Progressive Corp (PGR) — Q3 2021 Earnings Call Transcript

Thank you, and good morning. Although our Quarterly Investor Relations event typically includes 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 CEO and a question-and-answer session with members of our leadership team. Questions can only be asked by telephone dial-in participants. Dialing instructions may be found at investors.progressive.com/events. 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 on our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented by our 10-Q reports for the first, second, and third quarters of 2021, 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. Before going to our first question from the conference call line, our CEO Tricia Griffith will make some introductory comments. Tricia.

Thanks, Doug. Good morning and welcome to Progressive's Third Quarter conference call. We appreciate you joining us. During our second quarter call, we discussed the challenges we were facing as our customers returned to normal driving habits, as the country opened from the pandemic and as supply constraints contributed to an unprecedented increase in vehicle valuation. In the third quarter, those challenges continued with the added effect of the most expensive storm in Progressive's history, Hurricane Ida. The result of these challenges is our first quarter with an above 100 combined ratio in 20 years. And through Progressive's fashion, we're facing these challenges head-on to do what's needed to meet our publicly stated goal of a 96 combined ratio on an annual basis. As part of our efforts to ensure we meet our 96 target, we're taking rate increases across our product lines. While objections and regulatory scrutiny are part of the revision process, the pressures on insurance pricing are real. The entire industry has been buffeted by the headwinds of higher severity, post-pandemic increased frequency, and weather-related catastrophes. Regulators take their mandate of adequate rates seriously. As such, we've been able to work with regulators to increase rates to meet the rising costs. Year-to-date through the third quarter, we've placed in-market increases in aggregate of 5 points in Personal Auto, 3 points in Commercial Lines, and 8 points in Property. In Personal Auto during the third quarter, rate increases were effective in 20 states, which had an average increase of about 6%. So we're taking the changes in the environment seriously and reacting decisively. We have more revisions in process across our suite of products as we work to ensure the rest of 2021 and 2022 meet our calendar year objective. Underwriting is another lever that we're using to address profitability. We continue to use this lever in Commercial and Personal Lines to ensure we write exposures accurately and that they meet our underwriting targets. In Personal Auto, our 8.7 model, which is now in states representing about 40% of our premium, further advances the science of underwriting. And in Homeowners, where profitability has been under pressure for several quarters, we are taking additional steps to hasten our progress to meet our profit objective. In the states with high CAT exposure, we've changed our underwriting rules to reduce our exposure, including targeted non-renewals. While non-renewals are not our preferred path, there are times where we need to utilize nontraditional methods to meet our targets. While we take steps on the profitability side of the business, we continue to see strong growth. Personal Lines written premiums grew 7%, while Commercial Lines and Homeowners both saw double-digit year-over-year written premium growth in the third quarter. Personal Lines and Homeowners recorded PIF growth of 8% and 13% in the quarter respectively. Commercial auto continues to capitalize on the macroeconomic environment with its third straight quarter of double-digit PIF growth, largely due to growth in the for-hire trucking segment. Though our underwriting actions often have the unfortunate side effect of reducing growth, our product managers continue to scour the competitive landscape to find profitable growth opportunities. Finally, I'd like to take this opportunity to once again, thank Mike Seeger, our Claims President, and Jeff Cherny, our Chief Marketing Officer for their contributions to Progressive, and to offer my congratulations on their planned retirement. While I'm confident that their replacements are up to the task, Mike and Jeff's presence will be greatly missed. Thank you, and I'm ready to take the first question.

Hi. Good morning. As someone who has a keen interest in insurance, I’ve really appreciated the in-depth discussions you all have. My first question is about Personal Auto, specifically regarding the frequency aspect. Could you share some insights on the rate increases and actions Progressive is taking? Are these actions based on the possibility that accident frequencies might keep rising, or do you think they might be stabilizing? I know they are approaching pre-pandemic levels, which seems to be one of the larger uncertainties in the field.

