The Progressive Corporation — 2024 Q1

Yes. Bob, I think you know our retention is sort of our [ holy grail ] we continue to feel good about our trailing 12. Our 3 months is flat. We're going to focus now, like we said, like I just said in the opening comments on having more stable rates because that's really what consumers want. So will they go to shop, if the rate is better, then their option is to leave. We've got to make sure we have competitive rates. So as we think about growth, we just think about new business. We think about renewal business, we think about our service and growing PIF, the units of both new and renewals. So we'll continue to focus on that, focus on having more stable rates and continuing to be ahead of the competition.

We're going to focus on growth in both channels. But of course, you will see the trend in the expense ratio, specifically on the direct side as we start to increase media. If you look -- if you look at January, it was around 15 points. February was 17.5, March was in the 18 area. That was -- I was putting more and more pressure as the quarter developed on the media spend. Now when we look at we look at non-acquisition expense ratios and then as much as we can spend in media as long as it's efficient. So when we look at overall combined ratios, we're going to look at, obviously, at the type of business we're bringing on. We have a preference to bring on bundled business. And we believe we have the best segmentation model in the industry.

Yes. I think a lot of that comes from tax refunds and other things that happen in a yearly basis. I wouldn't necessarily think about that this year though, because even last year, we were growing, we are actually trying to kind of stop a little bit because of the pressures on our margin. I feel very bullish about our continued growth on both a premium basis -- unit basis, and that's a -- you know there is our preferred measure of growth. So it's all going to be about our ability to do a couple of things. We want to continue to roll back our nonrate actions, so there's -- we still have more levers there. We have the premium earning in and we believe that we're not going to have to -- at least at this juncture, the wide swath of premium that we had to get to our target margin and then our media spend to be able to have those margins.

I mean the figures have bounced around, depending on what's happening. Clearly, we're going to want to spend more. And in March, that was on an absolute basis, the highest amount we've ever spent in media. And so we're going to spend more on that as long as it's efficient. I think you want to look at the whole spectrum of what makes up the combined ratio. So we're constantly investing to push down both loss adjustment expense and non-acquisition expense. Figuring out ways with technology, with people, with processes to reduce those expenses, because we can give those back in competitive prices, and that's really important.

Yes. Sure, Elyse. I think at this juncture in its last year so, so many customers are getting their renewal bills and the rate increases that are playing through will cause you to shop. So we're always at risk losing customers when that happens. We knew that was a possibility last year as well when we were first to market, getting the rates that we needed on the street. So while we don't know exactly what the trailing 3 will continue to be, and it's on a lagged basis, we'll obviously inform you next quarter. That's really why we feel like we're in a much better position to take those small bites and take smaller increases just to stay ahead of trend.

Yes, I'll start. And Pat, if you want to weigh in, you can, if there's anything to add. At this juncture with the margins that we have, we do want to use our spend levels to our advantage as long as it's efficient. So like I said, we've got a lot of other levers. We've pulled back on many non-rate actions that still have room to go on that. And I think if we can spend efficiently in the states where we believe we're adequately priced, we're going to do that, I won't' say to the full capacity, but until we feel like it's inefficient to really leverage this opportunity to maximize on growth. Pat, do you want to add anything?

No, no, I think that's great. Thanks.

So I'd like to focus the first question on the customer relationship management organization that you called out in your letter. It feels, at times, like it's almost impossible to get timely service in so many areas compared with what we were used to pre-COVID. And so I'm wondering if you could comment on the CRM piece and the challenges you're having with the growth you're reporting and finding people and making sure they're compensated appropriately?

That's a really great question. And I should have brought that up when I think about the overall -- our goal is to grow as fast as we can, which we've been doing, $19 billion, [ $2.9 billion ] comparing quarter-over-quarter and 7% PIF growth. But the caveat always if we can support and serve our customers in the way they deserve to be supported. And that's a big caveat because, there have been times in our history where we've had to slow growth because of that. So a few years ago, we found it really challenging, both from a recruiting and a retention and a compensation perspective in our CRM organization. We made some changes in compensation about 2 years ago. We've invested a lot in the work environment and the digital capacity for our customers to be able to serve themselves should they want to.

