Q1 2022 Progressive Corp Earnings Call
Welcome to the Progressive Corporation's first quarter Investor event, the company will not make detailed comments related to quarterly results. In addition to those provided in its quarterly report on Form 10-Q, and letter to shareholders, which have been posted on the Companys website would I C. E O. He Tricia Griffith will make a brief statement.
The company will then use the remainder of the event to respond to questions.
She is motivation for the event will be progressive director of Investor Relations, Doug Constantine at this time I would tell me event over to Mr. Konstantin.
Thank you Emily and good morning, although our quarterly Investor Relations events often include a presentation on a specific portion of our business. We will instead use the 60 minutes scheduled for today's event for introductory comments by our CEO and our question and answer session with members of our leadership team.
Questions can only be asked by telephone dial in participants the dial in instructions may be found at investors if that progressive dotcom 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 or results to differ materially from those discussed during today's events additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31 22.
One is supplemented by our 10-Q reports for the first quarter of 2022, where you will find discussions of the risk factors affecting our business safe Harbor statements related to forward looking statements and other discussions of the challenges we face before going to our first question from the conference call line, our CEO Tricia Griffith will make some introductory comments tricia.
Good morning, and thank you for joining us today.
First series or a natural time to look back on the past in a sense. This is the first investor call a progressive 85th here I wanted to do just that.
We have grown from a scrappy startup trying to find a foothold in the great depression.
10th largest homeowners carrier.
The third largest personal auto carrier.
And the number one commercial auto carrier.
And just the last five years, our total companywide written premium has nearly doubled.
Nowhere has growth been more remarkable than in commercial lines, which just passed a major milestone of over 9 billion in written premiums on a trailing 12 month basis.
We grew commercial auto premiums over 200% in the last five years, all while generally achieving a better than average industry profit margin and ended March just shy of 1 million commercial lines policies enforce it.
It's truly been an incredible run with significant opportunity still waiting to be captured.
Congratulations to the commercial lines team and thank you to all progressive employees and customers who have made the last 85 years so extraordinary.
Throughout our 85 year history, we have worked through many hard and soft markets and we continue to address the hard market. We're in today.
While some indices suggest the value of used vehicles, there's leveling or even beginning to decline used vehicle values are still significantly above those of early 2021.
Steady, but increasing trend in bodily injury severity has also contributed to the increase in loss costs we've experienced.
Further as a country emerge from the Omicron wave, we saw personal auto vehicle miles traveled recover to fourth quarter 2021 levels, which were in the 9% to 10% range below the pre pandemic baseline.
Our response to these trends have been to reduce marketing expenses increase underwriting scrutiny limit build plan options and in the first quarter, we implemented rate increases of seven points in personal auto the ceiling to earn in which is in addition to the eight points, we took in 2020 one while we're making progress we still have more work.
Due to ensure all of our states reach rate adequacy.
Our rate and non rate actions have had the expected effect on personal auto growth.
While personal lines Pip growth is still positive on a year over year basis sequential Pip growth is negative new applications are down year over year and our policy life expectancy is also declining.
When we look across all the metrics we track it seems likely that we're ahead of our competitors and increasing rage, which explains a large part of our slowdown in growth.
We look forward to the rest of 2022 we're optimistic as more states reach rate adequacy, we expect to be able to increase marketing spend and reengage the growth engine.
Because of the advantages we believe we have and the way we buy media, we can adjust marketing spend at the local and segment level and in such a way to ensure the new business, we write meets our economic goals.
And since we believe we're ahead of the competitors and taking rate actions. We hope to continue our long term trying to writing more than our fair share of quotes.
Even as we face these macroeconomic pressures, we have not slowed our pursuit of segmentation superiority.
Our U S personal auto product model is now available in over eight and over half the states and are showing early promising results, especially among more preferred segments.
We have also further expanded the footprint of our four dot one homeowners product into four additional states in the first quarter, bringing the total to 12.
Our new normal since the onset of the pandemic has been disruptions in the economy that is buffeted our business.
While there are many paths for future can take I'm confident in our strategy and our people and believe our greatest successes are still to come in the next 85 years. Thank you and I'll take your questions.
Yeah.
Yeah.
To be added to the question queue. Please press star followed by one on you'll find in order to get to as many questions as possible. Please limit yourself to one question and one follow up.
The first question comes from the line of Jimmy Birla from J P. Morgan Jimmy.
Jamie Your line is open.
Hi, Good morning, So I had a question first just on the pricing environment and.
What your expectations are in terms of getting price hikes through all of the states because I think some of the states like California, obviously, you've been reluctant to raise but I didn't give permission to raise prices are you seeing any changes in that.
Hum at all or do you expect changes opened up over the next few months.
Oh, we still have some challenges in a few states, including the one you mentioned and we're working closely with regulators to get the rate that we need.
Our desire is to be able to be more open to open up our build plan options to open up or to loosen our underwriting restrictions.
And once we get that right. We can start to have that growth engine moves. So we've got a couple of states that were still working with a couple of big States that we've had some success in and why we feel pretty optimistic about the future.
And the reluctance of California, and some of the states that have been difficult does it just because of the strong results companies had in 2020 and early 'twenty, one or is there something else behind it.
