48 slides from Progressive Corporation (the)'s earnings presentation, Aug 2, 2023
Slide 1: Investor Relations Q2 2023: Reserving and Cohort Pricing
Investor 2023 Q2 Relations Reserving and cohort pricing
Slide 2: Information Relevant to this Presentation: Safe Harbor Statement
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: Regulation FD
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: Tricia Griffith, President & CEO
Tricia Griffith President & CEO INVESTOR RELATIONS Q2 4
Slide 5: Our People
INVESTOR RELATIONS Q2 Our People 5
Slide 6: We continue to take rate to stay ahead of trends
INVESTOR RELATIONS Q2 Average rate Aggregate Number We continue to change per rate change of states state take rate to stay 2021 Q1 0% - - ahead of trends Q2 2% 11 5% Q3 3% 20 6% Q4 3% 19 7% Total 2021 8% 2022 Q1 7% 36 9% Q2 2% 17 5% Q3 2% 20 5% Q4 2% 13 4% Total 2022 13% 2023 Q1 4% 31 6% Q2 7% 27 1
Slide 7: Catastrophe losses had a significant impact on first half 2023 results
INVESTOR RELATIONS Q2 Catastrophe losses had a significant impact on first half 2023 results First Half Catastrophe Comparison CATASTROPHE EVENTS COMBINED RATIO IMPACT - ALL LINES COMBINED RATIO IMPACT - PROPERTY 44 45.9 45.4pts pts 5 pts 34 29.5 31.1pts pts 3 pts 2022 2023 2022 2023 2022 2023 Sourc
Slide 8: Our reserves have historically reflected minimum development
RESERVING Our reserves have historically reflected minimum development Prior Year Reserve CR Pts—First Half CR Pts—Second Half CR Pts—Full Year Change Impact 2018 0.6 0.0 0.3 2019 1.2 0.1 0.6 2020 0.6 0.4 0.5 2021 0.9 (0.9) 0.0 2022 0.6 (0.9) (0.2) 2018-2022 Average 0.8 (0.3) 0.2 Source: Internal da
Slide 9: Our reserves have historically reflected minimum development
RESERVING Our reserves have historically reflected minimum development Prior Year Reserve CR Pts—First Half CR Pts—Second Half CR Pts—Full Year Change Impact 2018 0.6 0.0 0.3 2019 1.2 0.1 0.6 2020 0.6 0.4 0.5 2021 0.9 (0.9) 0.0 2022 0.6 (0.9) (0.2) 2018-2022 Average 0.8 (0.3) 0.2 2023 4.0 TBD TBD So
Slide 10: Nearly half of YTD personal lines unfavorable development is in Florida
INVESTOR RELATIONS Q2 Nearly half of YTD personal lines prior year unfavorable development is in Florida PRIOR YEAR RESERVE DEVELOPMENT (YTD thru 6/2023) $1,300 $1,100 FL Personal Auto YTD Adverse Development ($MM) Commercial Lines $224 Development $900 $700 Personal Lines $888 PERSONAL LINES $500 D
Slide 11: Current accident year actuarial adjustments driven by Florida Injury Coverages
INVESTOR RELATIONS Q2 Florida Injury Coverages Current accident year <1% actuarial adjustments are primarily driven by All other fixing vehicle coverages CURRENT ACCIDENT YEAR ACTUARIAL Total: ADJUSTMENTS (YTD thru 6/2023) $424M unfavorable Personal Lines Fixing Vehicle Coverages Countrywide Source:
Slide 12: Agenda: Reserving / Cohort Pricing
INVESTOR RELATIONS Q2 Agenda 01 / Reserving 02 / Cohort Pricing Gary Traicoff Jim Curtis Corporate Actuary Personal Lines Business Leader Controller 12
Slide 13: Reserving
INVESTOR RELATIONS Q2 Reserving 13
Slide 14: Progressive Loss and LAE reserves over time
RESERVING Progressive Loss and Loss Adjustment Expense (LAE) reserves over time 35,000 $35B 30,000 $30B 25,000 $25B We have about $33B 20,000 $20B 15,000 $15B 10,000 $10B in reserves before reinsurance 5,000 $5B $0B- 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Year to date Jun-23 (June 2023) N
Slide 15: Distribution of net reserves
