Q3 2025 Progressive Corp Earnings Call
Speaker #1: Good morning and thank you for joining us today for Progressive's third quarter investor event . I'm Doug Constantine , treasury controller , and I'll be moderator for today's event .
Speaker #1: The company will not make detailed comments related to its results . In addition to those provided in its annual report on Form 10-K , quarterly reports on Form 10-q and the Letter to shareholders which have been posted to the company's website .
Speaker #1: Although our quarterly investor relations events often include a presentation on a specific portion of our business , we will instead use the 60 minute schedule for today's event for introductory comments by our CFO and a question and answer session with members of our leadership team .
Speaker #1: The introductory comments by our CFO were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 60 minutes scheduled for this event for live questions and answers.
Speaker #1: As 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 and uncertainties that could cause actual events results to differ materially from those discussed during today's event .
Speaker #1: Additional information concerning those risks and uncertainties is available in our Annual Report on Form 10-K for the year ended December 31st , 2024 .
Speaker #1: As supplemented by our form 10-q for the first , second and third quarters of 2025 , where you will find discussions of the risk factors affecting our business .
Speaker #1: Safe harbor statements related to the forward looking statements and other discussions of the challenges we face . These documents can be found via the Investor Relations section of our website at progressive.com .
Speaker #1: To begin today , I'm pleased to introduce our CFO , John Sauerland , who will kick us off with some introductory comments . John .
Speaker #1: Good morning and .
Speaker #2: Thank you for joining Progressive's third quarter 2025 Investor Relations Call . We had an excellent quarter with an 89.5 combined ratio , 10% premium growth and policies in force growth of 12% versus a year ago .
Speaker #2: That policy is enforced . Growth equates to 4.2 million more policyholders , or almost 7 million more vehicles enforced than a year ago .
Speaker #2: While growth is lower than in recent years , we are still gaining significant market share and capitalizing on the opportunities for growth through robust media spend and competitive rates .
Speaker #2: Year to date , our combined ratio is 87.3 with 13% premium growth and comprehensive income of $10 billion , which is over 30% ahead of 2024 .
Speaker #2: Rounding out our key performance metrics , our trailing 12 month comprehensive return on equity stands at 37.1% . Before moving to questions , we'd like to take a moment to offer more commentary on the $950 million estimate for policyholder credit expense for personal auto customers in Florida that we recognized in September .
Speaker #2: Florida is largest market , and we are the leading provider of personal auto insurance in Florida . In 2023 , Florida legislators responded to rapidly rising insurance rates by passing House Bill 837 , which , among other things , moved Florida to a modified comparative negligence system , meaning drivers for more than 50% of fault for an accident could no longer sue for damages and disallowed one way attorney fees .
Speaker #2: Since House Bill 837 took effect , our average loss costs or pure premiums for Florida injury claims are down between 10 and 20% , and the percentage of Florida personal Injury Protection , or Pip , claims , for which we received lawsuits , is down around 60% .
Speaker #2: While we have been responsive and reflecting these changes in loss costs through two rate reductions for Florida consumers in the past year and another plan for December , the drop in loss costs was more pronounced than we expected .
Speaker #2: Additionally , obviously , there is significant risk of very costly storms in Florida , and we have seen virtually none in 2025 , the Florida excess Profits law calls for the return of profits in excess of 500 basis points .
Speaker #2: Better than our filed and approved underwriting profit margin over a three accident year period . And at quarter end , we that liability at $950 million for perspective , in 2022 alone , inclusive of Hurricane Ian or personal auto combined ratio was over 100 .
Speaker #2: And those results translated to around a $750 million decrease to the excess profits equation for the periods that included 2022 , our Florida auto business is more than 50% bigger .
Speaker #2: Now than in 2022 . We applaud the legislative changes in House Bill 837 and the resulting more affordable personal auto insurance premiums for consumers and desire to continue to grow our presence in Florida .
Speaker #2: Our loss reserves will continue to develop as we handle more claims under the new system , and our estimate for the policyholder credit expense for the 2023 to 2025 period will develop accordingly , with monthly adjustments showing up in the expense line on our income statement .
Speaker #2: Naturally , going forward , our intent is to manage profitability in Florida to avoid excess profits . And finally , in response to questions , we received while a few other states have statutes covering excess profits , we don't currently foresee other similar exposures .
Speaker #2: Thank you again for joining us . And we'll now take your questions .
Speaker #1: This concludes the previously recorded portion of today's event . We now have members of our management team available to answer questions . Questions can only be submitted over the phone by pressing Star one on your keypad .
Speaker #1: 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 and re-entering the queue to ask additional questions .
Speaker #1: We will now take our first question .
Speaker #3: The first question is from the line of Bob Huang with Morgan Stanley . Please go ahead .
Speaker #4: Hi . Hi . Good morning . My first question is on advertising spend . AD spending this quarter in terms of dollar amount is fairly similar to the last quarter .
