Good morning. Thank you for joining us today for Progressive's 4th quarter investor event. I'm Doug Constantine, treasury controller. I will be moderator for today's event. The company will not make detailed comments related to its results in addition to those provided in its annual report on Form 10-K and the letter to shareholders, which have been posted to the company's website. This quarter includes a presentation on a specific portion of our business, followed by a question and answer session with members of our leadership team. The introductory comments and the presentation were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 90 minutes scheduled for this event for live question and answers with the leaders featured in our recorded remarks, as well as other members of our management team. As always, discussions in this event may include forward-looking statements.
These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today's event. Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31, 2023, where you will find discussions of the risk factors affecting our business, safe harbor statements related to forward-looking statements, and other discussions of the challenges we face. These documents can be found via the investor relations section of our website at investors.progressive.com. To begin today, I'm pleased to introduce our CFO, John Sauerland, who will kick us off with some introductory comments. John?
Thanks, Doug, and good morning, everyone. While we're already in March, I would like to take a couple of minutes to review the very strong year that we had in 2023. Following a year of incredible growth in 2024, we added almost $9 billion in net premiums written in 2023 and almost 3.7 million additional policies in force. When we look at statutory results for the private passenger auto market through the third quarter of 2023, we believe we picked up close to an additional two points of market share versus last year to move to around 18.5% market share. What made 2023 even more exceptional was that along with that growth came remarkable profitability. We earned almost $13 billion in comprehensive income across our operating and investing units, our comprehensive return on equity of 40%.
Profitability across our businesses was excellent. Policy in force growth was also positive across all the businesses, with personal vehicles leading at 12% or almost 3.5 million more policies than last year. That equates to almost 5.5 million more vehicles insured by Progressive versus year-end 2024. Property profitability was the beneficiary of a lighter than average catastrophe year. It is also a reflection of the significant work we've done to manage the risk in this product. As we indicated in our Q2 2023 investor call, we're much more comfortable with the property line. We are actively looking for ways to increase growth in property through bundling. In commercial lines, PIF growth was primarily from business auto and contractor risks, while growth in trucking was challenging as the industry continued to face headwinds.
Commercial lines also had an excellent profitability in contrast to what we believe was an underwriting loss for the commercial auto insurance industry. As you know, Progressive is very focused on our underwriting operations, and we believe this is the primary driver of our success. We focus on our four strategic pillars to win in the marketplace and grow as fast as we can at less than or equal to a 96 combined ratio at the enterprise level as long as we can provide high-quality customer service. These four pillars have served us quite well since we established them formally as our strategy in 2015. Our culture and our focus on the growth and profitability operating mandate are supported by a very efficient capital model and strong risk-adjusted portfolio returns. This leads to high comprehensive returns on equity over the medium and longer term.
We view our comprehensive return on equity along with growth to be the ultimate measures of our financial success. We believe success on these measures drives higher multiples for Progressive stock. As you can see from the slide, return on equity in our industry is correlated with price-to-book ratio. Additionally, we believe growth plays a considerable role in our multiple being substantially above the line derived from the large public property and casualty competitors. Comprehensive return on equity is a function of the operating discipline we so frequently discuss in these calls and also very much a function of discipline around our financial policies. Today's discussion will go deeper on those policies, highlighting recent changes in operating leverage, providing insight around our variable dividend, and detailing our approach to managing our nearly $100 billion portfolio at year-end.
At the same time we execute our capital efficient strategy, we need to ensure that we give ourselves maximum flexibility as we encounter uncertainty. While we believe strongly in our operating model, we are unable to predict broader geopolitical and macroeconomic changes with certainty. Therefore, we have set up a model that allows for flexibility in both our capital allocation and our investment risk. Since we run with higher operating leverage and a fair amount of financial leverage, we need to make sure that we can retain more capital when we believe it is beneficial to the business. We believe that our variable dividend policy and a liquid, more conservative investment portfolio give us the capital we need to grow when growth is significant and an off-ramp when we hit periods of volatility.
