Progressive Corporation (The)

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 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-relation events often include a presentation on a specific portion of our business, we will instead use the 60 minutes scheduled for today's call 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 31st, 2024, as supplemented by our Form 10-Q for the first quarter of 2025. We 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 sections 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. Since the pandemic started in March of 2020, we've hosted 20 investor relations calls, and the common theme of those calls has been how our business is weathering uncertain and unique macroeconomic environments. The last five years has thrown challenge after challenge at us, and through it all, Progressive has not merely survived, but thrived. Following a fantastic 2024, we just delivered one of our best quarters ever with near-record margins coupled with record growth. As more challenges arise, including in the form of the macroeconomic effects of tariffs, I feel very confident in Progressive's ability to face the issues head-on. The momentum we had in 2024 carried us into 2025 and during the first quarter, we added new policies below our target acquisition costs and continued moving full speed ahead on growth with a focus on realizing our vision of becoming consumers, agents, and business owners' number one destination for insurance and other financial needs. Even though our competitors have reported improved profitability over the last couple of quarters, The shopping environment in personal auto has remained very favorable to Progressive. You may recall that the first quarter 2023 set the record for the most new personal auto applications of any other first quarter in our history. Well, I'm proud to say that the first quarter 2025 personal auto new applications surpassed the previous record by over 20%. Our results achieved because of both more quotes and a higher conversion of those quotes to a sale. More year-over-year quotes mean our customer acquisition machine is running efficiently, and strong conversion in both channels suggests very good price competitiveness. Growth is not just happening in personal auto. In property, we increased homeowners' policies and forests in the less volatile states and reduced policies and forests in the more volatile states. We are also continuing to significantly grow our renters' business. In commercial lines, although the trucking space continues to be challenging, core commercial auto new applications are up 8% year over year, and our business auto and contractor BMTs experience significant growth in new applications. In addition to growth, our personal auto and property products, as well as commercial lines, have year-to-date combined ratios below 90. a significant achievement considering the industry's challenges in property and commercial auto. Despite the significant turmoil in financial markets in recent weeks, as investors react to tariff and other news, I'm pleased to report that our balance sheet has remained strong. At quarter end, common equities were only 4% of our total portfolio, and thus far it has been largely insulated from stock market volatility. Additionally, we have been generating capital at a brisk pace, both from strong underwriting profitability and investment returns. For the quarter, our investment portfolio generated investment income that was 32% greater than the first quarter last year and averaged over $270 million a month year-to-date. We are still in the early days of the tariffs, and the effects may not be known until sometime in the future. The interconnectedness of global trade makes it even more difficult to predict where and how quickly the impact of tariffs will work their way through supply chains and ultimately our lost costs. Determining our rate levels is a prospective exercise where we try to predict future loss trends and other costs to be able to set appropriate rates to achieve our underwriting profitability goal. Since late 2024, our talented team of pricers, modelers, analysts, and actuaries have been modeling various scenarios to allow us to assess the impact of potential tariffs on our business to help us to be prepared to react as quickly as possible. In our fourth quarter 2021 IR call, we talked about our ability to gather data quickly, process it effectively, and react to it decisively. I believe we're better at this than anyone else in the industry. And proof of this is that over the last 20 years, periods of macroeconomic turmoil have often directly coincided with progressive, most successful periods. More recently, the inflationary environment of 2021 through 2023 proved that we were able to manage through rapid, unpredictable increases in loss costs and manage our calendar year combined ratio. I think that we have the tools, systems, and most importantly, the people to react quickly and effectively during times of market disruption. While I can't know what the future holds, I believe the odds are strongly in favor of Progressive to once again manage through whatever lies ahead better than anyone else in the industry. Thank you again for joining us today, 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 reentering the queue to ask additional questions. We will now take our first question.

The first question is from the line of Bob Hong with Morgan Stanley. You may proceed.

Hi. Good morning, everybody. My first question is on auto rates. So obviously, auto profitability has been pretty incredible, well ahead of your targeted 96%. Now, taking care of uncertainties into consideration, do you plan to take rate decreases in order to accelerate growth, or do you think that it's better just to keep rates static to maintain the current earnings profile. Curious on your thoughts on this.

Good morning, Bob. Well, as you know, we look state by state, product by product when we look at rates. And in fact, the last quarter, we took about a dozen states rates up and a dozen states rates down, but mainly flat. So we're going to do all we can to continue the growth engine. And so we monitor that at a very granular level. Obviously, we're sitting on some nice margin with an 86 combined ratio in the first quarter. And with the unknowns around tariffs, you know, we obviously have to think about that for future. But we are business as usual, trying to make sure we grow as fast as we can. And that means in some states, you know, taking rates up a little bit and some rates taking them down a little bit. I think the good thing is that we are back to where we wanted to be in terms of what we call small bites at the apple. We know that our insured like stable rates, we're going to do our best to keep it that way, but also continue with our growth engine.