Speaker #4: Just given the increased competition policy in force , growth has decelerated specifically in personal auto . Curious if there's a way to think about ad spending going forward .
Speaker #4: Clearly , these policies are very profitable . Do you need to maintain the current level of ad spending in increasingly competitive environment ? Just curious how you should think about ad spending going forward .
Speaker #5: Yeah , Bob , we monitor that every month on an ongoing basis . And monitor , most importantly , efficiency . So we want to make sure our cost per sale is lower than our targeted acquisition costs .
Speaker #5: And that remains to be the case . So Pat Callahan and his team , we do a lot of our our buying of advertising internally .
Speaker #5: They look at it , you know , overall for a year with things you have to buy in advance . But ongoing we have the lever to increase or decrease depending on competition .
Speaker #5: That's what we'll continue to do . Again , our operating goal is to continue to grow fast as we can and advertising is a great lever to reach that goal .
Speaker #4: Okay . Thank you . Maybe just clarifying that point a little bit when you say that , you kind of have you're buying ads 12 months in advance , does that mean that essentially for the next 12 months , your ad spending is more or less set already or and there's some levers around that ?
Speaker #4: Or is it just that most of it still is kind of not so certain , I just want to see if there's a clarification on that point .
Speaker #5: No , we'll do we'll do some buys in advance to get some discounted buys . But a big majority , a big majority of the ads that we buy are in the auction .
Speaker #5: And we can that's where we can have the levers to pull back or go forward that you've seen in the last several years .
Speaker #4: Okay . Got it . Thank you very much .
Speaker #3: Thank you . The next question is from the line of Elise Greenspan with Wells Fargo . Please go ahead .
Speaker #6: Hi . Thanks . Good morning . My first question I was hoping you could just comment just on the competitive environment in general and what you observed in the Q3 .
Speaker #6: And I guess like a forward view . Right . We've seen others , you know , pivot to growth as we've moved through the year and just how has that impacted , you know , that combined with the fact that we're in this environment where , you know , you guys said in the Q , you don't need that much rate right now .
Speaker #6: How does that help you formulate your view about growth ? Right . Both . You know , in the near term , like in the fourth quarter , but then also as we think about 2026 .
Speaker #5: Are things to listen . Thanks for acknowledging your report last night that we had strong growth in Q3 of 24 , because I've been comparing the growth and the fact that we've slowed is sort of funny to me because of how much we've grown on such a big base .
Speaker #5: So I appreciate you acknowledging that . So yeah , the competitive environment has gotten stronger , which we knew what happened . That's why we got out in advance of rates to capture all the growth that we did .
Speaker #5: When we did . This is when the fun starts . So competition is great . It's great for customers and consumers . And so we'll continue to find ways with which to grow .
Speaker #5: We have a lot out there in terms of as we look at each state , each channel a different factors in terms of Sam's rights , Robinson's , and we have a strategy to grow all of the above .
Speaker #5: And probably the biggest growth point for us . Elise , is when we think of Robinsons . So we have we want to grow in every single persona .
Speaker #5: So we love Sam's as long as we can make our own calendar year profit. But we want to grow Robinsons because that market is about a $230 billion addressable market.
Speaker #5: And we have a low percentage of that share . So there's a lot of opportunity . I'll probably go into a little bit more detail than you need , but I think as you think about not just fourth quarter , but especially as we get into 26 and 27 , an area of a focus of our focus will be more Robinsons because we're in such a different position than we were a few years ago .
Speaker #5: So as you know , you know , we needed rate increases . We needed better segmentation . We needed some cost sharing to go into the policies we needed to exit Dp3 .
Speaker #5: There's a lot of things that we did that I referred to a couple of different times . Of our five point blueprint to to get to where we need to go to , we did we did just that .
Speaker #5: We increased rates from 22 to 24 , about 55% . And continue . But on a much more moderate level , because we're in such a different position , our calendar year combined ratio now on property is about a 78 .
Speaker #5: And granted , some of that is favorable reserve development as well as we haven't had many storms at all in 2025 . But that is a great position to be in .
Speaker #5: And so as we think about our growth , we think about we have a framework with the use that we're using called a new business readiness , growth .
Speaker #5: And we more Robinsons , for more growth . And as you can imagine , in John's opening statement , he talked about this vehicles in force , which we don't publicly talk about .
Speaker #5: look at the assessment of adequate rate level segmentation . So which product is in the market ? Cost sharing , interest rate diversification regulation and market conditions .
It it really has had a profound and a momentous effect on the state of Florida's Insurance market. And I I I've been in this business about 38 years. I would never imagine, um, these changes and how great they are for, um, the benefit of Florida consumers. So, um, you know, we'll continue to watch that, but I think from a, a premium for policy, we, we're always going to be competitive and, uh, segments change. Uh, and that kind of all goes into the math.
