Q3 2021 Progressive Corp Earnings Call
Yeah.
[music] welcome to the Progressive Corporation's third quarter Investor event.
The company will not make detailed comments related to the quarterly results. In addition to Dulles provided in its quarterly report.
And on Form 10-Q and.
The letter to shareholders.
Which have been posted to the company's website.
Although C E O Tricia Griffith will make a brief statement.
The company will then use the remainder of the event to respond to questions.
Acting as moderator for the event will be progressive director of Investor Relations the constant team.
At this time I will turn the event over to Mr. Constantine.
Thank you to Sandra and good morning, although our quarterly Investor Relations events. Typically include the presentation on a specific portion of our business. We will instead use the 60 minutes scheduled for today's event for introductory comments by our CEO and our question and answer session with members of our leadership team.
Questions can only be asked by telephone dial in participants dial in instructions may be found at investors Progressive Dot com forward slash events.
As always discussions in this event may include forward looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during today's about.
Additional information concerning those risks and uncertainties is available on our annual report on Form 10-K for the year ended December 31, 2020 as supplemented by our 10-Q reports for the first second and third quarters of 2021 where you will find discussions of the risk factors affecting our businesses safe Harbor statements related to forward looking statements and other discussions.
The challenges we face.
Before going to our first question from the conference call line, our CEO and Tricia Griffith will make some introductory comments tricia. Thanks, Doug Good morning, and welcome to Progressive third quarter Conference call. We appreciate you joining us.
During our second quarter call. We discussed the challenges we were facing as our customers return to normal driving habits as the country open from the pandemic.
Our supply chains change contributed to an unprecedented increase in vehicle valuation.
In the third quarter and those challenges continued with the added effect of the most expensive storm and progressive history Hurricane Ida.
Result of these challenges as our first quarter with an above 100 and see are in 20 years.
In true Progressive fashion, we're facing these challenges head on to do what's needed to meet our publicly stated goal of a 96 combined ratio on an annual basis.
As part of our efforts to ensure we meet our 96 target we are taking rate increases across our product lines.
While objections and regulator scrutiny are part of the revision process.
Pressures on the insurance pricing our wheels.
The entire industry has been buffeted by the headwinds of higher severity post pandemic increased frequency and weather related catastrophes.
Regulators take their mandate of adequate rates are seriously and as such we've been able to work with regulators to increase rates to meet the rising costs.
Year to date through the third quarter, we placed in market increases in aggregate of five points and personal auto.
Three points in commercial lines and eight points in property.
In personal auto during the third quarter rate increases were effective in 20 states, which had an average increase of about 6%. So we're taking a changes in the environment seriously and reacting decisively.
We have more revisions in process across our suite of products as we work to ensure the rest of 2021 and.
2022 meet our calendar year objectives.
Underwriting is another lever we are using to address profitability.
We continue to use this lever in commercial and personal lines to ensure we write exposures accurately and that meet our underwriting targets.
In personal auto are eight seven model, which is now in states representing about 40% of our premium further advancing the science of underwriting.
In homeowners, where profitability has been under pressure for several quarters. We are taking additional steps to hasten our progress to meet our profit objectives.
And in states with high Cat exposure, we have changed our underwriting rules to reduce our exposure, including targeted non renewals.
While non renewals are not our preferred path there are times, where we need to use nontraditional methods to meet our targets.
While we take steps on the profitability side of the business. We continue to see strong growth personal lines written premiums grew 7% while commercial lines in homeowners both saw double digit year over year written premium growth in the third quarter.
Personal lines in homeowners recorded Pip growth of eight and 13% in a quarter respectively.
Commercial auto continues to capitalize on the macroeconomic environment with its third straight quarter of double digit Pip growth largely due to growth in the for hire trucking segment.
Though we're underwriting actions often have the unfortunate side effect of reducing gross our product managers continue to scour the competitive landscape to find profitable growth opportunities.
I'd like to take this opportunity to once again, thank Mike Sieger, our claims precedent and Jeff Carney, our chief marketing officer for their contributions to progressive and to offer my congratulations on their planned retirements, while I'm confident that their replacements are up to the task, making jobs presence will be greatly missed that thank you and I'm ready to take the.
First question.
To be added to the question queue.
Her star one on your phone.
In order to get to ask many questions as possible. Please limit yourself to one question and one follow up.
Your first question comes from the line of Mike Dumais, Saar Mesquite of Wolfe Research.
Your line is now open.
Alright got it.
I guess, there's an insurance geeky I kind of missed the beat that you guys do so.
So my first question.
Yes, you know a lot of like I know there'll be a lot of focus and you gave a lot of color in the past about on personal auto the severity side.
Of the equation I was hoping to maybe.
Get some of your insights on the frequency side no maybe.
Any color on the rate increases and actions are progressing as taking does it is it some of it predicated on the potential for accident frequencies to continue increasing.
They are kind of.
Plateauing I know, they're nearing pre pandemic levels I guess I feel like that's kind of one.
One of the bigger uncertainties out there.
Thanks, Mike Yeah that is a big uncertainty and we watch it closely especially because we have so much data from our usage based insurance, our snapshot and there's a couple of interesting trends that I'd like to share it and we're going to watch this closely again theres been so many dynamics shifts census depends on that because that was.
We do have to watch it and react swiftly to the data. So if you look at vehicle miles traveled they haven't really changed since the last call, they're still down about 6% to 8% from our 2017 in 2019 baseline.
