Earnings call transcript: Progressive Q1 2025 sees record growth, stock dips

Progressive Corporation reported its Q1 2025 earnings, revealing record growth and near-record margins. Despite these strong results, the company missed analysts’ expectations with an EPS of $4.37 compared to the forecasted $4.74. Revenue exceeded expectations, reaching $22.21 billion against a forecast of $21.6 billion. According to InvestingPro analysis, Progressive currently appears undervalued based on its Fair Value model, with 12 analysts recently revising their earnings expectations upward. This mixed performance led to a pre-market stock decline of 3.86%, with shares trading at $265.45.

Key Takeaways

• Progressive achieved near-record margins and significant growth in Q1 2025.
• EPS fell short of forecasts, but revenue surpassed expectations.
• The stock dropped 3.86% in pre-market trading.
• Investment income increased by 32% year-over-year.
• Personal auto and commercial lines saw strong application growth.

Company Performance

Progressive reported one of its best quarters, with substantial growth across various segments. The combined ratios remained below 90 in personal auto, property, and commercial lines, highlighting operational efficiency. InvestingPro data shows the company maintains a "GREAT" financial health score of 3.62/5, with particularly strong performance in profit and price momentum metrics. The company’s revenue growth reached 20.74% in the last twelve months, while also noting a 32% increase in investment income compared to Q1 2024, averaging over $270 million monthly year-to-date.

Financial Highlights

• Revenue: $22.21 billion, exceeding the $21.6 billion forecast
• EPS: $4.37, falling short of the $4.74 forecast
• Investment income: 32% increase year-over-year

Earnings vs. Forecast

Progressive’s EPS of $4.37 missed the forecast of $4.74 by approximately 7.8%, marking a significant deviation from expectations. However, the revenue exceeded forecasts by $610 million, showcasing robust sales performance.

Market Reaction

The stock experienced a 3.86% decline in pre-market trading, reflecting investor disappointment in the EPS miss. Despite the revenue beat, the market reacted negatively, with shares moving to $265.45 from a previous close of $276.11. The stock trades near its 52-week high of $292.99, with an attractive PEG ratio of 0.37, suggesting reasonable valuation relative to growth. InvestingPro subscribers have access to over 30 additional valuation metrics and analyst insights, helping them make more informed investment decisions.

Outlook & Guidance

Progressive continues to focus on growth while maintaining a combined ratio below 96%. The company is investing in direct-to-consumer channels for property insurance and exploring opportunities in the commercial lines, particularly the Business Owners Policy (BOP) market. Notable for income investors, Progressive has maintained dividend payments for 16 consecutive years, demonstrating consistent shareholder returns alongside its growth initiatives.

Executive Commentary

CEO Tricia Griffith stated, "Through it all, Progressive has not merely survived, but thrived." She emphasized the company’s competitive advantage in data analytics and usage-based insurance, saying, "We are better at gathering data quickly, processing it effectively, and reacting to it decisively than anyone else in the industry."

Risks and Challenges

• Potential tariff impacts on auto parts and repair costs could affect profitability.
• Macroeconomic uncertainties may influence consumer behavior and insurance shopping.
• Policy life expectancy challenges could impact long-term revenue streams.
• Market competition remains intense, particularly in the direct-to-consumer auto insurance segment.

Q&A

During the earnings call, analysts inquired about the potential impacts of tariffs on auto parts and repair costs. Progressive addressed these concerns by outlining strategies for maintaining stable rates and adapting pricing to mitigate these challenges. The company also detailed its approach to investment portfolio management, emphasizing a focus on diversification and risk management.

Full transcript - Progressive Corp (PGR) Q1 2025:

Doug Constantine, Director of Investor Relations, Progressive Corporation: Good morning and thank you for joining us today for Progressive’s First Quarter Investor Event. I’m Doug Constantine, Director of Investor Relations and I will be your 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 ks, 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 sixty minutes scheduled for today’s call for introductory comments by our CEO and a question and answer session with members of our leadership team. The introductory comments by our CEO were previously recorded.

Upon completion of the previously recorded remarks, we will use the balance of the sixty minutes scheduled for this event for live questions and answers with members of our leadership team. As always, 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 ks for the year ended 12/31/2024, as supplemented by our Form 10 Q for the first quarter of twenty twenty five. We will find discussions of the risk factors affecting our business, safe harbor statements related to forward looking statements and other discussions of the challenges we face.

These documents can be found via the Investor Relations sections of our website at investors.progressive.com. To begin today, I am pleased to introduce our CEO, Tricia Griffith, will kick us off some introductory comments. Tricia?

Tricia Griffith, CEO, Progressive Corporation: Good morning, and thank you for joining us today. Since the pandemic started in March of twenty twenty, we’ve hosted 20 investor relations calls, and the common theme of those calls has been how our business is weathering uncertain and unique macroeconomic environment. The last five years has shown challenge after challenge with us. And through it all, Progressive has not merely survived, but thrived. Following a fantastic 2024, we just delivered one of our best quarters ever with near record margins coupled with record growth.

As more challenges arise, including in the form of the macroeconomic effects of tariffs, I feel very confident in Progressive’s ability to face the issues head on. The momentum we had in 2024 carried us into 2025. And during the first quarter, we added new policies below our target acquisition cost and continued moving full speed ahead on growth with a focus on realizing our vision of becoming consumers, agents, and business owners number one destination for insurance and other financial needs. Even though our competitors have reported improved profitability over the last couple of quarters, the shopping environment in personal auto has remained very favorable to Progressive. You may recall that the first quarter twenty twenty three set the record for the most new personal auto applications of any other first quarter in our history.

Well, I’m proud to say that the first quarter twenty twenty five personal auto new applications surpassed the previous record by over 20%, a result achieved because of both more quotes and higher conversion of those quotes to a sale. More year over year quotes mean our customer acquisition machine is running efficiently, and strong conversion in both channels suggest very good price competitiveness. Growth is not just happening in personal auto. In property, we increased homeowners policies enforced in the less volatile states and reduced policies enforced in the more volatile states. We’re also continuing to significantly grow our renters business.