RESERVING Distribution of net reserves Less than 1% 17% 17% 32% PERSONAL AUTO DISTRIBUTION NET RESERVES BY OF NET RESERVES 16% PRODUCT (INJURY/MEDICAL YEAR END 2022 YEAR END 2022 VS. FIXING VEHICLES) YEAR END 2022 67% 64% 4% 83% Loss Case Loss IBNR LAE Commerical Lines Property Fixing Vehicles Injur
Slide 16: 2023 reserve review schedule
RESERVING 2023 reserve review schedule NUMBER OF RESERVE REVIEWS COMPLETED* 33 25-30% LAE LAE 95 Commercial Lines Personal Lines Property 15 of reserves are Fixing FixingVehicles Vehicles 57 reviewed monthly 123 ~85% Injury/Medical Injury/Medical 292 of reserves are Property reviewed quarterly Prope
Slide 17: Our detail-oriented reserve reviews provide a holistic, in-depth view
RESERVING Our detail-oriented reserve reviews provide a holistic, in-depth view of the business MONTH 1* MONTH 2* MONTH 3* Review Type Product Coverage State Review Type Product Coverage State Review Type Product Coverage State 1 Loss Auto BI State A 1 Loss CL BI Multiple 1 Loss Auto COLL Multiple 2
Slide 18: How we estimate aggregate reserve levels
RESERVING How we estimate aggregate reserve levels ESTIMATING PAID LOSSES Ultimate Accident Paid at Total Indicated 1 2 3 4 Estimated Period Ending June 2023 Reserve Paid Losses Dec 2021 100 120 130 130 130 0 Jun 2022 110 135 145 145 0 Dec 2022 115 160 160 13 Jun 2023 120 120 45 57 Dec 2021 1.20 1.0
Slide 19: How we estimate aggregate reserve levels
RESERVING How we estimate aggregate reserve levels ESTIMATING PAID LOSSES Ultimate Accident Paid at Total Indicated 1 2 3 4 Estimated Period Ending June 2023 Reserve Paid Losses Dec 2021 100 120 130 130 130 0 Jun 2022 110 135 145 145 0 Dec 2022 115 160 160 13 Jun 2023 120 120 45 57 Dec 2021 1.20 1.0
Slide 20: How we estimate aggregate reserve levels
RESERVING How we estimate aggregate reserve levels ESTIMATING PAID LOSSES Ultimate Accident Paid at Total Indicated 1 2 3 4 Estimated Period Ending June 2023 Reserve Paid Losses Dec 2021 100 120 130 130 130 0 Jun 2022 110 135 145 145 0 Dec 2022 115 160 160 13 Jun 2023 120 120 45 57 Dec 2021 1.20 1.0
Slide 21: How we estimate aggregate reserve levels
RESERVING How we estimate aggregate reserve levels ESTIMATING PAID LOSSES Ultimate Accident Paid at Total Indicated 1 2 3 4 Estimated Period Ending June 2023 Reserve Paid Losses Dec 2021 100 120 130 130 130 0 Jun 2022 110 135 145 145 0 Dec 2022 115 160 160 13 Jun 2023 120 120 45 57 Dec 2021 1.20 1.0
Slide 22: How we estimate aggregate reserve levels
RESERVING How we estimate aggregate reserve levels ESTIMATING PAID LOSSES Ultimate Accident Paid at Total Indicated 1 2 3 4 Estimated Period Ending June 2023 Reserve Paid Losses Dec 2021 100 120 130 130 130 0 Jun 2022 110 135 145 145 0 Dec 2022 115 160 160 13 Jun 2023 120 120 45 57 Dec 2021 1.20 1.0
Slide 23: How we estimate base reserves
RESERVING How we estimate base reserves ESTIMATING PAID LOSSES Ultimate Accident Paid at Total Indicated 1 2 3 4 Estimated Period Ending June 2023 Reserve Paid Losses Dec 2021 100 120 130 130 130 0 Jun 2022 110 135 145 145 0 Dec 2022 115 160 160 13 Jun 2023 120 120 45 57 Dec 2021 1.20 1.08 1.00 Loss
Slide 24: How we estimate aggregate reserve levels
RESERVING How we estimate aggregate reserve levels ESTIMATING PAID LOSSES Ultimate Accident Paid at Total Indicated 1 2 3 4 Estimated Period Ending June 2023 Reserve Paid Losses Dec 2021 100 120 130 130 130 0 Jun 2022 110 135 145 145 0 Dec 2022 115 160 160 13 Jun 2023 120 120 45 57 Dec 2021 1.20 1.0
Slide 25: How we estimate aggregate reserve levels
RESERVING How we estimate aggregate reserve levels ESTIMATING PAID LOSSES Ultimate Accident Paid at Total Indicated 1 2 3 4 Estimated Period Ending June 2023 Reserve Paid Losses Dec 2021 100 120 130 130 130 130 0 Jun 2022 110 135 145 145 145 145 0 Dec 2022 115 160 173 173 173 160 13 Jun 2023 120 153
