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 has been posted on 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's Director of Investor Relations, Doug Constantine. At this time, I will turn the event over to Mr. Constantine.

Thank you, Emily, and good morning. 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. Questions can only be asked by telephone dial-in participants. The 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 events. additional information concerning those risks and uncertainties is available in our annual report on form 10k for the year ended december 31st 2021 as supplemented by our 10q reports for the first quarter of 2022 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 trisha griffith will make some introductory comments trisha thanks doug

Good morning, and thank you for joining us today. Anniversaries are a natural time to look back on the past, and since this is the first investor call of Progressive's 85th year, I wanted to do just that. We have grown from a scrappy startup trying to find a foothold in the Great Depression to the 10th largest homeowner's carrier, the third largest personal auto carrier, and the number one commercial auto carrier. In just the last five years, our total company-wide written premium has nearly doubled. Nowhere has growth been more remarkable than in commercial lines, which just passed the major milestone of over $9 billion in written premiums on a trailing 12-month basis. We grew commercial auto premiums over 200% in the last five years, all while generally achieving a better-than-average industry profit margin, and ended March just shy of 1 million commercial lines policies in force, It has truly been an incredible run with significant opportunities still waiting to be captured. Congratulations to the commercial lines team and thank you to all progressive employees and customers who have made the last 85 years so extraordinary. Throughout our 85 year history, we've worked through many hard and soft markets and we continue to address the hard market we're in today. While some indices suggest the value of used vehicles is leveling or even beginning to decline, used vehicle values are still significantly above those of early 2021. Steady but increasing trend in bodily injury severity has also contributed to the increase in loss costs we've experienced. Further, as the country emerged from the Omicron wave, we saw personal auto vehicle miles traveled recover to fourth quarter 2021 levels, which were in the 9% to 10% range below the pre-pandemic baseline. Our response to these trends have been to reduce marketing expenses, increase underwriting scrutiny, limit bill plan options, and in the first quarter, we implemented rate increases of seven points in personal auto that still need to earn in, which is in addition to the eight points we took in 2021. While we're making progress, we still have more work to do to ensure all of our states reach rate adequacy. Our rate and non-rate actions have had the expected effect on personal auto growth. While personalized PIF growth is still positive on a year-over-year basis, sequential PIF growth is negative. New applications are down year-over-year, and our policy life expectancy is also declining. When we look across all the metrics we track, it seems likely that we're ahead of our competitors in increasing rates, which explains a large part of our slowdown in growth. As we look forward to the rest of 2022, we're optimistic. As more states reach rate adequacy, we expect to be able to increase marketing spend and re-engage the growth engine. Because of the advantages we believe we have in the way we buy media, we can adjust marketing spend at the local and segment level, and in such a way to ensure the new business we write meets our economic goals. And since we believe we're ahead of the competitors in taking rate action, we hope to continue our long-term trend of writing more than our fair share of quotes. Even as we face these macroeconomic pressures, we have not slowed our pursuit of segmentation superiority. Our U.S. personal auto product model is now available in over half the states and is showing early promising results, especially among more preferred segments. We have also further expanded the footprint of our 4.1 homeowners product into four additional states in the first quarter, bringing the total to 12. Our new normal since the onset of the pandemic has been disruptions in the economy that has buffeted our business. While there are many paths the future can take, I'm confident in our strategy and our people and believe our greatest successes are still to come in the next 85 years. Thank you, and I'll take your questions.

To be added to the questions queue, please press start followed by one on your phone. In order to get to as many questions as possible, please limit yourself to one question and one follow-up. The first question comes from the line of Jimmy Buller from J.P. Morgan. Jimmy, your line is open.

Hi. Good morning. So I had a question first just on the pricing environment and the What your expectations are in terms of getting price hikes through all of the states? Because I think some of the states like California have obviously been reluctant to give permission to raise prices. Are you seeing any changes in that at all or do you expect changes over the next few months?

We still have some challenges in a few states, including the one you mentioned. And we're working closely with regulators to get the rate that we need. Our desire is to be able to be more open, to open up our bill plan options, to loosen our underwriting restrictions. And once we get that rate, we can start to have that growth engine move. So we've got a couple of states that we're still working with, a couple of big states that we've had some success in and why we feel pretty optimistic about the future.

And the reluctance of California and some of the states that have been difficult, is it just because of the strong results companies had in 2020 and early 21, or is there something else behind it?

Specifically in California, it's a little bit how they look back versus perspective. And so I think the data is showing that these are real trends, inflationary trends, and the need across the industry is very significant. And we want to be open for Californians, and we'll work closely with the regulators to make that happen.

Okay. And then just on the claims trends in January and February, do you think your business saw a benefit from the Omicron wave at all in the early parts of the first quarter?

I don't know if there was a huge benefit. Things opened up a little bit more, but still vehicle miles traveled and frequency is still below pre-pandemic levels. Would you want to add anything on that?