In commercial lines, although the trucking space continues to be challenging, core commercial auto new applications are up 8% year over year, and our business auto and contractor BMTs experienced significant growth in new applications. In addition to growth, our personal auto and property products as well as commercial lines have year to date combined ratios below 90, a significant achievement considering the industry’s challenges in property and commercial auto. Despite the significant turmoil in financial markets in recent weeks as investors react to tariff and other news, I’m pleased to report that our balance sheet has remained strong. At quarter end, common equities were only 4% of our total portfolio. And thus far, it has been largely insulated from stock market volatility.

Additionally, we’ve been generating capital at a brisk pace, both from strong underwriting profitability and investment returns. For the quarter, our investment portfolio generated investment income that was 32% greater than the first quarter last year and averaged over 270,000,000 a month year to date. We are still in the early days of the tariffs, and the effects may not be known until sometime in the future. The interconnectedness of global trade makes it even more difficult to predict where and how quickly the impact of tariffs will work their way through supply chain and ultimately our lost cost. Determining our rate levels is a perspective exercise where we try to predict future loss trends and other costs to be able to set appropriate rates to achieve our underwriting profitability goal.

Since late twenty twenty four, our talented team of pricers, modelers, analysts, and actuaries have been modeling various scenarios to allow us to assess the impact of potential tariffs on our business to help us to be prepared to react as quickly as possible. In our fourth quarter twenty twenty one IR call, we talked about our ability to gather data quickly, process it effectively, and react to it decisively. I believe we’re better at this than anyone else in the industry. And proof of this is that over the last twenty years, periods of macroeconomic turmoil have often directly coincided with Progressive’s most successful period. More recently, the inflationary environment of 2021 through 2023 proved that we were able to manage through rapid, unpredictable increases in lost costs and manage our calendar year combined ratio.

I think that we have the tools, systems, and most importantly, the people to react quickly and effectively during times of market disruption. While I can’t know what the future holds, I believe the odds are strongly in favor of Progressive to once again manage through whatever lies ahead better than anyone else in the industry. Thank you again for joining us today, and I will now take your questions.

Pat, Executive, Progressive Corporation: This concludes the previously recorded portion of today’s event. We now have members of our management team available live to answer questions. Questions can only be submitted over the phone by pressing star one on your keypad.

Moderator, Progressive Corporation: The first question is from the line of Bob Hung with Morgan Stanley. You may proceed.

Bob Hung, Analyst, Morgan Stanley: Hi. Good morning, everybody. My first question is on auto rates. So obviously, profitability has been pretty incredible, well ahead of your targeted 96%. Now taking tariff uncertainties into consideration, do you keep plan to keep rate d or sorry.

Do you plan to take rate decreases, in order to accelerate growth, or do you think that it’s better just to keep rates static to maintain the current earnings profile? Curious to on your thoughts on this.

Tricia Griffith, CEO, Progressive Corporation: Good morning, Bob. Well, as you know, we look state by state, product by product when we look at rates. And in fact, the last quarter, we took about a dozen state rates up and a dozen state rates down, but mainly flat. So we’re gonna do all we can to continue the growth engine, and so we monitor that at a very granular level. Obviously, we’re sitting on some nice margin with an 86 combined ratio in the first quarter.

And with the unknowns around tariffs, you know, we obviously I’d have to think about that for future. But we are business as usual, trying to make sure we grow as fast as we can. And that means in some states, you know, taking rates up a little bit and some rates taking them down a little bit. I think the good thing is that we are back to where we we wanted to be in terms of what we call small bites at the apple. We know that our insured like stable rates, so we’re gonna do our best to to keep it that way, but also continue with our growth engine.

Bob Hung, Analyst, Morgan Stanley: Okay. Thank you for that. My second question is on advertising. Right? You significantly ramped up your ad spending for the quarter.

If we think about the the three major advertising channels, TV, digital, radio, and I can’t believe I’m saying radio, but like, where is the most ad spending growth should come from going forward? Is there any specific ad channel that you think is might be overly saturated and spending there might not be worth the dollars? Just curious to your view on advertising spending as well as the competitive environment there.

Tricia Griffith, CEO, Progressive Corporation: Yes. We always look at that. We have several business reviews a year, but one big one where we talk about all the different ways with which we want to spend. Clearly, digital has been up in the last several years because that makes sense where people go. You know, you said that about radio, but it works.

So we look at we look at everything. In fact, the the funny funny thing you say is every time we have a business review, I talk about direct mail. But if it works and it’s efficient, we use it. So we look at all of that, and we are not gonna spend a dollar more than we think we should to acquire new business.

Bob Hung, Analyst, Morgan Stanley: Got it. I’ll be looking for the Progressive mail in my mailbox.

Tricia Griffith, CEO, Progressive Corporation: You got it.

Alex Scott, Analyst, Barclays: Take care.

Moderator, Progressive Corporation: The next question is from the line of Rob Cox with Goldman Sachs. You may proceed.

Rob Cox, Analyst, Goldman Sachs: Hey. Thanks. First question I had for you was on new business penalty. I was just hoping you guys could talk about the impact of the new business penalty today in personal auto and the magnitude of if that magnitude of that penalty has kind of changed over time. And I’m curious because it it seems almost indistinguishable in the in the results at current combined ratios or maybe it’s being masked by mix shift or something else.

Tricia Griffith, CEO, Progressive Corporation: Yeah. I mean, I think we we definitely when we reopen for business or I should say when we we sort of timed up for business, we did see an increase in the preferred market. But and I’ll let Pat talk about this a little bit if he wants to, but I feel like, you know, we’re always gonna have the new business sort of penalty quote unquote on the direct side because of the way we expense our business and our advertising upfront so that that, you know, first term is gonna look much differently than the terms after that. But I feel like we’re in a different position here, and a lot of that, I think, is based on the size we are. Do you wanna add anything, Pat?