The bigger news we've watched is frequency has picked up and we've noticed that in each quarter or specifically in PD and collision. So let me give you a little bit of color of the things we watch for so during quarter, one collision frequency was down about 10 points more than vehicle miles traveled.
And quarter, two that narrowed to seven points and in quarter three that narrowed further to three points. So we look at day parts during quarter three that narrowing was kind of across the whole day during quarter. Three we saw that frequency narrow a more during the morning rush hour. So thank all of them.
Six to nine a M. A while we see some evidence that there's congestion as well, it's a little bit surprising to us because people haven't fully returned to the office, we read the headlines and most companies because of adult ovarian have pushed off a full return to the office till January so could it be that kids are going back to <unk>.
School, So we're taking our children to school. So there's other variables that we're watching really closely I think what will be interesting is to see what happens first quarter 2022 when many companies have stated they're going to return to work and of course, what will that mean.
Certainly won't mean full return for every single person because I think there's going to be a lot of flexibility built in based on the pandemic. So we think that'll be an interesting data point.
We also have observed frequency at <unk>.
Starkly in the overnight hours, so think of like 1% to six a M. Both weekends and weekdays and that correlated with the March reopening and that frequency is above pre COVID-19 levels by about 10% to 20% again, a smaller amount of people driving.
So you know we're watching a V M teams closely by day part.
And each state et cetera, and we will be very interesting to see how frequency continues to close the gap on vehicle miles traveled or not but we're going to watch that closely. So we were able to get a lot of interesting information from our telematics data and we're going to continue to watch that because that help Mike yes. So thank you for.
For that Oh, My last follow up question, if I may.
If if you look at progresses overall paid to incurred loss ratios I know this is company wide and if we exclude catastrophes.
They seem to be down in a lot of the for a lot of the commercial casualty insurers were seeing paid loss levels to be down two and some of it's kind of excited that the courts being clogged are kind of running slower and I guess any color on what's.
Going on there it kind of points to maybe some conservatism.
In progressive picks.
You know well when we think of our reserving and any time frame, we want it to be adequate with minimal variation and that has been consistent for as long as I can remember I think it's really hard to rely on historic historical metrics. When we're looking at the data. So when you look at case, I mean, our pay to incurred weather.
You compare it to companies or even our own historical data, it's really hard without having the underlying data. So we have you know changers to our closure rate drop and then rebound in frequency increase in severity all those ratios change when you look at that what I would say about progressive is that we feel very good about.
Where where were at again with adequate with minimal variation, we're about a half point unfavorable for the year and the majority of that can be attributed to our Florida Pip.
We don't believe there is conservative and we have not changed our model.
Thank you.
Thanks, Mike.
Your next question comes from the line of Michael Phillips of Morgan Stanley.
Thanks, Good morning, Tricia I appreciate the comments in your letter about how you see two forms of risk from the <unk>.
It's where environment. The first was the kind of risk around minutes, where rebates or just regulatory rebates.
Mandates around the profit goes from 2020, I guess on that one are you referring to the possibility of more refunds that might happen.
And if so how real is that risk.
I was referring more to the asymmetry in the fact that we had this unprecedented event that hopefully none of us will have to live through in our lifetime, where we had excess margins and as an industry and certainly progressive we swiftly gave that back to our customers and our 20%.
A decrease over the two months and then of course, when and decreased rates by another 3%, which equated to another 800 million on top of the 1 billion. We gave back so what I was referring to was now we're in a much different place you know severity trends are up 10 points.
And we need rate and we want to make sure any I mean, we believe that the regulators are rational they want to make sure that were open and available and have competitive rates because that's good for all of our consumers and so you know what I was referring to there is when things change swiftly. It's gotta go both sides and in many of the states that we work with.
And again the majority of the regulators, we're working with are really rational and get that they wanted to see the data, which makes sense. They want to make sure their rates are adequate for their constituents, but we definitely need a rate that is real.
Okay.
It feels real I guess, the second risk was just the kind of inline with the prospective rate increases.
Are there concerns there from when you talked to regulators.
That maybe what youre seeing them a severity side isn't long lasting and therefore, we don't want to give rate increases if that's the case.
Well, it's because our state regulated and there are different ways with which rates get approved and so different states look at it differently. So.
If you look at a state like California, there their department of insurance requires us to look backwards to fill up at some place. So while California was a little bit behind in frequency. It has picked up and is actually outpacing country wide at this point.
And so when you fill out those templates those those rate indications are gonna be distorted based on the data from our last year. What we believe will happen is it's.
It's not reflective of the claims activity, we're seeing so as frequency and severity trends earn in we'll be able to put that in the templates and show that we will where we're rate inadequate and then we'll be able to increase rates in California and for now we're going to reduce our marketing spend in California to slow our growth.
And continues to be able to update that department. So you know we work with every department and every department is a little bit different you can have file and use you can file a trail prior approval. So we work with each department to make sure we give them the data they need to feel good about putting our rates on the street.
Okay. Thank you very much appreciate it thanks, Mike.
Your next question comes from the line of Jimmy <unk> of J P. Morgan.
Hi, Good morning, So first I had a question just along the lines that have been asked on the auto business, where are you and you mentioned, California already but where are you overall.
Through the country in terms of your prices catching up to what's happening with frequency and severity and your margin sort of getting to.
What your long term goals have been is this something that you think happens in the next three to six months or so.
