Q3 2024 Progressive Corp Earnings Call - Q&A
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Good morning and thank you for joining us today for Progressive's first quarter investor event. I am Doug Constantine, Director of Investor Relations and I will be moderator for today's event.
The company will not make detailed comments related to its results in addition to those provided in the annual report on Form 10K, clearly reports on Form 10Q and a letter to shareholders which have been posted to the company's website.
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 a question and answer session with members of our leadership team.
The introductory comments by our CEO were previously recorded. Upon completion of the previous recorded remarks, we will use the balance of the 60 minutes scheduled for this event for live questions and answers with members of our leadership team.
As always discussions in this event may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks on uncertainties that could cause actual events and results to differ materially from those discussed during today's event.
Additional Information Concerning those risks and uncertainties available in our annual report on Form 10K for the year ended December 31, 2023, a supplemented by our Form 10Q for the first second and third quarters of 2024. We will find discussions of the risk factors affecting our business.
Safe Harbor Statements related to forward looking statements and other discussions of the challenges we face. These documents can be found via the Investor Relations section of our website and investors.progressives.com.
Speaker Change: To begin today, I'm pleased to introduce our CEO, Trish Griffith, who will kick us off with some introductory comments. Trish up!
Trish Griffith: Good morning and thank you for joining us today.
Trish Griffith: I'd like to begin today by extending my sympathies to those affected by Hurricanes Helene and Milton.
Trish Griffith: The scenes of destruction were truly heart-wrenching, and the human toll of these storms was devastating.
Trish Griffith: As the cleanup efforts continue, I'm heartened to know that Progressive's excellent claims staff is standing by to assist our customers in their greatest time of need.
In fact, I've heard countless versions of stories like the one I'm about to share with you.
Speaker Change: This is when our customers need us most and when we shine the brightest.
Anne-Marie: My name is Anne-Marie and my fiancé is Timothy.
Anne-Marie: We just left our RV with this last Hurricane Helene.
Anne-Marie: I've been in Tampa for two months sitting by Timothy's bedside while he fought cancer. I'm happy to say that he is in remission.
Anne-Marie: I came back to Fort Myers Beach to meet with the adjuster, Ray.
Anne-Marie: I would like to tell you about my encounter with this lovely gentleman.
Anne-Marie: Ray was prompt, professional, and showed compassion for my loss of our home.
Anne-Marie: He is the perfect person to be assessing the damages of one's property.
Anne-Marie: I cannot say enough positive things about Ray. He is one of a kind and was a pleasure to meet under these horrible circumstances.
Speaker Change: That's what it's all about. To my clients, colleagues, you amaze me every day. Thank you from the bottom of my heart for all that you do each and every day.
Speaker Change: Turning towards results. The third quarter was one of our strongest in our history.
Anne-Marie: Across our businesses, we added almost 1.6 million policies in force, the most we've ever added in a quarter.
Anne-Marie: This brings the total policies added this year to nearly $4.2 million, truly a remarkable feat.
Anne-Marie: The magnitude of this growth during the year requires increases in sales, servicing, and claim staffing and our teams have met the challenge enabling us to maximize growth while providing a quality experience our customers expect of us.
Throughout the third quarter we experienced very strong demand for our Personal Alliance products across both channels.
Anne-Marie: While direct channel new application growth responded almost immediately to our increase in media spend and the release of non-rate actions earlier in the year, as evidenced by the channel's stronger new business growth in Q2.
Anne-Marie: The agency channel's growth potential wasn't fully realized until the last few weeks of the second quarter.
Anne-Marie: The result is a third quarter where our growth machine was firing on all cylinders with clear results and both channels experiencing record levels of new applications.
Anne-Marie: To date, the level of ambient shopping and personal auto remains very high, and we have capitalized on that. In Q3 2024, we spent more on media than in any quarter in our history.
Anne-Marie: The result was a higher number of direct channel prospects than any corridor in our history, surpassing Q2 2024, the previous record holder.
Anne-Marie: Additionally, conversion is strong, suggesting that we are well-priced compared to the competition.
Anne-Marie: Though the fourth quarter, especially November and December, are historically lower in sales volume, we believe that we can continue to position ourselves to capture more than our fair share of prospects from the marketplace.
Anne-Marie: The record growth is even more impressive when you consider our profit margins.
Anne-Marie: Our year-to-date combined ratio through Q3 was very strong.
Anne-Marie: Though the costs of Hurricane Milton are not reflected in our Q3 numbers, 2024 is still shaping up to be one of the best non-pandemic years in our history.
Anne-Marie: Growing at our pace with record profits is a testament to the investment we've made in segmentation over the years.
Anne-Marie: And we're not standing still. Our newest product model, which continues to add further segmentation in our personal auto products, is available in states that represent about one-third of our net written premium.
Anne-Marie: You'll recall that in 2022 and 2023.
Anne-Marie: The commercial auto market was impacted by many of the same inflationary pressures as personal lines. And in response to the rising loss costs, we took double digit rate increases in 2023.
