Q2 2021 Progressive Corp Earnings Call

And thank you for joining us today for progressive second quarter Investor event.

And Doug Constantine director of Investor Relations and I'll be your moderator for today's event and the company will not make detailed comments related to quarterly results. In addition to those provided and its quarterly report on form 10-Q, and letter to shareholders, which have been posted to the company's website.

This quarter marks a return to our typical format, which is a presentation on a specific portion of our business followed by a question and answer session with members of our leadership team.

The introductory comments by our CEO and the presentation, where previously recorded.

Upon completion of the previously recorded remarks, we will use the balance of the 90 minutes scheduled for this event for live questions and answers with leaders featured and are recorded remarks as well as other members of our management team.

As always discussions and this event and 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 on our annual report on form 10-K for the year ended December 31, 2020 and supplemented by our 10-Q report.

For the first and second quarters of 2021 where you will find discussions of the risk factors affecting our business safe Harbor statements related to forward looking statements and other discussions of challenges. We face. These documents can be found and be the investor relations sections of our website at investors Progressive Dot com.

To begin today I'm pleased to introduce our CEO and Tricia Griffith, who will kick us off with some introductory comments Tricia.

Well, let me set the stage for this session.

Minder, whereas a construct and call the 4 cornerstones and this kind of chunk allows us to focus and make investments and drive value to the organization and all of our constituents.

Who we are which are our 5 core values and Peter Lewis from these back and 1987 and and they have served us well over the decades.

And frankly during this past year and a half as we've navigated and completely foreign waters and it made decisions on behalf of all of our constituents. We have used our core values as a guide.

Won't go into all that we did because I publicly you've written about much of it but suffice it to say we believe all along the way we did the right thing.

And why we're here.

Our purpose statement, which is true to our name Progressive we believe our statement about forward progress.

And and never resting on our past performance.

Where we're headed our vision, which is to become consumers and agents number 1 choice and destination for auto home and other insurance, we want consumers and our agent partners to choose to take care of all their and their clients insurance needs with us now and as those needs evolve.

We know that we must earn their trust every day in order to achieve this vision.

How we'll get there our strategy and more specifically our 4 strategic pillars, which is how do we think explicitly about investing to ultimately achieve our vision and I'll briefly give you a high level overview of how we think about each pillar.

People and culture.

Our goal is to ensure our people and culture collectively remain our most powerful source of competitive advantage, including attracting and hiring new talent and retain the people we have and developing every 1 and so that we can all have long and prosperous careers, what will support our people and culture by ensuring our people.

And can bring their whole selves to work through our diversity equity and inclusion efforts broad needs.

We will meet the broader needs of our customers throughout their lifetimes by being available where when and how our customers want to interact with us and helping our customers select the best insurance for their current needs as well as they're evolving and shareable and needs throughout their lifetime.

Leading brand, we will maintain a leading brand and recognized for innovative offerings and supported by experiences and instill confidence with messages that resonate.

Competitive pricing, we will offer competitive prices by pricing rates, a risk through our industry, leading and segmentation balancing efficiency and accuracy and claims and finding ways to continually drive cost down through process changes and technology advances.

Our agenda will be and 3 sections and will cover the commercial auto market and trends and the industry, including our performance relative to the market.

Well do a market overview that will outline our long term growth plan and finally, an update on market capabilities and expanding our product offering.

Before we begin our deep dive commercialize agenda I do want and knowledge that we're highly cognizant of the fact that we reported a 100.5 combined ratio for June and are and have been taking steps to ensure profitability as we come out of the pandemic commercial lines is a huge opportunity for progressive so I don't want to draw.

Tension away from the very important agenda, and Karen and yoke and have for your upcoming by offering prepared comments unresolved I expect we'll have the opportunity and Q&A interest share steps, we've taken and are and their process are undertaking to ensure we achieve our calendar year and 96 or better underwriting margin objective.

Let's kick off the first section by talking about the addressable market.

When we began these webcasts and many years back we started with showing the property and casualty addressable market and we discussed our plans for both personal lines and commercial lines or commercial lines offerings have evolved over time and of course, we recently acquired protective insurance. So we thought this was a good time to give you a more deep.

Held up day.

To summarize the entire market, you'll see in the center of the slide up and total property and casualty market is 730 billion that from.

Aggressive share 5.7% is reflected in both of the blues section, a and donuts and and Blue percentages. The grey reflects the industry.

On the personal line side, we have a 9.6 per cent of the 366 billion market split between personal auto at 12, 9% share and homeowners at 1.7 per cent a share we've had massive growth here, but still plenty of room to grow.

The commercial lines addressable market is 364 billion and includes a wide array of opportunities. The commercial auto opportunity alone is a $46 billion market, where we hold the number 1 position with plenty of room to grow at $12.1 per cent a share with a large other commercial addressable market of 318.

And.

At this point and time the market that we believe we can both play and win and is approximately 78 billion. If you start near the top of the circle and go clockwise that entails mono line commercial auto.

Small fleet transportation network companies commercial auto bundled with gel and Bob small business with Jill and Bob medium and large fleet with protective and workers comp with protective and <unk>.

Dress the whole markets and we arent currently and include public transportation and larger commercial multi peril businesses with over 20 employees and products like mortgage guarantee and marine just to name a few we are very excited about the opportunities that lie ahead, and we started investing and many years ago to set us up for future growth.

We've shared and these 2 by 2 charts a few times as a reminder, the X axis is the combined ratio on an inverted scale and you wanted to each other right at 100 day.

Access is net written premium gross do you want to be above the black line showing positive growth.

Together, you Wanna be and the top right hand, shaded area, where we're growing market share at or below and 96 combined ratio. The blue Dot is progressive and the black Dot is the industry and the gray dots are the others and the top 10, each year since 2015 through 2020.

As we reflect on the past 6 years, we've consistently been in that area growing market share and achieving at least a 96 combined ratio and in fact on both profitability and growth we frequently beat the industry and any individual competitor by wide margins.

I'd like to get into the meat of their program, but before I do that and give some background on our speakers I think many of us and that Karen before Karen and Baylor was our commercial lines President She does progressive for over 30 years with her most recent role as general manager of acquisition and small business insurance Karen has held several other significant leadership.

Positions, including personal lines G M commercial lines controller, and most notably she spent 9 years building our agency distribution organization and positioning progressive as a preferred supplier and that channel Karen started her career and customer service as a management trainee and like others on our executive team. She was and claims are up.

And her progressive career.

A graduate of the University of South Carolina, Karen and earned a bachelor's degree and psychology with a minor and statistics and she went on to earn an MBA from case Western Reserve University.

Yoke and sensor began his career progressive and 2006 after moving to Cleveland, Ohio from Southern Germany, He's an alumnus and both the University of Dayton, where he earned an MBA and other Friedrich Alexander University, Erlangen, Nurenberg, where he earned bachelor's and master's degree and the arts.

After doing rounds, and both the accounting and Alice rotational programs that progressive yoke and joined commercial lines and 2008, he started out and various pricing and control functions and then moved into product management.

First he managed several states, including California, and our market entry into Hawaii, and then took on bigger responsibilities as the leader of our drug product.

During his tenure he significantly and contributed to increasing our market share by rolling out numerous product enhancements and also improving segmentation now as commercial lines controller yoga and leaves the organization responsible for ensuring we run a profitable business. This includes the strategy and performance monitoring risk analysis.

Data and analytics rate setting compliance and recovery as well as finance and accounting.

I'll now hand, it over to Karen to outline our commercial lines trends.

We will be sharing a number of charts and graphs to highlight our business performance. During this presentation. While our June results include protective based on our closing date of June 1st for the purposes of this presentation unless otherwise stated the numbers exclude protective and.