Could it be even longer as you go through the whole process with states like California.
Yeah, I think it could be a little bit longer than that depending on states. We think both will continue to need a little bit more rate and we're watching the trends carefully we've talked often in the last actually probably 10 years about wanting to take smaller bites of the Apple. So we're watching the trends closely especially because they've they've.
Change so.
So dramatically since March of last year, and so we're going to watch those trends and we'll react swiftly on what I would say is that there's a lot that goes into a premium including average written premium and that can change and it reflects differently depending on state. So you might have.
Oh, Hi average written premiums state like Florida, and if you don't have the right rates and you don't grow there that would affect countrywide. So there's so many different inputs, including our our consumers. So if you if you shrink in Sam's versus Robin. It then that will also affect our average written premiums because they have a higher average written premiums.
So we're getting there are we believe we will need more and then we'll continue to watch the trends again as they unfold and I shared in the opening question about how we're seeing the trends change a with our usage based information and then we'll react swiftly to those.
Okay, and then just on the property the homeowners business I think margins. Obviously, you talked that's recently, but margins have been weak as far back as I can remember so.
And I realize that you're trying to build the business but.
Is this a business that you think can be profitable on the underwriting margins on its own or is it subsidizing auto or provide you. Other benefits that you are willing to continue to underwrite it to a 100 per cent loss combined ratio.
So we're not we are not happy with riding at a 100% combined ratio, we want to make an aggregate 96 and all of our products. There. They are there and we have their friend, but none of them are over 100, I assure you that we don't want to subsidize we do think it's great for our customers. Our Robinson said what are our brand our home and auto bundle. So we'll continue.
To do that.
But we know what we've done has started to work but has not fully is not fully worked again. If you look at what has happened. This year a lot of it was based on catastrophes, if you look at and compare it to the industry.
And more of the non volatile states, we're actually very competitive. So we knew we need to do something different. So last year, we took up rates nearly 12 points. This year eight points and then we've talked about a cost sharing with our customers and more importantly, a couple of bigger things that we're doing to get us.
Closer to our profitability is we're going to shift.
Our portfolio of property over the next year or two so you know we have legacy states.
Where ASI was really strong and think of Texas, and Florida, Louisiana up through some of the other hail a hell alley.
We've had a lot of catastrophes, we have more exposure there because more of our book of businesses. There. So think of the rest of the state nonvolatile I'm the rest of the country Nonvolatile States, there's a little bit over 50% of our portfolio, we're going to shift that over time to be more in the six.
60% to 70% of our portfolio, so shifting away from the volatile catastrophic coastal states.
We're going to appoint more agents in those non volatile states reduce our agent and footprint in the volatile states and make that movement to have a more balanced portfolio and I talked in my opening remarks about some targeted non renewals and we will start to commence that specifically in Florida and working.
To work really around that focus on making sure we have more of a balanced portfolio. We built we are we still are very happy that we purchased ASI now progressive home, we believe that's in our future.
But our goal now is to get to profitability and we believe the things that we're doing besides the rate increases and and I should mention continued segmentation. So that is a big piece of it we're going to continue to enhance our segmentation like we have in the auto product and we believe those levers will certainly help us get to where we want to go.
Okay. Thank you.
Thanks.
Next question comes from the line of David Mcmahon of Evercore ISI.
Hi, good morning.
<unk> just around just around tariffs and conversion rates.
I'm wondering if you could just talk a little bit about.
What's going on in the direct segment I saw the conversion rates were down only 2%.
In the quarter, which is a little bit less than I would've expected given some of the rate actions that you're taking maybe could you just talk about why like why this is down did that surprise you that it was down that much if not more and I guess why is that more a reflection of some of the price changes.
That you're putting through just haven't hit yet or does that really just speak to the competitive environment and peers increasing rates like you are.
He is a great question, David and there's a there's a bunch of different things, including some timing of what was happening in quarter. Three of 2020. So when I think about you know conversion I would go back to our decline in new out so on the agency side, they're down about 14%, we think that prospect denominator.
It was elevated in 2020. So in 2020, there was virtually no shopping in quarter two that moved to quarter three and then this year. In addition, we pulled back on advertising. So we think conversion was stable. So we do think we still have a fairly competitive product on the direct side on the agency side, our new apps are down about 20%.
That prospects were down slightly but conversion was down a lot that was really due to material tightly underwriting restrictions, we've put into place rate increases and there's like there's like three big states, where we have material drops in conversion again.
Timing wise that maybe overstated, even a bit based on the fact that there was a lot of stimulus going on at this time last year and we also had high conversion in Michigan based on some coverage reform, but you talked specifically about the direct side I think you know a lot of that has to do the reduction has the has to do.
With advertising from the new apps that we feel good about our conversion that could change as more rates come in and as we reduce more advertising you guys want to add anything briefly.
Briefly the other thing that could influence countrywide conversion is the mix of quotes we're getting across geography, so with direct advertising you have the ability to generate quotes at a very local level and if we have concerns on profitability in the air.
Area, where we previously had higher conversion, we were shut off or reduce the AD spend in that area and that would then show the decrease in conversion just by that mixtures. So when we're adjusting.
Adjusting AD spend at the local level you can see changes in conversion in total simply by that mix. So right. It's one thing for sure, but interestingly on the direct side.
You can also influence conversion based on your marketing spend.