Pat, Executive, Progressive Corporation: Yeah. The only thing I’d add is, you know, first quarter is typically a strong growth quarter for us. And, you know, baked into our acquisition costs is the lifetime expense to bring a policy on board. So, you know, we are continuing to price to our lifetime cost. And, you know, yeah, when you grow quickly, there’s a slightly higher combined ratio due to the expensing of of ad expense.

But on a quarter over quarter basis, it’s not materially different, I don’t think, than sort of what we’ve seen in the past when we’ve grown new apps 30% in a quarter.

Rob Cox, Analyst, Goldman Sachs: Okay. Got it. Appreciate the color. And the second one I had for you was on policy life expectancy. You mentioned the strong growth in the quarter, and that was despite policy life expectancy a little bit lighter versus last time you reported it.

Is that just more reflective of the increased shopping environment and that’s more of an industry dynamic? Or is that being driven by something else?

Tricia Griffith, CEO, Progressive Corporation: Yeah. That’s definitely part of it, Rob. What I would say is that, you know, PLA PLE is pretty complex, and there’s a lot of things that can affect it. What I would say there’s a couple of inputs as as we’ve sort of decomped it. When we were we’re closing when we needed to get rated and we kinda tightened up, especially our underwriting appetite, that affected PLE from a positive perspective.

Now we’ve opened up for business, which means our mix has shifted back to sort of where our normal mix would be. So think of Sam’s that are inconsistently insured. Now I will tell you, we know Sam’s. We know how to make money on Sam’s. So we want all the Sam’s we can get as long as they meet our target profit margins.

So, you know, this is our roots of growing up a nonstandard company. So that mix shift is part of it. You know, I think with the shopping environment, there’s a lot of pressure on renewals, and that means people are shopping, which which makes sense. And and I think it’s important for people to to find the right rate and prices are very competitive, which also means our insureds, you know, could contemplate shopping. So if our insureds shop and we are talking to them and doing a policy review, we have a a team called our customer preservation team.

We can walk through changes that might make sense for them, maybe build plans, maybe deductibles. And, as long as it’s economically, makes sense for both us and the insured, then we’ll rewrite that, which kinda starts the clock ticking over. I think that’s an important piece. There’s a lot of noise in the policy life expectancy. Not that not that it’s not important.

We want it to turn and we think it’s very important. But we look at our sort of internal measure of our household life expectancy that is showing a lot of improvement. And so we feel good about that. You know, I think in the end, what I would draw you to is our growth. You know, the fact that we grew five and a half million pips compared to this time year at a 18% growth rate.

So I feel really good about our growth. We’re gonna continue to concentrate on policy life expectancy, continue to concentrate on making sure that we are obsessive with our customer service both on the CRM side and the client side and have competitive prices. And that’s the the the most important thing we can do. But yeah. You’re right.

A lot of it is, based on the shopping environment that we’re in right now.

Rob Cox, Analyst, Goldman Sachs: That’s very helpful. Thank you.

Moderator, Progressive Corporation: The next question is from the line of Mike Zaremski with BMO. You may proceed.

Mike Zaremski, Analyst, BMO: Hey, good morning. My questions are on auto loss costs. In the letter, you point out that part of the frequency decreases are due to mix towards the more preferred customer base. I’m curious, you don’t call out severity being higher due to that, that mix shift as well. Do do do more preferred customers not have higher kind of, I thought, just more expensive cars and and higher limits with with more severity or am I I’m not not thinking about that correctly?

Tricia Griffith, CEO, Progressive Corporation: No. I think I think you’re saying about that right in terms of severity and more coverage than I don’t know necessarily expensive cars, but you have more coverage. What I would say let’s go back to frequency. What I would say with frequency is as we sort of decomp that, there’s a little bit of noise and, of course, it’s it’s a quarterly data. But when we look at frequency, we would look at a couple different things like that that would affect it.

And that would be both what you talked about from a preferred mix, which would decrease frequency, but also a couple of things that increased frequency from our perspective. Some growth, weather, and our calendar year. We went to a Gregorian calendar. That we equated to about a point of frequency. So that would be more in line with our trailing 12 frequency decline of about three and a half to 4%.

So we do see that a little bit differently. Interesting, and this would be something to watch. Our OBD data from our U B from our usage based insurance, the dongle in the car showed for the first time since 02/2019. So take away 2020 because a lot of people were driving. Since 02/2019 that vehicle miles traveled decreased, especially in trips that were over a hundred miles.

I think that’s an interesting one data point for one quarter economically to to look at. From severity, I I feel like we’re, you know, right in line with competitors on severity. If you look at our collision, it looks higher based on some some and salvage recoveries that were very high in q one of twenty four. So if you take that out, it’s about 2% gross recovery. So I would say the collision is in line with our PD on the severity piece.

Mike Zaremski, Analyst, BMO: Okay. That’s that’s helpful color. I guess just a a follow-up on severity. You may have kind of answered it now. But if we if we think about the very long term severity trend, I think it’s low to low to mid singles.

And do you got does Progressive kind

Jimmy Bhullar, Analyst, JPMorgan: of have a view of kind

Mike Zaremski, Analyst, BMO: of new normal glide path is about the same over time? Or do you think it’s a bit higher due to, I don’t know, lawsuit inflation or or just mix shift? Or just curious to give any kind of long term views on severity.

Tricia Griffith, CEO, Progressive Corporation: You know you know, we we talk about it a lot, and obviously, we react to the data as it comes in. And there’s been so much volatility over the last five years that we’ve really had to react to it, especially with inflation. I would have never predicted that would have happened, but again, we reacted to that. Tariffs will be another, you know, sort of unknown, but we’ll react to that and react to that quickly should we need to. I think the one place where we’ve seen severity increase across the industry is more on the bodily injury side with, you know, just inflation, more attorney reps, higher medical bills, sort of the social inflation that we talk about a lot.

And so we try to, you know, build that into our models as we think about the future as well.

Meyer Shields, Analyst, KBW: Thank you.