Okay, thank you for that. My second question is on advertising, right? You significantly ramped up your ad spending for the quarter. If we think about the three major advertising channels, TV, digital, radio, and I can't believe I'm saying radio, but where is the most ad spending growth should come from going forward? Is there any specific ad channel that you think might be overly saturated and spending there might not be worth the dollars? Just curious your view on advertising spending as well as the competitive environment there.

Yeah, we always look at that. We have, you know, several business reviews a year, but one big one where we talk about all the different ways with which we want to spend. Clearly, digital has been, you know, up in the last several years because that makes sense where people go, you know, you said that about radio, but it works. So we look at everything. In fact, the funny thing you say is every time We have a business review. I talk about direct mail. But if it works and it's efficient, we use it. So we look at all of that, and we are not going to spend a dollar more than we think we should to acquire new business.

Got it. I'll be looking for the progressive mail in my mailbox.

You got it.

Take care.

The next question is from Milan of Rob Cox with Goldman Sachs. You may proceed.

Hey, thanks. First question I had for you was on new business penalty. I was just hoping you guys could talk about the impact of the new business penalty today in personal auto and the magnitude of, if that magnitude of that penalty has kind of changed over time. And I'm curious because it seems almost indistinguishable in the results at current combined ratios, or maybe it's being masked by mixed shift or something else.

Yeah, I mean, I think we definitely, when we reopened for business, or I should say when we sort of tightened up for business, we did see an increase in the preferred market. But, and I'll let Pat talk about this a little bit if he wants to, but I feel like, you know, we're always going to have the new business sort of penalty, quote, unquote. on the direct side because of the way we expense our business and our advertising up front so that first term is going to look much differently than the terms after that. But I feel like we're in a different position here and a lot of that I think is based on the size we are. Do you want to add anything, Pat?

Yeah, the only thing I'd add is, you know, first quarter is typically a strong growth quarter for us. And, you know, baked into our acquisition costs is the lifetime expense to bring a policy on board. So, you know, we are continuing to price to our lifetime cost. And, you know, yeah, when you grow quickly, there's a slightly higher combined ratio due to the expensing of that expense. on a quarter-over-quarter basis, it's not materially different, I don't think, than sort of what we've seen in the past when we've grown new apps 30% in a quarter.

Okay, got it. Appreciate the color. The second one I had for you was on policy life expectancy. You mentioned the strong growth in the quarter. And that was despite policy life expectancy a little bit lighter versus last time you reported it. Is that just more reflective of the increased shopping environment and that's more of an industry dynamic? Or is that being driven by something else?

Yeah, that's definitely part of it, Rob. What I would say is that, you know, PLE is pretty complex and there's a lot of things that can affect it. What I would say, here's a couple of inputs as we've sort of de-comped it. When we were closing, when we needed to get rated and we kind of tightened up, especially our underwriting appetite, That affected PLE from a positive perspective. Now we've opened up for business, which means our mix has shifted back to sort of where our normal mix would be. So think of SAMs that are inconsistently insured. Now I will tell you, we know SAMs, we know how to make money on SAMs, so we want all the SAMs we can get as long as they meet our target profit margin. So this is our roots of growing up a non-standard company. So that mix shift is part of it. You know, I think with the shopping environment, there's a lot of pressure on renewals, and that means people are shopping, which makes sense. And I think it's important for people to find the right rate, and prices are very competitive, which also means our insureds, you know, could contemplate shopping. So if our insureds shop and we are talking to them and doing a policy, We have a team called our Customer Preservation Team. We can walk through changes that might make sense for them, maybe bill plans, maybe deductibles. And as long as it's economically makes sense for both us and the insured, then we'll rewrite that, which kind of starts the clock ticking over. I think that's an important piece. There's a lot of noise in the policy life expectancy, not that it's not important. We want it to turn, and we think it's very important. But when we look at our sort of internal measure of our household life expectancy, that is showing a lot of improvement. And so we feel good about that. You know, I think in the end what I would draw you to is our growth, you know, the fact We grew 5.5 million pips compared to this time last year at an 18% growth rate. So I feel really good about our growth. We're going to continue to concentrate on policy life expectancy, continue to concentrate on making sure that we are obsessive with our customer service, both on the CRM side and the client side, and have competitive prices. And that's the most important thing we can do. But, yeah, you're right. A lot of it is based on the shopping environment that we're in right now.