Anne-Marie: In Q3 2024, we reported our third straight quarter of quarter over quarter improvement in our loss and LE ratio for commercial lines. Our results impart from the rate we took in 2023 earning in, which is a slower process in commercial lines, since the majority of our policies are 12 months.
Anne-Marie: Growth has been more difficult in that line as the softness in the truck market has upset solid growth and our other non trucking business market targets.
Anne-Marie: As our competitors catch up in rate, however, we are optimistic that we're well positioned for more growth in the future.
Anne-Marie: The third quarter results in property were excellent at a 78.5 combined ratio, after almost 30 points of favorable development on storms from the first half of the year, and despite the 21 points of losses incurred by Hurricane Helene.
Anne-Marie: However, two hurricanes striking Florida only a week apart underscores our need to risk adjust our property business.
Anne-Marie: Our efforts here are evident with Q3 PIF growth in what we consider to be less volatile weather related states of 19% compared to a decrease of 9% in the volatile weather states.
Anne-Marie: Risk adjustment has been and will be a year's long effort, but we are making progress.
Anne-Marie: As always, our goal is to have all of our reporting segments meet their profitability targets and we continue to make headway in our property business with improved segmentation in our 5.0 product model and adjustments to our underwriting appetite.
Anne-Marie: Ultimately, when I look across our results today, I see a huge amount of opportunity.
Anne-Marie: I believe that we are in a good position to be flexible and to react to whatever comes our way. The actions we take today are what position us for what we achieve next year. And I firmly believe that we are in a good position headed into 2025. While there will undoubtedly be challenges, I'm already looking forward to what I anticipate will be a great fourth quarter and a strong 2025.
Anne-Marie: Thank you again, and I will now take your questions.
Speaker Change: This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions. Questions can only be submitted over the phone by pressing star 1 on your keypad. In order to get to as many questions as possible, please limit yourself to one question and one follow-up. We also ask that you use restraint in re-entering the queue to ask additional questions. We will now take our first question.
Speaker Change: Our first question comes from the line of Josh Schenker with Bank of America.
Speaker Change: Your line is now open.
Josh Schenker: Yeah, thank you for taking my question. If we think about, and good morning.
Josh Schenker: as fast as Progressive can. Is that a revenue premium number or is that a policy count number? I ask this because there are some who are considering Progressive's very, very good margins, both for price cuts in the near-term future. But would Progressive cut price
Josh Schenker: If it did not come with commensurate improvements to the policy count growth.
Speaker Change: Good morning, Josh. That's a good question. We look at both when we talk about grow as fast as we can.
Speaker Change: Some of our internal measures, success rates are based on our average PIF growth and we always talk about our preferred growth is our unit growth because trends can ebb and flow as you've seen in the last several years, so that is our preferred method. Obviously we want to stay ahead of trend.
Josh Schenker: And we know that retention is very helpful if we have stable rates.
Josh Schenker: We want to get as many new apps in the door as possible through our, you know, obviously our increased media spend, but then we want to keep those. And so I think it's a balance of everything. So premium, we always want to stay ahead of trend and make at least that four cents.
Josh Schenker: and Unit Growth. We want to grow as fast as we can as long as we can service our customers in the way they deserve.
Speaker Change: Did that answer your question? Are the margins... Yes. So I guess, more to the point, are the margins today so tasty?
Speaker Change: that Progressive has a view that they should be considering price cuts in the near-term future.
Speaker Change: Well, you know what, the price cuts, we will watch trend carefully. So like we said in the queue, we did about nine states of some price cuts, but we also had states that went up a little bit. So I think what I've talked about in the past is really, you know, we want to use, in the current margins we have, we want to use that to propel growth. So that will be the continued sort of march towards using our media spend to continue to have
Speaker Change: But we will see states and channels and products where we have to increase rates a little bit as well. We go back to that small bites of the apple where we just want to stay ahead of it and have those rates stable, but we believe we're really well positioned to continue to grow.
Speaker Change: Thank you. Thank you.
Speaker Change: Thank you very much.
Speaker Change: Unknown Speaker
Speaker Change: Thanks, Josh.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from Bob Coyne with Morgan Stanley.
Speaker Change: Unknown Speaker Hey, the line is now open. Unknown Speaker Thanks, Beaureport.
Speaker Change: Transcription by CastingWords
Bob Coyne: Good morning. Maybe just a follow up on that, but more on the competitive environment perspective.
Speaker Change: As we think about your ad spending and as we think about your
Speaker Change: Advantages in pricing or competitiveness in pricing.
Speaker Change: But if competition were to intensify in 2025 and going forward, how effective do you feel the ad spending and the pricing side will be? Should we expect an incremental ad spend, but the effectiveness of the ad spend maybe will come down a little bit? I'm curious about your view on this.
Speaker Change: Unknown Speaker
Speaker Change: Yeah, I mean, I think you know, your competitors have taken this time to get their rates on the street and we see people coming back.