Tricia Griffith, CEO, Progressive Corporation: Thank you.

Moderator, Progressive Corporation: The next question comes from the line of Alex Scott with Barclays. You may proceed.

Alex Scott, Analyst, Barclays: Hi, good morning. I wanted to see if you could dig a little bit more into the potential impact from tariffs, just to kind of frame for us how much that may or may not ultimately increase the lost cost trend and and if you could particularly touch on on how you’re viewing auto parts and just repair costs in general.

Tricia Griffith, CEO, Progressive Corporation: Yeah. Absolutely. This will probably be a longer answer to the question, but I wanted to give I wanna give you an insight of kind of how we’re looking at the complexity of tariffs at such a granular level, and so stick with me. So I talked in February about, you know, tariffs are inflationary, and they’re one-sided to loss costs. And and we care deeply about trying to understand the impact on our book of business.

Oddly, last Monday, I spent an hour with our national auto pricing manager. We went over the inputs and the outputs to the tariffs and had a great conversation. The work is extremely well done. And then Tuesday, the White House said they would soften some of the tariffs. So it changed things in terms of stacking the steel and aluminum with the imported vehicles as well as some rebates on, foreign parts that are assembled in The US.

So that immediately changed some of the dynamics with what we were working on. So we take, you know, a bunch of of raw data. So think of probability of occurrence, which is very high at this juncture, start date, market lag, time to, you know, full effect in the tariff rate, and then we take some components. So clearly, USMCA compliance is a big one, price umbrella, parts sourcing, per coverage cost e com. So that is just a handful of some of them of the inputs that we put into our model.

Then we ran our entire fleet through the USMCA compliance to understand each vehicle what we think the cost could come to. So let me walk you through a couple examples. I won’t give you the exact car, but car a, basically assembled outside The US, One Percent US, Canada content. The rest is German and from Poland and a couple other countries. So it’s not USMCA compliant.

So quick math on that is that 99% of that value should be tariffs. So we know that for that car. Vehicle b, a little bit different, assembled in The United States, Fifty Percent US Canadian content, 25% Mexican content. So it is USMCA compliant. So as of last Monday, it would have been 25% eligible to be tariffed.

As of Tuesday, that first fifteen percent was eligible for the rebate. So the effective tariff rate is 10%. So that’s how surgical we’re getting with our models. And it’s a moving target, but we have to be nimble. And I think, you know, what the the big thing here is that the key is we gotta recognize as soon as possible when we see the data and take action accordingly.

I do have to take a moment to shout out a couple of people. We’ve we’ve many many people working on this, but couple of people from our pricing team that have done an incredible, job, Brad and Bruce, and Wencha and Nick from our economics team. They’ve been working feverishly as things evolve. And so we will be ready for whatever comes our way, but we have put a lot of thought and a lot of modeling into this and a lot of scenario planning. So I believe we’re as prepared as anyone.

Alex Scott, Analyst, Barclays: That’s really helpful. Thank you. Next one I have for you is on, you know, disruption in, you certain states around homeowners markets and how it may benefit or detract from PIP growth. And I was hoping maybe you could talk about Florida and just sort of the healing process in homeowners and the impact that that is having on PIP there and and sort of the opposite in in California where, you know, it looks like things may get more difficult.

Tricia Griffith, CEO, Progressive Corporation: Yeah. And and, you know, so, you know, I I gave you a little bit of the sort of five point plan for the blueprint for the future. We feel really good about where we’re at, especially on the the combined ratio side. We are sub 90 in q one in property, growing a lot in renters. And and obviously, we’re taking our time to grow because we wanna do this in the right way.

And John and his team have done a a fabulous job with that. Florida, we’re still in the midst of nonrenewing, the 15,000 policies that we talked about a few years ago. It’s been a little bit, more time consuming just because of moratoriums, but, we will, send out our last notifications by this May. So we’re feeling, we’re in a much better position in Florida. We have very little market share in California, and so that will be a place where I will tip toe in.

But I would say that where we stand today with, more bundling, with cost sharing, with exiting our d p three program, with our agent incentives, we feel like we are in a much different position. And we’re going to, you know, be able to open up the growth machine in areas where we think it’s it’s beneficial and where we get those bundled.

Alex Scott, Analyst, Barclays: Got it. Thank you.

Moderator, Progressive Corporation: The next question is from the line of Elise Greenspan with Wells Fargo. You may proceed.

Tricia Griffith, CEO, Progressive Corporation0: Thanks. Good morning. My first question, I guess, is just a hypothetical based on tariffs. If there’s a state that’s operating in mid to high 80s combined ratio and like we’re assuming right tariffs have a mid single digit impact on severity. All else equal, you know, how would you guys look to respond in in that state?

Would you or could you get rate approval given, right, that that’s a, you know, pretty pretty high level of profitability?

Tricia Griffith, CEO, Progressive Corporation: That’s a great question, Alicia. I think, you know, one of the things that I didn’t mention is we we also have, you know, reached out to a couple insurance departments because I think because our models are are so granular and so refined, we wanna make sure that they understand and can contemplate that for, for each state. Here’s what I would say is, you know, we make a lot of decisions based on combined ratio, but is that state growing? Is it not growing? How could, you know or so it’s to me, if if if there’s a state in the mid eighties and there’s not growth, I would say that, you know, we could pressure test that to grow a little bit.

But, obviously, we have tariffs in the back of our mind, and we know that, you know, that is something we’ll have to react to. And and we’ll have to react to it differently in different states depend on where depending on where that combined ratio falls.

Tricia Griffith, CEO, Progressive Corporation0: Thanks. And then my second question, I was just interested, if you could just, you know, provide, you know, kind of just some color on just the monthly cadence, you know, of your retention as you guys have been, you know, putting on new business and the industry, you know, has obviously been getting more competitive with looking to grow as well. Any color just as you think about monthly retention levels that you can provide?