As an example of how our model balances these goals, if we look back to the 2022 to 2023 period, Progressive saw faster premium growth that required a significant amount of capital. Margins were volatile due to the surge of auto-related inflation. That same inflation drove significant investment market volatility. In response, we were able to significantly reduce share repurchases and variable dividend payments, take down investment risk, and raise debt capital in order to ensure the fuel for our strong organic growth in 2022 and beyond. This flexibility allows us to aim for strong growth while also operating with a high degree of capital efficiency. More recently, capital generation has been very strong. In 2023, we earned almost $13 billion in comprehensive income across our operating and investing units.
Our below 90 combined ratio, along with more than a 7% return on the investment portfolio, drove historically high profits for Progressive. The combination of the strong capital position in which we entered 2023, robust income generation, and increased operating leverage allowed for Progressive to reward our shareholders with a $13.50 per share variable dividend in January. This came on top of modestly higher pace of share repurchases in recent months. Given this pace of income generation, the variable dividend, and the announced change in our operating leverage last year, we thought this would be a good time for us to review with you how we think about capital, leverage, capital allocation, and investment risk at Progressive. While we focus on comprehensive ROE, for the purpose of benchmarking, I wanna share the history of results around ROE.
Over the medium and longer term, our model has produced returns on capital that have outperformed not only our P&C peers, but most other financial firms. In order to achieve this continued outperformance, we have to not only be disciplined on the operating side, but also with our investments and our capital allocation. A key consideration around capital allocation is our operating leverage, or in other words, premium to surplus ratios at our insurance companies. As we conveyed in our Form 10-Q for the third quarter of 2023, we have received approval from our regulators that oversee most of our operating entities to move our operating leverage up to a maximum of 3.5 to 1 premiums to surplus. As a reminder, The Progressive Corporation is a holding company, and we own 45 insurance entities and some non-insurance companies.
Insurance companies follow statutory accounting rules and are subject to regulation in their state of domicile. Surplus in statutory accounting is essentially equivalent to equity in GAAP accounting. Statutory accounting differs slightly from GAAP accounting, primarily around recognition of expenses more in line with cash flow, and investment-grade bonds are valued at amortized cost versus market to market. Regulators have numerous tests to monitor and regulate insurance company solvency. Premiums divided by surplus is one ratio for which limitations are set by regulators to ensure that insurance companies have the capital necessary to pay out policyholders when needed. For our core vehicle lines of business, we have always believed that based on our rigorous underwriting acumen, conservative investment posture, and relatively modest reserve development, that we did not need to hold as much capital as regulators were expecting us to.
Those same factors are generally considered in risk-based capital ratios that regulators use to monitor solvency and in extreme cases, to force changes in the management of insurance companies. Our risk-based capital ratios are very good in most of our insurance companies, this fact helped us receive approval to hold less capital or surplus at most of our operating subsidiaries. We'll talk more about that in future slides. As you can see, there's a wide range of operating leverage models in the property and casualty insurance industry. Progressive, with our consistent operating results, is normally near the top. This exhibit shows just the surplus in our insurance subsidiaries relative to net premiums written.
As noted previously, The Progressive Corporation is a holding company, and we hold surplus in the insurance companies and generally balance those insurance companies to our target premiums to surplus ratios towards the end of each year. At year-end, we generally hold contingent and additional capital at the holding company level. At year-end 2023, we held around $13 billion in an investment subsidiary of the holding company. In January, we paid almost $8 billion in a variable dividend out of that $13 billion. The next question is what this change in operating leverage means for our overall capital position. We think of capital in terms of three different layers, which are regulatory, contingent, and additional capital. As I previously mentioned, our regulatory capital is overseen by our state regulators. Our contingent capital layer is fully determined by our risk appetite and controls.
It is currently set at an amount in which it would take a 1 in 200 year modeled scenario to go from the top of our contingent capital to our regulatory layer. As the name is contingent, our goal is for that layer to generally not be fully eroded to the point of reaching the regulatory layer. We normally hold some level of capital above the contingent layer. How much additional capital we hold on an ongoing basis is a function of factors such as operating and investment volatility, financial leverage, and the potential opportunity to deploy capital towards investments, acquisitions, or share repurchases. While we will always be open to holding onto additional capital for future opportunities, management is very focused on Progressive's return on equity over the medium and longer term.