Speaker Change: a little bit, not as quickly as we did, obviously, on the media side. We'll always look at media from an efficiency perspective, and we'll want, you know, if our cost per sale is still favorable to our targeted acquisition cost, we'll continue to spend, you know, to make sure that we get more customers and convert more customers. I think, you know,
Speaker Change: really how we feel right now with our current margins and where we're at, we're going to continue to push on media and push on growth. And we just feel like we're really well positioned because if and we believe we're still in a hard market, people consumers continue to shop, we're going to have those stable rates. And in addition, we've been spending in this a little bit for their field, but we've been spending money on
Speaker Change: not just, you know, getting business in the door, but some delayed response ads. So I don't know if you notice, I'm sure you do, either in my
Speaker Change: My comments or my letters, I talk a lot.
Speaker Change: about our culture and our people and who we are. And I don't know that enough
Speaker Change: people, consumers and customers and our communities know sort of our purpose, that we exist to help people move forward and live fully. We've recently put out some ads we call our Purpose Anthem to talk about progress and progress isn't overnight. You should look up Purpose on a page of Progressive in Google and you'll kind of see all the things we're doing. And so you're going to be seeing some ads with that that are a little bit
Speaker Change: More of a delayed response, but a response we believe will be nicely balanced with sort of who we are as a company that you'd want to be involved with. So we're excited about our growth. We love competition. Yeah, I think competition will continue to have the right rates and show up in media, but we're prepared.
Speaker Change: in response to both of those questions.
Speaker Change: The way we operationalize in the marketplace our objectives there is through our product managers, and they are managing at the state and product level, and they are assessing the competitive landscape where we sit by segment, they understand elasticity by channel and by locale, and they're making the calls.
Speaker Change: that level to decide what we should be doing with price. Obviously, the 96.
Speaker Change: is the objective, but to the extent we can manage and grow a lot beneath that.
Speaker Change: Product Managers are going to make those calls.
Speaker Change: I think when you look at our performance over time, you see the aggregate of all those decisions at the local level. So I think that I understand the questions, but I think understanding how we operationalize that in the marketplace is really important to understand our model.
Speaker Change: Okay, very much appreciate that. Thank you. My second question is on retention. So if we look at your thank you commentaries,
Speaker Change: your for auto business, personal auto business.
Speaker Change: The policy life expectancy has been relatively elongated over probably more than a year now, right? And then that's been stabilized. If I remember correctly,
Speaker Change: that favorable contribution to combined ratio to be less pronounced going forward? In other words, is it right to assume that you'll probably need some marginal pricing as that life cycle kind of stabilize rather than continue to improve?
Speaker Change: Did I lose you guys?
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Speaker Change: Thank you for your patience, ladies and gentlemen, please remain holding as we reconnect our
Speaker Change: Hello everyone, please remain on the line as we reconnect with speakers. Are we in yet?
Speaker Change: Hi Pete, we'll be back.
Speaker Change: Okay, thanks, Victoria. I apologize for that. I thought that was on your end, but it was on our end. And so if we have questions at the end of the hour, we'll certainly elongate the time. So, Bob, you were asking your second question, and I think it was about retention. I think I must have jinxed us because this weekend when I was preparing, I'm like, this is one of the best quarters in the history of Progressive. This is going to be great. And then of course, our computer crashed. So apologies again.
Speaker Change: Yeah, can you guys hear me?
Speaker Change: Yes.
Bob Coyne: Can you guys hear me? Okay, excellent. Yeah, I'm sure you'll have even better quarters down the road. So yeah, question on your policy life expectancy is kind of was growing over the last few quarters and now it's normalizing. Would that have a headwind to your combined ratio as given that you're essentially pricing towards an expected life expectancy for every policy or you don't think that's an issue?
Bob Coyne: Unknown Speaker
Bob Coyne: Well, yeah, I mean, I think, you know, retention is kind of our Holy Grail. So it's always an issue to, to grow our units. So, you know, the the T12 has been pretty flat. And that's really a lot to do with some of the actions that we've taken across the board. T3 was down.
Speaker Change: That's a lot on the comparison of last year when it was up 35%. But yeah, we, you know, we watch that closely. We don't want to spend all of the media money to have customers come in and then just leave. So our focus really is those stable rates and great service to continue to improve retention. Do you want to add anything, Pat or John?
Speaker Change: No, I think that's good. Thanks. Thanks, Bob. Sorry about that again.
Speaker Change: Thank you. I really appreciate it.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Elyse Greenspan with Wells Fargo.
Speaker Change: Your line is now open.
Speaker Change: Unknown Speaker
Elyse Greenspan: Hi, yes, good morning. My first question, Tricia, I think you, you know, did hit on a little bit in your prepared remarks, but, you know, it's just about just the Q4, right? I think typically, sometimes there's slower growth, because of the holidays and vacation. I'm just trying to understand how you think about that dynamic playing out this year, just given continued elevated shopping, as well as your marketing spend and how we could think about, you know, PIP gains, you know, in the last quarter of the year. Thank you.
Speaker Change: Yeah, thanks, Elise. Yeah, we, you know, we're going to continue our push throughout the end of 2024. And it's really, you know, we want to get more than our fair share of the shoppers, even if shoppers are a little bit less in November, December, based on the holidays. And really, we we don't want to, you know, you could you could easily say, well, wouldn't you just pull back a little bit for expenses on media, but really, you want to have that consistent media spend and have and be prepared for that response and that shopping that we believe, and normally, typically happens in that first quarter. So it's really about, you know, relative to our peers, are we in a good position, a better position, we believe that we are.