Tricia Griffith, CEO, Progressive Corporation: Yeah. I mean, I I talked a little bit about that before. You know, we publicly talk about trailing three and trailing 12. I never like to see retention decline, but I think with some of the things we’re doing, it’s it’s it’s going to decline. So just opening it up to our Sam’s and making sure that, you know, some of our customers where we do policy reviews are rewrite.

Those those things are gonna have negative implication for the PLE actual number itself, but not negative implications for our PIF growth. And I think that’s what we have to kinda balance out. And like I said, we do have some data at a household level, and that continues to improve. Again, I I wanna see that that trailing three for sure move the other direction, so we’ll continue to do what we can. But it’s a really big shopping environment right now.

I think that’s good for customers, and having those competitive prices are great for competition, and it’s, it’s a fun place to be in.

Tricia Griffith, CEO, Progressive Corporation0: Thank you.

Moderator, Progressive Corporation: The next question is from the line of Michael Phillips with Oppenheimer. You may proceed.

Tricia Griffith, CEO, Progressive Corporation1: Thanks. Good morning. I guess at the risk of the tariff topic being too much, one more on this one. I guess, Trish, I want to kind of hear how you think about the balancing of maintaining stability in rates for customers versus reacting fast to tariffs. And when I hear you say earlier today and throughout this conversation, you know, continuing the growth engine and grow as fast as we can, it makes it seem like, that maybe you’re more inclined to keep the rates stable and let there be a margin impact versus reacting and taking rate increases.

Tricia Griffith, CEO, Progressive Corporation: Yeah. It’s a good question because all those things come into play. So I think when I think about stability of rates, I think about, just the those small bites of the apple. Like I said, we took, you know, rates down in about a dozen states, rates up in about a dozen states, but kind of, you know, flat from the perspective of a point, points. So, you know, it depends on each state and if we think we can grow.

And we look at we look at that across the country, and each one of our product managers, you know, has the mandate to grow as fast as we can at or below a 96. We obviously that that tariffs are are always gonna be front and center because I don’t wanna have to increase rates like we had to a few years ago based on the inflationary factors that came into play with used car prices and parts. So it’s it’s a balance. We work on this literally every day to try to figure out the right way to grow and to to capture this capture the market share while there’s this competitive rate. You know, we obviously the we we like to be able to have those margins and still grow.

So it’s balancing and sort of with stability, tariffs, growth, and combined ratio. It’s just a math equation that we constantly work on a state level, product level.

Tricia Griffith, CEO, Progressive Corporation1: Okay. Thank you. Second question, in the agency channel, you’ve talked about maybe for a little bit, kind of the shift in twelve month to six month policies. And I wonder, is that just a result of the increased shopping and different customer base? Maybe Sam’s versus the Wrights Robinson’s or or is that something intentionally you’re trying to push through?

Tricia Griffith, CEO, Progressive Corporation: We do that we do that for our preferred agents that our platinum agents that have our property book because most people have you know, the property is a twelve month policy, so we have that. You know, it’s it’s more for convenience for the agents that we work with, the platinum agents that we work with in order to, bundle auto and home.

Tricia Griffith, CEO, Progressive Corporation1: Okay. Thank you.

Moderator, Progressive Corporation: The next question is from the line of Jimmy Bhullar with JPMorgan. You may proceed.

Jimmy Bhullar, Analyst, JPMorgan: Hey, good morning. So Tricia, just it seems like your comments, prepared remarks and answers to questions have been fairly optimistic on PIF growth. But if we think about the fact that most of your competitors had been raising prices a lot and a lot more than you were raising prices, they were limiting marketing. And now at least all the public guys are back in sort of growth mode. Why is it not reasonable to assume that you would see a slowdown in this growth even if it remains strong, maybe not as strong as it has been?

Tricia Griffith, CEO, Progressive Corporation: You know, well, I think you I think what you will see is a as much more difficult comparison because if you look at the last three quarters of twenty twenty four, we grew a massive amount. That said, we are in a really good position. And, you know, we like we talked about with our acquisition machine, we’re gonna continue that. You saw what we spent in the first quarter. We’re gonna continue to spend as long as it’s efficiency in our our cost per sales under our target acquisition cost.

We have a machine that works really well on in both channels, and so we’re gonna push the envelope as much as we can to grow. So I am bullish, and I’m very optimistic. And if I, you know, had to had to put a buck down on a horse, it’d be progressive.

Jimmy Bhullar, Analyst, JPMorgan: Nope. And then just to obviously, there’s a lot of focus with your firm on auto, personal and commercial. Can you talk about your long term aspirations and in the homeowners business and then in commercial lines outside of auto, just the trends in those businesses and where you see the best growth opportunity? Yes.

Tricia Griffith, CEO, Progressive Corporation: I mean, think homeowners, we’ve talked about a lot in terms of our blueprint, and we feel like we’re in a much better position. And we know people are stickier when they bundle their auto and home. So we’re gonna continue with that. The the great thing about homeowners is that about half our business is on progressive paper on the inside paper, and half our business, we work on the direct side with unaffiliated partners. And so I think that is a nice balance to be able to have some on our paper and some not.

Our auto and renters bundle percentage is very high, over 75%. And those we call future Robinsons will, some it will hopefully be in our book of business. They’re much more likely to get Progressive Home. And we continue to add partners in what we call our progressive advantage agencies. So our our long term is that we want to clearly make money in property, make sure we have more stability, and continue to understand and deepen our level of segmentation like we do on the private passenger auto side.

So I I feel like we are we’re turning a corner there for sure. On the commercial auto side, you know, what I what I love about our our our whole commercial lines organization is that it’s very diverse in terms of our business marketing tier targets. And so I think we have a lot of opportunities. So when you see economically things change in, as an example, for higher trucking, for higher specialty, we can then grow in our business auto contractor segment. We have a robust transportation network business, and we now have our BOP, our business owners policy in 46 states.

So we have a lot of different levers to grow in commercial lines, and that’s really actually a very exciting part of the whole progressive portfolio. In fact, years ago, when my team and I sat down and thought about our growth prospects and our strategy, a lot of the focus you know, one of focus was, let’s grow the heck out of private passenger auto. Let’s gain market share. Let’s grow the heck out commercial auto even though we’ve been number one for a while, and let’s figure out homeowners. But then and that was kinda horizon one.

