Progressive Aktie

Good morning, and thank you for joining us today for Progressive's First Quarter Investor Event. I'm Doug Constantine, Treasury Controller, 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 its annual report on Form 10-K, quarterly reports on Form 10-Q 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 Personal Lines President and a question-and-answer session with members of our leadership team.

Introductory comments by our Personal Lines President 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 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 and 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 is available in our annual report on Form 10-K for the year ended December 31, 2025, as supplemented by Form 10-Q for the first quarter of 2026, where you'll find discussions of the risk factors affecting our businesses, 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 at investors.progressive.com.

To begin today, I am pleased to introduce our Personal Lines President, Pat Callahan, who will kick us off with some introductory comments. Pat?

Good morning, and thank you for joining us today. First quarter results were consistent with the last several quarters, extraordinary profitability and growth well above the industry average. When performance is this strong for this long, it can be easy to take it for granted. So I wanted to take a few minutes to reflect on what the Progressive team has delivered.

First, market share. In Personal Auto, we gained 1.9 points of market share in 2025, moving us up to 18.6% share, our second straight year of gaining more than 1.5 points, which no other top 20 company has done going back to at least 1996.

To put the last few years in perspective, it took us 84 years to get to 15.2 points of U.S. auto market share and only 2 years to add another 23% more on top of that. It's a remarkable achievement and testament to the value that our offerings bring to consumers seeking high-quality and affordable protection products.

Growth is great to see, but profitable growth is our objective, and it's important to note that we gained that share while delivering Personal Auto combined ratios below 90 in 9 of the last 10 quarters. And that's just Personal Auto.

Preliminary industry results for Commercial Auto suggest the industry combined ratio improved, but once again posted an underwriting loss as it continues to face nuclear verdicts and social inflation. Despite these headwinds, our Commercial Auto results continue to be excellent as we continued our streak of underwriting profitability well in excess of the industry.

And in Property, we're building on last year's exceptional profitability while we continue to invest to ensure we have the risk selection and segmentation, geographic distribution and distribution footprint necessary to start increasing availability. As we mentioned on the last couple of calls, we're slowly starting to increase our appetite for property growth on our own paper, which is helping us find more growth in the important Robinsons segment. These results are only possible because of the competitive advantages we built across the organization and because we employ people who are truly among the best in the industry.

While we're certainly pleased with these results, we got here because we're always looking ahead. World events continue to create uncertainty in the global macroeconomic environment, and we remain vigilant about how those changes could affect our business. Given our concentration in vehicle lines, higher fuel prices are top of mind. The direct impact of higher fuel prices on Personal Auto frequency is difficult to predict because the timing, duration and magnitude of the price changes matter as does the broader state of the economy when those price changes happen.

Historically, we've seen that when fuel is more expensive, people take fewer discretionary trips such as cross-country road trips. And while foregoing those trips can reduce total vehicle miles traveled, those miles do tend to be lower frequency miles, so the effect on loss cost is typically smaller than the overall decline in VMTs.

To date, fuel prices haven't been elevated long enough to conclude how much, if at all, elevated fuel prices may affect our loss costs. On the severity side, higher energy costs generally contribute to broader inflationary pressures. However, it takes time for higher costs to make their way through the supply chain and can be partially offset by lower severity resulting from a lesser mix of higher speed, higher severity highway accidents.

In Commercial Auto, higher fuel prices can immediately pressure trucking margins, adding strain to an industry that has already seen significant change in the post-pandemic environment. As we did in 2021 with higher used vehicle prices and in 2025 with tariffs, we are monitoring the effects of fuel prices closely and incorporating what we observe into pricing as appropriate. While the macro environment could put upward pressure on pricing in the future, today, we're still delivering near-record Personal Auto margins and focused on growing as quickly as possible. The environment remains competitive as it has been for the last 5-plus quarters, so we continue to execute state and product level plans to maximize PIF growth at target profit margins.

On the new business side, in Q1, we increased media spend by 20% versus Q1 2025, making Q1 of '26 the most we've ever spent on media in a quarter. Top of funnel metrics remain robust with marketplace demand still strong. Our price competitiveness is also strong as reflected in higher Personal Auto conversion year-to-date.

Our product teams continue to execute their business plans with some states taking modest rate decreases when appropriate to capture in-market shoppers. On renewals, we're actively retaining customers through policy reviews as we've noted over the last couple of quarters. While possibly temporary, we were also pleased to see a lift in the Florida trailing 3 policy life expectancy during the quarter as customers received their premium credits.

At the countrywide level, mix shifts that arose because of a more aggressive new business posture continue to put downward pressure on PLE, although the year-over-year influence of those changes is abating.

In Commercial Lines, we're also seeing a competitive environment, and we are looking to all avenues to stimulate growth. We are increasing media spend and are looking to reduce rates in some states and business segments where we can bring in business at or below our profit targets. With targeted rate decreases and continued advancements in rolling out our next-generation product models across our core Commercial Auto, medium fleet and small business lines, we are well positioned for growth.

In closing, our business is in a very strong position. The macroeconomic environment will continue to evolve, but we've proven we thrive during periods of disruption as we're among the best at identifying and quickly adapting to uncertainty and changing business conditions.

As we close in on the important milestone of becoming the #1 writer of U.S. Personal Auto, we're not taking our foot off the gas. We'll continue investing in the business and leveraging our scale, advanced analytics and segmentation leadership as we make progress towards our vision of becoming consumers, agents and business owners #1 destination for insurance and other financial needs.

Thank you again for joining us this morning. We'll now take your questions.

This concludes the previously recorded portion of today's event. We now have members of our management team available to answer questions. [Operator Instructions] And I'll take our first question.

Your first question comes from the line of Bob Huang with Morgan Stanley.

I want to maybe just unpack some of the prepared remarks commentary a little bit. So regarding the Personal Auto industry, right, the industry seems to be excessively profitable. And in your shareholder letter, you kind of mentioned about the competitive environment being intense. And just can you maybe help us think about just where do you see all this end for the Personal Line or Personal Auto rather going forward as well as for Progressive, both for the industry and for Progressive? Are we in a prolonged soft market just given the profitability environment? Are we -- should we think about the industry being more competitive and/or maybe even profitability declining in 2027? Can you maybe just help us think about the broader environment where Progressive is situated in, so to speak?

Yes. I'll try to unpack your question with a bunch of different answers. We don't know how long the soft market will prevail, but we have definitely seen a lot more competition because everyone has great margins. And we haven't seen the margins in the industry like we have in '25 and into '26. So that's going to be competitive for all of us, which is great for consumers. So we'll continue to make sure that we reach our target profit margins. Other companies have different targets and run their businesses differently. But we think this is a really great opportunity to continue on our growth trajectory and continue to get more and more policyholders to achieve what Pat has said and not just to be #1 in private passenger auto, but to be the #1 destination. And that's where we'll get and focus on more bundles.

But it's probably worth saying that after our best year, which we would say it was 2024. In 2025, the private passenger auto market grew written premium about $11.8 billion. $8.9 billion of that was us. If you take just the top 10 carriers, that combined growth in 2025 was $10.4 billion. So we were 86% of that growth.

And in quarter 1, '26, we grew PIFs nearly $1 billion -- $1 million, sorry, Auto PIFs that were 11% of that. So my point is that our focus -- it's hard to say what the industry is going to do, but our focus will be to continue to grow as fast as we can at or below 96%.

Will margins compress? Possibly. Because we do look at growth in terms of policies. And we want to make sure we continue to have more and more policies when we get more customers, we gather more data. When we gather more data, we understand segmentation and risk to rate better, and then we can put that into our next product model. So it's a very nice flywheel that we've used for a long time. What the industry does, I can't foreshadow. But right now, it's competitive. That's good for consumers, and we're excited about what we believe can be our future.

It sounds like from a growth perspective, somebody is hogging all the fun, maybe other people would ask you to share. But maybe that aside, if we look at Personal Auto severity, it is more of a follow-up, right? You gave some commentary around severity and frequency. While higher medical cost, attorney representation still were the callouts in the 10-Q, it does feel like severity improved notably. In fact, if we look at it, aside from 2024, severity on collision hasn't been this good in 5 years. Can you maybe help us get a better handle on severity trends, specifically collision? Why is it so good, for lack of a better word? Is this durable as you're growing further and then talking about the 96, so to speak?

Yes. I'm going to let Andrew Quigg answer that. But you're correct. Severity is about 3% overall. Frequency was flat. And so we feel good about those trends. A lot of things can change, like you said, with bodily injury, specials in general. So I'll have Andrew give a little bit more color to that.

Yes. I'll start on the frequency side. I know you're asking about severity, but of course, they're linked. We see frequency moderating a little bit. The trailing 12 months has been more negative. And in this quarter, we are more flat for frequency. We had a shift to preferred over the past year. And as we open up underwriting, we're seeing frequency go back to kind of normal. On the severity side, you mentioned BI, yes. As we mentioned in the Q, large losses and attorney rep mix have impacted BI severity.

For PD and collision, we do see higher parts prices. And so that is impacting. Now we have some offsetting cost of labor and things like that are not accelerating as fast as parts prices. Going forward for collision severity, it's hard to know. Our crystal ball is cloudy. Certainly, we stay vigilant on what's happening with tariffs, what might happen with the conflict in Iran. All those might impact severity going forward. But we've been able to find ways to offset severity increases that we see through parts prices by how we manage the claims process. And so it's hard to say on collision going forward, but we feel good about the trends we're seeing today.

Your next question comes from the line of Tracy Benguigui with Wolfe Research.

On the topic of AI disintermediation on brokers, I always felt like if any carrier can bypass brokers on the Commercial Line side. But given that you guys made so much traction on direct Personal Lines over the years, I see that your Commercial Line business, 90% of that is distributed through independent agents. I'm wondering why not more on the direct side? Could that piece grow?

Yes, we definitely think it can grow, Tracy, and that's why we've been investing a lot in that area. I think just like when we went to Auto on the Internet, it takes a while, especially in the Commercial Lines product because they're much more complicated. So think if I'm a small business owner, I want to make sure I'm covered with all the right things and sometimes I want to sit knee-to-knee with an agent. We do think that more and more consumers, whether they're Personal Auto or Commercial, will want to do business directly with companies. And that's really what we've been building over the last few years. And so we do feel that we will continue to grow in both channels in our Commercial Lines business. Pat talked about it a little bit in the opening comments that we're really well positioned for growth based on our margins and our segmentation.

Okay. Great. And one of your larger competitors is getting into the independent agency channel for Personal Auto. And I noticed that AI is becoming a larger piece of the overall distribution pie. Any update on the competitive landscape on the AI side of personal insurance?

It's hard to say how -- with AI, how things are competitive because all of us, I think, are investing and investing differently. And what I would say to have any competition getting into really any channel, we think that's great because I think it puts more pressure on all of us to be better for consumers and to continue to make sure, like I talked about, having more data, segmenting better, making sure our brand is out there. So while we just think competition is good.

AI, I think, will come in different forms. I think initially, whether it's AI that we -- was predictive in the past or generative now, I think we'll start with helping to make sure that all of us are more efficient and can get tasks out of the work that will ultimately lead to more competitive prices. And so that really has been our focus now. But we've -- like I said in the last call, from an innovation perspective, we've been working on some form, whether it's a chatbot or predictive AI and now Gen AI for a long, long time. And I think others are starting to invest as well.

Your next question comes from the line of Elyse Greenspan with Wells Fargo.

My first question, I wanted to ask on written premium per policy. It continued, right, to go down in agency, kind of flat in direct. I was just hoping to get a little bit more color on just like the drivers there and how you would expect, especially, right, as there is less rate through the system, how you would expect the written premium per policy to trend from here?

Yes. I mean, I think it will be dependent on the pricing actions that we take in order to grow. Right now, it's been down about 1 in private passenger Auto, 1%. We'll continue to watch that. And like we've said in the past, our real measure of growth for long term is policies in force. And so we want to make sure we can do that. And with that, we're going to make sure that we do a couple of things, have the right rates in the system, but also in the last year or so, we've opened up our aperture. So you're going to look at different premium per type of customer. So we were pretty close when we were trying to get rate in the system. Our mix has changed. And so with that mix change, I think that you might see some changes. I don't think there's going to be anything dramatic, but we're going to -- like we do, we're going to go state-by-state, channel-by-channel to make sure that we're priced adequately in order to achieve our goal of growing as fast as we can.

And then my second question is on policies in force, right? Historically, right, PIF and just shopping has been more focused, right, during earlier months in a year. Obviously, over the last 2 years, right, there's just been rate taking in the market and there's been differing trends. How do you think just policies in force relative to seasonal factors and just overall growth views will trend over the balance of the year with kind of the seasonality factor in mind?

Yes. I might have Pat add in on that. But what I would say is, I think, with just so much competition because it's been a long time where the industry has been, has had the profit margins that we've had. And so things have shifted a little bit, and there's a lot of shopping. We've talked a lot about whether it's our customers even shopping, reshopping with us or us doing policy reviews. I think that's happening sort of across the industry. So I can foresee that it could continue to happen. We really can't tell. But that's one of the reasons why we wanted to leverage our ability with our brand and our marketing engine to increase our media spend to continue that growth. Do you want to add anything, Pat?

Yes, sure. You're right. We've seen kind of unprecedented shopping, and we don't expect to see it slow down. So historically, there has been a seasonal pop in Q1 and then the echo in Q3 as policies renew. And we're seeing kind of continued strong shopping as inflation and affordability for consumers remains tough and insurance is a higher percentage of their disposable or household income. So we intend to continue to invest while it remains efficient. And we're seeing signs like older shoppers, longer tenured shoppers coming into market in ways that we previously had not seen.

And when some of these long-tenured shoppers shop, they may not have shopped for 10 years previously. Once they do, they realize that the world has changed, and it's relatively easy with high information transparency and low switching costs to change auto insurance, in particular, providers.

And we think that's a good thing. If people can leverage the competitive nature of the voluntary market and save themselves, money on quality coverage, that's good for them. And as Tricia mentioned, being a value provider who uses lots of data to ensure we have the best matching of rate to risk, we think we win when more people shop and find that Progressive offers a competitive price for the value or coverage they're seeking.

Your next question comes from the line of Mike Zaremski with BMO Capital Markets.

First question is on productivity. This past winter, Tricia, you spoke to productivity gains that I think I estimate would allow Progressive to do maybe up to 10% more with the same level of employees. Maybe you can elaborate on what specific technologies are driving those efficiency gains because I'd love to try to better decipher whether some of those benefits will endure more so to Progressive versus peers as well?

Yes. I won't go into all the specifics that we're using, but we do have several generative AI solutions in production, and we believe they're delivering meaningful benefits that we think will be long term, and that's across personalized experiences for consumers, agents, business owners. And we're really, I think, just at the tip of that. And it's really a continuation of how we've invested in technology over the years, whether it's from digital ability in claims or actually in CRM as well. And we're just trying to kind of be where consumers need us to be. And that's one of our strategic pillars to have broad coverage and be where our customers want to shop, want to be serviced. So we believe -- and we just finished our 3-year strategic plan and presented it to our Board of Directors.

We believe that we can continue to reduce non-acquisition expense ratio over the foreseeable future. We do a 3-year plan because we think it's really important to -- even with the margins we have to continue to have pressure on us to have the most competitive price, but also the right rate to risk. So we believe that we can continue to push -- put pressure on expenses through technology plus changes, yes.

Okay. That's helpful. And just switching gears lastly to a question on capital management. Are you willing to kind of maybe elaborate more on why Progressive chose a very large special dividend earlier this year versus directing more of those excess funds towards a buyback? I don't know if you'll be willing to kind of share some of the math equation or thoughts that drove that allocation decision.

Yes. I'll have Jon Bauer from Progressive Capital Management talk about that. But as you know, we've got lots of uses for capital. We had a lot of capital last year because of our growth. I'll just start with that. And we need a lot when there's high growth in terms of our regulatory needs and our contingency capital. And then we have to make choices, and we work very closely with our investment and capital team with the Board of Directors to determine how much we buy back, which we did buy back a fair amount in the first quarter this year and what we do with dividends. Ultimately, they make the decision. But maybe I'll just have Jon Bauer go over a little bit more about our process around how we think about overall capital management. And Jon, maybe even just talk about the debt raise we just did.

Yes. Thanks so much for the question. I would start by pointing everybody back to our first quarter presentation where we talk through how we think about capital. And at a high level, we start with, can we reinvest that capital that we have back into the business for much of the last few years, what Pat was talking about and others. Our company was growing so fast, we needed much of the capital we were generating to reinvest in our business to fund that growth.

As we've seen over the last 18 to 24 months, the business has been producing prodigious amounts of capital even as we've continued that growth. And so as we think about that, what to do with that excess capital after we get through the initial reinvest in the business, we think about a few different things. So one is share repurchases. Another is potential corporate development opportunities and the other is investment risk. And so we look across those 3 lenses and say, do we see valuable opportunities there?

When we think about our share repurchase, we specifically look at a few different measures, the same that we see in many of your reports, things such as price to earnings, price to book, and then we have our own internal model. And we look to see do we believe our shares are trading cheap to our view of fair value. And then we look to scale the share repurchase plan that we have through 10b5-1s on a going-forward basis based on how much of a discount we see that the shares are trading to versus what our view of fair value is.

And so you should expect that we will continue to scale that repurchase based on how much excess capital we have, what are the other opportunities we see for that capital and where we see the valuation of our shares trading in the market versus our view of fair value. And if after the share repurchase, the corporate development and the investment risk decisions, we still have what we deem to be excess capital versus what we need for our business, then we will look to return that as we did with our variable dividend at the end of last year.

I will point out with last year, we had something besides just our internal cash flow generation, which was the switch to several of our subsidiaries, 3.5:1 premiums to surplus. So that afforded us to have an even greater amount of excess capital that we were able to move up to our non-insurance subsidiary that allowed for both the increase that we saw in our share repurchases in 2025 as well as the large variable dividend that you talked about.

I'll briefly just also mention we raised some money in the corporate debt markets this year. We thought that it was a good time to issue. We obviously have $1 billion of debt maturities coming in 2027. We thought that valuations were attractive in the market. And we saw, as many of you have seen that our financial leverage, which normally has ranged between 20% and 30%. We have our 30% limit, has fallen pretty significantly below 20%. And so with the issuance that we did in the capital markets, our financial leverage at the end of the quarter moved up over 20% to a more efficient level.

But I would, again, just circling back to where I started, point everyone to that first quarter presentation and our focus on driving strong returns for our shareholders. And the way we think about doing that is with that strong return on equity that Progressive has driven over its history, and that means being incredibly efficient with our capital, both the total amount of capital that we are holding as well as the split of that capital between debt and equity.

Let me know if that answers your question.

Yes, that's helpful. So just on need to check, should we be earmarking some of that debt capital towards buybacks potentially? Or am I misinterpreting?

Yes. We don't separate out that debt raise is for share repurchases or for something else. How I would think about it is, Progressive is in an incredibly strong capital position even after the dividend, the share repurchases that we've done and even pre that debt raise. Even after that debt raise, we feel like we're even in a stronger capital position. We have the opportunity to invest that capital in all of the elements that I talked about, share repurchase being one of them. And we will continue to look at what the split is between our view of fair value and where our shares are trading. And if we think that we should be repurchasing a greater amount of shares, we will. But for us, it's very important to determine how big of a discount to fair value our shares are trading at.

Your next question comes from the line of Rob Cox with Goldman Sachs.

Maybe I'll just follow up on the capital management discussion. Progressive has disclosed that the firm can get to a maximum 3.5x premium to surplus on a statutory basis. From the outside, it seems like maybe you're not comfortable going that high. How should we think about your criteria for premium to surplus on a GAAP basis? And should we expect that to trend upwards towards like the 3x range?

Jon, do you want to take that? And if John Sauerland, either one of you, because you were both involved in those conversations?

Sure. I will start, and then, John, I'm happy for you to add on to anything there. So we got the approval at several of our subsidiaries to move to 3.5:1 from the 3:1. It was not across all of our insurance subsidiaries, but a significant amount of them. So we -- this approval only came in 2025. So we moved the capital up that we could within the course of 2025 to move up that premiums to surplus to as efficient as we could be in 2025.