Yeah, I would add just one further thing that when our prospects fall because we spend less than your conversion naturally goes up simply because you've got more engaged consumers when you're spending less because they're motivated to come shop. So that will have a counteracting effect on conversion that will offset some of.
What rate increases would be doing.
Got it that makes sense yeah. So it sounds like we need to think about just quote volume as well in combination with just the conversion rate as well one when thinking about that so that's helpful that makes sense.
And then I guess just for my follow up I guess I just had a question on the five points of rate that you've taken so far this year.
My understanding is some of that is on new business. Some of that is on the renewal book I guess, you know when I look at the policyholder life expectancies. Those were also a bit more resilient than I would've expected.
Maybe could you just talk about how much of the five points that you've gotten this year has been I guess, how policyholders existing policyholders seen a lot of that five points are yet or is that still a is that still on the come.
Yeah, I would say and Pat you can add anything I think that is still yet to come because think of think of if we had a a rate change on the streets are they started today and I renewed yesterday I had the old rate. So I've got that for six months will have some we have some inflationary measures that work into there.
Monthly rating factors, but that I wont get that new one until six months and then it earns in over that six months out it really depends on timing in each state and remember it's 5% in aggregate. So it's different in different states, depending on our needs. So that rate will continue to earn in and that's one of the reasons why we continue to have the majority of.
Our auto policies, our private passenger auto policies on a six month a position. So we can be more nimble when we need to get right.
Yeah.
Thanks, David Thank you.
Your next question comes from the line of Greg Peters of Raymond James.
Hi, Good morning, I know you've commented in the past on this but given the changing.
Sort of moving parts within new business versus renewal.
Maybe you could just revisit your comments around you know the.
Loss ratio or combined ratio performance between the different cohorts.
I suppose if new business is a little softer.
Vertically you should get a corresponding lift if there is in fact, a new business penalty.
Yeah, I mean, I see I think I get your question you guys hit on I mean, you know new business has it has historically has a penalty when it's put on the books and it's different in agency and direct that's why it's so important and we talk a lot about our Holy Grail being renewal business, because we start to understand our customers better and on the direct side, where we're loading all.
All of our marketing costs on that first six month policy on the direct side.
So I think when we look when I look at that we look at it differently, new pets versus renewal pests that renewal pits are still up that could change I think David asked the question about PLE were still up 4% across both channels are trailing 12 P. L. A so we hope that continues that could fluctuate depending on how much rate we need.
And then again with new with new paths, we are down slightly maybe 10%, but again that is very dependent on on different commercial our tears marketing here. So we're down much more on Sam so that affects that as well. So there's a lot of different factors that go into.
Both the new and renewal and does that answer your question or do you need more information.
Well it does answer the question, but I'm always I always welcome more information if you put it.
[laughter] well the one thing I would add to that is that.
You talk about the new business penalty of course, as Tricia mentioned, our direct business there isn't a huge expense slowed difference. So as were writing fewer new customers that flows through in advertising spend as well so there's certainly a benefit.
And spending less and getting fewer new customers on the direct side in terms of costs in terms of loss ratio, we see a bigger differential between new and renewal on the sand into the spectrum than on the Robinson and their spectrum. So to the extent we are reducing our assay.
<unk> coming through the door relative to Robin since it would it would have a bigger benefit on the loss ratio side. So theres some of that coming through but you also have to recognize that our book is heavily heavily weighted to renewal customers. So it can have some benefit but in aggregate.
We need the benefit of the rate flowing through the book, the new and renewal customers, it's going to flow through renewals sooner and there's far less elasticity in our renewal book, So you'll see average premiums rising sooner and more likely on the renewal side on the new side customers are shopping and it's a highly elastic market will see.
Some of that rate, we will see a little slower and we'll probably see a little lesser but simply because there are other options nor can place and we move faster than others. When it comes to taking rate when we need it. So we think and we've seen historically or at least that.
Competitors are seeing the same trends we are they will need the same price changes it may take them longer so we might see a bit of imbalance on the new business front for a while but again our experiences.
<unk> see the same thing they catch up and by the time they do we're in a very good position.
We're confident in.
<unk> growing more in turning advertising backup and in the other growth levers we have.
Yeah, that's great and as long as as long as Greg you want more information. If you go back to the last time, we needed rate like this would be right around 2012.
And we did the same thing we you know we have a great pricing organization and Theyre able to get the rates on the street relatively quickly usually before our competition. So when the market turns hard we believe we are more competitive and that's really what we're positioning ourselves for right now.
I appreciate the color on I guess, the second question is more detail oriented because you've mentioned that I'm talking about Florida Pip.
You've mentioned that we've heard it from others.
Maybe you could just take a minute and provide us your perspective of what's going on with that.
When we see charges for a specific issue.
It's it's it's my perspective that it's never one bite at the Apple fixes that it takes a couple of bites before it's you finally got it resolved it so.
I'm I'm left wondering with Florida Pip, if if we're not you know in the third or fourth inning, and we're going to have a couple more adverse hits from that specific issue before it resolves itself. So just some history on what's going on there and what you think about going forward.
Yeah, I mean, Florida Pip is is such an anomaly in terms of what can happen with a plaintiff bar. There. So you can eat something he can go through the system and it can seem really good and that is challenged and if it's lost in one part of the state and then appealed and lost or one.
And one part of the state different things are always happening with what we have currently we feel very good about our reserving for Pep and where we're going that can change at any time, because plaintiff attorneys in Florida, specifically can challenge anything and then you have to you know make sure you are thinking about the future do you have to reopen.
