Doug Constantine:

Good morning, and thank you for joining us today for Progressive Second Quarter Investor Event. I'm Doug Constantine, Director of Investor Relations, and I will be a moderator for today's event. The company will not make detailed comments related to its results in addition those provided in annual report on Form 10-K, quarterly reports on Form 10-Q and the letter to shareholders, which have been posted to the company's website. This quarter includes a presentation on a specific portion of our business, followed by a question-and-answer session with members of our leadership team. The introductory comments and the presentation were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 90 minutes scheduled for this event for live questions and answers with the leaders featured in our recorded remarks as well as other members of our management team. As always, discussions in this event may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today's event. Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31, 2023, as supplemented by our 10-Q reports for the first and second quarters of 2024. We will see discussions of the risk factors affecting our business, safe harbor statements related to forward-looking and other discussions of the challenges we face. These documents can be found via the Investor Relations section of our website at investors.progressive.com. To begin today, I am pleased to introduce our Personal Lines President, Pat Callahan, who will kick us off with some introductory comments. Pat?

Jay VanAntwerp:

Thanks Pat. Today, I want to begin by talking about our Media Group and why we believe it is a competitive advantage for Progressive that would be incredibly challenging for our competitors to replicate in the near to medium terms. One of the distinct things about Progressive is that we buy almost all of our media using an in-house team. The media channels we buy include mass media like TV and radio, programmatic display, paid social media, direct mail and paid search. Virtually any type of advertising or demand generation that is purchased, our media team buys. We believe that this makes us unique, not just in the insurance industry, but advertising industry overall. This is not a new development. The decision to buy media in-house was made almost at the very beginning of our efforts in the direct channel in the mid-1990s. At that time, our demand generation efforts were focused on television and direct mail. But since then, our Media Group has evolved with the media landscape. As digital channels like programmatic display and paid social media have become more prominent, our media team has given appropriate focus to those areas. And using Progressive's risk learn, grow philosophy, we develop viewpoints on how to buy those media types efficiently. So our current capabilities are the result of an evolution of over three decades. Given how long we have been doing this and how ingrained the Media Group is within the company, it would be very challenging to assemble a team from scratch that would be able to efficiently deploy spend in all media channels and at our current scale. What are some of the advantages that having an in-house team gives us? Our focus relative to an external agency is very important. We focus on one brand and one small set of products. This allows for a level specialization that an external agency would be challenged to match. We are able to leverage one of Progressive's core strengths, which is analytics. Progressive has a very strong history and track record of analytical innovation. We draw on those capabilities and building our analytical team. Another advantage our in-house team has over an external agency is product knowledge. Our analysts typically come from other areas of the company. They understand our product. They understand the dynamics of the auto insurance market. They're able to bring the insurance context to how they look at media in a way that no external agency would be able to replicate. If you combine the focus with the analytics, the result is custom models built specifically for Progressive using first-party data we would never make available to an external third-party. All of our models are proprietary, using our data to evaluate only our brand and the products that we sell as opposed to a one-size-fits-all model for multiple clients that you might get using an external agency. This has been incredibly impactful. We have leveraged our analytical horsepower and first-party data to dig into all of our spend and determine the relative efficiency and lifetime value of all the different media channels. This then gives us a guide for the optimal places to spend more when adding budget and when reducing the budget, so we can optimize for Progressive specific needs. Progressive is a leader in segmentation for auto insurance pricing, it is similarly powerful when we bring these skills to how we buy media. Another advantage is the ability to quickly flex the budget. Our budget is flexible within controls, which I will talk about later in the presentation. We are willing to increase the budget if there is efficient opportunity and available margin within our calendar year 1996 combined ratio target to fund the additional spend. Also, if there is a need to reduce the expense ratio in order to hit our target 1996, we can do that quickly as well. Our analytics show us how to optimize sales, both when adding and when cutting. Furthermore, we are able to flex our budget up and down extremely quickly. Another advantage is that we have aligned incentives. Like other progressive employees, our media teams on our gainshare annual bonus program. So they benefit from the success of Progressive in a way that a media agency that is compensated on commission wouldn't. A media agency is primarily incented to encourage clients to spend more on media in order to increase commissions. Our media team is focused on the core strategies of Progressive, primarily profitable growth. We also have lower overhead costs than an equivalent program that relies on external media agencies. So not only are we buying the media smarter, but we are also doing it at a lower cost. A 5% commission on $2 billion in spend which is about what we spent at our peak in 2020 would be $100 million. Our team is less than 100 people with total annual cost for this team this team considerably lower than $100 million. Finally, and really cannot be overstated. Our team has very strong relationships with in Progressive that no external agency would be able to develop. While we work closely with our marketing team in the way most agencies would. We also work directly with state product managers and general managers as well as many other areas of the business. We also have a very firm understanding of the business that allows us to credibly show how what we do in the Media Group benefits Progressive. As I talk more about some of the accomplishments of the last decade, I think it would be unlikely that an outside agency would have been able to make the case to be as aggressive as we were leading up to our peak spend in 2020 and could an outside agency move as quickly to make cuts as we did in 2023. To summarize, we feel that our Media Group and the capabilities that we have built over 30 years have contributed greatly to Progressive success. I will talk specifically about the last decade and how we have been able to support Progressive's goal of growing as fast as possible at or below a '96. Before talking about progressive specific spend over the last decade, it is worth providing context about insurance industry ad spend over the last 30 years because it has shifted significantly over time. Progressive Direct and other directors became more aggressive in the mid-1990s, with the emergence of the direct-to-consumer business model for auto insurance. Which spurred strong growth in insurance and advertising spend. From 1996 to 2003, and there was 10% compound annual growth in Media spend. This is a high rate of growth, and yet that rate of growth increased about 50% from 2003 to 2011, with the compound annual growth rate rising to 15%. Between 2011 and 2017, industry ad spend slowed to only 2%, largely driven by agency distributed companies whose economic models didn't allow them to keep pace with the direct-to-consumer companies who continue to have double-digit growth rates during this time period. Starting in 2017, growth in advertising ramped up again from 2017 to 2021, the industry compound annual growth increased five times from the previous period to 10%. We will talk about some of the dynamics happening at that time that may have spurred the next round of growth. But there is a strong argument to be made that Progressive was the catalyst as we started spending more at this time and competitors followed suit. As we know, overall industry profitability issues in 2022 and 2023 led to a contraction in ad spend as the compound annual growth rate for those two years was negative 20%. That was the overall industry landscape. Now, let's talk about Progressive specifically. Prior to 2017, Progressive's media spend was under $700 million and we are consistently around 10% of total industry spend. In 2015 and 2016, we really hit our stride in using analytics to generate insights for how to buy media more efficiently. We were able to come up with a common metric between all media types that allowed us to better evaluate where our spend was efficient and where it wasn't. Also during this time, we were coming out of a hard market. Similar to today, we reacted in advance of the industry and aggressively raised rates, such that our loss ratios were trending below our '96 combined ratio target. As such, we had available margin to fund a higher level of spend as a percentage of premium, while keeping our combined ratio below '96. Starting in 2017 and continuing for the next three years, we were able to operationalize the advances in media efficiency, which allowed us to spend significantly more while still maintaining our target economics with the increased spend funded by available margin. We went from $650 million in spend in 2016 to almost $2 billion in 2020, a tripling in just four years. You will remember from earlier slides, that during that four-year period, there was also an increase in industry spend, which I hypothesized was spurred by our increase in spend. When we started to spend more, competitors noticed and also began spending more. This resulted in that period of growth from 2017 to 2021 for the industry. While our competitors did spend more during that time, we increased our media spend much faster than the industry. Resulting in an increase in our percentage of total industry spend from 11% in 2016 to 20% in 2020. To summarize, we tripled our spend in four years and almost doubled our share of the industry spend. When our losses are higher than target, we look to cut expenses with the goal of meeting our '96 combined ratio target until we have adequate rate. One of the largest and most flexible ways we can control our combined ratio is through the media budget. As severity trends rapidly steepened starting in 2021. We cut the Progressive media budget three years in a row from 2021 through 2023. Prior to this period, going back 30 years, we had never cut the budget two years in a row. So this was an unprecedented time as was the increasing size of the cuts. We went from almost $2 billion of media spend in 2020 to about $1.3 billion in 2023. These cuts happened at a time when the overall industry was cutting as well. So even with the significant cuts, the statutory data shows that we were the biggest vendor in industry in 2022 and 2023. And our share of the overall spend within the industry was almost flat. Going from 20% of spend in 2020 to 19% in 2023. All of these dynamics would have been impossible to manage without the capabilities of our in-house team. Our insights, analytics and relationships with the business allowed us to make the case for the increase in spend up to 2020 and then quickly cut significant amounts particularly in 2023 to support the overall company goal of hitting a '96. I've talked about the efficiency of our spend, but have not necessarily defined what that means. We do have a number of controls on our spend. The primary one is that our cost per sale has to be at or below our target acquisition cost. If that is the case, then we would say that the spend is beneficial. Cost per sale is our total acquisition costs divided by direct sales. Tamini is the largest part of our total acquisition costs. Other costs include the expenses related to running our call centers, development of our creative, maintaining and improving our online quote experience, the compensation of our marketing and media groups, among other things. Targeted acquisition cost is how much we charge customers for acquisition expenses over the life of their policy plus margin adequacy. It's the amount we price into the policy for acquisition. This amount is adjusted up or down based on where our margin is relative to targets. We need to make sure that the sales we are bringing in are at or below the acquisition expenses we price into our policies. That's the primary control in our spend, but there are others. Another constraint is that the direct auto lifetime combined ratio has to be at or below 96, meaning we have to be confident that that the new business we are writing in a state is going to meet our profitability target over the life of the policy. As we talked about in our second quarter 2023 Investor Relations call, direct channel policy acquisition costs are expensed in the first term of the policy and every subsequent term of the policy is collecting the premium necessary to cover the initial acquisition expense. If the acquisition expense is too high, such that the premium collected over the average lifetime does not cover initial acquisition expense, indemnity expense and other expenses, we shouldn't be spending money to acquire those policies. We need to be able to service our customers well. This is primarily for claims. There are times when the growth in the state is greater than our claims staffing can keep up with. So we will turn media off in order to slow demand and allow our staffing to catch up. Another constraint is our focus on achieving an aggregate company-wide calendar year combined ratio at or below a 96. We will not spend additional media dollars if our calendar year 96 target is under threat. Even if there may be opportunities for efficient media spend. And the final control on our spend is an efficient incremental cost per sale. That is a relatively new constraint. Incremental cost per sale is our measure of whether our spend is bringing in a quote or a sale that is over and above the ambient shopping rate. We are able to are able to measure that at a pretty granular level. And we are able to use that metric to evaluate efficiency within a channel as well as between channels. This chart shows the relativity of actual cost per sale versus the target acquisition cost. We want this metric to be at or below zero. At zero, it would mean that our actual acquisition cost is equal to our target acquisition cost. You can see that even during the run-up in spend from 2016 to 2020, that we kept cost per sale below the target in some years by as much as 15%. Even as we deployed three times the level of spend, we brought in enough sales to hit our target economics and for that extra spend to be completely paid for with the premium that was generated. 2023 was certainly an outlier given the size of the cuts. When we cut spend, we cut the least efficient areas first. After the cuts in 2023, we were left with only the most efficient spend as well as a relatively high level of ambient shopping due to the hard market. So cost per sale was significantly below the target acquisition cost in 2023. Even with a significant rise in spend 2024, the ratio has increased, but is still well below our targets. This means that so far in 2024, we are adding policies very efficiently. And this is true for two reasons. First, year-to-date, many of our competitors have remained at depressed levels of media spend. This means that we are able to get a large amount of media impressions for less. Additionally, when those impressions turn into quotes, we're converting them at a good pace, suggesting cost competitiveness. Another view of efficiency is to look at the upfront acquisition expenses as a percentage of the lifetime earned premium that is expected from the sales. From 2016 to 2020, our acquisition expenses as a percentage of premium went up, but stayed in the 7% to 7.5% range. As with the cost per sale versus target acquisition cost, this metric did fall as we made cuts in 2023 and is up in in 2024 as we've increased spend. Again, this suggests that 2024, even as we have significantly increased our media spend, we're still bringing in prospects at very high efficiency. We have shown cost per sale versus target acquisition cost in order to illustrate that even with the run-up in spend, we hit our target economics. This chart illustrates the benefit that we got from increased spend a little more clearly. This chart shows an index of media spend anchored to 2015 as a 1.0 on the horizontal axis and an index of direct auto sales anchored to 2015 on the vertical axis. Each dot represents a different year.You can see that even with the increase in spend, we were able to increase sales commensurately. As with the other charts, 2023 is an outlier. In previous calls, we were often asked about ambient shopping and how we gauge it. The 2023 number is a clear indication of the elevated amount of ambient shopping last year. Despite spending below 2019 levels, we sold more direct new policies than in any year in our history. This is because rates were rising across the industry, prompting customers to shop at and eventually purchase from Progressive. We have talked about how the budget cuts were a key tactic in helping Progressive hit the 1996 [ph] combined ratio in 2023. This chart shows acquisition expenses as a percentage of direct auto earned premium. You can see the increase in acquisition expense as a percentage of earned premium going from under 9% in in 2016 to almost 13% 2020. I had mentioned before that one of the keys to our ability to increase the spend the way that we did was available margin to be able to pay for the extra spend, while still hitting profit targets. As we reduce spend starting in 2021, the acquisition expense ratio dropped from 13% to just over 6% in 2023. This cut reduced the company-wide combined ratio by about 2.8 points in 2023 and was a big factor in our ability to exceed our 1996 calendar year target. Year-to-date 2024 we have increased spend, so now our acquisition expense ratio is back to about 10%. Note that the 2024 ratio on the chart is a year-to-date number. The first quarter acquisition expense ratio was below that of the second quarter. As margins continue to be strong, we will look for opportunities to grow the business as much as possible. While we only get statutory spend data annually, we do have some ways to gauge Progressive spend in relation to the rest of the industry during the year. There are a number of third-parties that provide a measure of what individual competitors are spending in select media channels. This chart shows an index created using iSpot data as a proxy for year-to-date TV spend and SensorTower's Pathmatics data as a proxy for year-to-date programmatic display and paid social media spend. We have set the Progressive spend at a 1.0 index and show the next four largest spenders in the insurance industry. You can see that based on this data, Progressive Media spending is considerably higher than others. Though this is only a partial picture of all the advertising done in the industry, it does provide a useful data point suggesting Progressive is outspending competitors by a significant margin. That increased spend is paying off as we are delivering the necessary sales to pay for that spend. This chart of spend versus sales is the same as the one I just showed, but each dot represents only the first half of year. You can see that 2024 is above the historic trend line with record spend and record sales. This chart suggests we are getting a strong return on our media spend to date. In conclusion, Progressive's in-house media team is a unique competitive advantage that has driven significant value for Progressive since the inception of the direct business. In the last decade, the media team has been instrumental in increasing media spend efficiently, which has resulted in greater market share. This team also plays a huge role in managing to our 1996 combined ratio through expense management and cutting spend to support the goal of a company-wide 1996 combined ratio. Today, the team is laser focused on profitable growth and is deploying record spend amounts in the first half of 2024, and this has produced the largest first half direct sales volume in our history. While we focus on the relationship between sales and media spend as a measure of efficiency, it is important to point out that many other areas of the company work in conjunction with our media team to deliver sales. Everything from the award-winning creative produced by our marketing team to industry-leading product and pricing make our jobs easier. Another key area is the team that received the online and we generate at the top of the funnel and converts it into quotes and sales. That team is the direct acquisition experience team, which has ownership of progressive.com and the online quote funnel. In the same way that the media team has evolved over decades, the acquisition experience team has been a competitive advantage for Progressive since we sold our first policy online over 25 years ago. My colleague, Dave Krew, leads that group and is going to speak to their part in the funnel. Dave?

Doug Constantine:

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions, including presenters, Jay VanAntwerp and Dave Krew, who are available to answer questions about the presentation. [Operator Instructions] We will now take our first question. Marvin will...

Bob Jian Huang :

Hey, good morning. I'm trying -- so first question is, I'm trying to tie out several quarter worth of presentations here. So first of all, you're signing up probably, call it, 2 million new auto policies this year-to-date so far. And even if I assume there's no additional new auto policies that is still a record. So if we think about from that perspective and typically, first year, because of acquisition costs is because of estimates, your -- that policy cohorts combined ratio should be elevated. And if we go out into 2025 and beyond, despite the fact having already a very efficient acquisition cost, shouldn't your -- that policy cohorts combined ratio to be relatively low. So consequently, give you a lot of more flexibility on the combined ratio side to acquire additional customers. Is that the right way to think about this? If not, like how should I think about just essentially the artificially low combined ratio now? And then how far is that going to evolve going forward?

Bob Jian Huang:

Great. Really appreciate that answer. Thank you. My second question revolves around investment income and the way competitive environment is evolving. So, obviously, last few years, a lot of insurers we're subsidizing their underwriting with investment income to offset the inflationary environment. As we think about the growth prospects going forward and interest rate volatility going forward, if interest rates were to come down, if equity market remains volatile, does that help you on the broader competitive environment given that some of your key competitors tend to guide as far as an ROE rather than an underwriting combined ratio. Is there a way to think about that from a broader dynamic investment -- as that broader competitive dynamics?

Bob Jian Huang:

Great. Thank you.

Operator:

Thank you. One moment for our next question. Our next question comes from the line of Elyse Greenspan of Wells Fargo. Your line is now open.

Tricia Griffith:

We sure hope so, Elyse. We're going to continue that. I would say if you -- if there's ever a signal of our confidence in our rates, it's based on what we're spending on our media. So you'll see that we're pretty confident what a difference a year makes. But our intentions are to continue on this path and really leverage where we're at from a competitive perspective, both a media and brand perspective, competitive prices, and we're going to hopefully continue that throughout 2024 and beyond.

Tricia Griffith:

Yes, I think we're still seeing a lot of ambient shopping and there are some people, there's some -- some of our competitors that are still getting a fair amount of rate, which will continue to have shopping as we talked about, both with our of prospects and conversion. So, we feel really great about where at different companies, of course, measure it differently. And I think really the secret sauce is what Dave and Jay talked about. And that is something that we've worked on not for a year, not for two years, for decades and is built upon each other, and then, of course, working with our product group, our claims group, our marketing group that's really the special secret sauce. So, now, we feel really great about the efficiency. And we feel, like I said, even more importantly, great about having the right rates on the street. Now, again, that -- I can change a little bit here and there, but it's been such a pendulum swing in the last four years, giving $1 billion back to customers and lowering rates during the pandemic and then, of course, the inflation. It's really nice to what we see at this point in time just some stability, which our customers deserve and just tweaking it up and down a little bit, and that's really where the fun begins where we really can get competitive on our advertising, our media and, of course, taking care of our customers.