We will continue to look in 2026 and 2027 to optimize that premiums to surplus at our operating subsidiaries because we feel a huge amount of confidence in the underwriting business that Pat talked about that we are holding more capital there than we need for the risk that we have. So we will continue to optimize that over time.

Our overall premiums to surplus, including our non-insurance subsidiaries will include the capital that we're holding for other things that we just talked about, share repurchases, corporate development, investment risk, contingent capital and things like that. That capital will continue to be optimized, but we will also look to hold some of that capital for future opportunities. So the goal is to optimize the capital at those insurance subsidiaries as much as we can over time. And then the capital that we hold at our non-insurance subsidiary will go up and down based on opportunities we see to use that capital and if we are looking to hold back certain capital for future opportunities.

John, I don't know if you want to add anything to that.

Yes. I would, as Jon Bauer did, refer folks back to our first quarter presentation where we detailed our financial policies, our capital structure as well as the change in premium to surplus targets. So we got approval to go to 3.5:1 and by far, the majority of our operating entities. That said, we were not able to move as far as we desired in 2025 to those ratios.

Our aspiration is to continue to move premium to surplus ratios up in those entities in which we have received approval. I would also highlight that we received approval largely because our risk-based capital ratios are exceptional in those operating entities. So we have a great track record, especially in Personal Auto in underwriting margin. We have a conservative investment portfolio. We have, relatively speaking, little loss reserve development. All those factors go into the risk-based capital ratios, which is what, at the end of the day, I believe regulators look at to exceed their comfort level in the solvency of insurance companies.

So we fared extremely well on RBCs in those companies even at the higher premium to surplus ratios and our aspiration working with regulators is to continue to move those ratios up, which obviously allows us to decrease the total equity we require on a GAAP basis, which obviously then can lead to higher ROEs. So that is the game plan we laid out in our first quarter call.

And as Jon Bauer did, I would refer folks back to that call for more detail.

That's helpful. Maybe just a follow-up on advertising and the competitive environment. We noticed Progressive is accelerating advertising spend and obviously generating significant PIF growth. But it does look like to us that peer ad spend has somewhat flattened out at levels well below Progressive. What types of advertising is Progressive finding incrementally attractive today to deploy the additional advertising dollars? And why do you think Progressive is uniquely able to effectively deploy so much ad spend?

I'll start, and then I'll have Pat Callahan added. Like we talk about often, we are not going to advertise unless we think that we will get customers for that. We want to make sure it's efficient. So we'll advertise if our cost per sale is under our target acquisition cost. We target differently depending on the cost. And we -- and in each year, of course, we have to -- we'll pay some upfront costs for media -- mass media on TV have to do that well in advance. And then we look a lot more -- most of our incoming is in the digital area.

So we sort of look across the spectrum of all ways with which to get eyes on our brand. And of course, that's a specific part of you can market, but if you don't have a well thought out and well-defined brand, it may not work. We obviously do for over a decade. We have -- whether it's our characters or our message ultimately resulting in people wanting to shop and wanting to convert with us when we have competitive prices, that's the key. So I'll have Pat add some color to that.

Yes, sure. So one of the differentiators, I think, within our customer acquisition, marketing media is a really strong in-house media team where we buy virtually all of our media in-house. And what that does is closely couples our media team with our product teams to understand at a more granular level, the ultimate cost of a piece of media as it translates through the performance of the media funnel being what the cost per impression is, how well it converts, what the average premium is and then ultimately, what the lifetime profitability on that risk may be. So we've talked for years that segmentation is in our blood and segmentation when it comes to media and operating our media buys highly efficiently is what we continue to do. So we continue to add to that team, and that team continues to work with media partners to find new ways to efficiently reach customers and ultimately get them to come try what we think is a phenomenal value in insurance protection products.

So as Tricia started out with, we will continue to spend as long as it's efficient, and we monitor the efficiency of not only what we do from a run-the-business perspective, but we're constantly testing and learning and scaling winners and shutting off losers. And similar to the flywheel, there's adverse selection in media purchasing, meaning when we bid to a certain extent and back away and someone else outbids us, we're pretty confident the efficiency of that spend isn't going to return what they expected it would. And we do that in product, and we do that in media, and we do that in other parts of our business.

Your next question comes from the line of Josh Shanker with Bank of America.

If we look at the declining premium per policy in the agency segment, a lot of that seems to be, at least some of it, the growth rate of Sams and Dianes relative to Wrights and Robinsons, and you're just growing it faster in a lower premium bucket of consumers. If you're a big believer of Progressive as the signature destination for insurance shoppers, part of that promise is you have to grow the Robinsons and the Wrights, maybe you have to grow them faster than the Sams and Dianes. What are you doing right now to address that imbalance in the growth rates?

Yes. I think we are definitely growing Sams again. And like I've said many times, that is okay because Sams were our bread and butter for a lot of years. And as long as we can price them accurately to make sure we have our profit margins that we target, it's important.

Now yes, you've hit on something important. I've talked about in the last couple of quarters. We definitely -- in order to achieve that new goalpost that Pat talked about in the opening comments, we want to be the #1 destination, which means private passenger auto is a piece of that, but property has to be another piece of that. So we definitely want to grow more on both the Robinsons and the Wrights.

So if you think about our agency channel, that is going to be the Progressive home product and the direct channel will be a stable of care of companies in -- that are non-affiliated. So we've been doing a lot of things. I talked about the blueprint. I've talked about kind of where we're going. I'll reiterate that and then talk about a couple more things we're doing and then give you some kind of a highlight or foreshadowing into our Q2 call, our deep dive.

So we talked about new business readiness. So that is, do we have the right rate level? Do we have the right segmentation or the product model in play? Do we have cost sharing in the contract, interstate diversification and what are the regulatory and marketing conditions? So we have about 38 of our 47 states we've identified where we're in growth mode. We'll add a couple more states in quarter 2. So we want to increase availability, expand distribution and expand our underwriting appetite.

A couple of the new things that we are doing in the first quarter, in the second quarter is we're really trying to -- in the agency channel, like you had said, understand and address the barriers to growth and conversion and what are some agent pain points. So our property team and our agency distribution team have been doing sort of roundtables with our platinum agents. We've done 29 roundtables in quarter 1 in 13 states, and we'll do another 19 in 10 states in Q2.

And we're learning, incorporating feedback, and I'm certain that will ensure changes or revisions to our products going forward. So we want to make sure that we do make sure that we have more Robinsons. That will be how we understand, how we get to our ultimate destination. And so we're trying to understand that. We don't want to swing the pendulum all the way. Obviously, we've had some volatile years. But yes, we agree with you. That is a big part of our growth strategy. We have a great team on that.

I'm going to let Pat talk if he wants any more of that. But I did want to say that our next deep dive will be on both overall property growth and Robinsons growth. And so if you could so that we are able to answer your questions adequately or accurately if we -- if there's information that we want to share, get those questions you have on both Robinsons growth and property growth overall to Juliana, our new Head of Investor Relations because she can start to gather those. And as John Curtiss, our Head of National Property and Jim Curtis, our relationship, our Head of Auto, they're going to be doing the deep dive next quarter. They can get those questions and try to really like be able to answer them in depth. So that's my one ask of you between now and our call will be in August, get those as soon as you can so we can get information sort of gathered to be adequately addressed any of those questions. Do you want to add anything else, Pat?

Just a couple of quick things, Josh. You mentioned the decline in average premiums in the agency channel, and that's driven by a lot of different things, not just the mix shift potentially to some Sams and Dianes, part of it is we're writing fewer annual policies than we were previously. And not all premium declines are compressing margin. So we see mix shift to better risks and different states that bring with them potentially a different average premium.

So I wouldn't want you to think that it's just a mix shift to Sams and Dianes, which there's a little bit of that as we're growing those rapidly. Now we're growing fast across segments, but we're growing those faster than we are the more preferred segments, and Tricia talked a little bit about that. But I guess I'd close with the focus on unlocking the Robinsons access, we'll spend some time on in August. And for us, it represents a $40 billion to $50 billion top line opportunity.

So we have roughly 20% share of Sams, Dianes, and Wrights and penetrating 40% of the $240 billion U.S. Personal Lines, Robinsons opportunity is just massive top line growth, and that's why we're focusing on it, but doing it in a smart way to ensure it's deliberate, it's consistent and most importantly, profitable growth that we generate from that segment.

Your next question comes from the line of David Motemaden with Evercore ISI.

Just wanted to just get an update on where cost per sale compares to your targeted acquisition costs now versus 3 months ago or maybe 6 months ago and how you're thinking about potentially increasing it by more over the next several months or quarters?

Yes. It's still under our targeted acquisition cost, probably a little bit tighter. But again, we look at that differently depending on the customer that we are acquiring. And so sometimes that target could move depending on type of media, type of customer. But so far, we see no reason to stop our current trend of advertising. If we see some decline or some reason, we'll pull back a little bit, but we are pretty excited about continuing our growth and part of that is our increased media spend.

Got it. And then just following up to an answer to a previous question. I think it was Pat who spoke about some shoppers who maybe not have shopped for the past 10 years, now shopping. I'm assuming those are potentially Robinsons' customers. So I guess -- maybe just a high level, is that true? And then just maybe high level, how are you guys thinking about where the book of Robinsons stands today as a percentage of the total mix? And as you guys ease some of those property restrictions in certain markets, what's the expected time line for that to show up in Auto PIF and maybe actually a bit on the premium per policy side as there's more bundled Auto business?

Yes. So the comment that I made about longer tenured and older shoppers shopping is coming from LexisNexis demand meter. And it's interesting data, and it doesn't have necessarily our segment breakdown to know whether they are Robinsons, but I follow your intuition that if they're long tenured, they are likely a more stable insurance risk, whether they choose to place both their auto and home with the same carrier or not. So long tenured and stable risks do overlap well with where we want to go with the Robinsons segment. So we're underpenetrated. We think there's a massive upside potential in that segment, continue to invest against it.

But it's also a pretty competitive segment. It's an area that the captive or exclusive agent companies own a large portion of that market share. And as we know, those companies that are mutuals or in some cases, reciprocal have different objective functions and a different time horizon for how they think about pricing their products.

So we know that competition for those customers is high, will be high, but it's encouraging to see that once those customers seem to get a taste of the competitive market or the ease and savings that comes from the choice model of the independent agency distribution channel that we see them coming back and realizing that having choice, having breadth and depth of coverages potentially better meets their needs as an insurance consumer over their buying lifetime. So those are encouraging signs that we see, and that's why we continue to invest heavily in the independent agency channel where ease and savings come from the choice model.

Your next question comes from the line of Gregory Peters with Raymond James.

In the limit -- just because I know you're running out of time, I'll just ask one question. Tricia, you talked about presenting the 3-year plan to the Board. And I know almost every quarter, you guys give us an updated view on autonomous vehicles. I just want to pull out the growth in your TNC business, which seems to be positive in Commercial Auto. There's the oncoming wave of Waymo's Teslas that are self-driving, et cetera. So I'm just curious when you map out your 3-year plan, how you're thinking your TNC business might evolve over the course of the next couple of years?

Thanks, Gregory. I'll have Andrew talk a little bit more about that, but that was a big part of what we updated the Board on. I think we've talked about this since probably maybe right around 2013 or so, we have what we call a runway model, and we look at the addressable market. So we look at all trends. But obviously, we want to look at AVs and each level of AV, what that means from a market perspective, a safety perspective. We have relationships with TNC providers. Some of that increase could come from mileage. So there's some different ways that we -- that things increase in the TNC space.

But we are very close to that data, and we have models that we work in terms of, hey, if this happens conservatively because I think you can read the articles just like you would read about self-driving cars 10 or 15 years ago and get piped up about it. It doesn't mean we're putting our head in the sand. What it means is, we're watching it closely and understanding very clearly that there's a lot of opportunity to continue to grow and work with a lot of these providers because I think it's going to be great for consumers and it's very different also depending on state, weather, driving, geo-fencing, all of that.

But Andrew, do you want to give a little bit more insight?

Yes. It's definitely a topic of conversation with our Board. We have an ongoing dialogue about autonomous vehicles and specifically in the TNC space. The only, I'd say, material commercialization right now is from Waymo, and they have a ridesharing service, right, that competes directly with our TNC customers. And so it's something we pay attention to.

Right now, Waymo's are in fewer -- many fewer urban areas than our TNC partners, and they are limited in the amount of vehicles that they have there. And so right now, at least from an insurance side, we don't see a cannibalization of the opportunity, but we're cognizant of it. And as we plan for the future, of course, we want to be careful on how we do that. We think there's robust demand. There's seasonality that's present in the TNC market.

Certainly, in winter, people choose TNCs over -- more than they do during nice weather in the summer. When it's raining, there's more choice, when in the mornings in the evenings. And so there's this variability and seasonality of demand that's present in the TNC space that's hard to solve with a fixed set of vehicles that we might see from Waymo or other AV providers. And so for the long term, we think that there will be a combination of both AVs and TNC companies with human operators even in the far future. So something we pay attention to, something we think about, who knows, but we try to be cognizant of the risks that are there and the opportunities.

And I would also add, Gregory, that that's one of the reasons why several years ago, regardless of what happens, we decided to really diversify more in our Commercial Lines organization. So we've had our 5 BMQs for a long time. But as we've gone into more fleet, especially medium fleet, our BOP program going direct. So that's one of the reasons why we have been investing and we'll continue to invest.

Pat talked about it in his opening comments. We feel like we're in a really pivotal position right now with Commercial Lines industry, lack of profit has been around for a long time, even though it's getting a little bit better. I think the -- we think the 2025 CR is right, ex-Progressive is right about 105, but we have profit as one of our core values. So we want to make money in all lines. And so we think we have a really good point of growth right now in our Commercial Lines business. So regardless of what happens, and we can -- we'll continue to do modeling and be on top of AVs, that's one of the big reasons why we've diversified our product line in our Commercial Lines organization.

There is approximately 5 minutes left in the event. We'd like to preserve those 5 minutes with some closing remarks from Tricia. Those left in the queue with questions can direct them to myself or Juliana directly. Tricia?

Thank you. I just want to take a few moments. One, I want to welcome Juliana Patera as our new Director of Investor Relations. Many of you have met her. We're super excited to have her on the team. As I said, please give her any questions you have on Robinsons, on property, just so we can really adequately try to address your needs when we do our Q2 call in August.

And then hot off the press, I want to congratulate Doug Constantine on his new role in Progressive as IT Controller. We just announced it to the organization yesterday. Typical with Progressive, we love moving people around. So Doug has been in PL, has been in CL and now he's in our right-hand guy prepping us for these calls for many, many years, and his work has been really appreciated. So thank you so much, and congratulations, Doug.

And then lastly, John Sauerland, and this is his last IR call. He announced that he'd be retiring in July, and he has been instrumental in making these successful and sort of being everyone's right-hand guy. There's -- the weekend before when we start to get competitor news and different things, I always turn to John to get any answers. And of course, he's been mentoring Andrew as we pass the baton. So I would like to give -- for those of you in the room, give John Sauerland a round of applause.

Thanks, Tricia. Rebecca, I'll hand the call back over to you for the closing scripts.

That concludes the Progressive Corporation's First 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.

Good morning, and thank you for joining us today for Progressive's Fourth Quarter Investor event. I am Doug Constantine, Treasury Controller, and I will be a moderator for today's event.

The company will not make detailed comments related to its results in addition to those provided in its annual report on Form 10-K and a letter to shareholders, which have been posted to the company's website. This quarter includes a presentation on a specific portion of our business, followed by a question-and-answer session with members of our leadership team. The introductory comments and the presentation were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 90 minutes scheduled for this event for live question and answers with the leaders featured in our recorded remarks as well as other members of our management 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 and results to differ materially from those discussed during today's event. Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31, 2025, where you will find discussions of the risk factors affecting our business, safe harbor statements related to forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investor Relations section of our website at investors.progressive.com.

To begin today, I'm pleased to introduce our CFO, John Sauerland, who will kick us off with some introductory comments. John?

Thanks, Doug, and good morning, everyone. While we're already in March, I would like to take a couple of minutes to review the very strong year that we had in 2025. Following a year of incredible growth in 2024, we added almost $9 billion in net premiums written in 2025 and almost 3.7 million additional policies in force. When we look at statutory results for the private passenger auto market through the third quarter of 2025, we believe we picked up close to an additional 2 points of market share versus last year to move to around 18.5% market share. However, what made 2025 even more exceptional was that along with that growth came remarkable profitability. We earned almost $13 billion in comprehensive income across our operating and investing units or a comprehensive return on equity of 40%. Profitability across our businesses was excellent, and policy in force growth was also positive across all the businesses with personal vehicles leading at 12% or almost 3.5 million more policies than last year. That equates to almost 5.5 million more vehicles insured by Progressive versus year-end 2024.

Property profitability was the beneficiary of a lighter-than-average catastrophe year and is also a reflection of the significant work we've done to manage the risk in this product. As we indicated in our Q2 2025 investor call, we're much more comfortable with the property line and are actively looking for ways to increase growth in property through bundling. In Commercial Lines, PIF growth was primarily from business auto and contractor risks, while growth in trucking was challenging as the industry continued to face headwinds. Commercial Lines also had an excellent profitability in contrast to what we believe was an underwriting loss for the Commercial Auto insurance industry.

As you know, Progressive is very focused on our underwriting operations, and we believe this is the primary driver of our success. We focus on our 4 strategic pillars to win in the marketplace and grow as fast as we can at less than or equal to a 96 combined ratio at the enterprise level as long as we can provide high-quality customer service. These 4 pillars have served us quite well since we established them formally as our strategy in 2015. Our culture and our focus on the growth and profitability operating mandate are supported by a very efficient capital model and strong risk-adjusted portfolio returns. This leads to high comprehensive returns on equity over the medium and longer term.

We view our comprehensive return on equity along with growth to be the ultimate measures of our financial success. And we believe success on these measures drives higher multiples for Progressive stock. As you can see from the slide, return on equity in our industry is correlated with price-to-book ratio. Additionally, we believe growth plays a considerable role in our multiple being substantially above the line derived from the large public property and casualty competitors.

Comprehensive return on equity is a function of the operating discipline we so frequently discussed on these calls and also very much a function of discipline around our financial policies. Today's discussion will go deeper on those policies, highlighting recent changes in operating leverage, providing insight around our variable dividend and detailing our approach to managing our nearly $100 billion portfolio at year-end.

At the same time we execute our capital-efficient strategy, we need to ensure that we give ourselves maximum flexibility as we encounter uncertainty. While we believe strongly in our operating model, we are unable to predict broader geopolitical and macroeconomic changes with certainty. Therefore, we have set up a model that allows for flexibility in both our capital allocation and our investment risk. Since we run with higher operating leverage and a fair amount of financial leverage, we need to make sure that we can retain more capital when we believe it is beneficial to the business. We believe that our variable dividend policy and a liquid more conservative investment portfolio give us the capital we need to grow when growth is significant and an off-ramp when we hit periods of volatility.

As an example of how our model balances these goals, if we look back to the 2022 to 2023 period, Progressive saw faster premium growth that required a significant amount of capital. On top of that, margins were volatile due to the surge of auto-related inflation. Further, that same inflation drove significant investment market volatility. In response, we were able to significantly reduce share repurchases and variable dividend payments, take down investment risk, and raise debt capital in order to ensure the fuel for our strong organic growth in 2022 and beyond. This flexibility allows us to aim for strong growth, while also operating with a high degree of capital efficiency.

More recently, capital generation has been very strong. In 2025, we earned almost $13 billion in comprehensive income across our operating and investing units. Our below 90 combined ratio, along with more than a 7% return on the investment portfolio, drove historically high profits for Progressive. The combination of the strong capital position in which we entered 2025, robust income generation and increased operating leverage allowed for Progressive to reward our shareholders with a $13.50 per share variable dividend in January. This came on top of modestly higher pace of share repurchases in recent months. Given this pace of income generation, the variable dividend and the announced change in our operating leverage last year, we thought this would be a good time for us to review with you how we think about capital, leverage, capital allocation and investment risk at Progressive.