Oh, specifically in California is a little bit how they look back versus perspective, and so I think the data is showing that these are real trends inflationary trends and the need across the industry is very significant and we want to be open for Californians and will work closely with our regulators to.
To make that happen.
Okay.
And then just on.
The claims trends in January and February do you think your business saw a benefit from the Omicron me at all in the early parts of the first quarter.
I don't know if there was a huge benefit things opened up a little bit more but still vehicle miles traveled and frequency is still.
Pre pandemic levels are but do you want to add anything on that.
February did see vehicle miles traveled dropped a little relative to the fourth quarter of 2021, we've seen that since our return in March so a very modest benefit if any at all.
Okay.
And then just lastly have you changed anything in terms of how you're investing in this environment any sort of major classes that you're deemphasizing or.
Sure.
Mostly though youre seeing good value.
I'll talk a little bit about our investing guidelines and then John powers in the phone Jonathan you want to add anything let me know we've had a long standing approach to our investing and that is we don't want to target a certain book yield our level of investment income for that matter are we want to earn the best risk adjusted rate of return on our part.
Folio and most importantly, johns team at their most important job is to protect the balance sheet that way the operating company can grow as profitably and and as fast as possible John do you want to add anything.
Yep, Thanks, Tricia I would only add to that obviously the environment is pretty dynamic right now and you know we continue to search out for good opportunities that would create long term value for the portfolio, but always with a focus on number one protecting the capital.
And then getting the best total return that we can in the portfolio.
Thank you.
Yeah.
Our next question comes from countries like a minute from credit Suisse. Andre. Please go ahead.
Hey, Thank you good morning all.
Regarding the underwriting restrictions that you mentioned could you give a little color on <unk>.
What in particular, you're doing there.
Yeah, Andrew first of all I enjoyed your write up last week welcomed to our P&C insurance.
Yeah, and a couple of different underwriting restrictions. So we look at.
We will look at it gathering additional data, possibly if we have more questions on a customer so we call. It creep up pre binding verification and so we may ask a little more specifics to make sure. We have the garage you can adjust right.
And things like that do you want to add anything Pat.
No I think that's that's exactly what we do is you know when we Wanna be certain we've got all the underwriting characteristics accurately reported we will have some additional follow up questions for customers, both new business and then occasionally at renewal and Tricia.
We will put restrictions on how open we are from a build plan perspective and.
And other things just as we look at overall profitability you know we want to make sure we're getting the right rate for our new business customers at inception.
And as a result of these initiatives.
What percentage of your book.
Ends up with a.
Or has ended up with the rate change over the last quarter and maybe even the last 12 months as you've gone through these underwriting restrictions.
Well I think it's more of a entering in and getting the right rate at an assumption. So we've had a higher percentage of customers that once we have the additional information we have blocked and they've likely gone somewhere else because we don't have the accurate information.
I see I see and any any sense of proportion on that Tricia that you could give us like how much of your book Youre seeing that on.
Probably I would say of our incoming calls probably double digit low double digits, which is from a sort of have that when we were more comfortable with underwriting margin. So what we're trying to do it here is is to ensure that every piece of new business coming in the door is going to be profitable for us we.
I understand that there's a distribution or our pricing so on the tail, where we're less sure that we're gonna make money that is we're going to ask a lot more questions and frequently those.
Questions Lee to the customer seeking insurance elsewhere that is more frequently be outcome than an adjustment in the overall premium because frankly, some customers are looking to.
Achieve a lower premium by not answering the questions accurately. So some of these efforts are focused on that segment.
By pushing that segment to our competitors, obviously, we ensure that we're profitable and to the extent our competitors do not employ such methods it will affect our competitors adversely.
Got it and then just lastly, commercial lines you noted in the.
Ladder isn't it.
It was a remarkable 63% growth.
Is there optimism that you can continue to grow in the double digits and what would give you that optimism.
Well that growth was significant for a couple of different reasons. So we did grow double digits in all of our business marketing tiers, and we still are growing significantly and S. H T. In our for hire transportation based on still a massive amount of goods being moved across the country as cents a pound.
<unk>.
In addition to that.
About half of that increase came from our transportation network. Our renewals. So we had one of our partners. We went from six months to 12 months policies. So that obviously has significant we increased our projected mileage, which is how we compute a premium so that was part of the increase.
We had rate increases to reflect the inflationary environment and fourth we ceded loss to our reinsurers. So about half that increase was in Tennessee. So all that said even if on the commercial the BMT is that we have now the five on commercial even if they slow down a little bit the great part about.
What we've been doing and you wrote about this over the last several years is thinking about the future. So we just are getting going on our BOP our business owners policy small business continue to grow there we have a 37, new states and being rolled out in three new states actually in this year.
We have our fleet program, where we've expanded the number of power units that we write from 10 to 40, we had the acquisition of protective so medium to larger fleet. So how we think about really business and I'll at least horizon, one and two for now and ultimately we'll do that in horizon. Three is how do we continue to have growth even if maybe one.
One segment of that business may slow down or may fluctuate based on macroeconomic conditions. So I'm excited about all the opportunities in commercial lines. Because we've spent the last four or five years investing in the future.
Thank you so much.
Yeah.