And nice to begin with a look at our performance relative to the industry. This is a 20 year time series of Progressive commercial auto net written premium growth rate versus the rest of the industry.

During this time period, our results have really diverged from the industry. There are a couple of observations around growth that I'd like to highlight first commercial auto has some cyclicality to it and tends to move with the larger economy and second when the market grows progressive has historically grown at a faster pace.

And in fact since 2016, we've doubled the business and gained almost 4 points of market share and that equates to more than 20% compounded growth rate and achieving more than 12% market share and.

And more significant divergence from the market has been and underwriting profit we've outperformed the industry by 8 to 10 and as much as 20 points over those 20 years.

Our objective is to grow as fast as we can at target combined ratios.

And we've had a track record of success and outperform the industry on both growth and profit over those 20 years.

There's a number of contributing factors, but perhaps most important has been the intense focus on commercial auto as a core line of business for the company. We've shared this information in the past and wanted to provide a brief refresher on how we approach our auto business, we segment, our business and to what we've referred to as business market targets.

And we introduced these business market targets for commercial auto in 2014.

Since introduced the M. Ts are now operationalized across virtually every aspect of our business. That's important because we see meaningful and actionable differences between these b M. Ts for example, the demand function is different by BMT and how that demand function responds to changes and different economic conditions is.

Different.

We also see that losses present differently and how they develop attorney representation rates and litigation outcomes differ by DMT.

Certainly and frequency and severity trends and other factors change at different rates and different times by BMT, all of which are critical inputs to determining rate level.

And this granular focus allows us to develop insights faster be more responsive with strategies and tactics to profitably grab market share.

I want to talk about what we're observing and shopping loss trends and how we're positioned for continued success.

We have the benefit of over 10 billion miles of driving data with our telematics data.

And this chart shows patterns and driving miles highway congestion and highway speeding pre and post pandemic.

You can see that as stay at home orders were issued there was a significant decrease and miles driven and congestion on the highway and.

At the same time, there was an increase and highway seating and.

And while the impact from Covid on small businesses with severe when we look at our business class level data. It's also clear that different businesses were affected differently for.

For example, and the truck space fully a third of our smart haul customers saw their mileage increase all about 8% were shut down completely landscapers and most construction trades, we're still working and other service businesses we're not.

Looking at more recent trends, while we see mileage and congestion and back to pre COVID-19 levels speeding events haven't dropped back to where they were this raises the question around whether COVID-19 brought a permanent change to truckers driving habits, and it's something we'll keep a close eye on and the months to come.

In addition to our own data, we look to other macroeconomic trends to develop a deeper understanding of shopping and small business trends, especially during challenging economic conditions.

This chart shows our insurance shopping trends and this case agency quote gross for businesses that tie to goods and services sectors index for 2019.

Progressive quote data isn't a solid line and consumer spend data isn't a dotted line.

Our experienced tracks closely to the rate of consumer spending on goods and services. So this is data we have and will continue to monitor.

The macroeconomic data shows and spending on <unk> recovered more quickly while the services sector has lagged and has been more depressed relative to goods sectors.

Some of that is because services sectors were more affected by stay at home orders and good spending has been supported by federal government stimulus that intuitively makes sense and we see that and our underlying data.

Businesses that were considered more essential plumbing or sanitation services or those are tied to the transportation of goods like agriculture hauling or livestock hauling responded differently versus those that are tied to services industries like airport shuttles food trucks and entertainers.

The positive news is that as the service businesses reopen we're.

We're seeing a recovery and spending toward 2019 levels.

This increase and spending on services should drive a rebound and insurance shopping for businesses related to that sector again food trucks restaurant delivery Airport shuttles just to name a few.

In summary different businesses have been affected differently and this is important in terms of how we think about trends and implications for frequency and severity and ultimately rate level going forward.

And our last update in 2019, we shared a historical perspective that provides a good illustration of how we will approach today's environment.

Back in 2016, we saw a marked increase in frequency between May and November at the same time. Some prior year reserve development was contributing to and already positive severity trend.

We responded quickly to address those trends raising rates by more than 10 per cent and made a series of underwriting changes and about 3 months and we've continued with a series of changes and adjustments since.

Fast forward to recent trends you can clearly see the impact of Covid on frequency and we saw a sharp decline in frequency and stay at home orders went into effect and as I shared earlier driving miles from our usage based insurance data shows driving miles and congestion levels are back to pre pandemic levels and it services.

Sectors are also rebounding given all of those conditions were seeing loss frequency rising relative to COVID-19 lows when frequency fell dramatically and at the same time and we continue to see a steady increase and severity trends that we've been accounting for and our rate level indications.

Given the variation and how businesses were affected by the pandemic, some slowing down and other seeing an increase and business, we have been and plan to continue to be cautious and our actions.

And we haven't lowered rates and we've been conservative and our pricing and underwriting decisions.

The trends we are observing now are lining up with what is forecasted in our rate level indications, we have planned for frequency and recovery and a continued steep severity trend and have kept pace with net trends with a combined rate increase of 29% from the beginning of 2016 through the first half of this year.

The additional segmentation, we've built into the product over the last 5 years has proven effective and driven better than industry underwriting results and growth and I would suggest having a granular approach to the business and reacting decisively to what we see while much of the market is slower to react has been and important part of <unk>.

Painting strong underwriting margins and growing our business over the years so.

So we continue to advance our product segmentation and underwriting capabilities and we plan to continue to respond appropriately to loss trends going forward.

I'd like to shift to a discussion on expenses and efficiency.

And we know from experience that companies that can achieve a lower cost structure and gained share at a greater rate than the overall industry, we've seen that and the personal lines market and believe it matters and the commercial lines market as well.

The correlation of efficiency aiding and growth isn't lost on us and we're well positioned on this chart now.

And then 2020 results show that we're nearly 11 points lower than the industry average and L. A and expense ratio and a very price sensitive industry that 11 point advantage is significant.

But there's a balance and we don't necessarily want to be the lowest because we believe and also investing and what matters.

Polity outcomes for customers that are and loyalty and investments that foster great work environment for our employees to that and I'd like to highlight where we're making investments to improve on both those fronts.

This is a view of our expense ratio track record over a 10 year time period and over that time period, we've seen a 7 to 8 point expense advantage compared to the industry.

And that advantage was 6 points in 'twenty, and 'twenty and due impart because COVID-19 credits flowed through expenses, rather than premium, resulting and a slight elevated expense ratio.

And while we've had and expense advantage over this time period, we are prioritizing initiatives to extend our leadership position there.

And there are a number of levers that drive expense ratio advantages and while we don't have enough time for a comprehensive review of all the efforts underway I wanted to share with you..2 examples that demonstrate active cost management efforts to drive expense reductions and improve experiences at the same time. These both highlight our focus and managing expenses.

And related to our gross and improving our operational efficiency.

We maintain a disciplined focus on managing overhead and growth and head count as we grow the business.

This chart is designed to represent a few things and the solid Blue line represents overall net earned premium growth and the solid Orange line represents employee costs and real estate costs are represented in the solid black line.

You can see that while employee costs and real estate costs have gone up they've grown at a lower rate relative to net earned premiums and there were a couple of reasons for that.

1 is being disciplined and judicious and decisions to increase staff. We've added the dotted lines here to represent volume driven and non volume driven employee growth.

And while we've grown our volume driven counts in line with our net earned premiums pace, we've been very targeted and adding non volume driven resources and our non volume driven employee count has grown at a much lower rate.

This discipline has resulted in growing our total employee costs, the orange line less and net earned premium growth.

The second is related to real estate like personal lines prior to the pandemic, our customer and agent services organization enabled real estate expense savings by implementing a homebase consultant model. This model has a number of benefits. It provides broader access to talents and improved our ability to increase that.