In January and February, we did see vehicle miles traveled drop a little relative to the fourth quarter of 2021. We've seen that since return in March, so a very modest benefit, if any at all.

Okay. And then just lastly, have you changed anything in terms of how you're investing in this environment, any sort of major classes that you're de-emphasizing or conversely where you're seeing good value?

I'll talk a little bit about our investing guidelines and then John Bowers on the phone. John, if you want to add anything, let me know. We've had a longstanding approach to our investing and that is we don't want to target a certain book yield or level of investment income for that matter. We want to earn the best risk-adjusted rate of return on our portfolio. And most importantly, John's team, their most important job is to protect the balance sheet. That way the operating company can grow as profitably and as fast as possible. John, do you want to add anything? Yep.

Thanks, Tricia. I would only add to that, you know, obviously the environment is pretty dynamic right now. and we continue to search out for good opportunities that would create long-term value for the portfolio, but always with a focus on, number one, protecting the capital and then getting the best total return that we can in the portfolio.

Thank you.

Our next question comes from Andrew Kligerman from Credit Suisse. Andrew, please go ahead.

Thank you. Good morning. Regarding the underwriting restrictions that you mentioned, could you give a little color on what in particular you're doing there?

Yeah, Andrew. First of all, I enjoyed your write-up last week. Welcome to PNC Insurance. And a couple of different underwriting restrictions. So we look at... We'll look at gathering additional data possibly if we have more questions on a customer. So we call it pre-binding verification. So we may ask a little more specifics to make sure we have the garaging adjust right and things like that. Do you want to add anything, Pat?

No, no, I think that's exactly what we do is, you know, when we want to be certain we've got all the underwriting characteristics accurately reported, we will have some additional follow-up questions for customers, both at new business and then occasionally at renewal. Additionally, we will put restrictions on how open we are from a bill plan perspective and other things. Just as we look at overall profitability, you know, we want to make sure we're getting the right rate for our new business customers at inception.

As a result of these initiatives, what percent of your book has ended up with a rate change over the last quarter and maybe even the last 12 months as you've gone through these underwriting restrictions?

Well, I think it's more of a entering in and getting the right rate at inception. So we've had a higher percentage of customers that once we have the additional information, we have blocked and they've likely gone somewhere else because we don't have the accurate information.

I see. I see. And any sense of proportion on that, Tricia, that you could give us, like how much of your book you're seeing that on?

Probably, I would say, of incoming quotes, probably double digits, low.

Low double digits, which is up from sort of half that when we were more comfortable with underwriting margins. So what we're trying to do here is ensure that every piece of new business coming in the door is going to be profitable for us. We understand that there's a distribution around our pricing. So on the tail, where we're less sure that we're going to make money, that is we're going to ask a lot more questions. And frequently, those questions lead to the customer seeking insurance elsewhere. That is more frequently the outcome than an adjustment in the overall premium because, frankly, Some customers are looking to achieve a lower premium by not answering the questions accurately. So some of these efforts are focused on that segment. By pushing that segment to our competitors, obviously we ensure that we're profitable, and to the extent our competitors do not employ such methods, it will affect our competitors adversely.

Got it. And just lastly, commercial lines, you noted in the – letter that it was a remarkable 63% growth. Is there optimism that you can continue to grow in the double digits and what would give you that optimism?

Well, that growth was significant for a couple different reasons. So we did grow double digits in all of our business marketing tiers and we still are growing significantly in FHT and our for hire transportation based on still a massive amount of goods being moved across the country since the pandemic. In addition to that, about half of that increase came from our transportation network renewals. So we had one of our partners, we went from six months to 12 months policy. So that obviously is significant. We increased our projected mileage, which is how we compute premium. So that was part of the increase. We had rate increases to reflect the inflationary environment. And fourth, we ceded less to our reinsurers. So about half that increase was in TNCs. So all that said, even if on the commercial, the BMTs that we have now, the five on commercial, even if they slowed down a little bit, The great part about what we've been doing, and you wrote about this, over the last several years is thinking about the future. So we just are getting going on our BOP, our Business Owners Policy Small Business, continue to grow. There we have 37 new states being rolled out and three new states actually this year. We have our fleet program where we've expanded the number of power units that we write from 10 to 40. We have the acquisition of protective, so medium to larger fleets. So how we think about really business in all, at least Horizon 1 and 2 for now, and ultimately we'll do that in Horizon 3 is, How do we continue to have growth even if maybe one segment of that business may slow down or may fluctuate based on macroeconomic conditions? So I'm excited about all the opportunities in commercial lines because we've spent the last four or five years investing in the future.

Thanks so much.

Our next question comes from Elise Greenstand with Wells Fargo. Elise, your line is open. Hi, thanks.

Good morning. My first question, I was hoping that you could quantify what percent of premiums the states represent where you think the majority of rate increases behind you. And then associated with that question, what gives you guys the confidence to make that statement about rate versus forward loss trend given there's just so much uncertainty still with full frequency and severity?

