Progressive Corporation (The)

Good morning, and thank you for joining us today for Progressive's first 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 a 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 scheduled 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 minutes scheduled for this event for live questions and answers with members of our leadership team. As always, discussions of 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 31st, 2023, as supplemented by our Form 10-Q for the first quarter of 2024, where you'll 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?

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 targets, we continued to flex in order to deliver on our calendar year 96 combined ratio goal. In our August investor relations call, I was asked if we should put aside our 96 target and instead capitalize on the perceived growth opportunity of the time. In my answer, I cited our core values and the belief that our strategy to put profit before growth would prove to be a winning formula. As we look back to the second half of 2023 and the stellar results of the first quarter 2024, we feel stronger than ever that sticking to the core values that has served us well for so long was absolutely the right call. By adhering to who we are, it looks like we have turned that page and we're now seeing the benefits of the tough decisions and hard work over the last several years since inflation took off. Our first quarter of 2024 has really set the stage for us to capitalize on both growth and profitability. During the quarter, net premiums written grew 18%, and we produced a solid combined ratio of 86.1. Our profitability was made possible from rate continuing to earn in from the rate revisions we took in the last year, seasonably favorable frequency, mixed changes in our book from the non-rate actions we implemented over the last two years, continued improvements in segmentation, and less prior year loss reserve development, among other factors. In personal auto, our calendar year margins mean we've been able to shift more focus into growth with incredible results. In the first quarter, we added over 900,000 policies in force, one of the best quarters in our history, and second only to the first quarter of 2023. We did this on the back of strong retention on our renewals and new application growth that is ramping up as we increase our media spend and pull back on some of our non-rate actions. During the first quarter, media spend was down 7% versus the first quarter 2023, and new auto applications were down 9% compared to record growth in the first quarter last year. The year-over-year gap in both spend and sales declined as the quarter progressed. When comparing March 2024 to March 2023, ad spend was up and new auto applications were nearly flat. We continue to see opportunity for growth as the market is still very tight. We have non-rate actions we are unwinding and still have a few states where we are working to get rate revisions approved. As we look forward to the rest of 2024, we will continue to seek to strike the right balance between efficient marketing spend, our calendar year profit targets, and maximizing our growth. In commercial lines, the first quarter saw better results as compared to 2023. Our core commercial business continues to run well with almost 10 points of rate still to earn in from revisions in 2023 and 2024. As a reminder, 90% of our policies and commercial lines are on 12-month terms, so it takes much longer for rates to earn in as compared to personal auto. The trucking insurance market continues to be soft due to macroeconomic factors, and as a result, we are experiencing year-over-year declines in policies enforced in our four higher transportation and specialty business market targets, while our other three BMTs are growing year-over-year from both a unit and premium perspective. In property, we continue to execute on our strategy to reduce our exposure to catastrophe-prone states, grow in states that have less volatile weather profiles, and improve the underwriting and segmentation of our products. Policies enforced in volatile states decreased about 5% year-over-year in the first quarter, 2024, and grew about 20% in the non-volatile states. We now have five states on our 5.0 product model, which improves segmentation throughout the product. While results are unpredictable, we shouldn't look too deeply into the results of a single quarter. As the uncertainty the last several years has shown us, it's difficult to predict where the future is heading. Given what we know now, however, we're encouraged about the future. Inflationary trends are showing indications of stabilizing, and we believe we're well positioned to capitalize on a marketplace that is still reeling from the profit challenges of the last two years. It's comforting to be able to report that we're pivoting to a more normalized operation, where in most states we can take small bites of the apple when it comes to rate and can focus on growth and increasing our market share. While challenges undoubtedly lay ahead, we're confident in where we stand today and look forward to maximizing our potential in the future. Thank you again for joining us, and I'll now take your questions.

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions. Questions can be only submitted over the phone by pressing star one on your keypad. In order to get to as many questions as possible, please limit yourself to one question and one follow-up. We also ask that you use restraint in reentering the queue to ask additional questions. We will now take our first question.