Our next question comes from Elyse Greenspan with Wells Fargo at least your line is open.
Hi, Thanks. Good morning. My first question I was hoping that you could quantify what percent of premiums. The states represent what do you think the majority of rate increases behind you and then associated with that question. You know what gives you guys the confidence to make that statement about rate persists forward loss trend given there.
There is just so much uncertainty filled with both frequency and severity.
Yeah, I, probably won't dissect all of the states I would say that we feel I'm pretty positive that one we got ahead of competitors, which we think is important hasn't been important in the past and we're watching trends closely I don't you know the crystal ball I wish we had you know would help us, but we will watch those trends were still.
You know are watching labor rates instead of some other indicators that that could make us need to take more rate I think the beautiful part is we got out ahead of rate but.
Our hope is that the rate we take if we need to incentive states will be less will be the smaller bites of the Apple that we like that we like to take we obviously couldnt do it in this environment because the trends are so dramatically increase but we think there's a few states. We're working on we think that are the majority of our the rate action.
<unk> are behind Us and what we're really thinking about now is when we can pull the trigger on some of that growth and Pat and John and I sit down with the controller from personal lines very frequently to talk about return to profit and return to growth in that order and what we're looking at is.
State by State channel by channel are in the auto book and saying, Okay. If if you know April results come out here, we could we reduce underwriting restrictions could we open up a little bit of a local marketing and I talked in my opening comments about how we have the ability to do so in in each segment in each market.
Because of the way, we buy media, where it's it's a complicated question and Theres 50 shades of this and actually 100 because of the channels and that we're working closely to figure out what to do that but we feel confident and of course, we have that seven points to earn in so more will come to the store, but we're watching things closely.
Okay and then my second question you know as they've gone through this kind of this environment. If you got any change with just snapshot in the take up on your UBI product and then has there been any change in discounts that you guys have offered or the time period that you guys are observing with <unk>.
We're proud of.
He always we saw initially a pretty big increase in the take rate on the agency channel, which had been a challenge with us. So right now we sit at about 40% take rate on the direct channel about 10% in the agency channel and this of course is excluding in California, and North Carolina, where we were not we cant use telematics.
So that blended amount is about 28% take rate. We continue you know, we have surcharges and discounts and of course participation discounts and we continue to learn from those and really try to make sure that ultimately we try to price to the whole curve and that's what we'll continue to do as ours.
Nap shot.
Evolves.
Okay. Thanks for the color.
Thanks Elyse.
Our next question comes from Michael Phillips from Morgan Stanley . Your line is open.
Hey, Thanks, Good morning speaking of our evolving snapshot can you talk about I guess early lessons learned from I guess, it's been about a month and since you are going to continue with some one state kind of takeaways from that maybe what we can expect for that to be a national plan for you guys when that could be the case and then just what does that mean for you.
If you do go national for them, what does it mean does it.
Accurate pricing and therefore better loss ratios that are growth just kind of talk about what that means for you.
Yeah. It is literally been in one state Oklahoma for 30 days.
I'll have to answer that question of how it's going on maybe next quarter or the quarter after that.
We like continuous because especially as we thought about the pandemic, it's more responsive and change to driving behavior and we think we can you know the costs have gone down over time on both mobile and a dongle and so we thought it was a good time.
And you know we have I hope that Oklahoma will be successful and that will continue to roll that out once we have more data.
Okay. Thanks, a second totally unrelated question what percent of your new customers.
They come in the door start off by going online and end up switching from online to actually using a call center for you guys.
And I'm wondering.
Is there any.
Near term opportunities, we can take advantage of given some reassurance for glass competitor, what they're doing in their call centers.
Yeah, I think it's a pretty small percentage who used to be much larger, but I think our technology has gotten so much more sophisticated that more people finish the buy online when they're whether they're it's a small percentage.
Okay. Thank you Tricia.
Thanks, Mike.
Yeah.
Our next question comes from Gary Ransom with Dowling and partners.
Please go ahead.
Thank you and good morning.
Wanted to ask about claims counts in claims personnel.
You've had a lot of growth on the commercial side, maybe it's a little bit flatter, but I wondered if you are a little bit flatter on the personal line side, but.
But I wondered if you could talk to us about having the right people as things are changing rapidly and if theres any difficulty in.
Getting the staffing right there.
Yeah, that's a great question and you know over the years, we've really spent a lot of time, making sure that we think about the centralization consolidation, having the right file with the right representative at the right time, and we took advantage of the slow down when frequency plummeted during the week.
The Pentagon to do the same thing on the commercial line side, because it's such a different animal than what I would say is turnover is up especially with new hires.
And we're seeing that across the industry and across with entry level jobs that said we've had this recruiting machine that is just amazing and it has enabled us to really continue to hire at a rate that helps us to get out in front of our growth. So we want to make sure that people.
Not just here, but theyre trained and can do the right thing on behalf of our customers I think one of the things.
Is that I'm most proud of that we didn't do was to reduce our claims force during the pandemic, we were severely overstaffed for several months.
Mike Seeger, who was the claim as president at the time and I made the decision that we just couldn't do it we knew that this was for the country not for our company and that allowed us to have staff waiting and available when things picked up so we're going to continue to hire in advance of need on both the claims and CRM side make sure we.