Tricia Griffith:

Thanks Elyse.

Mike Phillips:

Thanks. Good morning. Take a step back for the first question, a little higher level, Trish. I guess -- looking at the consumer landscape that's clearly changing, the younger generation, more online, more media, more social media things like that. I guess as you think about how that continues to change, how do you see the overall size of the DTC channel relative to the overall personal market? What percent do you think that's going to be in maybe five, 10 years down the road? And part of that I ask is we're seeing clearly more competitors try to cut into this, whether it's small new entrants or even some pretty big traditional agency competitors of yours that are trying to switch over to direct. And so if you can comment on how difficult you think that is to get into this market, given you guys have been quite successful for decades? Thank you.

Mike Phillips:

Okay. Thank you. This is a little more specific to your recent Q. You mentioned a lot about growth in renters. And I guess I'm curious, is there anything concerted effort on your part that's caused that? Or where is that coming from? And are there growth opportunities in your auto that come from that growth in renters? And are there things in the renters customer base that you can learn that would make the auto growth a little bit more profitable? Thank you.

Operator:

Our next question comes from the line of Gregory Peters of Raymond James. Your line is now open.

Tricia Griffith:

Yeah. A great question, Greg. Let me take that one. It rarely happens, but we watch it closely, mainly because we talk about growing as fast as we can at or below a '96 if we can take care of our customers. I recall one time I'll get the year wrong but it was early 2000s. We were growing a lot. And I remember specifically, we had to tell the state of Texas that we had to slow down. So we had to slow down growth there. So, that obviously is embedded in me. I wasn't even in the role. But having been in the claims role, you work closely, and I know our claims President works closely with Pat and his group to say, okay, here's where we're adequately staffed. And also the great part about now having the ability to have some hybrid work is you can shift work to different states. So you can -- if we are a little bit behind in staffing in one state, we could -- and a little bit above in the other, we can train those people to work that state if we need to. All we're saying and all Jay saying is that if we need to shut off media at a local basis like we did in the last couple of years when we didn't have the right rates on the street, we can do that or if aren't staffed appropriately. Now, right after the pandemic going into 2022, I would say, we had way more turnover than we would normally like in both claims in CRM, we're in a completely different spot right now. In fact, are hiring ahead of need and feel really good and I talked a little bit about making sure that we -- with new reps that we are really accurate and we pay the fair amount and that we're efficient. So that's really where we're going to be able to turn that on now because we feel really great about our staffing tenure, the quality and our accuracy.

Tricia Griffith:

That is a great question, and we've been working on that for some time. We had a little setback with some litigations in law, law in Colorado. I won't go into the details because it's out there. But it really caused us to pause because it's really difficult for us when we want to do national advertising to control who's seeing in any given state. So we paused on that. Now we have done a couple ads, one in particular, really sweet one. If you go through it, it's a deer talking to the dove and a dad talking to the new driver. And there's some nods obviously, to Latin X [ph], which we think is important. And I totally agree with you. So we have a strategy and a whole team working on our multilingual, a sort of ability to grow. We can grow both in the agency channel, and we have a huge group of what we call Sagora reps [ph] here that handle our Spanish-speaking customers. We believe that this is a big opportunity. Again, we had to pause a little bit because of something that happened in Colorado, but we talk about this a lot. In fact, we're getting an update in one of my upcoming direct report meetings on where we're going with our multilingual strategy.

Tricia Griffith:

Thank you, Gregory.

Josh Shanker:

Yes, thank you for taking my question. I was listening to Jay's presentation and he said that you made a big bet in advertising. And of course, the industry followed you. And then Tricia, you said that people doubted people would buy auto insurance online, but of course, that they did. I was wondering what was the catalyst change all that, and I want to apply that to homeowners. When do you think there will be a catalyst that people really buy homeowners online, how big do you think the online homeowners' direct-to-consumer market can get -- and maybe do you think we're on the cusp of that change?

Josh Shanker:

And then looking little more on the rate and homeowners. If you look at some of your competitors provide renewal pricing data in that their rate increases are much higher than yours, of course. Some of your pricing is related to your growing faster in non-coastal non-cat states, which is causing your numbers to be lower due to diversification geography. But still, your numbers seem to be lower. Is homeowners nationally being priced adequately not so progressive, but the industry in general? Is the industry overpricing too much, do you think creating an opportunity for Progressive take share here? Or does Progressive -- also need to take some action here to get current with what others are doing?

Josh Shanker:

Very helpful answers.

Operator:

Thank you. One moment for next question. Our next question comes from the line of Robert Cox of Goldman Sachs. Your line is now open..

Tricia Griffith:

Yeah. To answer the last part, I have no idea. The first part, we might feel some pressure on cost per sale, but it is so much below TAC that we feel really good about the efficiency.

Tricia Griffith:

Yeah. So if you look at our frequency being down about 8%, the majority of that is really – it's always hard to discern exactly. I would say, the two factors right now for us is our preferred mix and some of the non-rate actions. So we've unwound or continue to unwind the non-reactions. The preferred business, our motto has always been that we want Sam, Dianes, Wrights and Robinsons. We want every customer as long as we can make a lifetime in a calendar year, 1996 combined ratio. So we made to pressure on that. But again, it's really hard to discern and really put together exactly what makes frequency. We watch it closely. As well as we do, obviously, frequency and then react to that accordingly. But like I've said, I feel like we're in such a better position in terms of stability around those trends. And if we can now start to do what we do best, and that is thoroughly look at every product, every state, new and renewal and take a little bit up, a little bit down, a little bit up, a little bit down, make those rates stable for our consumers. That's really the winning proposition for us.

Tricia Griffith:

Thanks.

Unidentified Analyst:

Hi. It’s Jen [ph] on for Meyer. Thank you for taking my question. My first question is on the rates in the shareholder letter, you mentioned taking some small rate cut for eight states. Just curious on what your thinking behind it? And how should we think about rates going forward?

Unidentified Analyst:

Got it. Thank you. My second question is on the conversion rate. So in your presentation, you mentioned expanding significantly more than competitors. Conversion rate has come down due to the schedule shopping behavior. How is Progressive from thinking about dealing with the conversion rate?

Unidentified Analyst:

Thank you.

Jimmy Bhullar:

Good morning. So most of my questions were answered, but I was wondering if you could talk about what you're see in terms of competitor behavior on pricing and marketing spend how it varies by channel -- because it seems like the mutuals as the group haven't been as proactive in raising prices, but just wondering if you could talk about the various channels and what you're seeing?

Jimmy Bhullar:

And then your margins have obviously been pretty good for the last several quarters, but most of your peers' margins are improving as well. So wondering if you see an environment where in a few quarters, you start to see regulatory pushback on prices since they have gone up a lot or just the excess profit you're earning get eroded because of an uptick in composition on prices?

Jimmy Bhullar:

Thank you.

Michael Ward:

Thanks. Good morning. I was just wondering, we noticed that your mobile app takeup seems to be pretty high for auto policies in general, at least relative to your competitors. So, just wondering if you have any insight as to why that might be -- it doesn't seem like it's just telematics, but are you incentivizing maybe the use of digital ID cards and paperless or is it something else?

Michael Ward:

Okay. And then just expanding on the comments about direct home sales. Wondering if you can kind of elaborate on that in the context of the acceleration in Robinson growth indirect trying to square those two. I guess, are Robinson customer wins taking place more online or more over the phone? And how should we think about your Robinson share expansion going forward?

Michael Ward:

Thanks.

David Motemaden:

Hi. Good morning. Tricia, I was wondering if you could just talk about how much of a lag or if there is a lag between when you ramp ad spend. And when you start to see higher sales? I know that March was the highest ad spend month in your history that obviously increased from there. In the second quarter, -- so I'm just wondering -- and it also looks like that happened in June as well where there was another tick up. Is there any sort of lag between when you hit the ad spend and when you start to see the PIF come through?

David Motemaden:

Understood. Thanks. That's helpful. And then last quarter, I think it was in the 10-Q. It sounded like there were 10 points of rate that we're still to earn in throughout the course of 2024. I'm wondering where that stands now and how we should think of that as just additional rate earning in above trend that you can then spend on advertising.

David Motemaden:

Yes, auto.

David Motemaden:

Great. Thank you.

Operator:

Thank you. One moment for our next question. Our next question comes from the line of Ryan Tunis of Autonomous. Your line is now open.

Tricia Griffith:

Now I don't want to say it's a moot point. I think it was a blend of having the right rates on the street, being able to pull back on non-rate items that we put into place when we were trying to stop growth, and our increase in media spend as well as us being very adequately staffed to handle everything. So I think it was a lot of dynamics, sort of, the perfect storm in a good way to position us in that way. So I think it's just a bunch of things that came together with a lot hard work with a lot of teams to make sure that we had -- that we were able to capitalize and maximize our PIF growth.

Tricia Griffith:

Yeah. I mean I think, obviously, the best thing for retention is to have stable rates. But you can't even -- if you don't have a brand out there, it's hard to be on the short list of people that think about companies go to buy and that have especially because our brand, I think, is well thought of. We have many different campaigns that hit different people differently. We try to break through with our humor. We try to make sure that customer’s see adds the right amount of time, not too little, not too much to make sure we're on that. I think we have been in the last several years doing some tests from a retention, or just understanding addressable markets. We talked a little bit about the multilingual campaign. So we do spend some money on making sure that we have campaigns out there, whether digital or mass media, or people do see us in terms of what our purpose is, and that is to move forward and live fully. That's what we want our customers and our employees and communities to do so. It is really about attracting and then when they come here, we want to retain them with stable prices, great service and all the products they need.

Tricia Griffith:

Thanks, Ryan.

Michael Zaremski:

Thanks. Good morning. First question, I guess, a follow-up to Rob Cox's, you asked about the sustainability of frequency trends that are favorable, and you kind of unpacked a couple of items on mix and non-rate actions. What about on the severity side? I know you ever looks very favorable, especially relative to some of the pure data. I know your -- you had easy comps, I guess, you can say also last year. But how are you thinking about any of the sustainability or mix factors on severity these days?

Michael Zaremski:

Got it. So nothing you're calling out kind of on your mix that should make it more running at a lower rate than it has in the past, okay?

Michael Zaremski:

Okay. And just lastly, my -- my follow-up is on the Jay's part of the presentation on direct-to-consumer. And just by the way, I remember being at your live Investor Day in Ohio, probably a decade plus ago when you asked the audience how many times you think we look at our smartphones. And I was -- I always think about that as I look at my phone, and we all look at our phone way too much these days. So you guys were ahead of the trend. But -- but just I guess, Jay mentioned there was a -- it seems like you mentioned a catalyst for more spend that you improved your data back in the 2016 to 2017 time frame, I believe. I don't know if is that something worth elaborating on and if you feel that there's been a -- you're even improving more so today than in the past? Or was that kind of a big -- you mentioned that. So I was curious if that kind of a -- if there's something special happen then? Thanks.

Doug Constantine:

That appears to been our final question. So that concludes our event. Martin, I'll hand the call back over to you for closing scripts.

Douglas Constantine:

Good morning, and thank you for joining us today for Progressive's first quarter investor event. I'm Douglas Constantine, Director of Investor Relations, and I will be moderator for today's event.

Susan Griffith:

Good morning, and thank you for joining us today. In many ways, this first quarter has felt like we have turned a page. Since mid-2021, inflationary pressure and its subsequent effect on our profit margins has been a predominant factor in our strategic decision-making. Even in the second half of 2023, when we started to see indications that severity trends were stabilizing, more rate was earning in and accident year loss ratios approached our target. We continue to flex in order to deliver on our calendar year 96 combined ratio goal.

Douglas Constantine:

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions. [Operator Instructions]. We will now take our first question.

Jian Huang:

First question is regarding retention. On your 10-Q, you talked about improved retention, both in personal lines and property business. given that you're unlikely to be the only company that is positioned for growth as we head into 2024, curious to your view on retention going forward in terms of the broader market competitive dynamics, do you see people potentially coming in challenging your market share position just going forward? And then broadly speaking, just retention in general.

Jian Huang:

Okay. My follow-up is on the -- your distribution channel, and this is a little bit more hypothetical. Your direct channel, obviously have a little bit less of an underwriting margin versus your agency. As you continue to push for growth going forward, is it fair to assume that that's going to have somewhat of a headwind challenge to your overall combined ratio given your direct channel continue to be sort of a focus on the growth side? Should we expect our current underwriting margin to normalize a bit with the combination of focus on growth, your distribution channel mix and things of that nature for the personal line -- personal model?

Michael Zaremski:

Question on Personal Auto. Historically, not every year, but historically a disproportionate amount of Progressive's organic growth sales have come in the kind of the January through April time frame. Given the current dynamics, do you feel that that's the right type of seasonality we should be thinking about? And if not, what factors should we be thinking about?

Susan Griffith:

I mean the figures have bounced around, depending on what's happening. Clearly, we're going to want to spend more. And in March, that was on an absolute basis, the highest amount we've ever spent in media. And so we're going to spend more on that as long as it's efficient. I think you want to look at the whole spectrum of what makes up the combined ratio. So we're constantly investing to push down both loss adjustment expense and non-acquisition expense. Figuring out ways with technology, with people, with processes to reduce those expenses, because we can give those back in competitive prices, and that's really important.

Operator:

The next question comes from the line of Elyse Greenspan with Wells Fargo.

Susan Griffith:

Yes. Sure, Elyse. I think at this juncture in its last year so, so many customers are getting their renewal bills and the rate increases that are playing through will cause you to shop. So we're always at risk losing customers when that happens. We knew that was a possibility last year as well when we were first to market, getting the rates that we needed on the street. So while we don't know exactly what the trailing 3 will continue to be, and it's on a lagged basis, we'll obviously inform you next quarter. That's really why we feel like we're in a much better position to take those small bites and take smaller increases just to stay ahead of trend.

Susan Griffith:

Yes, I'll start. And Pat, if you want to weigh in, you can, if there's anything to add. At this juncture with the margins that we have, we do want to use our spend levels to our advantage as long as it's efficient. So like I said, we've got a lot of other levers. We've pulled back on many non-rate actions that still have room to go on that. And I think if we can spend efficiently in the states where we believe we're adequately priced, we're going to do that, I won't' say to the full capacity, but until we feel like it's inefficient to really leverage this opportunity to maximize on growth. Pat, do you want to add anything?

Operator:

The next question comes from Jimmy [ Hummer ] with JPMorgan.

Charles Peters:

So I'd like to focus the first question on the customer relationship management organization that you called out in your letter. It feels, at times, like it's almost impossible to get timely service in so many areas compared with what we were used to pre-COVID. And so I'm wondering if you could comment on the CRM piece and the challenges you're having with the growth you're reporting and finding people and making sure they're compensated appropriately?

Susan Griffith:

Yes, absolutely. So what I would say is we have been investing well, let me step back -- Peter Lewis used to say, we are a technology company that happens to sell insurance. So everything we do has technology built into it. We have, I believe, again, a best-in-class IT organization. With that, we're always trying to stay ahead of the trends. So think of in the direct channel, think of usage-based insurance, all those things, even though they're -- they become actually a part of the product, they start with IT and our ability to have innovative technology.

Operator:

The next question comes from the line of Josh Shanker with Bank of America.

Susan Griffith:

Yes. I'll start and John Sauerland, you can weigh in. We are growing in one. But again, we want to grow across the board, so we'll continue that. Our property profile, as we talked about, we are rowing in what we would call growth states or more non-volatile states as far as weather, and we're shrinking I in the volatile state. So that's been a plan we put into place quite some time ago. A lot of this takes time. As I laid out last year, we're starting to see the over 100,000 homeowners policies in Florida start to non-renew that took a while because we needed to notify the customers and talk with the DOI.

John Sauerland:

Sure. Yes. We are growing Robinsons more than the right now, and some of that requires our own home product, some of it doesn't. So in the direct channel, we sell a number of other competitors' home products. But for our own home product, as Tricia mentioned, we're growing a lot in non-volatile states, shrinking actually in volatile states. And when we look at our PML, so our probable maximum losses that's actually come down as a result of our shift. We also recently wrapped up our June 1 reinsurance renewals, and we are very comfortable with the risk we're taking there. And actually got slightly more competitive rates. So we feel great about that portion of our risk management program. And as Tricia noted, we have -- we're generating ample capital right now. We're growing a lot, certainly, at a $2.9 billion year-over-year in the first quarter. And of course, that requires significant but probably around $1 billion of regulatory capital. But we are generating that with underwriting margins to some degree as well year-to-date on investment returns. So we feel very comfortable with our capital level and our ability to grow as fast as we can, again, hitting those margins.

Susan Griffith:

I couldn't really answer. I mean a lot, obviously, the first thing is first, we wanted to get off some units that we believe will not be profitable. And a lot of it, of course, from a loss perspective, depends on weather, which has really been the clincher for the last several years. And so that's why we're trying to make sure that we're just more balanced. We are still very large in Florida because we have a large auto base and we believe that we can win in Florida on both the home and auto and especially bundled, but we just need -- we were just a little bit too heavy there in addition to a couple of other states, which makes sense because ASI now Progressive Home was based and kind of grew in that area. But it's hard to think about loss ratios when I don't have sort of the crystal ball of what will happen with weather.

Michael Phillips:

Speaking of Florida, you mentioned some favorable frequency trends in the state and your auto book because of the total refunds. Can you share any thoughts on what you've seen on the property side because of that?

Patrick Callahan:

It's too early to tell on the property side, right? We've got different statute of limitations. We've got different kind of assignment of benefits that will play through the book over time, but not as immediate as we're seeing on the auto book.

Susan Griffith:

Well, we know those shopping happens when rates go up. And I think it's a little bit different, I think, depending on the demographic if you -- when you read through the 10-Q, [ Sam's ] are much more likely to be shop sensitive because they're price sensitive. And so it's very different. When you kind of peel back the onion, you look at our different demographics as well. But we -- like I said in the last couple of calls, last year, we had seen inflationary factors like that. And so I'm not surprised that there's been a lot more shopping. And that's why the key is to get out ahead of the rate. It's short-term pain for long-term growth, and that's exactly what we did and why we're sitting in this position.

Operator:

Next question comes from the line of David Motemaden Evercore.

Susan Griffith:

Yes. And I feel like just even in the last couple of weeks or during the month of March, I feel like in some of the places where we've needed rate, we're starting to have some much more productive conversations.

Susan Griffith:

Thanks, David.

Susan Griffith:

Yes. I think it's different if you're thinking about it from the agency's channel versus the direct channel on the agency channel. We continue to have our preferred agents, our platinum agents and no, we want the bundle, and they can be compensated for that. And so that is a big part of the agency channel. On the direct channel. We have our HomeQuote Explorer, where we saw Progressive Home, and I know they've been working diligently with some really great unaffiliated partners to be able to place that coverage even if it is not with Progressive Home. And we're continuing to work on having a stable group of companies in that mix.