That's very helpful. Thank you.

The next question is from the line of Mike with the BMO. You may proceed.

Hey, good morning. My questions are on auto loss costs. In the letter, you point out that part of the frequency decreases are due to mix towards the more preferred customer base. I'm curious, you don't call out severity being higher due to that mix shift as well. Do more preferred customers not have higher kind of, I thought, just more expensive cars and higher limits with more severity? I'm not thinking about that correctly.

No, I think you're thinking about that right in terms of severity and more coverage. Not necessarily expensive cars, but you have more coverage. What I would say, let's go back to frequency. What I would say with frequency is, as we sort of decomp that, there's a little bit of noise, and of course it's a quarterly data, but when we look at frequency, we would look at a couple different things that would affect it. And that would be both what you talked about from a preferred mix, which would decrease frequency, but also a couple things that increased frequency from our perspective. Some growth, weather, and our calendar year, we went to Gregorian calendar, that we equated to about a point of frequency. So that would be more in line with our trailing 12 frequency decline of about three and a half to 4%. So we do see that a little bit differently. Interesting. And this would be something to watch. Our OBD data from our usage-based insurance, the dongle in the car, showed for the first time since 2019, so take away 2020 because a lot of people were driving, since 2019 that vehicle miles traveled decreased, especially in trips that were over 100 miles. I think that's an interesting one data point for one quarter economically to look at. From severity, I feel like we're right in line with competitors on severity. If you look at our collision, it looks higher based on some sub and salvage recoveries that were very high in Q1 of 24. So if you take that out, it's about 2% gross recovery. So I would say the collision is in line with our PD on the severity piece.

Okay. That's helpful, Collar. I guess just a follow-up on severity. You may have kind of answered it now. If we think about the very long-term severity trend, I think it's low to mid-singles. Does Progressive have a view of new normal glide path is about the same over time, or do you think it's a bit higher due to lawsuit inflation or just mix shift, or just curious if you have any long-term views on that severity?

You know, we talk about it a lot, and obviously we react to the data as it comes in, and there's been so much volatility over the last five years that we've really had to react to it, especially with inflation. I would have never predicted that would have happened, but again, we reacted to that. Tariffs will be another, you know, sort of unknown, but we'll react to that and react to that quickly should we need to. I think the one place where we've seen severity increase across the industry is more on the bodily injury side. with, you know, just inflation, more attorney reps, higher medical bills, sort of the social inflation that we talk about a lot. And so we try to, you know, build that into our models as we think about the future as well.

Thank you.

Thank you.

The next question comes from the line of Alex Scott with Barclays. You may proceed.

Hi. Good morning. I wanted to see if you could dig a little bit more into the potential impact from tariffs, just to kind of frame for us how much that may or may not ultimately increase the lost cost trend, and if you could particularly touch on how you're viewing auto parts and just repair costs in general.

Yeah, absolutely, and this will probably be a longer answer to the question, but I wanted to give—I want to give you an insight of kind of how we're looking at the complexity of tariffs at such a granular level, and so stick with me. So I talked in February about, you know, tariffs are inflationary and they're one-sided to lost costs, and we care deeply about trying to understand the impact on our book of business. Oddly, last Monday I spent an hour with our national auto pricing manager. We went over the inputs and the outputs to the tariffs and had a great conversation. The work is extremely well done. And then Tuesday the White House said they would soften some of the tariffs, so change things in terms of stacking the steel and aluminum with the imported vehicles, as well as some rebates. on foreign parts that are assembled in the U.S. So that immediately changed some of the dynamics with what we were working on. So we take, you know, a bunch of raw data. So think of probability of occurrence, which is very high at this juncture, start date, market lag, time to, you know, full effect and the tariff rate. And then we take some components. So clearly USMCA compliance is a big one, price umbrella, parts sourcing, per coverage, cost decom. So that is just a handful of some of the inputs that we put into our model. Then we ran our entire fleet through the USMCA compliance to understand each vehicle and what we think the cost could come to. So let me walk you through a couple of examples. I won't give you the exact car, but car A basically assembled outside of the US, 1% US Canada content, the rest is German and from Poland and a couple other countries. So it's not USMCA compliant. So quick math on that is that 99% of that value should be tariff. So we know that for that car. Vehicle B, a little bit different, assembled in the United States, 50% US Canadian content, 25%. Mexican content. So it is USMCA compliant. So as of last Monday, it would have been 25% eligible to be tariffed. As of Tuesday, that first 15% was eligible for the rebate. So the effective tariff rate is 10%. So that's how surgical we're getting with our models. And it's a moving target, but we have to be nimble. And I think, you know, the big thing here is that the key is we've got to recognize as soon as possible when we see the data and take action accordingly. I do have to take a moment to shout out a couple of people. We have many, many people working on this. A couple people from our pricing team that have done an incredible job, Brad and Bruce, and Wencha and Nick from our economics team, they've been working feverishly as things evolve. And so we will be ready for whatever comes our way, but we have put a lot of thought and a lot of modeling into this and a lot of scenario planning. So I believe we're as prepared as anyone.