Have the right training and both the virtual and maybe sometimes in office environment.
We also look at and this group reports to John Sauerland, our internal audit group looks at the quality of the files and we have seen a continued good results in there and that.
Can I also follow up just the ongoing just snapshot I know you've talked on other times without using snapshot.
Claims process as well as to have you.
I you cut out, but I think what you're saying it would be are you using that and the claims process. Because that's something we will definitely consider as we think about continuous we'll think about other services and claims could be one where we could actually help with the investigation.
And I'm sure our customers have that snapshot device.
So that's still a future thing youre looking out nothing currently happening.
Where are we.
Yeah, where we're testing all the time, that's so that's what I would say.
Yeah.
Got it thank you very much.
Thanks, Gary.
Yeah.
Our next question comes from Josh Shanker from Bank of America, Josh Your line is open.
Okay.
Yes. Thank you during the repricing in our marketing rationalization.
Our policy count growth and a progressive property was still fairly healthy.
I'm going to guess that you're not terribly interested in ensuring someone's home if they're not also going to give you. The cars can you talk a little bit about the difference.
Arrington, retaining sam's versus retain Robinson.
And getting new ones over the past nine months.
Yeah.
Yeah, I'll take a stab at that so you know Sam's are have always been to find you know as shoppers and so theyre very rate sensitive and so we knew we know that our retention is going to be less when we crank up rates on the auto side and that has proven to be true and we've had less of our attention in fall and are in a robbins.
Aside from the home perspective, you know we've been clear on our desire to Derisk and to get more of our non volatile storm states more in the two thirds of our book versus the 50% of it is now this quarter will start to non renew the policies that we talked about in Florida about 60.
Policies over the next year.
And we continue to try to Derisk, our portfolio with property. It takes a little bit of time, because there are 12 month policies and it's also reflective of industry pricing. So I think you've seen the storms that have happened in March and now again in April so a lot of it has to do with you know growth could be that.
Right now, it's still a competitive market because everyone's increasing rates, but where we're going to continue to increase rates and try to stay ahead of that trend and to Derisk our book a bit.
And so nothing that with the Florida non renewals.
Obviously, you're growing in 47 other states with fairly desirous appetite.
Should we should we feel that the industry deceleration in policy count growth overall for property or do you think that those are two.
Two things neutralize each other and it'll be hard for us from our perspective to be able to see that going through the numbers.
Yeah, I mean, our our our desire is to grow in a nonvolatile states. So we're taking action to do so with more agents that are able to sell our property book. So it's hard to say it again that'll be relative to what our competitors do and in addition, I talked a little bit in my opening comments about our increased use of deeper segmentation.
<unk> and the property products you know, we believe we have industry, leading a segmentation of the auto side or you know where our R&D departments work closely together to get that same level of segmentation in our in homes I think that'd be really important.
And in many of the states that we still have a you know a decent amount of a policy than we've been able to you know have higher deductibles have cost sharing so that you know that this was not treated as a maintenance policy that you know, we're just waiting for that hailstorm to calm and will replace your roof and so those are some of the.
Other things that we've changed I can't really we don't look out into the future and know how we're going to grow in a nonvolatile states, but that is our approach and I think it'll take some time.
Okay. Thank you very much.
Thank you.
Our next question comes from Greg Peters with Raymond James Your line is open.
Alright, good morning, everyone. So.
And your answers.
You mentioned, essentially getting returning to growth and and.
And I wanted to focus on the advertising piece of that.
Advertising spend is down in the quarter are down year over year.
I'm, just wondering whether you actually need the lowest price to win the customer or.
Put it another way.
Does the brand of progressive get you to a customer win even if you don't have the lowest price and you know.
We'll be advertising spigot returned back on if your most of your rate increases have been our BOP.
Thank you.
Oh, Yeah I do think our brand are you know would have us win in the marketplace. It doesn't always have to be the slowest rate, especially for people that have had experiences with us I remember years ago. When I ran claims we had a really high NPS for those people that had claims because of the way we treated them when when they need to smoke so.
Yeah, I think that makes sense.
And when we look at the difference between agency.
Agency and direct as far as like a PLE, we see that our direct has gone down less and we think that has to do with the brand. So you know what what Pat and I talk about is really state by state and we'll do some sensitivity analysis of if we turn on local marketing by X amount.
X plus X plus what we think could happen to new apps et cetera, we will only do that if we're sure. We're in the position to start that growth spigot, So where we are as anxious as anyone we weeded out like having new business at negative we want to grow we want to grow as fast as we can but again profit is.
One of our core values and that will Trump growth, but let me tell you. These conversations are happening every day and when we turn it on we will feel pretty confident that we're in a good position to do so of course things can change and will always be you know we have to be nimble with those changes and we will be able to do that based on the data that we look at.
Daily.
Got it.
And my second question I wanted to pivot U U U U.
<unk> talked about rolling out the new homeowners product can you just step back and tell us a little bit about that product and what differentiates it from what you were offering before.
Yeah, I'll have Pat take that yeah happy to talk about that so part of the segmentation that we need to enhance in the property side of the business is on the age of the home and the age of the roof primarily.