While we focus on comprehensive ROE for the purpose of benchmarking, I want to share the history of results around ROE. Over the medium and longer term, our model has produced returns on capital that have outperformed not only our P&C peers, but most other financial firms. In order to achieve this continued outperformance, we have to not only be disciplined on the operating side, but also with our investments and our capital allocation. A key consideration around capital allocation is our operating leverage or, in other words, premium to surplus ratios at our insurance companies. As we conveyed in our Form 10-Q for the third quarter of 2025, we have received approval from our regulators that oversee most of our operating entities to move our operating leverage up to a maximum of 3.5:1 premiums to surplus.

As a reminder, The Progressive Corporation is a holding company, and we own 45 insurance entities and some non-insurance companies. Insurance companies follow statutory accounting rules and are subject to regulation in their state of domicile. Surplus in statutory accounting is essentially equivalent to equity in GAAP accounting. Statutory accounting differs slightly from GAAP accounting, primarily around recognition of expenses more in line with cash flow and investment-grade bonds are valued at amortized cost versus mark-to-market.

Regulators have numerous tests to monitor and regulate insurance company solvency. Premiums divided by surplus is one ratio for which limitations are set by regulators to ensure that insurance companies have the capital necessary to pay out policyholders when needed.

For our core vehicle lines of business, we have always believed that based on our rigorous underwriting acumen, conservative investment posture and relatively modest reserve development that we did not need to hold as much capital as regulators were expecting us to. Those same factors are generally considered in risk-based capital ratios that regulators use to monitor solvency, and in extreme cases, to force changes in the management of insurance companies. Our risk-based capital ratios are very good in most of our insurance companies, and this fact helped us receive approval to hold less capital or surplus at most of our operating subsidiaries. We hold a significant amount of capital outside the insurance companies as well, and we'll talk more about that in future slides.

As you can see, there's a wide range of operating leverage models in the property and casualty insurance industry. Progressive, with our consistent operating results, is normally near the top. This exhibit shows just the surplus in our insurance subsidiaries relative to net premiums written. As noted previously, The Progressive Corporation is a holding company, and we hold surplus in the insurance companies and generally balance those insurance companies to our target premiums to surplus ratios towards the end of each year.

At year-end, we generally hold contingent and additional capital at the holding company level. At year-end 2025, we held around $13 billion in an investment subsidiary of the holding company. In January, we paid almost $8 billion in a variable dividend out of that $13 billion.

Naturally, the next question is what this change in operating leverage means for our overall capital position. We think of capital in terms of 3 different layers, which are regulatory, contingent and additional capital. As I previously mentioned, our regulatory capital is overseen by our state regulators. However, our contingent capital layer is fully determined by our risk appetite and controls. It is currently set at an amount in which it would take a one in 200-year modeled scenario to go from the top of our contingent capital to our regulatory layer. As the name is contingent, our goal is for that layer to generally not be fully eroded to the point of reaching the regulatory layer. So we normally hold some level of capital above the contingent layer.

How much additional capital we hold on an ongoing basis is a function of factors such as operating and investment volatility, financial leverage and the potential opportunity to deploy capital towards investments, acquisitions or share repurchases. While we will always be open to holding on to additional capital for future opportunities, management is very focused on Progressive's return on equity over the medium and longer term.

We won't do a deep dive on our reinsurance program today, but it is certainly worth noting that our reinsurance program is integral to the size of our contingent capital layer. Relative to our balance sheet, we have fairly modest retentions in our reinsurance program, and our catastrophe limits are relatively high. This naturally allows us to need to hold a lower level of contingent capital all else equal.

As you can see from the graphic on this slide, the change in our premiums to surplus means lower capital needs at our insurance subsidiaries but does not require us to hold any more capital at either our contingent or additional layers. Therefore, this move has the potential to incrementally raise Progressive return on equity due to the lower capital needs. I will also note that the incremental $1.6 billion freed up in 2025 resulting in our premiums to surplus ratio at the enterprise level to move closer to 3, relative to an average of 2.8 over the previous 5 years. Our insurance company subsidiaries are subject to numerous regulations on capital beyond net premiums written to surplus.

So while we may have approval from the state of domicile to move to 3.5 for the net premiums to surplus ratio, additional regulations may limit at what pace we may move to that ratio and how close exactly we get to that ratio. Our intent is to work to move closer to 3.5 going forward. Our operating leverage has historically helped us to achieve industry-leading returns on equity and this change will naturally further that positioning. And while operating leverage is important, it is only one element of our capital model.

Now to continue the discussion on financial leverage and capital allocation, I will pass it along to our Treasurer, Maureen Spooner. Before I do that, allow me to give a brief bio on Maureen, and our Chief Investment Officer, Jonathan Bauer. Maureen has been with Progressive more than 20 years and has previous experience in Treasury at another public company as well as public accounting. During her tenure at Progressive, she has held controller roles in our special lines and IT groups, managed our comparison rating offering in our direct group, served as our Ohio Auto Product Manager and most recently, our Audit Business Leader. Jonathan Bauer has been with Progressive almost 20 years, all within our investment management group and has previous experience in investment banking in New York and London.

Thank you again for your time this morning. And now to you, Maureen.

Thanks, John. While operating leverage is important, it does not tell the full financial or capital picture. First, because it only reflects the capital needs at our insurance subsidiaries. Second, it does not differentiate between equity and debt capital. So it does not consider financial leverage. And finally, it doesn't include our capital allocation policy or it does not consider where we can invest. So I will briefly review our financial policies, while sharing our capital allocation process.

First, we want to ensure we have the capital we need to write as much profitable insurance as we can. This is our best use of capital. We want to ensure we have the regulatory surplus plus contingency capital to grow our business at less than or equal to a 96 combined ratio. While our decisioning is not linear, we have a decision tree on the next few slides to demonstrate how we think about capital allocation. Once we have determined we have excess capital over and above our operating needs.

If we have excess or additional capital, we then consider how we would deploy that excess capital, and we consider the valuation of each opportunity. We consider 3 areas of potential investment. Additional capital may be deployed for corporate development or acquisitions and strategic investments, for share repurchase or for increased investment risk. Jonathan Bauer, our Chief Investment Officer, will be covering investment risk here shortly. In all three instances, we evaluate the investment and valuation and determine if the return is attractive for the investment.

With respect to corporate development, we introduced our Three Horizons framework to you back in 2019, which covers our strategic approach, including acquisitions. Horizon 1, our products within our current constellation of businesses. Horizon 2 are products that are adjacent to our current product footprint. Then Horizon 3 includes businesses outside of the P&C insurance landscape that we currently play in. We continue to fully integrate and optimize our previous two acquisitions, and we have continued to work on our skill set throughout the organization in preparing for future investments.

Secondly, we may use excess capital to repurchase shares. Our policy is to repurchase shares to neutralize the impact of employee stock compensation. We also consider repurchasing shares if the share price is attractive to what we believe is our intrinsic value. We have not repurchased a significant number of shares over recent years, even though we have board authorization to repurchase 25 million shares annually for the past 9 years.

In some recent periods, our growth rate was high enough that we needed to preserve capital to support growth. At other times over recent years, we had additional capital available to repurchase shares but we did not view the market price of our shares to be attractive or below our view of intrinsic value. Over the past few months, we have begun to be more active with repurchases, but obviously not yet at a significant level. As highlighted in the chart, in January 2026 in 1 month, we repurchased shares at a value similar to the repurchases made for all of 2025 as we felt the share price was attractive. Once we have exhausted considering capital needs for both business growth and investments, we consider returning underleveraged capital to shareholders via dividends.

For greater flexibility, we modified our dividend policy in 2019, moving to a modest quarterly fixed dividend of $0.10 per share and an annual variable dividend that is no longer formulaic and is completely variable. Before 2019, we tied the annual variable dividend to our gain share factor, which is a score we use internally to calculate annual cash bonuses for all Progressive employees. We made the change because there were times that the formulaic approach had us returning capital via dividends and at the same time, needing to raise capital to support growth.

The annual variable dividend is entirely at the discretion of the Board, which considers current capital levels relative to prospective expected capital needs and determines generally in December of each year, if to pay a variable dividend, and if so, how much. The $13.50 annual variable dividend declared in December and paid in January 2026 largely reflected robust capital generation in 2025 from both underwriting and investments, along with the shift to higher operating leverage at our insurance subsidiaries. As John noted, we held $13 billion of capital at the holding company level at our year-end and naturally net of the declared dividend, that number was $5 billion.

There's obviously judgment here, and we believe it's prudent to retain some capital above our operating needs for growth above our expectations, stock repurchases, investment risk, other strategic opportunities or contingency growth. And the $5 billion, along with our ongoing earnings, certainly provides us that flexibility. Once we have determined how much capital we are retaining for operating growth and investing, we need to consider what is the right mix of equity and debt. We have a publicly stated guideline of keeping our leverage under a debt-to-capitalization ratio of 30%. That does not mean that we will take any dramatic action if it drifts over that level, but that our intention will be to have it under 30% over the longer term.

You might ask why 30% is the right limit. Given Progressive's very steady stream of earnings and cash flow generation, we could likely support a more leveraged balance sheet. While we always keep challenging ourselves as part of Progressive's culture. At the current moment, we believe that the 30% level strikes the right balance between efficiency and having a strong balance sheet, which gives us strong debt ratings and allows us to prosper through economic cycles.

When reviewing our historical monthly financial leverage ratio, we did surpass the 30% guideline of debt to total capital during the financial crisis and then again briefly in 2022, largely due to unrealized losses in our investment portfolio. However, in both instances, we brought the ratio in line with our guidelines through the normal course of business. While we have a goal of staying below 30%, we do not have a policy regarding a minimum amount of leverage as we want to give ourselves maximum flexibility. Over the last 18 months, you can see that we have been trending below our historic range. The main drivers of that decrease have been significant income generation in 2024 and 2025 from both our underwriting business and investment portfolio.

Also, when you look at our financial leverage relative to our stock insurance company competitors, you'll note it is broadly in a similar range. Ultimately, we believe that an appropriate amount of financial leverage will help ensure a strong balance sheet and along with our now higher operating leverage, maintain our industry-leading return on equity.

In summary, while operating leverage is important, strong financial discipline is also a focus. We ensure we have enough capital for our operating growth or to write as much insurance as possible at less than or equal to a 96 combined ratio. We allocate additional capital where it can be beneficial to the business in corporate development, share repurchases or increased investment risk, while also neutralizing impact of employee stock compensation. We look to return underleveraged capital to shareholders via dividends, and we maintain a debt to total capital target below 30%.

That covers our financial policies at a high level, and I'll now turn it over to Jonathan Bauer, our Chief Investment Officer, to discuss our close to $100 billion investment portfolio.

Thanks, Maureen. I'm happy to get a chance to speak about how our investment risk decisions are part of the overall Progressive model that has driven strong shareholder returns over time.

Given the relatively high operating and financial leverage that we spoke about earlier in the presentation, along with a focus on capital efficiency, our investment leverage defined as invested assets over shareholders' equity runs relatively high. This means that gains and losses are more magnified than many of our peers, who run with a more significant capital base. Therefore, we tend to run with a more conservative investment policy, especially in times of significant operating growth.

So if we go back to the broader discussion of our capital deployment, if we have excess capital, we could deploy it towards corporate development, share repurchase and another option is to take more investment risk. In order to assess this decision, we think it might be useful to take a step back to review our investment policy since it has been a few years since we have engaged on this topic.

We have two different parts of the portfolio that are managed distinctly. Our fixed income portfolio, which currently makes up about 95% of the portfolio is actively managed by our team. Our equities portfolio, just under 5% of the portfolio is a passive replication strategy to the Russell 1000 Index. We decide how much to allocate to equities, but after that, you should expect returns to broadly match the index.

Our goals are twofold for the portfolio: first, we want to ensure that the operating business has all the capital it needs to grow as fast as it can at a 96 or better combined ratio. Second, after we have comfort in the capital position, is to achieve a strong risk-adjusted return over the longer term. If we look at two distinct periods over the last 6 years, you can see how our priorities are borne out in specific actions.

In 2020, as COVID caused immense volatility in both the world and financial markets, we were in a strong enough capital position to both support our internal growth and take on additional investment risk at attractive levels. However, in the inflationary period between 2021 and 2023 that we spoke about earlier, the combination of incredibly strong growth with volatility in both operating margins and investment markets meant that a reduction in investment risk was appropriate to ensure no hindrance to our growth model.

If we take a step back, we can see that over the last 10 years, Progressive's explosive premium growth has led to a portfolio that neared $100 billion at the end of 2025, up from $21 billion at the end of 2015. The portfolio growth is even more impressive when accounting for the significant dividends paid out over that time.

We thought it might be useful to review how the different elements of our portfolio flow through our financial statements. The investment income that you see on our income statement is mostly driven by our interest income, along with the dividend income from our equities portfolio. These flow through into our operating income and are generally viewed as more recurring in nature. As we will talk about on the next slide, we have seen strong growth in this category over the last 10 years.

Further down our income statement, you will see the realized gains and losses in our fixed income portfolio as well as the holding period gains and losses within our equities portfolio. This is driven by the actual sales in our portfolio and any change in the unrealized value of our equities.

The final element of our investment returns and flows is the changes in unrealized gains and losses in our fixed income portfolio. This number does not flow through to our net income, but only through our comprehensive income. If we think about the significant interest rate volatility felt across the insurance industry over the last 5 years, that has been mostly seen through comprehensive income. But the important point that I would want to get across is that we manage the portfolio on a total return basis as opposed to a book yield or an investment income number. We believe this allows us greater flexibility in our investment decisions and allows for a longer-term thinking in our strategy.

Our portfolio growth as well as the shorter duration nature of our portfolio has combined with rising interest rates to create significantly larger investment income flows over the last few years. We believe that if valuations improve in the fixed income credit markets over the next few years that we could have a further opportunity to drive additional returns.

As John mentioned earlier, 2025 was an incredibly strong year for capital generation. Our investment portfolio returned 7.33%, with strong results coming from both our fixed income and equity portfolios. On the fixed income side, the combination of lower interest rates and tighter credit spreads drove strong absolute gains. The after-tax contribution of our investment results was just short of $5 billion, which combined with our operating results made up the almost $13 billion in comprehensive income.

As mentioned earlier, Progressive continues to be a company with significant growth, and we run with higher leverage. So it's important that we have the right guidelines in place for our investment team. You can see some of the more important guidelines on this slide. Our Group 1 allocation is a combination of what we consider our riskiest or at least most volatile assets in the portfolio, which include high-yield bonds, certain preferred stocks and common equities. As you can see, we are nowhere near our limit due to our view on where valuations sit amongst these assets.

The second guideline measures our duration or interest rate risk. As can be seen, we are in the upper half of our range as we have been shifting our duration higher since mid-2022. The third guideline establishes our minimum average credit rating on the portfolio as A rated or better. While the team does its own credit work on all securities in the portfolio, we feel it's an important benchmark for our stakeholders to have a general idea of the credit strength of our portfolio. At year-end, the average credit rating of the portfolio was AA- as the current valuation environment does not lend itself to significant investment in lower-rated securities. The last guideline addresses the financial leverage that Maureen spoke to earlier, which even after our significant variable dividend remains below 20%.

Our investment team is based in Stamford, Connecticut and manages over $95 billion using year-end numbers. As mentioned earlier, the portfolio is split between an actively managed fixed income portfolio and an equities portfolio that is managed through an index replication strategy. This split in strategy is based on the view that active management and fixed income can provide value that is more difficult to achieve on the equity side.

The goals of the investment portfolio are to both support the operating business, while also achieving a strong risk-adjusted return on the portfolio. That portfolio return is measured versus a benchmark on a 1- and 3-year basis. We believe we are able to attract unique talent to our team, both due to Progressive's culture and the structure of our team that allows for employees to rotate amongst different asset classes and industries throughout their career.

The investment group is split up into three units: Our economics team provides macroeconomic research and analysis to both the investment team as well as broader Progressive. They've done a great job of helping with investment strategy through some significant swings in growth, inflation and employment. As our operating business has dealt with a very dynamic insurance marketplace, the economics team has partnered with them to understand and model out labor and claims trends. Our core investment research team drives our portfolio strategy as well as our security selection.

Our model is somewhat different in that after spending several years in an asset class, we will rotate those individuals around to other portfolios. We believe this broader investment knowledge assists our portfolio managers and analysts in determining relative value across different investment types. Our trading and execution team supports all of our fixed income trading as well as the company's share repurchase program.

I should also take this time to mention that we have an incredibly strong investment reporting and accounting group based in Cleveland that reports separately up through John. Each of our investment professionals are informed by the team's macroeconomic views, but are focused on detailed analysis at the security level. They are examining not only the credit risk, but the relative value versus other securities in their sector and other asset classes in the portfolio.

The incentive compensation of the team is partly measured based on the overall portfolio performance. This is meant to encourage collaboration and discourage building the size of one's portfolio if there is no absolute or relative value. One of the major focuses of the investment team is our interest rate risk, which is measured by duration. The investment team spends a significant amount of time on macroeconomic analysis and engagement with our internal economics team to determine our interest rate positioning. You can see at year-end, we were close to 3.5 years in duration, which is close to the highest we have been over the last 25 years. This is up from 2.75 years in mid-2022 and 1.6 years in 2014. The movement to a higher duration over the last couple of years has been driven by a view that we had turned the corner on inflation and the Federal Reserve was likely to move to an easing posture. Our portfolio duration is reported monthly in our earnings release.

The other major focus of our investment team is on credit risk. We invest across the fixed income universe, including asset-backed securities, commercial mortgage-backed securities, corporate debt, municipal bonds, preferred stocks, residential mortgage-backed securities, short-term or cash and U.S. treasuries. There are not fixed sizes of any of these portfolios, and we will shift our exposures around significantly over the short, medium and long term. One great example of that is our municipal bond portfolio, which has shrunk significantly over the last decade due to corporate tax reform, which has made municipal bonds significantly more attractive to high net worth individuals as opposed to corporations.

As we look at comparisons versus our competitors, we see that Progressive has historically held more common equities than our public peer group, but significantly less than the mutuals and conglomerates that we compete against. We have not historically invested in the alternative space viewing public fixed income and public equities as a better risk return and liquidity profile. However, as some of those alternative markets develop, we will continue to search for the best way to achieve our goals of capital stability and strong total returns.

Our relative fixed income performance has been strong over various time periods. The drivers of that outperformance come from interest rate risk and credit risk throughout the portfolio. We believe that our ability to take a long-term view towards investment valuations has allowed for us to continue to outperform our benchmarks over time. With a portfolio that is extremely liquid with mostly publicly traded securities, even though we have grown to a significant size, asset allocation changes are not difficult to execute.

An easy example to look at is how quickly we were able to generate the cash needed for our variable dividend from under $2 billion at the end of October to over $10 billion at the end of December, we were able to satisfy the dividend needs with very low transaction costs.

To bring the conversation back to where we started, Progressive's #1 focus is to grow as fast as we can at a 96 or better combined ratio. We believe that goal, along with our incredibly strong culture will continue to drive Progressive's growth over time. The focus of this call has been to try to inform about how we can best translate that growth and a capital-efficient structure into strong financial results. We believe that higher operating leverage, combined with an appropriate amount of financial leverage and a relatively more conservative investment portfolio can provide Progressive with both a strong financial position that can withstand volatility, while also generating significant returns over time.

With that, I will pass it back to Doug.

This concludes the previously recorded portion of today's event. Before we take questions today, our CEO, Tricia Griffith, would like to take a few minutes to discuss changes in our executive leadership. Tricia?

Thanks, Doug. As we stated in our recent news release, our CFO, John Sauerland announced he will be retiring in July of this year. And as you know, we are planning for Andrew Quigg to assume that role in July. I thought it would be great if you started to sit in on the IR calls and today, before we start Q&A, I've asked Andrew to talk a few minutes -- take a few minutes to introduce himself to all of you. Likely, you've seen him over the years if you've covered us for a longer period of time. Andrew?