Operator:

The next question comes from the line of Jimmy Hummer (sic) [ Bhullar ] with JPMorgan.

Susan Griffith:

Yes. Good question, Jimmy. Probably a little bit of both. So I think we'll try to continue to push expenses and we need to be efficient. And we don't necessarily though, need to be the lowest cost. We want to have low cost because that equates to competitive prices and that equates to growth. And that growth, of course, is a great cycle because that unit growth is important, especially as you've seen in the past years when severity trends go up and down because those can be less stable than having a unit growth. But yes, I think we're going to spend where we can to maximize on this growth. We're going to continue to think about expenses and utilize the investments that we make across the board to become more efficient. But a lot of it, too, and the reason we're able to do this is because of the investments we've made over the many years on technology, on people, on processes, on just our overall people and culture to be there. So I would expect that we'll be able to do a little bit of both.

Jamminder Bhullar:

And then maybe if you could talk about the competitive environment and just competitor behavior. Overall, it seems like almost every company is still in the process of repricing its book, but I'm assuming that trends vary by state. And there are a few states where several other companies beside you are at adequate margins. So are you seeing price competition pick up in those markets? And are companies being disciplined overall? Or are you even seeing some companies maybe be a little bit too loose in terms of pricing and underwriting in areas where the loss trends have been good and states were early in allowing companies to raise prices?

Meyer Shields:

Great. When we look at year-over-year policy count growth in personal lines, we saw a pickup in direct, but modest sequential slowdown in agency. And I was hoping you could -- sorry, in March, I was hoping you could translate what actually is going on like why we're seeing that sort of different trends?

Patrick Callahan:

Yes. So we've been slower to open things back up in the agency channel and specifically things like returning rates on comparative raters across the board, which, thus, put our rate in a more competitive position and potentially drive more growth. But know that we are leaning into that at this point. And as we're more confident in our rate adequacy we are opening up some of those non-rate actions in the agency channel. We have fewer top-of-funnel levers in the agency channel. It's more mid-funnel. So you will see that delayed effect when, media, we can fill the top of the funnel on the direct channel much more responsibly and quickly when we decide we're rate adequate.

Susan Griffith:

We've talked about that for years. And I think what I would say it's very dependent on the BMT. When you go in to get a quote and ultimately convert, there are some business marketing tiers that are really complex and time-consuming. And you're gathering information, and it's not an easy process. You don't want to do that every 6 months. So with those, you just have to be priced right and have the ability to do things like debits and credits. To get things right more quickly.

Operator:

The next question comes from the line of Mike Ward with Citi.

Susan Griffith:

Yes. Mark, that was mostly a couple of big national account agencies. That started happening maybe around mid-2023. So nothing much to read into. We're still really excited. In fact, take rate and agency really has peaked up since prepandemic. And so we continue to believe that's a big part of our model. We have 57 billion miles driven. So we have a lot of data, 7 billion trips. So we continue to have that be a big part of it. And we're constantly talking to agents about the importance of that to get those great drivers, great discounts.

Susan Griffith:

Yes, that's good. And those are 2 of the variables for sure. So the mile-to-mile quarter helped our mix of business, our sort of self-imposed underwriting actions. And actually, we have seen a tailwind from [ House billing 37 ]. So those would probably be 4 of the contributing factors. What I would look at instead of focusing on the quarter, that would be, I would look at the trailing 12 over prior frequency because those were some factors in this quarter for sure.

Brian Meredith:

Just following up on the frequency questions. I'm just curious, do you think changes in all terms and conditions or customers maybe raising deductibles or anything is causing the benefit of frequency right now. I think we've seen that in prior kind of cycles like we're in right now?

Brian Meredith:

Right. So you're not pricing for it basically?

Brian Meredith:

Great. And then my second question, just curious, getting into the smart commercial business, obviously, the homeowners. Can you talk a little bit, do you have or are you thinking about E&S capabilities? And would that be an area into and we get more from the full package business and you have it in the other side?

Brian Meredith:

Sorry, can you hear me now?

Brian Meredith:

I was asking more about E&S capabilities in maybe homeowners or commercial or plans to have some of those excess and surplus line capabilities. just given the regulatory and risk landscape out there?

Operator:

The next question comes from Yaron Kinar with Jefferies.

Susan Griffith:

Yes. We priced like John was saying, every customer, every state or channel to a lifetime 96 knowing that the limit difference different if you're a preferred if you're going to have higher limits. So we price for that and are very clear on -- and reserved for that. And so that's sort of our secret sauce as well.

Susan Griffith:

I mean commercial is very much -- I mean all of our businesses state-by-state, but commercial has a few states that are much more volatile, and we have to price for those or like Karen's doing now and actually Pat on the PL side is a lot of business restrictions until we can get the prices we need and non-rate actions. But I think, like I said, when I was outlining the variety of BMTs, they react very differently and exposure very differently, and we treat them differently in terms of the segmentation perspective. You mentioned TNC. We needed a huge increase with one of our partners there, and we're able to get that. So our comfort level of success in the TNC organizations is very high now. We feel good about that.

Douglas Constantine:

Those in the queue appear to be those who've already asked questions. So that concludes our event.

Operator:

That concludes the Progressive Corporation's First Quarter Investor event. Information about a replay of the event will be available on the Investor Relations section of Progressive's website for the next year.

Douglas Constantine:

Good morning, and thank you for joining us today for Progressive's Fourth Quarter Investor Event. I am Doug Constantine, Director of Investor Relations, and I will be moderator for today's event. The company will not make detailed statements related to its results in addition to those provided in its annual report on Form 10-K and the letter to shareholders, which have been posted to the company's website. This quarter includes a presentation on a specific portion of our business, followed by a question-and-answer session with members of our leadership team. The introductory comments and the presentation were previously recorded. Upon completion of the previously recorded remarks, we used the balance of the 90 minutes scheduled for this event for live questions and answers with the leaders featured in our recorded remarks as well as other members of our management team. As always, discussions in this event may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today's event. Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31, 2023, where you will find discussions of the risk factors affecting our businesses, safe harbor statements related to forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investor Relations section of our website at investors.progressive.com. To begin today, I am pleased to introduce our Customer Relationship President, Lori Niederst, who will kick us off with some introductory comments. Lori?

Kathryn Lemieux:

Hello. I appreciate the opportunity to deliver some highlights on our progress toward achieving our destination company vision. Today, we'll focus on how the Progressive Advantage Agency is becoming a primary source for insurance products for consumers who prefer the direct channel. We strive to provide access to a broad portfolio of products, so customers begin and then keep their relationship with us without the need to look elsewhere. Let me begin by introducing the journey of Sam and Ashley, two actual Progressive customers. Back in 2009, when Sam first contacted Progressive, he was seeking insurance for his 1999 Saturn. Eventually, he bought a motorcycle, which needed insurance as well. Later, he married Ashley, and together, they acquired Renters Insurance until eventually, they bought a home, which required homeowners insurance. Both our Renters and Homeowners insurance policies were purchased through the Progressive Advantage Agency. In the case of Sam and Ashley, we were able to offer them different products as live events triggered the need for additional and more complex insurance coverage. We would have loved to sell a Progressive manufactured property product to the couple, but that wasn't the right solution for them. So we had other options ready. Let's talk more about that approach. Our multi-carrier marketplace for property and small business insurance products allows us to meet the needs of more and more customers. We are leveraging the Progressive brand building on our industry-leading digital tools and working with a growing number of reputable carriers to make buying and maintaining insurance easier. This recipe is proving very successful delivering 200% growth in premiums written through our agency in less than a decade. Over the years, we've evolved the comparison shopping experience from Property to Commercial Lines from one carrier to many from the phone to the online channel and from Quote to also buy without agent intervention. While the large majority of our insurance customers start their shopping experience online, using our HomeQuote Explorer or BusinessQuote Explorer digital experiences, which launched after our shop by phone-only models, the majority work with our team of knowledgeable in-house agents to customize their policy before purchasing. As you've come to expect from Progressive, we continue to invest in improving the quote and buy experience, always focusing on the needs of our customers. We introduced a Digital Multi-carrier Quote experience, which we call HomeQuote Explorer in 2017. Over the course of the next several years, we made enhancements and introduce new features to improve the quoter experience and the platform's efficiency. These efforts have generated close to a 10% increase in quote completions over early HQX results. One of our most recent changes was the introduction of a QuickQuote Experience, which displays prefilled data from third-party providers upfront so that customers can easily review and edit. Leveraging our proprietary models, we customize prompts and details to assist customers in selecting coverages and qualifying for discounts. This change alone decreased quote time by 20%, reducing the effort for customers and increasing their likelihood to purchase as a result. This is just one example of our work to simplify what has traditionally been a complicated shopping experience for both homeowners and small business owners. Our dedication to continuous improvement is bolstered by a rigorous A/B testing approach aimed at making a fully digital quote and purchase available to more shoppers. However, our in-house agents are always here to provide guidance and instill customer confidence. The investments in our HQX and BQX platforms only produce value when they're backed by a broad portfolio of products underwritten by reputable brands. Both the breadth of carriers in our network and the depth of their product suite have grown over the last decade. Presently, 13 carriers comprise our HomeQuote Explorer portfolio and nine for BusinessQuote Explorer. There are major benefits to having a large contingent of carriers in the PAA, which Sean will get into later, but there is also a risk because we are exposing progressive customers and thus the Progressive brand to the services of another carrier. To protect our customers and the Progressive brand, we are selective about the carriers we partner with. They must meet our standards for customer care. They must offer a quality product at a fair price, pass our information security assessments and they must have the financial strength and standing to uphold the promise we make to customers that will be there when they need us most. Additionally, we'll consider a carrier's technological capabilities so that we can provide a seamless integrated digital customer experience for quoting and servicing. Also worthy of note is that our carrier networks include a number of companies that provide both property and small business insurance offers in HQX and BQX. We take pride in this fact as it demonstrates the strength of our mutually beneficial relationships. The benefits of our multi-carrier model extend far beyond quote and buy and are evident throughout the customer insurance journey for significant life changes, such as Sam and Ashley getting married and buying a house, perhaps experiencing a future job relocation or if they eventually need to ensure their teenage driver. Our agencies ready with the products they need and the customer service to help them navigate these events. Recall that Sam and Ashley added a home policy underwritten by one of our network carriers several years after acquiring their Progressive Auto Insurance and built a bundle, becoming one of the more than 1 million Robinsons we ensure through the PAA. The portfolio of products and carriers who underwrite them that are available to our customers allows us to grow more bundles over time. But even when the event isn't life changing, for example, a policy renewal accompanied by a steep rate increase, we are presented with an opportunity to support our customers by offering options, which gives us the chance to retain the customer. Often, we are able to anticipate customer shopping by leveraging our proprietary data models and proactively reach out to offer assistance. Even subtle nudges such as the e-mail presented here, reinforce the value our in-house agency offers. That leaves our longest running product comparison experience, Auto Insurance. More than 30 years ago, we introduced auto comparison rating as a fee-based service in California. Insurance products were much simpler in those days, so at the time, rates were manually calculated by a team of Progressive people who reverse engineered them from public filings. This industry altering idea proved to be a winner with customers, prompting us to make the service available countrywide and to build our brand on comparison rates. Our early marketing messages combine the ease and savings from one-stop rate comparison with a message of transparency. If our rate isn't the lowest, we'll tell you who's is? And challenging the status quo now what you'd expect from an insurance company as early brand differentiators. As Progressive and competitors advance their products, adding credit, underwriting and tiering, our precision in providing comparison rates declined. Consumers saw decreasing value in the range of rates we provided to adjust to these conditions. The next evolution of comparison rates came in 2016 when we began purchasing discrete auto rates from a third party. This model has proven to be a lower-cost way to provide a service that is to this day, valuable to our customers. Over the past five years, we've conducted dozens of tests leveraging comparison rates to improve customer experiences, increase Progressive's conversion and monetize click referrals. Our decades of experience led us to take the next step in the auto rate comparison journey AutoQuote Explorer. Bringing our CRE, HQX and consumer insights together, we've been piloting a multi-carrier auto quoting experience since the third quarter of 2022. We launched a Quote and Buy experience over the phone first and have refined the delivery with our in-house agents through several iterations. We're ready to introduce the AQX Experience online soon. The screens that you see on this page were developed using focus group and agent feedback when testing with prototypes. Early results give us confidence that the comparison quote and purchase experience with a reputable set of carriers will give us the opportunity to better meet consumer needs, starting new customer relationships in those cases where insurance shoppers would not purchase a progressive policy, getting their auto insurance needs met elsewhere. Progressive continues to be known for providing comparison rates, but our launch of AQX provides an opportunity to refine our brand positioning. The key is to generate interest by conveying that we've taken the hassle out of shopping for car insurance, while giving customers confidence in the products, prices, and providers that we offer. But just like HQX and BQX, the customer value of AQX extends beyond the purchase and we continue to refine the benefit statements, taking advantage of our market research. Thank you again for the opportunity to speak today. I'll now hand it over to Sean. Sean?

Douglas Constantine:

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions, including presenters, Lori Niederst, Kathy Lemieux and Sean Freeman, who can answer questions about the presentation. [Operator Instructions]. In order to get to as many questions as possible, please limit yourself to one question and one follow-up. We will now take our first question.

Michael Zaremski:

Hey, great. Good morning. Thanks. The first question is regarding some of the commentary regarding kind of going back on the growth offensive given that profits are healed in a good chunk of your territories. So I guess on the last earnings call, I recall you alluded to growth likely being a little more subdued versus the beginning of '23 when you last one of the offenses. So I guess is that still the right way to think about things? Or any context around how you're thinking about growth, either by state or direct versus agency channel would be helpful?

Michael Zaremski:

Okay. That's helpful. My last follow-up is regarding your commentary about segmentation and continuous product model delivery is the term you also use in the letter. And I appreciate that it's probably, some of this is your special sauce and you might be, you want to be limited to how much you can say. But I'm curious, if we look at Progressive frequency and severities, but especially frequency over time. It tends to be better than the industry. I know there's different definitions. So you reminded us of frequency and severity, too? So we've got to be a little bit careful. But I Progressive still continues to do better than the industry on loss cost trends. Curious if you're willing to add any context about what what's driving the pricing segmentation? And is telematics a material kind of driver of you being able to do that? Thanks.

John Sauerland:

I can also add that you're right. When you look over even decades, you see our frequency being more favorable than the industry and severity being somewhat similar to the industry. And Tricia noted what we believe are some of the key drivers, but we are also continuing to shift the mix of our business to more preferred customers who generally have lower claims frequency. So, it's hard to parse out exactly which piece of those frequency trends are the aforementioned, but we should note that we're also moving more and more to preferred and that will drive the frequency down as well.

Operator:

Thank you. Please standby for our next question. Our next question comes from the line of Bob Huang with Morgan Stanley. Your line is open.

Tricia Griffith:

Yes, I would say back to more historical levels. We've had a couple, several rough years where we've had to pull back on media I mentioned that in my letter. They've been incredible. We have a media machine, a marketing machine and both are working really well, and we want to leverage that. We're not going to spend if we don't think it's efficient. When I talked about our growth in sort of the trifecta, we're getting a lot of ambient shopping still, and we'll continue to watch that. However, we think there's an opportunity to kind of open up the spigot and get more business in the door. We feel like we're in a really prime time now, especially with our rates. So while we're not going to share our full budget we believe we can spend assuming all things with our pricing is right and we get pricing and some rate in some of the states that we need, I think we'll be able to spend a tremendous amount to really leverage what we think could be a great growth year.

Tricia Griffith:

Yes. I think that has to do a lot with timing. So a lot of our competitors have increased rates as well pretty substantially. So there's a sort of a time frame. I don't know exactly when that is. But right now, we believe, we are able to take market share. Again, there'll be some, at some point, there'll be stable rates throughout the industry and there'll be less shopping. Really, the key for us in terms of market share will be to grab as much new business at or below our target market -- target profit. And really, the holy grail is retention and keeping those customers. So the key this year for us because we've had so many years of rate after rate is to have some stability for our customers. They deserve that. We want that. Of course, we'll watch the trends, and we'll have to react to those trends. But I'd like some stable rates because I think if we've got the new business coming in the door and then people staying with us, that is a huge win. And then, of course, Robinsons, we've continued to grow. We're excited about continuing to invest in our HomeQuote Explorer and the Progressive Advantage Agency. Working with great partners in that.

Tricia Griffith:

Absolutely. Thanks, Bob.

Joshua Shanker:

Yes, hi there. Thank you for taking my question. My first question, given the growth the company has had over the last couple of years, can you talk about what economy of scale has done to the other expense ratio?

John Sauerland:

Josh, sorry. As I think you know, we focus internally on what we call our non-acquisition expense ratio. So we talked a lot about media. We're always looking to optimize media relative to where we are in terms of rate adequacy and market opportunity on the non-acquisition expense ratio side, we're always looking to optimize costs. And of course, scale is a part of the way to do that. We have been successful in taking, if you look over the longer run, at least four points out of our cost structure on our non-acquisition expense ratio. Tricia mentioned, it's always a balance in investing and relative to the longer run, but we continue to expect to find opportunities to drive our non-acquisition expense ratio lower across all three of our businesses.

Tricia Griffith:

I can let Pat take that. I mean we, our commissions have been pretty stable and we have different structures depending on if we have a Platinum agent and some other programs we have with different agents I think, I don't want to speak too specifically to our competitors because they also ebb and flow.

Joshua Shanker:

Thank you for the answers.

Joshua Shanker:

Thank you.

Jimmy Bhullar:

Hi, good morning. So just following up on one of your earlier answers, you mentioned the app comparison, comp comparisons being tough and that will suppress growth in the app count in 1Q. Should we assume a similar trend for PIF growth as well to where it will be weaker in 1Q and improve year after? Or does that not apply to PIF growth?

Jimmy Bhullar:

And the reason I was asking is PIF growth was good in 1Q, but it wasn't sort of outsized. I think you grew 5% in January, 7% in February and 10% in March in personal auto. And then just following up…

Jimmy Bhullar:

Okay. And then just following up on sort of competitor behavior. What are, I realize that you guys are not raising prices as much as many of your peers, because you started repricing your book earlier. But in terms of marketing spend, are you seeing competitors pull back on marketing spend as well as [indiscernible] profitability? Or are they continuing to market pretty heavy?

Jimmy Bhullar:

Thank you.

Operator:

Thank you. Please standby for our next question. Our next question comes from the line of Robert Cox with Goldman Sachs. Your line is open.