That's really helpful. Thank you. Next one I have is on disruption in certain states around homeowners markets and how it may benefit or detract from PIP growth. And I was hoping maybe you could talk about Florida and just sort of the healing process in homeowners and the impact that that's having on PIP there and sort of the opposite in California where it looks like things may get more difficult.

Yeah, and, you know, so I gave you a little bit of the sort of five-point plan for the blueprint for the future. We feel really good about where we're at, especially on the combined ratio side. We are sub-90 in Q1 in property, growing a lot in renters, and obviously we're taking our time to grow because we want to do this in the right way, and John and his team have done a fabulous job with that. Florida, we're still in the midst of non-renewing the 115,000 policies that we talked about a few years ago. It's been a little bit more time-consuming just because of moratoriums, but we will send out our last notifications by this May. So we're feeling—we're in a much better position in Florida. We have very little market share in California, and so that will be a place where we'll tiptoe in. But I would say that where we stand today with more bundling, with cost sharing, with exiting our DP3 program, with our agent incentives, we feel like we are in a much different position, and we're going to be able to open up the growth machine in areas where we think it's beneficial and where we get those bundled.

Got it. Thank you.

The next question is from Elan of Elise Greenspan with Wells Fargo. You may proceed.

Thanks. Good morning. My first question, I guess, is just a hypothetical based on tariffs. you know, if there's a state that's operating in a, you know, mid to high 80s combined ratio, and like, you know, you know, we're assuming right tariffs have a, you know, mid single digit impact on, you know, severity, all else equal, you know, how would you guys look to respond in, in that state? Would you or could you get rate approval, given right, that that's a, you know, pretty, pretty high level of profitability?

That's a great question, Alicia. I think, you know, one of the things that I did mention is we also have, you know, reached out to a couple of insurance departments because I think because our models are so granular and so refined, we want to make sure that they understand and can contemplate that for each state. Here's what I would say is, you know, we make a lot of decisions based on combined ratio, but is that state growing? Is it not growing? How can—you know, or—so to me, if there's a state in the mid-'80s and there's not growth, I would say that, you know, we could pressure test that to grow a little bit. But obviously we have tariffs in the back of our mind, and we know that, you know, that is something we'll have to react to. And we'll have to react to it differently in different states, depending on where that combined ratio falls.

Thanks. And then my second question, I was just interested if you could just, you know, provide, you know, kind of just some color on just the monthly cadence, you know, of your retention as you guys have been, you know, putting on new business and the industry, you know, has obviously been getting more competitive with Looking to Grow as well. Any color, just as you think about monthly retention levels that you can provide?

Yeah, I mean, I talked a little bit about that before. You know, we publicly talk about trailing three and trailing 12. I never like to see retention decline. But I think with some of the things we're doing, it's going to decline. So just opening it up to our SAMs and making sure that, you know, some of our customers, where we do policy reviews, rewrite, those things we're going to have. negative implication for the PLE actual number itself but not negative implications for our PIF growth and I think that's what we have to kind of balance out like I said we do have some data at a household level and that continues to improve again I I want to see that that trailing three for sure, move the other direction. So we'll continue to do what we can. But it's a really big shopping environment right now. I think that's good for customers and having those competitive prices are great for competition and it's a fun place to be in.

Thank you.

The next question is from the lawn of Michael Phillips with Oppenheimer. You may proceed.

Thanks. Good morning. I guess at the risk of the tariff topic being too much, one more on this one. I guess, Trish, I want to kind of hear how you think about the balancing of maintaining stability and rates for customers versus reacting fast to tariffs. And when I hear you say earlier today and throughout this conversation, continuing the growth engine and grow as fast as we can, it makes it seem like that maybe you're more inclined to keep the rates stable and let there be a margin impact versus reacting and taking rate increases?

