51 slides from Progressive Corporation (the)'s earnings presentation, Aug 5, 2025
Slide 1: Investor Relations Q2 2025: Pricing Theory and Practice
Investor 2025 Q2 Relations Pricing Theory and Practice 1
Slide 2: Information Relevant to this Presentation
Information Relevant to this Presentation Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Investors are cautioned that certain statements in this presentation and related comments by management during the earnings call not based upon historical fact are forward-looki
Slide 3: Information Relevant to this Presentation
Information Relevant to this Presentation Regulation FD Disclosure Outlets Progressive disseminates information to the public about Progressive, its products, services and other matters through various outlets in order to achieve broad, non-exclusionary distribution of information to the public. The
Slide 4: Pat Callahan, Personal Lines President
Pat Callahan Personal Lines President INVESTOR RELATIONS Q2 4
Slide 5: Our year-to-date results are strong
INVESTOR RELATIONS 2025 Q2 Our year-to-date results are strong +2.4M 86.1 +$5.4B in 1H 2025 NET WRITTEN PREMIUMS POLICIES IN FORCE COMBINED RATIO (NWP) (PIF) -3.0PTS +14.7% +6.7% YoY vs. 1H 2024 since Dec 2024 5 Source: Internal Data
Slide 6: Statutory combined ratio
INVESTOR RELATIONS 2025 Q2 Our vision: Become consumers’, agents’, and business owners’ #1 destination for insurance and other financial needs 2024 PERSONAL AUTO INDUSTRY RESULTS—TOP 10 CARRIERS PERSONAL AUTO COMBINED RATIO (CR) 40% 115 30% Progressive Statutory combined ratio 105 20% Industry x Pro
Slide 7: Progressive's four strategic pillars
INVESTOR RELATIONS 2025 Q2 People and Broad Leading Competitive culture needs brand prices Progressive’s four strategic pillars Progressive people and Meeting the broader Maintaining a leading Offering competitive culture are collectively needs of our customers brand recognized for prices driven by
Slide 8: Progressive's four strategic pillars
INVESTOR RELATIONS 2025 Q2 People and Broad Leading Competitive culture needs brand prices Progressive’s four strategic pillars Progressive people and Meeting the broader Maintaining a leading Offering competitive culture are collectively needs of our customers brand recognized for prices driven by
Slide 9: Advertising spend (millions)
INVESTOR RELATIONS 2025 Q2 FIRST HALF ALL-PRODUCT ADVERTISING SPEND $2,500 $2,250 $2,000 Advertising spend (millions) Marketing spend $1,750 through the first half is the highest in our $1,500 history $1,250 $1,000 $750 $500 2019 2020 2021 2022 2023 2024 2025 YTD THROUGH JUNE 9 Source: Internal Data
Slide 10: Commercial auto has outperformed the industry for over a quarter century
INVESTOR RELATIONS 2025 Q2 STATUTORY COMBINED RATIO 125% 120% 115% 110% Commercial auto has 105% outperformed the Net CR 100% industry for over a 95% quarter century 90% 85% 80% 75% 2016 2019 2013 2012 2011 2018 2014 2017 2010 2015 1998 1997 1996 1999 2004 2007 2000 2005 2006 2009 2003 2002 2001 200
Slide 11: Agenda
Agenda 01 / Pricing theory 02 / Pricing theory in practice Bradley Granger Jen Kubit BSc (Hons), MSc, FCAS, FCIA, MAAA FCAS, MAAA National Automobile Senior Director Pricing Leader Commercial Lines Pricing 11
Slide 12: Pricing Theory
INVESTOR RELATIONS 2025 Q2 Pricing Theory 12
Slide 13: What is our product?
PRICING THEORY What is our product? FROM PERSONAL AUTOMOBILE MODEL POLICY CONTRACT INSURING AGREEMENT In return for your payment of the premium, we agree to insure you subject to all the terms, conditions, and limitations of this policy. We will insure you for the coverages and the limits of liabili
Slide 14: What is our product?