Thanks, Mike. Yes, that is a big uncertainty and we watch it closely, especially because we have so much data from our usage-based insurance on Snapshot. There are a couple of interesting trends that I'd like to share. We're going to watch this closely again. There have been so many dynamic shifts since the pandemic that we really do have to watch, and then react swiftly to the data. If you look at vehicle miles traveled, they haven't really changed since the last call. They are still down about 6% to 8% from our 2017 and 2019 baseline. The bigger news that we've noted is frequency has picked up, and we've noticed that in each quarter, specifically in PD and collision. Let me give you a little bit of color on the things we watch for. In quarter 1, collision frequency was down about 10 points more than vehicle miles traveled. In quarter 2, that narrowed to 7 points, and in quarter 3, that narrowed further to 3 points. So we look at day parts. During quarter 3, that narrowing was across the whole day. We saw that frequency narrow more during the morning rush hour, so think of 6 AM to 9 AM. While we see some evidence that there's congestion as well, it's a little surprising to us because people haven't fully returned to the office. We read the headlines in most companies because the Delta variant have pushed off a full return to the office till January. So could it be that kids are going back to school so we're taking our children to school? There are other variables that we're watching really closely. I think what will be interesting is to see what happens in first quarter 2022 when many companies have stated they're going to return to work. Of course, what would that mean? It certainly won't mean a full return for every single person, since I think there's going to be a lot of flexibility built in based on the pandemic. We think that will be an interesting data point. We have also observed frequency up sharply in the overnight hours. Think of 1 to 6 AM, both weekends and weekdays, not correlated with the March reopening and that frequency is above pre-COVID levels by about 10% to 20%. Again, a smaller amount of people driving. So we're watching BMTs closely by day-part, each state, etc., and it will be very interesting to see how frequency continues to close the gap on vehicle miles traveled or not. But we're going to watch that closely. We were able to get a lot of interesting information from our telematics data and we're going to continue to watch that. Does that help Mike?

Thank you for that. For my final follow-up question, if we examine Progressive's overall paid to incurred loss ratios, I realize this is a Company-wide metric. Excluding catastrophes, these ratios appear to be decreasing, and for many of the commercial cash measures, we're also seeing reduced paid loss levels. I'm pleased to see that the claims being processed are moving more slowly. Can you provide any insights on whether there is a trend indicating some caution in Progressive's selections?

We aim to maintain adequate reserving with minimal variation over any timeframe, and this approach has been consistent for many years. However, it's challenging to rely on historical metrics given the current data landscape. Analyzing case IBNR or paid-to-incurred ratios, whether comparing to other companies or our own past data, proves difficult without the underlying data. We've observed fluctuations in our closure rate, followed by a rebound in frequency and an increase in severity, which affects those ratios. Regarding Progressive, we feel confident in our current position, again with adequacy and minimal variation. We are about half a point unfavorable for the year, primarily due to Florida. Therefore, we don't believe we are being overly conservative, nor have we altered our model.

Thank you.

Thanks, Mike.

Thank you. Good morning. Tricia, I appreciated your comments regarding the two types of risks associated with the regulatory environment. The first concern is regarding mandatory rebates or regulatory mandates related to profitability from 2020. Are you suggesting that there might be more refunds expected, and if so, how significant is that risk?

I was referring more to the asymmetry and the fact that we had this unprecedented event that hopefully none of us will have to live through in our lifetime, where we had excess margins. As an industry, and certainly Progressive, we swiftly gave that back to our customers in our 20% decrease over 2 months. Then, of course, when we decreased rates by another 3%, which equated to another $800 million on top of the $1 billion we gave back. Now we're in a much different place. Severity trends are up 10 points, and we need rate. We want to make sure, in the end, we believe that regulators are rational. They want to make sure that we're open and available and have competitive rates because that's good for all of our consumers. So what I was referring to was when things change swiftly, it has to go both sides. In many of the states that we work with, and again, the majority of the regulators we're working with are really rational and understand that they want to see the data, which makes sense. They want to ensure the rates are adequate for their constituents. But we definitely need rate that is real.

Okay. Stepping feels real. The second risk was related to the expected rate increases. Are there concerns from your discussions with regulators that what you're observing in terms of severity might not be permanent, and therefore, it wouldn't be prudent to implement rate increases in that scenario?

Well, it either is because we're state regulated, and there are different ways with which rates get approved. Different states look at it differently. When you look at a state like California, their Department of Insurance requires us to look backwards to fill up the templates. While California was a little bit behind in frequency, it has picked up and is actually outpacing countrywide at this point. When you fill up those templates, those rate indications are going to be distorted based on the data from last year. What we believe will happen is not reflective of the claims activity we're seeing. As frequency and severity trends earn in, we'll be able to input that in the templates and show that we are rate adequate and then we'll be able to increase rates in California. For now, we're going to reduce our marketing spending in California to slow our growth and continue to be able to update that department. We work with every department, and every department is a little bit different. You can have file and use. You can file prior approval. We work with each department to make sure we give them the data they need to feel good about putting our rates in the marketplace.