Tricia Griffith:

I mean we want to grow as much as we possibly can while we make at least $0.04 of underwriting profit. So we're going to continue, we're not going to have a ceiling with that. What we will do is understand the addressable market. And kind of go across both, all of our lines of business to understand where we need to invest, where we need to, where we think we can gain more share. And that's really why we diversify. That's really why we've had the HomeQuote Explorer, BusinessQuote Explorer, AutoQuote Explorer to be able to gather more market share, be transparent for our customers and give them an easy way to shop and save even if it's not with us. That's also one of the reasons why years ago, we set a construct together that we used this McKinsey construct that were called the Three Horizons. And the first one is execute. We've been working on that since 2016, 2017, and that is execute the heck out of growing or getting as much on private passenger auto and commercial auto and home business that we can as long as we're making money. And we've done extraordinarily well. They're obviously surpassing $61 billion in premiums for 2023. The second horizon is the exciting part in Commercial Lines where we've been growing our BMTs there, but we also have some expansion coverage that we're excited about. We just entered our 45th state with Florida last week. So very excited about that. We obviously bought Protective to have larger fleets. We're now calling Protective just so you know, Progressive fleet and specialty. And of course, our TNC business. So those ancillary products that where we believe we have the right to play and the right to win, and those have been really exciting expansion for Karen and her group. And then Horizon 3 is a little bit further afield, but those are some products that we believe will fit unmet customer needs and you think kind of longer-term out. So we're constantly in a cycle of three years, five years, 10 years. And in fact, we have our Board retreat later this week to outline how we intend to continue to grow market share across the board and do so in a profitable manner. So we're excited about the future. We're excited about the position we're in at this point given the extreme amount of uncertainty in the last four years. And if there's any team that can do it, it is the team here in Cleveland, Ohio.

Tricia Griffith:

Well, we're, it's typical, some of the typical states you've talked about on the coast, think of New Jersey, New York, California on the direct side. We just got a plus 20 on California agency. So that is a good move towards that. We're having continued conversations because this is really about the consumer. We want to have availability for each consumer to be able to get the coverage they need to protect the things that they love. And all we want to do is try to make $0.04 of underwriting profits. So we're going to continue to work with each insurance department to get the rate that we need and then be fully open and available for those consumers.

Tricia Griffith:

Thank you.

Elyse Greenspan:

Hi, thanks. Good morning. My first question, going back to the marketing, and I guess maybe a little bit tying into the PIF discussion. As you guys lay out the marketing budget for this year, Tricia, are you expecting it to be even throughout the four quarters? Like how do you think about the cadence of the marketing spend as you think about trying to acquire customers during 2024?

Pat Callahan:

No, I would say we normally pace heavier in Q1 than we do in Q4 because of customer shopping. So just as Tricia said, we'll fish where the fish are. And when there's a lot of people out there in market, we want to advertise to make sure they know where available and to bring them to Progressive. As we've stated this year, we're opening up maybe a little slower than we did in 2023. So from a pacing perspective, we'll probably be more level between Q1, Q2 and Q3 than we historically would have been. But we also know that if the hard market prevails and continues, then we will want to continue to spend up to our allowables to capitalize on growth while people are looking for a new provider of auto home or commercial insurance.

Elyse Greenspan:

And then my follow-up, you guys saw favorable development in January. For the first time in a while, right, typically, that's a month right when you have late reporting claims from the prior year, what drove that development in January? And does that, was that frequency or severity driven? I'm just wanting to get a sense that there would be some expectations for continuation of that better trend in '24?

Elyse Greenspan:

Thank you.

David Motemaden:

Hi, good morning. So I had a question just on just -- Tricia, just how impactful you think unraveling some of the nonreactions can be on PIF growth. Just wondering relative to ad spend, historically, has there been more impact to PIF growth from bringing up or down marketing spend compared to non-rate actions? Or can you help size the potential for growth from rolling back those non-rate actions?

John Sauerland:

And I'd add, if we're looking towards PIF growth, new business is one driver, but retention is a far stronger driver of PIF growth. And as Tricia mentioned, we are looking forward to more stable rates this year. We are feeling very adequate in most environments. So we have already enjoyed retention improvements, and we expect to continue to enjoy retention improvements. Competitors are certainly in a better place, but are continuing to raise rates as well. So on a competitiveness basis when the renewals come through, we think we're going to be in a good place, and that will help drive policy in force growth as well.

Tricia Griffith:

I don't know historical at the top of my head, David, but we're pretty excited about both the trailing three and trailing 12 PLE and where we are from a month. And we sort of have internally, David here that we talk about the value of one month of PLE to our lifetime earned premium. I think we're pretty high.

David Motemaden:

Understood, thank you.

Ryan Tunis:

Hey, thanks. Good morning. Could you just talk a little bit about, Tricia, I guess, across the book, how you're thinking about severity in 2024?

Ryan Tunis:

Got it. And then I know last year, you kind of shared with us early in the year, I think it was a modest amount of rate that you expected to be taking over the year. You mentioned California, New Jersey, New York. Could you just give us maybe a placeholder for, I guess what you're thinking in the aggregate, if you're able to get those, the rate in those states kind of yes, in the aggregate, what we'll be looking at in terms of rate increases in '24?

Ryan Tunis:

Got it. And then just one more, if I could sneak it in. obviously, progress with the Robinson. Just curious what the geographic diversity of that book looks like versus your broader auto book. Is that still kind of heavily coastal or I guess it doesn't look like the broader agency book does?

Ryan Tunis:

On the Auto. So yes, because of the property, it had been coastal, I'm wondering if it's starting to look more like the, how you've historically seen the agency book?

Ryan Tunis:

Thank you.

Michael Ward:

Thanks. Good morning. Just following up on Elyse's question, the Florida releases. Was that some of the litigation-related reserves from last year? And I guess, how are you feeling about those reserves in that kind of situation?

Michael Ward:

Okay. Thanks. And then on frequency, curious about frequency kind of like year-to-date? Just following the very favorable December.

Michael Ward:

Great, thank you.

Meyer Shields:

Great, thank you so much. Two quick questions. First, Tricia, in the past, you talked about how the last sort of piece of the property puzzle was getting non-cat weather price correctly. Do you think that was the issue that kept you above the 96% in 2023?

Meyer Shields:

Okay. The second question is with regards to PAA. Is there any limitation on your like contractual limitations on your ability to use the data from other companies?

Meyer Shields:

Okay, perfect. Thank you so much.

Operator:

Thank you. [Operator Instructions]. Please standby for our next question. Our next question comes from the line of Yaron Kinar with Jefferies. Your line is open.

Tricia Griffith:

Well, if you're talking about expense ratio, I would look, I probably look more directly at our direct expense ratio because that's we're going to hit some of the marketing spend. And it's pretty low, especially compared, maybe this isn't the right comparison. Especially compared to January of last year, it was like 4.5 points lower. So there will be pressure on the expense ratio. Even though the marketing spend will be efficient just because it's out there. And you'll see that I would follow the direct spend. If you look at December's direct loss ratio to January. I think December was a little bit over 12%. So you're going to start to see that when we put our media budget into play.

Tricia Griffith:

Yes. I mean, I'll let Pat add in. I think to John talked a little bit about the non-acquisition expense rate. So I'll show acquisition. I'll let Pat weigh in a little bit. We are not going to spend just to spend to get up to the 20%. We're going to be efficient. Now for some reason, it gets up to 20%, and we are bringing great new business and huge amounts, and we feel great about. That could be one thing. And then we'll continue to focus on the pressuring non-acquisition expense ratio as one part of that formula. Do you want to add anything?

John Sauerland:

Sorry. I just wanted to give a little greater appreciation of how we spend. We do it in an extremely surgical and analytical manner. We have loads in our pricing by customer segment at a very finite level. And so we understand what we can spend to and meet our lifetime combined ratio targets on each customer segment. So as we go into spend, we are not targeting an expense ratio to Pat's point, we are being extremely surgical and targeted in going after customer segments where we know we can spend up to that allowable cost that we have priced into the product at the segment level. A little different approach than I think you're thinking.

Tricia Griffith:

Yes. So for the, let me kind of talk about Commercial overall, and I'll get into the TNC part. So -- for our core commercial business, I feel much more positive where we are from a combined ratio perspective, especially with 16 points yet to earn in this year. And then I talked a little bit about some expansion products that we talked about like in Horizon 2. So think of Progressive Fleet, think of TNC, think of our BOP. Those do put a little pressure on our core business, but we think it's important to invest in them. The TNC, we've continued to strengthen reserves, as you saw last year, and we'll have some rate increases that go into play significant ones this quarter. So we feel much better about it. And if you go back we have 20 states total between the two companies that we work with. But if you go back to where, we started with our first state in 2016. That knowledge that we've learned in the TNC business has really helped us. So each state is a little bit different depending on the maturity level of that. And a lot of what happened last year with the reserve strengthening, happened to be in two states, New Jersey and California and in coverages of UM and UIM. So that's where we're working to get the right rate to make sure we can reach our profit margin.

Operator:

Thank you. Please standby for our next question. Our next question comes from the line of Michael Phillips with Oppenheimer. Your line is open.

Tricia Griffith:

I mean I think right now, customers are looking for price because it's gone up so much with everything else. So people do you like to bundle because you can also get a discount in most companies. The hard market for me I really equate to more just overall shopping. Just people get their renewals and they shop and can have we already got the rate in the system to get them. So we want to get auto, we want to get home and we want to get the bundled regardless of either one. Obviously, we care a lot about the bundle. But it's really, I think customers dictate the market based on the trends they're seeing in their bills.

Tricia Griffith:

Not really. No.

Tricia Griffith:

No. We continue, we'll continue to grow. We've expanded our own fleet before Protective from 10 power units to 40 power units. We continue to expand. We continue to work on the integration of the acquisition, we feel positive about the acquisition. And we have some rate in the system definitely for a Progressive Fleet, but nothing really more than that to share.

Operator:

Thank you. Please standby for our next question. We have a follow-up question from the line of Meyer Shields with Keefe, Bruyette & Woods. Your line is open.

Tricia Griffith:

The commissions are just that. There's just commissions that come in the door that we've agreed with the companies and then there, of course, rating their auto or their home based on their rating algorithm.

Tricia Griffith:

Yes, I'm sorry.

Operator:

Please standby for our next question. We have a follow-up question from the line of Elyse Greenspan with Wells Fargo. Your line is open.

Tricia Griffith:

I think well, you saw what was outlined in the K with the Aggregate Program. And then our CAT Tower Program is up for renewal in June, and we're working on that. Right now, actually, two of the people are in London, talking with our reinsurers, we feel like we'll have some positive results come the June renewal.

Elyse Greenspan:

Okay, thank you.

Michael Zaremski:

Great. Just a quick follow-up. First, I heard you say, I think it was the first time you've said that you feel the recent Florida legislative reforms are actually a positive. You gave some context around it. But just curious, are the reforms meaningful enough that it might cause you to change your de-risking strategy in the state of Florida, which has been I think more home insurance centric?

Michael Zaremski:

Thank you.

David Motemaden:

Hi, thanks for taking the follow-up. Just had a question on the 19 points of personal auto rate that you guys got last year. How much of that is still yet to earn in?

Pat Callahan:

At this point, I think we've probably got, I don't know, eight to nine points that are still earning in I'd have to look at the table for details, but we got some big rate increases later in the year that we'll still earn in because we've got obviously six months and then 12-month policy renewals.

Tricia Griffith:

Yes. We've seen the increase in ambient shopping. And so we'll watch and see if that continues. And I think when some of our competitors get their rate in the system, like Pat just said, it depends on the competitor because some have six-month policies, many have 12-month policies, which obviously takes a lot more time to earn in. I'm sure we'll see that diminish, but that's when we have all the other levers that we have for our growth.

Tricia Griffith:

Thanks.

Tricia Griffith:

Let's wrap up after this.

Michael Ward:

Last but not least. Thanks. I was just wondering the claims specialist in property, is that the increase in that number? Is that part of the customer value prop? Or is it something else?

Michael Ward:

The property claims specialist count increased? On the 10-K we noticed.

Tricia Griffith:

The growth for the head count growth?

Tricia Griffith:

Yes. So we are growing our ability to handle our own claims internally historically, especially when we first bought ASI, the majority of the claims that we handled were through independent adjusters. And while we still use a lot of independent adjusters for our appraisals, we wanted to have that talent in-house. So that is the increase. Sorry, I did understand your question to begin with. But yes, that increase is just to us to have that talent and understanding as we grow our property book.

Tricia Griffith:

Thank you.

Douglas Constantine:

That appears to be our final question. So that concludes our event. And Towando [ph], I'll hand it back over to you for the closing scripts.

Douglas Constantine:

Good morning, and thank you for joining us today for Progressive's Third Quarter Investor Event. I'm Doug Constantine, Director of Investor Relations, and I will be moderator for today's event. The company will not make detailed comments related to its results in addition to those provided in its annual report on Form 10-K, quarterly reports on Form 10-Q and the letter to shareholders, which have been posted to the company's website. Although our quarterly Investor Relations events often include a presentation on a specific portion of our business, we will instead use the 60 minutes schedule for today's event for introductory comments by our CEO and a question-and-answer session with members of our leadership team. Introductory comments by our CEO were previously recorded. Upon completion of the previously recorded remarks, we'll use the balance of the 60 minutes schedule for this event for live questions and answers with members of our leadership team. As always, discussions in this event may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that can cause actual events and results to differ materially from those discussed during today's event. Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31, 2022, as supplemented by our 10-Q reports for the first, second, and third quarters of 2023, where you will find discussions of the risk factors affecting our business, safe harbor statements related to forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investor Relations section of our website at investors.progressive.com. To begin today, I'm pleased to introduce our CEO, Tricia Griffith, who will kick us off with some introductory comments. Tricia?

Douglas Constantine:

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions. [Operator Instructions].

Jian Huang:

Just a quick question on the way you think about growth. Obviously, you are getting closer and closer to your 96% targeted combined ratio. Curious as to how should we think about the future growth trajectory going forward? Once -- now that appears that losses are improving, reserving appears to be more manageable, heading into 2024, once you -- assuming you get to a 96% combined ratio in 2023, should -- is it reasonable to assume that you would reaccelerate growth into 2024?

Jian Huang:

That's very helpful. Maybe pivot a little bit on reserving. On the 10-Q, you had a lot of disclosure on. An explanation on how severity trends are developing over time? But just kind of curious in terms of frequency, specifically on bodily injuries. It looks like frequency normalized, improved quite a bit. Just curious if you have any commentary there around what's causing the frequency numbers to improve? And is that a trend that we should be expecting that it will normalize back to a generally negative frequency number going forward?

Operator:

The next question comes from the line of Mike Zaremski with BMO.

Susan Griffith:

How I think about that, Mike, is it's been a hard market for a while. We did get out in front of rates to begin with, and then again at the beginning of this year as we saw the trends change specifically in severity of fixing cars. So getting out in front of that, when others might be behind, we're going to get that ambient shopping. We watch it really closely in the auction environment. And the great part about that is that you can get a really low cost per sale. So we'll watch that, but we will definitely put on the gas as needed if we feel like the market is softening at all. I can't really speak to what other competitors do, but I imagine that they're trying to get to their target profit margins, and that means they're going to put a lot of rate out there, which means shopping is going to happen, and that's how we get that business.

Michael Zaremski:

Okay. That's helpful. Lastly, I was hoping to switch gears to the TNC business on the commercial side. There's been a lot of growth there, you've taken a lot of market share to peers. I'm assuming that, that business is coming to you at hefty price increases. But it's also been a cause of reserve development. I guess any color you can offer on what's going on with that business? And just lastly, does this business come with a bigger new business penalty than other parts of personal auto or commercial non-TNC?

Operator:

The next question comes from the line of Jimmy Bhullar with JPMorgan.

Susan Griffith:

Yes. So we saw some of the similar things we did in private passenger auto in Commercial Lines. Really the two factors, the one I just talked about was the TNC reserves in those specific states and the other was late reported injury claims. And I think those make up the majority of the Commercial Lines. We'll continue to look. We obviously feel in some of the reserving that Gary and his team have looked at it pretty deeply. So think of the Florida House Bill 837, think of fixing cars. And Gary will continue to look at those high limit states throughout the year to make sure we're adequately reserved for Commercial Lines as well.

Susan Griffith:

Well, we're always looking to reduce expenses, especially on the non-acquisition expense ratio. But we've pulled back significantly in advertising, and that obviously hits the expense ratio as well as the increase in premium.

Susan Griffith:

Yes. We have -- even if you look at our marketing spend and the reduction, we spend a significant amount on marketing and that will continue into the fourth quarter of pre-planned spends that we already have. But like I said, what we're going to do is be really cautious and initially start to roll back non-rate actions, and we have a robust media spend planned for 2024. Again, that's a plan. So that is one lever where we can pull forward if we think there's a lot of business we had as long as we're making our target profit margins or pull back if we find ourselves in the place that we did in the first half of 2023.

Yaron Kinar:

Two questions. So first, do you see any potential impact from the UAW strike which is hopefully behind us now?

Yaron Kinar:

Got it. So near-term impact potentially, but not really beyond 12 to 16 weeks or so?

Yaron Kinar:

Got it. And then my second question, maybe you can help us think through this. So you've implemented a lot of rate in personal auto, still earning a good chunk of that as well. You're talking about some stabilization of the loss trends. So if and when you accelerate this growth on a much healthier rate adequacy, do you expect that to ultimately improve the loss ratio? Or is the immediate impact still an adverse impact because of the new business penalty?

Operator:

The next question comes from the line of Josh Shanker with Bank of America.

Susan Griffith:

Well, I think we're a growth company, Josh, and I think we're going to try to do anything we can to grow as long as we make our target profit margins. We understand where much of our business is coming through because we know the proof of the prior carrier. And so it's been not just GEICO, but other companies, I don't want to talk specifically about the percentage of where it's come from. But it really depends on are people priced right in the market? Do they have the right brand? Do they care about expense ratio, which keeps the prices competitive? And so for us, it's really -- and we've talked about before, it's making sure that we have all 4 of our strategic pillars, really starting with our people and culture and then going on to our brand, competitive prices and broad coverage. And that's where I think we're able to win and continue to grow. We can react very quickly when our competitors do have actions. And really, that's our focus, is to make sure that we have those 4 strategic pillars and that we invest in all of them to continue to be a high-growth company.

Joshua Shanker:

And given that answer, is there a way of bifurcating or segmenting the property business such that -- I guess, the question is what percentage of the business is operating at a 96% or better and growing as fast as it can. Obviously, there are some states where you're not there yet and maybe it's segmented by state, but to what extent have you achieved the goal of the property business running the way you want it in the geographies that you operate?

Operator:

The next question comes from the line of Greg Peters with Raymond James.

Susan Griffith:

I'll let Pat comment on that. It was less about commissions and more on our strategy around some underwriting paid plans. But Pat, do you want to talk about that a little bit?

Charles Peters:

Great. I guess the other question, pivoting to some of the previous comments around the property business. You're definitely trending in the right direction from a combined ratio perspective, but it's still running above your 96 target for corporate-wide. Is it your objective that -- or your view that you're going to get that property business to a 96 combined ratio next year? It seems like it's been a drag on your consolidated results for several years now. I just -- or maybe you're using it as a loss leader to grab share in the Robinsons cohort? Just some updated views on that would be helpful.

