Progressive Corp., the fourth-largest U.S. automobile insurer, said profit declined 2.9 percent as the company faced claims from Superstorm Sandy and growth in the policyholder count slowed.

Fourth-quarter net income fell to $249.1 million, or 41 cents a share, from $256.7 million, or 42 cents, a year earlier, the Mayfield Village, Ohio-based company said today in a statement. Operating profit, which excludes some investment results, was about 34 cents a share, matching the average estimate of 19 analysts surveyed by Bloomberg.

Chief Executive Officer Glenn Renwick increased prices last year after rising claims costs pressured profit margins. He has said he’s prepared to sacrifice growth rather than add customers at prices he considers too low.

“Think of us as a company that’s going to grow where the opportunity exists and hit our target margins,” Renwick told investors in a conference call in November. “But target margins come first.”

Progressive had an underwriting profit margin of 5.4 cents on every dollar in premiums for the quarter, compared with 7 cents in the fourth quarter of 2011.

“PGR’s recent results have been challenged by rising loss severity,” said Jay Gelb, an analyst at Barclays Plc, in a Jan. 3 note using Progressive’s ticker symbol. Gelb rates the company overweight and expects it to benefit from rising prices.

Premium Revenue

Progressive slipped 0.6 percent to $22.47 at 10:33 a.m. in New York. The firm has advanced 13 percent in the past year, compared with the 15 percent climb of the 24-company KBW Insurance Index. Renwick reports results monthly.

Premium revenue climbed 8.7 percent to $4.11 billion. The number of individual auto customers expanded 3.5 percent from the end of 2011 to about 8.79 million. That’s the smallest year- over-year gain since the first quarter of 2009. Progressive has counted on adding sales through the Internet as it competes with larger rivals including State Farm Mutual Automobile Insurance Co. and Allstate Corp., which rely more on walk-in agencies.

Superstorm Sandy cost the company $103 million in the quarter as catastrophe costs for the year climbed to $279 million from $212 million in 2011. Full-year net income fell 11 percent to $902.3 million.

Annual Dividend

Progressive said its annual dividend will be 28.5 cents a share, based on a formula tied to company results. The dividend is payable Feb. 1 to shareholders of record as of Jan. 25. The company also paid a special dividend of $1 a share in the fourth quarter. Book value, a measure of what the firm would be worth if liquidated, fell to $9.94 a share from $10.84 at the end of September.

Miles traveled in October on U.S. roads rose by 0.3 percent, or 900 million miles, from a year earlier, according to the most recent monthly report from the Federal Highway Administration. More miles driven may result in a higher frequency of collision claims for auto insurers.

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