We tried to do in anything like this happens where a cases lost by by a competitor and you usually when it cases lost by us or any competitor. It affects the majority of the competitors and then we determine is it worth fighting how long what does it mean exactly and we work towards getting it ramped up and that's really what we're doing right now we're just trying to wrap these awkward.
Trying to do some bigger global settlement of a maybe a law firm that has many of our insurers with this litigation to get them ramped up quickly and as inexpensively as possible.
Can't tell you that something won't be challenged next year. It will tell you that we've talked about it more internally because E. Florida Pip goes with these ebbs and flows of what happens depending on what happens with pepper form or not and so we start we're starting to think more with Florida Pip almost like you do a cat load in some of those other states and become.
This does this does come off and so what I can tell you is we're looking at more like that which is differently than we've done in the past.
Yeah.
Got it thanks for the answer thank you.
Your next question comes from the line of Paul Newsome of Piper Sandler.
Good morning, Thanks, Thanks for your help.
I had a couple of questions on the home business in particular.
First one.
How impactful is the whole non renewal on growth.
Pardon me.
It's been a long time since you've actually done.
On renewals, but we'll call it.
Obviously, the auto piece, there's room for you guys is that something we should see in the numbers or is it just pretty small.
Well you know we have a number of of what we believe will be non renewals and then we take it down to each customer to say are there are there customers that have maybe something has changed with their home that they've updated their roof that we can continue to have on the books, we will look to see if some of our unaffiliated partners could help if they.
I want to take the customers, so and it's going to take a while because we there's a there's actually ah.
Frame with which we need to work with the.
The Florida Department to make sure that we give them a lot of notice so you're not going to see those those first time renewals happened until may of next year, but we think it'll be significant because this cohort of customers are really really really unprofitable and so we need to get there. In addition to moving our footprint more towards non volatile state.
So there's a lot of work to be done before we know the exact number we obviously have a.
Number of where we think we start with and then we're going to try to work with our customers. We also well give the customers an opportunity to stay with progressive if they opt into the new roof payment schedule, which is where there will be some coverage option to share the cost of the replacement with us. So a lot going on there no we don't do nonrenewed.
Very often it's it's you know and.
Usually you try to get the right for it but these customers are very unprofitable, we couldn't get enough rate to have them ever be close to profitable and that's why we need to do that it's never something we want to do but as we looked at our whole portfolio and our strategy going forward. We realize this is an important piece to set us up.
To start to set the ships right.
We don't know exactly how many customers will have to now renewing as Tricia said, we're trying to work with customers for options to stay with us.
You should think of a very low single digit percentage of our policies enforced countrywide, but this is not a huge shift, but it's a shift as tricia was saying geographically so while we want to.
Reduce our footprint in the volatile states, we want to grow.
The less volatile states. So in aggregate our objective is still to grow its simply to grow in different areas.
I actually wanted to follow up on that comment on the move into the <unk>.
On coastal states Louis volatile states.
I would've thought that.
Maybe I missed that you would've had a lot of these agents.
Already signed up you have a pretty darn broad national.
Terry or agency distribution to begin with.
Was there something in the process that kept you in earlier years.
Expanding earlier from an agent perspective or.
Because I would've thought that.
Today, you pretty much have all those agents you'd want.
Outside of the coastal areas signed up.
It's our original plan when we purchased ASI was more of a scarcity model and so we had platinum agents that are or appointed to sell auto and home. So we have a lot of opportunity to appoint more platinum agents in a nonvolatile states. So a well that's what we're working on right now.
Great I appreciate it thank you.
Your next question comes from the line of Ryan Tunis of autonomous.
Hey, Thanks, good morning.
I guess when I think about it yeah sorry.
Clearly a successful deal from a group standpoint, but the value proposition to agents.
Seemingly been that you guys would write good insurance.
You know kind of explore in states like Florida, Texas.
I guess, what I'm trying to think about as you know we've seen good growth with the Robinsons.
But most of the actual LIBOR because in those two states how are we going to continue to grow the robinsons.
Kind of given.
This geographic move in and our agents reacting to it in Florida and Texas.
Well you know even right now in our Nonvolatile States is actually we have about 54%. So we do have we have been expanding over the last several years to have less density in those states. So we we are purposely doing this to make sure that we can take care of the majority of the consumers there.
Like we said with the Nonrenewals that we can and I think I think insurance gets out I think agents get bad because they also see the data so for us to make sure. We can protect those states we need to make sure that we are you know we only have so much density in those states so for us yes.
Florida, and Texas are a big part, but still the nonvolatile states are a majority of the 54% we're going to get those to 60% to 70% over the last couple of over the next couple of years and when we look at that compared to the industry. We outperformed based on that state mix again, we got to change that the state mix to make sure that flows through with everything.
And then I guess another fault sounds good.
So I was going to say something so I was just going to say you know you referenced sort of a majority of the book being in those two states, that's a little heavier than reality and since.
We became owners of Eric says.
We have been diversifying the book now it hasn't always been the less volatile states. Unfortunately, so we are growing.
Other volatile say think Hale alley.
But we have done a lot to diversify the book, we've just come to the more recent realization that we need to diversify more and faster.
And I guess.
One other thing is.
I'm wondering if maybe you guys are older reacting just a little bit to the elevated.
Even this quarter.
You guys have done a great job with reinsurance.