Yeah, it's a good question because all those things come into play. So I think what I think about stability of rates, I think about just those small bites of the apple. Like I said, we took rates down in about a dozen states, rates up in about a dozen states, but kind of flat from the perspective of a point of points. So, you know, it depends on each state and if we think we can grow. And we look at that across the country. And each one of our product managers, you know, has the mandate to grow as fast as we can at or below a 96. We obviously, that tariffs are always going to be front and center because i don't want to have to increase rates like we had to a few years ago based on the inflationary factors that came into play with uh used car prices and parts so it's it's a balance uh we work on this literally every day to try to figure out the right way to grow and to to capture this um capture the market share while there's this competitive rate You know, we obviously, we like to be able to have those margins and still grow. So it's that balancing and sort of with stability, tariffs, growth, and combined ratio, it's just a math equation that we constantly work on at state level, product level.

Okay. Thank you. Second question. In the agency channel, you've talked about, maybe for a little bit, kind of the shift in 12-month and six-month policies. And I wonder, is that just a result of the increased shopping and different customer base, maybe Sam's versus the Wright's, Robinson's, or is that something intentionally you're trying to push through?

We do that for our preferred agents, our platinum agents that have our property book, because most people have, you know, the property is a 12-month policy, so we have that. You know, it's more for convenience for the agents that we work with, the platinum agents that we work with, in order to bundle auto and home.

Okay, thank you.

The next question is from the lawn. Oh, Jimmy Buller with the JP Morgan. You may proceed.

Hey, good morning. Um, so Trisha just, uh, it seems like your comments prepared remarks and answers to questions have been fairly optimistic on growth. But if we think about the fact that most of your competitors had been raising prices a lot and a lot more than you were raising prices, they were limiting marketing. And now at least all the public guys are. or back in sort of growth mode, why is it not reasonable to assume that you would see a slowdown in BIF growth, even if it remains strong, maybe not as strong as it has been?

You know, well, I think what you will see is a much more difficult comparison because if you look at the last three quarters of 2024, we grew a massive amount. That said, we are in a really good position. And, you know, like we talked about with our acquisition machine, we're going to continue that. You saw what we spent in the first quarter. We're going to continue to spend as long as it's efficiency and our cost for sales under our target acquisition cost. We have a machine that works really well in both channels, and so we're going to push the envelope as much as we can to grow. So I am bullish, and I'm very optimistic. And if I had to put a buck down on a horse, it would be progressive.

And then just obviously there's a lot of focus with your firm on auto, both personal and commercial. Can you talk about that? your long-term aspirations and in the homeowner's business and then in commercial lines outside of auto, just the trends in those businesses and where you see the best growth opportunities.

Yes, I mean I think homeowners we've talked about a lot in terms of our blueprint and we feel like we're in a much better position. And we know people are stickier when they bundle their auto and home. So we're going to continue with that. The great thing about homeowners is that about half our business is on progressive paper, on ASI paper, and half our business we work on the direct side with unaffiliated partners. And so I think that is a nice balance to be able to have some on our paper and some not. Our auto and renters bundle percentage is very high, over 75%. And those we call future Robinsons will hopefully be in our book of business. They're much more likely to get progressive home. And we continue to add partners in what we call our progressive advantage agency. So our long term is that we want to clearly make money in property, make sure we have more stability and continue to understand and deepen our level of segmentation like we do on the private passenger auto side. So I feel like we're turning a corner there for sure. On the commercial auto side, you know, what I love about our whole commercial lines organization is that it's very diverse in terms of our business marketing tier targets. And so I think we have a lot of opportunities. So when you see economically things change in, as an example, for a higher truck and for a higher specialty, we can then grow in our business auto contractor segment. We have a robust transportation network business, and we now have our BOP, our business owners policy, in 46 states. So we have a lot of different levers to grow in commercial lines, and that's really actually a very exciting part of the whole progressive portfolio. In fact, years ago, When my team and I sat down and thought about our growth prospects and our strategy, a lot of the focus, you know, one, the focus was let's grow the heck out of private passenger auto. Let's gain market share. Let's grow the heck out of commercial auto, even though we've been number one for a while. and let's figure out homeowners. But then, and that was kind of horizon one. In horizon two, we said, what are some businesses that, you know, we can evolve with? And most of them fell on the commercial line side. So think of our fleet business as an example. We used to insure 10 or fewer power units. We went up to 40. We bought protective to kind of, you know, fill out that portfolio. We created BOP. We have what we call Business Quote Explorer, which is similar to our Home Quote Explorer where we sell our products and the products of others to kind of have that small business owner feel really covered. So I think the runway in commercial lines is extraordinary, and Karen and her team are doing a great job figuring out exactly what levers to pull to make sure that we grow. And I wrote in my letter, you know, if you look at the combined ratio ending the year 2024 in the commercial auto business, it's over 111 combined ratio, where ours is sub-90. So, you know, people are going to have to take rate, and it may take longer because most are 12-month policies, and people are going to shop, and they're going to find a good rate and great coverage and great service in our commercial lines organization.