Yeah, I probably won't dissect all the states. I would say that we feel pretty positive that, one, we got ahead of competitors, which we think has been important in the past. And we're watching trends closely. I don't, you know, the crystal ball I wish we had, you know, would help us. But we'll watch those trends. We still, you know, are watching labor rates and some other indicators that could make us need to take more rate. I think the beautiful part is we got out ahead of rate that our hope is that the rates we take, if we need to in some states, will be less. Will be the smaller bites of the apple that we like to take. We obviously couldn't do it in this environment because the trends were so dramatically increased. But we think there's a few states we're working on. We think that the majority of the rate actions are behind us. And what we're really thinking about now is when we can pull the trigger on some of that growth. And Pat and John and I sit down with the controller from Personal Lines. Very frequently to talk about return to profit and return to growth in that order. And what we're looking at is literally state by state, channel by channel in the auto book and saying, OK, if if April results come out here. could we uh reduce underwriting restrictions could we open up a little bit of the local marketing and i talked in my opening comments about how we have the ability to do so in in each segment in each market because of the way we buy media so it's a complicated question and there's 50 shades of this and actually 100 because of the channels and that we're working closely to figure out when to do that but we feel confident and of course we have that seven points to earn in so

uh more will come to the story but we're watching things closely okay and then um my second question um you know as we've gone through this kind of this environment have you guys noticed any change with just snapshot and the take up on your ubi um product and then has there been any change in you know discounts that you guys have offered or the time period on that you guys are observing with your product

Yeah, we saw initially a pretty big increase in the take rate on the agency channel, which had been a challenge with us. So right now we sit at about 40% take rate on the direct channel, about 10% in the agency channel. And this, of course, is excluding California and North Carolina where we can't use telematics. So that blended amount is about a 28% take rate. We continue, you know, we have surcharges and discounts and, of course, participation discounts. And we continue to learn from those and really try to make sure that ultimately we try to price to the whole curve. And that's what we'll continue to do as our snapshot evolves.

Okay. Thanks for the color. Thanks, Elise.

Our next question comes from Michael Phillips from Morgan Stanley. Your line is open.

Can you talk about, I guess, earlier lessons learned from, I guess it's been about a month then since you've gone continuous in one state, kind of takeaways from that? Maybe what we can expect for that to be a national plan for you guys when that could be the case. And then just what does that mean for you? If you do go national for that, what does it mean? Is it a more accurate pricing there for better loss ratios, better growth? Just kind of talk about what that means for you.

Yeah, it's literally been in one state, Oklahoma, for 30 days. We'll have to answer that question of how it's going maybe next quarter, the quarter after that. We like continuous because, especially as we thought about the pandemic, it's more responsive in change to driving behavior. And we think we can, you know, the costs have gone down over time on both mobile and the dongle, and so we thought it was a good time. And, you know, we have – I hope that Oklahoma will be successful and that we'll continue to roll that out once we have more data.

Okay, thanks. Second totally unrelated question. What percent of your new customers, when they come in the door, start off by going online and end up switching from online to actually using the call center from you guys? And I'm wondering – Is there any near-term opportunities you can take advantage of given some of these funds from pre-globalized competitors, what they're doing in their call centers?

Yeah, I think it's a pretty small percentage. It used to be much larger, but I think our technology has gotten so much more sophisticated that more people finish the buy online when they're there. It's a small percentage. Okay.

Thank you, Tricia.

Thanks, Mike.

Our next question comes from Gary Ransom with Dowling and Partners. Gary, please go ahead.

Thank you, and good morning. I wanted to ask about claims counts and claims personnel. And you've had a lot of growth on the commercial side. Maybe it's a little bit flatter, but I wondered if you could talk to us about having the right people as things are changing rapidly and if there's any difficulty in getting the staffing right there.

Yeah, that's a great question. And, you know, over the years, we really spent a lot of time making sure that we think about centralization and consolidation, having the right file with the right representative at the right time. And we took advantage of the slowdown when frequency plummeted during the beginning of the pandemic to do the same thing on the commercial line side because it's such a different animal. What I would say is turnover is up, especially with new hires. And we're seeing that across the industry and across with entry-level jobs. That said, we've had this recruiting machine that is just amazing. enabled us to really continue to hire at a rate that helps us to get out in front of our growth. So we want to make sure that people are not just here, but they're trained and can do the right thing on behalf of our customers. I think one of the things that I'm most proud of that we didn't do was to reduce our claims force during the pandemic. We were severely overstaffed for several months, and Mike Seeger, who was the claimant's president at the time, and I made the decision that we just couldn't do it. We knew that this was for the country, not for our company, and that allowed us to have staff waiting and available when things picked up. So we're going to continue to hire in advance of need on both the claims and CRM side, make sure we have the right training in both the virtual and maybe sometimes in-office environment. We also look at, and this group reports to John Sauerland, our internal audit group looks at the quality of the files, and we have seen continued good results in that.