And we've just got better segmentation that we're bringing in as we expand that product over time. There's also some coverage expansion that agents have asked for but primarily it's understanding the risk better and recognizing that the majority of our losses are coming from damage to the roof on that home and capturing both the age of the roof.
The age of the home or in most cases, both helps us better rates and better underwrite.
And just as a follow up to that answer does that mean that the older the roof that you're you're.
There are different is there a depreciation schedules that you're applying allowing the customer to buy up for roof replacement I'm, just trying to understand how that fits with what some of your competitors are offering in the marketplace.
Yeah. It certainly varies by state what we can offer and you know when we talk about a market like Florida that limits, our ability to price a depreciated roof accurately that's one of the challenges that we see in a market like Florida, but we do offer a depreciation or.
Effectively a roof depreciation schedule for customers. So they're not I guess incentivized to have that roof replaced when its old and theres damage to it.
Okay. Thanks for the answers.
Thanks.
Our next question comes from David Moose Mountain from ethical your line is open.
Hey, Thanks, good morning.
Tricia you had said you believe that the major auto rate increases are behind you.
And obviously looking to turn on the growth.
Yes, just.
Saying that the major auto rate increases are behind you.
We'll have seven points of rate that's going to earn in over the course of the rest of the 22.
How should we think about the auto loss ratio and when that will start to stabilize and eventually improve do you think that the.
Second half of 'twenty, two event or how how how are you thinking about that.
Well, we just follow the data. So you know, we we watch as the rates earn into the loss ratio and we have a couple of big States, where we were able to get rate pretty quickly in namely, Texas, and Florida and so there those are two big states for us and so we'll watch those states closely to see when we think.
It's the right time to grow and again, we're watching all the macroeconomic factors that are going into the inflationary pressure specifically with.
Collision and property damage to make sure those don't continue to increase I think of labor rates and items like that so we'll watch those closely to make sure. We have the right amount of rates to start the growth.
Got it thanks, and then I guess, just thinking thinking about maybe on that last point, just some of the severity factors and trends that you're observing throughout the course of the first quarter and then also your outlooks could you could you maybe break down how are you guys.
We're thinking about us.
Used car prices as well as you know labor is one that you mentioned and and you know.
The outlook on those items as we move forward from here.
Sure.
Yeah. So so we've watched our you know we watched the manheim index pretty closely and even though there's a couple of data points that say, it's flattened or maybe even gone down it's still 35% higher than January of 2020. One so there hasnt there hasnt been a step function change and and dropping a used car.
Prices. In addition, we no accidents are happening at a higher rate of speed. So there's more damage. We know that our parts are up over 12% labor has only been up a couple percentage points, we're watching that closely just because of watching the unemployment environment.
And how tough it is to hire a in the industry and text in the industry.
And then because of body shop capacity, we're also seeing.
Rental car extensions of several days and so all those things kind of go into play when we think about Ah severity on both the collision in P. D and that's why they're higher I feel pretty good and pretty stable on the buy side in the last four quarters. It's been in the 6% to 8% range. We'll continue to watch that we haven't really seen.
A little bit of attorney Rep rate increases some of some of the general damages, which are the non medical damages increase but.
But we feel like that's at least stabilized over four quarters, but we'll watch that of course, but those are the big.
The drivers that go into that.
The extreme sort of severity trends in collision and PD.
Got it and as a follow up when you say that you're ready to move potentially to more growth in your rates. You know you feel like most of them are behind you. What is the severity view that you're baking into to that statement.
The severity view.
I think we're just looking to see if we can the severity will be what it'll be in terms of what's happening from an inflationary perspective. So we're just pricing to that and when we believe we can make our calendar year and lifetime target margin. The profit margins will start the growth.
It's important to recognize a lot of these decisions are made locally. So we are product managers, who are responsible for geography and product and they are obviously adjusting rates with their view and the pricing team's view of future loss trends.
Take the rates up and while they are fairly confident that the projections are right normally youre going to want to see some results come in before you open up the spigot on the new business side that said there are some geographies, where we have done that but there are also a lot of geographies, where we have either not gotten the rate we need.
Such as some of the large states, we mentioned earlier or we're still a bit tentative understanding if we have taken enough rate such that we can open up the <unk>. So it really is a day to day.
P M state and geography level decision on when to turn.
<unk> back on when to loosen their underwriting, but again I think one of the strengths. We have is that team of product managers, who are considering everything locally and making the best call. You know again on the day to day basis. So it's not something we can predict the sort of aggregate level, it's going to come down to state level decision.
And we're confident we're going to be making the right ones and each state at the right time.
Understood. Thanks, so much for the color.
Thank you David.
Our next question comes from the yarn Keener with Jefferies. Please go ahead.
Thank you and good morning.
Excuse me.
I was just curious.
Was the situation in eastern Europe and in Russia. It.
Seems like some of the European Oems have had some supply chain issues are you seeing that impact in the U S manufacturers or price of a.
Cars used cars parts and so on.
Not really I mean, we we see the same sort of bottlenecks and supply chain with chipset happened before what's happening in Russia, and the Ukraine and so there's still some there's still some supply issues, there, especially with new cars and that has of course increased used car prices, but that was prior to this.
Right Okay.
And then I think one of the comments you made around homeowners is that kind of your ability to grow.
Does it depend on the competitive the competitive environment.
