NEW YORK (Reuters) - Progressive Corp <PGR.N>, the third-largest auto insurer in the United States, said on Thursday net income for October fell 42 percent from a year ago and it is cutting staff as it faces an ever more competitive market.

The auto insurer said October net income was $75.5 million, or 11 cents a share, down from $130.1 million, or 17 cents a share, in October 2006.

Its net premiums written fell 4 percent year over year to $1.26 billion.

Progressive Chief Executive Glenn Renwick called the insurance business "extremely competitive" in a statement. A study on Thursday by consultant Watson Wyatt indicates it will not improve in 2008.

Meyer Shields, an analyst with Stifel Nicolaus & Co, said Progressive has cut rates by as much as 8 percent in some lines of car insurance during the past year.

"You get a decline in profits initially when you cut rates," said Shields. "It will take time before those rate decreases add to business."

The car insurer's shares fell 45 cents, or 2.3 percent, to $18.96 in trading on the New York Stock Exchange on Thursday. In the past 12 months -- as auto insurance rates declined -- Progressive shares have lost nearly 23 percent.

The Mayfield Village, Ohio-based insurer said it cut its information technology group and its personal lines insurance group by 263 people and 78 people, respectively.

This represents about 7 percent of its IT work force and 1 percent of its personal lines group countrywide, it said. Progressive employs more than 26,000 people.

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