Progressive Corp (PGR)

• Record New Application Growth Positions Progressive for Strong Future Expansion: Progressive reported 117% new application growth on the direct side and 98% on the agency side in 2024, which are massive increases. This exceptional growth enhances the company's outlook for 2025, as it plans to capitalize on this momentum and grow "literally as fast as we can." -
• Leveraging Strong Margins to Propel Organic Growth Efficiently: The company is using its current strong margins to fuel organic growth by increasing media spending and capturing more market share. Progressive's flexibility in adjusting media spend has allowed it to take advantage of market conditions where competitors are raising rates and restricting new business. This strategy enables Progressive to grow as fast as possible while maintaining a combined ratio at or below 96%. - -
• Strategic Focus on Segmentation and High-Quality Business Enhances Profitability: Progressive continues to deepen its segmentation in both product pricing and media spend, allowing it to attract higher-quality, preferred customers with lower claims frequency. Additionally, the company is incentivizing agents through aligned compensation structures to produce high-quality, profitable business and promote bundling, which is expected to improve underwriting profitability and retention. - -

• Progressive's significant growth in 2024 may not be sustainable in 2025 due to more difficult year-over-year comparisons and increasing competition. Susan Griffith noted that the company had massive new application growth (117% direct, 98% agency), but acknowledges that "the comps will be more difficult" in 2025. -
• Increasing competition may pressure Progressive's margins and growth prospects. Competitors are returning to the market with competitive rates and increased media spending, which could reduce Progressive's growth and media efficiency. Susan Griffith stated, "Yes, I think competition will continue to have the right rates and show up in media." -
• Progressive's lower exposure to home insurance and bundling compared to competitors may limit its ability to attract customers seeking bundled products. Susan Griffith admitted, "We don't have the same, probably percentage market share [in home insurance]. Clearly, we don't." -

1. Potential Price Cuts
   Q: Will you consider price cuts due to strong margins?
   A: Susan Griffith explained that they will monitor trends carefully. While they implemented price cuts in about 9 states - , they also increased rates in others. They prefer to use current margins to propel growth through increased media spend and aim for stable rates to drive organic growth. -

2. 2025 Growth Outlook
   Q: How do you view growth prospects for 2025?
   A: Susan Griffith is bullish about 2025. With 117% new app growth on the direct side and 98% on the agency side - , they expect to continue growing as fast as they can. Despite tougher comparisons, they feel well-positioned due to competitive rates and strategic positioning. -

3. Competitive Environment
   Q: Is increased competition affecting your growth strategy?
   A: Competitors are starting to raise rates and increase media spending, but Progressive believes competition is good. - They focus on their strategic pillars—people, competitive rates, brand evolution, and broad coverage—and are confident in their ability to grow due to their strong positioning. -

4. Frequency and Severity Trends
   Q: What explains recent BI frequency and severity trends?
   A: Bodily injury severity has increased due to higher large losses and more soft tissue injuries with attorney representation. - Social inflation and elevated jury verdicts are influencing these trends, but Progressive is not overly concerned about one quarter's results. -

5. Retention Rates Impact
   Q: Does stabilizing policy life expectancy affect combined ratio?
   A: Retention is crucial for Progressive. While policy life expectancy has stabilized, they continue to focus on stable rates and great service to improve retention. They monitor it closely but do not see it as a headwind to the combined ratio. -

6. Use of Technology and AI
   Q: How are you managing growth with staffing and technology?
   A: Progressive has hired well in advance of need to handle growth. - They utilize AI and technology to become more efficient, such as chatbots that handle about 15% of calls. - This allows them to focus human resources on more complex tasks.

7. Homeowners Insurance Derisking
   Q: Can you update on derisking in cat-exposed states?
   A: Progressive continues a robust derisking program. PIF growth is up 19% in growth states and down 9% in volatile states. - They've taken significant rate increases and are exiting certain lines like DP3 in many states. -

8. Ad Spend Effectiveness
   Q: Will ad spend remain effective if competition intensifies?
   A: Progressive believes that efficient spending is key, not just spending more. - They focus on media efficiency and segmentation to reach the right customers effectively. They are prepared for increased competition and confident in their approach. -

9. Attorney Representation Trends
   Q: What are the long-term trends in attorney rep rates?
   A: Attorney representation rates have risen over the years, and medical trends continue to increase. - Social inflation and some egregious jury verdicts are concerns, but Progressive prices for these trends and focuses on customer trust and fair dealings. -

10. Auto PIF Growth and Hurricanes
    Q: Did recent hurricanes affect auto PIF growth?
    A: Susan Griffith stated that they wouldn't say PIF growth comes from the hurricanes. - While total loss vehicles might be replaced, the storms did not significantly impact PIF growth. -

11. Favorable Frequency Trend
    Q: Is the favorable frequency trend sustainable?
    A: The increased mix of preferred customers, who have lower frequency, is the main factor. - They will continue to monitor trends but focus on maintaining target profit margins. -

12. Agent Compensation Changes
    Q: Have you changed how you're rewarding agents?
    A: Progressive has an aligned national commission structure designed to reward higher-quality business and greater volume. - They continually evolve compensation to encourage agents to place high-quality, bundled business with Progressive. -

13. Cost per Sale
    Q: How does your cost per sale compare to target?
    A: The cost per sale remains below their targeted acquisition cost. - They continue to see elevated shopping and a hard market, making their media spend efficient. -

14. Q4 Growth Expectations
    Q: Should we expect slower growth in Q4 due to holidays?
    A: Progressive plans to continue their push through the end of 2024. - They aim to capture more than their fair share of shoppers, even if shopping typically slows during the holidays. -

15. Staffing in Full Employment
    Q: How are you keeping fully staffed amid growth and full employment?
    A: By hiring well in advance of need and focusing on employee training and retention. - They use technology to handle simpler tasks, allowing staff to focus on complex customer interactions. -

Quarterly guidance for Q4 2024:

• Growth expectations: Optimism about continued growth heading into Q4 2024 - - (no prior guidance)
• Combined ratio: Maintain a combined ratio of 96 or better - - (no prior guidance)
• Media spending: Highest media spend in Q3 2024, with elevated levels continuing - - (no prior guidance)
• Property business adjustments: Risk-adjusting property business (geographic mix changes, segmentation, rate increases, cost-sharing) - - (no prior guidance)
• Retention and policy life expectancy: Monitoring and stabilizing rates to improve policy life expectancy - (no prior guidance)
• Cost Per Sale (CPS): CPS remains below target acquisition cost - - (no prior guidance)

Annual guidance for FY 2025:

• Combined ratio: 96 or better - - (no change from prior guidance of 96 - - - )
• Media spending: Continuing to leverage increased media spending - - (no change from prior guidance to increase media spend - - - )
• Rate adjustments: Continuing rate increases in the property business - - (no change from prior guidance of smaller rate increases - - - )
• Efficiency in acquisition costs / CPS: CPS remains below target, reflecting maintained efficient acquisition costs - - (no change from prior guidance - - - )
• Property insurance strategy: Further de-risking / risk-adjusting the property portfolio - - (no change from prior guidance - - - )
• Profitability targets: Achieving profitability across all segments - - (no prior guidance)
• Growth expectations: Optimism about capturing additional market share - - (no prior guidance)
• Retention and policy life expectancy: Emphasizing retention improvements - (no prior guidance)