PRICING THEORY What is our product? FROM PERSONAL AUTOMOBILE MODEL POLICY CONTRACT POLICY PERIOD AND TERRITORY This policy applies only to accidents and losses occurring during the policy period shown on the declarations page and that occur within a state, territory or possession of the United State
Slide 15: Car accidents are not cornflakes
PRICING THEORY Car accidents are not cornflakes PAST ACCIDENT PERIOD PROSPECTIVE PRICING PERIOD NB RB AVERAGE EFFECTIVE EFFECTIVE AVERAGE NEXT RATE REVISION LOSS DATE TODAY DATE DATE ACCIDENT DATE EFFECTIVE DATE HISTORICAL TREND PERIOD PROSPECTIVE TREND PERIOD
Slide 16: Pricing to expected cost
PRICING THEORY Pricing to expected cost COSTS = Losses + Loss Adjustment Expenses + General Expenses + Profit Alignment across stakeholders 16
Slide 17: Pricing to expected cost
PRICING THEORY COSTS = Losses + Loss Adjustment Expenses + General Expenses + Profit Pricing to expected cost CASUALTY ACTUARIAL SOCIETY STATEMENT Alignment across stakeholders OF PRINCIPLES ON RATEMAKING: A rate is reasonable and not excessive, inadequate, or unfairly discriminatory if it is an act
Slide 18: Pricing to expected cost
PRICING THEORY COSTS = Losses + Loss Adjustment Expenses + General Expenses + Profit CASUALTY ACTUARIAL SOCIETY STATEMENT OF PRINCIPLES ON RATEMAKING: Pricing to expected cost A rate is reasonable and not excessive, inadequate, or unfairly discriminatory if it is an actuarially sound estimate of the
Slide 19: Pricing to expected cost
PRICING THEORY COSTS = Losses + Loss Adjustment Expenses + General Expenses + Profit 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 fu
Slide 20: Pricing to expected cost
PRICING THEORY COSTS = Losses + Loss Adjustment Expenses + General Expenses + Profit 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 fu
Slide 21: Fundamental Pricing Question(s)
PRICING THEORY Fundamental Pricing Question(s) NO. 1 NO. 2 If we don't do anything to What do we need to do to current rates, what loss + loss current rates in order to adjustment expense ratio should hit our combined ratio we expect in the upcoming rate target in the upcoming revision for the polic
Slide 22: Actuaries develop predictions that minimize bias and variance
PRICING THEORY Accuracy vs. Precision Accuracy Accuracy Precision Precision Actuaries develop predictions that minimize Accuracy Precision bias and variance Measure of bias Measure of spread Accuracy Accuracy Precision Precision 22
Slide 23: Fundamental pricing equation
PRICING THEORY Fundamental pricing equation An accident year promise … but our reporting is primarily on a calendar year basis MONTHLY CALENDAR YEAR (CY) LOSS + LOSS ADJUSTMENT EXPENSE (LAE) RATIO 23 Source: Internal Data
Slide 24: Fundamental pricing equation
PRICING THEORY Fundamental pricing equation Calendar year incurred losses = Accident year incurred losses + prior accident year runoff 43,235 (CURRENT) CALENDAR YEAR INCURRED LOSSES = 44,123 2,016 2,904 PAID LOSSES + LOSS RESERVES AT END - LOSS RESERVES AT BEGINNING = = = (FOR CURRENT PAID LOSSES LO
Slide 25: Fundamental pricing equation
PRICING THEORY Fundamental pricing equation Calendar year incurred losses = Accident year incurred losses + prior accident year runoff 43,235 (CURRENT) CALENDAR YEAR INCURRED LOSSES = (FOR CURRENT ACCIDENT YEAR) (FOR ALL PRIOR ACCIDENT YEARS) PAID LOSS RESERVES LOSS RESERVES PAID LOSS RESERVES LOSS
Slide 26: Fundamental pricing equation
PRICING THEORY Fundamental pricing equation Calendar year incurred losses = Accident year incurred losses + prior accident year runoff 43,235 (CURRENT) CALENDAR YEAR INCURRED LOSSES = (FOR CURRENT ACCIDENT YEAR) (FOR ALL PRIOR ACCIDENT YEARS) PAID LOSS RESERVES LOSS RESERVES PAID LOSS RESERVES LOSS
Slide 27: Fundamental pricing equation