Thanks, John. While operating leverage is important, it does not tell the full financial or capital picture. First, because it only reflects the capital needs at our insurance subsidiaries. Second, it does not differentiate between equity and debt capital, so it does not consider financial leverage. Finally, it doesn't include our capital allocation policy, or it does not consider where we can invest. I will briefly review our financial policies while sharing our capital allocation process. First, we want to ensure we have the capital we need to write as much profitable insurance as we can. This is our best use of capital. We want to ensure we have the regulatory surplus plus contingency capital to grow our business at less than or equal to a 96 combined ratio.
While our decisioning is not linear, we have a decision tree on the next few slides to demonstrate how we think about capital allocation once we have determined we have excess capital over and above our operating needs. If we have excess or additional capital, we then consider how we would deploy that excess capital, and we consider the valuation of each opportunity. We consider three areas of potential investment. Additional capital may be deployed for corporate development or acquisitions and strategic investments, for share repurchase, or for increased investment risk. Jonathan Bauer, our Chief Investment Officer, will be covering investment risk here shortly. In all three instances, we evaluate the investment and valuation and determine if the return is attractive for the investment. With respect to corporate development, we introduced our Three Horizons Framework to you back in 2019, which covers our strategic approach, including acquisitions.
Horizon one, our products within our current constellation of businesses. Horizon two are products that are adjacent to our current product footprint. Horizon three includes businesses outside of the P&C insurance landscape that we currently play in. We continue to fully integrate and optimize our previous two acquisitions. We have continued to work on our skill set throughout the organization in preparing for future investments. Secondly, we may use excess capital to repurchase shares. Our policy is to repurchase shares to neutralize the impact of employee stock compensation. We also consider repurchasing shares if the share price is attractive to what we believe is our intrinsic value. We have not repurchased a significant number of shares over recent years, even though we have board authorization to repurchase 25 million shares annually for the past nine years.
In some recent periods, our growth rate was high enough that we needed to preserve capital to support growth. At other times, over recent years, we had additional capital available to repurchase shares, but we did not view the market price of our shares to be attractive or below our view of intrinsic value. Over the past few months, we have begun to be more active with repurchases, but obviously not yet at a significant level. As highlighted in the chart, in January 2024, in one month, we repurchased shares at a value similar to the repurchases made for all of 2023, as we felt the share price was attractive. Once we have exhausted considering capital needs for both business growth and investments, we consider returning under-leveraged capital to shareholders via dividends.
For greater flexibility, we modified our dividend policy in 2019, moving to a modest quarterly fixed dividend of $0.10 per share and an annual variable dividend that is no longer formulaic and is completely variable. Before 2019, we tied the annual variable dividend to our gain share factor, which is a score we use internally to calculate annual cash bonuses for all Progressive employees. We made the change because there were times that the formulaic approach had us returning capital via dividends and at the same time needing to raise capital to support growth. The annual variable dividend is entirely at the discretion of the board, which considers current capital levels relative to prospective expected capital needs and determines, generally in December of each year, if to pay a variable dividend, and if so, how much.
The $13.50 annual variable dividend declared in December and paid in January 2024 largely reflected robust capital generation in 2023 from both underwriting and investments, along with the shift to higher operating leverage at our insurance subsidiaries. As John noted, we held $13 billion of capital at the holding company level at our year-end, naturally, net of the declared dividend, that number was $5 billion. There's obviously judgment here, we believe it prudent to retain some capital above our operating needs for growth above our expectations, stock repurchases, investment risk, other strategic opportunities, or contingency growth. The $5 billion, along with our ongoing earnings, certainly provides us that flexibility. Once we have determined how much capital we are retaining for operating growth and investing, we need to consider what is the right mix of equity and debt.