Can I also follow up just on going to Snapshot? I know you've talked on other times about using Snapshot and the claims process as well. Have you...

You cut out, but I think what you're saying is are you using that in the claims process? That's something we'll definitely consider as we think about continuous. We'll think about other services, and claims could be one where we could actually help with the investigation should our customers have that snapshot device.

So that's still a future thing you're looking at, nothing really happening now? Correct.

Yeah, we're testing all the time. That's what I would say.

Got it. Thank you very much.

Thanks, Gary.

Our next question comes from Josh Shanker from Bank of America. Josh, your line is open.

Thank you. During the repricing and marketing rationalization, the policy count growth in progressive property was still fairly healthy. I'm going to guess that you're not terribly interested in insuring someone's homes. They're not also going to give you the cars. Can you talk a little bit about the different experience in retaining Sam's versus retaining Robinson's and getting new ones over the past nine months?

Yeah, I'll take a stab at that. So, you know, SAMs have always been defined, you know, as shoppers. And so they're very rate sensitive. And so we know that our retention is going to be less when we crank up rates on the auto side. And that has proven to be true. And we've had less of a retention fall in the Robinson side. From the home perspective, we've been clear on our desire to de-risk and to get more of our non-volatile storm states more in the two-thirds of our book versus the 50% it is now. This quarter, we'll start to non-renew. The policies that we talked about in Florida, about 60,000 policies over the next year. And we continue to try to de-risk our portfolio. With property, it takes a little bit of time because there are 12-month policies. And it's also reflective of industry pricing. So I think you've seen the storms that have happened. uh in march and now again in april so a lot of it has to do with you know growth could be that you know right now it's still a competitive market because uh everyone's increasing rates but we're we're going to continue to increase rates and try to stay ahead of that trend and to de-risk our book a bit and so net net with the florida uh non-renewals uh obviously you're growing in 47 other states with fairly uh uh desirous um appetites

Should we feel that the deceleration in policy count growth overall for property or do you think that those two things neutralize each other and it will be hard for us from our perspective to be able to see that going through the numbers?

Yeah, I mean, our desire is to grow in the non-volatile state. So we're taking action to do so with more agents that are able to sell our property books. So it's hard to say. Again, that will be relative to what our competitors do. And in addition, I talked a little bit in my opening comments about our increased use of deeper segmentation. in the property product. We believe we have industry-leading segmentation on the auto side. Our R&D departments work closely together to get that same level of segmentation in homes. I think that would be really important. And in many of the states that we still have a decent amount of policies in, we've been able to you know have higher deductibles they have cost sharing and so that you know that this was not treated as a maintenance policy that you know just wait for that hail storm to come and we'll replace your roof and so those are some of the other things that we've changed i can't really you know look out into the future and know how we're going to grow in the non-volatile states but that is our approach and i think it'll take some time okay thank you very much thank you

Our next question comes from Greg Peters with Roman James. Your line is open.

Good morning, everyone. So in your answers, you mentioned eventually returning to growth. And I wanted to focus on the advertising piece of that. You know, your advertising spends down in a quarter or down year over year. I'm just wondering whether you actually need the lowest price to win the customer or, you know, put another way, you know, does the brand of Progressive get you to a customer win even if you don't have the lowest price? And, you know, when will the advertising spigot be turned back on if most of your rate increases have been, you know, are behind you?

I do think our brand would have this win in the marketplace and doesn't always have to be this lowest rate, especially for people that have had experiences with us. I remember years ago when I ran claims, we were really high NPS for those people that had claims because of the way we treated them when they needed us most. I think that makes sense. When we look at the difference between... agency and direct as far as, like, a PLE, we see that direct has gone down less, and we think that has to do with the brand. So, you know, what Pat and I talk about is really state by state, and we'll do some sensitivity analysis of if we turn on local marketing by X amount, X plus, X plus, what we think could happen to new apps, et cetera. We will only do that if we're sure we're in the position to start that growth spigot. So we are as anxious as anyone. We do not like having new business app negative. We want to grow. We want to grow as fast as we can. But again, profit is one of our core values, and that will trump growth. But let me tell you, these conversations are happening every day. And when we turn it on, we will feel pretty confident that we're in a good position to do so. Of course, things can change, and we'll always be, you know, we have to be nimble with those changes, and we'll be able to do that based on the data that we look at literally daily.

Got it. And my second question, I wanted to pivot. You talked about rolling out the new homeowners product. Can you just step back and tell us a little bit about that product and what differentiates it from what you were offering before?

Yeah, I'll have Pat take that.

yeah happy to talk about that so part of the segmentation that we need to enhance in the property side of the business is on the age of the home and the age of the roof primarily and we've just got better segmentation that we're bringing in as we expand that product over time there's also some coverage expansion that agents have asked for but Primarily, it's understanding the risk better and recognizing that the majority of our losses are coming from damage to the roof on that home, and capturing both the age of the roof and or the age of the home, or in most cases both, helps us better rate and better underwrite.