Okay. Okay, got it. Um maybe pivoting to a trishia your remarks about uh, share BuyBacks. Uh, potentially being a, a, a bigger lever than historically. Uh, can you could talk about the framework there, you know, should we are you alluding to the special dividend? Uh, being being put into BuyBacks Instead at at current valuations or for both or anything? Uh, any color would be helpful
Yeah, when we have excess capital, we think of it in three ways. Obviously, I've just talked a little bit when I answered these questions about our desire to continue to grow, and our actions are around that.
To buy back more as well as what we think, if we have a dividend, what it will be. But, um, those are conversations that are constantly um, happening within our walls and with our board of directors.
So just Tricia, just to, to be clear where you signaling a a change in Capital Management tone by, by, by stating the the buyback language or, or you're saying it's this is just business as usual discussion with the board. Thanks,
All I was saying was that we're very cognizant when the shares when we believe the shares are under our intrinsic value. And we typically, if we have the capital take action, um, when that happens,
thank you.
Thank you. Um, I have a question about your Florida excess uh profit statute um when you performed the same exercise next year, let's call it September for acne years 24 to 26 uh to see if you owe any excess profits. In early 27, is there a scenario where you'll be paying another Florida excess profit statute given all the favorable Reserve development you experience in the state in recent years or do the excess credits you're paying in 26 basically neutralize a lot of those excess process.
Profits that you could owe in Q3 2025.
Well, you know, we don't know, and we're going to um, as I said earlier, we're going to continue to um, refine our acral as each month goes by for this 3 year trailing period. Um it's you know and at that point at the end of this year, we'll know the sort of fully uh like you said neutralized amount for that. Um, and you know, so the you know, the hard part and I we've tried to Signal this about Florida is, um, the storm season is typically at the end of the year. So we're putting another decrease in, in December. We'll watch that closely. Uh, I think John said, we'll, we'll, you know, do what we can to avoid a similar situation um uh in 27 for calendar year, 26, 252 24. But we feel um good about where we're at right now with the approval and we'll continue to revise that.
Okay.
Um, and you said that Florida auto business is more than 50% bigger now than in 22 and you're managing a profitability in Florida to avoid those excess profits and you took 2 rate cuts and you're going to take another 1. Um, so my question is on bundling, can you share how much of your homeowner policies have grown in Florida? And how you're thinking about your property exposure relative to your risk appetite?
Yeah. Um, you know, our property uh, growth in Florida has been minimal uh, several years ago. We um uh reviewed our policies in Florida to, to get to where we need, where we are, in terms of, um, our Readiness growth, we had, uh, a lot of dp3. We had a lot of coastal properties and so we had a lot of, um, non-renewals that we gave to another company, to be able to write. We will write a little bit in Florida, now mostly new construction. Um, that's a place where, um, I like we say, when we talk about volatile states, that we will not be have huge, aggressive growth, but will grow where we think we can and make our Target profit margins. But the growth in the property book has not been huge.
Thank you for confirming.
Thank you.
The next question is from the line of Jimmy bowler with JP Morgan. Please go ahead.
Hey, good morning. Um, I had a question, just on competition and personal Auto. Uh, most competitors have been increasing marketing spending in recent months. Many of alluded to potential price, reductions as well. Uh just giving strong margin. So your comments on competition is that what they reflect or are you seeing competitors? Get more aggressive with pricing and writing business either with sort of implied losses or uh very low margins.
Sometimes underestimated because part of what's been Progressive success is our people and our culture. That's really hard to put on a spreadsheet for an analyst. Uh we just um finished our Gallup survey. We were in the 99% of uh culture and engagement. That's really important because when you have times where you want to get something done, whether it's growth or decrease expenses or uh or you know roll out a new product execution is the name of the game and you have to have a great culture to be able to do that because people want to be able to Rally around a singular goal. So those 4 things we think about all the time but as far as competitive prices we're seeing increased advertising and much more, competitive pricing out there.
Okay. And then maybe on a different topic. Um, if I think about your commercial lines business, um, I would have thought that it would be growing at a fairly fast clip since you were expanding. Um, your target market, broadening coverage, adding new types of coverages policies. And if we look at the numbers, the last couple of years they've been, uh, High single digits, which is decent, but High single digit. Premium growth is the last couple of quarters, I think premium growth has actually been negative off of modest comp. So how do you think about like maybe talk about your aspirations or growth potential of your commercial lines business over the long term?
Yeah, I think longer term there, we have great aspirations, you know, clearly fht has been a headwind that there that, you know, was a higher margin business. But you know, we have slowed growth there, a lot due to both rate and non-right actions. And we've increased our growth in business owners and contractors, which are a lower premium and we've done some 6 month policy. So there. So what you're what you're seeing is is real in the data. However I think you're correct we have a couple areas that we have grown over the years and really wanted to understand them more deeply. And we have um pretty complex plans to spur on growth in a couple different areas. I'm not going to talk about those today. I'll talk about those maybe as we get into them more specifically I don't want to show my cards but yeah we believe that the runway in a commercial lines uh continues to be really strong.