And to support our growing business, especially last year and its also provided flexibility that employees value and.

In addition, this model allows us to grow our business without a commensurate growth in space in 2019, almost 40% of our commercial lines agents and customer services consultants were working from home.

Now, we're still working through our plans as we transition back to the office post pandemic and we expect the portion of our customer and agent services consultants that work from home to grow materially as people make the decision to remain working from home going forward.

And this will support our ability to grow without significantly growing our real estate footprint.

The second example of our cost management efforts highlights investments in systems and technology to deliver the products and services, our agents and customers value, while focusing on increasing operational efficiency.

We've been investing significantly and systems to support our core auto business and and expanding our business with our BOP product and direct small business capabilities, despite significant investments and technology and systems, we've been able to maintain our expense advantage.

And we have knowledge and expected this relatively short term increase and technology costs to lower our costs and the long run with gains and efficiency and new lines of business.

And we're improving efficiency and to push our expense advantage is a key objective 2 examples of progress are shown here.

We've shared in previous annual report commentary that we're transitioning to a new policy administration system and this new system is a significant driver of our technology expenses and pulling out the new system is a big part of our ability to drive more efficiency.

The new system introduces more modern functionality that enables faster delivery of our products and enhancements and the ability to improve customer experiences and self service capabilities.

The initial launch of this new system and a state brings consumer online by capabilities. The chart on the left shows the total lift indirect online sales yield with our new system.

Now completely isolating the effects of the online buying capabilities is difficult.

But we're seeing and 80% improvement and online sales yield after introducing this new system and that would translate to more than a 20 per cent increase and direct auto sales.

Now I will direct is still a relatively small portion of our business. We expect this added functionality and to bring long term economic benefit to us in terms of improved sales yield and lower acquisition costs for that part of our business and that's very important as this business grows.

A second way and we're gaining efficiency is via process automation.

And the right is a representation of improvements and we've already made reducing the manual work associated with millions of documents, we receive every year the effects email or paper mill.

Until recently each document had to be manually reviewed and categorized fraction either to be attached to a policy and sent directly to storage or put into 4 additional processing.

Over half of these documents are in that first group. They don't require any action beyond archival we have a project underway to automate that work flow by the end of the year using optical character recognition technology to review those documents automatically and attach them to our policy and send them to storage without human intervention and.

And this frees up resources to focus on other more value added work.

These are just 2 examples to illustrate how we will focus future investments.

And while we're pleased with our early progress. We're just getting started and we have a robust roadmap ahead of us that will target more efficiency improvements and self service capabilities designed to meet customer and agents expectations.

Investments and product experiences and more efficient workflows combined should enable us to reduce the drivers of cost to service our customers.

We anticipate that by lowering our costs, we will be able to further extend our expense advantage and position us well for any market conditions.

Now moving onto the other part of our expense advantage. We believe our claims organization provides us with a significant competitive advantage on commercial auto vis vis our competition, we've doubled the core auto business, while maintaining very competitive loss adjustment expense ratios and good quality.

Our claims advantage comes from our surgical focus on claims accuracy and efficiency and back in 2019, we shared how our claims organization that leverages the scale of our broader personal lines claims organization with a focus on specialization for high impact and complex claims.

We continue to push commercial lines specialization as we grow our business and we also see significant potential and leveraging technology and analytics to increase productivity and claims handling segmentation along with improving accuracy.

I wanted to share a brief example to illustrate how we are leveraging data and data science and advanced analytics to monitor and react to claims activity and exposure changes.

The image on this slide represents a homegrown tools developed to inform leaders claims that need to review.

And the tool is powered by a file intervention program that uses analysis and data science to populate the tool and it's designed to improve our leaders focus on at risk vials.

This helps improve claims accuracy through better coaching and support timely claim handling efforts.

We know handling delays can result, and unfavorable outcomes and the alerts are prioritized and trigger on the best state for the leader to intervene and for the most favorable results.

And this example, you see a code F. S 13, with a description and potential for delayed total loss resolution.

And this example, and alert triggered on March 19th with a message, indicating a potential delay and resolving a total loss settlement and.

The leader intervenes by providing guidance for the claim Rob on the open activity on the file and since the leader intervene. The trigger is program to return 2 days later to make sure. The claim Rep is following up on the guidance provided the net.

Alert triggers on March 21st the leader reviews, the file and sees that the claim rep followed up on the direction provided so no additional intervention is needed at this point and time.

The leader indicates no to the intervention question and the lower left and once no intervention and selected alert is program to return 8 days later, if the total loss isn't still not resolved.

And this case the total loss resolved on March 25th and so the alert didn't return for the third time.

This is a powerful tool that helps our claims teams efficiently run the business of claims and contributes to more timely and accurate claims handling.

A final point on our performance relative to the industry is related to reserving where our philosophy is to be as accurate as possible with minimal variation.

This chart shows our commercial auto reserve development versus the industry and we have a much tighter variance and we see 2 primary reasons for this 1 contributing factor is the claims organization, we just talked about leveraging technology and advanced analytics to increase productivity and get the right claims to the right resource more quickly.

Leads to more timely and accurate claims handling and better outcomes and the.

The other contributing factor is the highly segmented approach, we take to loss reserving for commercial auto as we do with our other products. We've operationalized that BMT structure. In addition to the usual loss cost cuts and it allows us to see pattern changes sooner and react appropriately.

Having more consistent and predictable loss cost estimates through accurate reserving lets us understand our true ultimate cost faster and be more responsive with pricing and product refinements.

So that's a little background on what we've been seeing and our commercial auto results recently and why we've been able to produce some different outcomes relative to the industry I'd now like to turn it over to Yoga and center, who will share a little about our plans for extending our leadership and commercial auto, including how and wear protective insurance fits into those plants.

Thank you Karen I'd like to spend some time talking about all track record of extending and I'll come to a flawed and leadership position and and restaurants that'd be continue to make.

Let me start by talking a little bit about how well through telematics programs that we have and market today small pole and snapshot per wheel. We're proud to say that we have recently surpassed $500 million of commercial auto premiums and full from these telematics based programs and then we've analyzed over 10 billion miles of data.

<unk> haul is all truck focused telematics program that leverages the data from federally mandated electronic logging devices or you'll be fulfilled.

Pillar federal mandate most of the over the road truckers meet them and you'll be through managed sales of silver.

Small pole uses driving data from a torque and existing it'll be and exchange for a discount on the insurance of up to 18%.

And while the conversion is nearly double our normal truck and Belgium, we continue to see a sizable loss ratio advantage for this book, even after applying to a steep discounts, which average about $1500 per policy.

Cleo this is good business and it's all incremental and verifiable segmentation that we're able to apply our point of sale.

To demonstrate how powerful the segmentation has proven to be I'd like to draw your attention to the job on the left.

Telematics is the most predictor variables and all for Io principal patient segment, but they picked the ball includes the power of new variables and enable by telematics and addition to variables, but can be derived from telematics such as territory ozone.

And as you can see telematics is by far almost predictive rating variable and we have plans to further evolve the model by adding even more predictive and us to it.

Oh continued research of driving data is allowing us to constantly evolve and improve the model.

Switching over to Abel Telematics program Snapshot program, we have a program that provides discounts and complementary fleet management free tools to all non and you'll be costumes.

While this program is much younger and you already see the segmentation and Palo of telematics and especially in segments real driving panels rose significantly from risk to risk.

The chart on the slide shows the average drive time full select business classes and February and around that average.

Let's pick the restaurant business travel as an example, we Havent Shaw said used vehicle close to 5 hours a day likely to the liberal food at the same time, we have restaurants that used to be called less than 1 hour, but you can imagine and loss cost may vary.

