(Bloomberg) — Progressive Corp., the fourth-largest U.S. car insurer, said second-quarter profit fell 9.6% as investment gains narrowed.

Net income dropped to $293.4 million, or 49 cents a share, from $324.6 million, or 54 cents, a year earlier, the Mayfield Village, Ohio-based company said today in a statement. Operating profit, which excludes some investment results, was 45 cents a share, missing the average 49-cent estimate of 17 analysts surveyed by Bloomberg.

Innovations that helped Progressive in the past, such as allowing clients to do more business through smartphones, are no longer drawing as many policyholders, according to Paul Newsome, an analyst at Sandler O'Neill & Partners. Chief Executive Officer Glenn Renwick also faced resistance from potential customers to technology that allows the company to track driving behavior and offer better rates to the safest motorists.

“The biggest issue is that they really haven't had a major change in the last decade,” Newsome said in a phone interview before the results were released. “It's really about 10 years ago when they had really rapid premium growth.'

Progressive's stock fell 3.7% this year through yesterday to $25.19, compared with the 1.4% gain by the seven-company Standard & Poor's 500 Property & Casualty Insurance Index. Renwick reports results monthly and had previously announced earnings for April and May.

Policy Sales

Policy sales rose 5.5% to $4.63 billion, from $4.39 billion in the same period in 2013. That compares with year- over-year growth of 6.2% in last year's second quarter.

Realized investment gains narrowed to $40.4 million from $132.9 million during last year's second quarter when the company benefited from changes in values of derivatives and the sale of investments including preferred stocks.

The insurer had an underwriting profit of 7.4 cents on every premium dollar, compared with 6.7 cents in last year's second quarter. Progressive said natural disaster claims increased by 57% to $130 million, including costs from storms in Texas and Florida.

Progressive increased advertising spending by a greater dollar amount than other U.S. property-casualty insurers last year as Renwick sought to attract customers, according to data compiled by SNL Financial. Spending climbed 13% to $595.4 million. The biggest advertiser is Geico, the second-largest U.S. auto insurer.

Customer Demand

Progressive and Geico have focused on direct sales through the Internet, while State Farm Mutual Automobile Insurance Co., the largest U.S. auto insurer by sales, and No. 3 Allstate Corp. traditionally relied more on agents.

Our customers ''bought online, they pay online, and they want to report their loss online,” Tricia Griffith, Progressive claims group president, said during an investor presentation in May. “This is the investment we will continue to make based on the fact that our customers have told us they need it.”

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