Okay. Good colors. Thank you very much. I appreciate it.

Thanks, Mike.

Hi. Good morning. So, first I had a question just along the line that have been asked on the Auto business. Where are you and you mentioned California already, but where are you overall through the country in terms of your prices, catching up to what's happening with frequency and severity, and your margin sort of getting to what your long-term goals have been. Is this something that you think happens in the next three to six months or could it be even longer as you go through the whole process with states like California?

I think it might take a bit longer than that depending on the states. We anticipate needing a bit more rate and are closely monitoring the trends. For about the last ten years, we have often discussed the strategy of taking smaller steps. We are observing the trends and will respond quickly. It's important to note that many factors influence a premium, including average written premium, which can vary by state. For example, a state like Florida might have a high average written premium, but if the rates aren’t right and there's no growth there, it could impact the overall picture. There are numerous factors to consider, including our customers. If we see a decline in certain segments, such as Sams compared to Robinsons, that will also influence the average written premium since they tend to have higher values. We are making progress, believe we will need more adjustments, and will keep an eye on how trends develop. I mentioned earlier how we are observing changes with our usage-based data and will respond quickly to those insights.

Okay. Regarding the Homeowners business, margins have been weak for a long time, and although I understand you are trying to develop the business, do you believe it can be profitable on its own under current underwriting margins, or do you see it as a way to support the auto business or provide other benefits, even with a combined ratio over 100%?

So we're not happy with writing it at a 100% combined ratio. We want to aggregate 96% across all our products. None of them want to be over 100, I assure you. We don't want to subsidize. We do think it's great for our customers at Robinsons that want our brand, our home, and auto bundles, so we'll continue to do that. We know what we've done has started to work but has not fully worked. If you look at what has happened this year, a lot of it was based on catastrophes. Compare it to the industry in more of the non-volatile states, we're actually very competitive. We knew we need to do something different. So last year, we took up rates nearly 12 points this year, 8 points, and then we've talked about cost sharing with our customers. More importantly, a couple of bigger things we're doing to get us closer to our profitability is we're going to shift our portfolio of property over the next year or two. We have legacy states where ASI was really strong, and think of Texas, and Florida, Louisiana up through some of the hail alley. We've had a lot of catastrophes. We have more exposure there because more of our book of business is there. Think of the rest of the country, the non-volatile states, is a little bit over 50% of our portfolio. We're going to shift that over time to 60% to 70% of our portfolio, so shifting away from the volatile catastrophe coastal states. We are going to appoint more agents in those non-volatile states, reduce our agent footprint in the volatile states and make that movement to have a more balanced portfolio. I talked in my opening remarks about some targeted non-renewals. We will start to commence that specifically in Florida. We're going to work really around that focus on making sure we have a more balanced portfolio. We still are very happy that we purchased ASI, now Progressive home. We believe that's in our future, but our goal now is to get to profitability. We believe in the things that we're doing besides the rate increases. I should mention continued segmentation. That is a big piece of it. We're going to continue to enhance our segmentation like we have in our auto product. We believe those levers will certainly help us get to where we want to go.

Okay. Thank you.

Thanks.

Hi, good morning. I had a question just around PIF and conversion rates. Wondering if you could just talk a little bit about what's going on in the direct segment. I saw the conversion rates were down only 2% in the quarter, which is a little bit less than I would have expected given some of the rate actions that you're taking. Maybe could you just talk about why this is down? Did that surprise you that it was down that much and not more? Is that more of a reflection of some of the price changes that you're putting through just haven't hit yet? Or does that really just speak to the competitive environment and peers increasing rates like you are?

It's a great question, David. There are a bunch of different things, including some timing of what was happening in quarter 3 of 2020. When I think about conversion, I would go back to our decline in new apps. On the agency side, they are down about 14%. We think that prospect denominator was elevated in 2020. In 2020, there was virtually no shopping in quarter two. That moved to quarter three, and then this year in addition, we pulled back on advertising. We think conversion was stable, so we do think we still have a fairly competitive product on the direct side. On the agency side, ups and downs at about 20% prospects were down slightly, but conversion was down a lot. That was really due to material tightening of underwriting restrictions we put into place, rate increases, and there are like 3 big states where we have material drops in conversion. The timing-wise may be overstated, based on the fact that there is a lot of stimulus going on at this time last year. We also had high conversion in Michigan based on some coverage reform. But you talked specifically about the direct side. I think a lot of that reduction has to do with advertising from the new apps. So we feel good about our conversion; that could change as more rates come in, and as we reduce more advertising. Do you guys want to add anything?

