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 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 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 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 Form 10-Q for the first, second, and third quarters of 2024, 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?

Good morning, and thank you for joining us today. I'd like to begin today by extending my sympathies to those affected by Hurricanes Helene and Milton. The scenes of destruction were truly heart wrenching and the human toll of these storms was devastating. As the cleanup efforts continue, I'm heartened to know that Progressive's excellent claims staff is standing by to assist our customers in their greatest time of need. In fact, I've heard countless versions of stories like the one I'm about to share with you. This is when our customers need us most and when we shine the brightest. My name is Anne Marie and my fiance is Timothy. We just lost our RV with this last hurricane, Helene. I've been in Tampa for two months sitting by Timothy's bedside while he fought cancer. I'm happy to say that he is in remission. I came back to Fort Myers Beach to meet with the adjuster, Ray. I would like to tell you about my encounter with this lovely gentleman. Ray was prompt, professional, and showed compassion for my loss of our home. He is the perfect person to be assessing the damages of one's property. I cannot say enough positive things about Ray. He is one of a kind and was a pleasure to meet under these horrible circumstances. Yeah, that's what it's all about. To my claims colleagues, you amaze me every day. Thank you from the bottom of my heart for all that you do each and every day. Turning towards results, the third quarter was one of our strongest in our history. Across our businesses, we added almost 1.6 million policies in force, the most we've ever added in a quarter. This brings the total policies added this year to nearly 4.2 million, truly a remarkable feat. The magnitude of this growth during the year requires increases in sales, servicing, and claim staffing, and our teams have met the challenge, enabling us to maximize growth while providing the quality experience our customers expect of us. Throughout the third quarter, we experienced very strong demand for our personal lines products across both channels. While direct channel new application growth responded almost immediately to our increase in media spend and the release of non-rate actions earlier in the year, as evidenced by the channel's stronger new business growth in Q2, the agency channel's growth potential wasn't fully realized until the last few weeks of the second quarter. The result is a third quarter where our growth machine was firing on all cylinders with clear results in both channels experiencing record levels of new applications. To date, the level of ambient shopping and personal auto remains very high, and we have capitalized on that. In Q3 2024, we spent more on media than in any quarter in our history. The result was a higher number of direct channel prospects than any quarter in our history, surpassing Q2 2024, the previous record holder. Additionally, conversion is strong, suggesting that we are well-priced compared to the competition. Though the fourth quarter, especially November and December, are historically lower in sales volume, we believe that we can continue to position ourselves to capture more than our fair share of prospects from the marketplace. The record growth is even more impressive when you consider our profit margins. Our year-to-date combined ratio through Q3 was very strong. Though the costs of Hurricane Milton are not reflected in our Q3 numbers, 2024 is still shaping up to be one of the best non-pandemic years in our history. Growing at our pace with record profits is a testament to the investment we've made in segmentation over the years. And we're not standing still. Our newest product model, which continues to add further segmentation in our personal auto products, is available in states that represent about one-third of our net written premium. You'll recall that in 2022 and 2023, the commercial auto market was impacted by many of the same inflationary pressures as personal lines. And in response to the rising loss costs, we took double-digit rate increases in 2023. In Q3 2024, we reported our third straight quarter of quarter-over-quarter improvement in our loss and LAE ratio for commercial lines. Our results in part from the rate we took in 2023 earning in, which is a slower process in commercial lines, since the majority of our policies are 12 months. Growth has been more difficult in that line as the softness in the truck market has offset solid growth in our other non-trucking business market targets. As our competitors catch up in rate, however, we are optimistic that we're well positioned for more growth in the future. The third quarter results in property were excellent at a 78.5 combined ratio after almost 30 points of favorable development on storms from the first half of the year and despite the 21 points of losses incurred by Hurricane Helene. However, two hurricanes striking Florida only a week apart underscores our need to risk adjust our property business. Our efforts here are evident with Q3 PIF growth in what we consider to be less volatile weather-related states of 19% compared to a decrease of 9% in the volatile weather states. Risk adjustment has been and will be a years-long effort, but we are making progress. As always, our goal is to have all of our reporting segments meet their profitability targets, and we continue to make headway in our property business with improved segmentation in our 5.0 product model and adjustments to our underwriting appetite. Ultimately, when I look across our results today, I see a huge amount of opportunity. While we can't know exactly what the future holds or what the market will bring, I believe that we are in a good position to be flexible and to react to whatever comes our way. The actions we take today are what position us for what we achieve next year. And I firmly believe that we are in a good position headed into 2025. While there will undoubtedly be challenges, I'm already looking forward to what I anticipate will be a great fourth quarter and a strong 2025. Thank you again, and I will 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 only be submitted over the phone by pressing star 1 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 re-entering the queue to ask additional questions. We will now take our first question.