Unidentified Company Representative:

And we have actually been exceeding the objectives we set out for the 2023 period in terms of growing more where we think -- historically, results are far less volatile in property and shrinking considerably in areas including Florida, as Tricia noted, that have been way more volatile from a weather perspective historically. And just to the 96 point, as Tricia was noting, we priced to an aggregate 96 for the company. So by segment, we actually have different combined ratio targets and we think about those as all deriving a return on capital equivalent to or better than the personal auto business. So the 96 calendar year is our commitment to achieve that in aggregate. But below that, we are pricing the different targets based on the characteristics of each business.

David Motemaden:

So I had a -- my first question was just on the auto accident year loss ratio, excluding catastrophes, and last quarter, in the presentation, you spoke about mix shift between renewal and new business and the benefit that, that could have having less new business could have on the loss ration. I'm wondering if you can just size how much of the improvement in the loss ratio this quarter is coming from just that lower new business as opposed to improvement on the renewal book?

Unidentified Company Representative:

And I would offer that the rate actions we've taken have far larger influence on that accident year loss ratio than the new renewal mix. So as we noted, we had 5 points earned in just in the third quarter alone for our personal auto business. On a year-to-date basis, it's more than double that number. So when you get the denominator up significantly, that's the best way to improve. Well, that's -- obviously, there's the numerator, but that is where we have gotten most of the loss ratio improvement from. Obviously, severity moderating a bit this quarter has helped us considerably as well. But the rate that we've taken and continue to take is earning in and you're seeing that in the loss ratio.

Susan Griffith:

I mean, I don't know if it surprised us because we watched the data. It certainly is -- delights us, I would say that. And what we want to do, really, the thing with retention is having some stable rates. And we have been increasing rates as has the competition in an extraordinary fashion based on inflation trends. So what we'd love to do is have tremendous growth in 2024, but have some stability around the trends. And I was saying I haven't been able to say on this call for a while, small bites of the Apple where we take a really small rate and our customers feel that makes sense and they don't shop. So that's our goal. But we're very happy with the retention of both the trailing 3 and a trailing 12. We'd like to see some stability, and we will grow as fast as we can as long as we see that stability.

Operator:

The next question comes from the line of Elyse Greenspan with Wells Fargo.

Susan Griffith:

Yes. I think weather is huge. And so watching that closely. We have another 3 points to earn in on the private passenger auto side. On the Commercial Line side, we've been earning in rate from both '21 -- '22 and '23 revision. But a lot of our improvement, we believe, in Commercial Lines calendar year as been through non-rate actions. And so we're headed into '24 with a lot of rate really starting to earn on the commercial line side. But we do some analysis quite often of what we think we need to do to get there. We care deeply about expenses. So as a company, we've been trying to reduce expenses and we can continuously do that. And I think weather is going to be the big variable, Elyse.

Susan Griffith:

Yes. I can let Pat comment a little bit, but our intentions are if we see -- if weather is sort of normal in the next several months. And we see some of the non-rate actions that we're pulling back on to achieve new business, then we are going to be able to likely put a lot more media spend into play in the first quarter. But a lot of that depends on what we're seeing. A lot of it depends on how much we need to. But I think that excites us because we do sort of get the start of -- the clock starts over. But Pat, do you want to add anything?

Operator:

The next question comes from the line of Brian Meredith with UBS.

Susan Griffith:

Yes, I think we will be more cautious, and that's why -- that's sort of the beauty around the 96 and the discipline around the 96, whether it's on a calendar year or a cohort year. And that's why we'll slowly pull back, watch, test, and we'll only be pulling back in the states where we feel like we've got enough rate. And so that's a little bit of a limiting factor. But we want to grow, but I do think that there's been so much uncertainty that we will watch it closely. So we aren't in the same position where we have to crank up rates like we did this year.

Susan Griffith:

Yes, we're super excited about how many states we are in BOP, it's still a relatively small part of the business. So we won't actually comment on it publicly. And it is -- we have targets, and of course, with new business, when you think about acquisition costs and understanding loss costs, it's obviously going to be higher than stable business, but it is what we expect and so we'll continue to watch that and grow the business as we get more comfortable.

Susan Griffith:

Exactly. Yes.

Meyer Shields:

As we get back to what should be normal, is there any way of quantifying both in terms of growth and profitability how much impact the fact that you're fully pricing to the telematics curves have had before COVID? I assume that you're probably generating excess profits for growing a little bit less quickly than you could have been?

Unidentified Company Representative:

Yes. So I think Tricia is right, we've been expanding our offering to price closer to the curve over time, and we've been expanding to continuous monitoring in the UBI world to collect more data and to be able to more continuously price policies more accurately. As far as specific quantification of how much growth is coming from and the profit coming from it, I wouldn't comment on that at this point. And it's a meaningful piece of our business. It's our most powerful rating variable. And we continue to invest in both the technology to lower the expense of collecting data and to analyze the data more precisely to price more accurately over time on a continuous basis. So I think we're in probably 50% of our earned premium states. I think 29 states have continuous monitoring at this point in time. So we feel really good about continuing to invest to maintain or even widen that moat that we think we have in the issues-based insurance space.

Susan Griffith:

I think that depends. We always look to -- if we can do book rolls. But like you said, a smaller company is going to have a more difficult time investing in technology, segmentation, brand, distribution and so as you've seen in this last couple of years, we've gotten some of that on itself. So I wouldn't want to pay a premium to get that -- to get those policies on our book. I think we can get them regardless just based on our size and our efficiency.

Tracy Benguigui:

Just some quick math. You achieved 16% year-to-date rate increases in auto. And in the 10-Q, you said that you plan to take an additional 3% in 4Q, so that will get us something like 19% for the full year. I think last quarter, you penciled in 17% personal auto rate increases for the full year. So it feels like you need to take more rate now. It's not a lot, but can you share the key drivers behind this additional rate needs?

Unidentified Company Representative:

Our forward-looking rate action statements its dynamic, obviously, as you know, and it is down to the state and segment level. So it's important to remind how we manage the business. We have product managers who manage at the state and product level, and even in some cases, lower than that, and they are all assessing what is going on in their specific marketplaces, trends, projecting the trends, understanding as we noted, what they plan to do in terms of non-rate actions as well as ad spend. So there's a lot that goes into the aggregate rate changes we take and that we say we plan to take. And again, it's going to be dynamic. We obviously have seen severity moderate back down to the single digits, which is fantastic. Where that goes, it's tough to know. But from what we can see, we think we're moving it to a more normal environment when it comes to change in claim severity. But in aggregate, it's very hard to dissect that 19 or 17, and it's changed today. I assure you.

Susan Griffith:

That's exactly right. We're feeling much more confident in both the House Bill and fixing cars.

Susan Griffith:

Yes. I mean, there's a couple of things that happen, but you can write an estimate. And then when the person, the customer, whether it's an insurer or claimant, goes to get the car repaired, so we paid -- we've made that payment, the feature is closed. And it gets into the shop and they find more damage and it's maybe delayed repair, it increases rental. So it really was the lead time with -- to get parts. It's labor rates, it's length of time, so rentals increased. So there are a couple of different factors that have gone into fixing cars.

Tracy Benguigui:

Okay. So you don't wait until an actual claim closes, you estimate what the close would look like. Was it maybe perhaps premature in calling those claims closed?

Unidentified Company Representative:

But yes, we are absolutely estimating the ultimate loss cost with the best information we have at this time.

Operator:

The next question comes from the line of Mike Zaremski with BMO.

Susan Griffith:

I'd think it's too soon to tell. We anticipate that it will be positive, but we have to let this play out a bit.

Operator:

That concludes the Progressive Corporation's Third Quarter Investor Event. Information about a replay of the event will be available on the Investor Relations section of Progressive's website for the next year. You may now disconnect.

Douglas Constantine:

Good morning, and thank you for joining us today for Progressive's Second Quarter Investor Event. I am Doug Constantine, Director of Investor Relations, and I'll be the moderator for today's event. The company will not make detailed comments related to its results in addition to those provided in its annual report on Form 10-K, quarterly reports on Form 10-Q and the letter to shareholders, which have been posted to the company's website. This quarter includes a presentation on a specific portion of our business followed by a question-and-answer session with members of our leadership team. The introductory comments by our CEO and the presentation were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 90 minutes scheduled for this event for live questions and answers with leaders featured in our recorded remarks as well as other members of our management team. As always, discussions in this event may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today's event. Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31, 2022, as supplemented by our 10-Q reports for the first and second quarters of 2023, where you will find discussions of the risk factors affecting our businesses, safe harbor statements related to forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investor Relations section of our website at investors.progressive.com. To begin today, I'm pleased to introduce our CEO, Tricia Griffith, who will kick us off with some introductory comments. Tricia?

Gary Traicoff:

Thank you, Tricia, and good morning, everyone. I'm excited to talk to you today about loss reserving at Progressive. I will first cover some key definitions and metrics in our general process, then walk through an example on how our overall reserve levels are determined. And finally, walk through an example of the reserving life cycle of an individual claim and how it would flow through the actuarial categories of the earnings release. Let's start off with the size of our loss and loss adjustment expense or LAE reserves. The columns represent our carried reserve balance at the end of each calendar year from 2013 through 2022 and at June 30, 2023, for the rightmost column. On the left side of the graph, we can see that in 2013, Progressive had about $8.5 billion in reserves on a gross of reinsurance basis at year-end 2013. This would be the sum of the orange and blue sections within the bar with our growth as a company, reserves before reinsurance as of June 30, 2023, is now almost $33 billion and almost 4x greater than what it was in 2013, while our premium growth was a little less than 3x greater over the same time period. Much of this difference in reserves outpacing premium growth relates to our growth in longer-tailed products and commercial lines over this period. This means that we believe for all accidents that have occurred through June 30, 2023, our ultimate future liabilities will be almost $33 billion. The orange section of the bars represents how much of our reserves are ceded for reinsurance. Some examples of this include state-regulated plans, such as Michigan Catastrophic Claims Association and the Florida Hurricane Cat Fund and private reinsurers. Our ceded reserves now make up about 16% of our gross reserves versus just over 12% in 2013. Much of this increase in the higher proportion of ceded reserves relates to newer products that have been added over time, including property and protective, which have more reinsurance needs than our historical products. The blue section of the columns represents how much of our reserves are retained after reinsurance, almost $28 billion as of June 30, 2023. Next, let's look at some metrics on how our reserves are distributed. The chart on the left shows that 67% of our net reserves are in loss case, 17% loss IBNR and the remainder under LAE. Any open claim will be assigned a case reserve that may be set by a claims adjuster or an actuarially derived estimate set by the actuarial team. We will discuss this in more detail in a future slide. IBNR, which stands for incurred but not reported, makes up about 17% of our net reserves. IBNR may have different meanings across companies. For most of Progressive's products, one can think of IBNR as the future liabilities to cover claims that have already happened and are currently not recorded as open case reserves. This would include late reports, reopens and salvage and subrogation recoveries. Anticipated salvage and subrogation recoveries can be thought of as a contra reserve and is a reduction to future liabilities. For most of our products, IBNR does not cover any anticipated development in case reserves. This is because since our case reserves are a combination of adjuster estimates and actuarially set case reserves for the majority of our products, our IBNR reserve, does not cover expected case development. LAE reserves make up the remaining 16% and typically cover the anticipated expenses needed to settle claims that have already happened, such as defense counsel costs and claims adjuster salaries. The middle chart shows the distribution of our reserves by product. As expected, reserves will index more to longer-tailed products with higher limits relative to premium size. Thus, our Commercial Lines business makes up almost 1/3 of our total reserves, but a smaller proportion of premium. The graph on the right shows that in personal auto, 83% of our reserves are set to cover injury and medical costs and 17% to cover the cost of fixed vehicles. Again, this is due to the longer-tail nature and higher severity costs to injury and medical coverages versus fixing vehicle coverages and reserves are over-indexed to injury and medical relative to premium. In addition, fixing vehicle coverages have a higher proportion of contra-reserves from salvage and subrogation compared to injury and medical. One additional point. This data is as of year-end 2022 and is on a net of reinsurance basis. While the previous slide gave a high-level overview of the distribution of our reserve mix by various parts, we review the reserves at a much more granular level. We typically review reserves by some combination of product, geographic areas such as group of states, individual states and even down to a region or subset within a state. Further breakouts typically include individual line coverages such as bodily injury, uninsured motor bodily injury and property damage and even by limit. To determine these breakouts, we weigh the credibility of the data, homogeneity in the data and additional value of segmenting the data at a finer level. For example, in personal auto bodily injury, almost all states are reviewed separately with the majority of states reviewed quarterly. State-level data is credible and many states have different development patterns, which warrant the data to be reviewed separately. In personal auto collision, while state-level data is credible, many states exhibit similar data patterns and several clusters of states are reviewed together. About 25% to 30% of our reserves are reviewed at this in-depth level monthly and about 85% of our reserves quarterly. About 700 reviews, which is some combination of product, state, line, et cetera, are reviewed over the course of the year. By reviewing reserves at this detailed level, we are able to adjust reserves more accurately at a granular level, which helps our pricing teams better match price to risk. We also have a robust roll-forward process that we will discuss later on, which allows up to 100% of the reserves to be adjusted monthly. The roll-forward process allows us the time to do a deep analysis on a portion of the reserves monthly while still feeling comfortable that all of our reserves are being updated monthly. Here is an example of how an in-depth review schedule will look over 3 months. In the first month of the quarter, 57 reserve reviews were completed. Each reserve review is either a loss or LAE review, which is further broken down between defense cost containment or DCC and adjusting and other expenses or A&O. Some combination of products, such as personal auto, CL or one of our core commercial auto products or TNC, which represents transportation network companies, line coverages such as bodily injury and some combination of state is reviewed. These 57 reviews would make up about 25% to 30% of our total reserves. In the following month, 60 reviews were completed. Again, there is some combination of type, product, coverage and state, but all 60 reviews are independent of reviews completed during the first month and represent another 25% to 30% of our total reserves. Finally, the third month of the quarter had 68 reviews completed, which are all different from any reviews completed during the previous 2 months and represent an additional 25% to 30% of the total reserves. Over the course of the quarter, about 85% of the reserves were reviewed. Typically, between 50 to 70 reviews are completed per month. Now let's talk about how the overall reserve level is determined. We use several different methods. One of the methods that we use is called the accident period chain ladder method in a standard industry practice. And the example above, each row represents a 6-month period when the accident occurred and each column represents how much in paid losses had been paid out for those accidents at certain time periods after the accident. For example, the top row represents all accidents that occurred from July 1, 2021 through December 31, 2021. The $100 in Column 1 means that the $100 was paid out as of December 31, 2021 for those accidents. Moving to the right of the same row. Column 2 of $120 means that for accidents that occurred during the last 6 months of 2021, as of June 2022, cumulatively that $120 had been paid out. Thus, an additional $20 was paid out during the first half of 2022. The increase of $20 could be due to payments on known claims, late reports or reopen activity. The increase of 20% from $100 to $120 is shown in the loss development factors section in the December 2021 row and column 1. Similarly, the loss development factor of 1.08 in Column 2 of the December 2021 row is calculated by taking the paid loss of $130 in Column 3, divided by the paid loss of $120 in Column 2 for the December 2021 row. Next, the actuarial analyst selected a 1.27 in the first column as the predicted Column 1 loss development factor for the accidents happening in the 6-month period ending June of 2023. We can see that in the June 2023 row, $120 had been paid out by the end of June 2023. The analyst is predicting that paid losses will increase by 27% or $33 during the second half of 2023 and cumulatively be at $153 by December 2023. Multiplying the $153 by an additional 8% predicts that an additional $12 will get paid out by the third column for a cumulative of $165. Thus, the shaded numbers in blue are predictions of what will be paid out in the future. The indicated reserve is then calculated by taking the ultimate estimated paid losses minus what has already been paid as of June 2023 since reserves are to cover future liabilities. The indicated reserve is $45 for accidents happening in the 6-month period ending June 2023 and $13 for accidents happening during the second half of 2022. In total, the indicated reserve is the sum of all accident periods or rows and adds up to $58. This example illustrates an accident period chain ladder approach using paid data. Triangle, similar to this byproduct and grouped by line coverage can be found in our annual report. Other approaches that we typically employ include using case incurred data, developing severity and frequency separately and stratifying the data by size of loss layer. In addition, data is also segmented by late report and reopen lag time from the date of loss to the date of late report and reopen and hindsight testing to prior reserve amounts are considered as well. Additional ad hoc analysis is typically completed to understand changes in the underlying data and loss development factors. Based on the indications from the multiple reviews completed during the month, the actuarial team will then decide how much of an overall reserve change is needed and adjust reserve factors accordingly. Those changes will show up in the earnings release under the actuarial adjustment section and be reported showing the breakout for the current accident year and all prior accident years. For example, in June of 2023, based off the scheduled reserve reviews, which represented between 25% to 30% of reserves, the actuarial team increased reserves $130.9 million for accident years 2022 and prior and increased reserves $160.3 million for the 2023 accident year for a total change of $291.2 million. The $130.9 million increase to prior accident years directly impacted the prior accident year development. In addition, due to other changes not related to actuarial reviews, prior accident years developed an additional $6.9 million unfavorably for a total amount of unfavorable development of $137.8 million. Next, we will discuss what are some of the other items that are in all other development. Now let's go through an example of the pathway of a case reserve over time and the impact on our monthly earnings release. Remember, case reserves make up about 67% of our total reserves. In this example, a claim happens on December 15 and is reported and opened in our claims system on December 19. Since the claim was reported in the same month as the occurrence of the accident, this would not be considered an IBNR claim. The adjuster does not have much information about the claim at this point and it sets a case reserve of $5,000, noted by the orange dot. In parallel, a tabular case reserve is determined for this claim from an algorithm used by the actuarial team. The actuarial team uses predictive modeling techniques based off of certain characteristics of the claim and policy to predict what the expected cost would be for all claims that meet the criteria. In personal auto, there are over 200,000 unique combinations of tabular case reserves. It is important to note that the actuarial algorithm does not expect this one claim to pay exactly the tabular case reserve. But on average, all claims that meet the similar criteria should pay close to the tabular case reserve. This is similar to a pricing rate order of calculation formula. In this example, the tabular case reserve is $12,125. Finally, the adjuster case reserve as compared to a reserve threshold set at $25,000 in this example. If the adjuster estimate is below the reserve threshold, the tabular case reserve is booked to the general leisure as the financial case reserve for that claim and is reflected on the balance sheet. If the adjuster case reserve is greater than or equal to the threshold, the adjuster case reserve becomes the financial case reserve booked to the general ledger. The logic here is that the predictive modeling approach is fairly accurate for lower dollar claims. For more severe claims, the adjuster has received more specific information pertinent to the claim and will predict better than the model for higher dollar claims. This combination of adjuster and tabular reserves provides more consistency and accuracy on a monthly basis. The threshold varies by several variables, including product, line coverage and limit, just to name a few. Since the adjuster case reserve is $5,000 and below the threshold, the tabular case reserve of $12,125 is used in the general ledger. In addition, $1,000 of IBNR is set to cover claims that happened in December and at some point after December, would either be late reported or reopened. The IBNR reserve is not attached to any one claim and instead, set as a factor related to earned premium to cover all potential late reported or reopened claims. The total reserve liability on the balance sheet is $12,125 per case, plus $1,000 for IBNR, equaling a total of $13,125 denoted as the dark blue dot and will be the reserve booked at the end of December. In January, the adjuster has kept their initial estimate of $5,000. Since this is below the $25,000 threshold, the tabular case reserve will again be booked to the general ledger. As part of our roll-forward process, all tabular case reserves can be adjusted monthly by an aging factor and inflation factor. As the claim is 1 month older, the actuarial algorithm predicted that all claims remaining open would have a higher ultimate cost. In addition, all tabular case reserves that are not part of an in-depth actuarial review during the month gets inflated as well. The new tabular case reserve is 12,376, which is an increase of $251. A portion of this $251 increase is aging and a portion is inflation. This will show up in the earnings release as unfavorable prior accident year all other reserve development in January. It is important to note that other claims that settled in January may have settled for more or less than the December tabular case reserve, which would also show up in the all other development category of the earnings release. In February, the adjuster has received new information and increased their estimate to $15,000. This amount is still below the threshold and thus, the tabular case reserve is still used to set the case reserve liability. In February, this claim was part of the 25% to 30% of reserves reviewed at an in-depth level by the actuarial team. The actuarial team increased the tabular case reserve for all claims that have a similar criteria as this claim to $13,500, which is an increase of $1,124 from January. This increase will show up as unfavorable prior accident year actuarial adjustments in the earnings release. In March, the adjuster increased their estimate again this time to $20,000. Since $20,000 is still below the threshold of $25,000, the tabular case reserve is still used as the case reserve book to the general ledger. The claim becomes plaintiff attorney rep in March, Thus, while the tabular case reserve will be inflated and aged again, it will also change due to becoming plaintiff attorney rep as this is one of the variables used in the actuarial algorithm. The tabular case reserve is now $20,050 which is $6,550 greater than the prior month. A portion of this $6,550 increase is due to inflation, a portion due to aging and a portion due to the claim becoming plaintiff attorney rep. The $6,550 will show up as unfavorable prior accident year all other development in the monthly earnings release. In April, the adjuster has increased the reserve again to equal to the reserve threshold, the adjustor's estimate is booked to the general ledger as the case reserve for this claim. This is an increase of $4,950 in the case reserve on the balance sheet, moving from the tabular reserve at the end of March to the adjusted reserve at the end of April. The 4,950 will show up as unfavorable prior accident year all other development in the monthly earnings release. The adjuster made no change to their estimate in May. Case reserves set equal to or over the threshold can only be changed by the adjuster revising their estimates. Thus, there are no additional changes for inflation, aging or any other factors used in the actuarial algorithm. In June, the claim closed out and settled for $20,000. This will show as $5,000 favorable in the prior accident year, all other development section of the monthly earnings release. Finally, in July, the claim was reopened an additional payment occurred for $1,500. A claim could be reopened for several reasons. For example, a claimant may have initially been undecided about a vehicle repair and received a cash settlement based upon the initial estimate. Several months later, they may have ultimately decided to repair the vehicle, and additional damage may have been found. Another example is when a claimant may initially feel that they are not injured in an accident, the claim is closed and subsequently reopened when the person realizes that they were injured in the accident. While the case reserve had closed out in June, we were still carrying $1,000 of IBNR reserves for the potential of a December claim being late reported or reopening. For this example, the IBNR reserve was released in July, which means that there is an expectation that there will be no future costs from late reports or reopens from any accident that occurred in 2022 and is currently not an open case reserve as of the end of July. The development is unfavorable $500. This would show up in the prior accident year all other category of the earnings release. In practice, the IBNR reserve for prior accident years tends to get released monthly as part of another actuarial algorithm as the probability of late reports and reopens decreases with time. An in-depth review of IBNR reserves are completed in tandem with case reserves. Remember, any changes made to factors by the actuarial team as a result of those reviews will show up under the prior accident year actuarial category. For the year, the starting reserve was $13,125 and the claim was eventually paid for $21,500. The year-to-date development is unfavorable by this difference, which is $8,375. I as the Chief Actuary, have complete decision-making authority on our reserves. And while the actuarial team has complete independence in determining the reserves to be booked, there are many checks and balances in place. Internally, we have a close partnership with our claims, pricing and product management business partners. Meetings are held throughout the month at both a localized and national level discussing trends, changes in the mix of business, claims process changes, rate activity and methodologies. Quarterly, I meet with the Audit Committee members of the Board of Directors to discuss results and trends for the quarter. Furthermore, our external auditors perform an annual audit of the company as required by the SEC. My actuarial team meets with the audit firm to discuss our actuarial process, current trends and results for the respective quarters and year. I hope that you have found this presentation helpful. For more information on Progressive's loss reserving practices, we posted a report under the investor site of progressive.com. This report is updated every 2 years. Thank you for your time today. And I will next turn it over to Jim to discuss cohort pricing.