Thank you.
The next question is from the line of Gregory Peters with Raymond James.
Please go ahead.
Good morning. Uh,
In your letter and in, um, previous comments, you've talked about, um, new products, your personal Auto product, 8.9 and 9.0. And then in the property area, your next-gen product 5.0.
So, as we're sitting here on the outside, watching these developments, trying to understand what, what does.
Personal Auto product 9.0 mean versus product 8.9. And is the difference that material and and the same question would be applied to the property. Next Generation product too.
Yeah, that's a great question. I first, I would say we're we're not very creative when we name our new product model. So I'm going to give you that because you'll see 5, we're on 5 and 51 in property, 8991. I'm going to let Pat take that. But what I would say is years ago, probably around 2016. Maybe, uh, we decided that we really wanted to have the pace of our models increase to get more and more variables out there that that are predictive of either lost cost or if we wanted to increase a certain segments like the Robinsons, And that's why we end up doing that. But I, and and we I don't like to think we're going to go into the specific variables. But I'll let Pat talk about that a little bit more because we have very large R&D groups that work on these product models. Um, constantly Pat, you want to
Anything, sure. So, from a product perspective, we try to do a couple of things every time we roll out a new product, and the first is...
Primarily to match rate to risk better than we did in the prior product. And insurance is a scale game; we have more data than most competitors, and our product is more complex. So, we have more segmented or finite data than virtually all competitors in the market. This data enables us to solve.
4 vehicles that supplements a new car warranty and provides things like lost key, fob and dent and ding repair as well as supplementing, the OEM warranty as the powertrain warranty or bumper-to-bumper warranty, kind of runs off on a new car.
In 900. Similarly, we come out with new segmentation where we solve all the math and the factors to fit the loss curve more precisely while also introducing with 900, uh, embedded renters. So now you can embed and buy a renter's insurance coverage as part of your Progressive Auto policy. So we recognize that renters insurance is a potential Gateway product for us in the property space. And we want to make sure that we are attracting multi-line customers early in their insurance shopping and buying journey, and we want to protect their household goods as part of a renter's product, and allow them to move them into a home or a condo as they change their living situation. So really a couple things we do with every product, but primarily it's solved the math, to make sure we're as accurate, as we can leveraging our massive scale and secondarily get that product to Market.
Yes. Trisha mentioned as quick as possible.
Thanks for the detail. Uh,
It's a follow-up question. Um, I'm going to focus on pivot to like technology and autonomous driving.
Um, you know, the new car is coming out, have a lot of embedded technology. Some of them actually, can drive themselves to locations, uh, the new Tesla, I'm thinking about in particular. So, um, I, I think it's appropriate for us to, you know, as we think about Progressive.
Um you know what's your view on this technology emerging technology and and you know in that moment in time maybe 15 years from now when we get to a fully autonomous type of environment, can you can you talk about how the company's thinking about that? And and any color there would be helpful.
Yeah. You know, we've been watching this for many many years and I think we first did our our first, what we call runway model in 2012 and to try to understand, okay? The implications of cars that are safer, first of all safer cars are better for, um, the world. So we think that's a great thing. And I think we, you know, we build that into our product as we think about vehicles that have safer components just just like you would have at any time with with seat belts or backup cameras, those those sorts of things. So, um, we're continuing to revise our model. In fact, we're in the midst of doing it right now to try to understand, um,
When that will impact us, and we see a lot, we we, you know, gather a lot of data, we see a lot of data, even when you compare like, um, the way Mo car is in Austin and we look at our relationships with TNC. We have not, we've not seen, um, too much of a change in the either changes there with pretty heavy waymo. Use has not muted um TNC miles so we're continuing to watch that getting getting is granular as we can. But at a higher level you know what we did years ago is we constructed the 3 Horizons to really understand how we can grow across the board. Not just in where we've typically grown in our private passenger Auto and our Commercial Auto which we're still going to continue to do. Um but that's when we really built, uh our commercial lines product models out. So think of Bob Fleet, our relationships with our TNC partners and many other things, and then of course, our Horizon 3 which are smaller now, but we believe will be bigger in the future. We're going to continue um, to look at that.
We call it executes, expand Explorer to make sure that we have a really robust model as cars, get safer. And as frequency goes down, uh, and we'll watch that and and and make determination of what we need to do to continue to grow and we talk about this all the time because it's, it's important for society. But it's also from important for us to know, um, areas where we can grow where we can leverage our people, our data, our scale, to grow in different ways. And that's what we talked about as we think about
Autonomous vehicles, you know it. You know it's uh you the time frame is always sort of the big question mark, because if you look at articles in 2012, it would have said everyone's driving around plane bridge in the back of their car in 2019 and that hasn't been the case. So we still think there's a lot to go again. We don't have our heads in the sand um and we'll continue to think about growth in different areas.