I would add briefly that the other thing that could influence countrywide conversion is the mix of quotes we're getting across geographies. With direct advertising, you have the ability to generate quotes at a very local level. If we have concerns on profitability in an area where we previously had higher conversion, we will shut off or reduce the ad spend in that area, and that would then show the decrease in conversion just by that mix change. When we're adjusting ads spend at the local level, you can see changes in conversion in total simply by that mix. So rate is one thing for sure, but interestingly on the direct side, you can also influence conversion based on your marketing spend.

I would add just one further thing. When our prospects fall because we spend less, then your conversion naturally goes up simply because you've got more engaged consumers when you're spending less; because they're motivated to come shop. So that will have a counteracting effect on conversion that will offset some of what rate increases would be doing.

Got it. That makes sense. So it sounds like we need to consider both quote volume and the conversion rate when evaluating this. That's helpful. For my follow-up, I have a question about the 5 points of rate that you've implemented this year. I understand that some of it is linked to new business and some to renewals. Looking at the policyholder life expectancies, they seem to be more resilient than I anticipated. Could you elaborate on how much of the 5 points this year has impacted existing policyholders? Are they experiencing significant effects from that 5 points yet, or is it still forthcoming?

I would say, Pat, you could add anything. I think that it's still yet to come because if we had a rate change starting today, and I renewed yesterday, I would have the old rate. We have some inflationary measures that factor into the monthly rating, but I won't receive that new rate until the sixth month, and then it will accrue over that period. It really depends on timing and each state. Remember, it's 5% in total, so the impact varies by state based on our needs. That rate will continue to increase over time. This is one of the reasons why we maintain the majority of our private passenger auto policies on a six-month cycle, allowing us to respond more quickly when we need to adjust rates. Thank you, David.

Got it. Thank you.

Good morning. I know you've commented in the past on this, but given the changing moving parts within new business versus renewal, maybe you could just revisit your comments around the loss ratio or combined ratio performance between the different cohorts. If new business is a little softer, theoretically you should get a corresponding lift if there is an impact in new business penalties.

I understand your question. New business has historically faced a challenge when recorded, and the situation varies between agency and direct models. This is why we emphasize the importance of renewal business, as it helps us gain a better understanding of our customers. On the direct side, we allocate our marketing expenses to the initial six-month policy. When we evaluate this, we assess new and renewal PIPs differently. Our renewal PIPs are still increasing, though this could change. Regarding PLE, we see a 4% increase across both channels on a trailing basis and hope that trend continues, although it may vary based on the rates we need to implement. For new paths, we've seen a slight decline, about 10%, but that is heavily influenced by various commercial tiers, with some tiers showing a more significant drop, which also impacts the figures. Many factors contribute to the performance of both new and renewal business.

And while it does answer the question, I always welcome more information if you want to provide it.

The one thing I would add is that you talked about the new business penalty. Of course, as Tricia mentioned, on direct business, there's a huge expense load difference. As we're writing fewer new customers, that flows through advertising spend as well. There's certainly a benefit on spending less and getting fewer new customers in the direct side, in terms of costs. In terms of the loss ratio, we see a bigger differential between new and renewal on the Sams' end of the spectrum than on the Robinsons' end of the spectrum. To the extent we are reducing Sams coming through the door relative to Robinsons, it would have a bigger benefit on the loss ratio side. There is some of that coming through, but you also have to recognize our book is heavily weighted to renewal customers, so it can have some benefit. In aggregate, we need the benefit of the rate flowing through the book, the new and renewal customers. It's going to flow through renewals sooner, and there's far less elasticity in the renewal book. So you will see average premiums rising sooner and more likely on the renewal side. On the new side, customers are shopping, and it's a highly elastic market. We'll see some of that rate. We'll see a little slower or we'll probably see a little less of it simply because there are other options in the marketplace. We move faster than others when it comes to taking rate when we need it. So we think, historically, that competitors are seeing the same trends we are. They will need the same price changes. They might take longer. So we might see a bit of imbalance on the new business front for a while. But again, our experience competitors see the same thing; they catch up. By the time they do, we're in a very good position and very confident in growing more and turning advertising back up and the other growth levers we have.