Our first question comes from the line of Josh Shanker with Bank of America. Your line is now open.

Yeah, thank you for taking my question. We think about, and good morning. If we think about the idea of growing at a 96% combined ratio or better, as fast as Progressive can, is that a revenue premium number or is that a policy count number? I ask this because there are some who are considering Progressive's very, very good margins both for price cuts in the near-term future. But would Progressive cut price if it did not come with commensurate improvements to the policy count growth?

Good morning Josh. That's a good question. We we look at both when we talk about grow as fast as we can. Some of our internal measures success rates are based on our average PIF growth and we always talk about our preferred growth is our unit growth because trends can ebb and flow as you see in the last several years. So that's our preferred method. Obviously we want to stay ahead of trend and we know that retention is very helpful if we have stable rates. So we want to get as many new apps in the door as possible through our, you know, obviously our increased media spend, but then we want to keep those. And so I think it's a balance of everything. So premium, we always want to stay ahead of trend and make at least that four cents and unit growth. We want to grow as fast as we can, as long as we can service our customers in the way they deserve. Does that answer your question?

Are the margins, Yes. And so I guess more are the margins today so tasty that progressive has a view that they should be considering price cuts in the near term future?

Well, you know what, the price cuts, we will watch trend carefully. So like we said in the queue, we did about nine states of some price cuts, but we also had states that went up a little bit. So I think what I've talked about in the past is really, you know, we want to use, in the current margins we have, we want to use that to propel growth. So that will be the continued sort of march towards using our media spend to continue to have that organic growth. But we will see states and channels and products where we have to increase rates a little bit as well. We go back to that small bites of the apple where we just want to stay ahead of it and have those rates stable. But we believe we're really well positioned to continue to grow.

Thank you very much.

Thanks, Josh.

Thank you for your question. Our next question comes from the line of Bob Quang with Morgan Stanley.

Good morning. Maybe just a follow-up on that, but more on the competitive environment perspective. As we think about your ad spending and as we think about your advantages in pricing or competitiveness in pricing, but if competition were to intensify in 2025 and going forward, how effective do you feel the ad spending and then the pricing side will be?

expect that the incremental ad spend but the effectiveness of the ad spend maybe will come down a little bit like curious your view on this yeah i mean i think you know your competitors have taken this time to get their rates on the street and we see people coming back um a little bit not as quickly as we did obviously on the media side we'll always look at media from an efficiency perspective and we'll want you know if our if our cost per sale is still favorable to our targeted acquisition cost we'll continue to spend you know, to make sure that we get more customers and convert more customers. I think, you know, really how we feel right now with our current margins and where we're at, we're going to continue to push on media and push on growth. And we just feel like we're really well positioned because if, and we believe we're still in a hard market, people, consumers continue to shop, we're going to have those stable rates. And in addition, we've been spending, and it's a little bit further afield, but we've been spending money on not just getting business in the door, but some delayed response ads. So I don't know if you notice, I'm sure you do, either in my comments or my letters, I talk a lot about our culture and our people and who we are. And I don't know that enough people, consumers and customers, and our communities know sort of our purpose, that we exist to help people move forward and live fully. We've recently put out some ads we call Our Purpose Anthem to talk about progress. And progress isn't overnight. You should look up purpose on a page of Progressive in Google and you'll kind of see all the things we're doing. And so you're going to be seeing some ads with that that are a little bit more of a delayed response, but a response we believe will be nicely balanced with sort of who we are as a company that you want to be involved with. So we're excited about our growth. We love competition. Yeah, I think competition will continue to have the right rates and show up in media, but we're prepared.

In response to both those questions, the way we operationalize in the marketplace, our objectives there is for our product managers, and they are managing at the state and product level, and they are assessing the competitive landscape where we sit by segment. They understand elasticity by channel and by locale, and they're making the calls that level To decide what we should be doing with price obviously the 96 is the objective, but to the extent we can manage and grow a lot beneath that. Product managers are going to make those calls, so I think when you look at our performance over time, you see the aggregate of all those decisions at the local level. So I think that I understand the questions, but I think understanding how we operationalize that in the marketplace is really important to understand our model.

Okay. Uh, very much appreciate that. Thank you. Uh, my second question is on our retention. So if we look at your 10 Q commentaries, your, uh, for auto business, personal auto business, the policy life expectancy has been, uh, relatively elongated over probably more than a year now. Right. And then that's been stabilized. If I remember correctly, your pricing is relative to the expected life cycle of a policy. So if that life cycle were to stabilize going forward, should we expect that favorable contribution to combined ratio to be less pronounced going forward? In other words, is it right to assume that you'll probably need some marginal pricing as that life cycle kind of stabilized rather than continue to improve?

Did I lose you guys?

Excuse me, everyone. One moment as we reconnect the speakers. Once again, everyone.