And just as a follow-up to that answer, does that mean that the older the roof, is there a depreciation schedule that you're applying? allowing the customer to buy out for roof replacement. I'm just trying to understand how that fits with what some of your competitors are offering in the marketplace.

yeah it certainly varies by state what we can offer and you know when we talk about a market like florida that limits our ability to price a depreciated roof accurately that's one of the challenges that we see in a market like florida but we do offer a depreciation or a you know effectively a roof depreciation schedule for customers so they're not I guess, incentivized to have that roof replaced when it's old and there's damage to it.

Okay. Thanks for the answers.

Thanks.

Our next question comes from David Motormaden from Evercore. Your line is open.

Hey, thanks. Good morning. Tricia, you had said you believe that the major auto rate increases are behind you. and obviously looking to turn on the growth. I guess just saying that the major auto rate increases are behind you. We still have seven points of rate that's going to earn in over the course of the rest of 22. How should we think about the auto loss ratio and when that will start to stabilize and eventually improve? Do you think that's a second half of 22 event, or how are you thinking about that?

Well, we just follow the data. So, you know, we watch as the rates earn into the loss ratio. And we have a couple of big states where we were able to get rate pretty quickly in, namely Texas and Florida. And so those are two big states for us. And so we'll watch those states closely to see when we think it's the right time to grow. And, again, we're watching all the macroeconomic factors that are going into the inflationary pressure, specifically with collision and property damage, to make sure those don't continue to increase. Think of labor rates and items like that. So we'll watch those closely, too, to make sure we have the right amount of rates to start the growth.

Got it. Thanks. And then I guess just thinking about maybe on that last point, just some of the severity factors and trends that you're observing throughout the course of the first quarter and then also your outlooks. Could you maybe break down how you guys are thinking about used car prices as well as labor is one that you mentioned and the outlook on those items as we move forward from here?

Yes. So we've watched, you know, we watched the Mannheim index pretty closely. And even though there's a couple data points that say it's flattened or maybe even gone down, it's still 35% higher than January of 2021. So there hasn't been a step function change and a drop in used car prices. In addition, we know accidents are happening at a higher rate of speed, so there's more damage. We know that parts are up over 12%. Labor's only been up a couple percentage points. We're watching that closely just because of watching the unemployment environment and how tough it is to hire in the industry and techs in the industry. And then because of body shop capacity, we're also seeing rental car extensions of several days. And so all those things kind of go into play when we think about severity on both collision and PD and that's why they're higher. I feel pretty good and pretty stable on the BI side in the last four quarters. It's been in the six to eight percent range. We'll continue to watch that. We've seen a little bit of attorney rep rate increase in some of the general damages, which are the non-medical damages increase. But we feel that that's at least stabilized over four quarters, but we'll watch that, of course. But those are the big drivers that go into the extreme sort of severity trends in collision and PD.

Got it. And as a follow-up, when you say that you're ready to move potentially to more growth and your rates, you feel like most of them are behind you, what is the severity view that you're baking into that statement?

The severity view. I think we're just looking to see if we can. The severity will be what it'll be in terms of what's happening from an inflationary perspective. So we're just pricing to that. And when we believe we can make our calendar year and lifetime target mark, the profit margins will start to grow.

It's important to recognize a lot of these decisions are made locally. So we have product managers who are responsible for geography and products, and they are obviously adjusting rates with their view and the pricing team's view of future loss trends. They take the rates up. And while they're fairly confident that the projections are right, normally you're going to want to see some results come in before you open up the spigots on the new business side. That said, there are harsh geographies now where we have done that, but there are also a lot of geographies where we have either not gotten the rate we need, such as some of the large states we mentioned earlier, or we're still a bit tentative on understanding if we have taken enough rate such that we can open up the spigots. So it really is a day-to-day PM state geography level decision on when to turn advertising back on, when to loosen the underwriting. But again, I think one of the strengths we have is that team of product managers who are considering everything locally. and making the best call, you know, again, on a day-to-day basis. So it's not something we can predict at the sort of aggregate level. It's going to come down to state-level decisions, and we're confident we're going to be making the right ones in each state at the right time.

Understood. Thanks so much for the call.

Thank you, David.

Our next question comes from Yaron Keener with Jefferies. Please go ahead.

Thank you and good morning. Excuse me. I was just curious, with the situation in Eastern Europe and Russia, it seems like some of the European OEMs have had some supply chain issues. Are you seeing that impact in the U.S. manufacturers or prices of cars, used cars, cars and so on?

Not really. We see the same sort of bottlenecks in supply chain with chips that happened before what's happening in Russia and the Ukraine. And so there's still some supply issues there, especially with new cars, and that has, of course, increased used car prices, but that was prior to this.

Okay. And then I think one of the comments you made around homeowners is that and your ability to grow is going to depend on the competitive environment. Can you maybe talk about how you see the competitive environment in homeowners outside of the southeast in Florida?