Speaker Change: Unknown Speaker
Speaker Change: And then my second question, right? And obviously, you know, record growth here for progressive this year, you know, if you think about the environment, right, you guys are obviously taking, taking less rate, you know, industry, right, perhaps a bit behind you guys, how do you think about, you know, 25? I know, you know, there's a lot of different variables, but just, you know, from a growth perspective, sitting here today, how do you think next year could play out?
Speaker Change: We feel really good and bullish about 2025. You can look at some stats that we talked about in our queue. I mean, 117% new app growth on the direct side, 98% on the agency side. Those are massive amounts, and obviously the comps will be more difficult, but that doesn't mean on a relative basis, in a unit basis, we're not going to grow literally as fast as we can. We just feel so much better about our rates, especially on the private passenger auto part, commercial and product. We're still having rate earn in, but we feel bullish about our positioning as well and our de-risking on the property side. So we feel like we really look at our growth from our strategic pillars.
Speaker Change: So, you know, we've got a great culture and great people. We are very adequately staffed, especially in our call center organizations for sales and service and our claims organization to take care of our customers. We, you know, reduce our expenses on the non-acquisition expense ratio because we compare, we, we care deeply about those competitive rates.
Speaker Change: We continue our segmentation, so you've got people and culture, you've got competitive rates.
Speaker Change: You've got our brand, which continues to evolve, and you've got our broad coverage. We're going to be where, when, and how customers want to shop. With those four strategic pillars and where we're at from a pricing perspective and a marketing perspective, I think we have a huge opportunity in 2025.
Speaker Change: Transcription by CastingWords
Speaker Change: Thank you.
Speaker Change: Thanks, Elise.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Michael Phillips with Oppenheimer.
Speaker Change: Come.
Michael Phillips: Thanks. Good morning. I wanted to, sorry, thanks. I wanted to drill down on the frequency severity trends that you put on the queue, specifically the BI liability. It looks like anything to make of, it looks like the severity kind of moved up a bit and frequency kind of didn't improve as much as 2Q and anything to make of that. Thanks.
Speaker Change: Yeah, from a BI perspective, it's a little bit higher, some of the other line coverage, mostly that is in higher large losses and more soft tissue injuries where there are attorney repped. So that ends up usually being more expensive. And I'm sure you're reading a lot on social inflation. And we have seen across the industry, some pretty elevated jury verdicts that we believe are pretty egregious. So we're always keeping our eye on that. And, you know, bodily injury trends are less of a step function than were what happened with like used car prices, where there was just sort of a confluence of events.
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Speaker Change: Transcription by CastingWords
Speaker Change: Okay, good. Thank you. And then second question, just on homeowners. Can you remind us where you are with, I guess, the PIF reductions and cat exposed dates?
Speaker Change: Unknown Speaker
Speaker Change: Jamminder Bhullar,
Speaker Change: Yeah, so we talked a little bit about our PIF growth. So we're up 19% in our growth states and down 9% in our volatile states.
Speaker Change: We continue to have a really robust de-risking program, so you've seen the rate come in. We had 16 points year-to-date, 20 on the trailing 12, 5 more points to earn in this year, and then we have other rates that are elevating, so that's the first one, get the right rates on the street.
Speaker Change: We talked a lot about segmentation and what we've been working off our 5.0 product. Segmentation is something that we believe we are industry leaders in and we need to be at least in auto for sure and commercial auto and we will be there in property as we continue to work on segmentation.
Speaker Change: We talked about exiting about 115,000 homes in Florida last year. That takes some time. By the time you communicate it to insureds and you're able to do that, of course, there can be moratoriums after states.
Speaker Change: And we've been exiting DP3 in many states. That's obviously, we have to have prior approval through our DOIs, but we have approval in about 22 states and are working with many more to exit that line of coverage. And then really it's about cost sharing. You know, we don't want.
Speaker Change: homeowners to be a maintenance program. So we have a mandatory wind and hail deductibles and and those are kind of being through the system. And then lastly, just conversations with our agents on putting high quality
Speaker Change: Business and high quality bundled business.
Speaker Change: which is usually preferred in owner-occupied homes on the progressive balance sheet. So, you know, it's a multi-tiered plan. We knew it would take a while. We signaled this a while ago, but I feel very good about where we're at. But clearly,
Speaker Change: Having two huge hurricanes less than a week apart really elevates what our plan has been for a while and what will be in the future.
Speaker Change: Okay, thank you very much. Appreciate it.
Speaker Change: Thanks, Michael.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Gregory Peters of William and James.
Gregory Peters: Hey, why is it not open?
Gregory Peters: Good morning everyone. I know you've you've mentioned trying to leverage your agent compensation program to reward profitable business.
Gregory Peters: Maybe you can spend a minute and just give us a snapshot if you've changed how you're rewarding your agents and how they're helping you.