In horizon two, we said, what are some businesses that, you know, we can evolve with, and most of them sell on the commercial line side. So think of our fleet business as an example. We used to ensure a ton or fewer power units. We went up to 40. We bought protective to kind of, you know, fill out that portfolio.

We created BOP. We have what we call business quote explorer, which is similar to our home quote explorer where we sell our products and the products of others to kinda have that small business owner feel really covered. So I think the runway in commercial lines is extraordinary, and Karen and her team are doing a great job figuring out exactly what levers to pull to make sure that we grow. And I I wrote in my letter, you know, if you look at the combined ratio at year ending the year 2024 in the commercial auto business, it’s over a 11 combined ratio, where ours is sub 90. So, you know, people are gonna have to stay great, and it may take longer because most are twelve month policies and people are gonna shop.

And they’re gonna find a good rate and great coverage and great service in our commercial lines organization.

Tricia Griffith, CEO, Progressive Corporation2: I could add a

Alex Scott, Analyst, Barclays: a Thank you.

Tricia Griffith, CEO, Progressive Corporation2: Bit to that answer in saying you you asked about our homeowner appetite. We think of it as our personalized appetite over around half of the personalized marketplace bundles home and auto, and our entry into home was to continue to grow in auto. So today, we have low single digit market share of the Robinson segment, and that is around half of the entire marketplace. So our appetite in home is focused on growing personalized households, which gives us a lot more runway in the personalized space. To Tricia’s point on the commercial side, BOP is a marketplace that is several times the size of our commercial auto marketplace.

We are number one in commercial auto by a large factor. And in BOP, we could have a runway that is very significant beyond commercial auto. So both of those entries, we think, create a runway for us for growth, for decades.

Jimmy Bhullar, Analyst, JPMorgan: Thank you.

Moderator, Progressive Corporation: The next question is from the line of David Motemaden with Evercore. You may proceed.

Tricia Griffith, CEO, Progressive Corporation3: Thanks. Good morning. I had a question. Just if you could help me think through the improvement in renewal applications growth that’s come at the same time that we’ve seen a decline in the policy life expectancy on a trailing three and trailing twelve month basis. Is that just the mix impact that you were talking about earlier, Tricia, where like we’re seeing the PLEs come down, but then overall, the retention is still okay given that, you know, call it roughly 20% growth in renewal apps?

Tricia Griffith, CEO, Progressive Corporation: Yeah. I think that’s part of it, and I think just the stability of the rates kinda leveling out. I think, you know, like I I did say before we had the pressure on renewals just because of shopping, but the renewals, you know, from not having to take big increases, I think, been helpful as well. Do you wanna add anything, Pat, to that?

Pat, Executive, Progressive Corporation: Yeah. One thing I’d add is the renewals are driven by what happened six months ago, and we opened up pretty aggressively six months ago or nine months ago. So renewal app growth rate will be driven by new apps that show up in that period. And PLE is a forward looking projection. So we look at that to predict how long policies on the books today will retain.

So that moves differently than the units that you see within our overall Got That’s

Tricia Griffith, CEO, Progressive Corporation3: And then maybe just a question on the competitive environment. So Tricia, I think you mentioned that competitors are in a good spot as well, increasing advertising spend. I guess my question is, are we close to a point where the market gets more competitive like we saw back in 2018 when I think that was the last time you guys and some of your peers started putting through price cuts? Or is there enough uncertainty out there where you think that that won’t be the case? I’m just sort of interested in terms of, you know, how you’re thinking about the the competitive environment right now.

Tricia Griffith, CEO, Progressive Corporation: Yeah. There’s still a lot of ambient shopping. So a lot of shopping is taking place, which is why we wanna take advantage of our ability to spend on advertising and and have that acquisition machine work. It is more competitive. We know we took rate well in advance of our the competition, and now the majority of the competitors, I think, are are in a good position.

So I I think that, you know, we’re gonna continue to push on advertising. We’re gonna continue to to push our expenses down. That’s a really big part of competitive prices, and that’s another place that can help us fuel growth. In fact, we have taken a half a point off of our non acquisition expense ratio in LAE every year for the past seventeen years. So as we think about future growth, David, we are going to and in fact, we’re in the midst of figuring out our next or should designing our next three year strategy.

Expense management, expense discipline is gonna be a big part of it because I think that will help continue to fuel our growth as well as some of the investments we’ve made in technology to become a more efficient organization. So I feel I feel like it is really competitive. Like I said, that’s kinda where the fun begins. And, you know, we’re gonna do our best to continue to to push on this growth.

Alex Scott, Analyst, Barclays: Thank you.

Tricia Griffith, CEO, Progressive Corporation: Thanks.

Moderator, Progressive Corporation: The next question is from the line of Josh Shanker with Bank of America. You may proceed.

Tricia Griffith, CEO, Progressive Corporation4: Yes. Thank you for taking my question. I noticed your comment that you spent more on advertising in 1Q ’twenty five than you did in 4Q ’twenty four. Always, there’s a nice surge in 1Q seasonally, it seems, for procurement of customers, but we only see the net numbers, and retention is getting worse. Is the efficacy of the spend the same as it was in 02/2024, or are you seeing diminishing returns even if they’re above your targets right now for what you need to acquire new customers?

Tricia Griffith, CEO, Progressive Corporation: Yeah. We, you know, we, typically the first quarter of any year is a high shopping season, so we wanna make sure we leverage that. We don’t share our target acquisition cost or our cost per sale, but it continues to be efficient. Clearly, with competitors coming in, you know, it it it it’ll get a little bit tougher, but we still feel like we’re an efficient machine.

Tricia Griffith, CEO, Progressive Corporation4: Do you expect to spend about as much in the remainder in year on media and advertising as you did in the last twelve months of, 02/2024?

