This stock turned $10,000 into $1.5 million over the past 3 decades. That’s why it’s a smart buy today.

The stock market is one of the biggest wealth creators. In the long run S&P 500 the index returned close 10% annually over the last centuryrewarding patient investors who take a buy-and-hold approach to investing.

Some companies have outperformed the S&P 500 for a long time. These companies have strong business models and capital and risk management that allow them to generate stellar cash flows no matter what happens in the economy.

One great company that continues to go from strength to strength Progressive (PGR -0.04%). Over the past three decades, the insurance company has delivered a phenomenal return of 18.3% annually. In other words, patient investors who put $10,000 into an insurance company three decades ago would have more than $1.5 million today. That’s why Progressive can keep going.

PGR’s overall profit level data on YCharts

Insurance companies provide stable cash flows

Investing in insurance stocks isn’t as exciting as investing in next-generation technology, but it can be an important part of your diversified portfolio. That’s because insurance companies can provide a steady cash flow thanks to constant demand as people and companies try to protect themselves against catastrophic losses. Even the legendary investor, Berkshire Hathaway This was stated by the chief executive officer Warren Buffett Insurance is an important part of Berkshire’s business.

However, investing in any insurance company is not good enough. The industry is extremely competitive and it can be difficult for companies to stand out. If you look at the industry, insurers on average barely break even. In other words, insurers collect premiums sufficient to pay claims and other expenses. This is where Progressive sets itself apart.

In 1965, Peter B. Lewis, son of one of Progressive’s founders, took over as CEO of the insurance company. Lewis promised that the company will continue to grow, constantly concluding profitable insurance policies. This differed from the conventional practice that insurance companies should break even on policies and make a profit instead from their investment portfolios.

Progressive is one of the best in terms of price risk

Progressive set a goal of making $4 in profit for every $100 in premiums it received, and continues to strive for that goal today. In other words, the company aims to achieve a combined coefficient 96%, which measures the ratio of a company’s claims expenses plus expenses divided by premiums collected.

Over the past 22 years, Progressive has achieved a combined ratio of 96% or higher. During this time, its overall ratio averaged 91.8%, which is significantly lower than the industry average (100%). These robust underwriting metrics face numerous downturns and various soft and tough market environment faced by insurers. Even last year, when auto insurers posted their worst ever quarterly loss ratio two decades laterProgressive still managed to achieve its goal.

This robust underwriting is a testament to Progressive’s commitment to technology and its ability to maintain its dominance in the auto insurance market. One example of the benefits of Progressive underwriting is its use telematics. The insurer was one of the first to use driver data such as mileage, speed and braking time to personalize rates for drivers.

That’s why Progressive can keep going

Progressive’s business is well positioned to grow with a growing economy. It may also perform well if inflation flares up again. JPMorgan Chase CEO Jamie Dimon warned about this growing government deficits, decoupling of the world economy and geopolitical tensions as potential drivers of rising inflation and interest rates. Stable demand for auto insurance gives progressive pricing power, allowing it to adapt to rising costs.

It will also benefit if interest rates remain high for an extended period. Progressive has an investment portfolio of $72.3 billion, heavily invested in fixed income assets such as U.S. Treasuries. The company earned $1.3 billion in investment income this year, up from $874 million last year.

Progressive continues to outperform its competitors, and the past year has been a great example of how the company has adapted to a challenging operating environment. The insurance company has consistently performed well over many market and business cycles and remains a great stock for long-term investors.