That's also sort of state by state as well, because if you go out west, there's issues in terms of fires, et cetera. So I think we look at each state, look at the proclivity to have major weather events, understand our segmentation more deeply and then we look around at the competition on you know on both the direct and agency side so we've got you know the not just the the agency side where we sell progressive home against you know some of the captives or bigger players but we also have the direct side where we have the opportunity to have progressive home as well as many unaffiliated partners. And so we have some advantage to get Robinsons that are not always on our paper as well. But we look across the country. We're trying to get to the more non-volatile states. We believe when we look at our results against the industry and non-weather in those states, we are very competitive.

And we have a great and broad distribution network in those non-volatile states that are quite committed to Progressive as a company they use in their offices. So our independent agents across those non-volatile states ensure a lot of Robinson. So we have access to a lot of that business, and we're going to spend more time going after. I know you sort of excluded Florida and the Southeast states in the question, but it's really important that there are solutions in those states that are viable for consumers and the industry. And it has been very challenging in some of those environments. And so we're working with regulators and legislators to find solutions because, you know, Florida specifically right now is a very disruptive market. Pat was talking about the liability of depreciating a roof in Florida. you must offer full replacement value on your roof in Florida. So it's very difficult to find solutions for homes that have older roofs that are not up to code. So, you know, we hope to obviously grow in the non-volatile states. We also hope for solutions in some of those cap-prone states that are, again, amenable to both consumers and the industry.

Thank you.

Our next question is from the line of Tracy Vendrigi from Barclays. Tracy, your line is open.

Good morning. Before declaring victory on rate adequacy with the exception of few key states, I'm wondering if you're seeing favorable seasonality in the first quarter like others are talking about, and if so, have you taken that into account when you say the majority of your rate increases are behind you?

I think our seasonality has been relatively stable as it has been in the past. I'm not saying we're winning, Tracy. What we're saying is that we believe we got out in front of our competitors with rate from the data that we look at. We're watching trends very closely, a lot of caveats to that. All we're saying is that With the rate we have from last year and the rate that we have on the street, we believe we're well positioned. Again, lots of caveats on making sure that we have enough and that we can grow and turn on that local media. So maybe in a quarter or two, we can have a different conversation, hopefully. But right now, we're still tentative. But we wanted to just give some color on the fact that we're really proud of our our rate-making machine that we were able to get out in front of that despite a lot of headwinds.

I hear your optimism, but I'm also just wondering, in some states, are you just simply reaching your maximum limit? Do you think regulators will allow you to take, or in theory, if you're choosing to take more rate, you could do so?

We look at the data and we look at perspective rates in terms of what we're seeing in trends. And if we need more, even in states where we have already increased rates several times, we will share the actuarial data to get the right rate to get to our profit target margin. And that's how we've always worked. regulators are thinking about their constituents because of all the other inflationary pressures. But this industry, it's been very clear, needs rate, has needed rate for some time since last year. And now we feel good that we're starting to get it in many of our larger states. So I'm just optimistic because we were able to have great conversations, great relationships in a couple key states and many states across the board with key regulators where they get it. They see the data, they understand it, and they know the worst thing you can do is not give the rate because then you're not going to have insurance available for their constituents. And ultimately, you're going to have to get the rate, so it's going to be over time, there'll be bigger rates in the future. So I think that's how it works, and so I am very optimistic.

Okay. And I know you make local decisions, but to any extent, are you taking any cross-state subsidies, like higher rates in states where you have success, to make up for rate inadequacies in states like California?

No, we have a very specific goal of not subsidizing and to have every one of our products in aggregate come to our 96 combined ratio goal.

okay i'm sorry just real quick you mentioned the 20 take up in telematics is that for new business only um if not what percentage of your in-force uses telematics the 28 is in force it's no new new i'm sorry new 40 new and direct 10 new in agency yeah and we don't report the policy for ubi i'm sorry Sorry, if that's new, what would it be for your in-force, which is a lot larger than your new business?

I think we were saying we don't share that.

We don't share that. Okay. Thank you for taking my question.

Thanks, Tracy.

Our next question is from Brian Meredith with UBS. Brian, your line is open.

Yeah, thanks. John, first one for you, just curious. Where do new money yields stand right now as of today versus your kind of book yield on your fixed income portfolio? And maybe perhaps you can give us just a general sense of how much your portfolio rolls every 12 months.

Thanks. I'll take that one. So I don't like to give too specific, but I would think in broad swaths, If you look at March 2022 in terms of where investments were inclusive of treasuries, it was about 2.5%, and taking that out on either side of 3%. Generally, as you think about a portfolio with a three-year duration and our size, I would think about every 12 months anywhere from sort of $6 to $8 billion of that portfolio rolling off. Great. Really helpful.

And then second question, I'm just curious, Trish, would you care to speculate or give us some sense of when you think California will actually start granting rate increases?