Slide 26: How we estimate aggregate reserve levels
RESERVING How we estimate aggregate reserve levels ESTIMATING PAID LOSSES Ultimate Accident Paid at Total Indicated 1 2 3 4 Estimated Period Ending June 2023 Reserve Paid Losses Dec 2021 100 120 130 130 130 130 0 Jun 2022 110 135 145 145 145 145 0 Dec 2022 115 160 173 173 173 160 13 Jun 2023 120 153
Slide 27: How we estimate aggregate reserve levels
RESERVING How we estimate aggregate reserve levels ESTIMATING PAID LOSSES Ultimate Accident Paid at Total Indicated 1 2 3 4 Estimated Period Ending June 2023 Reserve Paid Losses Dec 2021 100 120 130 130 130 130 0 Jun 2022 110 135 145 145 145 145 0 Dec 2022 115 160 173 173 173 160 13 Jun 2023 120 153
Slide 28: Reserve adjustments in the June 2023 earnings release
RESERVING Reserve adjustments in the June 2023 earnings release CURRENT MONTH Personal Lines Business Commercial Property Companywide Lines Business Business Total Agency Direct Total Actuarial Adjustments Reserve Decrease/(Increase) Prior Accident Years $(131) Current accident year (160) Calendar y
Slide 29: The pathway of a case reserve example
17% RESERVING DISTRIBUTION OF RESERVES 16% The pathway of a case reserve example 67% Loss Case Adjuster Case $30,000 Reserve Threshold $25,000 DATE OF LOSS Tabular Case Reserve December 15 $20,000 Reserve REPORTED Liability on December 19 Balance Sheet $15,000 IBNR Reserve of $1,000 $10,000 OPENED I
Slide 30: The pathway of a case reserve example
PRIOR ACCIDENT YEARS RESERVING DEVELOPMENT JAN Favorable/(Unfavorable) Actuarial adjustment — The pathway of a case reserve example All other development $251 Adjuster Case $30,000 Reserve Threshold $25,000 MONTHLY CHANGE Tabular Case IN INCURRED LOSSES Reserve $20,000 Reserve +$251 Liability on Bal
Slide 31: The pathway of a case reserve example
PRIOR ACCIDENT YEARS RESERVING DEVELOPMENT FEB Favorable/(Unfavorable) Actuarial adjustment $1,124 The pathway of a case reserve example All other development — Adjuster Case $30,000 Reserve Threshold $25,000 MONTHLY CHANGE Tabular Case IN INCURRED LOSSES Reserve $20,000 Reserve +$1,124 Liability on
Slide 32: The pathway of a case reserve example
PRIOR ACCIDENT YEARS RESERVING DEVELOPMENT MAR Favorable/(Unfavorable) Actuarial adjustment — The pathway of a case reserve example All other development $6,550 Adjuster Case $30,000 Reserve Threshold $25,000 MONTHLY CHANGE Tabular Case IN INCURRED LOSSES Reserve $20,000 Reserve +$6,550 Liability on
Slide 33: The pathway of a case reserve example
PRIOR ACCIDENT YEARS RESERVING DEVELOPMENT APR Favorable/(Unfavorable) Actuarial adjustment — The pathway of a case reserve example All other development $4,950 Adjuster Case $30,000 Reserve Threshold $25,000 MONTHLY CHANGE Tabular Case IN INCURRED LOSSES Reserve $20,000 Reserve +$4,950 Liability on
Slide 34: The pathway of a case reserve example
PRIOR ACCIDENT YEARS RESERVING DEVELOPMENT MAY Favorable/(Unfavorable) Actuarial adjustment — The pathway of a case reserve example All other development — Adjuster Case $30,000 Reserve Threshold $25,000 Tabular Case Reserve $20,000 Reserve No adjustments Liability on Balance Sheet $15,000 for infla
Slide 35: The pathway of a case reserve example
PRIOR ACCIDENT YEARS RESERVING DEVELOPMENT JUN Favorable/(Unfavorable) Actuarial adjustment — The pathway of a case reserve example All other development $(5,000) Adjuster Case $30,000 Reserve Threshold $25,000 Tabular Case Reserve $20,000 Reserve Claim is paid Liability on Balance Sheet $15,000 for