We have a publicly stated guideline of keeping our leverage under a debt-to-capitalization ratio of 30%. That does not mean that we will take any dramatic action if it drifts over that level, but that our intention will be to have it under 30% over the longer term. You might ask why 30% is the right limit. Given Progressive's very steady stream of earnings and cash flow generation, we could likely support a more leveraged balance sheet. While we always keep challenging ourselves as part of Progressive's culture, at the current moment, we believe that the 30% level strikes the right balance between efficiency and having a strong balance sheet, which gives us strong debt ratings and allows us to prosper through economic cycles.
When reviewing our historical monthly financial leverage ratio, we did surpass the 30% guideline of debt to total capital during the financial crisis, and then again briefly in 2022, largely due to unrealized losses in our investment portfolio. In both instances, we brought the ratio in line with our guidelines through the normal course of business. While we have a goal of staying below 30%, we do not have a policy regarding a minimum amount of leverage as we want to give ourselves maximum flexibility. Over the last 18 months, you can see that we have been trending below our historic range. The main drivers of that decrease have been significant income generation in 2024 and 2023 from both our underwriting business and investment portfolio.
When you look at our financial leverage relative to our stock insurance company competitors, you'll note it is broadly in a similar range. We believe that an appropriate amount of financial leverage will help ensure a strong balance sheet and, along with our now higher operating leverage, maintain our industry-leading return on equity. While operating leverage is important, strong financial discipline is also a focus. We ensure we have enough capital for our operating growth or to write as much insurance as possible at less than or equal to a 96 combined ratio. We allocate additional capital where it can be beneficial to the business in corporate development, share repurchases, or increased investment risk, while also neutralizing impact of employee stock compensation. We look to return under-leveraged capital to shareholders via dividends, we maintain a debt-to-total capital target below 30%.
That covers our financial policies at a high level, I'll now turn it over to Jonathan Bauer, our Chief Investment Officer, to discuss our close to $100 billion investment portfolio.
Thanks, Maureen. I'm happy to get a chance to speak about how our investment risk decisions are part of the overall Progressive model that has driven strong shareholder returns over time. Given the relatively high operating and financial leverage that we spoke about earlier in the presentation, along with a focus on capital efficiency, our investment leverage, defined as invested assets over shareholders' equity, runs relatively high. This means that gains and losses are more magnified than many of our peers who run with a more significant capital base. Therefore, we tend to run with a more conservative investment policy, especially in times of significant operating growth. If we go back to the broader discussion of our capital deployment, if we have excess capital, we could deploy it towards corporate development, share repurchase, and another option is to take more investment risk.
In order to assess this decision, we think it might be useful to take a step back to review our investment policy since it has been a few years since we have engaged on this topic. We have two different parts of the portfolio that are managed distinctly. Our fixed income portfolio, which currently makes up about 95% of the portfolio, is actively managed by our team. Our equities portfolio, just under 5% of the portfolio, is a passive replication strategy to the Russell 1000 Index. We decide how much to allocate to equities, but after that, you should expect returns to broadly match the index. Our goals are twofold for the portfolio. First, we want to ensure that the operating business has all the capital it needs to grow as fast as it can at a 96 or better combined ratio.
Second, after we have comfort in the capital position, is to achieve a strong risk-adjusted return over the longer term. If we look at two distinct periods over the last six years, you can see how our priorities are borne out in specific actions. In 2020, as COVID caused immense volatility in both the world and financial markets, we were in a strong enough capital position to both support our internal growth and take on additional investment risk at attractive levels. However, in the inflationary period between 2021 and 2023 that we spoke about earlier, the combination of incredibly strong growth with volatility in both operating margins and investment markets meant that a reduction in investment risk was appropriate to ensure no hindrance to our growth model.
If we take a step back, we can see that over the last 10 years, Progressive's explosive premium growth has led to a portfolio that neared $100 billion at the end of 2023, up from $21 billion at the end of 2015. The portfolio growth is even more impressive when accounting for the significant dividends paid out over that time. We thought it might be useful to review how the different elements of our portfolio flow through our financial statements. The investment income that you see on our income statement is mostly driven by our interest income, along with the dividend income from our equities portfolio. These flow through into our operating income and are generally viewed as more recurring in nature.