Accounts are still not a significant part of your loss costs rolling through the most insurers.
I'm just wondering.
Why this is really that big of a deal, especially because you have the reinsurance you know I always talked at home was more not a loss leader per se, but the purpose of selling homes.
We own this business and it's been successful so why abandon that or why you kind of move away from that simply because you have an extra couple of points of care.
Well our purposes have worked to have so having home specifically in the agency channel was to grow more Robinson, but it was never going to be a loss leader it was to make money on the home and make money on the auto bundle have great client service, so that hasn't changed.
So you know I might say, we were overreacting. If we did this a year ago, but we can't eat or two years ago, we continue to see quarter over quarter, where are we were struggling to make money in cats is a big part of it reinsurance is great, but it doesn't come without a pretty heavy cost and so we want to make sure that we use our shareholders' capital in.
The right way and we believe this is the best way to do it that we just got it.
Got it.
Yes.
We are not only reacting to the results we've been digging harder into the modeling and looking at our exposure or what there could be a look.
Like even after reinsurance so while we are heavily reinsured.
You know pretty tall power relative to our.
Total insured value, especially in those cat space, there are still potential scenarios and that's what we're trying to manage the tail risk is still there we havent seen it but we want to be proactive in managing that so that we don't see that down the road.
And the one thing that I would add on top John and I think you mentioned it but it's not about shrinking our book and the volatile states, it's about accelerating growth in the less volatile stage, while we have a period of time, where we're investing in product segmentation and as Tricia mentioned product features the risk share with our customers. So don't think of it as a bank.
And then in the property business in any way shape or form it's a temporary acceleration of growth in less volatile stage till we get to a more comfortable balance between volatile and less volatile.
Got it and then just one quick technical one.
Oh, the disclosed auto rate increases that you gave us how much of that is coming from the monthly rating factors.
A small part of that.
Thank you.
Your next question comes from the line of Tracy been Goo-goo of Barclays.
Good morning.
Help me understand how it works in practice the process you go through the requested rate increase in our filings eat because it doesn't seem to be as simple as violent.
We'd been seeing docs and sports objections and iteration. So maybe just to walk through an example in Texas.
It's our understanding that the public hearing on your previous set of filings has been postponed due to ongoing settlement discussions in the meantime, it looks like you've submitted two new rate filings for your independent agent indirect isn't it so I guess, where I'm getting at is how long can a filing being a state of limbo way past the requested effective.
Yes.
Great question, So we'll use Texas as a file and use states. So we.
We put the files out there and we're able to put them on the street they don't need to approve the filings. However, they can disapprove. They have not disapproved are filings and rather filed objections without subjection don't mean rejections of our rate what that means is they want more information. So we've been working with the T D I am making sure.
All the information we can have to support our rate level and in fact since April we have done three rate increases one, but just a couple weeks ago, so heading into the fourth quarter on the total around 13%. So we don't have a rate hearing in fact, they issued a notice for our.
July filing, but rescinded because we're trying to work back and forth on making sure. We do the right thing again, we have a we have a good long term relationship with the TDI and we believe they are rational and they want the data to make sure. They do the right thing and if you look at the filings there met where we're in good company with many of our competitors where they are.
Or asking for more information, we want to be competitive and open and available for the people of Texas. So every state is that it could have a little nuance to it but that hopefully gives you a little bit of light of Texas objections, as just the back and forth of data.
Is there an exploration of those back and forth discussion.
No typically or it'll reset a clock. So some states will have a dream a provision where if there's not an objection filed then it will be deemed approved after a certain date, but the ongoing especially in preserving great relationships with our regulators. If there's open questions, we want to be transparent and provide them the data they need to do.
Do their jobs.
Okay and also it looks like.
Not the only one many insurers are making filing rate increases, but its not uniform like the largest auto writer is lagging on those efforts so how can that uneven.
Uneven it like impact the progress if rate increased discussions with your regulators and how do you think about increased shopping behaviors.
Well the competitive environment that we operate in some pretty different business models. So whether you have a mutual structure or a stock company is as two good examples and as a result, there's different motivating factors different profit objectives different targets. So you know, while we can't comment on specific carrier.
Action, we operate our business to deliver a Fisher said, the four cents and grow as fast as we can and that May mean that our growth is a little lumpier, but our profitability is generally pretty consistent.
Yeah, I guess, if I look at the last time the market try to push rate increases like call. It 2015, it just seem like a wild for the mutual to catch up and many of them now are taking notice and maybe acting sweatshirts, it's a different company by company, but I think that you just presented opportune.
Needs for shopping in general I'm, not trying to pick on one insurer.
How do you think about that in general.
We fully expect as as rates go up that will create shopping and we enjoy we believe a larger share of the shoppers than we do of the overall market. So generally that's been good for us when there is a hardening market that create shopping we benefit because we're broadly distributed and try to be available, where when and how consumers want to shop for and buy insurer.
Orange.
But we're not we're not going to change our model because this has been a model with some of the mutuals for many years and the money they make us more on the investment side, we are still going through with many of our competitors, we want to make a profit on the underwriting side, we want to grow as fast as we can but we're not gonna knowingly put a bunch of unprofitable business on our book and that's why we're in.
We're pulling back on advertising and doing the rate increases, but again like I said in a prior question.
Believe it's really positions us well for what we believe might happen as a as the market turns and we will be positioned when they're shopping happens we're going to get a lot of that business and when that happens we don't exactly know, but that's why we're positioning ourselves where we're at now based on the data that we see.