Thanks for the answer.
Hi, good morning. First, I had a question on shopping in retention. I was just interested if you could compare sort of the time period when we were taking bigger increases.
Or the industry was taking bigger increases in the shopping activity that was going on then.
You know, in in sort of reaction to higher prices as opposed to maybe what you're expecting over the next.
12 months on retention.
Related more to what you could shop in go get a lower price, potentially somewhere. Um, are you seeing different kinds of sensitivity to that, um, you know, related to up and pricing versus potential for down?
Yeah. I mean I think we're seeing a lot of shopping which means uh all customers are going to shop shop, including ours and you see that uh, in our pla our our feeling is just as we talked about in the queue, you know, often times our customers will reach out to us and we can do a policy review with our cancel reservation. Team to see if there's something we can do to help them out from a Pro price perspective. If we end up riding a brand new policy that starts the clock ticking, so that is a little bit of a headwind to ple. Um but not when we think about our consumer life expectancy our household life expectancy. When you look at that we don't uh we don't share that data externally, we share pla but if you look at our say household life expectancy of having a product with Progressive, that's relatively flat. So
We feel decent about that. Now, if you shop and you end up leaving us, we believe that is just adverse selection, because we believe we have the most current up-to-date price. As Pat talked about, and I talked about briefly our models, our constantly changing and revising them to make them um, more specific to, uh, rate versus risk. And if you end up leaving, we believe that we have more data than wherever that customer is going to uh, in terms of profitability.
Got it, that's helpful. Um,
And then going back to the the, the capital.
Discussion. I mean,
m&a was something you didn't mention is March relative to like the buyback and durable dividend conversation and just in light of that conversation you had on autonomous and potentially expanding into other products and so forth. I mean, how, how does m&a fit into that? How do you think about m&a over a little bit longer for time period? And why, why would you use a
On Capital position now to to explore that.
I mean, m&a is really complicated, we've done a couple of Acquisitions in the last 10 or so years, and they were very specific. So we bought ASI, which is now Progressive home because we want all wanted that bundle customer and access to that customer especially in the agency channel. Uh, we bought protective a few years ago to increase our, um, our Fleet capacity. And we'll continue to kind of, um, close the gap on that on the commercial lines part. Um, but Acquisitions can be
Tough and Integrations can be tough. So we want to make sure it's the right company, the right culture and something that can be added. So if we think, you know, we want to grow and there's a, a company that has a, a bunch of um, private passenger Auto that we believe we can get anyway. I'm not sure you'd want to pay the premium on that. That said we have um a group of corporate Development Group. That's always scanning to look to see if something makes sense. And, you know, we always want to have dry powder in case, something comes up. Um, but again, that's, that's something that I think every company does including us in terms of just making sure we're on the growth trajectory, um, do you want to, you want John? Do you want to reiterate sort of our capital structure and how we think about regulatory contingent in excess sure? So, um, you know, m&a would be 1 deployment of uh, excess Capital uh, in our minds reinvesting capital in the core. Business is always the first option that we pursue is. Obviously our returns in that space have been.
Very good. Uh, we also obviously considered to previous discussions here the dividend and buy back. And as traditional noted earlier uh as we believe the stock is below what we view, as fair market, uh we will be in Market buying back shares when we have the capital do so. And I see right now, our Capital position is uh, robust. So uh you know, we are institutional noted, we have a corporate development team, they are constantly looking
Got it. Thank you.
Thank you.
The next question is from the line of Josh Chancre with Bank of America. Please go ahead.
Yeah, thank you for taking my question. Uh, you know, a couple of things I'm looking at uh, The Travelers numbers and the all numbers and, and hartford's, and I have some guesses around Geico's numbers looking at what they've done and it doesn't seem like they're growing very quickly as a progressive. Uh, net policy count, growth has decelerated. I'm not looking for you to name names. Maybe you have some thoughts on where, uh, the business is churning to whether it's mutuals, whether it's smaller competitors who are, uh, Stronger Than they've been in the past, whether it's Direct business, that's going to agencies. Uh, where do you think the, uh, the the churn is moving towards.
Well, I think that, you know, and I won't talk specifically about competitors either but they're they're being competitors that were uh you know all captive and now have access to a non-standard in the independent agent Channel. There's competitors that were only directs that are trying to get into the agency Channel. We've always been broad. So that's really the beautiful part about our growth in trajectory and that's important part to make sure we are where customers are. And so, um, I want to talk about where things are coming from but again, I have to reiterate our growth is substantial based on the best.