Thank you, Tricia, and good morning, everyone. I'm excited to join you for this earnings call as I transition to the role of CFO of The Progressive Corporation, when John Sauerland retires in July. My background is available on our Investor Relations site.

I thought I might provide three themes you'll see in that bio. First, I know Progressive. Since joining Progressive more than 18 years ago, I've been inspired by the extraordinary people of Progressive. What has kept me energized is how deeply our core value is aligned with my own values. Our culture and people give me confidence in our ability to continually innovate and bring value for our customers, while also delivering industry-leading returns for shareholders.

I'm also very proud of the past 7 years during which I served as Chief Strategy Officer, reporting to Tricia. I've been a member of the executive team that has led our company through the pandemic and the subsequent cost inflation environment. This period has been great training for the CFO role.

The second theme is that I'm a lifelong learner. I received a Bachelor of Science from Yale University. I earned an MBA from Harvard Business School, graduating as a Baker Scholar. I've grown through many roles in investment banking, finance at General Mills, consulting and a handful of different opportunities at Progressive. I enjoyed learning about new aspects of Progressive and our industry. I'm bringing that mindset to the CFO role.

Finally, I love solving big problems. My career at Progressive began as a Personal Auto product manager, a core role where we balance growth and profitability. In particular, I led a turnaround of our Massachusetts Personal Auto business, after we entered the state and found we were underpriced for the environment. I also led our Direct Media team, buying advertising for our direct-to-consumer businesses. My first investor presentation came at this time in 2013 as I shared insights into the marketing and competitive advantages we achieved from data. In 2015, I moved to be a General Manager in customer relationship management, where my team created experience improvements for our customers. I spoke to investors in 2016 about the science around our experience and retention efforts.

During these years, I was proud to pioneer notable advancements as the business sponsor for our first big data project and the data science team that implemented our first AI chatbot. Nearly 8 years ago, I was asked to build a new strategy organization at Progressive from the ground up. This has included creating corporate strategy and corporate development teams. The strategy organization has also started Progressive life insurance and recently Progressive Pet Insurance as we add products around our market-leading vehicle insurance franchise. In 2019, I spoke with investors for the third time, sharing our plans to grow across the Three Horizons.

Just a final word of thanks to Tricia and our Board of Directors for providing me with several months to learn from our current CFO, John Sauerland. John is an institution at Progressive, and I am accelerating my learning to have a smooth handoff from John. I'm excited for this opportunity and look forward to connecting with you all on future investor relations calls. Thank you.

Thanks, Andrew. We now have members of our management team available live to answer questions, including presenters Maureen Spooner and Jonathan Bauer, who can answer questions about the presentation. [Operator Instructions]

We'll now take our first question.

Our first question comes from Bob Huang with Morgan Stanley.

My first question is on severity. On the 10-K, when we look at auto severity, it does look like it's marginally deteriorating, but it looks very manageable. It really hasn't spiked as the way I think we all thought it would have at the middle of 2025. Just curious, as we head into 2026, can you maybe comment on your thoughts on severity? Is it still a big concern for you going forward? Or do you feel in the current environment, the inflationary pressure is just simply not going to be there?

Yes. I think overall, severity isn't as concerning. It's been relatively flat for both the trailing 12 and the quarter. Probably the one area that we watch closely is BI severity. And of course, we report incurred. And we see that through more attorney reps, larger loss costs. We've been seeing more specials and generals. But overall, we will continue to watch as the world evolves. And we do see some parts prices increasing, a little bit higher than labor rates. So we'll continue to watch that with the supply and demand of both parts and labor.

Okay. My follow-up is on autonomous. Previously, I believe, 3 quarters ago, but I'm probably wrong on that. You were saying that the progress in autonomous has been faster than you previously thought? But just curious as we're seeing more autonomous becoming gradually commercially viable, I just curious how you plan to navigate the future of autonomous from a Personal Auto insurance context? And also from a Commercial Auto insurance context as well so.

Yes, absolutely. There's a longer answer to that question. I'm going to have Andrew answer it because his team is split into three areas and one is what we call a process group. And for years, they have looked at what we call runway. So the addressable market across the board, but specifically for private passenger auto.

But before Andrew speaks and kind of goes into what his team models and in fact, they just are wrapping up a model for our next 3-year strategy. I want to reiterate both what Maureen had talked about and also Andrew mentioned, and that was our Three Horizons. So many, many years ago, not long after I took this role, my team and I really thought about how are we going to position ourselves for the future. And we used the construct, it was from McKinsey for the Three Horizons. And so at that point, we were a little bit over $20 billion overall in written premium. And so we really thought about, okay, how are we going to use these Horizons, and really make sure we're investing in all three of them concurrently.

So the first one, and you saw Maureen's slide was execute. We want to execute the heck out of increasing more Commercial Auto and more private passenger auto, and we did just that. We maintained our #1 spot in Commercial Auto. And we went from #4 in private passenger auto to #2. So we're very proud of that. But we also knew we wanted a diversified portfolio. So as we thought about Horizon 2, we thought about sort of adjacent products we could do. And most of those fell into Commercial Lines. So think of our relationships with TNC providers where we've learned a lot about autonomy. We bought protective insurance to kind of expand our fleet. And now we've been really focusing on the last 5, 6 years on BOP, which we now are in 46 states and really ready to grow on that in small fleet. So having that diversity is really important.

And then, of course, Andrew just mentioned what we work on in terms of a little bit further afield, but products that where we think we have the ability to win, and we believe we can win. And that is a couple that we've done so far, and we have more in the pipeline, direct-to-consumer life and pet insurance. Those are products that people want, but also they help with retention for our auto.

So looking at those Three Horizons, execute, we've been doing that. We're going to continue to do that. Grow as fast as we can at 96. Expand, we are going to continue to work on relationships with both mobility and overall in our commercial business specifically. And then explore, Andrew's team and our next CSO, will continue to work on really thinking about exploring, again, where we have the right to play and the right to win. So I just wanted to kind of set that in motion before I have Andrew answer the question on autonomous vehicles.

Yes, Bob, thanks for the question on autonomous vehicles. We've been thinking about advanced safety technology for more than a decade. We initially provided thoughts to our investor community in 2013 by providing long-term trends on frequency, severity and ultimately, the size of the insurance market. In 2017, we provided investors with thoughts and projections, while providing modeling on outcomes that we could see in the future. The framework from those presentations are still applicable today, we think.

As Tricia mentioned, we continue to invest in modeling future scenarios, including both personal and commercial, as you indicated. We have recently updated our projections. And we would say, even with strong assumptions around the efficacy of vehicle safety technology, we still project personal and commercial vehicle insurance in the United States will grow robustly for decades.

It's also worth noting that our projections of the U.S. vehicle insurance market have consistently underestimated actual market growth. I'd like to spend just a couple of minutes talking about how we think about the modeling and also how we think about Progressive's position within the industry.

First, on the modeling side. We do expect safety technologies like autonomous driving to continue to be added to vehicles. We often see these new technologies, first arriving in the most expensive new models. In addition, the ramp-up of voluntary new technologies and new vehicles can take a long time. The average vehicle on the road is about 13 years old. So even when mandated after a certain model year, fleet penetration is slow.

To be specific, we have tracked different technologies over time. An example is electronic stability control, which we consider to be fast. We find it takes about a decade for 1% of vehicles to have a new technology like ESC and 20 years for it to reach 45% of the fleet. Reaching 90% of vehicles can take more than 3 decades.

When we model on the frequency side, we consistently see that vehicle technology can lower the rate of accidents. It's worth noting that sometimes safety statistics don't provide incremental improvement above what is already present in the fleet. Double counting is a persistent challenge that we and others have to navigate through.

On modeling severity, we also see that these technologies can increase the cost of claims. An example here is Tesla vehicles. I recently saw a model for the size of the auto insurance industry that assumed Teslas were already fully autonomous vehicles, providing much lower frequency with similar severity. In Progressive loss experience, we see that Tesla Model 3s have higher loss costs than similar EVs. This is due both to higher frequency and higher severity.

We're also aware of some pilot insurance programs for FSD on Teslas. Teslas represent less than 1% of vehicles on the road. Only a portion of these vehicles have an FSD subscription and FSD is used on less than 100% of trips. So in total, it represents a small opportunity today. This is not to say that Teslas will not lower pure premium in the future, it just isn't in our fleet data currently.

One additional aspect in the modeling that is not often called out, if drivers aren't required to monitor vehicles all the time in L3 to L5, we may see consumers increase the amount of vehicle miles traveled as they substitute personal auto transportation for other forms of transportation. So accidents per mile may be reduced, but the VMTs might go up.

It's also worth noting that 3.2 trillion miles are driven annually in the United States. As you mentioned, we've seen companies like Waymo that seem to be leading in the commercialization of autonomous vehicles. But over the past decade, it appears that Waymo has about 200 million AV miles, which is a very small fraction of overall VMTs.

On the Progressive side, we think Progressive is well positioned for changes in mobility whenever they may come. Progressive continues to invest in segmenting risk down to the vehicle level. Not all technology is equal, not all technology impacts every line coverage equally. We continue to invest in the data and the math to be extremely accurate, and we believe the proliferation of safety technology will make this focus even more valuable.

Beyond the vehicle level, our UBI capabilities allow us to understand how a driver performs using this technology. Progressive has access to tens of billions of driving miles annually to observe changes in driving behavior and technology. With our Snapshot, customers now allowing us to continuously monitor their driving behavior, we will pick up any tech-enabled changes in loss costs over time and adjust our rates as individual drivers harness technologies to different degrees.

We also have the capability to accept data streams directly from OEMs and third parties on an individual vehicle basis with consumer consent. This has been part of our UBI technology for many years, and our UBI capabilities extend beyond our own devices and our own applications.

Progressive also has over a decade of experience in insuring transportation network companies. We believe this infrastructure on our Commercial Line side can be leveraged for further commercial deployments like robotaxis.

Finally, Progressive has historically been able to compete very effectively at a local and state level. Auto insurance is regulated at a state level. And as regulations adapt, we expect that this local knowledge will continue to be critical. We certainly don't know how the world will change in the coming decades, but we believe that our competitive advantages, our very robust data assets, our leading analytics and of course, our history of execution will serve us well as safety technology changes.

Thanks, Andrew. I hope what you got out of that, Bob, was that we do a lot of modeling, a lot of detailed modeling, have been doing it for decades, and rely on that, and we put some conservatism, but we believe that there's a lot of runway under all of our Horizons.

Our next question comes from Michael Zaremski with BMO.

Congrats to John and to Andrew. My first question is specifically on premiums per personalized policy. I know there's a lot that goes into this but I believe the overarching theme is it's been slightly negative because of just healthy competition and also price reductions in Florida. If you agree with that, just kind of curious where should we expect that ratio to stay negative in '26 or maybe it will revert back to positive territory later in the year as the Florida pricing decreases kind of level off?

Yes. It's hard to say how the year will unfold. We're going to continue to grow as fast as we can at or below 96. So if we see states where we might want to reduce new business rates in order to grow, we might do that. Florida was one big piece of it. But we're always adjusting our rates accordingly. And now we're doing more small bites to the apple of a little bit up, a little bit down. But you're right, when you look at the kind of difference between net premium growth and PIF growth, a lot of it is reducing some of those new business rates in order to grow. Some of it is highly influenced by mix.

So as we've opened up our aperture to grow more in the last couple of years. Our mix has shifted back to probably more pre-COVID levels. And that's okay because every customer that comes in, we believe we have the data to make sure that we get to our target profit margin. So that's one piece of it, and wouldn't necessarily have that be your barometer. And then we are selling more 6-month policies, which is about half the premium you get in a 12-month policy. Again, just trying to kind of balance that affordability for customers that want to stay insured.

Got it. That's helpful. My final question is on technology. I'm curious if advances in recent months or quarters have kind of materially changed Progressive's views on the ability for the, let's say, the combined ratio, the LAE ratio to benefit from efficiencies on claims and underwriting.

Jay, are you talking to more in like the artificial intelligence technology, the technology that Andrew was speaking of on the vehicles?

Correct. AI specifically.

Got you. Yes, here's what I would say. This is probably a longer answer than you need, Mike. But we have a history of innovation. And so we are really concentrating on AI across the board and have been for a while. But if you go way back, into 1995, we were the first to put our auto rates online, like we saw the future, and we did that and that was before Google was even in existence. And what a great bet that was because over half of our private passenger auto is on the direct side and increasing more of our Commercial Auto. So we're going to continue with the history of innovation, including our usage-based insurance where we evolve and are getting better and better and more closely to price to the whole curve with surcharges and discounts.

And more than that, using technology for our customers. So we've talked about our accident response. That's a really powerful message when people get into accidents and they're unable to call an ambulance or a tow truck, we're able to do that for them. So we've talked I think a little bit over the last year or 2 years, maybe even longer on what we've worked on in predictive AI, a lot of models using unstructured data, voice data to trigger models, and we'll continue to do that. And I think 2 quarters ago, we had someone from claims come in and talk about Gaussian Splatting for our claims analytics. So know that we are working a lot on AI and have a lot that we are focused on.

I'm not going to share with you all that we're doing. We have an inventory of items that we're doing across really the enterprise, and we're speaking across the enterprise to make sure we're doing the right thing for our customers, our employees in order to make sure -- just making insurance easier and just easier to understand, easier to work with. So whether it's digital or agentic, we're going to continue to focus on that. I did talk in my letter about marketing commercial that we did called, Drive Like an Animal, that was all AI generated with the exception of Flo's voice. And we did that in so much less time than a regular commercial and so much less money and more importantly, it worked. So we measure our new prospects, and it worked very well. So we're excited about that as well.

We're going to have business models, rigorous controls, and we're going to continue to invest in this, and we're going to continue to lean into now Gen AI. We recently formed an AI Strategy Council. And so while we're working on sort of the next year and here's where we're at and working with vendors and making sure that we're testing things to make sure it's a really fluid process. This AI Strategy Council is sort of looking to where the puck is going in the next 3 to 5 years. So think of how -- one, clearly efficiencies, we're going to want those. But how is this going to change our industry? How is it going to change Progressive? How is it going to change how customers shop, et cetera? And they should report to my team in a few months, and we're going to continue to evolve that because we think the puck will move because this is going really fast.

Here's what I would say. Lastly, I'm super excited about the promise that AI holds for Progressive, and I'm excited about all the work we're doing. As with past innovations, I'm confident we will be a leader in our execution, and we'll do it responsibly. So that's where we're at. We are getting -- we're seeing efficiencies when you look at our data, and I think that will continue.

Our next question comes from Peter Knudsen with Evercore ISI.

Just another question on AI. I'm wondering if you could talk a little bit about how you think AI agents potentially could change the Personal Lines distribution, specifically for Progressive, but also the market overall?

I mean I think it's probably a different answer if I'm talking about our direct business versus our agency business. Our direct business, I think it could change it dramatically because if we have agentic agents for some policies. So I think there'll still be the desire for more complexity to talk to a human. But for some easy policies, and if I think it flows well, we should be able to change as these evolve and get better and better. Independent agents, I think it's a little bit different. Oftentimes, customers go to independent agents for more complexity of needs, feeling confident in their decisions. We've seen that especially on the Commercial Line side, where it's a little bit more of a complex policy coverage contract, and so they want to be able to kind of have that knee to knee. But I do think it's changing. If we can make it easy for our customers, one of our strategic pillars, John shared those is broad coverage. We want to be aware when and how customers want to shop and be serviced and some of that might be through an agentic AI agent.

Okay. And then one thing I've seen in the past cycles is that frequency on first-party coverages has bounced back 1 year or 2 after we've seen auto prices moderate. And so I'm wondering, a, if you would sort of agree with that hypothesis, if you have seen any evidence of this in your book? And then if yes, basically, how is that changing your assumption for frequency in the coming year now that we've seen a softer prices?

Yes. I think frequency is obviously -- there's so many attributions that happen, but we have seen that. John, do you want to take a little bit more detail on that?

Sure. We are always analyzing frequency at the coverage at the state, at the most finite level we can, and our product managers are constantly assessing what they think the future looks like to ensure that our prices that we are setting today ensure that 96 or better combined ratio moving forward.

You're right. When the market tightens up, we do -- we believe it's tough to see it exactly. But when the market tightens up, there is some change in claiming behavior. And as the market loosens, we do think sometimes we see some loosening in claiming behavior. It's, again, tough to tease out relative to everything else going on in the marketplace. Additionally, we watch coverages very closely when things like recessions happen because claiming behavior changes there as well.

So yes, we are certainly in a softening environment. The availability of insurance is certainly opening up relative to where it's been, and that can have influences on first-party claiming behavior. I won't try and put a number on it for you today. And I would tell you, it's not a large number ever, but it does have some influence in the direction of frequency.

Our next question comes from Katie Sakys with Autonomous Research.

Can you hear me?

Yes, Katie.

My first question is really on the regulatory environment. I think as you guys are well aware, there have been several state legislatures that are looking to push forward legislation that would focus on consumer affordability. Several states have pointed to Progressive specifically as an example of ways in which the auto insurance industry can be further regulated to support this goal. I'm just kind of curious how you guys are thinking about the potential for additional regulatory changes over the next year or 2? And really what that might mean for your overall approach to underwriting in those states?

Yes, it's hard to say, except for where we have the data, and that's from Florida. And so you saw the tort reform, the House Bill 837 that they put into play. And that has had a tremendous effect on affordability for Floridians. And in fact, if you bought a policy today versus 1 year, 1.5 years ago, you're going to pay on a new policy, 20% less, which I think is really significant. So that's been pretty powerful.

I know Governor Hochul from New York is, I think, proposing some legislation on to reduce fraud and lawsuit abuse in New York, we think we support that. So we support that because we do think affordability is an issue, and competitive prices, again, is one of our strategic pillars, and we want to make sure that we take into account things like affordability.

I'll talk about some of the other things we've been doing internally, though. So we will abide by the rules of any state. We know how to work, state to state. We've done that for nearly 90 years. But we internally also have felt it important to make sure that we take actions to help with affordability. So specifically on the CRM side, and we've talked about this before as it relates to PLE, we have something called customer preservation team. And customers can call in, and we can talk about maybe changing coverage. We'll do a whole policy review. So maybe it could be changing coverages, lower deductibles, and we can kind of work our way around different types of that. Sometimes when people call in, they will have a different product model. We rewrite that. But the 4 million customers that called in, in 2025, had an average decrease of 21%, which is significant for those customers. We also do proactively call out to customers that we think might defect to kind of help them work through the policy review.

Another piece that we've had for a long time are our loyalty rewards. So think of loyalty for tenure, for minor child discounts, accident forgiveness, things like that. And that's equated to about $1.5 billion in savings in 2025. I've talked about this for years, especially during and after the pandemic, Snapshot. If you -- Snapshot whether it's the OBD device or the mobile device, if you're a good driver, you can have really, really generous discounts because we understand that rate to risk.

And then we try to be flexible with what's happening in our country at any given time. So when the federal government shut down, we made sure if those employees called in that we gave them some lenience in terms of when they would pay their bill. And I know that really helped a lot of our federal employees.

We talked a little bit about reducing some new business rates where we want to grow, and I think that is important. We feel like right now, we're in a really great competitiveness from a price perspective, there's a lot of shopping, and it is a soft market. But we are having really high conversion. In fact, the highest we've had in decades. So we do feel really good about that. But we applaud any reforms that can make insurance more affordable. And we think Florida is a perfect example of that.

I appreciate the extra color there. I guess maybe zooming in on Florida then, it was great to see that loss trend on the Florida Personal Auto book sort of came in below you guys' expectations last year and drove a lot of the favorable development on that book. On the flip side, that also translated to the policyholder credit charge growing to $1.2 billion by the end of last year. How are you guys thinking about rate relief in Florida over the course of '26? And how that might translate to a policyholder credit charge, if any, taken this year?