As we will talk about on the next slide, we have seen strong growth in this category over the last 10 years. Further down our income statement, you will see the realized gains and losses in our fixed income portfolio, as well as the holding period gains and losses within our equities portfolio. This is driven by the actual sales in our portfolio and any change in the unrealized value of our equities. The final element of our investment returns and flows is the changes in unrealized gains and losses in our fixed income portfolio. This number does not flow through to our net income, but only through our comprehensive income. If we think about the significant interest rate volatility felt across the insurance industry over the last 5 years, that has been mostly seen through comprehensive income.
The important point that I would want to get across is that we manage the portfolio on a total return basis as opposed to a book yield or an investment income number. We believe this allows us greater flexibility in our investment decisions and allows for longer-term thinking in our strategy. Our portfolio growth, as well as the shorter duration nature of our portfolio, has combined with rising interest rates to create significantly larger investment income flows over the last few years. We believe that if valuations improve in the fixed income credit markets over the next few years, that we could have a further opportunity to drive additional returns. As John mentioned earlier, 2023 was an incredibly strong year for capital generation. Our investment portfolio returned 7.33%, with strong results coming from both our fixed income and equity portfolios.
On the fixed income side, the combination of lower interest rates and tighter credit spreads drove strong absolute gains. The after-tax contribution of our investment results was just short of $5 billion, which, combined with our operating results, made up the almost $13 billion in comprehensive income. As mentioned earlier, Progressive continues to be a company with significant growth, and we run with higher leverage. It's important that we have the right guidelines in place for our investment team. You can see some of the more important guidelines on this slide. Our Group one allocation is a combination of what we consider our riskiest or at least most volatile assets in the portfolio, which include high yield bonds, certain preferred stocks, and common equities. As you can see, we are nowhere near our limit due to our view on where valuations sit amongst these assets.
The second guideline measures our duration or interest rate risk. As can be seen, we are in the upper half of our range as we have been shifting our duration higher since mid-2022. The third guideline establishes our minimum average credit rating on the portfolio as A-rated or better. While the team does its own credit work on all securities in the portfolio, we feel it's an important benchmark for our stakeholders to have a general idea of the credit strength of our portfolio. At year-end, the average credit rating of the portfolio was double A-minus, as the current valuation environment does not lend itself to significant investment in lower-rated securities. The last guideline addresses the financial leverage that Maureen spoke to earlier, which even after our significant variable dividend, remains below 20%.
Our investment team is based in Stamford, Connecticut, and manages over $95 billion using year-end numbers. As mentioned earlier, the portfolio is split between an actively managed fixed income portfolio and an equities portfolio that is managed through an index replication strategy. This split in strategy is based on the view that active management of fixed income can provide value that is more difficult to achieve on the equity side. The goals of the investment portfolio are to both support the operating business while also achieving a strong risk-adjusted return on the portfolio. That portfolio return is measured versus a benchmark on a 1 and 3-year basis. We believe we are able to attract unique talent to our team, both due to Progressive's culture and the structure of our team that allows for employees to rotate amongst different asset classes and industries throughout their career.
The investment group is split up into three units. Our economics team provides macroeconomic research and analysis to both the investment team as well as broader Progressive. They've done a great job of helping with investment strategy through some significant swings in growth, inflation, and employment. Our operating business has dealt with a very dynamic insurance marketplace, the economics team has partnered with them to understand and model out labor and claims trends. Our core investment research team drives our portfolio strategy as well as our security selection. Our model is somewhat different in that after spending several years in an asset class, we will rotate those individuals around to other portfolios. We believe this broader investment knowledge assists our portfolio managers and analysts in determining relative value across different investment types.