Here in the history of progressive so um much of that growth you know uh comes to us. And and so we feel great about that and we'll continue to to grow. And I think uh I I said this, the last couple of calls I wanted to make sure as we compare ourselves to the best year in the history of progressive that were that were pragmatic about the fact that we still um, grew fifth 4.2 million year-over-year, which is substantial, especially at the margins that we have. So that gives us the opportunity to to continue to spur on growth especially with our efficiency around our media spend
Um, thank you. And then changing gears a little bit and following up on some other questions from 2007 to 2019. Uh, the dividend program at progressives is pretty formulaic. We could play at home using game, share months, and months to figure it out and then I think in 19, you said there's so many opportunities for investment that you don't want to be, um, um, forced into that Paradigm. And it became, uh, less possible for us to follow along. And now, why is what you said when the stock is attracted to us, we would also be repurchased of that if that were the right thing to do, uh, is there any formula or or way that investors can think about um uh the transparency of capital return, the way it was prior to the 2020 year?
Probably not. Um, there was pretty formulaic. And we were, you know, 1 of the reasons we changed that to go from the gain share, was that we were experiencing high growth and we needed that Capital to grow and so we didn't want to have something that we needed to pay out when the better use of that Capital was to grow The Firm, which is what we were doing over those years. Um, but that program worked well during that time frame, but no longer served us
I mean, how you can think about it is, you know, we have a lot of capital right now. Um, the board will make a decision as we do in our 10B 5 ones for stock BuyBacks, the board will make a decision to make sure that, um, you know, we think about that and the best use of it. And the best use of, um, uh, any Capital returns to our shareholders and, uh, can't give you a formula because again, we all, we do want to have dry powder. Uh, we want to make sure that we've thought of a bunch of contingencies but, um, I think they think that's and that's sort of what I I try to say in my letter is that we feel like we have we have excess capital disjuncture,
And that Josh uh so you all recognize our regulatory Capital needs. So historically, we've been uh, in the 3 to 1 range for our
On a Model basis, have a very low percentage chance of needing additional, uh, Surplus capital in excess of that. Again, we first want to reinvest. But, secondly, we look to dividends and BuyBacks of the extent. We feel our stock is undervalued, but you can come to a pretty, uh, close estimate of what we consider capital in excess of regulatory and contingency and that would be the capital from which a variable dividend would come. Now what portion of that is is up to ultimately the board uh but that is a good way to frame uh what a variable dividend or first excess Capital would be. But secondly, what a variable dividend would be.
Thank you for all the additional color.
Thanks Josh.
Thank you.
The next question is from the line of Paul gnome with Piper Sandler. Please go ahead.
Good morning, thank you for the call.
Um, I was hoping you could give us a little bit more um thought on and information on the severity trends for Auto.
Um, both the private passenger and um, commercial auto businesses. Um, it looks like severity is accelerating a little bit, um, um, in personal Auto and
A little bit more about why that may or may not be happening. And similarly in commercial Auto, um, you've got some peers that have
Some pretty significant troubles in that line and any thoughts on, where you may or may not be. Um,
Experiences, similar transfer them.
There's a report out and paid. So as an example, when you look at our, our PD from quarter, uh, 3204 to 25, it appears to be about 7%. We had a large decrease in reserves, uh, in quarter 3:24 about 2 and a half points. So, that would be about 4 and a half points versus a 7. So that's where it might be a little bit different comparison. Um, bi continues to be specials are outpacing. Um, attorney rep measure up. So, and, and actually, some states that minimum limits have gone up. So we feel like, uh, industry severity where we're pretty close to the industry on the private passenger auto side. Um, the commercial line side, um, I feel like we are in a better position than most of our competitors. We got ahead of, uh, rate. Uh, the severity is up, but again, same sort of thing with, You've Got High limits, you've got attorney reps, um, and but we feel good about where
We're at from a margin perspective and our ability to grow perspective as well.
Maybe a second question, um, in a different one. Could you talk a little bit about the level of telematics and whether or not we're getting to at least closer to a point where?
That um, is a more mature part of what Progressive does.
Of usage and the ability to slice and dice.
Yeah, I mean, tell thematics is always been a key part of our of us understanding. I, you know, I throw out some specific data. Um, that that, you know, we have on our OBD device. I think I did at least on, um, I guess maybe I didn't, it was on, on frequency. We we know from our OBD device that vehicle miles traveled have been down about 4% in the quarter. So those are kind of things we can point to, as we try to dissect and to Tribute, um, frequency and severity changes. Uh, it's, you know, we have our mobile device which was the majority of what people choose now in. 47 States. Um, so we feel like it's a really powerful part of our variables and more importantly, for customers, that that drive safely, it is really an ability to lower your insurance rates, pretty substantially. And so that's, that's really, uh, the main component of it and we learn a lot. We have um, many many, many miles. How many miles do we have now? Do you think?
Billions. Yes, a lot of miles, a lot of data. And so it'll continue to be a big part of it. I'm not sure if that answered your question.
No, I was just trying to get a sense of you know, whether or not we're getting to a point where
You know, just folks that are using your telematics is, is it where you can sort of a maximum given? Um, How uh,
Um, you know, certain percentage will never use it, right? So, but just whether or not we're getting towards the maturity of the product itself.
