, committed to consistently underwriting profitable policies.

The auto insurer displays superior efficiency in underwriting policies and has embraced technology to solidify its position in the industry. It was among the first insurers to use driver data (telematics), such as mileage driven, speed, and braking time, to personalize rates for drivers.

Its long-term goal is to achieve about $4 in profit for every $100 in premiums written, aiming for a combined ratio of 96% or better. Progressive has achieved its annual combined ratio goal for 23 consecutive years, with an average ratio of 92%. This strict underwriting makes Progressive a cash-generating machine. Over the past 12 months, it has earned $16.5 billion in free cash flow.

Image source: Getty Images.

A high-quality stock

In the highly competitive automotive insurance industry, Progressive's consistent profits underscore disciplined underwriting, pricing precision, and operational efficiency -- key advantages that reinforce its durable moat and cash-generating ability.

This consistent profitability across market cycles has resulted in stellar returns for long-term shareholders. Not only that, the company continues to adapt and adjust, making this stock a smart choice for investors looking to build lasting wealth.

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Courtney Carlsen has positions in Progressive. The Motley Fool has positions in and recommends Progressive. The Motley Fool has a disclosure policy.