Okay. Thank you.
Thanks Tracy.
Your next question comes from the line of Josh Shanker of Bank of America.
Yeah. Thank you for taking my question can we talk a little bit in the transition when the business under priced.
And your competitors are raising price customer store likely to come to you maybe at a margin that's not entirely a trip active green mountain business, that's going to come in the doors in the next three to six to nine months, even without advertising I think people will come to progressive because of your funnel.
How what's the stickiness of that business at the current price how do you think about the margins on that business and what is the long term value of.
The customers who are coming in in the hairpin transition.
Yeah, I mean, besides the advertising, we really do try to have some tighter underwriting restrictions to not have as much of that business come on the books clearly they're going to come on the books because timing is everything and so we will get some of that business. Some of it will be underpriced and they'll get it in renewal and some of it you know if it's.
If it's overpriced and they shop that will leave and that that'll be okay, especially with what we believe is our industry, leading segmentation, especially if we have data from our snapshot. So.
It's hard to say in an environment like this because there's so many variables happening, but clearly we'll get we'll get some business on the books based on our brand and people want to come and and the pricing doesn't hit all at once in the industry.
Yeah, No I think that's exactly it over the lifetime of these customers, we do expect to hit our targets and we do price to a lifetime model. Additionally, theres value in selling other products to these customers and establishing a relationship with them now even after they may not be priced completely to target is not a bad thing for the long term.
Health and growth of the business.
And.
So I can get too much the Sams I guess are going to be looking for the best prices. It feels like you guys are about six months ahead of the industry and adjusting your price.
Kansas, Sam find a provider with a smaller funnel them progressive.
Who hasn't raised their price yet or are you still going to pick up a fairly good share of Sam regardless, even while you're raising prices.
Cause your customer acquisition capabilities are so strong.
Yeah, I think standards or would be able to find a price out there and in fact, I talked a little bit about new business has been down and they're down mostly in the sound it because they they they're one inconsistently insured and they frequently shop, because it isn't really about price. So yeah, I think they'll find out and then when they are the same.
This is very much about price so as those companies raise their rates they'll come back to us at that point will be competitively priced to make a lifetime 96 on those Sam's.
Thank you very much thanks.
Your next question comes from the line of Mayor fields of K B W.
Thanks, Trisha I can't disagree with your viewpoint as the regulators as being rational, but sometimes it takes a lot longer than we would hope for that to manifest itself. So I was hoping you could clarify.
The difference between the indicated rate increases that we would infer from frequency and severity trends in the 5% that you've gotten so far how much of that is regulatory friction and how much of that is progressive slowing the increases to maintain.
Retention.
Yeah were not trying to slow the increases for retention. If we slow increases just because like I talked about in California that mechanism is more backward looking than what we're seeing in the claims. So you know we will try to get the amount of rate. We think we need at that time again small bites of the Apple and as we see more data.
Either wont raise rates or like last year reduced rates or raise them a little bit more but the regulator timing is really an individual conversation, we're having across the country. I gave a couple of examples in Texas, and California, and California is probably going to take a little bit longer. So we're going to try to reduce our growth there.
But I think it's really where we priced our indications and we look at that prospectively.
Yeah. The one thing I would add is there's just acceleration in our rate take so the 5% is a year to date number and as Tricia mentioned in Q3 and half the country. We increased rates about 6% got three in that period. So there's six months of the year before we saw the real frequency recovery that we.
Were still lower than rates, frankly, and that's factored in there.
Okay, and that's the pricing compared to I guess.
Of year 2020.
Correct.
Okay. Second question can you talk about what the catastrophe loss exposure in homeowners it means for small commercial property.
Yes.
So our small commercial property book is very very small.
While we are trying to grow our business owners policy program.
And I think we're out in 29 States 31 now.
So after the Q and 31 by the time, we have the three things are our property exposure at this juncture in commercial lines is very minimal we aspire to.
For bigger share of that business and at that point Youre right. It will be something we need to manage proactively at this juncture, it's really not material.
Okay perfect. Thanks, so much.
Yes.
Your next question comes from the line of Elyse Greenspan of Wells Fargo.
Hi, Thanks. Good morning, My question is going back to the personal auto weighting discussion.
It's just that you took about six points of rate in the third quarter.
That still does put you below where frequency.
Severity or in a combined basis Tricia I think earlier in the call you said that it would probably take more than three to six months for all of its way through the system and when you make that comment I was just thinking that you know at.
At some point get the approvals and get rate in excess.
That's a trend or are you also assuming maybe that severity, which has been elevated.
By the supply chain issues that over that time period severity trends might improve or maybe it's a combination of both.
Well I would say and I'll, let Pat add what he has well you know we will we will look at prospective need for rate increase and that's why we're following the trials so closely and again. They there is so volatile based on what's been happening in and could change back and forth. So we'll continue to get that and we will likely at this point if trends continue.
You'll see that will need even more rate in the fourth quarter and probably into Q1.
We price to our expected cost and as far out as we can see the effective date of a revision of the average date of that revision, we're setting our prices based on where we expect trend to me if trend continues to accelerate we will continue to take rate.
The mailing rates will slow our rate tick and.
Not file for additional increases that's why it's important to be really nimble and that's why I often talk about our pricing group and what we're able to get to really quickly and decisively and if you couldn't do that you might have to take way more right. Because you know it's going to be a big issue to do that but we're able to be so nimble that we can do that.