Speaker Change: Unknown Speaker .
Speaker Change: underwrite business, new business as it comes in the door.
Speaker Change: Yeah, I'll let, I'll let Pat give more color than I will, but you know, we're constantly evolving our agents, and we have agents that are more specialized. It's preferred bundling. We have our platinum agents. We have agents that have typically been more on SAMs, maybe some mom-and-pops, but we constantly evolve our compensation to make sure that we put high-quality business on the books, but also reward those agents for that business. Pat, do you want to give any more color on that? Sure, we have a...
Pat: and Align National Commission structure that we have in place for either our property agents, so those with the full suite of products, or those without access to our property products. And those matrices are designed to reward higher quality business.
Pat: and greater volume of business.
Pat: And over time, what we see is agents respond well to understanding what the targets are, understanding how the framework works, and understanding how their behaviors and the actions allocating different business to progressive can result in better compensation for their agencies.
Pat: Now, Tricia mentioned on the quality side of things, as we pivot and start to invest more to turn the property business around.
Pat: There are tactics within the agency channel that will ensure that agents know they have to be bundling business with us. They have to write.
Pat: with our underwriting guidelines in mind. And we measure that through underwriting cancel rates, and they have to produce a certain amount of volume to retain their property appointment with us. And we think those three in combination with a very clear, transparent national compensation plan.
Gregory Peters: Agents understand what we're offering, how we fit in their agencies, and ultimately how we can mutually benefit by producing high-quality, profitable business.
Gregory Peters: Transcription by CastingWords
Speaker Change: Makes sense. For my follow-up question, in your letter, Tricia, you said you have nearly 4.2 million more policies in force than you did at the end of last year.
Speaker Change: In response to some of the questions in your previous remarks, you talked about how you're fully staffed.
Speaker Change: Unknown Speaker
Gregory Peters: Maybe you can, you know, give us a sense of how you're keeping fully staffed with such tremendous growth in a full, in a macro environment, it seems full employment and maybe segue, one of the things that we never get much information from you or many of your peers is how you're deploying technology and artificial intelligence and maybe that's helping you with the growth in policy and force. So any commentary on that would be great.
Speaker Change: Yeah, that's a really great question. So what we've been doing, you know, we had the only time I that I can recall, we had difficulty in hiring and retaining was sort of when the wage war started right after the pandemic. So after that, we've done a couple of things.
Gregory Peters: We've hired well in advance of need. So when you think about being a fully licensed sales rep in our call center or a fully trained claims rep out in the field, it takes some time. And so that's, well, it's maybe a more expensive venture at first blush.
Gregory Peters: We think that pays for itself because we have high quality people handling your calls handling your claims. And in fact, we were able to deploy between our our own employees and independent appraisers to help us with the storms 2300 people sort of feet on the street.
Gregory Peters: Getting early contacts and early closures in our catastrophes, which is what what our customers, you know, need us most.
Gregory Peters: So we feel really good about that. From a technology and efficiency perspective, we are always talking about how do we become more efficient. One, to keep prices competitive, but two, can we take easier claims, easier calls out of the system and have humans actually handle the more complex calls. So we have overall what, you know, you can talk, you can call it AI, chat, GPT, large language models. We've been working on those for a long time to become more efficient. We have, we've had a chat, a chat bot in our call centers for over a decade because we found out we were getting repetitive calls that really didn't require human intervention and that took out about 15% of our calls.
Gregory Peters: On the claim side, we have a lot of automation with our estimates, you know, we have tagged
Gregory Peters: millions and millions of pictures to be able to do that. And of course, we want to make sure that we do have human intervention to make sure we always pay the right amount and that we're accurate in that part of it. But we, we're very technology driven. Besides being efficient, we want to be innovative. And we want to continue to learn and make sure that we use the highly trained individuals that we have for the most complex.
Gregory Peters: Parts of our business. So we use a lot of AI and maybe that's something we can talk about at a later deep dive when we have some time in one of the quarters that we do that. But we feel like that's a key part overall in our efficiency which is key to our growth.
Speaker Change: Unknown Speaker
Speaker Change: Thank you for the detail.
Speaker Change: Thank you.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Jimmy Buehler with JP Morgan.
Speaker Change: Your line is now open.
Jimmy Buehler: Hi, good morning. So most of my questions were answered, but just it seems like many of your competitors are shifting their focus to growth.
Speaker Change: as their margins have recovered. So just wondering what you're seeing in terms of competitor behavior on marketing spending and on pricing. And is it reasonable to assume that your growth over the next few quarters should slow down just as the market becomes more competitive?
Speaker Change: Unknown Speaker
Speaker Change: I think, you know, like I said before, our competitors, what I would say is we got out
Speaker Change: Ahead of the game, we saw what we needed. We knew that that would be, you know, frustrating because we had to raise rates so significantly to keep up with trend. We did that quickly. And our plan was that would allow us to be in a position to grow. And it certainly has paid off. We are seeing and you know, if you see any of the quarterly results, margins are so much better with our competition. And so I would imagine that they will continue to grow. We've seen some of our competitors, for sure, start to spend more on media. You know what we you know, for us, competition is good. And it really is about, like I said, having all those strategic players firing at the same time. So I can't predict what our growth will be. We have models, obviously, internal of the
Speaker Change: Internally, that we work on, I believe we're in a really great position to wrap up 2024 and move into 2025. And I feel very confident that we will continue to gain traction, of course, given, you know, all the unknowns that could happen with weather and what we've seen over the last several years.