Maybe -- in conjunction with that, my follow-up question would be one of the common areas that we're trying to figure out is how you're investing in technology, the generative AI, the large language models, et cetera. So I don't know what you're going to be willing to share with us on that front, whether what -- how much you're spending this year versus last year? Or how you're deploying these tools to make your company more efficient. But any color on technology and the emerging options that you have available to and how you're deploying in your company would be interesting?

Yes, absolutely. So what I would say is we have been investing well, let me step back -- Peter Lewis used to say, we are a technology company that happens to sell insurance. So everything we do has technology built into it. We have, I believe, again, a best-in-class IT organization. With that, we're always trying to stay ahead of the trends. So think of in the direct channel, think of usage-based insurance, all those things, even though they're -- they become actually a part of the product, they start with IT and our ability to have innovative technology.

Yes. I'll start and John Sauerland, you can weigh in. We are growing in one. But again, we want to grow across the board, so we'll continue that. Our property profile, as we talked about, we are rowing in what we would call growth states or more non-volatile states as far as weather, and we're shrinking I in the volatile state. So that's been a plan we put into place quite some time ago. A lot of this takes time. As I laid out last year, we're starting to see the over 100,000 homeowners policies in Florida start to non-renew that took a while because we needed to notify the customers and talk with the DOI.

1 model. So you need to -- if you write $1 billion, you have to have $300 million in capital. And then we have contingent capital in case something unforeseen happens, a big storm, financial crisis, and then we have capital even above that for that. And there's even more for home because it's more of a volatile product. I would say right now, we are in an incredibly comfortable capital position, which is another reason why I'm so excited about this growth. Do you want to add anything?

Sure. Yes. We are growing Robinsons more than the right now, and some of that requires our own home product, some of it doesn't. So in the direct channel, we sell a number of other competitors' home products. But for our own home product, as Tricia mentioned, we're growing a lot in non-volatile states, shrinking actually in volatile states. And when we look at our PML, so our probable maximum losses that's actually come down as a result of our shift. We also recently wrapped up our June 1 reinsurance renewals, and we are very comfortable with the risk we're taking there. And actually got slightly more competitive rates. So we feel great about that portion of our risk management program. And as Tricia noted, we have -- we're generating ample capital right now. We're growing a lot, certainly, at a $2.9 billion year-over-year in the first quarter. And of course, that requires significant but probably around $1 billion of regulatory capital. But we are generating that with underwriting margins to some degree as well year-to-date on investment returns. So we feel very comfortable with our capital level and our ability to grow as fast as we can, again, hitting those margins.

I couldn't really answer. I mean a lot, obviously, the first thing is first, we wanted to get off some units that we believe will not be profitable. And a lot of it, of course, from a loss perspective, depends on weather, which has really been the clincher for the last several years. And so that's why we're trying to make sure that we're just more balanced. We are still very large in Florida because we have a large auto base and we believe that we can win in Florida on both the home and auto and especially bundled, but we just need -- we were just a little bit too heavy there in addition to a couple of other states, which makes sense because ASI now Progressive Home was based and kind of grew in that area. But it's hard to think about loss ratios when I don't have sort of the crystal ball of what will happen with weather.

Property side. No, we haven't seen much. Those were mostly on the auto side. [indiscernible] There's a little bit on the property, have you seen much, Pat?

It's too early to tell on the property side, right? We've got different statute of limitations. We've got different kind of assignment of benefits that will play through the book over time, but not as immediate as we're seeing on the auto book.

Well, we know those shopping happens when rates go up. And I think it's a little bit different, I think, depending on the demographic if you -- when you read through the 10-Q, [ Sam's ] are much more likely to be shop sensitive because they're price sensitive. And so it's very different. When you kind of peel back the onion, you look at our different demographics as well. But we -- like I said in the last couple of calls, last year, we had seen inflationary factors like that. And so I'm not surprised that there's been a lot more shopping. And that's why the key is to get out ahead of the rate. It's short-term pain for long-term growth, and that's exactly what we did and why we're sitting in this position.

Tricia, you had mentioned ad spend was up in March, and it was the highest amount we've ever seen or you've ever seen, but the apps were flat. So it feels like -- I know there's some lag there, but I'm sure that some of the non-rate actions are limiting conversion. Is there any way to size how much of the country still had non-rate actions in place today versus 3 months ago?