Can you maybe talk about how you see the competitive environment in homeowners outside of the southeast and Florida.
Yeah.
But that's also sort of state by state as well because if you go out west. There's there's you know there's issues in terms of fires et cetera. So I think you know we we look at each say look at the proclivity to have a major weather events.
Understand our segmentation more deeply and then we look around at the competition.
On both the direct and agency side. So we've got you know the not just the the agency side, where we saw progressive home against some of the captives or bigger players, but we also have the direct side, where we have the opportunity to have progressive home as well as many.
Many unaffiliated partners and so we have some advantage to get Robbins says that are not always on our paper as well, but we look at when we look across the country to try to get try to get to the more non volatile states. We believe when we look at our results against the industry and non weather and in those states we were very competitive.
And we have a great and broad distribution network and those ground up volatile states.
Are quite committed to progressive as a company they use in their offices, so our independent agents across those non volatile states.
Im sure a lot of Robinson, so we have access to a lot of that business and we're going to spend more time going after it and I know you sort of excluded Florida in the South East and the question.
But it's really important that there are solutions in those states that are viable for consumers and the industry and it has been very challenging and some of those environments and so we're working with our regulators and legislators.
Find solutions, because Florida, specifically right now.
Is it a very disruptive market Pat was talking about.
Liability depreciating, our roofing, Florida.
You you must offer.
Full replacement value on your roof from Florida, So it's very difficult to find solutions for homes that have older roofs that are not up to code. So.
We hope to obviously growing the nonvolatile States, we also hope for solutions.
Some of those cat prone states that are again I've met them, both to both consumers and the industry.
Thank you.
Our next question is from the line of trace <unk> from Barclays. Tracy Your line is open.
Good morning, before declaring victory on rate adequacy with the exception of you keep the I'm wondering if you're seeing favorable seasonality in the first quarter like others, we're talking about and if so have you taken that into account when you say the majority of your rate increases are behind you.
I think our seasonality has been relatively stable as it has been in the past.
Not saying, we're winning Tracy I, what we're saying is that we believe we have we got out in front of our competitors are with rate from the data that we look at.
We're watching trends very closely.
Lots of caveats to that I'm, all we're saying is that with the rate we have from last year in their rates that we have on the street. We believe we're well positioned again lots of caveats on on making sure that we have enough and that we can grow in turn on that local media. So I'll Oh, and then maybe in them.
Two we can have a different conversation hopefully, but right now we're still Canada, but we wanted to just give some color on the fact that we're really proud of our our ratemaking machine that we're able to get out in front of that despite a lot of headwinds.
I hear your optimism that I'm also just wondering.
In some states or are you just simply reaching your maximum limit you think regulators will allow you to take or in theory, you're choosing to take more rate you could do so.
We you know we look at the data and we look at you know perspective race in terms of what we're seeing in trends and if we need more even in states, where we have already increased rates. Several times, we will share the actuarial data to get the right rate to get to our profit target margin and that's how we've always worked and I you know I think regular.
<unk> are thinking about their constituents because of all the other inflationary pressures.
This industry, it's been very clear needs rate has needed rate for some time since last year and now we feel good that we're starting to get it in many of our larger states. So I'm just optimistic because we were able to have great conversations great relationships in a couple of key states in many states across the board with key regulators, where they get it they see the data.
They understand it and they know the worst thing you can do is not give the right. Because then you're not gonna have a insurance available for their constituents and ultimately you're going to have to get the right. So it's gonna be over time there'll be bigger rates in the future. So I think that's how it works and so I am very optimistic.
Okay, and I know you make local decisions.
And are you taking any cross.
Cities like higher rates in states, where you have success to make up for REIT inadequacies in states like California.
No. We we have a very specific goal of I'm not subsidizing and to have every one of our products in the aggregate common two or a 96 combined ratio goal.
Okay, and sorry, just real quick you mentioned, the 20% take up in telematics is that for new business only.
What percentage of your in force uses telematics.
The 28% as enforce its no no no no I'm, sorry, new 40%, new interact 10%, New and agency yeah.
We don't report.
I was hoping maybe for UBI.
Sure.
Oh, sorry, sorry, if that's new what would it be for your in force, which is a lot larger than your new business.
I think we were saying we don't share that.
We don't share that okay. Thank you for taking my questions.
Thanks Tracy.
Our next question is from Brian Meredith with UBS, Brian Your line is open.
Yeah. Thanks, John first one for you just curious where do new money yields stand right now as of today versus your kind of book yield on your fixed income portfolio and maybe perhaps you could give us just a general sense of how much of your portfolio rules every 12 months.
Ah Thanks, I'll take that one so.
Don't don't like to give.
Give to specifics, but I would think in broad swaths.
If you look at March 2022 in terms of.
Where investments were.
Ziv.
Of treasuries it was about 2.5%.
And taking that out.
On either side of 3%.
Generally as you think about our portfolio with a three year duration than our size.
I would think about every.
12 months anywhere from sort of $6 billion to $8 billion of that portfolio rolling off.
Great really helpful. And then second question I'm just.
Curious Tricia would you would you care to speculate or tell us give us some sense of when do you think California will actually start granting rate increases.