PRICING THEORY Fundamental pricing equation Calendar year incurred losses = Accident year incurred losses + prior accident year runoff 43,235 (CURRENT) CALENDAR YEAR INCURRED LOSSES = (FOR CURRENT ACCIDENT YEAR) (FOR ALL PRIOR ACCIDENT YEARS) PAID LOSS RESERVES LOSS RESERVES PAID LOSS RESERVES LOSS
Slide 28: Fundamental pricing equation
Financial incurred losses—accident period analysis D EV EL O P M EN T 1 2 3 4 5 6 7 Ultimate Semiannual PRICING THEORY Accident Periods Fundamental pricing equation Unbiased ultimate accident year (AY) losses = accident year (AY) incurred losses x loss development factor UNBIASED ULTIMATE AY LOSSES
Slide 29: Fundamental pricing equation
LAE AS A % OF LOSSES Select: 12% 20% PRICING THEORY 15% 10% Fundamental pricing equation 5% Loss adjustment expenses are correlated with losses 0% LAE ARE RELATED TO LOSSES (DCC AND A&O) Defense and cost containment (DCC): defense, litigation and medical cost containment expenses, whether internal c
Slide 30: Fundamental pricing equation
WIND FLOOD HAIL MONTHLY COMPREHENSIVE NOT WEATHER INCURRED FREQUENCY MONTHLY SEVERITY PRICING THEORY Fundamental pricing equation A portion of our costs are mean reverting Weather is a mean reverting event. 43,562 0.99 1.12 0.926 WEATHER AY LOSSES X LDF X LAE X 44,742 FACTOR = = 73.2% CY EP 61,136 6
Slide 31: Fundamental pricing equation
WIND FLOOD HAIL MONTHLY COMPREHENSIVE NOT WEATHER INCURRED FREQUENCY MONTHLY SEVERITY PRICING THEORY Fundamental pricing equation A portion of our costs are mean reverting In CL, our customers purchase higher limits of liability as required to do business or to protect their company’s assets. Large
Slide 32: Fundamental pricing equation
Frequency PRICING THEORY Fundamental pricing equation Severity Frequency and severity of losses change over time LOSSES ($) PER EXPOSURE = RR effective date LOSSES ($) PER EXPOSURE = FUTURE TREND LOSSES ($) ~f Policy term FREQUENCY x SEVERITY MONTHS X Revision length # EXPOSURES 43,562 0.99 1.12 0.9
Slide 33: Fundamental pricing equation
Frequency PRICING THEORY Fundamental pricing equation Severity Frequency and severity of losses change over time LOSSES ($) PER EXPOSURE = RR effective date LOSSES ($) PER EXPOSURE = FUTURE TREND LOSSES ($) ~f Policy term FREQUENCY x SEVERITY MONTHS X Revision length # EXPOSURES 43,562 0.99 1.12 0.9
Slide 34: Fundamental pricing equation
Recent rate changes PRICING THEORY JAN JUL Fundamental pricing equation Progressive changes rates frequently DECREASE DECREASE Fundamental pricing question is trying to determine the appropriateness of current rates Bring CY EP to current rate level 43,562 0.99 1.12 0.926 1.00 1.01 1.308 = 1.013 1.0
Slide 35: Fundamental pricing equation
PRICING THEORY AVERAGE EARNED PREMIUM CUMULATIVE RATE CHANGE AVERAGE EARNED Fundamental pricing equation PER EXPOSURE PREMIUM PER EXPOSURE AT CURRENT RATE LEVEL Controlling for the effect of product mix shifts on loss trend What if product mix changes raw frequency and severity (e.g., Robinsons)? We
Slide 36: Fundamental pricing equation
We need a target to answer fundamental PRICING THEORY pricing question #2 Expense ratios are prospective in nature Fundamental pricing equation What target loss + LAE ratio would meet our underwriting profit target? 43,562 0.99 1.12 0.926 1.00 1.01 1.308 = 1.013 1.07 1.308 = 1.093 WEATHER LARGE LOSS
Slide 37: Fundamental pricing equation
PRICING THEORY Fundamental pricing equation Some elements are correlated LARGE LOSS FREQUENCY SEVERITY AY LOSSES X LDF X LAE X WEATHER X X X LOAD TREND TREND EXPERIENCE LOSS = + LAE RATIO CY EP X CRLF X PREMIUM TREND … answers first fundamental pricing question. EXPERIENCE LOSS + LAE RATIO - 1 BUDGE
Slide 38: Fundamental pricing equation
Accuracy vs. Precision PRICING THEORY Accuracy Accuracy Fundamental pricing equation Precision Precision Balancing responsiveness with stability Accuracy Precision Measure of bias Measure of spread CREDIBILITY: The actuarial technique to reduce mean squared error of our estimated rate need. Accuracy