Yes. We're watching our combined ratio there closely. You sort of think of it's a 3-year rolling, so you've got '24 and '25 sort of in the book with this credit. In '26, we'll continue to watch. We've reduced rates 3x in the last year. The hard part about that area of the country is catastrophes usually come towards the end of the year. But I know Pat's team is watching that. And if we feel like we need to take more new business rate decreases, we'll do that. So more to come on that. I will tell you, we're watching it very closely and modeling it continuously.

That was our last question. And so that concludes our event. Daniel, I'll hand the call back over to you for the closing scripts.

That concludes The Progressive Corporation's Fourth 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.

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.

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. 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 CFO and a question-and-answer session with members of our leadership team. 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 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 and 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 is available in our annual report on Form 10-K for the year ended December 31, 2024, 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, 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 investors.progressive.com. To begin today, I'm pleased to introduce our CFO, John Sauerland, who will kick us with some introductory comments. John?

Good morning, and 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. That policies in force growth equates to 4.2 million more policyholders or almost 7 million more vehicles in force than a year ago. While growth is lower than in recent years, we are still gaining significant market share in capitalizing on the opportunities for growth through robust media spend and competitive rates. 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. 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. Florida is Progressive's 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, move Florida to a modified comparative negligent system, meaning drivers who are more than 50% at fault for an accident could no longer sue for damages, and this allowed one-way attorney fees. Since House Bill 837 took effect, our average loss cost 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 receive lawsuits is down around 60%.

While we have been responsive in reflecting these changes in our loss costs through 2 rate reductions for Florida consumers in the past year and another plan for December, the drop in loss cost was more pronounced than we expected. Additionally, obviously, there was 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 better than our filed and approved underwriting profit margin over a 3 accident year period. And at quarter end, we estimated that liability at $950 million.

For perspective, in 2022 alone, inclusive of Hurricane Ian, our Personal Auto combined ratio was over 100, and those results translated to around $750 million decrease to the excess profits equation for the periods that included 2022. Our Florida auto business is more than 50% bigger now than in 2022. We applaud the legislative changes in House Bill 837 and resulting in more affordable personal auto insurance premiums for consumers, and desire to continue to grow our presence in Florida. Our loss reserves will continue to develop as we handle more claims into 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. 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. Thank you again for joining us, and we'll now take your questions.

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions. [Operator Instructions]

The first question is from the line of Bob Huang with Morgan Stanley.

My first question is on advertising spend. Ad spending this quarter in terms of dollar amount is fairly similar to the last quarter. 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. Clearly, these policies are very profitable. Do you need to maintain the current level of ad spending in an increasingly competitive environment? Just curious how you should think about ad spending going forward?

Yes, 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 cost, and that remains to be the case. So Pat Callahan and his team, we do a lot of our buying of advertising internally. They look at it overall for a year, with things you have to buy in advance. But ongoing, we have the lever to increase or decrease depend on competition. That's what we'll continue to do. Again, our operating goal is to continue to grow as fast as we can and advertising is a great lever to reach that goal.

Okay. 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 are there some levers around that? 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.

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, 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.

The next question is from the line of Elyse Greenspan with Wells Fargo.

My first question, I was hoping you could just comment just on the competitive environment in general and what you observed in the Q3, and I guess, like a forward view, right, we've seen others pivot to growth as we move through the year? And just how has that impacted that combined, right, with the fact that we're in this environment where you guys said in the Q, you don't need that much rate right now? How does that help you formulate your view about growth, right, both in the near term, like in the fourth quarter, but then also as we think about 2026?

Thanks, Elyse, and 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. So I appreciate you acknowledging that. So yes, the competitive environment has gotten stronger, which we knew would happen. That's why we got out in advance of rates to capture all the growth that we did, and 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. We have a lot out there in terms of as we look at each state, each channel, different factors in terms of Sams, Wrights, Robinsons, and we have a strategy to grow all of the above. And probably, the biggest growth point for us, Elyse, is when we think of Robinsons. So we have -- we want to grow in every single persona.

So we love Sams as long as we can make our calendar year profitable. But we want to grow Robinsons because that market is about a $230 billion addressable market, 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. And the area of our focus will be more Robinsons because we're in such a different position than we were a few years ago. So as 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. There's a lot of things that we did that I referred to a couple of different times of our 5-point blueprint to get to where we need to go to. We did just that.

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 78%, 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. And so as we think about our growth, we think about -- we have a framework that we're using called a new business readiness growth. And we look at the assessment of adequate rate level, segmentation, so which product is in the market, cost sharing, interstate diversification, regulation and market conditions. And when we look at all those factors, what we look at state by state is where do we want to grow and where we think we can grow and how are we positioned in those states. So currently, there's about 30 states -- 33 states where we want to -- we're going to spur on growth.

And about 20 of those are in our growth states that we've called growth states and 13 are more volatile. We'll be a little bit more conservative in the volatile state, but that really opens us up broadly for more Robinsons, for more growth. And as you can imagine, in John's opening statement, he talked about VIF, Vehicles in Force, which we don't publicly talk about. We talk about PIF. But when you compare the $4.2 million PIF growth year-over-year, that equates to about $7 million VIF growth. You can imagine that this growth with more Robinsons is much higher because they're multicar and multiproduct households. So competition is there. We have a lot on the horizon to spur on growth, and we're pretty excited about it.

And then my follow-up is just, I guess, on margins and tariffs. It seems like from the Q commentary that you guys really have not seen an impact yet. So I just want to make sure I'm reading the comments correctly. And then, do you guys still expect that perhaps we could see an impact on loss trend in margins as we move through the balance of the year?

Yes, you read that exactly correct. We haven't seen much on that. It might be because there's inventory and of course, the tariff schematic has changed along the way. But we're still -- we're looking at low single digits, and we have the margins to be able to absorb that. So we're not too worried about tariffs at this point. Of course, that could change. But at this point, we're not too worried about it.

The next question is from the line of Mike Zaremski with BMO.

My first question is on, hopefully, teasing out premiums per policy when we just kind of prudently divide premiums by PIF, and this is for Personal Auto. It's been slightly negative for a while now, which appears to be different from the kind of the flattish pricing you've been speaking to. So trying to tease out whether the negativity is coming from just some of the Florida rate reductions? Is the December one going to be a large one if you want to preview that? Or is it coming from just other actions you're talking about policyholders switching to lower-cost policies, et cetera?

Yes. I think, Mike, there's a lot of things happening. Our average written premium is affected by our rate decreases. And obviously, it went up tremendously in '23 into '24 with all of the increases that we took based on inflation. I think the reaction might be a little bit on growth, although 12% PIF growth on a 14% PIF growth to me is really unheard of. And any time we're in anywhere near that double-digit growth, we're pretty darn excited, at an 89.5% with the $950 million accrual. So the Florida situation is just that. And we're going to tell you what we know when we know it. So as John said, we'll continue to revise our accrual as the year plays out. So in a couple of weeks, you'll know if the accrual has gone up or down for October and then there are sometimes late year storms, I think in 2024, Helene and Milton were both in September and October. So we'll watch those. But I feel really good about where we're at. I mean if we had a crystal ball in Florida, we might have done things differently. But I think we have handled that really well. We're very large. They're the largest.

And as John said in his opening statements, I -- and I've said this before, I'm going to commend Governor DeSantis and Commissioner Yaworsky for this legislative change with House Bill 837. It really has had a profound and a momentous effect on the state of Florida's insurance market. And I've been in this business about 38 years. I would never imagine these changes and how great they are for the benefit of Florida consumers. So we'll continue to watch that. But I think from a premium per policy, we're always going to be competitive and segments change, and that kind of all goes into the math.

Okay. Got it. Maybe pivoting to, Tricia, your remarks about share buybacks potentially being a bigger lever than historically. Can you talk about just the framework there? Should we -- are you alluding to the special dividend being put into buybacks instead at current valuations or for both? Or anything -- any color would be helpful.

Yes. When we have excess capital, we think of it in 3 ways. And obviously, we're -- I just talked a little bit when I answered Elyse's questions about our desire to continue to grow and our actions around that. And then, of course, we look at share buybacks if we believe it's under our intrinsic value. Of course, we always buy enough shares to dilute the stock compensation in any given year. We have the ability to do that. And you'll see in our monthly release the actual number of shares we buy back each month as well as the average price. And so you'll see that in a few weeks as well. We have a company-wide 10b5-1 that we file with certain price points to buy back stock if we think it's under our value.

And so you'll see our actions that we took in October in a few weeks. And then we've been in party discussions with the Board of Directors in the last couple of meetings on what we think could be a dividend. And of course, that will ultimately be their choice, and we'll have another conversation in December. And with that, we'll kind of be watching our ability to buy back more as well as what we think if we have a dividend, what it will be. But those are conversations that are constantly happening within our walls and with our Board of Directors.

So just, Tricia, just to be clear, were you signaling a change in capital management tone by stating the buyback language? Or are you saying this is just business as usual discussion with the Board?

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 when that happens.

The next question is from the line of Tracy Benguigui with Wolfe Research.

I have a question about your Florida excess profit statute. When you perform the same exercise next year, let's call it, September for accident years '24 to '26 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 experienced in the state in recent years? Or do the excess credits you're paying in '26 basically neutralize a lot of those excess profits that you could owe in '27?

Well, we don't know. And we're going to -- as I said earlier, we're going to continue to refine our accrual as each month goes by for this 3-year trailing period. It's -- and at that point at the end of this year, we'll know the sort of fully like you said, neutralized amount for that. And so the hard part, and we've tried to signal this about Florida is 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. I think John said, we'll do what we can to avoid a similar situation in '27 for calendar year '26, '25, '24, but we feel good about where we're at right now with the accrual and we'll continue to revise that.

Okay. And you saw that Florida auto business is more than 50% bigger now than in '22, and you're managing the profitability in Florida to avoid those excess profits and you took two rate cuts and you're going to take another one. 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?

Yes. Our property growth in Florida has been minimal. Several years ago, we reviewed our policies in Florida to get to where we -- where we are in terms of our readiness growth. We had a lot of DP-3. We had a lot of coastal properties. And so we had a lot of nonrenewals that we gave to another company to be able to write. We will write a little bit in Florida now, mostly new construction. That's a place where like we say, when we talk about volatile states that we will not be -- have huge aggressive growth, but we'll grow where we think we can and make our target profit margins. But the growth in the property book has not been huge.

The next question is from the line of Jimmy Bhullar with JPMorgan.

I had a question just on competition in Personal Auto. Most competitors have been increasing marketing spending in recent months. Many have alluded to potential price reductions as well just given strong margins. 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 very low margins, so just whether its exactly rationale?

Yes, I just want to say, I think we're seeing all of the above. I think we're seeing a lot of -- we saw a lot of price decreases. We've seen more increase in advertising, and I think that all goes to competitiveness. So I think we think that's good for consumers. And when we think of -- when we think of the strategic pillars, that's one big piece of it but you have to have a really great brand, and our brand has continued to evolve and will continue to evolve to get us on that short list. You have to have for us broad coverage where, when and how customers want to shop. And we have that across the board from our independent agent channel, our direct channel and then we have multiple different areas with which to buy our products or the products of our unaffiliated partners.

And then we have -- and this is sometimes underestimated because part of what's been Progressive's success is our people and our culture. That's really hard to put on the spreadsheet for an analyst. We just finished our Gallup survey, we're in the 99% of 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 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 four 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, if I think about your commercial lines business, I would have thought that it would be growing at a fairly fast clip since you were expanding your target markets, broadening coverage, adding new types of coverages, policies. And if we look at the numbers the last couple of years, they've been high single digits, which is decent, but high single-digit premium growth 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 longer term?

Yes. I think longer term, we have great aspirations. Clearly, FHT has been a headwind, those are -- that was -- it's higher margin business, but we have slowed growth there, a lot due to both rate and non-rate 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 seeing is real in the data. However, I think you're correct. We have a couple of areas that we have grown over the years and really wanted to understand them more deeply. And we have pretty complex plans to spur on growth in a couple of 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 yes, we believe that the runway in Commercial Lines continues to be really strong.

The next question is from the line of Gregory Peters with Raymond James.

In your letter in previous comments, you've talked about 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 does Personal Auto product 9.0 mean versus product 8.9 and is the difference that material? And the same question would be applied to the property next-generation product, too?

Yes. That's a great question. First, I would say we're not very creative when we name our new product model. So I'm going to give you that because you'll see on 5 -- we're 5.0 and 5.1 in property, 8.9, 9.1. I'm going to let Pat take that. But what I would say is years ago, probably around 2016 maybe, we decided that we really wanted to have the pace of our models increase to get more and more variables out there that are predictive of either loss cost or if we wanted to increase a certain segment like the Robinsons. And that's why we end up doing that. But -- and we -- I don't 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 constantly. Pat, do you want to add 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 market. So that data enables us to solve what predicts and fits losses more precisely or more accurately than others can. So the first and foremost is to match rate to risk.

Second, though is to introduce differentiating coverages that meet consumers' needs to transfer risk to us as the carrier to smooth household cash flows. So a couple of examples of that between 8.9 and 9.0. So 8.9, we introduced Progressive vehicle protection. Think of it as a mechanical breakdown coverage for 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.

And 9.0, 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 9.0 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 multiline 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 of 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, as Tricia mentioned, as quick as possible.

As a follow-up question, I'm going to focus pivot to technology and autonomous driving. The new cars coming out have a lot of embedded technologies. Some of them actually can drive themselves to locations, the new Tesla I'm thinking about, in particular. So I think it's appropriate for us to -- as we think about Progressive, what's your view on this technology, emerging technology? And in that moment in time, maybe 15 years from now when we get to a fully autonomous type of environment. Can you talk about how the company is thinking about that? And any color there would be helpful.

Yes. We've been watching this for many, many years. I think we first did 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 the world. So we think that's a great thing. And I think we build that into our product as we think about vehicles that have safer components. Just like you would have at any time with seat belts or backup cameras, those sorts of things. So we're continuing to revise our model. In fact, we're in the midst of doing it right now to try to understand when that will impact us. And we see a lot -- we gather a lot of data. We see a lot of data even when you compare like the Waymo cars in Austin, and we look at our relationships with TNC, we've not seen too much of a change and the changes there with pretty heavy Waymo use has not muted TNC miles. So we're continuing to watch that getting as granular as we can.

But at a higher level, 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. But that's when we really built our Commercial Lines product models out. So think of BOP 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 to look at that, we call it, execute, expand, explore to make sure that we have a really robust model as cars get safer and as frequency goes down, and we'll watch that and make a determination of what we need to do to continue to grow.

And we talk about this all the time because it's important for society, but it's also important for us to know 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 talk about as we think about autonomous vehicles. It's -- the time frame is always sort of the big question mark. Because if you look at articles in 2012, it would have said everyone is driving around playing bridge in the back of their car. In 2019, 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, and we'll continue to think about growth in different areas.

The next question is from the line of Alex Scott with Barclays.

First one I had is on shopping and retention. I was just interested if you could compare sort of the time period where you're taking bigger increases or the industry is taking bigger increases in the shopping activity that was going on then 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 well, you could shop and go get a lower price potentially somewhere. Are you seeing different kinds of sensitivity to that related to up in pricing versus potential for down?

Yes. I mean I think we're seeing a lot of shopping, which means all customers are going to shop including ours, and you see that in our PLE. Our feeling is just as we talked about in the Q, oftentimes, our customers will reach out to us and we can do a policy review with our cancer preservation team to see if there's something we can do to help them out from a price perspective. If we end up writing a brand-new policy that starts the clock ticking. So that is a little bit of a headwind to PLE, but not when we think about our consumer life expectancy, our household life expectancy. When you look at that, we don't share that data externally. We share PLE. 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 are constantly changing and revising them to make them more specific to rate versus risk. And if you end up leaving, we believe that we have more data than wherever that customer is going to in terms of profitability.

Got it. That's helpful. And then going back to the capital discussion. I mean, M&A was something you didn't mention as much relative to like the buyback and variable 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 does M&A fit into that? How do you think about M&A over a little bit longer time period? And why wouldn't you use a really strong capital position now 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 wanted that bundled customer and access to that customer, especially in the agency channel. We bought Protective a few years ago to increase our fleet capacity and we'll continue to kind of close the gap on that on the Commercial Lines part. 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 additive. .

So if we think we want to grow, and there's a company that has a bunch of private passenger auto that we believe we can get anyway, I'm not sure you want to pay the premium on that. That said, we have a group of corporate development group that's always scanning to look to see if something makes sense. And we always want to have dry powder in case something comes up. But again, that's something that I think every company does, including us in terms of just making sure we're on the growth trajectory. Do you want to -- John, do you want to reiterate sort of our capital structure and how we think about regulatory contingent in excess?

Sure. So M&A would be one deployment of excess capital 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. We also obviously considered previous discussions here, the dividend and buyback. And as Tricia noted earlier, as we believe the stock is below what we view as fair market. We will be in market buying back shares when we have the capital to do so. And obviously, right now, our capital position is robust.

So we -- as Tricia noted, we have a corporate development team. They are constantly looking at opportunities. And as she said, those opportunities would be focused on expanding the breadth of offerings for Progressive and less so around adding to our core products is our market share growth has shown pretty consistently that we can acquire that business efficiently and effectively in the marketplace, and we think that's a better way to go.

The next question is from the line of Josh Shanker with Bank of America.

A couple of things. I'm looking at the Travelers numbers and the Allstate numbers 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 Progressive's on net policy count growth has decelerated. I'm not looking for you to name names, maybe you have some thoughts on where the business is churning to, whether it's mutual, whether it's smaller competitors who are stronger than they've been in the past, whether it's direct business that's going to agencies. Where do you think the churn is moving towards?

Well, I think that -- and I won't talk specifically about competitors either, but there have been competitors that were all captive and now have access to a nonstandard in the independent agent channel. There's competitors that were only direct that are trying to get into the agency channel. We've always been broad. So that's really the beautiful part about our growth and trajectory, and that's an important part to make sure we are where customers are. And so I won't talk about where things are coming from. But again, I have to reiterate, our growth is substantial based on the best year in the history of Progressive. So much of that growth comes to us.

And so we feel great about that, and we'll continue to grow. And I think I've said this the last couple of calls that I want to make sure as we compare ourselves to the best year in the history of Progressive, that we're that were pragmatic about the fact that we still grew PIFs 4.2 million year-over-year, which is substantial, especially at the margins that we have. So that gives us the opportunity to continue to spur on growth, especially with our efficiency around our media spend.

And then changing gears a little bit and following up on some other questions. From 2007 to 2019, the dividend program at Progressive is pretty formulaic. We could play at home using gain share month-to-month to figure it out. And then I think in '19, you said there were so many opportunities for investment that you don't want to be forced into that paradigm and it became less possible for us to follow along. And now while you said when the stock is attractive to us, we would also be repurchasers of that, if that were the right thing to do. Is there any formula or way that investors can think about the transparency of capital return the way it was prior to the 2020 year?

Probably not. That was pretty formulaic, and we were -- one 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. But that program worked well during that time frame, but no longer served us. I mean how you can think about it is we have a lot of capital right now. The Board will make a decision as we do in our 10b5-1 for stock buybacks. The Board will make a decision to make sure that we think about that and the best use of it and the best use of any capital returns to our shareholders. And I can't give you a formula because, again, we do want to have dry powder. We want to make sure that we thought of a bunch of contingencies. But I think that's -- and that's sort of what I tried to say in my letter is that we feel like we have excess capital at this juncture.

I might add a bit on that, Josh. So you all recognize our regulatory capital needs. So historically, we've been in the 3:1 range for our Personal Lines businesses -- Personal Auto business, excuse me, and about half that for home. You might have noted in the Q that we now have approval in a couple of key markets to move to 3.5:1 predominantly for our Personal Auto businesses, but a fairly broad approval so we can move operating leverage higher. So you can do the math around what required surplus is necessary. And when we do that math, we look forward, of course, and we expect to grow. And then we have that contingency capital layer that doesn't change based on that regulatory layer, and that is intended to ensure that we, on a modeled basis, have a very low percentage chance of needing additional surplus.