A - Douglas Constantine:

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions, including presenters, Gary Traicoff and Jim Curtis, who can answer questions about the presentation. [Operator Instructions]. We will now take our first question.

Elyse Greenspan:

My first question, you guys highlighted that you need 6 points of additional price, right, in Personal Auto over the balance of the year. Can you just help us get a sense, what are you assuming for severity and even frequency, just overall from a loss trend perspective when you think about additional rate need from here?

Elyse Greenspan:

And that will get you -- you believe that will get you to the 96?

Elyse Greenspan:

And then my follow-up, you guys saw a significant amount of adverse development for accident year 2022. So I'm just trying to square the fact that there was a good amount of adverse development for accident year '22 with the improvement that you're seeing in the accident year ex-cat loss ratio so far this year.

Operator:

Our next question comes from Mike Zaremski with BMO.

Susan Griffith:

Yes. I think we have our arms around it. I mean for BI, obviously, we try to keep ahead of that trend. When we see it, we react to it, and we're in line with the industry. This has been a very unusual time. As you know, if you've looked over the last couple of years, and you've seen the Manheim used car index and how that's flowed. Even though you're seeing it tick down a little bit, it still is a very big difference in what you saw in 2018 and 2019. So when we look at that, especially as we looked at the second half of last year, we really started to see the trend, specifically in property damage, but also in collision increase. And it's really -- and we're watching it flow through in our claims organization. So you have -- let's take the property damage example. Somebody is taking care -- another one of our carriers -- competitors taking care of their insured, but they're going to subrogate us. So that accident happens today. And there's no shop capacity for that particular hit. So they do an estimate as best they can with the sheet metal still in the car. Let's say it's drivable, for this example. And they continue to drive. The shop can get it in 45 days from now, maybe 60 days from now. It comes in, they get the sheet metal off of it, oh, lo and behold, there's more damage. Those supplements are more frequent, and they're more expensive. So you're having capacities, longer cycle times, longer rental times. I think I said in my letter, the rental time, we're seeing it go down a little bit, and that's one data point. So we'll continue to watch that. But you've got that, and then you've got labor rates and parts increase. So in terms of your question, the stickiness, will likely be based on wages for workers in the body shop. So there -- recently a Wall Street Journal article that talked about automotive repair workers, their salaries increased 24% in quarter 4 of 2022 compared to 2018. So 20% over the last year, and that was from the Bureau of Labor Statistics. And making cars be in the same position, the indemnification of the vehicles has also soared since 2018, about 36%. So I do think we might see some trends like in used car prices as the supply chain issues came through and new, et cetera. That might continue to go down. But I think some of the other things will be part of our new normal.

Susan Griffith:

Well, as we attempt to get to our calendar year 96 where there's always levers we can pull, clearly, I'd rather be in a different position where we're spending more money on media and continuing to grow as long as, of course, that would be at our target profit margins. We have a lot of discipline within the company as well in terms of expenses in times such as these. So we -- obviously, we'll continue to look at that for this next 6 months to see if we can get closer to that 96.

Jimmy Bhullar:

So you went through a lot of details on your whole process on reserving. But maybe just stepping back, can you talk about your confidence in where your reserves sit now? And given that you've had, I think, 6 straight months of adverse development, are you much more comfortable in reserves overall? Or is there still a lot of uncertainty, and it's hard to say that you've got up in terms of loss trends?

Gary Traicoff:

Sure. Thanks, Tricia. Great question, Jimmy. So overall, yes, I feel really good about our overall reserve position and where we're at right now. To your point, we have had quite a bit of unfavorable development each of the last 6 months. As Tricia pointed out, if you exclude Florida, all of the development would really be coming from accident year 2022 were actually favorable on accident year '21 and prior. And within accident year '22, over 85% is from accidents that happened in the last 6 months of the year. And a lot of that relates to the fixing cars and the reopen severity that Tricia was talking about. That's fairly short-tailed. We've seen that come through the data, and we have reacted very quickly to it. And so that gives me a lot of confidence because of the short tail nature of -- or most of the issue was that we're in a good position right now. At the same time, right, I can't obviously guarantee and the data could change going forward, but I feel really good of our current position.

Jimmy Bhullar:

And along the same lines on Florida, I think it was somewhat expected that the number of lawsuits would go up given total form, but it's lasted longer in your results. So just wondering how the number of lawsuits that are coming in have trended through the last 3, 4 months or so? And was there an element of Florida in June in terms of adverse development and how that's changed versus maybe April and May?

Susan Griffith:

Yes. And all I would say in addition to that is as soon as the House Bill 837 went through, and then we had the subsequent lawsuits that I talked about, we went in and were pretty aggressive and conservative because we were trying to figure out what was estimable and probable. And that will develop over time as those also get settled. So that's not something that we'll know right away because those take a little bit longer to settle.

David Motemaden:

I just had a follow-up on the reserves. Gary, you had mentioned that you can adjust up to 100% of your reserve balance monthly. I'm just wondering if that happened in June. Or was it a normal review where you maybe did 60 to 70 reviews, but not a complete review? And we have to wait for potential further movement upwards or downwards as we move forward over the next few months?

David Motemaden:

Got it. So I guess -- so in the June review, it sounds -- so I guess you just confirmed that was just 25% to 30% and maybe some other adjustments around the edges, but it wasn't one of those full comprehensive reviews.

David Motemaden:

Great. And then just my second question, so I believe there was a stylized example just given about the mix of business and how having less new business, more renewal business can have an impact. I guess how quickly can that have an impact on the combined ratio, particularly considering the growth that you guys had in the first quarter? Is that something where that mix can change significantly through the end of this year?

Jim Curtis:

Sure. Also a good question. A couple of ways to think about that. There's several dimensions to consider when thinking about mix. So to your point about any type of lag function when we write business, it's in written premium, but doesn't necessarily hit our earned premium mix until it starts to age or get into the policy term. So we would see on a 6-month basis, roughly 3 to 4 months later, where you start to see your earned premium mix shift. That would work in both ways, periods of growth on new business apps and periods of slowing our new business apps.

Jim Curtis:

Yes, I would -- and I would build on that, that the expense does hit immediately. The earned premium mix would -- really would start to see some measure of reaction in our indemnity performance.

Taylor Scott:

First one I had is on the commentary that you guys gave on the lifetime combined ratios. And it just strikes me is a lot of that is very geared towards what the lifetime ends up being. And appreciate that you guys probably have the best data and best capability to analyze it, too. But are we at a period of time where just given how unprecedented it is, with inflation and all the pricing, I mean how much room is there around the estimates that you guys are putting into the lifetime? I mean, are you being conservative around potentially significantly higher churn as we kind of get through this period where everything is being taken out to market on a much more consistent basis? And how much is that being incorporated into your decision as to whether to start growing quickly or not?

Jim Curtis:

Sure. We also consider different time periods and just typical when looking at data set, longer time period, more credibility and more confidence we have. We'll look at recent time period as just a leading indicator adjust slowly. My team set sort of our permissible acquisition as an example, and we just go through that exact process.

Susan Griffith:

Have you seen that with how nimble we've been with our pricing over the year? As we've seen things we've made changes. We are as anxious as likely our shareholders to grow. But again, we have a very specific core value of profit on a calendar year 96. And so that's a priority.

Susan Griffith:

I think it's a little bit less of an issue. I think anytime you have the growth we've had and with the labor environment that has been around for a couple of years, it's a challenge. I will say at this juncture, we are fully staffed in our claims organization. So we feel really great about that and turnover is continuing to go down. That said, our tenure is still low. And so with that comes just the learning curve from that. And our Claims President is having the newer people definitely are in the office with supervisors because that's really where you learn a lot and you get up to speed very quickly, and we have a lot of processes in order to do that. But I would say, if you asked me that a year ago, it would be a different answer than today. I feel confident in our claims organization, the action they're taking. And as tenure continues to grow, I think we'll be in a great position for accuracy.

Joshua Shanker:

Yes. I guess my question is for Jim. Looking at the new cohort acquisition cost ratio, can you talk a little bit about how the current period with ambient shopping in the last meeting to reach new customers with advertising to get them onboarding affects the way you look at that new cohort margin?

Joshua Shanker:

And I realize how valuable the 96 calendar year is to the company. Is there a risk that right now, there's an opportunity to acquire new customers at a cost far below the long-term average and by focusing on the 96, there's a lot of growth being forgone that ultimately will be more expensive to achieve in the future?

Operator:

The next question comes from Greg Peters with Raymond James.

Susan Griffith:

Yes, I think you're spot on. We are trying to have more and more of the Dianes, Wrights and Robinsons. We love Sams as long as we can make our target profit margin, but we continue to increase our bundle. And as we think about both auto and property, those bundles are more important. So we've increased our Robinsons over time. And then, of course, we've talked about this in the past, and it's probably worth an update at some point in the next couple of quarters. The soon-to-be Robinsons. So it could be a Diane that's buying a house, et cetera. So we'll continue to try to be a place for every cohort, but we have increased our Robinsons profile in the last several years. And of course, during times like this, Sams are going to shop more because they're very incented by price.

Susan Griffith:

Well, I think -- we don't talk about retention with each of the profiles of our consumers, the marketing tiers. But we do look over time. And historically, Robinsons have fared better. And we find that the more products you have, the stickier you're going to be. And Sams, especially if there's other characteristics to go, can -- last about the same months and haven't varied too much over the years. But although we don't share it, I would say Robinsons continue to be stickier.

Operator:

The next question comes from Tracy Bunguigui with Barclays.

Susan Griffith:

Well, good question, Tracy. You remember our 96 is an aggregate. So we look at it differently for new business, renewal business. We've taken to the assumptions of our PLE products, state, although it all goes up to 96, which I don't think will change. One, thing, we do look at a really granular level; and two, I think we want to watch this playthrough because some of these changes came about pretty quickly in the delays. And a lot of it is really the shop capacity. And as that starts to open up with the exception of what I talked about with labor rates and probably prices, I think we could be priced adequately and continue to keep our 96 calendar year and lifetime goal. That would be my approach.

Susan Griffith:

Well, we had a lot of rate increases come in, so that was one of them. And a lot of our property, if you take -- if you look at the property and the cat load on top of it or the -- I should say, the cats we've had, you can take that into account. But it is -- that 80% of that, I think you did the quarterly number, but 80% of that $1.1 billion on the year-to-date was auto, 50% was cars, about 35-ish percent was Florida, glass, PIP, BI. And then the rest was IBNR and BI across the country, but property did not -- did develop favorably. Gary, do you want to add anything?

Tracy Benguigui:

Okay. Yes. Sorry, I meant in your current loss pick, your current -- your actuarial adjustment, not the $22 million adjustments. Are you considering a higher loss pick for property damage or not given that -- it feels like that loss trend is trending down?

Operator:

The next question comes from Ryan Tunis with Autonomous Research.

Susan Griffith:

As long as we look at the data and feel good about where we're at with our combined ratio on overall calendar year and accident year, we will grow as fast as we can. So that has been our objective for a long time, 96, grow as fast as we can. We want to do that. We're a growth company. We feel great about it. But again, profits over growth. But as soon as we feel confident with the little stability and less uncertainty, we are very prepared to grow.

Susan Griffith:

Yes. Yes. We don't know how the next 6 months will go. We're going to do the best we can. But again, like you said, if something happens, that is above and beyond that would be different. But yes, we will continue to grow. And in 2024 would be a new year as long as we felt that we had the policies on the book that we believe are at or below our new and renewal targets.

Susan Griffith:

From Florida, you mean?

Unidentified Company Representative:

The current accident year, the impact was virtually 0 because those are lawsuits that are opening on claims that occurred pre-HB837. It can't be now because HB837 was in March. So there's some, but predominantly, those were prior year claims. We're also looking closely at what we expect to be some benefit in the environment from HB837 as well. We're looking at the data closely. It will take a while to assess if indeed, we are seeing that. But we personally -- we believe that there is going to be a benefit, and we look forward to pricing in once we see it.

Yaron Kinar:

A lot of questions on the 96, so I'll pile on here. So if I understand correctly, you're still within line of sight, being close to 96 for this calendar year. One of the ways you can achieve that is by lowering new business growth, which ultimately should improve the combined ratio. I guess my question is, and maybe it's the other side of Josh's question earlier, ultimately, can you achieve that simply by lowering the new business growth while achieving kind of a 96 combined ratio for cohorts? Or do you now need -- or are you aiming to achieve a better than 96 for existing cohorts in order to get to the 96 will be as close to the 96 for the year.

Yaron Kinar:

Okay. But ultimately, do you believe that beyond the kind of flexing down or up the new business growth, do you need to take any additional actions to lower the combined ratio for the existing business below 96 in order to get to a full year 96 or close to it?

Yaron Kinar:

Got it. And then my other question, maybe for Gary, since Gary is on the call. We saw an uptick in bodily injury severity this quarter. And I am curious as to how that ultimately plays out or how you think about it, how you approach that with regards to prior year reserves? Ultimately, I would think that bodily injury has a longer tail, so more risk there for things going adversely. So how do you approach that?

Gary Traicoff:

Yes. I think Tricia is spot on there. The only couple of things I'd add from the reserve side is we tend to look at the data off of an accident period basis, right, as opposed to reported calendar information. The accident period data is more smooth, right, on a calendar basis, you can get some movements up or down, sometimes with changes in mix or closures, et cetera. So on an accident period basis, we're a little bit lower than what that shows. The other thing what Tricia alluded to is there's some large loss mix, et cetera. If you think back to that presentation, that's one of the reasons we employ that reserve threshold. So when our claims adjusters identify those large losses, once it's above that threshold, they put that up immediately. So it's recognized in the reserves. And again, there could be a little bit a timing difference between the accident period and the calendar period, which you would see.