Different and full dose who use cases, that's the.

1 example of how telematics data can help us create new segmentation and I was recruited new insights from the 10 billion miles of collected data.

Next I'd like to highlight some of the most significant milestones we've been able to achieve from Como, Florida over the years, especially proud of.

Gross and 2000 and they need we became the largest write off truck insurance and the United States.

And 2015, we became the number 1 write off from a Florida overall.

And 2019, we became the number 1 write off for from truck and the non fleet space I'll talk more about that and a minute.

And lastly, this year, we passed 6 billion and net.

Written premiums, making us more than 2 times the size of our next closest compatible based on trailing 12 months statutory data.

And I've mentioned on the prior slide we've made big strides and growing our peripheral truck broker and enabling us to become the number 1 write off non fleet peripheral truck and 2019.

Redefine and peripheral truck motor carriers, and I have a track record of being financially responsible with free or more yield and business and a strong safety record.

Based on our analysis, we grew our estimated share of non fleet peripheral truck from 5.9% in January of 2016 to $15.4 per cent in may of 'twenty or 'twenty 1.

And the direct written premium basis.

Reflects an annual growth rate of 29, and a half per cent over that same 5 year time period.

We did so by launching product enhancements and improved our competitive from us while hitting our annual calendar year profit target each of those deals done.

These investments have helped us improve consideration amongst the most preferred truckers shopping for insurance.

In fact of all the non fleet prefer multi carrier.

Our federal filing the British insurance carrier in 2020, 1 without a lapse in coverage. We got quoted on 48, 2% of them that number is up from 35, 3% and Q1 of 2016.

With this success, we continue to pursue a robust roadmap to enhance our product and coverage offerings, along with improved segmentation, allowing us to offer even low rates for the best for us.

Another exciting opportunity to grow our business across all be and Pes is targeted at businesses with 10 to 40 vehicles and the small fleet market is about a 7 billion dollar market, where we have low penetration and only began increasing our focus on and investing and over the last couple of years.

As we increase the focus we saw opportunities to improve our pricing and athletes specific segmentation to provide more competitive rates.

First free drill.

In addition, we expanded our underwriting team to support new underwriting capabilities, and Shaw appropriate pricing and accelerate the underwriting process.

Today, we have the segmentation efforts and capabilities to compete effectively and this attractive market.

As you can see on the left John we've been able to more than Triple our fleet book over the last 5 years.

From meaningful acceleration and the last deal.

But right funnel job shows the impact of improvements we've been able to elevate adjusted in the last deal driving that growth, while we've been able to increase <unk> by 19% and the trailing 12 months, we've been able to increase findable quote by 85 per cent and ultimately sales by 92 per club.

Let me cover some of the specific improvements that have allowed us to achieve those results from.

And we brought in and continue to bring automation and technology to the quoting process, helping us to increase efficiency specifically, we've automated the review of the supplemental application and pick off this data and to all database underwriting review processes and related agent and follow up.

We've also been able to improve the quote turnaround time by simplifying the quote process and leveraging our distribution organization to educate agents, which internal and it's driving agent engagement more complete of quotes and increase conversion.

We saw continued investments we believe we are well positioned to continue our growth into small fleet space.

Talking about investments and small fleet, that's a great transition to highlight all plans to move even further upstream and the sleep all groups.

That's where all of our recent acquisition of protector for insurance with them.

Before we get to talking about how protected from help us grow fleet, let's spend a few minutes and talk about productive low product protective office and customer stays low.

Let's start with some background and protective insurance is located in Carmel, Indiana and blowing about 500 people book.

Company has nearly 100 years of experience, providing innovative insurance solutions, primarily for our fleet trucking operations.

<unk> operates several statutory insurance companies, which are collectively license and all 50 states.

While protective will benefit from progressive strong balance sheet and financial strength progressive real benefit from any of protective unique capabilities, allowing it to successfully itself the fleet market.

Let's talk about some of those capabilities and the protective product suite.

Protective sales many of the lines, we're very familiar with including commercial auto physical damage and commercial auto liability and non trucking liability cargo and general liability and.

In addition, and very critical per fleet coverage need protective office workers comp and occupational accident to coverage and set up very additive to progressive offering in fact workers' comp reflect the largest statutory commercial coverage in terms of freemium, even big Oba and commercial auto.

As mentioned on the prior slide this is done through a variety of statutory entities and distribution and travels.

Next let's cover what the customers' protective sales.

While we just talked about progressive number 1 position and truckload wall. It's important to note that we've achieved that position primarily by dominating the less than 10 vehicles space.

Only recently have we begun investing into all fleet product, becoming competitive full fleets of up to 40 total vehicle inclusive of trails.

We're early and that Jeremy and while we've had some major milestones and seen some encouraging growth we realized the bill and needed capabilities, we would have to build to effectively compete for medium and low fleets protective to live with those capabilities, allowing us to move upstream.

It does include sophisticated risk retention mechanism, along and fleets to participate and the risks and indemnity.

Safety and loss control programs, along with underwriting expertise and.

Lastly rating by mileage and revenue.

Independent contractors and the Fedex affinity program all amongst many of protect us to other customers and goes into rapidly growing last mile delivery space.

But we expect to continue to expand over the coming years.

Switching to profitability protective has had a long track record of generating excellent results meeting their respective profit targets over a decade.

Similarly to progressive and doing so they were able to outperform the commercial auto industry consistently.

While the last few years had been challenged from a profitability perspective, we strongly believe that the right actions have been taken to return them to those industry, leading combined ratios specifically protective has refocused on its core business, which is transportation insurance and <unk>.

There's some significant raid was taken to account for the industry steep severity trends.

We believe this focus on core products and retake already proving to be successful with the last few quarters showing constant improvement of underwriting results.

In addition, protective has reinsurance in place to protect from significant adverse development from prior accident years.

Those reinsurance treaties and I'm sure that routine severities and pail, all consistent with progressive and established risk appetite.

Finally, I'd like to talk about how protective is additive to progressive product offering and allows us to expand our addressable market Lilly while were both heavily focus on the commercial auto line, we do so with minimal overlap progressive as the market leader and the small transportation space, while protective as a leader and the medium.

And loved transportation fleet space together, we're able to serve that market and infantile day and would protect us workers comp capabilities, we're able to establish a foothold into the critical and coverage.

Coverage that is considered and ankle product into small and medium and low fleet space.

We look forward to probe and complementing each other product offering enabling both entities to grow market share collectively.

Lastly, while still early and this acquisition and we look forward to what we call preserve and low for the remainder of the year before focusing on integrating all commercial offerings and all the progressive commercial lines umbrella.

I'd like to take this opportunity to highlight that we intend to maintain the Carmel, Indiana operation.

This acquisition has always been about growing addressable market and therefore revenue collectively beyond what each of us would be able to achieve individually.

With that I'd like to go back to a slide Tricia showed earlier.

This slide shows our addressable market, which has grown to $78 billion with this acquisition, which reflects an increase of more than 25 per cent.

And with that I will tell my back over to Karen who will cover our investment into small business insurance space.

Efforts to meet the broader needs of small business owners are focused on building products and capabilities to support our agency business and to meet the growing demand and the direct channel.

We believe customer choice is important and our goal is to continue to work toward customers having options for how they shop for insurance with US. Our plans include both adding products, we develop ourselves as well as offering other carrier products and our in House agency.

And our experience developing products ourselves works best and our agency business and we will continue to focus on investments that enable us to continue to grow and succeed with our agents, we're pursuing a different strategy for consumers that come to us directly and.

In addition to developing our own products, we're offering other carrier products through our in House agency.