I could add a bit to that answer in saying you asked about our homeowner appetite. We think of it as our personalized appetite. Over around half of the personalized marketplace bundles home and auto, and our entry into home was to continue to grow in auto. So today we have low single-digit market share of the Robinson segment. And that is around half of the entire marketplace. So our appetite in home is focused on growing personalized households, which gives us a lot more runway in the personalized space. To Tricia's point on the commercial side, BOP is a marketplace that is several times the size of our commercial auto marketplace. We are number one in commercial auto by a large factor. And in BOP, we could have a runway that is very significant beyond commercial auto. So both of those entries, we think, create a runway for us for growth for decades.

Thank you.

The next question is from the line of David Moat Maiden with Evercore. You may proceed.

Thanks. Good morning. I had a question. Just if you could help me think through the improvement in renewal applications growth that's come at the same time that we've seen a decline in the policy life expectancy on a trailing three and trailing 12-month basis. Is that just the mixed impact that you were talking about earlier, Tricia, where like we're seeing the PLEs come down, but then overall the retention is, still okay given that, you know, call it roughly 20% growth in renewal apps?

Yeah, I think that's part of it, and I think just the stability of the rates kind of leveling out. I think, like I did say before, we had the pressure on renewals just because of shopping, but the renewals, you know, from not having to take big increases I think has been helpful as well. Do you want to add anything, Pat, to that?

Yeah, one thing I'd add is the renewals are driven by what happened six months ago, and we opened up pretty aggressively six months ago or nine months ago. So renewal app growth rate will be driven by new apps that show up. in that period. And PLE is a forward-looking projection. So we look at that to predict how long policies on the books today will retain. So that moves differently than the units that you see within our rule.

Got it. Okay. That's helpful. And then maybe just a question on the competitive environment. So, Trisha, I think you mentioned that, you know, competitors are in a good spot. as well, increasing advertising spend. I guess my question is, you know, are we close to a point where the market gets more competitive like we saw back in 2018 when I think that was the last time you guys and some of your peers started putting through price cuts? Or is there enough uncertainty out there where you think that that won't be the case? I'm just sort of interested in terms of how you're thinking about the competitive environment right now.

Yeah, there's still a lot of ambient shopping. So a lot of shopping is taking place, which is why we want to take advantage of our ability to spend on advertising and have that acquisition machine work. It is more competitive. We took rate well in advance of the competition, and now The majority of the competitors, I think, are in a good position. So I think that we're going to continue to push on advertising. We're going to continue to push our expenses down. That's a really big part of competitive prices, and that's another place that can help us fuel growth. We have taken half a point off of our non-acquisition expense ratio in LAE every year for the past 17 years. So as we think about future growth, David, we are going to, and in fact we're in the midst of figuring out our next, or actually designing our next three-year strategy. expense management, expense discipline is going to be a big part of it, because I think that will help continue to fuel our growth, as well as some of the investments we've made in technology to become a more efficient organization. So I feel like it is really competitive. Like I said, that's kind of where the fun begins. And, you know, we're going to do our best to continue to push on this growth.

Thank you.

Thanks.

The next question is from Alon of Josh Shanker with Bank of America. You may proceed.

Yeah, thank you for taking my question. I noticed your comment that you spent more on advertising in 1Q25 than you did in 4Q24. Always there's a nice surge in 1Q seasonally, it seems, for procurement of customers, but we only see the net numbers. And retention is getting worse is the efficacy of the spend the same as it was in 2024 or are you seeing diminishing returns, even if they're above your targets right now for what you need to acquire new customers.

Yeah, typically the first quarter of any year is a high shopping season, so we want to make sure we leverage that. We don't share our target acquisition cost or our cost for sale, but it continues to be efficient. Clearly with competitors coming in, it'll get a little bit tougher, but we still feel like we're an efficient machine.

Do you expect to spend about as much in the remainder of the year on media and advertising as you did in the last 12 months of 2024?

We will spend as long as we believe we can grow and do it at efficient cost. And as you've seen over the years, that's a lever that we can ebb and flow depending on where we're at from a profitability perspective. But as you can see, sitting at 86 combined ratio for the first quarter, we're sitting in a really great position to be able to continue to spend to acquire more customers.