Capital in excess of that, again, we first want to reinvest. But secondly, we look to dividends and buybacks to the extent we feel our stock is undervalued. But you can come to a pretty 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 up to ultimately the board. But that is a good way to frame what a variable dividend or first excess capital would be, but secondly, what a variable dividend would be.

The next question is from the line of Paul Newsome with Piper Sandler.

I was hoping you could give us a little bit more thought on and information on the severity trends for auto, both the private passenger and Commercial Auto businesses. It looks like severity is accelerating a little bit in Personal Auto and a little bit more about why that may or may not be happening. And similarly, in Commercial Auto, you've got some peers who have had some pretty significant troubles in that line. Any thoughts on where you may or may not be experiencing similar trends for them?

Yes, Paul, that's a good question. Just as a reminder, when we look at severity trends, we report out incurred and a lot of our competitors report out in paid. So as an example, when you look at our PD from quarter 3 '24 to '25, it appears to be about 7%. We had a large decrease in reserves in quarter 3 '24, about 2.5 points. So that would be about 4.5 points versus the 7. So that's where it might be a little bit different comparison. BI continues to be specials are outpacing attorney rep, meds are up. So -- and actually some states that minimum limits have gone up. So we feel like industry severity where we're pretty close to the industry on the private passenger auto side. On the commercial line side, I feel like we are in a better position than most of our competitors. We got ahead of rate. The severity is up. But again, same sort of thing with you've got high limits, you've got attorney reps. 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 and 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 is a more mature part of what it does in terms of usage and the ability to slice and dice?

Yes. I mean telematics has always been a key part of us understanding. I threw out some specific data that we have on our OBD device, I think I did, at least on -- I guess maybe I didn't. It was on frequency. We know from our OBD device that vehicle miles traveled have been down to about 4% in the quarter. So those are kind of things we can point to as we try to dissect and attribute frequency and severity changes. It's -- we have our mobile device, which is the majority of what people choose now in 47 states. So we feel like it's a really powerful part of our variables. And more importantly, for customers that drive safely, it is really an ability to lower your insurance rates pretty substantially. And so that's really the main component of it. And we learn a lot. We have many, many, many miles. How many miles do we have now, do you think? Some billions -- yes lot of miles, a lot of data. And so it will 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 whether or not we're getting to a point where the amount of folks that are using the telematics is where you can sort of a maximum given how a certain percentage will never use it, right? So just whether or not we're getting towards the maturity of the product itself.

I think we have an opportunity to increase that specifically on the agency channel is what I would say.

Yes. What I would add to that is Telematics is a really predictive rating variable but it's not one 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, as Tricia 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 one thing I'll mention, which is a little bit further field, but important because it's important for consumer safety is we have the ability for -- to understand that people have been in accidents. And whether the tow-truck or ambulance, I think is really a key important part of feeling like you're cared for as a customer with our Snapshot devices or mobile devices.

The next question is from the line of Ryan Tunis with Cantor Fitzgerald.

I just had a follow-up on what's going on in Florida and I wanted to know if I'm thinking about something right. But clearly, that's been an important market for Progressive. I think you guys have top market share there by a mile. I guess my perception has always been an important reason for that is it's a tricky market to underwrite. But talking about the listing of some of the tort reforms, it sounds like it's become a more insurable market. So I guess my concern would be, just like any state where you have meaningful amounts of tort reform kind of creates a lever for competition to come in. So I'm wondering if I'm thinking about that right or if it's something maybe that's unique to Florida that we wouldn't necessarily see in some random state like Minnesota?

Yes. I think every state has a little nuance, right? You said Minnesota, I went to their high PIP coverage. So I have like all of my thoughts of every state. I think the fact is that it will be more -- there will be more competition because of the tort reform. I think that's good. But again, we are so well ahead of it because it's been our biggest state for a long time, and we feel really good about it, and we feel great about serving the consumers of Florida, and we want to grow there. So we're going to continue to grow and having the right rates and the right legislative changes is going to make that, I think, better for everybody, but most importantly, consumers.

Got it. I better shore up my knowledge on Minnesota, sorry about that, Tricia. But the follow-up is -- you mentioned in the 10-Q, there's this dynamic of customers replacing existing policies with new progressive policies. I was just curious if that had a meaningful impact on the new issued app number?

Yes, I think it does and had a meaningful on the PLE numbers because this is a very unusual dynamic that's been happening. And I think I've heard in other calls, it's happening in some of our competitors. So yes, I don't have the specifics for you. But I think customers are super sensitive right now. We get it. We're doing our best to keep rates stable, lowering rates when it makes sense and we believe that we can grow in certain demographics. But I think it's meaningful kind of across the board.

Yes. I think the ultimate metric, Ryan, is PIF growth. So yes, you're right. To the extent we are rewriting more customers. Those we do report as new customers. But at the end of the day, the PIF count and VIF count to previous conversations, I think, is what you should look at in terms of our growth and our market share.

The next question is from the line of David Motemaden with Evercore ISI.

I was hoping just to touch a little bit on pricing. And I was a little surprised the stable pricing that you put through in the third quarter, just given how strong the margins are even if we put in sort of like a normal catastrophe loss level for the auto business. Is this something that you guys are considering? 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 trying to get you just a sense for how you're thinking about potentially lowering price to accelerate growth and also improve retention.

Yes, we absolutely have been thinking about that. We were more conservative, I think, when the tariffs came out. And so now that, that seems today to be more certain, we are a little bit less concerned. Of course, that could change. I think we decreased rates in about 10 states in this quarter, increased rates in about 6. So we're very surgical on channel, product, state, but we do want to grow. And so we will look to that for both growth and retention in terms of reducing rates.

We just want to make sure because of the competitive environment that if we -- we get something for that. So that you don't want to reduce your margins and not get growth. So we're trying to be, like I said, really surgical in each state of when we think we can get growth and that unit growth is important. And 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. And then maybe sort of a higher-level question. Just as we think about the impact of collision avoidance systems and ADAS as it penetrates the fleet more and more. I don't think -- I'm sort of looking at ISO data. I think for 10 years up until 2019, industry frequency was pretty flat. And now when I sort of look since 2019, we obviously had COVID in there, but it's a pretty substantial decrease. So I'm wondering if you can think of -- like just maybe just talk about unpacking some of that decline and improvement in frequency that looks like it's still continuing and sort of how we can think about that as impacting the longer-term growth of the business?

Yes. I can't predict the future, but take aways that kind of couple of years during COVID because things were so strange with driving. Frequency has been going down 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, I think that's a really good thing. Now it's been offset and then some by severity. And that's been where when you look at the models, we have -- when we do our models for our runway, we look at that and severity has increased well more than frequency.

And so we'll continue to see what happens in terms of parts, the ability to repair vehicles, the ability to have talent that can actually repair those vehicles as they get more complex, and those are things that we 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.

The number of cars on the road -- I'm sorry. I was just going to add that 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 pure premiums or the frequency and severity, 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 size of the Personal Auto marketplace.

Got it. That's interesting. Yes, 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 50-year time frame to this point, it's definitely still down, but like there is definitely an air pocket in there where the industry was benefiting from like flattish frequency. And so yes, just something I'm sort of thinking about, but I appreciate the -- I appreciate the answers there.

The next question is from the line of Brian Meredith with UBS.

The first one, and this is I know it seems like it comes up every quarter, but on the PLE drop, can you talk maybe a little bit, is it mix driven this quarter that's kind of dropping everything? Or is it kind of across all the cohorts that you're seeing the drops in PLE?

I think it's probably more pronounced than Sams. I'm not quite sure, but I think it's mainly across the board. I think everyone's shopping. And when we look at our mix of business just in terms of even growth as you look through our Q and think about just our prospects and conversion, you can see that -- even though that's relating to consumers coming in, we think that has an impact. Do you have anything to add, Pat?

Yes, it's pretty much across the board, but driven by different aspects and that Sams are obviously more price-sensitive and household costs are rising. On the Robinsons side, we certainly have taken some action to redistribute our book and to limit access to our property product 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 -- yes, more broadly.

Great. That's helpful. And just a second question, if I look at where your pure premium was in the third quarter, and granted, I understand it's calendar year, so it's not exact here. And versus average written premium per policy, there's a pretty meaningful kind of spread difference, which would imply some pretty meaningful margin compression here going forward, granted from very attractive margins 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 your margins will compress here in personal auto insurance going forward here closer to the target level?

I mean I think it depends on if we can get the growth for that. So our operating goal is to grow as fast as we can at a 96 or lower. We're obviously well in advance of that. We've had some conservativeness baked in because of tariffs and some other things. But yes, we could see it compress if we believe we can get that growth, and we're always kind of managing that trade-off. But I believe that's an accurate statement going forward because our ultimate measure of growth is units. So PIFs and VIFs, as we talked about today, and we'll do what we can to continue that growth because, again, if we have a plan around our property, the more auto we can get in there, the more bundles we can get in sort of a nice circle. So we're going to do what we can to grow as long as it serves us in terms of our target profit margins and our operating goal that has been in place for decades.

We've exhausted our scheduled time. And so that concludes our event. Those left in the queue can direct their questions directly to me. Alissa, 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 Progressive's website for the next year. You may now disconnect.

Good morning and thank you for joining us today for Progressive's Second 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 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. This quarter includes a presentation on a specific portion of our business, followed by a question-and-answer session with members of our leadership team. Introductory comments in the presentation were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 90 minutes scheduled for this event for live questions and answers with leaders featured in our recorded remarks as well as other members of our management 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 and results to differ materially from those discussed during today's event. Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31, 2024, as supplemented by our 10-Q reports for the first and second quarters of 2025, where you will find discussions of the risk factors affecting our businesses, 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 at investors.progressive.com. To begin today, I'm pleased to introduce our Personal Lines President, Pat Callahan, who will kick us off with some introductory comments. Pat?

Good morning and thank you for joining us today. Through the second quarter, 2025 continues to be one of our best years on record by all objective measures. We delivered strong profitability while simultaneously growing at an incredible pace, adding over $5 billion in premiums written and nearly 2.4 million additional PIFs during the first half of 2025 compared to the first half of last year. We've previously said it's easy to grow an insurance company if you're not focused on underwriting profit and conversely, relatively easy to generate profit in insurance if you're not looking to grow. But simultaneously doing both, while operating in the highly competitive U.S. P&C marketplace requires the rare combination of strategic focus and relentless execution that we consider key sources of Progressive's competitive advantage.

Full statutory industry results released in June show that Progressive gained more than 1.5 points in personal auto market share in 2024 while outperforming the industry combined ratio by more than 7 points. Our 2024 market share increase was the largest share gain of any carrier in the past 15 years. This rare combination of profitable market share growth isn't an isolated event for Progressive. Over the past 15 years, we've increased our auto premium almost fivefold, while simultaneously running close to 9-point wider underwriting profit margins.

Our performance is the direct result of executing against our 4 strategic pillars. People and culture, product breadth, brand and competitive prices. Today, we'll focus on competitive prices and provide you with some insights into how our ability to predict and price to future loss costs and to rapidly deploy products and pricing to match our premiums to our costs remain key ingredients of our continued success. The compounded effect of doing this with each successive product model has enabled us to continue to make great progress towards achieving our vision of becoming the #1 destination for consumers, agents and business owners for insurance and other financial needs.

Building on our exceptional underwriting profit performance, we continue to invest to drive continued growth. Despite seeing greater competition now than we did at the beginning of the year, through the second quarter, we continued to see strong demand for our personal auto products across both of our distribution channels. The independent agent channel is a great barometer for the competitive environment, where available coverage options across carriers are presented via comparative raters, which provide agents and their client's real-time comparisons of how our products compare to those offered by other carriers. Every indication is that our auto products have continued to outperform on a relative basis as evidenced by strong year-to-date double-digit growth in new applications, premiums written and policies in force.

On the direct side, our marketing engine remains highly effective, generating high-quality prospects at near-record levels and our conversion rates indicate that despite the increasing marketing spend, our prices are still highly competitive and provide consumers a good value relative to other in-market options. Year-to-date, we have spent $2.5 billion on marketing, an increase of about $900 million compared to this time last year. And as our volume denominator grows, achieving year-over-year new application growth becomes more challenging. But so far, we have continued to leverage our scale in identifying new opportunities to refine where and how we invest our marketing spend to drive profitable growth.

Similar to Personal Lines, we continue to rapidly grow market share in our Commercial Lines business while consistently beating industry combined ratios by 8, 10 and as much as 20 points over the last 20 years. This consistent profitability is particularly impressive when looking at how U.S. commercial auto continues to struggle with profitability, producing its 14th consecutive unprofitable calendar year in 2024. Our success can be attributed in part to the intense focus on commercial auto as a core line of business in our Commercial Lines offering.

This auto focus, in conjunction with introducing the segmentation of commercial auto into business market targets more than 10 years ago, has enabled us to capitalize on meaningful and actionable differences between resulting vehicle types and usage that we can operationalize across all aspects of the business. This granular focus has allowed us to quickly develop segment-level insights and execute proactive rate and underwriting actions at the BMT level to deliver strong division level performance, as we did late last year when we adjusted rates and underwriting across BMTs to drive written premium growth across all our BMTs other than for-hire transportation. We're now extending those capabilities to our expansion product lines like the business owner policy product.

To support long-term positive contributions from these newer businesses, we leverage established pricing and product delivery capabilities to ensure we have the necessary monitoring and insights in addition to leading capacity and the delivery agility to bring rapid rate and underwriting adjustments to market. Leveraging these proven capabilities should help our expansion commercial businesses deliver the profitable growth we expect from all of our underwriting businesses. A significant contributor to delivering our continued profitable growth is the ability to quickly and decisively respond to changes in loss costs to ensure we can remain open for business when inflationary pressures create hard markets and elevated shopping levels. This is no small feat, especially given the lack of historical precedent for some of the drivers of recent loss cost increases. Fast forward to today and we're similarly working to model first, second and third order effects of global tariffs and potential supply chain disruptions to determine the appropriate future rate levels for these emerging macroeconomic events.

Our pricing teams are responsible for translating highly complex and dynamic internal and external data into timely rate level recommendations. Each of our product teams are supported by a group of these talented individuals who leverage complex actuarial methods to understand and trend our future costs towards our goal of collecting the right premium to cover both the costs we'll incur and our target profit margin. Today, we'll be diving into the details of our personal and commercial lines pricing theory and practices. To guide us through this, we have 2 senior pricing leaders with us. First, Brad Granger, who has been our national auto pricing leader for the past 17 years and who will be celebrating his 25th Progressive anniversary later this month, will discuss some of the technical theories behind our pricing methodology. Following Brad, Jen Kubit, who has been with Progressive for 21 years and recently took on the leadership of our Commercial Lines pricing organization, will explain how these theories are applied in practice at Progressive. Once again, thank you for joining us today.

I'll now turn it over to Brad. Brad?

Thanks, Pat and thank you, everyone, for joining this morning. What is our product? A property and casualty insurance companies such as Progressive doesn't actually manufacture a physical product. Our product is not tangible. Instead, it is a transfer of risk from insured to insurer, exchanging the small probability of an adverse financial event in exchange for the payment of a premium. That transfer of risk is outlined in our policy contract. And that transfer of risk is both dependent on when accidents occur or the accident date and time bound within our short-term contract lengths of 6 or 12 months.

Car accidents are not corn flakes as opposed to a tangible product like corn flakes, where costs are largely known before the product is priced and sold, Progressive doesn't know for sure what our costs are until long after our product is priced and sold. That is precisely the transfer of risk from insured to insurer I just described only now from the perspective of the insurer, that risk is now ours. And as we will discuss in a few minutes, we do many things to mitigate that risk within both our pricing science and our operationalization of getting the right rate to market quickly.

Pricing to expected cost. First, when we talk about pricing for costs, we were referring to all parts of our premium dollar, losses, loss adjustment expenses, or LAE, general expenses and profit. According to the Casualty Actuarial Society statement of principles on ratemaking, " a rate is reasonable and not excessive, inadequate or unfairly discriminatory. If it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer."

A few things to highlight there. First, it references expected value of future costs where actual outcomes could be lower or higher. Second, it is always forward-looking or prospective as it is an estimate of future costs. Third, today's presentation will focus primarily on not excessive and not inadequate as opposed to not unfairly discriminatory, which is largely in the domain of our product development departments. This is analogous to the field of economics and the distinction between macroeconomics and the focus on changes in whole economies and aggregate variables and microeconomics and the focus on changes in individual firms and consumers.

We will focus today on macro level pricing as opposed to the individual relative risk rating and segmentation of micro level pricing. And in addition to our approach being aligned with actuarial principles, it is also well aligned with state regulation as nearly all states legally require that rates are not excessive, not inadequate and not unfairly discriminatory. And it also fits quite well within Progressive's vision to be consumers' #1 choice via competitive rates. But to do so by growing profitably and adhering to our core value of profit.

The fundamental pricing questions. There are two questions that completely underlie our approach. #1, if we don't do anything to current rates, what loss plus LAE ratio should we expect in the upcoming rate revision for the policies we are about to write. And #2, what do we need to do to current rates in order to hit our combined ratio target in the upcoming rate revision for policies we are about to write. We refer to these as the fundamental pricing questions. And in the coming slides, we will build the fundamental pricing equation to answer these questions.

Actuaries develop predictions that minimize bias and variance. An enormous competitive advantage that Progressive has is the quality, granularity and quick availability of data. Our growth and scale have only deepened that advantage. But if you don't think you have a blind spot, then you have a blind spot. And with all of this quality data, if we are not careful, we could slice the cake and slice the cake and slice the cake until all we have are crumbs. This is where we, in our pricing organizations, come in. Actuaries are experts in matching rate to risk, balancing responsiveness and stability and maximizing accuracy and precision. And as we will see in the coming slides, as we try to price this accident year promise, our data is trying to fool us. There is no single perfect piece of data.

Our work centers around correcting for bias or for accuracy and spread and variance or precision and finding signal through noise. And bias, as used here refers to statistical bias. From Wikipedia, "in the field of statistics, bias is a systematic tendency in which the methods used to gather data and estimate a sample statistic present an inaccurate, skewed or distorted biased depiction of reality". Every month, Progressive releases financial information publicly describing our underwriting performance by line of business. To align with generally accepted accounting principles, this is predominantly a calendar year or month view that includes incurred activity on all losses and LAE regardless of date of occurrence. For the purposes of ratemaking, however, we are attempting to price for the accident year, that is ensuring that we have the correct rates at the time the accidents occur which I'll explain further in the next few slides.

Calendar year incurred losses are a combination of paid losses and change in reserves. They can also be subdivided to show contribution to that calendar year of current accident year versus all prior accident years. We will now use a historical example derived from a Progressive personal auto state comprehensive coverage to demonstrate how we can effectively answer the fundamental pricing questions. All amounts are in thousands of dollars. The first piece of data we readily have is trailing 12 calendar year incurred losses of $43.24 million.

As we just stated, calendar year incurred losses can also be subdivided to show contribution of current accident year versus all prior accident years, as can be seen here as we see the same paid loss plus change in reserves pattern for both the current accident year and all prior accident years. We will now use our simple example to fill in values for each element of the formulas. And in this example, when we isolate the contribution of this accident year, to the current calendar year incurred losses of $43.24 million, we see that the current accident year incurred losses are $43.56 million.

The other element of calendar year incurred losses is the contribution of prior accident years, also known as prior accident year runoff, which in this case, is negative $327,000. The $43.56 million current accident year losses is what we need to start to answer the fundamental pricing questions. Unbiased ultimate accident year losses equal accident year incurred losses times loss development factor. Loss reservings' goal is to set financial reserves to be adequate with minimal variation from date of loss until final settlement. We examine the development over time of historical accident year losses as claims are reported and settled across the columns of the loss development triangle, as can be seen in the upper right. That is known as a loss development factor. In this case, the reserves set by claims and loss reserving have historically been accurate. In our example, that loss development factor is then slightly less than 1, at 0.99.