Yeah, I think that's great. As long as, Greg, you want more information? If you go back to the last time we needed rate like this, it would be around 2012, and we did the same thing. We have a great pricing organization; they're able to get the rates on the street relatively quickly before our competition. When the market turns hard, we believe we're more competitive and that's really what we're positioning ourselves for right now.

I appreciate the information. My second question is more focused on details regarding Florida PIP. You've mentioned we've heard from others about this issue. Could you share your perspective on what’s happening with it? From my viewpoint, dealing with specific issues often requires multiple attempts to resolve them. I wonder if we are only in the early stages with Florida PIP and if we should anticipate a few more negative impacts from this issue before it gets resolved. I would like to hear some background on the situation and your thoughts on what lies ahead.

Yeah, I mean Florida PIP is such an anomaly in terms of what can happen with the plaintiffs’ bar there. If something can go through the system, it can seem really good, and then it's challenged. If it's lost in one part of the state and then appealed and lost again in one part of the state, different things are always happening. Regarding what we have currently, we feel very good about our reserving for PIP and where we're going. That can change anytime because plaintiff attorneys in Florida, specifically, can challenge anything, and you must ensure you are thinking about the future. Do you have to reopen? We try to do anything like this happens where a case is lost by a competitor, usually when a case is lost by us or any competitor, it affects the majority of our competitors. We then determine if it's worth fighting, how long? What does that mean exactly? We're trying to wrap these up. We're trying to do some bigger global settlements of maybe a law firm that has many lawsuits with its litigation to get it wrapped up quickly and at a lower cost. I can't tell you that something won't be challenged next year. It will tell you that we've been talking about it more internally because Florida PIP comes with these ebbs and flows of what happens depending on the performance of PIP. We're starting to think more about Florida PIP almost like you would a cat load in some of those other states. This does come more often so I can tell you we're looking at it more like that, which is different than we've done in the past.

Got it. Thanks for the answer.

Thank you.

Good morning. Thanks for your help. I have a couple of questions on the home business in particular. First one, how impactful is the home non-renewal on growth of the new product? I think it's been a long time since you've actually done non-renewals, but the bundled product, the auto piece is really important to you guys. Is that something we should see in the numbers, or is it pretty small?

We have a number of expected non-renewals and are examining whether changes in customers' homes, such as roof updates, will allow us to retain them. We're also exploring if unaffiliated partners can assist in retaining these customers. This process will take some time as we need to coordinate with the Florida Department to ensure adequate notice is provided. The first non-renewals won't occur until May of next year, and we anticipate these will be significant given that this group of customers is quite unprofitable. It's essential for us to address this while also shifting our focus to more stable states. There's considerable work ahead before we arrive at precise figures; we have an initial estimate, but we will engage with our customers. Additionally, we will offer customers an option to remain with Progressive if they choose to participate in a new roof payment schedule that shares replacement costs. This situation is complex; we rarely do non-renewals as we usually prefer to adjust rates. However, these customers are too unprofitable, and we haven't been able to secure enough rate increases to make them viable. While this is not a course of action we take lightly, our review of the portfolio and future strategy indicates that it is a crucial step in the right direction.

While we don't know exactly how many customers will have to non-renew, as Tricia said, we're trying to work with customers for options to stay with us. You should think of a very low single-digit percentage of our policies enforced countrywide. This is not a huge shift, but it's a shift, geographically. We want to reduce our footprint in the volatile space, we want to grow in the less volatile space. In aggregate, our objective is still to grow. It's simply to grow in different areas.

I want to follow up on your comment about the move into the non-coastal states. I would have thought that you would already have many agents signed up, given your broad national Carrier Agency Distribution. Was there something in the process that prevented you from expanding earlier from an agent perspective? I would have assumed that you would have already signed up most of the agents you need outside of the coastal areas by today.

It's our original and final purchase. ASI was more of a scarcity model. We had platinum agents that were appointed to sell auto and home. We have a lot of opportunity to appoint more platinum agents in the non-volatile states. That’s what we're working on right now.