Oh, Brian if I knew the answer to that [laughter], where all I can say is this.
Yeah, we're working with the regulators and doing all that we can because we want it we want to be able to open up and we want to be able to have affordable available insurance for California.
Most populous state we'd love to grow there and we'll do what we can do so.
Great. I mean is there I was just curious is there a amount of time that you're willing to wait to get those rate increases are you.
We're taking some pretty some pretty significant not underwriting actions there to improve results right now.
Yes, we're taking very soon with I can yeah, we're taking very significant non rate actions because of the inability to get the right.
And obviously, we will work well will work with the regulators to to figure out the best thing to do for our mutual constituents are.
We just need to continue to do so.
And can I ask just one more quick one I'm, just curious purely or continue to kind of drop pretty pretty significantly is that reflective of kind of a change in business mix or is that just the pricing environment and just maybe remind us exactly kind of with the purely reflects.
It really does reflect the pricing environment and I talked a little bit about the difference in agency interact with the agency being a little bit more elastic and.
When we look at P L lease.
Ex Texas, and Florida. They obviously don't drop is dramatically, which would tell you its pricing because we got out in those two big states pretty early.
And I think that the.
Our Holy Grail is retention, but we also have to be priced right and we also know that some consumers are trying to figure out you know can they can they change their coverages or do things differently or at snapshot and things like that to reduce their prices. So I know in our CRM organization, we continue to try to grow our what we call our customer preservation teams.
If they call in and they're challenged to pay their bill because of increases can we work with them on build plans on coverage to make sure. They're obviously still covered but to get them. The right right in order for them to stay but it is it is reflective of the majority of our with prices.
Just to reiterate a couple of points made earlier in response to that question.
We do see different elasticity bear consumer segments, so on the more preferred and less elastic.
The more non standard or salmon are more elastic.
Plays itself through and so the PLE change. Additionally, as Tricia noted earlier, we do see a difference by channel. So some of that's because our agents have access to other markets and might that proactively shop, but we also think there's some.
Brand benefits. So we do see less degradation in the direct channel that we do in the agency true.
Very helpful. Thank you.
Thanks, Brian .
Our next question is from Alex Scott from Goldman Sachs. Alex. Please go ahead with your question.
Thanks first one I had is just on the.
Personal auto MPW growth.
Yeah, I think high level, when we try to triangulate.
Pip growth you're getting in.
And the rate.
The MPW growth isn't sort of showing as much of the rate flowing through as I would've expected and just interested if there's any kind of mix shift or something affecting that or if there's any nuances to that that I should be considering.
Yeah, I would probably point to average written premium growth with the pricing increases come in and I think that's reflective of our new business growth in the overall growth.
A couple a couple of other comments on that so.
So what we did mention we still have seven points of rate to earn in and our personal auto programs. So some of the rate. We've taken has not yet affected the policies we report.
Written premium change so the earnings will affect combined ratio more so down the road, but if you look at the change in new average written premium versus renewal, you'll see renewal is up significantly more so as we take revisions that are predominantly base revisions those will.
Flow through directly to all our renewal customers on the new business side people shop. So we won't see all of that average written premium benefit for new customers.
Perhaps.
At any time, when we are taking rates up so there's some timing issues there, but we're also cognizant of the new renewal mix and how that flows through in terms of the total average premiums.
So we think the rate were taken as definitely earning into the book, it's being accepted by consumers actually at a little higher rate.
And then we've seen historically, which is also reflective we think of the market conditions. So we think the actions we're taking are absolutely resulting in.
It comes were expected.
Got it thank you and the second one I had is.
Just on competition.
You talked about some of the advantages you have in your sophistication with the AD spend and I'm just interested if you've seen anything as we've kind of gone through the pandemic, which I think was a bit of a wake up call to some of the more brick and mortar type distribution.
Companies are you seeing more competition. There are you able to execute that strategy to the to the same degree you've been able to in the past.
Even just thinking beyond.
Pricing is at the moment and relative to peers near term.
Yeah, and I would I would direct you back to our foreign strategic pillars that we talk about all the time and make sure that we invest in all the time and I have seen our.
<unk> strength there. So the first one is our people and our culture. Our most important competitive advantage. So during the pandemic. We have really made sure that we are connecting even if it's virtual to our employees I continue to do every new hire class I and I own about virtually and now more in person, but people and culture are real.
Important and it's important for people to feel good about being on a winning team. The second we've talked about a lot is our brands. So we're going to continue to invest in our brand and have some really great creative coming out end of this month or early June and then of course competitive prices that we've been talking about that.
For the last hour, we want to get to where we are really competitive. So part of that is getting the right rates, but it's also the continuation of.
Our superior segmentation and making sure that we care deeply about expenses. So we continue to create expense goals for the future and then lastly, and John have brought this up is our broad coverage. So we're going to continue to be where when and how customers want to shop and I think that's the key so regardless of if people enter the.
Independent agent channel or the direct channel we've been we've been in both for a long time. We appreciate both we appreciate the fact that consumers have a choice if they want to buy on their phone their iPad through an agent through one 800 progressive and we're gonna be there as they change, especially as we've invested more in business quite explorer.
On the commercial side home quote explorer so all of those four strategic pillars really work hand in glove to make sure that we stay competitive so I feel really great about our position.