Speaker Change: Yeah, the only thing that I would add is spending more, hold on for a second, Jimmy, I think I wanted Pat to add on some color on that for you.
Speaker Change: The only thing I would add is that segmentation matters, so spending more.
Speaker Change: isn't necessarily going to drive the outcome folks desire. It's spending it smartly and understanding the lifetime value of the customer and the media that we use to reach those customers. So we think given our scale and given the analytics we have in place.
Speaker Change: We are creating segmentation in the media world like we have in the product segmentation space and that segmentation enables us to understand where to spend more efficiently based on who we're able to acquire and it's not just about spending more overall it's spending it in the right places. [inaudible]
Speaker Change: Additionally, I think when you see what we do on the product segmentation side, we do think that, you know, creating adverse selection for our competitors through matching rate to risk more precisely.
Speaker Change: does inflate their trend different than ours over time. And that synthetic trend we think requires them over time to potentially have to adjust rates differently than we have. So we're pretty confident that at this point, you know, we are efficient in our spend. And as Tricia mentioned, we monitor it extremely closely, and we'll adjust.
Speaker Change: As needed over time, but we play our game and we managed our economics and they look good at this point.
Speaker Change: Thanks and it seems like obviously there's been a lot of talk about social interest.
Speaker Change: in commercial line. Can you just talk about what you're seeing in terms of long-term trends in personal auto as it relates to litigation, attorney rep rates and stuff?
Speaker Change: Yeah, attorney rep rates, you know, have risen over the years again, not as a function they've risen, you can probably tell just by, you know, advertising from that perspective, medical trends, as you know, from just, you know, medical insurance have continued to go up. So it is then, you know, it's continued to trend upward, we priced for that. And some of the social inflation, like I said, with some egregious verdicts in the industry are always, you know, troublesome, because it ends up, you know, consumers have to pay for that. And so we always want to get our arms around, it's really about, you know, doing what what we have done well, for many, many years, and that is making sure that our customers know
Speaker Change: We're there for them, that they can trust us to do the right thing by them and that I try to get out in front of the claim with contacts.
Speaker Change: and Resolution as quickly as possible or when it's a longer term claim to make sure that we communicate and respect their needs along the way. So that's what we've been doing since we rolled out IR years and years ago, or immediate response I should say, years ago, just to get in front of the customers, make sure they know we're there and that we want them to trust us and that we'll be fair.
Speaker Change: Unknown Speaker
Speaker Change: Thank you.
Speaker Change: Thank you for your questions.
Speaker Change: Our next question comes from the line of David Metsamady with Evercore.
Speaker Change: Your line is now open.
Speaker Change: Dr. Jamminder Bhullar, Dr. Jamminder Bhullar, Dr. Jamminder Bhullar
Speaker Change: Hey, thanks. Good morning. I had a question on just the auto PIF growth, and I'm wondering if Hurricane Helene had a notable impact in Florida or the Carolinas on auto shopping and PIF gains at the end of September, and if Milton, Hurricane Milton is causing any disruption.
Speaker Change: on, on retention or shopping, just given the impacts of that storm.
Speaker Change: Unknown Speaker . .
Speaker Change: Yes, I wouldn't say anything that PIF growth wouldn't wouldn't come from that necessarily obviously there'll be some total loss vehicles that When they replace we hope they'll be with progressive You know, I think that I had asked John Murphy our
Speaker Change: Our president claims a while ago, if we were seeing issues with inventory for new cars, I thought that could be something that could be a headwind for consumers. And they didn't see inventory issues. There's enough inventory, we believe, on the street to be able to take care of those customers. But the Storm, although they were big, I don't think would move the needle on either of those.
Speaker Change: Transcription by CastingWords
Speaker Change: got it thanks and then
Speaker Change: And then on the cost per sale that you spoke about, I think last quarter, it was like 30% below your targeted acquisition ratio. I'm wondering where that stood here in third quarter, as some of the competition returns and
Speaker Change: Maybe just also if you could just talk about if ambient shopping levels sound like they remain high, but did they, have they fallen any at all here during the last three months?
Speaker Change: Thank you.
Speaker Change: Bye.
Speaker Change: Yeah, I'm going to try to answer that. You were breaking up a little bit. I'm going to assume that was on our side. I would say, you know, we continue to see elevated shopping, continue to see a hard market, and so we're going to, you know, leverage that. And again, I talked a little bit in an earlier answer on, you know, we've got our sort of direct response, which we see right away with our highest NP6, which are new prospects.