Slide 36: The pathway of a case reserve example
Loss IBNR PRIOR ACCIDENT YEARS RESERVING DEVELOPMENT JUL 17% Favorable/(Unfavorable) Actuarial adjustment — 16% The pathway of a case reserve example All other development $500 67% Adjuster Case $30,000 Reserve Threshold $25,000 MONTHLY CHANGE Tabular Case IN INCURRED LOSSES Reserve $20,000 Reserve
Slide 37: Our relationships with internal business partners provide checks and balances
RESERVING Our relationships with internal business partners provide good checks and balances REVIEW M ONTH L Y QU AR TER L Y CADENCE CLAIMS BOARD OF DIRECTORS Audit committee PRICING PRODUCT MANAGEMENT 37
Slide 38: Report on Loss Reserve Practices provides more details
RESERVING Report on Loss Reserve Practices provides more details on reserving practices Report on Loss Reserve Practices 38
Slide 39: Cohort Pricing Personal Auto
INVESTOR RELATIONS Q2 Cohort Pricing Personal Auto 39
Slide 40: Cohort Pricing in summary
COHORT PRICING Cohort Pricing in summary LIFETIME COSTS (OR COMBINED RATIO) New Business Renewal Term Terms Target Combined Ratio 40
Slide 41: Policies priced to a lifetime 96
COHORT PRICING Policies priced to a lifetime 96 STYLIZED EXAMPLE First Term Five Renewal Terms Lifetime Loss and LAE Exp 85 77 78 Acquisition Exp 35 5 10 Operational Exp 11 7 8 Combined Ratio 131 89 96 *Stylized example does not represent actual numbers. Actual numbers could differ materially from w
Slide 42: Indemnity differential
COHORT PRICING Indemnity differential RENEWAL/NEW LOSS RATIO RELATIVITY STYLIZED EXAMPLE First Term Five Renewal Terms Lifetime Loss and LAE Exp 85 77 78 Acquisition Exp 35 5 10 Operational Exp 11 7 8 Combined Ratio 131 89 96 Red Cars Blue Cars Green Cars STYLIZED EXAMPLE: First Four Renewal STYLIZE
Slide 43: Lifetime acquisition economics can vary based on distribution channel
COHORT PRICING Lifetime acquisition economics can vary based on distribution channel STYLIZED EXAMPLE: DIRECT STYLIZED EXAMPLE: AGENCY First Term Five Renewal Terms Lifetime First Term Five Renewal Terms Lifetime Loss and LAE Exp 85 77 78 Loss and LAE Exp 85 77 78 Acquisition Exp 60 0 10 Acquisition
Slide 44: Direct channel acquisition economics
COHORT PRICING Direct channel acquisition economics STYLIZED EXAMPLE: First Term Five Renewal Terms Lifetime DIRECT LR+LAE 85 77 78 Acquisition ER 60 0 10 Operational Exp 11 7 8 Combined Ratio 156 84 96 Policy #1 Policy #2 % of % of $s $s Prem Prem Policy Premium $750 $750 Policy Life Expectancy 6
Slide 45: Agency channel acquisition economics
COHORT PRICING Agency channel acquisition economics STYLIZED EXAMPLE: 5 Renewal First Term Lifetime AGENCY Terms LR+LAE 85 77 78 Acquisition ER 10 10 10 Operational Exp 11 7 8 Combined Ratio 106 94 96 Policy #1 Policy #2 % of % of $s $s Prem Prem Policy Premium $750 $1,000 Commission Expense $75.0
Slide 46: Operational Expenses
COHORT PRICING Operational Expenses STYLIZED EXPENSE STRUCTURE New Renewal Total Operational Expenses 5% 1% 2% Other 6% 6% 6% Total 11% 7% 8% *Stylized example does not represent actual numbers. Actual numbers could differ materially from what is displayed. 46
Slide 47: Grow as fast as possible at a 96 CR
COHORT PRICING Grow as fast as possible at a 96 CR High Growth Low Growth New Business Application Growth 30% 0% Policy In Force Growth 12% 7% EP Mix Target EP Mix Target New Business 20% 131% 15% 131% Renewal 80% 89% 85% 89% Combined Ratio 97% 95% Stylized example 47
Slide 48: Thank you
Thank you INVESTOR RELATIONS Q2