Tricia Griffith, CEO, Progressive Corporation: We will spend, as long as we believe we can grow and do that efficient cost. And as you’ve seen over the years, that’s a lever that we can, add and flow depending on where we’re at from, a profitability perspective. But as you can see, sitting at 86 combined ratio for the first quarter, we’re sitting in a really great position to be able to continue to spend, to acquire more customers.

Tricia Griffith, CEO, Progressive Corporation4: And if I can sneak one more in, you know, we we do talk about, how retention has changed, and we don’t really know what absolute retention is. I feel like 02/2025 feels a lot like 09/2019 in many ways. How does the retention right now compare to past periods when industry had adequate pricing and there was a great deal of competitiveness in the market and willingness to accept new business from competitors. Are we at the same level we were in that time, or we are are you better now than you were five years ago?

Tricia Griffith, CEO, Progressive Corporation: Well, some of our mix has changed. It’s more of a preferred mix. And so when we look at retention, you know, we look at it very granularly in terms of our mix of business. I would say we’re we’re probably I I don’t have the data in front of me. Probably, about even.

Tricia Griffith, CEO, Progressive Corporation4: Okay. Thank you very much for the answers.

Tricia Griffith, CEO, Progressive Corporation: Thanks, Josh.

Moderator, Progressive Corporation: The next question is from the line of Meyer Shields with KBW. You may proceed.

Meyer Shields, Analyst, KBW: Great. Thank you so much, and good morning. Trey, you talked about spending more on advertising. Clearly is paying off. When you have more competitors looking to grow, does the cost per unit of advertising go up or is it just a matter of more advertising overall?

Tricia Griffith, CEO, Progressive Corporation: Well, there’s you you know, there’s more people in the system, say, on digital auctions. You’re gonna have more competitiveness. So we just have to be, be where we think we should be to get new customers and not overpay for those. And so from that bidding perspective, yeah, it gets there’s a little bit more pressure on it when competitors are in. But we we know that data very well, and we are able to bid on and and and efficiently spend to get new customers.

Meyer Shields, Analyst, KBW: Okay. No. That’s helpful. Second question, I I think I’m just missing a step. Like, you’ve talked about there’s still being a lot of shopping.

Clearly, competitor rate increases are slowing down. Why do you think there is? I don’t know if it’s as much shopping as last year. Or in the absence of significant rate increases, what’s promoting more shopping behavior?

Tricia Griffith, CEO, Progressive Corporation: I think it’s I think it’s just easier to shop. And I think with all the other inflationary items out there, people are looking to figure out a way to save money. So whether it’s, you know, at the, you know, eggs in the grocery store or insurance. And so, you know, people, because it is easy and you can easily shop and if the price is right, switch, I think, you know, customers are just trying to figure out how to balance their own budgets.

Meyer Shields, Analyst, KBW: Great. Thank you so much.

Tricia Griffith, CEO, Progressive Corporation: Thank you.

Moderator, Progressive Corporation: The next question is from the line of Andrew Anderson with Jefferies. You may proceed.

Tricia Griffith, CEO, Progressive Corporation5: Hey. Good morning. Just looking within the property segment, I think you’ve made a note that, like, 30% of that business is going direct now. Can you maybe just talk about the the customer appetite to go through that direct channel? I’m not sure if that was driven by a change in business mix, but it seems that that’s up about five points year over year.

Tricia Griffith, CEO, Progressive Corporation: You know, we we made that decision, a long time ago. So, you know, we purchased American Strategic Insurance, now Progressive Home, mainly to get access to that those bundled Robinsons in the independent agent channel. And that has worked really well. And we have, you know, our platinum agents and other agents that are able to sell those bundles, and that’s worked well. But we knew even at that time, way back when, that we wanted our customers to have a choice.

So if our appetite wasn’t open in a certain geography, could we get that could we get our customers to still, you know, have the auto with us at another person’s home. So we have had what we call our progressive progressive advantage agency through HomeQuote Explorer to have our product plus a product of unaffiliated partners. So we feel great about the growth there because, again, we get a commission on those policies and those and those customers retain longer. So we have about half of our Robinson’s are with Progressive and half are with our partner carriers, and we feel really good about that. And we we have great partners, and it and it’s a win for them and a win for us.

So we’ll continue that growth on both our paper and within our Progressive Advantage Agency. We continue to add new partners to make sure that we give our customers the ability to, you know, bundle the auto home.

Tricia Griffith, CEO, Progressive Corporation2: Just for clarity around that 30% direct, so that is of the property business, the progressive rights. As Tricia was mentioning, we have unaffiliated third party carriers that we work with through our direct channel, and that is a very significant business and growing rapidly as well. So when we talk about the policies in force of Robinson’s, we skew direct. That is where we started bundling with those third party carriers. And increasingly, we have offered the progressive product there as well.

But by far and away, the majority of what we’re selling direct is actually the third party business. So the 30% is what is underwritten by progressive go indirect.

Pat, Executive, Progressive Corporation: Yeah. If I could jump in just quickly

Tricia Griffith, CEO, Progressive Corporation6: on that

Pat, Executive, Progressive Corporation: with the industry trend. So your observation about, you know, direct to consumer home, and I think the question is, you know, is there growth in direct to consumer home? Our answer is absolutely. And to John’s point, that’s where we’re investing. So today, roughly 30% of auto insurance is sold direct to consumer, and less than 15% of property insurance is sold direct to consumer.

So that gap exists in part due to distribution channel, but also complexity of the product. Meaning homes don’t have VINs, they’re harder to quote, and an easy direct to consumer experience. And we’re investing to change that and to close that gap. And we think as consumers find an easy to use direct to consumer home option that affords the depth of coverage and breadth of carriers, we think we will capture an outsized portion of that growth going forward. So we’re investing there, and we do expect it to continue to drive growth.

Rob Cox, Analyst, Goldman Sachs: Thanks for that. And then as we kind

Tricia Griffith, CEO, Progressive Corporation5: of go into second half here and into ’26 and increasingly competitive auto market, Does it change kind of where a better, where a dollar of capital is better deployed, whether that be the agency channel or direct? Because I I suppose direct has been outgrowing agency for for a couple of years now.