Speaker Change: which of course we equate to are the apps that are such high growth on both the direct and agency side, but then also some delayed response. And so we believe ambient shopping is still up because even with the increased amount that we've spent and will spend in quarter four on the delayed response ad, we're still seeing that shopping. So we feel good about that. I want to make sure I answered your question because you were breaking up a little bit. Does that answer your question?
Speaker Change: Yeah, that does help on the ambient shopping. I had just asked on just how much below the targeted acquisition spend the cost per sale is.
Speaker Change: In third quarter, I think it was 30% below in the first half of the year. Is that still pretty far below your target?
Speaker Change: Great, thank you.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Brian Meredith with UBS.
Brian Meredith: Your line is now open. Yeah, thanks. Trish, I was hoping you could comment a little bit about this really favorable frequency we've been seeing for the last 12 months. Is this something you think is sustainable? Is it a function of the hard market and auto insurance? What is your perspective on it?
Brian Meredith: Unknown Speaker
Trish Griffith: Thanks, Brian. For us, what we've seen is really the biggest proportion of that is equated to our mix, our preferred mixes increased.
Trish Griffith: And so that's obviously a lower frequency. We're a little bit less negative than we were before, but still again, obviously negative five. So we will continue to watch that as we grow and put more customers on the book. Obviously, we always want to make our target profit margins both on a calendar year and lifetime value.
Speaker Change: Gotcha, so mix, gotcha. And then second question, just quickly. Yeah, we're in new money yields relative to book yields right now in the investment portfolio. Is there still some uplift in book yields going forward, you think?
Speaker Change: Yeah, I'll let John Bauer get on. He's always on these calls and never gets to talk. But yeah, we've been happy that we've been able to invest new money into higher yielding performance. And John, I'll let you go into some of the detail.
Brian Meredith: Unknown Speaker
Speaker Change: Yeah. Thanks very much.
John Bauer: You know, as you've been seeing over the last, you know, throughout the course of the last few years, but certainly over the last few months, there's been.
John Bauer: volatility and interest rates, especially as we headed towards the election and, you know, the Fed started cutting rates. For us, as you know, we have a relatively short duration portfolio, just a little bit over three years. And so the two things that are going to really adjust the new money yields versus the book yields would be the
John Bauer: the underlying level of interest rates, which has risen, you know, quite significantly since
John Bauer: at the end of the third quarter, and then as well as we allocate money into and out of cash and treasuries into other risk products. Right now we have a relatively conservative
John Bauer: Allocation. And so if we were to shift that, that would increase book yields over time.
Brian Meredith: but obviously the underlying movement in interest rates.
Brian Meredith: has, you know, will likely increase prospective book yields if they were to maintain around this level. But I would just want to point out that for Progressive, the driving force in our investment strategy is a total rate of return strategy. So the book yield is an output of the decisions we make. But for us, we're really looking to drive the strongest total return over the longer term.
Brian Meredith: Does that answer your question?
Speaker Change: Yeah, that does. That's terrific. Thank you.
Speaker Change: Unknown Speaker
Speaker Change: Transcription by Trans-Expert at Fiverr.com
Brian Meredith: Thank you for your question.
Speaker Change: Our next question comes from the line of Mayor Shields with KBW.
Brian Meredith: Yeah, I'm going to see if I can hear. You've got to keep your email open. Great.
Mayor Shields: Great, thank you very much. So, in the past, you know, we've talked about, like, the ordered pairs where sometimes, I guess, progressives will maintain
Brian Meredith: excess profits if the growth trade-off isn't necessarily worth it. And I was hoping you could give us some insight into how much of the
Brian Meredith: Personal line margin outperformance this year is sort of ordered pairs dependent and how much of it is just the fact that you've been surprised by loss trends?
Speaker Change: Well, I think I'll let Pat weigh in a little bit more, but I think, you know, the bargain comes from so many different things. So, you know, if are we efficient in our spend to get more customers, so I wouldn't say
Speaker Change: I wouldn't call it excess profits. I would say we look at every dollar of premium and what outputs we think would happen based on our frequency and severity trends, what we think we could spend to get more customers, the new and renewal business. We go to each
Speaker Change: State, each product, etc. Roll it up, roll it down and come and come to that and then
Brian Meredith: If we're inefficient in our spend, we'll either try to get more efficient or pull back. If we are margin shrink, we'll pull back. We have a lot of different levers, but really it all goes under the umbrella of grow as fast as we can at or below our 96. Pat, do you want to add anything?
Pat: Yeah, I would say that the growth that we're seeing
Pat: wasn't expected earlier in the year. So we knew we had shields up when we were slowing the business down to deliver 2023 calendar year profitability. And as we've
Pat: Reduce some of those verification tactics and gotten frankly more competitive with billing options, etc.
Brian Meredith: We have seen, as you see in the reports, outsized growth.
Brian Meredith: So I don't think we entered the year saying we think we can produce this level of profit and growth on a significantly extended period. So right now you see we've taken rates down a small amount in a number of states.
Brian Meredith: And as John mentioned, our product managers.
Brian Meredith: Constantly evolve that competitive environment to see how much ambient shopping there is, how efficient our media spend is.