Approach is working well for us and it will remain a part of our strategy for that part of our business and the and expanding our product offering is all about having a broad enough product portfolio and agents and customers never have to look elsewhere for their insurance needs.

And 2019, we expanded our product offering with our own business owners policy and general liability product. This line of business opens up our addressable market with a product that fits with our customer set and creates an opportunity to extend relationships with our customers.

And to commercial auto our goal is to have a streamlined intuitive quote flow and competitive pricing derived from expense discipline and price segmentation.

We initially limited our appetite to the first 5 categories and this table.

And we're big enough to matter allow us to develop pricing and segmentation skills and allow for a straightforward streamlined quoting and binding process.

We've since added a sixth BMT lessors risk.

We've limited our appetite in this category to those commercial rental properties that meet our underwriting criteria and the other 5.

And the 6 category as depicted on this screen account for about half of the 31 million small businesses and the U S with fewer than 20 employees.

As we did last year with lessors risk, we will continue to expand the categories over time, as we gain experience and identify additional opportunities to automate the quoting and underwriting flow.

Today. This business is and the agency channel and agents continue to add real value and small business insurance, we chose to deploy our BOP product and the agency channel first and have designed the products systems and experience to succeed with agents at the same time and we kept an eye on requirements for the digital channel and last year.

And our product and our in House agency and our online quoting platform for small business owners.

We officially launched our product in May of 2019 and finished the year with force days.

Last year, all things considered we finished strong launching 13, new states and introduce and updated product model.

And building on the momentum from 2020, we launched 4 additional states through the end of the second quarter and 4 more in July.

So we're now and states representing just over 50 per cent of the commercial multi peril market.

And we expect to roll out another 9 to 10 states. This year and that would result in a state footprint that represents about 67 per cent of the commercial and multi power market.

Feedback we've received from our agents and supports our assessment that we have and easy to use quoting and underwriting experience and competitive products.

We're happy with our momentum and we will continue to look for opportunities to accelerate our progress where we can continue to grow profitably.

I mentioned earlier and that we're pursuing a different strategy for consumers that come to us directly.

We built and in House agency to sell other carrier products, and we're having terrific success and growing our direct small commercial business and.

In September of 2018, we introduced business quote explore which is our online quoting platform for small business owners without edition and consumers have a full range of options for how to shop for their small business insurance with us.

Going forward, we'll work to optimize the experience in both of these pads there will be times when the self directed online path is the best option for a customer and others when calling in for phone support will be the best option and we're happy with this approach as a strategy to meet the demand from consumers who are coming to us directly for their small business insurance.

Needs.

Our small business direct efforts are going well, we've been selling direct commercial insurance for more than a decade and have made investments in assets and capabilities to meet the growing demand from commercial prospects as well as our own customers now.

And now pandemic related shopping patterns do appear to be accelerating the move to online shopping and commercial insurance and we're well positioned for that and move our marketing efforts are maturing and generating demand and we have a good stable of carriers, including our own manufactured BOP and G. L product and we've got and easy to use quoting platform.

As a result of our investments and an increase and online shopping growth has accelerated considerably.

And with the investments, we're making to drive demand and then meet that demand with ample supply and great experiences. We have every confidence and our ability to continue to accelerate growth within the small business direct channel.

Now the ultimate goal is to extend our relationships with our customers and provide more reasons to stay we know customers who have more products with us retain longer when looking at our business auto and contractor commercial auto customers with multiple products, we see that those with another personal lines products stay with us.

US, 5% to 7% longer and those with a BOP products day about 11% longer now we expect policy life expectancy to further extend with more targeted efforts to grow our multi product customers beyond launching new products like our BOP NGL product. We're also working to make it easier to bundle more with us.

Our aspirations include making it easier to purchase multiple products across commercial lines, and personal lines and new business and to add products as insurance needs grow.

You've heard us describe our aspirations of relationships with our customers laughing for decades or longer we're making significant progress and expect over time, our commercial relationships will contribute to increasing the number of customers and have chosen to stay with progressive for a decade or longer.

This is all part of our broader vision to become consumers and agents number 1 choice and destination for auto home and other insurance and we're excited to have considerable underpenetrated addressable market in front of us where we have the people skills and assets to succeed.

Thanks for your time today and now we'll move on to the Q&A portion of our session.

This concludes the previously recorded portion of todays event.

And members of our management team available live to answer questions, including Karen Pillow, and joke and Schuster, who can answer questions about our commercial lines presentation.

Q&A session will be audio only to submit a question or online audience can use the ask a question pad located in the top right of the webcast participants can press star 1 on their keypad and all.

And to get as many questions as possible. Please limit yourself to 1 question and 1 follow up.

And I'll take our first question from the phone.

Our first question.

<unk> coming from the line of Elyse Greenspan with Wells Fargo. Your line is open.

Hi, Thanks, and good morning, My first question I believe there's been some regulatory push back on now and some states, including Nevada, Texas and Ohio.

Nobody's, taking price and spot buy.

Or.

And it's progressive respond and situations, where you're not getting the way.

Thanks, Elyse. This is tricia, we respond with data so and we have data that is showing on steep trends and severity and our need to get raised on the street and we provide that and tried to work with our regulators to get those pushed through you know.

In the in the long run and we want to make sure we're available for consumers and we can only be available if we're able to reach our objective of growing and fast we can but more importantly, it and 96 combined ratio or less so and we continue to work with regulators. We've had some good success and Texas as you mentioned every state has little new 1.

And this is about working and continue to work side by side to do the right things for our our collective consumers and customers.

And then and the presentation that we just heard him I believe you guys were talking about you know seeing beating and higher levels and not pulling back and like pre pandemic levels. I know that was specific to commercial auto, but it sounds like that perhaps something we're seeing within commercial and personal auto.

So do you think that this is a new normal because if theyre higher levels as being right and there could be much more severe accidents and do you think some of the higher severity trends within both commercial and personal auto or perhaps here today, even after we fully come out of the pandemic.

And that's a great question here on the commercial side, we're seeing both both congestion and speeding up on the personal line side, we still haven't seen commuting congestion and back to pre pandemic I think we're just gonna have to watch that.

Think we thought we were sort of coming out of the pandemic and now of course with some of the new local ordinances will will that change where people stay home and work from home longer and we imagine that might happen. So that could continue to have speeding at a higher rate I think miles traveled as well when you think about we opened up people were excited.

And to get on the road go on vacations with their family go see Grandma, Grandpa, but youre right on its severity of accidents, and where it's going to have to watch that trend and see what happens when we get to some normalcy post pandemic on commuting and and congestion as well as feeding.

And then 1 last 1 in terms of like you've mentioned you haven't seen them you know tried to work miles and totally go back if you were doing and it will get your book between the non standard and the standard on the personal auto side have you seen on the drive to work miles and perhaps to pick up more and the non standard side would maybe there's less work from home.

Ability.

Yeah, when we look at our our UBI and miles, we we sort of compare it to some occupations that would be more available to work from home and that Wouldnt and so we do see differences in those as well as I'm, even and age groups in terms of if I'm retired and I'm able to stay home. So we watch those closely as well, but remember.

We price them all of our customers to a lifetime ninety-six and that's what we work towards.

Okay. Thanks for the color. Thanks Elyse.

Yeah.

And our second question coming from the line of Michael Phillips with Morgan Stanley. Your line is open.

Hey, Thanks, Good morning Kai.

And have a follow up question to the first question that you just answered Tricia.

Chris You said that you respond with data from higher level question on that I guess.

The regulatory question.

Is it is.

They're not the most of the question is is it tougher to push for rates today than a normal environment and what I mean by that is.