Thank you, good morning. I want to discuss ASI. It has clearly been a successful deal in terms of growth, but the value proposition for agents has seemingly been that you would provide quality insurance in states like Florida and Texas. I'm trying to understand how we will continue to grow the Robinsons, considering the geographic shift, and how our agents in Florida and Texas are responding to this change.

Right now on our non-volatile states, we have about 54%. We have been expanding over the last several years to have less density in those states. We are purposely doing this to ensure that we can take care of the majority of those consumers. There are some, like we said with the non-renewals, that we can. I think agents get that because they also see the data. For us to protect those states, we need to make sure we only have so much density in those areas. So, Florida and Texas are a big part, but still the non-volatile states are the majority at 54%. We're going to get those to 60% to 70% over the next couple of years.

And I guess another follow-up, sorry go ahead.

I was going to say something.

You mentioned that most of the business is concentrated in those two states, but that’s somewhat of an exaggeration. Since acquiring ARX/ASI, we have been working to diversify our portfolio. Unfortunately, we haven’t fully focused on less volatile states, leading to growth in some more volatile areas like Hail Alley. However, we are realizing the need to diversify more rapidly. I also wonder if the concern over elevated costs might be a bit overstated. This quarter, you've managed reinsurance well, and accounts for losses are not significant compared to other insurers. I’m curious why this is perceived as such a major issue, especially since you have reinsurance in place. I always understood that selling home insurance wasn’t necessarily a loss leader, but rather a way to boost sales in the auto sector, and that has been effective. So, why shift focus or move away from that just because of a slight increase in costs?

Our purpose of having a home, specifically in the agency channel, was to grow more Robinsons, but it was never going to be a loss leader. It was to make money on the home and make money on the auto bundle, have great claims service. That hasn't changed. I might say we're overreacting if we did this a year ago or 2 years ago, but we continue to see quarter-over-quarter where we're struggling to make money, and cats are a big part of it. Reinsurance is great, but it doesn't come without a pretty heavy cost. We want to ensure we use our shareholders' capital the right way. We believe this is the best way to do it.

We're not only reacting to the results. We've been digging harder into the modeling and looking at our exposure for what they could look like even after reinsurance. While we are heavily reinsured and we're relatively conservative relative to our total insured value, especially those cat states, there is still potential scenarios. We're trying to manage that tail risk. We haven't seen it. But we want to be proactive in managing that so that we don't see that down the road.

One thing that I would add on top, John, and I think you mentioned it, but it's not about shrinking our book in the volatile states. It's about accelerating growth in the less volatile states while we invest in product segmentation and, as Tricia mentioned, product features that share risks with our customers. Don't think of it as abandoning the property business in any way, shape, or form. It's a temporary acceleration of growth in less volatile states until we get to a more comfortable balance between volatile and less volatile.

Got it. And then just one quick technical one. Of the disclosed auto rate increases that you give us, how much of that is coming from the monthly rating factors?

A small part of that.

Good morning. Could you help me understand how it works in practice, the process you go through when requesting a rate increase and filing in a new state? It doesn't seem to be that simple, as filing new. We've been seeing back-and-forth objections and iterations. So maybe just to walk through an example in Texas, it's our understanding that the public hearing on your previous set of filing has been postponed due to ongoing settlement discussions. In the meantime, it looks like you've submitted two new rate filings for your independent agent and direct business. How long should a filing be in a state of limbo way past the requested effective dates?

Great question. We use Texas as a file-and-use state. We put the files out there. We were able to place them on the street. They don't need to approve the filings. However, they can disapprove. They have not disapproved our filings and rather filed objections. Objections don't mean rejections of our rates. That means they want more information. We've been working with the TDI, providing additional data to support our rate level. Since April, we've done 3-rate increases, one a couple of weeks ago, totaling around 13%. We don't have our rate hearing. In fact, they issued a notice for our July filing, but we're sending because we're trying to work back-and-forth. Again, we have a good long-term relationship with the TDI, and we believe they're rational and they want the data to make sure they do the right thing. If you look at the filings, we're in good company with many of our competitors who are also asking for more information. We want to be competitive and open and available for the people of Texas. Every state has its own unique guidelines, but hopefully, that gives you a little bit of light on Texas. Objection is just the back-and-forth of data.

Is there an expiration of those back-and-forth discussions?

No. Typically, it will reset a clock. Some states have a dimmer provision where, if there's no objection filed, it will be deemed approved after a certain date. We want to preserve great relationships with our regulators, so if there are open questions, we want to be transparent and provide them the data they need to do their jobs.