And if I can sneak one more in, you know, we do talk about how retention has changed and we don't really know what absolute retention is. I feel like 2025 feels a lot like 2019 in many ways. How does the retention right now compare to past periods when industry had adequate pricing and there was a great deal of competitiveness in the market and willingness to except new business from competitors? Are we at the same level we were in that time, or are you better now than you were five years ago?

Well, some of our mix has changed with more of a preferred mix. And so when we look at retention, we look at it very granularly in terms of our mix of business. I would say we're probably, I don't have the data in front of me, probably about even.

Okay. Thank you very much for the answers.

Thanks, Josh.

The next question is from Milan of Meyer Shields with KBW. You may proceed.

Great. Thank you so much, and good morning. Tracy, you've talked about spending more on advertising. It clearly is paying off. When you have more competitors looking to grow, does the cost per unit of advertising go up, or is it just a matter of more advertising overall?

Well, you know, there's more people in the system, say, on digital auctions. You're going to have more competitiveness. So we just have to be where we think we should be to get new customers and not overpay for those. And so from that bidding perspective, yeah, there's a little bit more pressure on it when competitors are in. But we know that data very well, and we are able to bid on and efficiently spend to get new customers.

Okay, that's helpful. Second question, I think I'm just missing a step. Like you've talked about this still being a lot of shopping. Clearly, competitor rate increases are slowing down. Why do you think there is, I don't know if it's as much shopping as last year, or in the absence of significant rate increases, what's promoting more shopping behavior?

I think it's just easier to shop, and I think with all the other inflationary items out there, people are looking to figure out a way to save money. So whether it's, you know, at the, you know, eggs in the grocery store or insurance. And so, you know, people, because it is easy and you can easily shop, and if the prices rate switch, I think, you know, customers are just trying to figure out how to balance their own budgets.

Great. Thank you so much.

Thank you. The next question is from the line of Andrew Anderson with Jefferies. You may proceed.

Hey, good morning. Just looking within the property segment, I think you've made a note that like 30% of that business is going direct now. Can you maybe just talk about the customer appetite to go through that direct channel? I'm not sure if that was driven by a change in business mix, but it seems that that's up about five points year over year.

You know, we made that decision a long time ago. So, you know, we purchased American Strategic Insurance, now Progressive Home, mainly to get access to those bundled Robinsons in the independent agent channel. And that has worked really well. And we have, you know, our platinum agents and other agents that are able to sell those bundles. And that's worked well. But we knew even at that time, way back when, that we wanted our customers to have a choice. So if our appetite wasn't open in a certain geography, could we get that – could we get our customers to still, you know, have the auto with us at another person's home? So we have had what we call our – Progressive Advantage Agency through Home Quote Explore to have our product plus the product of unaffiliated partners. So we feel great about the growth there because, again, we get a commission on those policies and those customers retain longer. So we have about half of our Robinsons are with Progressive and half are with our partner carriers, and we feel really good about that. And we have great partners And it's a win for them and a win for us. So we'll continue that growth on both our paper and within our Progressive Advantage Agency. We continue to add new partners to make sure that we give our customers the ability to, you know, bundle the auto home.

Just for clarity on that 30% direct, so that is of the property business, the progressive rights. As Tricia was mentioning, we have unaffiliated third-party carriers that we work with through our direct channel, and that is a very significant business and growing rapidly as well. So when we talk about the... policies in force of Robinson's, we skew direct. That is where we started bundling with those third-party carriers. And increasingly, we have offered the Progressive product there as well. But by far and away, the majority of what we're selling direct is actually the third-party business. So the 30 percent is what is underwritten by Progressive going direct.

Yeah, if I could jump in just quickly on that with the industry trend. So your observation about direct-to-consumer home, and I think the question is, is there growth in direct-to-consumer home? Our answer is absolutely, and to John's point, that's where we're investing. So today, roughly 30% of auto insurance is sold direct-to-consumer. and less than 15% of property insurance is sold direct to consumer. So that gap exists in part due to distribution channel, but also complexity of the product, meaning homes don't have VINs. They're harder to quote in an easy direct to consumer experience. And we're investing to change that and to close that gap. And we think as consumers find an easy to use direct to consumer home option that affords the depth of coverage and breadth of carriers, we think we will capture an outsized portion of that growth going forward. So we're investing there, and we do expect it to continue to drive growth.

Thanks for that. And then, you know, as we kind of go into the second half here and into 26 and an increasingly competitive auto market, Does it change kind of where a dollar of capital is better deployed, whether that be the agency channel or direct? Because I suppose direct has been an outgrowing agency for a couple of years now.