Oh, Brian, if I knew the answer to that, all I can say is we're working – Yeah, we're working with the regulators and doing all that we can because we want to be able to open up and we want to be able to have affordable, available insurance for California. It's the most populous state. We'd love to grow there, and we'll do what we can to do so.

Great. I mean, I'm just curious. Is there an amount of time that you're willing to wait to get those rate increases? Are you taking some pretty significant non-underwriting actions there to improve results right now?

Yes, we're taking very significant non-rate actions because of the inability to get the rate. And obviously, we'll work with the regulators to figure out the best thing to do for our mutual constituents. And we just need to continue to do so.

Great. Can I ask just one more quick one? I'm just curious. TLEs continue to drop pretty significantly. Is that reflective of kind of a change in business mix, or is that just the pricing environment? Just maybe remind us exactly kind of what that PLE reflects.

It really does reflect the pricing environment, and I talked a little bit about the difference in agency and direct, with agency being a little bit more elastic. And when we look at PLEs externally, Texas and Florida, they obviously don't drop as dramatically, which would tell you it's pricing because we got out in those two big states pretty early. I think that our holy grail is retention, but we also have to be priced right. We also know that some consumers are trying to figure out, you know, can they change their coverages or do things differently or add snapshot and things like that to reduce their prices. So I know in our CRM organization, we continue to try to grow what we call our customer preservation team. So they call in. and they're challenged to pay their bill because of increases. Can we work with them on bill plans, on coverage, to make sure they're obviously still covered, but to get them the right rate in order for them to stay? But it is reflective, the majority, with prices.

Just to reiterate a couple points made earlier in response to that question, we do see different elasticity by our consumer segments. So on the more preferred end, less elastic, and on the more non-standard or SAM end, far more elastic. So that obviously plays itself through into the PLE change. Additionally, as Tricia noted earlier, we do see a difference by channel. So some of that's because our agents have access to other markets and might proactively shop, but we also think there's some brand benefits. So we do see less degradation in the direct channel than we do in the agency channel. Very helpful. Thank you.

Thanks, Brian. Our next question is from Alex Scott from Goldman Sachs. Alex, please go ahead with your question.

Thanks. First one I had is just on the personal auto NPW growth. I think high level when we try to triangulate the PIF growth you're getting and the rate, the NPW growth isn't sort of showing as much of the rate flowing through as I would have expected. I'm just interested if there's any kind of mix shift or something affecting that or if there's any nuances to that that I should be considering.

uh yeah i would probably point to average written premium growth with the pricing increases coming in and i think that's reflective of our our new business growth in the overall growth a couple couple other comments on that uh so what we did mention we still have seven points a rate to earn in in our personal auto program so some of the rate we've taken has not yet affected the policies we report the written premium change So the earnings will affect combined ratio more so down the road. But if you look at the change in new average written premium versus renewal, you'll see renewal is up significantly more. So as we take revisions that are predominantly base rate revisions, those will flow through directly to all our renewal customers. On the new business side, people shop, so we won't see all that average written premium benefit for new customers perhaps at any time when we are taking rates up. So there's some timing issues there, but we're also – you know, cognizant of the new renewal mix and how that flows through in terms of the total average premiums. So we think the rate we're taking is definitely earning into the book. It's being accepted by consumers actually at a little higher rate than we've seen historically, which is also reflective, we think, of the market conditions. So we think the actions we're taking are absolutely resulting in the outcomes we're expecting.

Got it. Thank you. The second one I had is just on competition, you talked about some of the advantages you have and your sophistication with the ad spend. I'm just interested if you've seen anything as we've gone through the pandemic, which I think was a bit of a wake-up call to some of the more brick-and-mortar type distribution companies. Are you seeing more competition there? Are you able to execute that strategy to the same degree you've been able to in the past, even just thinking beyond where pricing is at the moment and relative to peers in the near term?

Yeah, and I would direct you back to our four strategic pillars that we talk about all the time and make sure that we invest in all the time. And I have seen our strength there. So the first one is our people and our culture are our most important competitive advantage. so during the pandemic we have really made sure that we are connecting even if it's virtual to our employees i continue to do every new hire class i am out about virtually and now more in person but people and culture are really important and it's important for people to feel good about being on a winning team the second we've talked about a lot is our brand so we're going to continue to invest in our brand and have some really great creative coming out end of this month or early June. And then, of course, competitive prices. We've been talking about that for the last hour. We want to get to where we are really competitive. So part of that is getting the right rates, but it's also that continuation of our superior segmentation and making sure that we care deeply about expenses so we continue to create expense goals for the future. And then lastly, and John had brought this up, is our broad coverage. So we're going to continue to be where, when, and how customers want to shop. And I think that's the key. So regardless of if people enter the independent agent channel or the direct channel, we've been in both for a long time. We appreciate both. We appreciate the fact that consumers have a choice of if they want to buy on their phone, their iPad, through an agent, through 1-800-PROGRESSIVE, and we're going to be there as they change, especially as we've invested more in Business Quote Explorer on the commercial side, Home Quote Explorer. So all those four strategic pillars really work hand in glove to make sure that we stay competitive. So I feel really great about our position in both channels and how we think about the future.

