Progressive Corporation (The)

Welcome to the Progressive Corporation's first quarter investor event. The company will not make detailed comments related to quarterly results in addition to those provided in its quarterly report on Form 10Q and the letter to shareholders, which have been posted to the company's website, although CEO Tricia Griffith will make a brief statement. The company will then use the remainder of the event to respond to questions. Acting as moderator for the event will be progressive director of investor relations, Doug Constantine. At this time, I'll return the event over to Mr. Constantine.

Thank you to Tamara and good morning. Although our quarterly investor relations events typically include the presentation On a specific portion of our business, we will instead use the 60 minutes scheduled for today's event for introductory comments by our CEO and a question and answer session with members of our leadership team. Questions can only be asked by telephone dial-in participants. Dial-in instructions may be found at investors.progressive.com forward slash events. 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, 2020, as supplemented by our 10-Q report for the first quarter of 2021, where you'll 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. Before going to our first question from the conference call line, our CEO, Tricia Griffiths, will make some introductory comments. Tricia?

Thanks, Doug. Good morning. Welcome to Progressive's first quarter conference call. We appreciate you joining us. During our fourth quarter call, we took the opportunity to reflect on 2020 and the emotional toll of the pandemic and social unrest. now with the first quarter of 2021 behind us we look forward with the optimism that the vaccine rollouts bring and the hope of a return to normalcy our people are showing tremendous resilience in the face of hardships and a willingness to react to whatever comes next for the positive attitude which allow us to continue to deliver fantastic results this quarter our net premiums written growth was 19 and we report a healthy combined ratio of 89.3 All lines were profitable, with the exception of property, where catastrophic weather losses added 30.6 points to the combined ratio. Policies and force growth continue to be strong at 12%, and I'm most excited to report that we passed the milestones of 17 million personal auto PIFs, 5 million special line PIFs, and 25 million company-wide PIFs during the first quarter. I also want to point out that this is the first time since the second quarter of 2004 that we reported double-digit growth in personal auto, special lines, and commercial lines policies in force. We couldn't be prouder that so many people trust Progressive to protect some of their most important assets. I'd like to take some time to address the effects the pandemic will have on our year-over-year comparative results for the next several months. March was the first month where we saw the effect of the pandemic in our previous year's results, so it feels like a good time to give some further insight into our March 2021 results and to remind everyone of the actions that we took in 2020 that could affect our year-over-year comparisons. This quarter, we reported 14% new app growth in personal lines and 29% new app growth in commercial lines. The year-over-year growth reflects two items. the effect of the stimulus package, and a denominator that includes the onset of the pandemic in which shopping virtually stalled. Even considering the effects of the pandemic, growth is robust. We've often said that PIF growth is our preferred measure of growth. This is a great example why, since the denominator was only nominally affected by the pandemic. Last year's new business metrics continued to be affected by the pandemic well into the summer of 2020, though not always negatively. In mid-April 2020, the first wave of stimulus checks were released, which restarted new business shopping. We expect the uptick in shopping last year will affect our second quarter 2021 year-over-year new business growth. Also, starting in April of last year, we took actions to support our customers, including our Apron Relief Program, which we believe will have an impact on many key metrics, including our expense ratio. At the end of April and May of 2020, our personal auto customers received monthly premium credits of 20%, which provided substantial financial assistance to our customers, but also increased our expense ratio. In addition, as part of the Apron relief program, we initiated payment and billing leniency, which temporarily increased our bad debt expense, but also increased our policy retention. Both policy and force counts and retention metrics were affected by billing leniency. In commercial lines, our TNC business saw a sudden and dramatic decrease in miles driven and estimated future or miles to be driven in March of 2020, which contributed to the significant commercial lines net premiums written increase in March of 2021, as noted in our March release. Miles driven and thus premiums slowly recovered over the course of 2020, so we anticipate the effect on the denominator will decrease over the remainder of 2021. Our property results continue to be rocked by catastrophic losses. In the first quarter, which is normally a relatively quiet quarter for cat losses, property business suffered significant losses. Further, the hailstorms in Texas and Oklahoma that occurred in late April appear to be another large event. While it's too early to assess our ultimate exposure, I'll take this opportunity to remind everyone that we have an $80 million retention threshold from a single storm under our Occurrence Excessive Loss Reinsurance Program. We'll have more details on the late April events in our April release, which is currently scheduled for May 19th. I'd also like to take a moment to thank everyone who participated in the perception study we commissioned at the beginning of the year. It was encouraging to see all the positive comments we received and helpful to receive feedback on ways we can improve. One opportunity we heard loud and clear was the desire to return to the quarterly call format we had before the pandemic. one in which senior managers from around the organization would present on various aspects of the business we intend to return to this format during at least two of the calls each year starting with the august call where we will highlight commercial lines looking forward into the rest of 2021 i'm filled with a sense of optimism while the pandemic is far from over and we still have many challenges ahead of us i think pride in the strength of our business the resilience of our people, and have confidence that the plans we have in place will likely continue to deliver great results in the coming quarters. Thank you. And I'm ready to take the first question. Thank you. To be added to the question queue, press star 1 on your telephone. In order to get as many questions as possible, please limit yourself to one question and one follow-up. Your first response is from Elise Greenspan with Wells Fargo. Please go ahead. Hi, thanks. Good morning. My first question was on the frequency disclosure in the 10-Q. Your frequency was down for all coverages except collision in the first quarter. I was just interested in knowing why. Is it getting more color on what was going on? Yeah, we are actually assessing that right now. When we look at the gap in PD and collision, at least one other competitor had similar results. We believe in part it is due to our CWP rate being different in PD and collision. So right now, Elise, we're having Gary Tracost's group and our claims control group dig in a little bit deeper. The reporting is similar. CWP rate is different. So we're trying to discern exactly what that is. Okay, that's helpful. And then in terms of direct, you saw some pretty strong new growth on there. And you also saw, you know, strong renewal growth as well. So I guess my question is, is the new business penalty significant? And is it being masked by the increase that you're also seeing within your renewal business as well? I think whenever we acquire new business, we're obviously going to spend more for it in terms of both advertising, which you saw increased 25% of the direct sliding commission. So I don't know that the penalty is extraordinary. John, you can weigh in a little bit on that. The renewal, one, we're proud of our service and our rates. We know that some of the retention gains are likely due to what has happened during the pandemic in terms of non-cancellation, etc. But I wouldn't say that there's a big penalty.