Our trading and execution team supports all of our fixed income trading, as well as the company share repurchase program. I should also take this time to mention that we have an incredibly strong investment reporting and accounting group based in Cleveland that reports separately up through John. Each of our investment professionals are informed by the team's macroeconomic views but are focused on detailed analysis at the security level. They are examining not only the credit risk, but the relative value versus other securities in their sector and other asset classes in the portfolio. The incentive compensation of the team is partly measured based on the overall portfolio performance. This is meant to encourage collaboration and discourage building the size of one's portfolio if there's no absolute or relative value. One of the major focuses of the investment team is our interest rate risk, which is measured by duration.
The investment team spends a significant amount of time on macroeconomic analysis and engagement with our internal economics team to determine our interest rate positioning. You can see at year-end, we were close to 3.5 years in duration, which is close to the highest we have been over the last 25 years. This is up from 2.75 years in mid 2022 and 1.6 years in 2014. The movement to a higher duration over the last couple of years has been driven by a view that we had turned the corner on inflation and the Federal Reserve was likely to move to an easing posture. Our portfolio duration is reported monthly in our earnings release. The other major focus of our investment team is on credit risk.
This concludes the previously recorded portion of today's event. Before we take questions today, our CEO, Tricia Griffith, would like to take a few minutes to discuss changes in our executive leadership. Tricia?
Thanks, Doug. As we stated in our recent news release, our CFO, John Sauerland, announced he will be retiring in July of this year. As you know, we are planning for Andrew Quigg to assume that role in July. I thought it would be great if he started to sit in on the IR calls. Today, before we start Q&A, I've asked Andrew to take a few minutes to introduce himself to all of you. Likely, you've seen him over the years if you've covered us for a longer period of time. Andrew.
Thank you, Tricia, and good morning, everyone. I'm excited to join you for this earnings call as I transition to the role of CFO of The Progressive Corporation when John Sauerland retires in July. My background is available on our investor relations site. I thought I might provide three themes you'll see in that bio. First, I know Progressive. Since joining Progressive more than 18 years ago, I've been inspired by the extraordinary people of Progressive. What has kept me energized is how deeply our core values align with my own values. Our culture and people give me confidence in our ability to continually innovate and bring value for our customers while also delivering industry-leading returns for shareholders. I'm also very proud of the past 7 years during which I served as Chief Strategy Officer, reporting to Tricia.
I've been a member of the executive team that has led our company through the pandemic and the subsequent cost inflation environment. This period has been great training for the CFO role. The second theme is that I'm a lifelong learner. I received a Bachelor of Science from Yale University. I earned an MBA from Harvard Business School, graduating as a Baker Scholar. I've grown through many roles in investment banking, finance at General Mills, consulting, and a handful of different opportunities at Progressive. I enjoy learning about new aspects of Progressive and our industry. I'm bringing that mindset to the CFO role. Finally, I love solving big problems. My career at Progressive began as a personal auto product manager, a core role where we balance growth and profitability.
In particular, I led a turnaround of our Massachusetts personal auto business after we entered the state and found we were underpriced for the environment. I also led our direct media team, buying advertising for our direct-to-consumer businesses. My first investor presentation came at this time in 2013 as I shared insights into the marketing competitive advantages we achieve from data. In 2015, I moved to be a general manager in customer relationship management, where my team created experience improvements for our customers. I spoke to investors in 2016 about the science around our experience and retention efforts. During these years, I was proud to pioneer notable advancements as the business sponsor for our first big data project and the data science team that implemented our first AI chatbot. Nearly 8 years ago, I was asked to build a new strategy organization at Progressive from the ground up.
This has included creating corporate strategy and corporate development teams. The strategy organization has also started Progressive Life Insurance and recently Progressive Pet Insurance as we add products around our market-leading vehicle insurance franchise. In 2019, I spoke with investors for the third time, sharing our plans to grow across the Three Horizons. Just a final word of thanks to Tricia and our board of directors for providing me with several months to learn from our current CFO, John Sauerland. John is an institution at Progressive. I am accelerating my learning to have a smooth handoff from John. I'm excited for this opportunity and look forward to connecting with you all on future investor relations calls. Thank you.