Slide 39: Fundamental pricing equation
CREDIBILITY: The actuarial technique to reduce mean squared error of our estimated rate need. PRICING THEORY We seek “truth” but never observe truth without random noise. Data= Truth= Fundamental pricing equation Truth + (Data - Truth) Data + Random noise Balancing responsiveness with stability Emph
Slide 40: Pricing Theory in Practice
INVESTOR RELATIONS 2025 Q2 Pricing Theory in Practice 40
Slide 41: Rate-making process at Progressive
PRICING THEORY IN PRACTICE Rate-making Product R&D Pricing Product management process at Industry-leading product segmentation Provide accurate view of overall rate adequacy State-level strategy and ownership of product and pricing decisions Progressive What is our rate need? • Segment level • Aggre
Slide 42: Rate-making process at Progressive
PRICING THEORY IN PRACTICE Rate-making process at Progressive Product R&D Pricing Product management Industry-leading product Provide accurate view of State-level strategy and ownership segmentation overall rate adequacy of product and pricing decisions OPERATIONAL GOAL: What is our rate need? Grow
Slide 43: Frequent updates allow pricing and product managers to react quickly
PRICING THEORY IN PRACTICE Frequent updates allow pricing and product managers to react quickly to changing market dynamics PERSONAL AUTO CADENCE GEOGRAPHIC SPLITS CHANNEL COVERAGES 3-4 51 2 12 - 15 times/year X all states plus X agency and direct X different by state Washington, D.C. 43 Source: Int
Slide 44: Frequent updates allow pricing and product managers to react quickly
PRICING THEORY IN PRACTICE Frequent updates allow pricing and product managers to react quickly to changing market dynamics COMMERCIAL AUTO 4 5 5 9 X X X CADENCE GEOGRAPHIC SPLITS BUSINESS MARKET COVERAGES TARGETS times/year 4 states individually plus a group of all remaining states 44 Source: Inter
Slide 45: Rate revisions deployed per year
2023 PRICING THEORY IN PRACTICE We have the capabilities to increase the number of deployed rate changes when we need to respond quickly to changing loss costs. Rate revisions deployed per year 140 109 111 105 88 79 49 45 45 39 2020 2021 2022 2023 2024 PL Auto CL Auto 45 Source: Internal Data
Slide 46: Responding to changes
PRICING THEORY IN PRACTICE Responding to changes 1 2 Changes to tariffs may impact the loss costs We still need to answer the two Fundamental in the prospective pricing period Pricing Questions, but we have no previous experience with the tariff changes ≠ 46
Slide 47: Auto Claims are not all the Same
PRICING THEORY IN PRACTICE Auto Claims are not all the Same Damaged Vehicles Injuries REPAIRABLE TOTAL LOSS VALUE OF LABOR THE VEHICLE MEDICAL GENERAL BILLS DAMAGES PARTS & SALVAGE MATERIALS RECOVERIES 47
Slide 48: Collaboration across functions at Progressive
PRICING THEORY IN PRACTICE Collaboration across functions at Progressive Sharing subject matter expertise improves the analyses ECONOMICS Interprets the federal government’s actions Shares external economic indices and insights CLAIMS Subject matter expertise on the categories of ECONOMICS CLAIMS cl
Slide 49: Our initial expected value of future loss payments will be wrong
PRICING THEORY IN PRACTICE Our initial expected value of future loss payments will be wrong ESTIMATE MONITOR The fundamental pricing equation requires us to estimate future costs. Pricing, Claims, and Economics work Tariffs together to monitor the actual change in loss payments from implemented chan
Slide 50: We've responded quickly before
PRICING THEORY IN PRACTICE We’ve responded quickly before PERSONAL AUTO COMMERCIAL AUTO 120% 120% 110% 110% Statutory combined ratio Statutory combined ratio 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2014 2015 2016 2017 2018 2019 2020 2021 2022
Slide 51: Thank you
Thank you INVESTOR RELATIONS 2025 Q2 51