Operator:

That concludes the Progressive Corporation's Second Quarter Investor Event. Information about a replay of this event will be available on the Investor Relations section of Progressive's website for the next year. You may now disconnect.

Douglas Constantine:

Good morning, and thank you for joining us today for Progressive's First Quarter Investor Event. I'm Doug Constantine, Director of Investor Relations, and I will be a moderator for today's event. The company will not make detailed comments related to its results in addition to those provided in its annual report on Form 10-K, quarterly reports on Form 10-Q and a letter to shareholders, which have been posted to the company website. Although our quarterly Investor Relations events often include a presentation on a specific portion of our business, we will instead use the 60-minute schedule for today's event for introductory comments by our CEO and a question-and-answer session with members of our leadership team. The introductory comments by our CEO were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 60-minute schedule for this event for live questions and answers with members of our leadership team. As always, discussions in this event may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that can cause actual events and results to differ materially from those discussed during today's event. Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31, 2022, as supplemented by our 10-Q report for the first quarter 2023, where you will find discussions of the risk factors affecting our businesses, safe harbor statements related to forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investor Relations section of our website at investors.progressive.com. To begin today, I'm pleased to introduce our CEO, Tricia Griffith, who will kick us off with some introductory comments. Tricia?

A - Douglas Constantine:

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions. [Operator Instructions]. We will now take our first question.

Michael Zaremski:

Thanks for the helpful prepared remarks. As a follow-up to the Florida comments, can you elaborate on the legislation? You said the situation is evolving. But you said -- you also said you feel that the legislation is positive. So now ultimately, sometimes past, has there been less claims in Florida in April due to the legislation. Do you feel like it has teeth and there could be kind of a payback for the charges that were taken to the influx of claims?

Michael Zaremski:

Got it. That's helpful. And my final follow-up, I know you touched on this in your prepared remarks, but pivoting to Personal Lines growth, which has been excellent. I'm trying to juxtapose the comments you made -- what we're seeing is the new applications that appear to be record levels with kind of your comments about needing to take maybe some corrective actions. It sounds like you still feel like Progressive will be a meaningful market share CAGR. I don't want to put words in your mouth. Would that be ultimately, there's more shopping and on average, Progressive's rates are lower than most of your customers. So as long as the industry is taking a lot of rate, you still feel good about the absolute level of growth.

John Sauerland:

Mike, the one point I'd add on that is, we don't live in a vacuum, obviously. And our actions I would say, all else equal, will certainly adversely affect growth, less advertising dollars, higher rates for sure. But as we saw last year, as the competitive marketplace was in a bit of disarray even with our aggressive actions, we saw growth. So it will remain to be seen what our competitors do in this environment that we are currently experiencing and if they react aggressively as well, then obviously, our growth won't be as adversely affected.

Elyse Greenspan:

My first question, I wanted to get some additional color on the magnitude of additional rates you guys are looking to take from here. In the 10-Q and in your comments, you mentioned being aggressive with rates, raising rates over the remainder of the year. So more specifically, like within Personal Auto, when you say aggressive rates, is that in the low single digits, in the high single digits? Can you just give us a sense of the magnitude of rate increases you're now expecting to take?

Elyse Greenspan:

Okay. And then could you maybe break down your business for us, the portion you just said, right, 8% to 12% price needed, but the portion of the book that needs rate versus perhaps the portion that you're still looking to grow in? Is there a way to kind of give us a sense of which percentage, and I'm really concerned in talking about Personal Auto, would still perhaps be where you might be looking to grow versus the portion where you just think you need these aggressive level of rate?

Operator:

Our next question comes from the line of Brian Meredith with UBS.

Susan Griffith:

Well, I think in this quarter, our media expense was up, so you're going to feel that especially on the direct side since we front-load those costs. So I think I said this in the last call. I sort of look at new business penalty as an investment in our future and having our future policyholders. But you did see a higher expense ratio, and we were -- we still had our pedal on for media spend in that first -- in the first quarter this year. So yes, expenses were higher.

Susan Griffith:

Yes, yes, new business does carry a higher loss ratio. That was part of it as well, including a lot of things that happened in the first quarter, record level compared to the last 5 years with weather losses, et cetera. But yes, there is a penalty there as well anytime we have new business.

Susan Griffith:

Yes, it's that balance, Brian, of our calendar year commitment and our lifetime cohort commitment. And so we're always thinking about the future, we're always trying to balance it. And I would say we're not putting on the brakes. We're definitely going to reduce our media spend, but our intentions are that we still want to grow. I just wanted to say that normally, when we reduce media, it could have anticipated slow growth. Now John just mentioned, too, a lot of it depends on what's happening with competitors. We're still seeing a lot of ambient shopping. We're seeing -- we still see a very hard market. So our intentions are to get to our calendar year 96 and literally, as soon as we can, if we get to that, depending again on weather, regulatory things, et cetera, we can very easily ramp up our media spend to grow. So it's really that balance of accident year, calendar year commitments.

Andrew Kligerman:

Tricia, you cited overall severity up about 10%. So I'm trying to unpack the pieces. You cited the repair category being the most severe. Could you specify a number around that? And the second part of it is, I noticed the Manheim Index sequentially up 8.6% in the first quarter. So that was a big move. How are you thinking about used car prices as the year moves forward?

Andrew Kligerman:

I see. And you've mentioned non-rate actions, particularly for Commercial. And I think you may have touched on it in Personal. But given the non-rate actions have kind of been a part of the practice for the last couple of years. Is there really much leverage there non-rate actions?

Operator:

Our next question comes from the line of Jimmy Bhullar with JPMorgan.

Susan Griffith:

Yes. We won't share exactly where we're pulling back, just like we don't share our budget and actually where our budget goes to whether it's mass media or digital. But I will say when we pull back on advertising, we have an incredible media book, and they will -- media group, and they will look at the most inefficient media and pull back accordingly. So that's something that we can dial up or down depending on what's happening with our profit margins. So -- but we won't share that. We can more easily turn local off if we need to, if we can't get right, et cetera. So that's kind of the approach we take to our media. We're really flexible and nimble as we've shown in the past.

Susan Griffith:

I think most of the regulators really do see and are watching these trends and it's not Progressive alone. It's definitely the industry seeing these inflationary trends continue. And so for the majority, as we show the data, they understand what we need for prospective rates. There's always going to be some challenges and we continue to have challenges. Like I said, if you take the 2 states on each coast that we always have a challenge with. But you know what, we're working with the departments of insurance to show and share our data and the need for it because in the long run, what we want to have is competitive prices. That's what makes our industry great, and we want to have available and affordable coverage for people in every state. So availability is really important. We know that. And so we're going to continue to work with the regulators to get that, but there's always a couple of states that could be challenging.

Alexander Scott:

First one I had is just on frequency trends. And I think they've run reasonably favorable for you all over the last 12 months and just how they've contributed to loss trend. So I just wanted to see if there was any sort of evolving view there and how that will play out and what you saw in 1Q, if you have any update?

Alexander Scott:

Understood. Okay. And as a follow-up, I just wanted to ask on bodily injury severity. If you have any update, if you learned anything through 1Q on that front. It sounds like the decisions you're making in terms of the ad spend and growth and so forth in rate or more property damage severity driven, but I just wanted to make sure that there wasn't more of a bodily injury component to this.

Operator:

Our next question comes from the line of Paul Newsome with Piper Sandler.

Susan Griffith:

Well, it's hard to discern distracted driving solely on its own because we look at so many different variables. And obviously, we have a lot of data from our usage-based insurance from our snapshot to kind of understand the different variables. And there's a relatedness to that. So if you think about distracted driving and how it could relate to hard break. So it's not -- so we don't look at distracted driving only. So we were just talking before the call on how many more accidents we see. What we can react to, though, is the data where we -- is exactly what we're seeing in terms of accidents, frequency, vehicle mile travel, the congestion. So we look at all of that to understand what's happening and react to that. But I wouldn't say I would have any really further commentary specifically on distracted driving.

Susan Griffith:

Yes. So our Commercial Lines, especially when you look at the reserving, is mostly in our core auto and very -- they're seeing very similar trends. And the trucking segment, those are expensive to fix as well. And from the perspective of reserving, we're seeing a little bit more late reports in our reps. Our case reserves are just strengthening from the rep perspective, but pretty similar trends.

David Motemaden:

Tricia, just on roughly 10 points of rate that you need to take, I think that's in addition to the 4 points that you already took this year, but correct me if I'm wrong on that. Could you just talk about how much of that is -- you had mentioned a catch up versus just what's needed to keep pace with trend?

David Motemaden:

Got it. And then just it sounds like you guys are still intending to grow and still feel pretty good about growth despite the lower ad spend. Am I right to interpret that when you think about how the rate adequacy you're not that far off on your existing -- on the existing prices out there and so you feel good about that dynamic?

Patrick Callahan:

Yes, just a little other color commentary on Q1's growth. So half of the incredible new business growth we had was from conversion improvements. And in the agency channel, it's more like 3/4. So when you talk about how competitive our prices are on the street, that's a pretty good indication that even with some media pullback, we will continue to have strong competitive rates and with higher levels of ambient shopping, feel pretty good about continuing to grow the business.

John Sauerland:

David, on your question on catch-up versus forward looking. Our pricing is always forward-looking. And as we mentioned and Tricia's introductory comments, we clearly were a little off in terms of severities for fixing cars coming into the year. And that obviously was dialed into our indications. We've seen additional data points, as she mentioned, and we are dialing that into our future trend selects. There was also a discussion around Manheim. Our projections around Manheim, if you look back, for it to come down more aggressively than it has. It has been -- car pricing, in general, has stayed higher than we had anticipated a while back. That all goes into our future trend selects when we are doing our pricing indications. We've obviously dialed those up recently, and that's where we've arrived at the conclusion that we need to get more aggressive on rate.

Tracy Benguigui:

Since higher severity and auto physical damage was a key driver behind adverse development in the quarter, can you reconcile how you got comfortable lowering your view of auto physical damage loss trend this quarter to 15% versus 20% last year?

Tracy Benguigui:

Yes. In your Q or your K, you break out all the components, the loss trend. So within severity, I just noticed in the Q, auto physical damage was up 15%. I look at the 10-K, it was 20% last year, but directionally, it looks like it's down, doesn't seem to reconcile with the comments made earlier on the call and adverse development taken in the quarter. So I just wanted to understand why you took down your view of loss trend within auto physical damage?

Tracy Benguigui:

Okay. And so would 20% even be the right number to think about for last year, given all the adverse development you've taken in that accident year or it's not correlated to given what you just said?

Operator:

Our next question comes from the line of Josh Shanker with Bank of America.

Susan Griffith:

Yes. We're going to use the similar levers, and that's why I tried to answer in my opening question-and-answer session. At that point, regulators -- we were ahead of the curve, ahead of the competition. So regulators were still, I think, worried about the effects of the people giving us back with the COVID, et cetera, which I'm very proud of all that we did with that, but very similar levers that we used last time. I think also what we're seeing now, though, is that it's a very hard market. So I think both Pat and John talked about the rate increases that our competitors are taking, which is still causing some shopping. So even though we'll use similar levers, we've been able to grow, like I gave you some of the stats first quarter. And so we believe that, that may continue depending again on what competition does. I think regulators started seeing way more companies come in with very similar data, and they know that if they want to have available coverage for their constituents that we have to put this through the system. It's just -- it's the bottom line, what we're seeing from an inflationary trend.

Susan Griffith:

Yes, you probably could. I haven't really done the math on that. But what we did is we looked at -- we looked at what we thought would be probable and estimable based on the thought of lawsuits that happened in a short period of time before the bill was signed. And again, that could evolve because some of those things may or may not actually happen. But yes, that math is probably pretty accurate. And again, that's something that will continue to evolve.

Yaron Kinar:

My first question, looking at just the tremendous growth we've seen quarter-to-date, can you maybe talk about the weighting of Sam's, Diane's, Wrights, Robinsons among those customers that were added? And even among new applications, like are those roughly -- is that distribution roughly in line with what you have in the in-force book?

Patrick Callahan:

Yes, that's right. From an app perspective, we saw positive growth in the quarter for new apps across all segments. And our fastest growth was really in the Wright and Robinsons and Diane's also grew. So Sam's grew just a little slower, but they grew as well. From a PIF perspective, we also saw positive growth across all segments during the quarter. So faster in the segments that are not Sam's, but...

Yaron Kinar:

And then my next question, I guess, goes back to I think several other versions of this question that were asked on the call already. And I'm just looking at comments coming into my e-mail over the course of this call. It seems like there is still some lingering investor confusion around what I would say maybe is the sense of urgency and aggressiveness coming from you talking about kind of the need to take some corrective actions. And the year-to-date data that we're seeing, mainly 95-ish combined ratio when we take out some of the reserve adjustments that we assume will not go forward. So I was hoping to maybe take another stab at that will give you another opportunity to maybe clarify some of that confusion.

Operator:

Our next question comes from the line of Michael Ward with Citi.

Susan Griffith:

Well, it traded positive on a trailing 3. It's still down on a trailing 12. We think trailing 3 is more indicative of what's happening. Again, that may and could change depending on the rate increases. That's usually what we see happen. The PLE is just our likelihood for our customer, the length of time our customers are likely to stay. So the trailing 3 is pretty -- is more recent activity. We'll have to continue to watch that trend to see if any of our rate actions affect that negatively.

Susan Griffith:

Absolutely. I'll have Jon Bauer weigh in. But I will say from -- we added the chart in on the Q for CMBS this year. And I'll say that Jon was ahead of the curve in terms of starting to reduce our risk in CMBS over a year ago. But I'll let him walk through why he did that and where we're headed from here. Jon?

Michael Ward:

Yes. No, that was tremendously helpful. Maybe just on what you shedded recently, recent quarters, did you trim California, Seattle?

Operator:

Our next question comes from the line of Ryan Tunis with Autonomous Research.

Susan Griffith:

Yes. I mean what we prefer to do is, obviously, we want to be ahead of the rates to achieve our target profit margins. We prefer to take small bites to the apple, which we did in first quarter, but then we saw the data change dramatically. And so for our future rate need, we believe at this point that around 10 rates is sort of the neighborhood of what we'll need on the private passenger auto side. So I think you're thinking about it. Okay. I mean what we said in the quarter is that we thought the largest rate increases were behind us, but this has been a really volatile time. And so we're just reacting to what we're seeing right now.

Susan Griffith:

John wanted to add a comment.

Ryan Tunis:

Got it. And then I've got a couple of questions on just whether or not there might be like some adverse selection going on. If you could just comment on like where you're seeing the loss trend, the issues in the book? Is it -- would you say it's disproportionately toward the new business that you put on? Or are you kind of talking about that broadly across the book?

Patrick Callahan:

Yes. The only thing I would add is -- the only thing I would add on the mix of business that we're getting in the quality is to the contrary, we feel very good about the quality of business we put on during fourth quarter and first quarter. We're constantly paranoid. We always watch and we look closely to ensure that the mix that's being shed by our competitors as they transfer market share to us, we watch closely, and we are seeing clean business. We're seeing homeowner business, as John mentioned, long prior insurance periods, multi-car. So it's exactly the business that we intend to grow with, and we're pretty happy with what we're seeing contrary to any adverse selection.

Operator:

That concludes the Progressive Corporation's First Quarter Investor Event. Information about a replay of the event will be available on the Investor Relations section of Progressive's website for the next year. You may now disconnect.

Doug Constantine:

Good morning, and thank you for joining us today for Progressive’s Fourth Quarter Investor Event. I am Doug Constantine, Director of Investor Relations, and I will be moderator for today’s event. The Company will not make detailed comments related to its results in addition to those provided in its annual report on Form 10-K, quarterly reports on Form 10-Q and the letter to shareholders, which have been posted to the Company’s website. This quarter includes a presentation on a specific portion of our business, followed by a question-and-answer session with members of our leadership team. The introductory comments by our CE and the presentation were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 90 minutes scheduled for this event for live questions and answers with the leaders featured in our recorded remarks as well as other members of our management team. As always, discussions in this event may include forward-looking statements. These statements are based on management’s current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today’s event. Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31, 2022, where you will find discussions of the risk factors affecting our businesses, safe harbor statements related to forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investor Relations section of our website at investors.progressive.com. To begin today, I’m pleased to introduce our CEO, Tricia Griffith, who will kick us off with some introductory comments. Tricia?