Okay. Thank you.

Thank you.

Our next question comes from Maya Shields from KBW. Your line is open.

Great. Thanks so much. Trisha, in response to an earlier question, you talked about the return to profit preceding the return to growth in conversations with the controller. Is that true on a monthly basis or is that a full year? In other words, if you're priced adequately but haven't earned it in all the rate increases that are in the market now, will that constrain growth?

Yeah, we'll look at timing of when to start, when to ramp up some local advertising. Remember, we haven't shut off our national advertising, so it's not like our brand isn't out there. So we still have some ability to grow. But, yeah, we'll look at the kind of pivotal time, right time of when we should start that growth, making sure that the rates in each particular state are adequate for us to reach our target profit margins.

Okay, so if there's some monthly combined ratio pressure because of lower prior rate. That's not an impediment to growth.

I understand. No, we are obviously managing to a calendar year 96 or better. So we have that as an objective function for sure, as do the product managers. But if they've taken rates up to where they think the lifetime combined ratio for new customers they're writing is adequate, they will likely err towards growing more. There is the consideration of the calendar year combined ratio for sure as well. But generally, if they think the new business customers they're writing today are adequately priced over their lifetime, they will be happy to go for growth.

Okay, perfect. Thanks. I apologize for not expressing the question well. Second question, on price sensitivity, Is that heightening the cross-area customer segments when overall inflation outside of car insurance is elevated?

Yeah, I'm not really sure if we know that. But I think what John was saying, too, in terms of elasticity, our renewals are improving on the elasticity side, which tells us that. And we do sort of histogram on decreases or increases to a certain percentage. We use buckets of percentages. And we're seeing more people, even if they're shopping, they're staying when they get their renewal, which likely means they can't find a better rate. That's the only thing we can look at with the data, but it's hard to say with all the economic things going on in the country.

Okay, perfect. Thanks so much.

Thank you, Myra.

Our next question is from Ryan Tunis from Autonomous Research. Ryan, please go ahead.

Hey, thanks. Good morning. I just had a question on, I guess, operating within progressive constraints. The plan historically has always been do a 96 or better and grow as fast as you can. The vast majority of the time, growth is easy because you're not usually close to the 96. But whenever you've gotten kind of close to the 96, like the second half of last year, it's been focus on re-underwriting, focus less on growth, all that. I guess I'm just curious – You did that before you were even at a 96 to avoid getting there. So after having gone through the first quarter when you did, and again, somewhere around a 94 on a group basis and above a 96 in personal auto, is it safe to say that sort of you have the same risk appetite that you did later last year?

Yeah, I mean, I think our standard and our operating philosophy hasn't changed. And remember, if we're reporting a 94.5, we're still looking at prospective rates and we're looking at trends that will be future over 96s if we don't do something. So the data is in a moment in time. We're looking at rate need ahead of time to make sure that we put that good business on the books for both a calendar year 96 and a lifetime 96. I think those constraints, as you call them, I mean, I think I call them just our operating philosophy, have worked well over the years. In fact, the first time we talked about 96 was in our annual report in 1971 when we went public. And it's worked really well for us. If you look at our long-term trend, it's nice to have that governor. It helps keep us disciplined around our pricing. It helps keep us disciplined around our expense philosophy. And it has built us to the number three personal auto carrier. And I can tell you, when I started in 1988, we were nowhere there. we will continue with that of course 96 is an aggregate so it doesn't mean that obviously our a new business on the direct side wouldn't come in at a 96 and there's other areas where the aggregate up to the 96 and I think it's been a great winning business model that's clear you know my follow-up was just on retention and

So retention has continued to actually hold up a lot better than I would have expected. And, you know, just seeing how much rate you implemented in the first quarter, yeah, I was just maybe wanting some clarity on, you know, of what you've implemented, how much it's actually been. I mean, showing you the customer, was that mainly a first quarter? But I'm just kind of trying to think of, like, you know, maybe that might be somewhat of a tailwind heading into the second quarter.

Well, I think, you know, it depends. trailing 12. I think trailing three is more responsive to our rate increases. And so, like I started to say before, we saw early results with our retention in some of the states where we took increases more quickly. We could still see a little bit of degradation again. A lot of that is relative to what our competition is doing. So if you're getting your renewal and you're and rates are going up and again that's why we try to get ahead of rates because if we can be stable which is what consumers want and they go to shop and now it's much more increased in with our competitors they're going to stay with us and then of course the new business we've been talking about for a while so we keep a close eye on retention especially because we've been really proud of the work we've done today over the many many years but we'll watch that closely and do everything in our power to keep our customers that we've taken so much to acquire.

Thank you.

Thank you.

We've exhausted our scheduled time, and so that concludes our event. Emily, I will hand the call back over to you for the closing scripts.

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 next year. You may now disconnect.