Brian Meredith: And as we come into kind of the slower shopping period of the year, we'll be monitoring our spend and our rate level to make sure we can grow as fast as our staffing levels and service levels enable us to.
Brian Meredith: So, we've got some really high comps coming into next year and feel great about how we're closing out this year, but I think the growth is the piece of the ordered pair that was outperforming this year and it wasn't certainly in our plan at the outset to be able to capture as much growth as we have.
Brian Meredith: But with competitors raising rates and restricting access to new business, your media becomes really efficient when there's not a lot of people competing for the clicks or in market with competitive rates for the shoppers.
Speaker Change: Yeah, what I would add on that as well as is our and we talked about this a little bit when we had our media deep dive a quarter or so ago, we are so flexible with our media spend. And in the last couple of years, unfortunately, we've had to pull back because of margins.
Brian Meredith: This year, Pat and his team have come to me to increase media on several occasions and being able to be that nimble to do that and not say, okay, we have a budget at the beginning of the year, which we do, we set a budget for a year we think will happen, but having that flexibility and turning things on and off pretty quickly to sort of open up or close a spigot has been key this year to open up the spigot.
Brian Meredith: Director, American Heart Association
Speaker Change: Okay, that's very helpful. Very detailed. Thank you. Um, can you give us some insight into, I know there's obviously this ongoing
Speaker Change: Unknown Speaker
Speaker Change: Well, I think it's definitely the rate increases we've been taking. I think it's the geographic mix. It is absolutely the segmentation that will continue to deepen. It's the cost-sharing with customers, like I said, with wind and hail deductibles. And it's our agency action, making sure we have solid owner-occupied operations.
Speaker Change: Unknown
Speaker Change: to get it right in and I have confidence that we will.
Speaker Change: Okay, great. Thank you so much.
Speaker Change: Thank you, Mayor.
Speaker Change: Thank you for your question.
Speaker Change: Our next question comes from the line of Mike Zarensky with CMO.
Speaker Change: Your line is now open.
Mike Zarensky: Hey, great. Good morning.
Mike Zarensky: As a follow-up to, I think it was a Brian's question about frequency, the curve, you know, your
Speaker Change: The frequency is even better than its historical relationship to the industry. You talked about the mix.
Speaker Change: towards Preferred helping. I'm just curious, is there a partial offset longer term? Should just the Preferred customer have a different or higher severity inflation trend line than the average of the book?
Speaker Change: I don't think there's anything huge in that. I think, you know, the preferred customers could have more products. Obviously, it's a rate to risk that we're looking at. It could be stickier with other products that they come with us.
Speaker Change: And, you know, and really frequency has been trending down for the last 50 or 60 years. I'm not sure where, you know, what stable frequency means because it's been so oddly volatile over the last four years. But, you know, and also we do want to write.
Speaker Change: Any business that we can, Sam's, Diane's, Wright's, Robinson's, as long as we reach our target profit margin. So we're open, fully open for business for any consumer as long as we can make that target profit margin.
Speaker Change: Thanks, Mike.
Speaker Change: Okay, got it.
Speaker Change: My follow-up is switching gears to the competitive environment. So if we think about your average peer, they sell a lot more home insurance than Progressive does and they bundle a lot of that with auto.
Speaker Change: I know you guys are obviously increasing your share on home and bundles, but still, I think it's much smaller than your average competitor or some of your larger competitors. So I'm curious, given home insurance is still a hard market and will be for the foreseeable future.
Speaker Change: Is that dynamic causing any of your peers the need to increase the bundle pricing more so than you all are, which is kind of helping.
Speaker Change: It's a competitive environment for you all to gain customers. If that was my question, if you follow it.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: I'll let Pat add in. I mean, I think it's hard because different competitors do it differently. Some, you know, are growing and have property but not on their own paper. Some of our competitors have sort of de-risked before us, you know, and are in a position then to grow but not necessarily in the places that have the volatile weather. And some are bundled, you know, a lot when you when you look at captive agencies are really sticky because they're bundled for a long time. That eventually, you know, that's where we want to be able to be whether the home is on our paper or on the sort of stable group of carriers we work with. We want to make sure that that broad coverage just be where, when and how customers want to shop. And, and that's why we developed.
Speaker Change: We obviously want to bundle more, but that bundle has to be profitable, but we want to make sure that we can, when people call in, give them what they need, whether it's with our Home Quote Explorer, our Auto Quote Explorer, or our Business Quote Explorer, and sometimes, hopefully it's with us, but if not, we'll take care of them with customers or I should say businesses that we partner with. The competitive environment we look to, but we really are playing our own game here, especially with property, as we evolve and mature, and you're right, we don't have the same percentage market share, clearly we don't, but we want to take that slowly so that we make prudent decisions for the long term of the firm.
Speaker Change: Patrick Callahan, Susan Griffith, Unknown Executive
Speaker Change: Unknown Speaker
Speaker Change: Transcription by CastingWords
Speaker Change: That appears to have been our final question, and so that concludes our event. Again, we apologize for the technical difficulties. Victoria, I will hand the call back over to you for the closing scripts.
Victoria: 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 Progressive's website for the next year. You may now disconnect your line.