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Keeping it in the family at Progressive…

Reading through the related-party transactions listed in the preliminary proxy that The Progressive Corp. (PGR) filed late on Friday afternoon, we half expected to find an entry for Flo, The Progressive Girl and the perky star of the insurance company’s television ads.

Everyone else seems to be there — including four of the company’s directors, as well as its chairman and its chief executive. Here’s a quick rundown:

  • Progressive’s non-executive Chairman, Peter B. Lewis, apparently owns a company that owns an airplane — and he leases space in a hangar from a unit of Progressive to house the plane “and related personnel and equipment” under a five-year lease that began in 2006 (with an option to extend the lease as much as 15 more years). In fact, most of the facility seems to be for Lewis’s use: He gets two thirds of the hangar space and half the office space, paying $97,807 for “and other occupancy expenses” last year, plus another $266,509 for fuel.
  • Progressive’s Chief Executive, Glenn M. Renwick, also sits on the board of Fiserv (FISV), which got $151,135 from Progressive for check-clearing services and “comparative rating software” last year.
  • Another Progressive director, Charles A. Davis, interestingly enough, runs Stone Point Capital, which acquired 51% of Fiserv in 2008.
  • Director Lawton W. Fitt also sits on the board of Thomson Reuters (TRI), which sold Progressive $929,681 of “tax compliance and other software products, property tax services, periodicals, and research products” in 2010.
  • Davis also sits on the board of Axis Capital Holdings (AXS), which used to reinsure Progressive’s directors-and-officers liability insurance (among other coverage), putting him in the strange position of overseeing a company that was on the hook for any fallout from his own actions. Progressive also used to use Axis to reinsure its non-auto insurance operations. Last year, Progressive turned over a few grand in premiums to Axis, collected $1.16 million of insurance recoveries — and was still owed another $4.6 million by Axis at year’s end.
  • Progressive director Roger N. Farah also sits on the board of Aetna (AET), which collected $12.9 million from Progressive last year “for such products and services at customary rates for the products purchased or services rendered.” (Which has to rank as one of the most opaque bits of legalese we’ve seen in a while.)
  • Progressive also turns to one of its own for insurance brokerage services, paying $987,449 last year to industry giant Marsh & McLennan (MMC), whose non-executive chairman is Progressive director Stephen R. Hardis.

(The brother of Progressive’s chief financial officer also works in the company’s law department, but with total compensation of less than $190,000, this particular related-party transaction barely seems to make the cut.)

Progressive says in its filing that these goods and services are bought at arm’s length. But given the breadth and diversity of American business — to say nothing of international competitors — we have a hard time believing that Progressive’s board and officers just couldn’t find anyone else qualified to do any of these jobs, if only to avoid the appearance of conflict. Is there no hangar space available within driving distance of Mayfield Village, Ohio, that Lewis can park a plane in? (Hint: Progressive’s headquarters is just a few miles from the Cuyahoga County Airport, and just across town from Cleveland Hopkins International Airport.)

At the very least, maybe spending a little less time reviewing the ins and outs of each of these transactions — the proxy says they do it carefully every year — would let them devote more time to the company’s business. Shareholders might appreciate that, given that the company didn’t quite keep pace with the rest of the property-casualty industry last year, and is trailing the S&P 500 so far this year.

Similarly, we can’t help but wonder how much better Progressive’s rates might be if the company’s officers and directors weren’t busy doing business with one another. Maybe we should ask Flo.

Image source: Progressive website