Jim Haas:

Thank you, Tricia. As Tricia mentioned, my name is Jim Haas, and I lead Progressive’s Personal Lines Telematics efforts. Today, I’d like to tell you about how we’ve built on that long history in telematics that Tricia discussed starting with how we’ve continued to improve our core Snapshot program, then moving on to discuss how we can now bring in data from outside sources to improve rating accuracy during the new business quote. And finally, wrapping up with the discussion of some value-added services we’ll be bringing to market soon. First, let’s recap how our program has worked for a number of years. Individual states may vary a bit, but I’ll describe here how it works in most places. We or the agent present the customer with the offer to enroll a Snapshot during their initial quote. If the customer elects to sign up, we’ll receive an immediate discount of up to 10% for participating in Snapshot that will be applied to that quote. So long as the customer stays in Snapshot, that discount stays on the policy during the whole first term. During the quote, the customer also elects whether they want to monitor using a plug-in OBD-II device that we send them or via an app on the smartphone. The customer then has 45 days to plug in a device or get the app set up. That point, all they need to do is drive. We’ll let them know how they’re doing along the way. Just before their policy comes up for renewal, we’ll use the driving data collected during that first term to calculate the renewal discount or surcharge. That rate adjustment will be included in the renewal quote and will be applied to future policy terms. At that point, the customer can delete the app or send us back to device and they’ll be done monitoring. I’d mention that the rate could go down or it could go up, that is we would apply a discount or a surcharge. But that’s not how our program started. In the early days, the program is structured a little bit differently, but a customer’s rate couldn’t get worse by participating in Snapshot. Customers could receive a discount of up to 30%, but the rate couldn’t go up, no matter how risky they’re driving look. Many companies still employ a model like this today. Of course, no rating variable in insurance only suggests giving discounts. It’s about segmentation and matching rate to risk. So, the data would suggest that some customers should see the rate increase while others should see a decrease. While only offering discounts might encourage more people to participate in the program makes the economics a lot more challenging and limits the accuracy of the overall pricing. And we all know that pricing accuracy is critical in auto insurance. So, starting in late 2014, we began introducing a surcharge. We set our factors so that about a fifth of customers received a surcharge, a share that we’ve kept about the same over time. The surcharge was small at first, but started us on the path to greater accuracy. It’s also when we introduced the participation discount, which is down 10% in most states. Over time, we’ve moved the price closer and closer to what the data would tell us, first, by increasing the maximum surcharge from 10% to 15%, then increasing it to 20%, and finally, to where we are today. We offer larger discounts than we did in the past, now of up to 30%. But we also have larger potential surcharges than in the past too, now up to 40%. We’ve come a long way since the days of only offering a discount, but it’s important to note that about 75% of customers still receive a discount and only about a fifth receive a surcharge. Not surprisingly, we see better retention on customers who earn a discount and worse retention on those were in a surcharge. Renewal rates for the safest drivers who are earning the biggest discounts are about 6% higher than average, while they’re about 16% lower for the riskiest drivers who aren’t receiving a discount. So, the program systematically helps us retain lower risk drivers and shed higher risk ones. And because of the changes we made to our Snapshot pricing over the years, were more accurately priced than ever before on those customers that do stay with us. While these changes have certainly improved the accuracy of our pricing, there is still a limitation to our approach. We only use data from a single term, typically 4 to 5 months to set the price for the life of the policy. This made it so we wouldn’t know about material changes in an individual’s driving behavior would lead to less accuracy over time. We had experimented with a continuous program a long time ago, back in the late 2000s. At the time, though, consumer acceptance of telematics generally was still growing and collecting data on an ongoing basis was quite expensive. So, we decided to move forward with a partial model. Things have changed a lot since then and in early 2022, we started migrating to a continuous version of Snapshot. The basic process isn’t all that different. Customers still choose whether and how to participate in Snapshot during the quote and they still receive a participation discount. They still have 45 days to plug in the device or set up the app and then they can just drive. The difference comes after the renewal. As instead of sending the device back or deleting the app, we ask them to continue to monitor, and we’ll adjust their rate at each renewal to reflect their more recent driving. Additionally, that participation discount is larger now at 15% instead of 10%, which encourages more people to participate in the program. Having more recent data also improves the predictive power of UBI, which means we can price even more aggressively. We’ve increased the size of the maximum potential discount to 45% and the maximum potential surcharge to 60%. We’re one of the few companies to combine a continuous model with the possibility of surcharges. As of the end of 2022, we had deployed this new continuous model in 12 states, representing over a quarter of our net written premium and plan to roll out to most of the rest of the country during 2023. So, while we’ve been steepening these factors and requiring longer monitoring to make our pricing even more accurate, what’s happened to take rate? The answer is that the share of our personal auto customers participating in Snapshot has moved steadily upward. In fact, it’s up nearly 40% across both channels combined since January of 2019. So today, more people participate in Snapshot than ever before, providing data for longer periods of time that we can use to price more accurately than ever before. So, that’s the update on what’s been going on with our core Snapshot program, which provides great incremental segmentation over what is available via traditional rating variables on renewal policy terms. Now, I want to talk about how we’re working to bring this pricing accuracy to where it’s most useful at the time of the new business quote. Since in this scenario, the customer is only now just coming to us will have to use telematics data that was collected by others. Our long telematics experience has helped us learn how to use this data and how to make it predictive. We currently have two initiatives in market. The first is a lead generation program that works by inviting good drivers to come and quote with us. While the other begins when a customer comes to Progressive directly to get a quote, and we find and incorporate driving data from third parties into the right we present them. Let me start with the lead generation program. Here, a partner like Credit Karma invites their customer to opt into collecting driving data to see if they could save money on their car insurance. In a privacy-friendly way where we don’t receive personally identifiable information, we can let Credit Karma know who’s likely to receive a discount so they can invite them to quote with us. Only when the customer chooses to quote, are we able to personally identify that data and are then able to apply that discount to that individual’s quote, improving pricing accuracy immediately. Our second program involves working with data collected by automakers. Over the last several years, more and more of them have been equipping their vehicles with technology to collect driving data. They’ve been working to show the value of these programs to their customers so that they’ll sign up to share that data with them. And we’ve been able to tap into that. When a customer comes to us to quote and their driving data is available, we’d ask the customer if they like us to use it to determine their price. They say, yes, we bring that data in and apply the UBI discount or surcharge to their quote immediately. Again, pushing that rate accuracy to where it matters most, the new business quote. Because of our long experience with UBI and in working with both OBD and mobile data and the fact that we attract so many insurance shoppers every year, we’re well positioned to execute and benefit from this. To be clear, automakers are in various often early stages of getting the necessary equipment into their cars and making this data available to insurers. Additionally, just because new cars coming off the assembly line have the hardware, it takes a long time for the fleet to turn over. So, this isn’t common yet, but we’re excited about the opportunity it represents. We’re already working with two of the largest double makers, General Motors and Toyota, and it’s clear that this population will grow over the coming years. Lastly, I’d like to share some exciting news that doesn’t involve using telematics data to more accurately rate policies but instead, builds upon our telematics heritage to provide a valuable service to our customers. Over the last couple of years, we’ve experimented with offering a service to detect and respond to major accidents to some of our Snapshot customers to learn if they value the service and to better understand how it could be useful in handling claims. We’ve been encouraged on both fronts as customers have consistently told us that this kind of service is something that they really do value and our claims representatives have seen a telematics data can help them settle claims more quickly and efficiently. Still, we know that despite how times have changed, there is a large segment of customers who don’t want their insurance premium to be based on their driving data. That means that if we limit this just to our Snapshot customers, we’d be leaving out a lot of others. So, in March, we plan to start making accident response available to all of our auto customers, not just those who were in Snapshot. We’ll use data from the sensors on the phone to detect when a serious crash is likely to have happened. We’ll reach out to the customer to confirm the accident and to see if they need help. If we don’t hear from a customer at all, and it seems particularly serious, we’ll request that the police conduct a well check to make sure our customer is okay. Since we know the customer’s location from the telematics data, we know just where to send them. We know there are other accident response services available. We think what we’re offering has several key benefits, though, that distinguish it. First, many services come at an additional monthly expense. Ours will come included in the policy. There is no additional charge. This adds value to the customer’s relationship with us and can become another reason to choose and to stay with Progressive. Additionally, while other insurers offer crash detection to their UBI customers, we’ll be making it available to all of our Personal Lines auto customers, whether they’re in Snapshot or not. Third, we’re deliberate about dispatching EMS. We certainly wanted to get EMS dispatch as quickly as we can when a customer needs it. But we also don’t want to waste EMS resources and bother the customer when they don’t. This can be challenging since the sensor data for a near miss and an actual accident can look awfully similar. So, we try to contact the customer more than once using different methods so they can let us know if there was an accident and if they need help. We only send help if the customer has requested or if we haven’t been able to reach them after several tries and the accident looks severe. While most customers in these accidents don’t actually need ambulance, many do need a tow truck. We’re able to build on our roadside assistance experience to meet this need. We understand that those are even more urgent than a typical roadside request. We can also help customers notify their family members. Lastly, after an accident, one of consumers’ top concerns is how to get their medical bills paid and how to get their car back on the road. As their insurer, we’re the ones positioned to help them get there. By detecting these accidents and having this telematics data able, we’re able to get their claim started more quickly and able to handle it more efficiently. In fact, if an ambulance or two is dispatched, we’ll actually get that claim started on their behalf. Let me show you an example. This is a real claim that was detected via accident response. In the loss pictured here, our customer was driving on an urban boulevard when they hit some ice, lost control of the vehicle for a striking barricade to their left before striking the barricade on the right. Fortunately, no other vehicles were involved. As you can see, the airbags deployed and there was pretty severe damage to the front of our insurance vehicle. In fact, this vehicle is a total loss. Additionally, our customer and two of their passengers were injured in the crash. Within 2 minutes of the impact, we reached out to our customer. While they didn’t response to our initial push notification, they did respond to a subsequent call from a live agent, which occurred less than 5 minutes after the accident that agent dispatched an ambulance and a tow truck to the scene. Only a few minutes later, the claim was filed. Altogether, it took only 10 minutes from the time of the accident to when we had a claim in our system. We’ve surveyed some of our accident response customers where we’ve gotten has some great feedback. For instance, this customer showed that they were “unable to call for help at the time but help called me.” This service helps us help our customers when they need it most. It’s not just the immediate response to the accident that can help customers though. Here is another example. This customer collided with another vehicle when changing lanes. We detected this accident as well, dispatched the tow for them and had the claim filed within 12 minutes of the accident. What I want to highlight in this case though, is that this customer had this accident just two days after buying their policy. Some of the first steps in handling any claim include establishing the facts of loss and determining if the loss is covered. Unfortunately, there are people who buy insurance after they had an accident and then try to make a claim for it. This means that honest customers are inconvenienced as we need to take the time to verify that the accident happened when they told us it did. That was pretty easy in this case, however, since we detected the accident in the first place and arranged for the tow truck to pick up the car, and we can see from the telematics data that the crash happened where and importantly when our customers said it did. Therefore, we were very confident that this loss did occur after and not before the customer purchased the policy, which let us move forward more quickly with getting the customer back on the road. So, it’s not just the accident response service self, but its promise to improve the claims experience that can benefit our customers. They’ve told us they value accident response, and we’re excited to make it available to them. We’ll start that process in March and expect to make it available to all of our personal auto customers over the next year or so. To wrap up, we’re not just jumping on the telematics bandwagon. We have decades of experience here. We’re clear-eyed about the challenges, but also see the great opportunities telematics offerings present. But this is just the Personal Lines side of the story. My colleagues in Commercial Lines have been developing their own approach about how to use telematics data in their markets, and Cory Fischer, who’s led Commercial Lines R&D for the better part of the last 10 years is here to tell us about it. Cory?

Doug Constantine:

This concludes the previously recorded portion of today’s event. We now have members of our management team available for -- available live to answer questions, including presenters Jim Haas and Cory Fischer who can answer questions about the UBI presentation. [Instructions] We will now take our first question. Stacy?

Michael Zaremski:

Hey. Great. Good morning and thanks for the presentation. A first question, Progressive’s personal auto accident frequency levels appear to be trending a lot better than the industry over the past year. I’m curious if you agree with that statement. And if you do, any thoughts on what’s causing the better than historical average trend line? And I know, clearly, a lot of this call was devoted to segmentation, Progressive is a first mover -- or one of the first movers in telematics. So, that theoretically should, I guess, improve Progressive’s trend-line versus the industry if I’m thinking about things correctly too. But would love to hear more about that.

John Sauerland:

I’d add a couple items on that. So I think Jim Haas’ slide where he showed the retention of customers who are getting a surcharge versus a discount is a great case in point of segmentation at work. So the folks who are getting a surcharge, all else equal, are going to be the higher frequency drivers and the folks who are getting a discount are the lower frequency. And obviously in the marketplace, as that continues to play out, that will help drive our frequency more favorable than our competitors. Additionally, we’ve talked about underwriting efforts we put in place as we were challenged by profitability. We’ve raised rates considerably as we’ve shared. I will note though that we have retained our underwriting restrictions fairly tight. So, we’ve been able to manage that in this very competitive environment to a point where we are able to maintain the underwriting restrictions, which generally speaking are pushing off the higher frequency customers and able to raise rates at the same time. So, I think we are in a pretty good place, both from the rate level perspective but also continuing to guard against segments that might be underpriced.

Tricia Griffith:

Yes. Sure, Mike. I’ll let Jim Haas talk a little bit more about that. But we think competition across the board, whether it’s with the OEs or with insure-techs is great. We also feel like when we have partnerships like Jim talked about, it’s really important and it benefits most importantly the consumers. So Jim, do you want to add any color to that?

Operator:

Our next question comes from David Motemaden with Evercore ISI. David, you have the floor.

Tricia Griffith:

Thanks, David. I will tell you I feel a lot more bullish than I felt about four or five months ago. We went through reacting to severity trends that frankly we’ve never seen before. I can’t predict what PIF growth will be because we -- there’s a lot of environmental things going on, and what I’ve learned over the last three years is to anticipate that there’s going to be things that we haven’t prepared for, whether it’s the used car prices, inflation, frequency, driving behavior, pandemic. That said, I believe we’re in a really great position as we sit. So, we said, we were going to start to take rate. I think, we foreshadowed that late ‘21. It took some time into 2022 to obviously start to earn into the book. We do feel good, but we’re always watching what’s happening and there’s been kind of an ever-evolving changing. So on the private passenger auto side, as you know, we took 13.5 points last year. We still have about 3 points of that to earn in, in this calendar year. And just for some color, we took 1.5 points in January. So, we continue to look at trends, and the future -- and the future trends and the rate need -- that we need now to match rate to risk. But that said, and John Sauerland added this on to the first question from Mike and that is what --we’re in such a good position now because we have -- there’s a lot of shopping out there, a lot of prospects out there because our competitors have been now raising rates. So, they’re catching up just and sometimes exceeding us. But we’re in just a different position, because we got out in front of it. So, there’s a lot of shopping, a lot of ambient shopping, which is really efficient for us. And what happens with what both Jim and Cory talked about, as well as other variables, we believe we have superior segmentation. So, we’re going to grab onto as many customers and obviously keep as many customers as we can for as long as we can. However, this timeframe in this hard market lasts, and of course that segmentation and the adverse selection flywheel works in our favor because of our many, many decades of investing in things like segmentation, competitive prices, our brand, et cetera. So, while I can’t foreshadow what our PIF growth is going to be, we are going to do everything we can to follow our longstanding goal of growing as fast as we possibly can at our 96 combined ratio and making sure we can take care of our customers.

Tricia Griffith:

Yes. I mean, I think from a cost perspective, obviously continuous is a little bit more expensive, but those costs have gone down over the years. But I think, what we’re excited about and what Jim talked about -- the excitement about is the services that we’re going to provide especially in some of the claims examples. So, we will continue to evolve like we have since 1996 with our UBI products. And we believe that we’ll continue to enhance our ability to out segment our competitors. What that means from the exact amount, we don’t know yet, but we’ll continue to monitor and I’m sure ever so often we’ll update you on where we’re at with our UBI offerings.

Alex Scott:

First question I had was just on -- all the potential new business just looking at the application growth and so forth. How is -- how does sort of the growth penalty from new business coming on look in this kind of environment maybe during prior periods?

Alex Scott:

Second question I have maybe a little more applicable to the telematics. When I think through this and the pricing advantage that it gives you over some competitors that are not doing it to the same scale or maybe even just to the industry broadly, I appreciate you probably don’t want to like quantify some of these things, but could you kind of talk to us about directionally has that pricing advantage that it provides, has it expanded because of some of the things you’re doing? Or some of these things that you’re doing just allowing sort of your pricing advantage to be maintained as others begin to do more on the telematics front but not to the same degree? Or is it sort of diminishing as more competitors are just like more broadly adopting telematics? I guess, just high level if you could talk about that.

Jim Haas:

Personal Lines side, yes, there is certainly more activity in UBI than there was 10 years ago, let’s say. We are just continuing to move our pricing forward, price more aggressively, take more advantage of that regardless of what anybody else is doing. We want to price as accurately as we can, and get as many people into that program as we can.

John Sauerland:

I’ll just add. So, over the history of the personal auto, evolution in telematics, early on, we weren’t pricing to the full curve. So, we understood that a lot of people should be receiving surcharges, and some people should be receiving bigger discounts. Because we were at the forefront and we are seeking consumer adoption, we didn’t price to that full curve. I think we are now very close to or almost completely pricing to that curve with the data we have today. However, as Jim was sharing, we can continue to advance the science, continue to pull additional data elements that can continue to have us leading the pack. So, our segmentation game is never ending. We are always trying to continue to advance, to find additional data to use that can keep us with a gap between us and the competition. And as Cory mentioned in the prepared comments with the slides, Commercial Lines is at an earlier stage similar to where Personal Lines was. We still have a significant loss ratio benefit in aggregate for telematics and Commercial Lines, which means, we have further pricing options that we can play as competitors come to market with their offering. So, I think we are in a great place from a telematics standpoint. We are not at all at the end of the journey. We are going to continue to evolve and continue to advance our competitive advantage, when it comes to pricing and telematics.

Operator:

Our next question comes from Andrew Kligerman with Credit Suisse.

Tricia Griffith:

Yes. I’ll let Jim talk about that more. Similar platform doesn’t mean we’re all using the same data or the same models or using the data in the same way. So one, it’s expensive to get into this. Over these last three years, we’ve invested a lot. So, you just can’t all of a sudden turn on, understand your data early on, it’s different. In urban and rural, it’s different with your other segmentation variables. But Cambridge is the platform, but we’re not all sharing the same data and outputting the same exact thing. Jim, do you want to add anything?

Andrew Kligerman:

Very helpful. And that’s pretty amazing, your accident response product, where you’ve got under 12 minutes to solve for some of the stuff on site. I’m wondering if you could share with us the fact that the impact on LAE and severity, any loss numbers? Anything you could share there to gain some insight into how that affects your loss ratios?

Andrew Kligerman:

Got it. And just real quickly, you mentioned 40% increased usage in UBI. Could you tell us the percent adoption, a percent of the overall book of business that you have?

John Sauerland:

I’d just add that. So in the direct channel, the take rate is substantially higher than in the agency channel. It also offers that in the commercial space the demand through the agency channel is very robust. So, we’re talking about, especially with Smart Haul, which is generally larger trucks that have higher average insurance costs, the benefit of enrolling in a program like this is substantial. So, agents and consumers or business owners in this case are way more likely to select that as an option and as Cory said is highly predictive in that channel as well.

Elyse Greenspan:

My first question, Tricia, goes to some of your initial comments, right? You said that future rate would be driven by loss trend. I mean, I realize that it’s a very volatile environment these days, but what are your expectations for loss trend when we think about 2023?

Elyse Greenspan:

And then on the UBI side, I thought most of this was opted into right for new business customers. And I know that’s where you just gave some of the percentage. If you’re at current Progressive customer at renewal or just during the length of your policy, can you opt in and choose to use a Snapshot product, if you want to try to lower your rate?

John Sauerland:

Yes. That was when we saw COVID driving down materially and made an offer to our existing customers to save through Snapshot and not many took us up on that offer. So it’s open and available. Customers can do it. They just haven’t taken us up on it significantly.

Jim Haas:

So when they opt into the program, it is -- there is only continuous. You don’t get to pick at that. Obviously, we can’t force them to continue to monitor forever. So, we’ve got sort of -- the program is designed around that and accommodates when people stop giving us data, if they do, but we certainly encourage them to continue to grow that data. The biggest discounts are available that way and the program’s design that we’d be monitoring continuously.

Tracy Benguigui:

Thank you. Even though you feel like you’ve approached rate adequacy in most states, I’m wondering, since you are growing quite quickly with lower ad spend, could you get away with getting even more rate? I mean, you did mention some of your competitors are exceeding you guys with rates. Do you feel like, it’s fine to be cheaper than some, given your risk selection?

Tracy Benguigui:

Got it. Could you also touch upon your initiative to raise retention amongst multiproduct customers that was mentioned in your filing yesterday? What are the key tenants to achieve that?