Both channels and how we think about the future.
Okay. Thank you.
Thank you.
Yeah.
Our next question comes from Meyer Shields from K B W. E. Your line is open.
Great. Thanks, so much.
First of all in your.
We're selling to an earlier question you talked about the returned to profit proceeding the return to growth in conversations with the controller is that to on a monthly basis is that a full year in other words. If you are priced adequately but haven't earned in all.
All of the rate increases that are in the market now.
In screen growth.
Yeah, well look at timing of when to start when you ramp up some local advertising remember we haven't shut off our national advertising. So it's not like our brand isn't out there. So we still we still have some ability to grow them, but yeah. We will look at the the kind of pivotal time right time of when we should start that growth, making sure that the rates.
In each particular state are adequate for us to reach our target profit margins.
Okay. So if there is some monthly combined ratio pressure because.
Lower.
Higher rates, that's not an impediment to growth.
I understand you know, where we are obviously managing to a calendar year 96 or better. So we have that as an objective function for sure as stupid product managers.
But if they've taken rates up to where they think the lifetime combined ratio for new customers. They are writing is adequate they will likely err towards growing more there is the consideration of the calendar year combined ratio for sure as well, but generally if they think the new business customers.
They are writing today are adequately priced over their lifetime, they will be happy to go for growth.
Okay perfect. Thanks, I apologize for another.
Clifton will second question on price sensitivity is the heightened across various customer segments. When overall in places outside of car insurance is elevated.
Oh.
Yeah, I'm not really sure if we know that but I think what John was saying too in terms of elasticity.
Our renewals are improving on the elasticity side, which tells us that and would you sort of a histogram on on decreases or increases.
To a certain percentage of it is buckets of percentages and we're seeing more people, even if their shopping they're saying when they get their renewal, which likely means they can't find a better rate. So that's that's the only thing we can look at you know what's in data, but it's hard to say with all all of the economic things going on in the country.
Okay perfect. Thanks, so much.
Thank you Maher.
Our next question is from Ryan Tunis from Autonomous Research Ryan. Please go ahead.
Hey, Thanks, good morning.
Just had a question on I guess operating within progressive constraints. So.
The plant historically, you've always been doing 96 or better and growing fast if you can the vast majority of the time.
Growth is easy because I, usually close to the 96.
Whenever you have gotten kind of closer to 96 like the second half of last year.
Oh, it's been focus on re underwriting focus less on growth all of that.
I guess I'm just curious.
And you did that before you even at a 96 to avoid getting there. So after having gone through the first quarter when he did.
Somewhere around a 94 in a group basis and above a 96 in personal auto.
Is it safe to say that sort of.
Do you have the same risk appetite.
Did you did later in <unk>.
Later last year.
Yeah, I mean, I think our our standard and our operating philosophy hasn't changed and remember for reporting in 94 and a half we're still looking at perspective race and we're looking at trends that will be future over ninety-six, if we don't do something so.
The data is and isn't a moment in time, we're looking at rate need ahead of time to make sure that we put that good business on the books for both a calendar year 96, and our lifetime 96, I think those are constraints as you call them I mean, I think I'd call them, just our operating philosophy have worked well over over the years in fact, the first time we.
Talked about ninety-six was in or our annual report in 1971, when we went public and it's worked really well for US. If you look at our long term trend. It's nice to have that governor it helps keep us disciplined around our pricing. It helps keep us disciplined around our expense philosophy and it has built us.
To the number three personal auto carrier.
And I can tell you when I started in 1988, we were nowhere there. So we will continue with that and of course ninety-six isn't the aggregate. So it doesn't mean that obviously are you know new business on the direct side wouldn't come in at a 96 and there's other areas where it would be aggregate up to the 96 and I think it's been a great winning bids.
This model.
Got it that's clear.
My follow up was just on retention.
So retention has continued to actually hold up a lot better than I would've expected and just seeing how much rate you implemented in the first quarter.
Yeah I was just maybe some clarity on what you've implemented how much has actually been.
Have you shown to the customer is that.
Was that mainly a first quarter event I'm, just kind of trying to think of like maybe that might be somewhat of a tailwind heading into the second quarter.
Well I think you know I think it depends on if youre looking at the trailing three year trailing 12, I think trailing three is more responsive to our rate increases and so like I started to say before we know we saw.
Early results with our retention and some of the states, where we took the increases are more quickly we could still see a little bit of degradation again, a lot of that is relative to what our competition is doing so if you're if you're getting your renewal and your shopping and rates are going up and again. That's why we tried to get ahead of rates because if we can be stable which is.
What consumers want and they go to shop and now it's it's much more increase in it with our competitors theyre going to stay with US and then of course, the new business, we've been talking about for a while so we keep a close eye on retention, especially because we've been really proud of the work we've done to date over the many many years, but we'll watch that closely.
Do everything in our power to keep our customers that we've taken so.
So much to acquire.
Thank you.
Thank you.
We've exhausted our scheduled time, so that concludes our event Emily I will hand, the call back over to you for the closing scripts.
That concludes the progressive Corporation's first quarter Investor event.
Nation about the replay of the event will be available on the Investor Relations section of progression as website for next year you may now disconnect.
Yeah.
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