Okay. It looks like you're not the only one, and insurers are making filing rate increases, but it's not uniform. The largest auto rider is lagging on those efforts. How can that uneven intensity impact the progress of rate increase discussions with your regulators? And how do you think about increased shopping behavior?

We fully expect, as rates go up, that will create shopping, and we believe we capture a larger share of the shoppers than we do of that overall market. That's generally good for us when there is a hardening market that creates shopping. We benefit because we're broadly distributed and try to be available where, when, and how consumers want to shop for and buy insurance.

We're not going to change our model because this is the model we've maintained for many years. The money they make is more on the investment side. We're still going to, along with many of our competitors, want to make a profit on the underwriting side. We want to grow as fast as we can, but we're not going to knowingly put a bunch of unprofitable business on our book. That's why we're pulling back on advertising during the rate increases. We believe this positions us well for what we believe might happen as the market turns, and we'll be positioned when shopping happens. We're going to get a lot of that business. When that happens, we don't know, but that's why we are positioning ourselves now based on the data we are seeing.

Okay. Thank you.

Thanks, Tracy.

Yeah. Thank you for taking my question. Can we talk a little about in the transition when the business is underpriced and your competitors are raising price? Customers still are likely to come to you maybe at a margin that's not entirely attractive. We can have a business that's going to come in the doors the next 3 to 6 to 9 months. Even without advertising, I think people will come to Progressive because of your funnel. How sticky is that business at the current price? How do you think about the margins on that business and what is the long-term value of the customers who are coming in during this transition?

We really do try to have tighter underwriting restrictions to not have as much of that business come on the books. Clearly, they are going to come on the books because timing is everything, so we will get some of that business. Some of it will be underpriced, and I'll get it in renewal. Some of it, if it's overpriced and they shop, they will leave, and that will be okay especially with our industry-leading segmentation, especially if we have data from our snapshot. It's hard to stay in an environment like this because there are so many variables happening. Clearly, we will get some business on the books based on our brand, and people want to come. The pricing doesn’t hit all at once in the industry.

Over the lifetime of these customers, we do expect to hit our targets, and we do price to a lifetime model. Additionally, there's value in selling other products to these customers and establishing a relationship with them. Even if they may not be priced completely to target, it's not a bad thing for the long-term health and growth of the business.

And without emphasizing it too much, the Sams are going to be looking for the best prices. It feels like you guys are about 6 months ahead of the industry in adjusting your pricing. Can the Sams find a provider with a smaller funnel than Progressive who hasn't raised their prices yet? Or are you still going to pick up a fairly good share of Sams regardless, even while you're raising prices because your customer acquisition capabilities are so strong?

Yeah, I think Sams will be able to find a price out there. In fact, I talked a little bit about new business tests being down and they're down mostly in Sams. They're inconsistently insured and frequently shop because it is really about price. They will find it, and when the competitors raise their rates, they’ll come back to us. At that point, we'll be competitively priced to maintain a lifetime 96 on those Sams. Thanks.

Thanks. Tricia, I can't disagree with your viewpoint of the regulators as being rational, but sometimes it takes a lot longer than we would hope for that to manifest itself. So I was hoping you could clarify the difference between the indicated rate increases that we would infer from frequency and severity trends and the 5% that you've gotten so far. How much of that is regulatory friction and how much of that is Progressive slowing the increases to maintain retention?

We're not trying to slow the increases for retention. If we slow increases, it's because, like I talked about in California, the mechanism is more backward-looking than what we're seeing in the claims. We will try to get the amount of rate we think we need at that time against small bites of the apple. As we've seen more data, we either won't raise rates, or like last year reduce them or raise them a little bit more. The regulatory timing is really an individual conversation we're having across the country. I gave a couple of examples in Texas and California. California is going to take a little bit longer, so we are going to try to reduce our growth there. It's where we priced our indications and we look at that prospectively.

The one thing I would add is there's just acceleration in our rate takes. So the 5% of the year-to-date number, as Tricia mentioned in Q3, in half the country, we increased rates about 6% in that period. There were 6 months of the year before we saw the real frequency recovery during which we were still lowering rates, frankly. That's factored in there.

Okay. And that's pricing compared to the end of year 2020?

Correct.

Okay. Perfect, thanks so much.

Thank you.