Yes, David, that's a great question. And one of the other things you have to compare is our extraordinary growth in quarter 1 in 2023. So that comparison is really off because we were growing a lot. We really didn't want to be a growing as much because we didn't have the margin that we wanted. But that comparison is going to be hard as well. So that's the first factor.

Yes. I would say, as you broke it down, on the bill plan side, we are getting close back to pre pullback. And on the verification side, it really depends at the state level, right? We still have about 20% of our states where we have media off, which is a good indication that if we have media off, we probably still have significant non-rate actions or verification in place. But we have lots of, I would say, room to run as we unwind those across both channels throughout the remainder of the year.

Yes. And I feel like just even in the last couple of weeks or during the month of March, I feel like in some of the places where we've needed rate, we're starting to have some much more productive conversations.

Yes. I would agree. On the regulatory side, there's certainly -- we've had a couple of recent approvals, and we're getting more comfortable more of our calendar year premium earned in that margins continue to be we expect them to be on -- in more and more of our states. So that gives our general managers and product managers greater confidence that they should open up and write more volume because we think we're priced adequately.

Thanks, David.

No, great. That's really helpful. That's encouraging to hear. And then for my follow-up question, it was good to see that Robinsons new apps up almost double digits in the first quarter. It sounded like conversion also increased on Robinsons in the agency channel. Could you maybe just talk about how you're attracting the Robinsons and how you're achieving this increased conversion and whether you're seeing any improvement on the retention of Robinsons as well?

Yes. I think it's different if you're thinking about it from the agency's channel versus the direct channel on the agency channel. We continue to have our preferred agents, our platinum agents and no, we want the bundle, and they can be compensated for that. And so that is a big part of the agency channel. On the direct channel. We have our HomeQuote Explorer, where we saw Progressive Home, and I know they've been working diligently with some really great unaffiliated partners to be able to place that coverage even if it is not with Progressive Home. And we're continuing to work on having a stable group of companies in that mix.

So first, I had a question just on the expense ratio. Should we assume that given how much premiums have gone up the last few years, that your expense ratio should be -- especially the non-acquisition or the sort of nondiscretionary expenses should be structurally lower for the next several years? And if that is the case, then would you let that fall to the bottom line and assume a lower combined ratio going forward? Or should we assume the deal use it to be more competitive on pricing and it will show up in the form of better growth potentially? Or gets competed away?

Yes. Good question, Jimmy. Probably a little bit of both. So I think we'll try to continue to push expenses and we need to be efficient. And we don't necessarily though, need to be the lowest cost. We want to have low cost because that equates to competitive prices and that equates to growth. And that growth, of course, is a great cycle because that unit growth is important, especially as you've seen in the past years when severity trends go up and down because those can be less stable than having a unit growth. But yes, I think we're going to spend where we can to maximize on this growth. We're going to continue to think about expenses and utilize the investments that we make across the board to become more efficient. But a lot of it, too, and the reason we're able to do this is because of the investments we've made over the many years on technology, on people, on processes, on just our overall people and culture to be there. So I would expect that we'll be able to do a little bit of both.

I'd just add that we have continued to make progress on our non-acquisition expense ratio, and we've been doing so over at least the past decade. So, structurally, as you say, as we increase average premium, not only the efficiencies we plow into our business, but the denominator is a tailwind for sure. But we will always price that 96 combined ratio at the company level. So to the extent we get efficiencies, we're going to pay that back into growth and target the same margin over time.

And then maybe if you could talk about the competitive environment and just competitor behavior. Overall, it seems like almost every company is still in the process of repricing its book, but I'm assuming that trends vary by state. And there are a few states where several other companies beside you are at adequate margins. So are you seeing price competition pick up in those markets? And are companies being disciplined overall? Or are you even seeing some companies maybe be a little bit too loose in terms of pricing and underwriting in areas where the loss trends have been good and states were early in allowing companies to raise prices?

It's hard to say what other companies are doing. I can say that we still feel like it's a hard market. And we feel like we got ahead of the curve as far as pricing. We're seeing that with our growth, and I hope to continue to see that. I think if you follow, which I'm sure you do, the competition, margins look good. And so I think everyone saw what we saw in terms of trends and reacted. Again, you have a certain period of time where if you react more quickly, you have an advantage, and that advantage sort of begets growth and sort of is like -- I feel like at this juncture, last year when I talked about it in November about starting to think about pulling back some non-rate actions and doing some things as like we kind of put our toe in the water and everybody else wasn't quite there. We then -- we put our whole foot and we set the edge of the pool, and now we're diving in.