I think we have a opportunity to increase that specifically on the agency channel is what I would say.
Rating variable but it's not 1 size, fits all. So we continue to collect data, we continue to innovate and we continue to refine how we use that data against, what you would expect to see from similar drivers and similar vehicles to rate more accurately. So telematics is a broad brush and while we're seeing strong consumer adoption and I think your intuition there is that consumers are getting more comfortable with monitoring on a continuous basis, which is Trisha mentioned is just a great way to modify their own behavior to control their insurance costs, but we are not standing. Still by any means, we have an entire team that leverages larger and larger data sets on a continuous basis to refine how accurately we can use it to ensure that people are getting the most competitive price, that's personalized for them and how they drive.
And 1 thing, I'll mention, which is a little bit further field, but important because it's important for Consumer safety is we have, um, the ability for um, to, uh, understand the people who have been in accidents and whether they need to toe tow truck or an ambulance, I think is a really key important part of feeling. Like, you're, you're cared for as a customer, uh, with our snapshot devices or mobile devices.
Thank you. I appreciate the help very much.
Thank you.
The next question is from the line of Ryan Tunis with Cantor Fitzgerald. Please go ahead.
Yeah, thanks. Uh, good morning. I I just had a follow-up on um on what's going on in Florida and and wanted to know if I'm thinking about something, right? But uh, clearly that's been an important market for Progressive. I think you guys have top market share there by by a mile.
I guess, my perception has always been a, an important reason for that is it's a tricky Market to underwrite. Um,
But talking about the listing of some of the tort reforms. It sounds like it's become a more insurable Market.
Um, so I guess if my concern would be just like any state where you had meaningful amounts of tort reform,
uh,
It kind of creates a lever for competition to come in, so I
I'm wondering if I'm thinking about that, right? Or if there's something maybe that's unique to Florida, that we wouldn't necessarily see in some random State like Minnesota. Thanks.
Yeah, I think, you know, every state has a little Nuance, right? When you said Minnesota, I went to their High PIP coverage, you know? So I have like all my thoughts of every state. I think you know, the fact is that it will be um it will be more. There will be more competition because of the tort reform and I think that's good but again we are so well ahead of it because we it's you know it's a it's been
Our biggest state for a long time, and we feel really good about it. And we feel great about serving, uh, the consumers, uh, of Florida. And we are, we want to grow their. So we're going to continue to grow and having the right rates and the right uh, legislative changes is going to make that, I think, um, better for for everybody but most importantly consumers.
Got it. I I better Shore up my knowledge on Minnesota sorry about that Trisha. Um but they uh follow up is
Customers replacing existing policies with new Progressive policies. I was just curious. If that had a, a meaningful impact on the new Issue. App number
Uh, yeah, I think it does and had it and, and, and meaningful on the P because this is a very unusual Dynamic, um, that's been happening. And I think, I've, I've heard in other calls, it's happening in some of our, some of our competitors. Uh, uh, so yeah, I don't, I don't have the specifics for you, um, but, uh, you know, I think customers are super sensitive right now. We get it, we're doing our best to keep rates stable, uh, lowering rates when it makes sense, and we believe that we can grow in certain demographics. Um, but I think it is, I think it's meaningful kind of across the board.
Yeah, I think the ultimate metric Ryan is is PIP growth. So yes, you're right to the extent, we are rewriting more customers. Those we do report as new customers, uh, but as the end of the day, the PIP count and the Biff count to previous conversations, I think is what you should look at in terms of uh our growth and our market share.
Thank you.
The next question is from the line of David Modem with evercore isi. Please go ahead.
And you know, I was I was a little surprised the, the stable pricing uh that you put through in the third quarter, just given um, how strong the margins are even. Um, if if we put in, um, a sort of like a normal catastrophe loss level, um, for for the auto business, um, is, is this something that that, um, you guys are are considering, is, is there something on the horizon that would prevent you from doing this? It didn't sound like you were concerned really about tariffs, but just just trying to get you, uh, just a sense for how you're thinking about, uh, you know, potentially lowering lowering price to accelerate growth and and also improve retention.
Yeah, we absolutely been thinking about that. We were, um, more conservative, I think when the tariffs came out. And so now that that you know, seems Seems today to be more certain, you know, we we we our our little bit less concerned, of course, that could change. I think we decreased rates in about 10 states in this quarter, uh, increased rates in about 6. So we're very surgical on channel products State, um, but we do want to grow and so we will look to that for both growth and retention. Um, in terms of uh uh reducing rates, we just want to make sure because of the competitive environment that that if we we get something for that so that, you know, you you don't want to reduce your margins and not get growth. So we're we're trying to be, like I said, really surgical in each state.
Uh, um, when we think we can get growth, and that unit growth is important. And, um, so we know we have some margin to play with, and that's really what we're talking about now at every individual state and DMA level.