I think there's a pretty clear contrast today. Unlike in other periods, where the experience pretty do you used to do your rate filings is pretty profitable. Unlike the projection period, where there's clearly some deterioration and.

And and not only deterioration, but questions when how long that deterioration might left is the severity shortened whoops short lived as the frequency short lived as well so some questions around that against the backdrop of pretty profitable experienced fear that you're using free refund. So does that backdrop and make it harder to push for rate filings and it normally would.

I think it is more of a challenge, but remember we are and looking in the rearview mirror. We're looking ahead and looking at the severity trends because we price for those you know in you know and in the future. So while it's been a challenge and some some venues we continue to work towards that and again, we'll watch it closely and just like we did during the.

Pandemic. After we gave the over $1 billion back on the private passenger auto side for the credits we looked across because we knew that consumers were struggling when there was layoffs et cetera, we looked across states and channels and products and took a rates down a little bit and so that's really the.

And we're having with regulators, we're gonna always trying to do the right thing to grow as fast as we can but we have to make our target profit margins and what we're seeing now is some pretty steep severity trends and again, we'll watch for that we'll watch for any macroeconomic Ah inflationary trends and the like to understand what our future rates should be.

Okay. Thank you second question kind of goes towards whether the personal auto margin deterioration is.

Are there certain pockets, where it's worse than others and and what I mean, there is you mentioned and the Q a couple of things that might make 1 think so reduced marketing spend and certain areas number 1 number 2 tightening the underwriting criteria for certain consumer segments and so those 2 things combined.

Make make you think that maybe there are certain pockets of where it's worse and I guess is that true or is it more just generally across the board because of what's happening with driving levels going back to normal levels.

Yeah, it's really the margin erosion is really across the board in terms of frequency trends getting closer to pre pandemic severity trends up whether its injury or used parts and then of course, our average written premium was down.

When we look at media when we talk about that we look at our less efficient media. So it's not necessarily based on a certain customer we look across the board and say Okay. This is our our.

Cost per sale et cetera, and here's what we believe we can get for that on the other side, we really tried to.

Avoid what we believe could be under price risks and so we developed and underwriting program. Many many years ago just to ask a few more questions to understand and how to appropriately appropriately rates each of our customers to the appropriate risk so a little bit different viewpoint from when we look at media and we look at bringing on risks that we believe are under price.

<unk>.

I'll just tag on that to say and markets, where we're struggling to get right back to the previous question.

And we're more likely to push harder on the underwriting levers and so and markets where affordability is struggled recently and we've yet to be able to raise price you'll see the underwriting levers tighter than in a market, where we're more confident about our profitability.

Okay. It makes sense. Thank you guys.

And our next question coming from the line of David most of money with Evercore ISI. Your line is open.

Yes.

Hi, Thanks, good morning.

Just another question just on the REIT filings and just wondering if you could share.

You know, what what you're contemplating for future frequency and severity from from second quarter levels.

Yeah do you assume that those continue to get much worse or or at the same levels or.

Is it going to take some time before you get more actual experience and more results are that you could include and the filings before.

And you can get you know data to to justify the rate changes.

Well I mean, I think the fact that we're going to continue to take rates means that we expect some future positive trend.

It will be tough to say and so we'll watch it and our belief is that long term trends from a frequency perspective, we believe that there's a chance it could go up to pre pandemic levels, but if you look at over the last 50 or 60 years frequency trends have gone down based on safer cars and more strict laws et cetera.

Severity has more than offset that whether its injury attorney repped or components of vehicles and we believe that can continue we hope it and abates, a little bit but you know if if you look forward a couple of years and you know we would hope that they would have be more normalized so we could have that sense of normalcy now it's been you know.

Parents and their often also difficult, but you know we watch those closely and we believe that you know as of now obviously, we talked about the rate filings that we have done and quarter 2 that will continue to be fairly aggressive with rate.

Got it thanks, and just thinking about.

You said you you were you were looking at 5% rate increases location specific.

And and the second quarter.

Is that is there.

That sort of the the amount and you think you need to take across the entire book.

Yeah, if I look at it I think you know loss costs versus 19 were up a couple per cent.

And the second quarter.

Versus 2 to 19 and it looks like you took maybe 3 or 4 points of rate.

So is the intention to get back to sort of and 19 loss ratio level with the 5 per cent a rate increase.

What was the 5 per cent is the average increase and it was an aggregate of 2%, but we do look very specifically across states across channels across products. So there won't be a flat rate across any 1 of those venues. We will look at where we need it the most to get to our target.

Lifetime lifetime profit margin. So we don't you know we will give you. The average just because we're not going to go into specifics, but I would tell you that it's very different depending on the states and what we're seeing in both frequency and severity.

Got it thank you thanks.

Thanks.

Yeah.

Our next question coming from the line up Josh Shanker with Bank of America. Your line is open.

Yeah. Good morning, everyone I wanted to talk about a year ago or 18 months ago. When the pandemic came on and you made a decision to refund and 1 each customers to cut price.

And the increased advertising spend in order to get a new pool of customers and certainly the gross was very strong during the pandemic.

To what extent are those customers, who your program and brought on the book achieving the lifetime value of 96 per cent or better and to what extent is this period of compressed margin.

And with what you expect it to happen and as you put these customers on your book.

And frequency came back to normal levels.

Yeah.

Yeah, I mean, I think we did the right thing during the pandemic and things have been very volatile and very fluid and so in terms of you know our sort of Holy Grail is retention and so we're gonna do it and we can to keep those customers at the target profit margin you know with the the increases will flow into renewal.

Business and we expect that that that you know could could have caused people to shop, and we get that but you know what we want is and and our and our choice of growth as policies in force. We want to continue that growth. We know that we need to have the right rates on the street and and we've talked about that.

A lot of our objective for many many years. Many decades has been to grow as fast as we can at or below and 96 and and profit comes the first Oh isn't that order. It's 1 of our core value. So we'll continue to look at that what how we treat these circumstances are things that we've done.

Before and so and you know not not to this extent because we don't this is we've never been involved and a pandemic, but we've been in these circumstances before and in fact if.

If you go back and time 2012, and we had similar circumstances, where we found that we needed rates at the time actually John Sauerland, our CFO as the personal lines President and I was the president of claims and we set forth to get the right rate keeping as many customers are customers just because that's really important.

And that worked and we were able to grow.

But probably the most important example would be in 2016, when we found ourselves over our 96 call and we reduced expenses and a little bit of marketing and really positioned ourselves well for huge growth and in fact and the last 5 years.

We have grown policies and force on the private passenger auto side greater than 70%. So how we're looking at today is we believe we did the right thing for customers. During the pandemic. We have seen trends are deep and at a pretty quick right. We're going to get the rate, we need to get back and be well positioned for that growth. So we believe we will come and should we.

Head into a hard market.

And then I think you said that March 17th was either the best.

For the second best shopping day, and the company's history, I think you'd probably pulling on a lot of Sam's or inconsistently insured customers to what extent.

It is the huge growth over the past 18 months and really even just a few months ago and having a new customer penalty on top of your overall book.

Well, we've had we have had a lot of other sands, we've had a lot of growth overall and I talked in my most recent letter about our growth and Robinson and again comparisons are tough as well because of the large growth, we've had and Robinson and some of our preferred them, but yeah. We we brought on a fair amount of sands and again.

We are fine with Sam's coming on the book as long as we are price to our target profit margin.

And then Josh.

Well, we called cohort targets by segment by segment.

And we call them, our consumer marketing tiers, but we also think by channel and direct versus agency and new versus renewal and obviously geographically and our.

Our product managers are constantly looking at their performance relative to those cohort targets. So for example, the new Sam direct customer has a target obviously new business, we're going to spend a lot of to acquire Sam we're gonna want to recoup that quickly on a renewal to make sure we were and that lifetime 96.