At this point, we can also bring in another piece of data that we readily have, trailing 12 calendar year earned premium of $61.14 million. Loss adjustment expenses are correlated with losses. Loss adjustment expenses can be divided into Defense and Cost Containment or DCC, which is defense, litigation and medical cost containment expenses, whether internal costs or external fees and Adjusting and Other or A&O, which is adjusting and other overhead expenses, whether internal costs or external fees. Both can change in the short term and long term depending on a number of factors, including attorney representation rate, statutory and regulatory changes, changes in efficiency in our claims organization among other possible causes but in general, tend to move with losses.

In this example, we have selected LAE to be 12% of losses. A portion of our costs are mean reverting. Forecasting elements of the fundamental pricing equation deals with 2 distinct forms of time series. First, time series with stationarity, the graph on the left. This series tends to revert to a historical mean and requires a longer experience period to provide an effective future forecast. Weather is a prime example of where this approach is warranted. Care must be taken to decide whether such historical mean needs to be slightly adjusted going forward due to environmental changes in our future pricing period. Time series without stationarity, the graph on the right. That series does not revert to a historical mean. It is dominated by trend and seasonality. We will discuss this further when we examine frequency trend, severity trend and premium trend.

In this example, the last year contained $14 million of wind, flood, hail losses, well above our long-term expected average. Therefore, restating the long-term expectation implies a weather factor of 0.926. For Commercial Lines, an additional area where we must consider this paradigm of reversion to the mean is in treatment of large losses. As with weather, care must be taken to decide whether such historical mean needs to be slightly adjusted going forward due to environmental changes in our future pricing period. Frequency and severity of losses change over time. What changes each over time? Essentially, this is time as a segmentation variable. It helps to separate the multiplicative components of losses as the drivers of each can be different. Frequency is the probability of having a claim, severity is the dollar amount of the claim itself. Factors that can affect frequency include vehicle technology, safety laws, product mix, for example deductibles or tier, statements, new business growth, retention, weather, seasonality, underwriting and billing.

Apart from the magnitude of the trend itself, the number of months that we need to trend is important, too. That is a function of time to price, file, get approval and elevate, policy term and rate revision length. Remember the bull's-eye slide from earlier? The precision of our estimates declines, meaning we have a greater spread, the further into the future we have to estimate. That is a particular importance in commercial auto as they have a preponderance of annual policies which increases the number of months into the future we must trend.

In our example, we have estimated frequency trend to be plus 1% annually. That needs to be applied for approximately 16 months from the midpoint of the historic period to the future average accident date of our prospective pricing period. The faster we can analyze our data, the shorter we can make our policy terms and the more frequently we can elevate rate revisions, the fewer months we need to trend and the more we can reduce spread of outcomes and increase precision in our forecasts. The process is similar for severity. Factors that can affect severity include vehicle technology, safety laws, product mix, for example, limits, state mix, medical inflation, used car values, car part inflation, body shop labor rates, weather, seasonality, claims staffing.

In our example, we have estimated severity trend to be plus 7% annually. As with frequency trend, that needs to be applied for approximately 16 months from the midpoint of the historic period to the future average accident date of our prospective pricing period. The further into the future, we have to estimate the wider the spread of future possible outcomes. Progressive changes rates frequently. Remember, the fundamental pricing equation is working towards answering the fundamental pricing question of determining what we need to do to current rates. Progressive changes rates a lot. Consequently, any recent historical period of earned premium will include premium written at varying rate levels. This phenomenon is further exacerbated by the presence of varying policy terms, 6 months and 12 months. So we need to adjust this historical premium entirely to today's current rate level. In our example, we have elevated 2 rate decreases in the last year. That means our current rate level factor is 0.958.

Controlling for the effect of product mix shifts on loss trend. A frequency or severity trend that is caused by a product mix shift will not necessarily mean our rate adequacy position, as seen by our fundamental pricing equation will shift. For example, Progressive has been shifting to Robinsons for several years. In isolation, what would we expect to happen to frequency and severity of losses? Frequency would decrease significantly due to more lower-risk drivers in our book. Severity would increase for liability coverages due to higher purchased limits of liability. Overall, losses per exposure would decrease as the frequency decline would overwhelm the severity increase. But we would also be collecting less premium per exposure as we charge less for Robinsons per exposure.

We control for the effect of product mix shifts on our frequency and severity via premium trend which measures changes in average earned premium at current rate level over time. We must put all premium at a common rate level as only looking at changes in average earned premium over time would be confounded by Progressive's frequent rate changes. The graphs of bodily injury earned premium on this slide illustrate this. While Progressive's average earned premium per exposure has increased due to our rate increases in recent years, the average earned premium per exposure when controlling for that, i.e., at current rate level has declined. The net effect of the rate increases and product mix shift is still to have increasing bodily injury average earned premium per exposure. And therefore, a product mix shift will not necessarily mean our rate adequacy position would shift. It would only change if we are shifting into a part of our book that has a different relative level of profitability.

If we are shifting into a part of our book that is less profitable, the rate need, as indicated by the fundamental pricing equation would go up as frequency/severity would rise more than premium, and we would need more rate. If we are shifting into a part of our book that is more profitable, the rate need, as indicated by the fundamental pricing equation would go down as frequency/severity would rise less than premium and we would need less rate.

In our example here, in contrast to the graphs of Progressive bodily injury, annual premium trend is actually positive at plus 5%. And like frequency and severity trend, that needs to be applied for approximately 16 months from the midpoint of the historic period to the future average accident date of our prospective pricing period.

What target loss plus LAE ratio would meet our underwriting profit target? First, we determine a forward-looking estimate of expense ratio. Second, we work backwards to determine our target loss ratio, which is equal to 1, minus the expense ratio minus profit. In our example, expense ratio is 17.7% of premium, together with our profit target of 4%, our budgetary loss plus LAE ratio is 78.3%. Some elements are correlated. While we have detailed the elements of the fundamental pricing equation individually, we do not assume the correlations do not exist between elements. Some examples are losses and LAE, premium trend or product mix and frequency trend, premium trend or product mix and severity trend, LAE and severity trend, loss development factors and severity trend, premium trend or product mix and expenses via the budgetary loss and loss adjustment expense ratio. Understanding these patterns can inform our predictions of each element and improve accuracy and precision of the fundamental pricing equation.

Balancing responsiveness with stability. Remember the bull's-eye diagram from earlier, we always seek truth but observe data which is truth plus random noise. Credibility, also known as the crown jewel of casualty actuarial science helps us ultimately deliver the best minimum variance unbiased estimate or as close to the bull's-eye pattern in the lower right-hand corner as possible and allows us to slice the cake optimally to balance responsiveness and stability and achieve forecasts that minimize both bias and variance. We want to emphasize recent data such that random noise is kept to an acceptable level. And we want to emphasize that recent data because it is closest to what we can expect in our future pricing period in terms of our book of business and the external environment. But there can be a trade-off there as that data can be thinner and noisier and we need to make adjustments to account for that noise.

Credibility is a number between and including 0 and 1 that we use to weigh our data. The higher credibility is the more weight we attach to our data in the fundamental pricing equation. A sample of experience reaches full credibility, so credibility equals 1. If we have enough claims that 90% of the time our experience is within plus or minus 5% of the true value. That standard for full credibility for each coverage is determined through complex actuarial formulas and increases as the variability of experience increases.

In our example, the standard for full credibility is 4,559 claims. We have over 27,000 claims in our experience period. So we have full credibility and credibility equals 1 or 100%. Our growth and scale has significantly enhanced our credibility and our ability to best react to changes in our environment. And in general, for personal auto, we have achieved that full credibility with 1 year of data in the overwhelming majority of our state channel coverage combinations.

We now have developed the fundamental pricing equation where we can answer the first fundamental pricing question. If we don't do anything to current rates, what loss plus LAE ratio should we expect in the upcoming rate revision for the policies we are about to write. So that's our experience loss plus LAE ratio. We can also answer the second fundamental pricing question, what do we need to do to current rates in order to hit our combined ratio target in the upcoming rate revision for policies we are about to write. That's our experienced loss plus LAE ratio divided by our budgetary loss plus LAE ratio.

And one final step is to weight our estimate with a complement via credibility. So the experienced loss plus LAE ratio divided by the budgetary loss plus LAE ratio times credibility plus a complement of credibility times 1 minus credibility. The complement is an alternate estimate of rate need apart from the fundamental pricing equation that augments the fundamental pricing equation with an estimate of future net trend. In our example, we used a complement of credibility of plus 2.4%.

The final product is what we refer to as a credibility weighted rate level indication. Here that is plus 1.3%. This concludes the theory of pricing. As you can see, it's complex with many variables and considerations and thus many ways to go astray. This is really, really hard to do successfully. We have been at this for decades, and combined with the availability, quality, scope and size of our data, it is really, really hard to replicate this at our scale. And to be as accurate and precise as possible when we apply this theory in practice, we have many additional considerations, which Jen Kubit will discuss in the next section. Jen?

Thank you, Brad, for explaining the theory behind the calculations to the 2 fundamental pricing questions. If we don't do anything to current rates, what loss plus LAE ratio should we expect in the upcoming rate revision for the policies we are about to write? And what do we need to do to current rates in order to hit our combined ratio target in the upcoming rate revision for policies we are about to write? So now let's discuss how we answer these questions at Progressive and how the answers influence customers' rates and future profitability.

This ratemaking process at Progressive slide was last shown in the 2021 Fourth Quarter Investor Relations call with John Curtiss and Kanik Varma. This process is utilized in all our lines of business at Progressive. The product R&D, pricing and product management teams collaborate to determine the rate need to support our operational goal, grow as fast as you can at or below a 96 combined ratio. Additional teams join these 3 to deploy the final rate changes to the marketplace. Once deployed, a consumer's quoted premium reflects the revised rates. Let's focus in on the 3 teams that collaborate to determine our rate need. There are 2 broad areas of rate need, segment level and aggregate rate. In this presentation, Brad went in depth into the best actuarial science we use in pricing to evaluate the aggregate rate need in the future revision to hit the target of budgetary loss and LAE ratio.

Product R&D calculates the segment rate need for the relative rate need across variables used in the product design and product managers leverage these aggregate and segment level rate needs, along with their knowledge of the local market dynamics to set the pricing strategy for their respective states. They decide if the segmentation, aggregate rate level or both need to be revised. A product manager strategy ensures that we seek to not only hit rate revision targets but also our calendar year goal to grow as fast as we can at or below a 96 combined ratio. At Progressive, we believe that our ratemaking process is effective because of the knowledge at the local level combined with the advanced and accurate view of segment level and aggregate rate need. And we strive to maximize its effectiveness by analyzing the rate need often and bringing revised rates to market quickly.

In personal auto pricing, we frequently evaluate the expected loss and LAE ratio in the future revision. We complete rate level indication analyses on 51 states with each agency and direct distribution channel done individually. Also, there are 12 to 15 coverages analyzed separately. For example, the bodily injury liability and comprehensive physical damage coverages each have their own indicated aggregate rate need because the data patterns are different, such as frequency and severity trends. These analyses are completed 3 or 4 times per year and discussed with the product manager of the specific state and channel along with their team. The numbers on this slide show that we're calculating the fundamental pricing equation roughly 4,000 times in a year. And each of those includes all the complex actuarial methodologies, analyses and selections that Brad discussed. So that's 4,000 times our pricing teams are analyzing how losses will develop to ultimate costs. And 4,000 times we're discussing with product managers how losses will trend into the future rate revision period.

In commercial auto pricing, our dataset is smaller. However, we're still analyzing the aggregate rate need quarterly and discussing with the product management teams. We aggregate most states together to improve the credibility of our Progressive data. The largest 4 states are analyzed individually. Rate revision and calendar year combined ratio results for smaller states are monitored. Rates are revised at the state level because of insurance regulation. And for rate revisions, we complete a rate level indication that uses state-specific data. We evaluate our aggregate rate needs separately for our 5 business market targets. Differences by BMT and how losses present and how they develop and frequency and severity trends over time, affect the estimated loss ratio in the future revision. And finally, there are 9 coverages analyzed separately in commercial auto rate level indications.

Overall, we're analyzing and discussing at least 900 fundamental pricing equations in a year. The regular cadence of these complex analyses in both personal lines and commercial lines auto is so important in understanding the aggregate rate need and being responsive to changes in the data. But it's not enough to analyze the rate need often. To truly respond to the changing data, we need to deploy rate changes to the market quickly.

This chart shows the number of rate revisions that are deployed each year over the past 5 years in our Personal Lines Auto and Commercial Lines auto products. We deploy many rate changes to market to adjust either the segment level, or aggregate rates, or both. And we have the capabilities at Progressive to increase the number of revisions deployed. For example, in 2023, both the personal lines and commercial lines auto rate revision teams responded quickly and often to increasing loss costs and loss development in our underlying data. These rate revision capabilities are very important to our success at Progressive. Moving quickly is important because of the time needed for some states' regulatory approval of rate changes and because of the premium earnings cadence a policy written today at the new rate level will have earned premium in each month that it's in force or for the next 6 or 12 months depending on the policy term. So it takes many months for the earned premium in the denominator of our calendar year combined ratio to fully reflect the new rate level.

We are confident in our pricing teams aggregate rate level recommendations using our robust data sets and we have an efficient process to deploy rate changes to the insurance market. However, there are times we must respond to changes and intervene in our fundamental pricing equation because historical data may not be informative. Recall that car accidents are not corn flakes. We are selling a promise to pay for claims in the future policy term. For example, changes in tariffs on imports may impact the payments on claims or loss payments in the future. Our role in the pricing teams is to answer the 2 fundamental pricing questions for the policies we are about to write in the upcoming rate revision.

But we have no previous loss payment experience with the changes to tariffs. Consistent with the Casualty Actuarial Society's statement of principles on ratemaking, we answer these 2 questions with an actuarially sound estimate of the expected value of all future costs, including changes in tariffs. Calculating the expected value of the future loss payments from changes to tariffs is not straightforward because auto claims are not all the same. Broadly speaking, we split the loss payments into claims for damaged vehicles versus injuries. And these 2 categories can be further split into similar types of costs.

Starting with damaged vehicles. If it is repairable, the loss payment includes the cost of labor and parts and materials. If the repair is more costly than the value of the vehicle less anticipated salvage recoveries, then it is declared a total loss, and the claimant has paid the value. The expected value of the future loss payments from changes to tariffs is calculated at this more granular level of data. For example, the labor parts and materials, the value of a vehicle and salvage recoveries. This is because the cost in this granular level of data are more similar. Also, we consider the insurance coverage to the calculation of the expected value of the future loss payments from changes to tariffs. Collision and comprehensive coverage for our customer's damaged vehicle usually has a deductible for the first $500 or $1,000 but the maximum payment is unlimited. Compare this to property damage liability coverage for a claimant's damaged vehicle, it has a limit to the maximum payment.

For example, $25,000 on a personal lines auto policy. For injuries to claimants or our customers, the loss payment includes the cost of medical treatment. The loss payment may also include general damages, such as pain and suffering. Again, we analyze how the changes to tariffs may affect these 2 different types of costs included in injury loss payments and we consider the insurance coverage.

Insurance coverage for injuries usually has a limit to the maximum payment per claim. For example, $50,000 per injured person and $100,000 for all injured claimants on a personal lines auto policies bodily injury liability coverage. A commercial auto policy often carries significantly higher bodily injury and property damage liability coverage. For example, $1 million combined single limit. But the pricing team is not working alone. We believe our analyses are improved by collaborating across functions at Progressive. We leverage subject matter expertise to calculate the expected value of the future loss payments from changes to tariffs.

The economics team within Progressive's capital management function provides interpretation on the federal government's actions and timing for implementation. They also share insights and external economic indices related to tariffs and imports. Members of the claims functions, process and control teams provide subject matter expertise on the categories of loss payments described in the previous slide to evaluate if they are impacted by tariffs. They provide the necessary granular data. The pricing team aggregates this information from the economics and claims teams to calculate the expected value of future loss payments, including changes to tariffs. We then incorporate this expected value of loss payments within the fundamental pricing equation to calculate the expected loss and LAE ratio in the upcoming revision for the policies we will write.

Progressive has multiple pricing teams within the personal lines and commercial lines functions. Personal Lines is also split by auto, home and special lines. In addition to collaborating with economics and claims, we also collaborate among the pricing groups to share and debate methodologies and assumptions. Despite all the best actuarial methods for evaluating the aggregate rate need, communicating with product managers and deploying quickly to market, predicting the future is impossible. So our initial expected value of future loss payments, including changes in tariffs will be wrong.

The fundamental pricing equation requires us to estimate future loss payments and other costs. All our future predictions are wrong to some degree and the probability of being wrong increases with changes that have minimal historic precedents, such as inflationary impacts when an economy emerges from a pandemic or the frequently changing impacts of tariffs. Pricing, claims and economics teams are working together to monitor the actual change in loss payments from implemented changes to tariffs. The scale and quality of our data at Progressive allows us to quickly identify the change in the actual loss payments and compare it to our expected value. This leads to refining our calculations. Our robust dataset at Progressive and the expertise of multiple teams contributes to our speed through this iterative cycle of estimate, monitor and refine. We are moving quickly to the center of the bull's-eye from Brad's slides, where our expected value of future loss payments from changes in tariffs are accurate and precise.

Producing the rate-level indications often provides the updated aggregate rate level advice to product managers so they can recognize the differences in the refined expected value of the future loss payments. And we have the capability to deploy necessary rate changes quickly. The speed of estimating, monitoring and refining our rate level indications and deploying the right rate change is important to deliver on our profit targets. And we want to write more business when we have accurate rates relative to the expected costs.

Changes in tariffs are not our first intervention to the fundamental pricing equation. Our combined ratio results show that we have moved quicker than the industry to recognize increasing costs, raise rates and deliver on our operational goal of at or below a 96 combined ratio. In Personal Auto, the standard deviation of our annual combined ratios in this 11 years from 2014 through 2024 is half of the average standard deviation from the other top 10 carriers. So we are responding quicker and making smart interventions. Pricing's collaboration with subject matter experts in other Progressive functions along with the infrastructure to analyze rate need often and deploy rate changes quickly, has proven effective in responsiveness and stability of our combined ratio and is a major contributor to our outperformance of the industry.

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions, including presenters, Brad Granger and Jen Kubit, who are available to answer questions about the presentation. [Operator Instructions]

Our first question comes from the line of Rob Cox of Goldman Sachs.

Yes. Just first question on quote volume growth. I was just looking at quote volume growth and it looks like direct quote volume increases have really taken off while agency quote volume has not seen exactly the same acceleration. So I'm curious if the actions you're taking in the property book are limiting agency quote volume? And would you expect to see a tailwind in agency quote volume as you wind down those actions in the property book?

Yes. Thanks, Rob. One, our direct volume reflects our increase in advertisement. But also when you're thinking about property quote, yes, there's a difference in agency. So you're going through an agency, you have one offering with Progressive and that's Progressive home. When you go through direct, we have many unaffiliated partners so we can write with them. So if it doesn't fit our appetite need, it can fit an appetite need of one of our unaffiliated partners. So we feel like with where -- what we've done in the past couple of years, there will be some nice tailwinds in both the agency and direct channel because we're in such a better position in our property book as far as less volatile areas and clearly, our combined ratio.

That's helpful. And then I just wanted to follow up on Florida. Can you help us think through the potential size of the Florida refund related to the excess profitability? And how are you thinking about pricing moving forward in Florida given where the profits are?

I'll take the last part of the question first. So we've reduced rates in Florida twice in the last year, 8% in December, another 6% in June. We care deeply about Florida. We're the #1 writer. And when the insurance reform passed in 2023, House Bill 837, we were really hopeful that, that would -- it would reduce loss cost and it has done just that. So I do want to take -- I don't know that I have said this before but these reforms and our hope is that they continue, have really made a difference for Floridians.

And hats off to commissioner Yaworsky and Governor DeSantis for writing that and sticking to it because it really has been incredible. Florida does have an excess profits statute that is a rolling 3-year basis, so think of '23, '24 and '25. So without having half of '25, I couldn't give you a guesstimate with any accuracy, especially as we head into hurricane season. But if our profits from those periods exceed the statutory limit, we will absolutely be able to comply with the provisions and give that money back to policyholders at that time. So we're watching that closely. We have an internal estimate but it could change dramatically given hurricane season.