Got it. Thank you and and then maybe um sort of a higher level question just um just as we think about the impact of collision avoidance systems and eidos as it penetrates the fleet more and more. Um
You know, I I don't think, you know, I'm sort of looking at ISO data, I think for 10 years up until 2019 industry, frequency was pretty flat. Um and now when I sort of look you know since 2019 we obviously had Co in there but it's a pretty substantial decrease. So I'm wondering if you can you know think about like just maybe just talk about um you know, unpacking some of that uh Decline and Improvement in frequency that looks like it's still continuing. Um and sort of how we can think about that as impacting the longer term growth of the business
Yeah, I I can't predict the future but takeaway that that kind of couple years during Co because things were were so strange with driving. Um you know, frequency has been going down. Um, it for the last 50 years and as Vehicles get safer as laws around DUIs and other things, get more stringent and have gotten more stringent. Um I think that's a that's a really good thing now. It's been off.
Set and then some by severity. And that's been where, you know, when you look at, um, the models. We, you know, we have when we do our models for our Runway, we look at that in severity has increased. Um, well, well, well more than frequency. Uh, and so, you know, we'll continue to see what happens in terms of, um, uh, Parts the the ability to repair Vehicles, the ability to have talent, um, that can actually repair those Vehicles as they get more complex. And those are things that you can't predict, but we look at those all the time and we're deeply looking at those right now, as we think about our next 3 year strategy,
Got it. Thank you. Cars on the road. I'm sorry, I was just going to add the number of cars on the road has also increased, the average age of those Vehicles has increased. So all those factors in addition to the, the pure premiums, or the frequency and severity, um, affect the size of the marketplace and the marketplace actually has grown faster than we had anticipated. When we first started assessing the long term Runway or market share or Market, size of the personal Auto Marketplace.
Got it. No, thanks that. That's that's interesting. Yeah I it it definitely feels like I mean I think it's like 07 until 2019 industry frequency was flat. So like if we look at it over a a 50 year time frame to this point you know it's definitely still down but like there is definitely an air pocket in there where the industry was better.
Benefiting from like flat-ish frequency. And so, um, yeah, just something I'm sort of thinking about, but I, I appreciate the, um, I appreciate the, uh, the answers there. Thank you.
Thanks David.
Thank you.
The next question is from the line of Brian Meredith with UBS. Please go ahead.
Seems like it comes up every quarter but on the pla drop can you talk maybe a little bit? Is it, is it mixed driven this quarter that's kind of dropping everything? Or is it kind of cross all the cohorts that you're seeing the drops in Poe
Uh, I think it's, I think it's probably more pronounced in Sams. Uh, I'm not quite sure, but I think it's I think it's, it's mainly across the board. I think everyone's shopping. Uh, and you know, when we look at our, our mix of business, just in terms of even, um, growth as you look through our queue and and think about just our prospects and conversion, you can see that even though that that's relating to Consumers coming in. Um, we think that has an impact on you, on anything's up at? Yeah. It's it's pretty much across the board but driven by different aspects and that, you know, Sams are obviously more price sensitive and, you know, household costs are rising on the Robinson side. We certainly have taken some action to redistribute our book, and to limit access to our property. Products at some agencies, which has an effect on where they place that business and whether it retains with us. So we are seeing it more. Broadly. But um,
Yeah, more broadly.
Great. Thanks. That's helpful. And there's second question. Um, if I look at, um, where your pre per premium was in the third quarter and and Grant understand this calendar year. So it's not exact here and versus, um, average written premium for policy, there's a pretty meaningful, kind of spread difference which would imply some, you know, pretty meaningful margin compression here. Coming going forward, granted from a very attractive you know, margin you're seeing right now, as you think about kind of going forward and what you're looking at is that something you're anticipating is that, you know, your margins are compressed here and personal auto insurance. You know, going forward, here closer to Target level.
I mean I think it depends on if we can get the growth.
On at a 96, or, you know, or, or lower or we're obviously well, in advance of that, we've had some conservative baked in because of tariffs, uh, and some other things but, you know, yes, we could see it compressed. If we believe, we can get that growth and we're always kind of managing that trade-off, but, you know, um, I believe, you know, that's an accurate statement going forward because our ultimate measure of growth is um, units. So pissed and and events as we talked about today. And we'll do what we can to continue that growth. Because again, if you know, we have, uh, a plan around our property, the more Auto we can get in there. The more bundled we can get in, it's sort of a nice nice Circle. So we're going to do what we can to grow, as long as it. Um,
Serves Us in terms of our Target profit margins and um our operating goal that has been in place for uh decades.
Makes sense. Thanks for answer.
We've exhausted our scheduled time and so that concludes our event, those left in the queue can direct their questions directly to me, Alyssa, I will hand the call back over to you for closing Scripts.
That concludes the progressive corporation's, third quarter, investor event information about a replay of the event will be available on the investor relations section of progressives website for the next year. You may now disconnect