Tricia Griffith, CEO, Progressive Corporation: Yeah. I think direct, you know, is influenced largely by our media spend. We we wanna grow across the board. And so, you know, that will the timing could be different based on the competitive nature out there. And so clearly, if you go into an agent’s office, you have a lot more choices, which we think is really great for consumers.

We’re going to continue to drive growth. We are the largest independent agent company out there. And so that’s been a big part of our growth in our history. And in the second half, we’ll push the envelope on both trying to grow in the agency channel and having incentives to grow and in some, event, have the incentive to grow in the bundled business where we wanna grow in our less volatile states. And direct will be heavily influenced by, not just price, but our ability to advertise.

Alex Scott, Analyst, Barclays: Thank thank you.

Tricia Griffith, CEO, Progressive Corporation: The

Moderator, Progressive Corporation: next question is from the line of Gregory Peters with Raymond James. You may proceed.

Tricia Griffith, CEO, Progressive Corporation5: Good morning. So one of

Pat, Executive, Progressive Corporation: the areas that’s

Tricia Griffith, CEO, Progressive Corporation5: been tremendously impactful for you guys the last couple of years is just the investment income growth, and really didn’t spend any time in the q and a section talking about it. So maybe you can give us some perspective on where you are with new money yields and book yields and how you’re thinking about asset allocation as we look forward considering your comments about the choppy market conditions.

Tricia Griffith, CEO, Progressive Corporation: Yeah. I’m gonna let, John Bauer, who runs our progressive capital management, answer that. But the short answer is we, you know, we definitely have, had new money come in that we can invest in greater yielding securities, and that’s been part of it. I talked a little bit about it in my letter, my opening comments. But, John, do you wanna give, Gregory a little bit more color on that?

Tricia Griffith, CEO, Progressive Corporation6: Sure. Yeah. Thanks so much for the question. You know, I would just start with it’s really important to understand with Progressive’s model what we’re aiming for, from a management and board perspective, which is to drive our return on equity over time. And so we think about that by starting with our, you know, operating business grow as fast as we can at a 96, with our operating leverage.

On top of that, we have a really efficient capital structure. So think about our financial leverage, which has, you know, generally, been in the 20 to 30% range, a little bit lower at the moment just due to our really strong comprehensive income growth. And then, we think about assuming we have the strong capital we need, we’re in a good, efficient capital structure position, You know, what type of investment risk do we wanna be taking to drive performance over the long term? And for us, over the last year or so, valuations were not particularly attractive. And therefore, you saw as we came into this year, had one of our more conservative allocations that we have with a significant amount of cash and treasuries, and as Tricia mentioned earlier, a very low amount of equities.

As we’ve moved through last year into this year, we did raise our interest rate risk up a little bit, which you could see, through our duration up from three years to three point four years. So as we sit now as a company, we feel like we’re in an incredibly strong capital position with a portfolio that if opportunities strike, we’ll have the ability to take advantage of those. But at the moment, we’re incredibly patient. But what’s been great with all of that is through the strong growth of the operating business as well as, the increase in yields in the market through risk free yields moving higher and credit spreads moving wider. That’s given us an opportunity to generate more and more investment income, and you’ve seen our book yield rise.

But I do wanna point out, different from many of our competitors, we don’t really target a book yield. We’re looking to drive a stronger total return as we can over time. And having that long long term focus really allows us to go through a period like 02/2024 where we can have a very conservative conservative allocation to risk and wait for opportunities to come our way. Does that answer your question?

Tricia Griffith, CEO, Progressive Corporation5: Yeah. It does. There’s obviously more detail in there, but, and not appropriate for this conference call. I wanna go back is just the the last question for me. Christian, your in your comments, you mentioned the dongle and, snapshot is prominently featured.

And I guess this is like a technology related issue. How many people are still using the dongle? It it I feel like a number of your competitors have switched from the dongle to, like, apps on the phone, the track movement, you know, data as well, if not better. But I I don’t I I I just I’m I’m, you know, I’m I’m I’m surprised that dongle’s still there. Maybe you can give us enough how how much of the dongle is being used, the snapshot product is being used.

I know you’re rolling out your new 8.9 model. So some additional color there would be helpful.

Tricia Griffith, CEO, Progressive Corporation: Yeah. The majority I’ll I’m not sure the exact percentage, Pat, might know. The majority of our new business is in at our mobile device, but we still do have some on a dongle, which is helpful, you know, for because it’s getting data directly from the car. So it really helps us to tune and refine our models a little bit differently than the mobile device. But most of the new stuff is coming through mobile.

Pat, do you know

Pat, Executive, Progressive Corporation: what Yeah. I don’t have the exact percentage or mix on it, but you’re right. When given the choice, consumers opt for the mobile app and that does give us additional information beyond the, the hardware device and lowers the cost and that we’re not shipping out devices and paying for a cell chip Yep. In all those monitored vehicles.

Tricia Griffith, CEO, Progressive Corporation5: Are you just seeing an uptake in in the use of the the the mobile device versus your historical experience, or is it just staying consistent the level staying consistent?

Pat, Executive, Progressive Corporation: Well, we are seeing a higher take rate, particularly in the direct channel where we optimize the experience and where consumers are interested in, you know, saving money and getting rewarded for safer driving. So we think EBI as our most powerful and predictive variable continues to be a differentiator for us in market and we continue to invest, leverage our scale and leverage the technology to drive adoption and help that price more accurately.

Tricia Griffith, CEO, Progressive Corporation5: Got it. Thanks for the answers.

Jimmy Bhullar, Analyst, JPMorgan: Thank you. Those in the

Pat, Executive, Progressive Corporation: queue appear to be those who already asked questions. So that concludes our event. Okay. I will hand the call back over to you for the closing scripts.

Moderator, Progressive Corporation: Thank you. That concludes the Progressive Corporation 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.

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