Regardless of the climate were in those product managers are monitoring their performance versus those targets and where we're not meeting them and they're going to take action to make sure. They meet them. So we do manage to the calendar combined ratio as a company for sure and that's why we say our goal is.

Beneath the product managers are managing to those segments to those cohort gardens.

To help a little.

Certainly thank you very much for the answers.

Thanks, Josh.

Yeah.

Our next question coming from the line of Ryan Tunis with Autonomous Research. Your line is open.

Hey, Thanks, I had a couple of severity and 1 on gross.

The first 1 and.

And just thinking about the sort of frequencies almost back to pre pandemic levels.

That makes sense was down from originally.

And any of that and we're gonna be back there severity was plus 7 and 2019, plus 10 and 2020.

And this quarter was plus 8 so.

Not exactly clear to me why.

This severity numbers all that surprising so I'm just trying to square all of us and understand why we only started taking rate and this past quarter.

Well you know so we've seen severity trends go up and injuries, what we probably under under predicted on severity was the used car valuations and not just the magnitude, but the length of time the duration and we did we did look at that for future trends.

Not to the extent.

And what we're seeing and again, that's something that's been very different during the pandemic in terms of supply and demand and what is happening with <unk>.

New cars and the lack of available chips et cetera. So I would say that was probably a miss on our part slightly just because we hadn't seen that we did we did see it going up but not to the extent and the duration of time.

And then he got you no injuries and we continue to look at attorney Rep rate continues to go up and we're seeing attorneys earlier in the claims sort of across regions and across limit profiles and there could be a lot of theories on that it could be that there's more advertising on the attorneys parts and could be that if you were.

Working from home or that you're not working youre seeing more advertising and in order to call that attorney, but we are seeing attorney repped earlier in the claims than we have and the past.

Got it.

It's totally while you guys were reporting numbers this last quarter and people were talking more about the properties and switch and bought it.

And clearly we're seeing some social inflation.

And the.

Is there 1 day you'd say you're more concerned about you know kind of a casualty loss trends as the property, Australia and auto.

I mean for the casualty try and you know obviously you want to get your arms around attorney Rob's, because those claims are more expensive to take longer and not necessarily great experience. We've seen on the private passenger auto because we've seen and speeding up theres been more severe accidents, we've seen labor.

For hours increase and number of parts increase so that's a little bit different on the property side and we had 25 points of cat exposure and so I think you know we are looking at a little bit different geographic expansion and to make sure that we you know and a sense derisked a little bit of that book and then in addition on the property.

Side, we want and be able to continue to get rate as we've had as we have since last year and have a more segmented product. So it's a little bit different way, we're looking at it ultimately to get to the same and point of a 96 combined ratio.

Got it and then just lastly would you describe these trends is broad based across all states and.

Customer segments or is.

Is it more localized just more samples more robinson and type of thing.

The trends and the attorney Rep have been across all regions and they've gone up and different rates upon a width limit profiles.

So that's been across the board and property. It really is a much more specific in states, where there's more weather volatility.

Understood. Thank you. Thank you.

Okay.

And our next question coming from the line up.

Tracy and going with Barclays. Your line is open.

Thank you I don't mean to beat a dead horse here, but is it your impression that regulators are discounting to 2020 year is an anomaly, but relying on 2019 data for indicated rate needs, which may be problematic given their higher premiums at the time and less elevated severity at least that's what I saw in Texas.

And he mentioned even in 2019 data.

Yeah, and it's hard for me to be and a seat of a regulator I think they're trying to do the best thing. They are good they are trying to do for their constituents as we are and so that's why we share data and we talk it through and we tried to do the right thing, which again is availability for the consumers whether it be Texas or any other states. So it's hard for me to say, what our regulators looking at and.

I think they always want to make sure that theres affordability for the consumers that they represent.

Okay. Yeah, I just wanted to know if there's any way that you could make headway or there may just be a difference of opinion and just given you are looking at different parameters.

Probably little both.

Okay, and then just speaking of rate increases I mean, I saw so you took a $6.1 per cent rate increase in Florida, and and I'm. Just wondering how much that has to do with pet I understand theres a debate going on right now insurers to pay 80 per cent of the claims regardless, where it really lies on the schedule can you just remind us your conservatism on that spectrum.

Yeah and had a lot to do with Pip a lot to do with injury increases as well and we've talked about in terms of severity, but you know, Florida has always been volatile with Pip and interpretations of Pip and plaintiff attorneys and so we are we're pricing to that and we've seen a lot as you as we've told you of of reopen.

And based on recent.

And decisions.

So any concerns over prior periods.

That could result in adverse reserve development.

For Florida, Pip I think we've seen lastly reports and we've anticipated in 2020, which is a on the on the pet side I don't know I don't know that there's any prior I think it's been the last couple of years I think prior to that I would say 18, and 19 and 20 and not as much.

<unk>.

That's a great characterization and you know frankly, Florida Pip.

Even going back further than that and has been a challenge to price.

Accurately because courts decide what they decide and that changes a lot.

Past claims decisions that were made and a lot of problems get reopened so.

As we pointed out we have had adverse development and Florida Pip.

Couple of few years and if you go back a decade, we had similar.

The good news is over the longer term, we've been very successful and the Florida market with great share there and we want to continue to grow and Florida.

And as long as we're in and 96 and right now.

We are.

And I'm, taking actions to address the combined and Florida, but again over the long term, we're very confident and happy to grow in Florida and the.

And lastly, I'll say on that is we were very happy that the governor vetoed the latest Pip reform because we thought that would not be good for consumers of Florida, and so you know we always work with regulators to make sure. We have the right rates there and it is a it's a complicated stapled, 1 with with which the long term we've done well.

Thank you Kim.

A question on the web Oh.

Texas, and commercial and personal lines loss trends and what actions, we're taking to improve profitability and Texas.

We are taking rate.

Uh huh.

Good.

Livia index.

Question.

Our next.

And coming from the line of Greg Peters with Raymond James Your line is open.

Good morning, Thank you for fitting me and to your schedule. My first question will be on your comments, Rob the targeted 96 combined ratio.

You're talking about growing into other lines of commercial and the capital requirements for some of these other months and embedded and commercial are gonna be deferred and then the capital requirements you have from <unk>.

Other parts of your personal auto business.

And it also frankly is applicable to your property business as well and I'm. Just curious if you're 96 targeted combined ratio changes depending on the capital requirements on the type of business that you're in.

Yeah, and and remember our 96 is the aggregate. So ninety-six is slightly different and it's not for public consumption, but slightly different and different areas depending on that when we look at you know also is what we want that Roe to be and in any part of the business and we work tore.

And is that any time you have a new business. Obviously, you have a big learning experience. When we went into the direct private passenger auto you know we didn't make money for many years as we learned and grew and so we expect that notice and that to happen as well as we learn new businesses and and have our arms around.

And as we grow that's 1 of the reasons why our except for you know the the protective acquisition, which is very different because they know what they're doing on larger fleets. We started to try to grow into that so a great example, as fleets for many many years, we did zero Tonight and power units. We felt we had our arms around that we were a leader and.

And now we've gone to.

And then to 40, so we tried to learn along the way same thing with small business, we're starting with micro businesses less than 20 employees to make sure that we learn as we grow and expand that addressable market.

Just like to clarify your answer on that you know.

On the property business, you've been running above the 100 combined ratio for 5 years now.

How much longer will it be above 100 before you get you know before it starts and stops being a drag on your consolidated results.

And hopefully not long because we're not happy with that either I talked a little bit about the geographic footprint and how we are taking actions to a b.