Our next question comes from the line of Bob Jian Huang of Morgan Stanley.

Looking at your 10-Q, you talked about policy life expectancy for personal auto declined 5% due to -- due in part to business mix shift. Is this the same business mix you talked about in the other parts of the 10-Q where you're shifting towards the Robinsons and the Wrights? Intuitively, I thought those should have higher policy life expectancy. Can you help us think about that?

Yes. The mix shift has changed dramatically because of what happened with inflation in 2023. And so we closed down our underwriting appetite and brought in a lot more preferred business mix. Since we've opened up, as you can see, especially in the -- actually both channels, we have -- we're writing a lot more Sams, which is lower PLE. We expect that. We know that. We have a history of that as long as we make our profit target margins on those Sams, it is great.

So a couple of different things on auto PLE that I would talk about. This is probably a little bit redundant from last quarter but there's a lot of shopping going on. So in a hard market, that's going to happen. Is that necessarily bad? No, because if the price isn't right in our book and people shopping can get a lower price, we believe, as you just heard from both Brad and Jen that we price pretty darn accurately and we have a rate revision machine. So it could be [ adverse ] selection. It could be going to someone who hasn't got the right price on the street.

And secondly, the mix shift that you're seeing in the PLEs is with Sams. So it's compared to the base of the preferred business we've put on the books a few years ago. And then lastly, when people do shop, we talked about this last quarter, we will look at their policy, do a policy review, look at build plans and different things that could cause us to rewrite with us starting the clock ticking over. So although we keep that customer, you'll see the decline in PLE. I have reasons to believe that, that will start to turn around. But again, that we'll see as the data comes out.

I would point you to and we're not going to actually share this all the time but we have an internal measure of household life expectancy, which gives a 30-day ability to rewrite and our household life expectancy is up. So that's kind of my reason to believe that PLE could follow. Again, a lot of PLE has to do with mix, how long the hard market continues or the shopping behavior of consumers, which could maybe dramatically change in this last 2 or 3 years based on all the inflationary measures. So a lot of data going into that but hopefully, that gives you a little bit more color.

Great. Second question is on tariff. Again, this is something that I think the right way to think about it is it introduces uncertainty. But maybe on the personal auto side, if we remove the tariff as a headwind, is it fair to say that you should be able to grow much more aggressively or reduce your pricing significantly? Is that essentially the only thing that kind of keeps you away from reducing pricing further?

Well, we wanted to be conservative because of the uncertainty around tariffs. We -- every day that passes, we get more certainty around that. Here's how we look at it. We look at every state, new and renewal, every product, look at the margin, look at our ability to grow and we'll always try to grow as fast as we can at a 96. So we've -- where states where we need a little rate, we'll go up a little bit, where states that we believe we can grow like a Florida, will reduce rates. And we're back to where we want to be and that's taking small bites of the apple on either end. And that allows us to keep rates stable and competitive for our customers, which we talk about as one of our key strategic pillars. So if we feel like we can grow and we have the margin, and we have more certainty, we'll absolutely do what whatever it needs -- whatever we need to grow and grow profitably.

Our next question comes from the line of Elyse Greenspan of Wells Fargo.

My first question on -- is just continuing on personal auto, right? I mean we see new business is up, PLE is down, which I think you addressed a little bit earlier. But as you think about going forward, how do you expect, I guess, policies in force growth to trend given these trends, combined with the fact, right, you guys called out, right, you took around less than 1% rate decline in the quarter in personal auto and you're still increasing ad spend. So I'm just trying to get a forward view on PIF growth with all these things to consider.

Yes. I mean it's hard to compare 2025, which was -- has been incredible already to 2024, which was the best year in the history of Progressive. But the fact is we grew over 5 million PIFs year-over-year and 1 million in PL just in this quarter. So we believe there's an opportunity to continue to grow. We believe we're in a really great position. And I think where we feel like we're in even a better position is to now grow that Robinson book. So we feel like we're in a different position in our property and have a lot of plans to continue to work out the blueprint and ultimately open up a bit. .

And because we have all those auto policies, we have those future Robinsons or Robinsons that have an auto and home but not home with us. So I think the opportunity really lends itself to grow more preferred. We have -- I think we have a lot of opportunity in that area and that will be our focus. Again, we'll be strategic. We're not going to swing the pendulum the other way. We've certainly learned a lot about the property book and the volatility across the country in the last 5 to 10 years. But we're really well positioned. And the fact that we have all that auto business on the book, I think, is really important. There's a lot of market share for us to capture. So I remain bullish. Comparisons are more difficult when you're comparing to the best year in the history of Progressive.

And then my second question, Tricia, in your letter, you mentioned -- there were some comments on capital and just obviously holding capital as a detriment to your return. If you could just expand on that? And I guess if you guys are thinking about incremental capital return, I know there's a balance with using capital for growth. Is that a reference just to -- you guys normally have a special dividend later on in the year? Or would you consider incremental repurchases? I'm just hoping to flesh out that comment a little bit.

Yes. We'll continue -- we needed a lot of capital and have needed a lot of capital to grow. So we have our regulatory base and then our contingency layer and extreme contingency. So we continue to model that out. And then we have 3 ways to return capital. The first -- and our preferred way is to grow the business. So we've been doing that and we'll continue to do that. And then we buy back shares of stock to reduce the dilution from our stock-based compensation and we've done that. We will buy more stock back if it's under our intrinsic value. So we look at that model constantly. And then yes, usually, typically in December, is when the Board of Directors name, if we have one, a variable dividend. And so we've started modeling out that now when I say we, Jon Bauer, John Sauerland and I start, thinking about how to present that to the Board. Ultimately, it will be their decision. And again, we have a lot of year left with storm seasons coming up, but that would be another opportunity should the Board decide to give capital back in the form of a variable dividend.

Our next question comes from the line of Josh Shanker of Bank of America.

Following up on -- a lot of talk around PLE and taking out a lot of Sams. I'm just wondering if you did nothing particular to improve the PLE of the company but just let the excess Sams who came on board bake off on their own regular time line. Would retention just improve naturally at the company by the passage of time? And if so, when might we see that inflection take place given all the business you added in 2024?

I hope I understood your question. I mean I do want to say -- so Sams have always had a lower PLE and we actually further segment different Sams and I won't go into all the details. If Sams ran off because they were shopping and leaving, yes, our retention would go up. But again, we like to have as many -- our Sams are sort of our upbringing. So we love having Sams on the book as long as we make our calendar year and our lifetime profit targets on that. Did I understand your question, Josh?

Yes, I'm just wondering, in 2024, maybe you capture a greater percentage of the Sams market that you normally would and your -- and the mix of business is -- was more Sam directed. So as such, our retention is down. But if you fast forward to your normal mix of Sams and Dianes and Robinsons, that means that, I guess, PLE would just go naturally up because you're new customer acquisition wasn't decidedly Sam oriented. Is that a correct way to think about that?

Yes, that's a good way of thinking about it. I think a lot could happen though. I started -- I talked little bit, I think, during Elyse's question, I believe, or Bob's about us wanting to grow Robinson. So it depends on other segments we bring on. It depends on competitors' rates and what our customers do. And again, there is some noise, I think, in our data for sure and I believe others with people shopping but shopping with their current company because they don't necessarily want to leave and even though that starts the time clock over, that customer didn't leave, we just did a policy review. So there's a little bit of noise in there. But I think the way -- if all things were stable, the way you're saying that would play out, I just don't think all things would be stable.

And then, look, obviously, you're fantastically profitable right now. You're also spending a lot on ads. If those ads are procuring a lot of Sams, is the ad spend for low duration or low policy [indiscernible] expecting customers justified? Or are you expecting that you will only have those policies for 6 months or 12 months and it's working out exactly as planned?

Yes. We look at -- we won't try to bring on any customer in any of our segments on the book if we don't believe it to be to reach our target profit margins. As long as our cost per sale is under attack, which it is, we'll continue to spend and grow in every segment that we can. Because, again, some of those Sams are going to be future Robinsons at some point. They'll turn into Dianes and they'll get a renter's policy. As you know, we're growing a lot in renters policy. They'll eventually buy a home and the likelihood of them sticking with Progressive for a home as high. So again, we want to bring everybody in but we look at that totally from targeted the acquisition cost of each segment.

I'd love to hear more about Sams turning into Robinsons in the future. So we'll stay tuned.

I'll do that at some point, Josh. I did something called Imagine Diane, I want to say like in 2014 or -- I'm aging myself, we started thinking about that. And that's one of the reasons why we really started looking at the construct of the 3 horizons of different products that our customers need. John Sauerland, I remember, vividly did an IR presentation on we want people to come in if they say, do you have that product, do you have x product, life insurance, jewelry insurance, we can say, yes, we have that. Maybe not all of it will be on our paper but to be able to have that type of portfolio of products for every customer as their insurable need changes. And we could redo that because I'm sure some things change, we sort of would put them through like Diane is renter, then she gets engaged and she needs her ring insured and go on and on and we can tell you the likelihood of the PLE with that. But I'll put that on the list of a deep dive topic for our future, for sure. Thanks, Josh.

Our next question comes from the line of Gregory Peters of Raymond James.

I guess I'd like to go back to the pricing theory portion of the presentation. And during the -- and I understand it was a theory discussion, but you used a factor of 12% for LAE. And I don't -- I'm going to pick that LAE number as just sort of if you can give us some perspective of how LAE has trended for your business the last couple of years. And I guess more importantly, I'm sure you're using some technology to improve those costs relative to earned premium. Can you talk about what kind of leverage you have for further improvement in LAE as we look out the next 24 to 36 months?

I'll start that -- I'll start the answer. And then Brad, if you want to just talk about -- I think it was just used as a -- just as an example. But our LAE has reduced in the last 10 or 15 years consistently. As you saw this quarter, our NAER, which is our expense ratio outside of our acquisition costs, went down by about 0.3%. We will continue to push down costs across the board, not necessarily acquisition costs because we'll spend as much as we can to grow. But my team and I consistently talk about technology changes, process changes, people changes, that we can do to continue to lower both our expense ratio actually across the board. That's really important to our customers to maintain those competitive prices. So I've been very happy with our reduction across the board, not just in LAE but in our expense ratio, overall NAER, I should say, in the last 10 years and we'll continue to focus on that. And we believe we have a lot of opportunity, especially with technology. And I think the 12% Brad used was an example but I'll let you elaborate on that, Brad.

Yes. Thanks, Tricia. Yes, the 12% was an example. It's actually considerably lower when you measure the cost of LAE in relation to premium. But to add to what Tricia said, we also are very careful to both look at his recent historic LAE performance but also to take a future forward-looking view of it to ensure that we are ahead of the curve for any changes, any efficiencies that the business creates.

Okay. I guess the other question I had, just as I was listening to the presentation and your comments about the rate cuts in Florida brought up a concept, and I'm not sure it's valid, so I thought I'd ask you for your opinion. Normally, when you get to price increases because of inflation and other factors, that can be disruptive to your retention ratios. And I'm curious if price decreases can also be disruptive to retention, triggering shopping. I'm curious about your perspectives on that.

I think the shopping in the last's several years have been just so volatile because of changes, because of the extraordinary inflation that happened in 2023 and actually before then. Typically, when you have a price decrease, it wouldn't necessarily increase shopping, although it has a lot -- there's a lot of external things, too, in terms of advertising and other things that happen. So I wouldn't necessarily say that. I think there's a lot of different variables depending on also the speed of what's happened in the industry, which is what I think Jen talked about was, just responding quickly to get accurate rates is what we want to do. We spur on with -- with decreases, you're really typically adding on new business growth. And that's depending on if people are shopping their carrier or like I said, with ours, or people looking at a policy review to see if they can make changes in their policy to decrease their rates, if that makes sense.

Our next question comes from the line of Jimmy Bhullar of JPMorgan.

So just first had a question on how the -- you view the competitive environment to be in personal auto. And it seems like everybody's margins have improved. And in most cases, at the sort of upper end of their historical ranges. And more and more companies are talking about wanting to grow as opposed to improve margins. And just wondering if you've seen that in the competitive behavior overall and how that affects your view of margins and growth prospectively for Progressive?

Yes. We definitely have seen the environment become more and more competitive. And we were thankful to get out ahead of the rates. And so we've been able to put on the amount of growth we put on in terms of policies in force. Like I said, comparisons will be difficult because you were comparing on incredible numbers in 2024. And frankly, incredible numbers, in the first half of 2025. That said, that's our sweet spot. We love that. We love the competitiveness. It's great for consumers. It's great just making all of us better. So our goal will remain to grow as fast as we can and make our target profit margin. We are doing great on both right now. I think I started in my letter talking about that in net premium written as our trifecta and we'll continue to do that. It's going to get more competitive. But again, that's what makes this business fun.

Okay. And on an unrelated topic, what's your view on how -- like it's a gradual process but more and more cars becoming autonomous and just generally more technology-intensive with more sensors, cameras and stuff. How does that affect the TAM and the overall market opportunity for personal, auto companies over the next -- if you were to look forward, over the next 5 to 10 years or so?

Yes. We're actually doing that exercise right now. We've been doing that exercise for the last 10 or 15 years. I think the first time we talked about it in an Investor Relations call was 2013 and then again in 2017. So we're always looking out sort of this cone of uncertainty or certainty and we look at conservative, pessimistic, middle of the route. I will say we have -- even our most pessimistic view, we were way under. So we did not believe the addressable market would grow at the rate it has grown. So we continue to look at that. We're revising what we call runway right now to look at our addressable market. Of course, vehicle safety comes into play. And if you think about the ADAS systems that have come into play in the last 10 or 15, 20 years, yes, it reduces frequency. As you've seen, the frequency decline in the past 50 or 60 years continues but it's typically offset by severity. It takes a while for the severity to -- the cost to be actually acceptable by consumers. So it takes a while.

In addition to that, when you think about technology and cars and the life span of cars, it's now up to about 13 years. So when you think about the addressable market, even as cars get safer, it does take a while for the fleet to grow into that system. And so we believe that, one, we think safer cars is great for society, and we want that to happen. It's really important. And so we're very -- we want that to happen. That said, it does take a while to -- for the severity trends to offset the frequency trends. So I guess what I'm trying to say is we think there's a lot addressable market to be had in the next 5 to 10 years. And especially as we diversified across all 3 horizons. And I had talked about before the opportunity around bundling more of that business, that auto, home bundle, we call our Robinsons.

Our next question comes from the line of David Motemaden of Evercore ISI.

Tricia, I'm just hoping to unpack a little bit just on the PLEs and their retention. Just how much is the mix dynamic versus how much is more just competition. So I was hoping maybe you could just talk about how retention looked by customer segment to kind of isolate -- take the mix dynamic out of it?

We don't typically share that. I think it's -- I think shopping is a lot. Our customers shopping with us is more than it's ever been. It's -- I think it's slowing a little bit because I think things are getting more competitive. And then the mix is always going to influence it. I mean at some point, we could index it and show you a little bit of the difference. And maybe I think Josh had asked to talk about the Sams and future Robinsons, we could probably weave that into there because that's part of the formula. But we don't typically unpack all of that because even underneath every one of our segments, there's multiple ways we look at those segments depending on channel. Are they -- is it auto, home with an unaffiliated partner versus us? So it's -- there's a lot of detail in that.

Got it. No. Okay. That's helpful. And then maybe if I could just follow up. Just on the frequency. So that continues to come in pretty favorable. It's been almost 2 years now that we've been in negative territory. Could you just talk about if you're seeing any dynamic? It looks like first-party collision claims are down by more than property damage. Are you seeing any impact just from customers that might not be filing claims and sort of with the deductible, just sort of eating the claims? And I guess, I'm trying to just isolate how much is maybe that dynamic versus just greater penetration of ADAS and some of these collision avoidance systems that might also be putting downward pressure on frequency.

Yes. I think -- I mean, it's hard -- collision and PD are always hard because there's the timing and subrogation and the different amounts that we pay, it depends -- and Jen had gone over that a little bit. Most of this has been our difference in mix and the continued vehicle miles traveled. And so we're watching that closely. We're seeing -- we continue to see that. So that's really where the majority of our frequency decline has been in.

Our next question comes from the line of Katie Sakys of Autonomous Research.

First, I wanted to ask on the 16-month trend time that you guys used when thinking about the various factors and the pricing adequacy model. How has that time frame shifted coming out of the pandemic? Are you guys assuming slightly more months? Was it potentially higher in the past than it is now? And how might you expect that to trend going forward?

Yes. I'll let Brad and/or Jen comment on that. But we do try to -- we try to be flexible depending on what's happening and what's needed in the current environment. And so if you guys want to add anything on that?

Yes. Thanks, Tricia. I don't think it's changed that much. It's a function of as we talked about how far back you're looking in your data period. So our growth helps there. if we only have to look back 1 year instead of 2 years, you don't have to trend as far in the history to today. Also, as we pointed out, too, it's also a factor of how quickly you can do rate revisions, get them priced, get them filed, get them approved but also how many you can do. So the fact that we are able to increase our rate revision capacity quickly if we need to, helps to also reduce the number of months we have to trend into the future.

That's helpful. And then perhaps as a follow-up, I know we spoke about Florida earlier in Q&A but are there any other states where you may potentially have profits that are exceeding statutory limits and might have to consider issuing a refund to policyholders?

No, I don't think there's any other excess profit statutes other than Florida.

Our next question comes from the line of Mike Zaremski of BMO.

In the letter, Tricia, you mentioned that the 8.9 product model and about 50% of your premiums is demonstrating favorable conversion results and elasticity. Any willingness to kind of unpack that a bit? I don't feel like we're seeing it in some of the 10-Q KPIs, although some of them do have tough comps. That's my first question.

Yes. I mean, I think every product model we look at, we have is very specific segmentation schematic in that and to grow and especially in the preferred business. Pat, if you want to comment on 8.9 in particular, because we're already on 9.0 [indiscernible] thinking about 9.0 and our other ones. And it takes some while to, I think, build into it.

Yes. The only thing that I would add is there's a lot of moving parts as we elevate product models into states and we are taking rates either up or down when we simultaneously elevate the segmentation. So while we look in aggregate at what the contribution happens pre/post any model change, there's a lot of moving parts in market as well. But as Tricia mentioned, we recently elevated 9.0 in our first state and continue to bring new segmentation that we think better matches rate to risk to market and creates that adverse selection and more competitive prices for more consumers.

Yes.

Generally, I would add, as we bring on new product models, we're getting more and more competitive on the more preferred end of the spectrum and that is where our market share is lowest. So that creates greater runway for us in terms of growing share across the board, across those consumer marketing tiers.

Yes. Well -- and lastly, we have our 5.0 property product model in about 75% of our net written premium in about 29 states. So that, along with the continued segmentation on the auto side, really gives us the ability to get those bundled customers. And I would say, with our current market share and our base of auto PIFs, we're just getting started.

That's helpful. And my last follow-up is just kind of seeing the [indiscernible] on shopping levels. I think there were different comments made during this call previously. I just want to understand, are shopping levels still materially above kind of what you -- what Progressive would consider the normal long-term trend line? Or have they already kind of come down to closer to normal or maybe below given the softish kind of pricing environment?

I would say shopping levels are still high. Ambient shopping is still up and we would still consider this a hard market because people are still shopping. And that's -- we talked a little bit about that with our PLE. But yes, for now, shopping remains high.

And just would shopping normalize just as long as incomes keep increasing and auto rates don't go back up to high singles? Is that how we should think about it, like it takes a couple of years to normalize?

Typically, it has in the past. I don't know. It's easy to shop. So I don't know if the pandemic and subsequent events has forever changed shopping behavior. That will unfold as this next couple of years unfolds but that has been how it typically has worked in markets in the past.

That appears to have been our final question. So that concludes our event. [indiscernible], I'll hand the call back over to you for the closing scripts.

That concludes the Progressive Corporation's Second Quarter Investor Event. Information about a replay of the event will be available on the Investor Relations section of Progressive's website for next year. You may now disconnect.