Watch trends and if we need a little bit more or not we can act accordingly, and that's the key for individual consumers right. So they get a small increase at renewal, which doesn't prompt them to shop as opposed to somebody that wage and if they wait six months or 12 months and at that point, you need eight points of rate or something higher it create shopping in your book, that's just not how.
So frankly for the health of the overall book.
And then my second question I'm, sorry in terms of capital management.
Sure.
Our quarterly dividend.
Back a few years ago and then.
You do have still been paying a special dividend at the end of most years. This year. Obviously, you know growth is a little lighter given the rate the rate you're taking and also we've seen you know profitability would be impacted by losses in auto and.
Home is a prospect for a special dividend still on the table or how should we think about when thinking about capital return for this year.
Yeah. So we're meeting with the board in December and they will they will ultimately make the decision on the variable dividend and what we would intend to give it throughout the year. We look at all the inputs like you suggest to determine what makes sense and that's one of the reasons why we changed the dividend policy several years ago, because it can from a timing.
Perspective being different from what we're seeing internally from the gain share program that we aligned it with several years ago.
So we're working with the board and ultimately it will be their decision in December on how much. They believe the variable dividend will be for this year.
Okay. Thanks for the color.
Thanks Elyse.
Your next question comes from the line of Brian Meredith of UBS.
Yeah, Thanks, Trish I'm.
Back on the personal auto.
Just quickly here.
So what is your expectation kind of claim severity here going forward do you expect this inflationary environment to persist here for a while so when you're thinking about filing rates that you're kind of assuming these kind of elevated severity levels.
Well, we're watching them closely because theres so much in play. So obviously, if you look at the severity on collision, it's up 14% and you've been watching what has happened as an example, with the Manheim used car index I mean, even the first two weeks of October it was up 8% over September.
And then if you look at October 20th of October 'twenty, one it was up 37% and then pre pandemic to now up over 50%. Those are huge increases we've never seen so we'll have to watch and see what happens with are the supply of chips does that open up the supply demand of new cars and used cars, we do have.
We're all set a little bit with frequency on salvage returns. So we're going to watch that closely but we haven't seen yet in body shops are labor rates, increasing they've been relatively flat, we'll watch that especially when you think about talent in that area and we have seen the labor I mean parts prices up right around five.
First on some of that inflation and some of that is just inherently expensive parts on more expensive vehicles. So those are the things we're watching and we have a trend meetings. All the time really closely to see if this sort of inflation is transitory or baked into our system.
Okay, so to be determined I guess.
And then I guess my next question, maybe just to simplify this a little bit if I look back historically is generally taken you all about six to nine months to kind of get enough rate for margins to kind of return to more normalized levels.
12 to kind of happen that way 16 kind of happen that way is there anything different this time around we should kind of expect that you'll be.
To give enough rate to the system too to become kind of readout.
Six to nine months.
Yeah, I think 16 was a little bit different because most of the rain. We needed was on the commercial side and those are 12 month policies.
I think what we've been talking about a lot on this call with regulatory are just some of the objections and it might take a little longer it with those states as we provide more data.
But we expect to to as we have in the past being that position and ethics and months' timeframe hopefully sooner.
Great. Thank you.
Thank you.
Next question comes from the line of Tresiba loses of Barclays.
Thank you. Thank you for taking another question very helpful contacts to hear that you wanted to keep multiple bites of the Apple and be agile as youre thinking about future rate increases.
But I'm just wondering you know as you're as you're thinking about it is that 6% that you took in the third quarter is that in your view more of maintaining where you are in loss trend or that be getting you know more into the long term combined ratio target.
No more on improvement of margin.
It's an improvement of margins and where we're at with the data we have now and that we do look at those prospectively, but if we believe we need more and I and I think the question that Brian just asked makes a lot of sense. If we're watching some of the inflationary trends and we'll watch those closely as we believe we will need those and we'll we'll get more.
For one point of clarification and a little more color. One is that we've heard twice people say, we took six points of rate in the third quarter. We actually took three in our personal auto we took six points and about half the country, which gets you to three five year to date and we're going to continue to take rate so whenever you're taking rate there either.
Well, either or both catching up from what you didn't see when you first pricing or your pricing for the future. So in a perfect World you just always pricing for their future and your previous pricing was perfect. That's normally not the case you are either a little higher a little lower than your previous pricing. So some of that adjustment is cut.
<unk> up in this environment, it's catching up frankly, but it is also looking forward as to what we believe.
Frequency and severity trends will be for the coming of life of that rate revision, we had 612 months. So.
Just wanted to clarify on what we've taken year to date and we see it is to some degree are catching up but to a large degree ensuring we have very adequate rates on the street going into 2022. So they were very confident to turn on more advertising and other growth levers, yeah, I would add that sort of.
Why I gave the percentages of what happened with used cars and obviously the things that have happened with the supply chain I think the industry overall, miss that because who would have ever thought he was parts would go up to that extent. So that those are some of the things where we're catching up again, yeah that 6% was in 20 states.
Yeah.
Yeah recognize 20 states appreciate it thank you.
Thank you.
We've exhausted our scheduled time and so that concludes our event.
I will hand, the call back over to you for the closing scripts.
That concludes the progressive Corporation's third quarter Investor event.
Information about a replay of the event will be available on the Investor Relations section of Progressives website for the next year you may now disconnect.
Yeah.