Yeah, I think direct, you know, is influenced largely by our media spend. We want to grow across the board. And so, you know, that will, the timing could be different based on the competitive nature out there. And so, you know, clearly, if you go into an agent's office, you have a lot more choices, which we think is really great for We're going to continue to drive growth. We are the largest independent agent company out there, and so that's been a big part of our growth and our history. And in the second half, you know, we'll push the envelope on both trying to grow in the agency channel and having incentives to grow and in some event have the incentive to grow in the bundled business where we want to grow in our less volatile states, and Direct will be heavily influenced by not just price, but our ability to advertise.

Thank you.

The next question is from the line of Gregory Peters with Raymond James. You may proceed.

Good morning. One of the areas that's been tremendously impactful for you guys. Um, the last couple of years is just the investment income growth and they didn't spend any time in the Q and a section talking about it. So maybe you can give us some perspective on where you are with new money yields and book yields and how you're thinking about asset allocation as we look forward and considering your comments about the choppy market conditions.

Yeah, I'm going to let John Bauer, who runs our Progressive Capital Management, answer that. But the short answer is we, you know, we definitely have had new money come in that we can invest in greater yielding securities, and that's been part of it. I talked a little bit about it in my letter, my opening comments. But, John, do you want to give Gregory a little bit more color on that?

Sure, yeah. Thanks so much for the question. You know, I would just start with it's really important To understand with progressives model, what we're aiming for, uh, from a management and board perspective, which is to drive our return on equity over time. And so we think about that by starting with our, you know, operating business grows fast as we can at a 96. Uh, with our operating leverage on top of that, we have a really efficient capital structure. So think about our financial leverage, which has, you know, generally, uh, been in the 20 to 30% range. a little bit lower at the moment just due to our really strong comprehensive income growth. And then we think about assuming we have the strong capital we need. We're in a good, efficient capital structure position. You know, what type of investment risk do we want to be taking to drive performance over the long term? And for us, over the last year or so, valuations were not particularly attractive. And therefore, you saw as we came into this year, we had one of our more conservative allocations that we have with a significant amount of cash and treasuries. And as Tricia mentioned earlier, a very low amount of equities. As we've moved through last year into this year, we did raise our interest rate risk up a little bit, which you could see through our duration up from three years to 3.4 years. So as we sit now as a company, we feel like we're in an incredibly strong capital position with a portfolio that if opportunities strike, we'll have the ability to take advantage of those. But at the moment, we're incredibly patient. But what's been great with all of that is through the strong growth of the operating business, as well as the increase in yields in the market through risk-free yields moving higher and credit spreads moving wider. That's given us an opportunity to generate more and more investment income, and you've seen our book yield rise. But I do want to point out, different from many of our competitors, we don't really target a book yield. We're looking to drive as strong a total return as we can over time, and having that long-term focus really allows us to go through a period like 2024 where we can have a very conservative allocation to risk and wait for opportunities to come our way. Does that answer your question?

Yeah, it does. There's obviously more detail in there, but not appropriate for this conference call. I want to go back is just the last question for me. In your comments, you mentioned the dongle and snapshot is prominently featured. And I guess this is like a technology related issue. How many people are still using the dongle? I feel like A number of your competitors have switched from the dongle to like apps on the phone, the track movement, you know, data as well, if not better. But I just, you know, I'm surprised the dongle is still there. Maybe you can give us how much of the dongle is being used, the snapshot product is being used. I know you're rolling out your new 8.9 model. So some additional color there would be helpful.

Yeah, the majority, I'm not sure the exact percentage Pat might know, the majority of our new business is in our mobile device, but we still do have some on a dongle, which is helpful, you know, for, because it's getting data directly from the car, so it really helps us to tune and refine our models a little bit differently than the mobile device. But most of the new stuff is coming through mobile. Pat, do you know what...

Yeah, I don't have the exact percentage or mix on it, but you're right. When given the choice, consumers opt for the mobile app, and that does give us additional information beyond the hardware device and lowers the cost and that we're not shipping out devices and paying for a cell chip in all those monitored vehicles.

Are you just seeing an uptake in the use of the mobile device versus your historical experience, or is it just staying consistent, the levels staying consistent.

Well, we are seeing a higher take rate, particularly in the direct channel where we optimize the experience and where consumers are interested in saving money and getting rewarded for safer driving. So we think EBI as our most powerful and predictive variable continues to be a differentiator for us in market, and we continue to invest, leverage our scale, and leverage the technology to drive adoption and help that price more accurately.

Got it. Thanks for the answers.

Thank you. Those in the queue appear to be those who have already asked questions, so that concludes our event. Makiya, I will hand the call back over to you for the closing scripts.

Thank you. That concludes the Progressive Corporation 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.