B you know not have such a high percentage and states that have much more weather volatility because as he said that says 25 points on the property C. R.

Next time, it doesn't happen overnight and we've had just a lot of headwinds from that perspective. So I can't tell you the length of time, but we're working aggressively towards derisking geographically, even if we need to slow down on getting the right rates on the streets and.

And making sure that we continue to segment our property models as deeply as we segmented our private passenger auto and commercial auto and.

Great.

So.

We are not intending to run property above 100, and in fact as Tricia was noting we looked at Roy across our business loans and as you know required capital. We also looked at expected investment returns because the duration of claims and it's different across lines as well.

We target our oes across the businesses that are equal to or better than private passenger auto and <unk>.

And to target combined ratios so per home as you would expect given the higher capital requirements.

And ratio target is going to be Richard.

We took 12 points of rate and home last year, we're on track.

Early this year and.

And as Tricia noted, we're taking a lot of actions to get a better geographic footprint that we think reduces.

Impact of storm losses going forward, if you look back at our recent history.

Primary driver of being over and hybrid has been weather losses, and your yeah, it's been difficult to model and difficult to price. It's we're into newer markets. We're learning and we are taking aggressive actions and to get the combined ratio, where we want it which is well below.

Thank you for clarifying that my my second question and I know, it's really small relative to your overall book, but you did spend a portion of your presentation talking about it and that's protective.

And how you plan to use that in part and as part of your commercial launch expansion strategy.

And if I look at protective results you know the last 3 years really haven't been able to grow at all.

Saddled with 1 large customer and their combined ratio results have certainly been well above what book.

Best of likes to targets, so I'm just curious.

If you could just give us a sense of what you see within protective that helps you gain confidence that it's going to fit well within your overall strategy.

Yeah, I think first of all if you look at protective and their rates they've taken as they've seen their steep severity trends into 2019, they they saw that and they've been they've been working towards that and we're seeing the fruits of that but more importantly that current that are addressable market that we saw so there they put us upstream into.

And larger fleet workers' comp, which is a really important piece for small and medium fleet. So although we didn't talk a lot about what we believe we can do together long term.

And we're going to spend the next 6 months since we literally just closed and juniper and spend this next 6 months understanding synergies learning from each other and then getting a very firm game plan together on what we think we can achieve and the next 5 years.

Thank you for your answers.

Thank you.

Oh.

And our next question coming from the line of Meyer Shields with K B W. Your line is open.

Oh, great. Thanks going back to the I guess capital requirements and combined ratio constraints by line of business. If we're still at 96 overall and other lines of business.

Probably have to come and lower should we understand that auto on its own can go above and 96 and still be within the company right.

You could understand that what we look at it and it's very different and how we expense it as well from the direct side is front loaded versus more variable on the agency side.

Their friends and depending on the venue et cetera, but again the aggregate is 96 and then we look at each of those different areas, whether it's product or channel to get there.

Okay.

Maybe a related question and again, its non Florida with rate filings actually requested and increase that was below the indication and I was wondering if you could talk to the consideration of when that would come into play.

Hum.

Could you repeat the question.

Yeah. So.

And I'm sorry.

Looking at our recent Florida rate filing there was a requested increase that was about half of the indicated rate increase and I was wondering if you could talk through the considerations of.

And when you would make that sort of filing.

Yeah.

Sure. This is Pat Callahan, and the personalized president and so typically in some states there it'll be a template and indication and then there's our indication and when there's a lot of uncertainty as we look at our future trends will fill out the template as required to from a file and compliance perspective, but then we apply a lot of judgment to.

And of how much we actually want to take to balanced growth and profitability for the business. So we recognize that and states that are relatively open to file and then use rates like in Florida, we were.

Wanted to take smaller bites at the Apple overtime to ensure that we're not bound.

Bouncing and our customers are increasing rates faster than necessary, so and the Florida specific case, you know I expect we're in there are frequently and we will be and there you know at least once or twice more throughout the remainder of the year.

Okay perfect. Thank you so much.

Our next question coming from the line up Gary Ransom with Boeing and company. Your line is open.

Yes, good morning.

Wanted to ask about small commercial and specifically you were talking about.

More activity and the direct side for the BOP product is there a is there anything you can talk about on the propensity to buy online and I thought about it as somewhat of a slower moving demographic trends, but.

Are there customers that have been through and agent for 25 years and now suddenly they say like online and starting to buy it that way.

And I think what you're seeing is 1 of our strategic pillars in place and that's <unk>.

<unk> coverage, we wanna be where when and how customers want to shop and so there are there customers because it's a little bit more complicated and especially if this is your dream. Your first business venture you want and make sure you protect it and you have a lot of questions and so typically and it continues to be the majority of the business have gone through agents and that coverage.

Open die business quote explorer for those customers not unlike we did years ago on the auto side. When we opened up direct that would feel comfortable with what they need to get there and as you see that's gone up a couple of percentages.

And they are increasing and the direct side, which we are not surprised at and I think especially with the pandemic, where there was less availability, even though a lot of people weren't weren't necessarily opening and small businesses, but there was a lesser bell and availability of agents versus direct just based on shelter and place opportunities that we see.

We saw that change.

And.

Expect that more and more customers that have not ever worked with and agent will continue to go online and that that percentage would increase and we're gonna have to continue to get fat savvy with our investment on the business quote explorer side, but that's we believe a really great opportunity. We love. The fact that we have a big.

Agent and presence, but there will be customers that want to go through direct and won't be there for them as part of our strategic pillar of broad coverage.

Jerry I would add to that.

1 part of it is demand and the other part is fulfillment and.

Across auto overtime and property and the commercial we've gotten a lot better online meeting and for a better experience and were starting to rollout the ability to buy online and we see as we continue to improve the experience and make sure customers can get smoothly through quotes and actually.

And buy online.

And the fulfillment piece of that equation is improving a lot and address.

Business to the extent you are making about the funnel. If you will more efficient, it's really powerful and your ability to continue to grow that business because the more efficient you are fulfilling from where you can spend upfront to acquire customers.

Is there any specific item you would identify as important to that fulfillment piece and is there.

Your questions or.

Things along those lines.

Well the ability to borrow a lot and it's very very important.

Go through and online quote their expectation generally we think is and some people want to call for clarification of assurance et cetera, but many people expect to be able to click a button and buy and we find when we elevate that in a state and this goes back to when we were doing this a long time ago and auto.

Doing the property and now and.

And commercial when we elevate that ability.

The conversion rate goes up.

Yeah.

Great. Thank you very much.

And our next question coming from the line of Brian Meredith with UBS. Your line is open.

Hi, Thank you just 1 quick question here and I think kind of a follow up to <unk> question Trish.

Trish and other personal auto book here recently did take a reserve charge related to participating vs limited rescheduled and the court decision and Florida.

How did you interpret that decision and does that factor in at all how you think about your reserve position and Florida Pip.

Yes, Brian. Thanks, So I think you're referring to the limited charge and that we have Oh, yeah. We approve you accrued for that as well as a couple of other that has happened over the last couple of years.

And so we look at that we work with our claims organization to understand even though we don't necessarily disagree with the decision that the DCA agreed with that and we you know we are still challenging that that said, we want to extinguished those exposures and move on because by the time it gets through the court system.

Possibly to the Supreme Court. It takes many years and so we are we have our reserves and our unfavorable reserves have taken that case into accounts.

Thank you I appreciate it thanks.

We've exhausted our scheduled time and so that concludes our event.

And I'll hand, the call back over to you for the closing scripts.

Yeah.

Ladies and gentlemen, nothing to the Progressive Corporation's first quarter and best and event information about a replay up day event will be available and Investor Relations section of Progressive website for the next year you may now disconnect.

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Okay.

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