Great. When we look at year-over-year policy count growth in personal lines, we saw a pickup in direct, but modest sequential slowdown in agency. And I was hoping you could -- sorry, in March, I was hoping you could translate what actually is going on like why we're seeing that sort of different trends?

Yes. I think if you -- I think agency in March was more flat. I think you'll see that a little bit -- it will be a little bit more delayed than direct, where we have more access to put on the media spend, whereas I think agents -- it's just a different model. Pat, you can add one of that. But if I recall, March started to be a little bit -- the trend started to return a little bit in agency.

Yes. So we've been slower to open things back up in the agency channel and specifically things like returning rates on comparative raters across the board, which, thus, put our rate in a more competitive position and potentially drive more growth. But know that we are leaning into that at this point. And as we're more confident in our rate adequacy we are opening up some of those non-rate actions in the agency channel. We have fewer top-of-funnel levers in the agency channel. It's more mid-funnel. So you will see that delayed effect when, media, we can fill the top of the funnel on the direct channel much more responsibly and quickly when we decide we're rate adequate.

Okay. Perfect. That's very helpful. And to response your comments earlier, would it make sense to have more 6-month policies in commercial lines?

We've talked about that for years. And I think what I would say it's very dependent on the BMT. When you go in to get a quote and ultimately convert, there are some business marketing tiers that are really complex and time-consuming. And you're gathering information, and it's not an easy process. You don't want to do that every 6 months. So with those, you just have to be priced right and have the ability to do things like debits and credits. To get things right more quickly.

Yes. Mark, that was mostly a couple of big national account agencies. That started happening maybe around mid-2023. So nothing much to read into. We're still really excited. In fact, take rate and agency really has peaked up since prepandemic. And so we continue to believe that's a big part of our model. We have 57 billion miles driven. So we have a lot of data, 7 billion trips. So we continue to have that be a big part of it. And we're constantly talking to agents about the importance of that to get those great drivers, great discounts.

Yes, that's good. And those are 2 of the variables for sure. So the mile-to-mile quarter helped our mix of business, our sort of self-imposed underwriting actions. And actually, we have seen a tailwind from [ House billing 37 ]. So those would probably be 4 of the contributing factors. What I would look at instead of focusing on the quarter, that would be, I would look at the trailing 12 over prior frequency because those were some factors in this quarter for sure.

It's so hard to discern that. We've been playing around and there could be -- and maybe Mark brought it up a little bit. There could be a little bit of regional differences in terms of frequencies no fault state versus none. It's hard to really pinpoint that. We're going to continue to work on that. But it really is hard to pinpoint those exact things from frequency. So really, what I said before, what we're seeing at least in that first quarter is really our self-imposed underwriting restrictions, some mix difference, which makes sense and then some weather and some changes from the Florida House bill. Those are the parts that we can better quantify.

We look at it and we price for frequency and severity, but we can't predict frequency. We know when we see it.

I'm really sorry, but you broke out completely there. We didn't understand the question.

Yes, perfect.

Yes, those are things to think about all the time we have. We actually utilize the E&S capabilities in some venues in commercial already. And we always look at kind of the best way to understand if we can't get the rate we need in the admitted market, and we have an opportunity and an ability to do that should that arise.

Yes. We priced like John was saying, every customer, every state or channel to a lifetime 96 knowing that the limit difference different if you're a preferred if you're going to have higher limits. So we price for that and are very clear on -- and reserved for that. And so that's sort of our secret sauce as well.

I mean commercial is very much -- I mean all of our businesses state-by-state, but commercial has a few states that are much more volatile, and we have to price for those or like Karen's doing now and actually Pat on the PL side is a lot of business restrictions until we can get the prices we need and non-rate actions. But I think, like I said, when I was outlining the variety of BMTs, they react very differently and exposure very differently, and we treat them differently in terms of the segmentation perspective. You mentioned TNC. We needed a huge increase with one of our partners there, and we're able to get that. So our comfort level of success in the TNC organizations is very high now. We feel good about that.

Those in the queue appear to be those who've already asked questions. So that concludes our event.