Shoring up loss reserves and adding “the premium equivalent” of a top 8 personal auto insurer to its books has put Progressive in a better place now than it was at the end of the second quarter.

The carrier’s chief executive officer, Tricia Griffith, provided that assessment during an investor relations call, as she summed up financial results for the third quarter of 2023 and explained how they improved compared to the first six months of the year.

Progressive previously reported third-quarter earnings last month in conjunction with its release of results for the month of September, showing a third-quarter combined ratio improvement of 6.8 points to 92.4 from last year’s third quarter and an 8-point drop from second-quarter 2023.

Related articles: Progressive’s Earning Snapshot Shows Carrier Near Underwriting Profit Goal (third quarter), and Progressive’s Q2 Worsens in Spite of Double-Digit Auto Premium Growth (second quarter)

Griffith explained the improvements by first describing negative events that didn’t impact earnings in the most recent quarter—reserve charges and catastrophic weather losses. Then she referred to what did happen—more rate hikes.

During the quarter, prior-year reserve development added just 0.2 points to the combined ratio. In contrast, during the first six months of the year, Progressive recognized 4.0 points of prior year unfavorable reserve development.

At the end of the second quarter, we were in a difficult place. Rising loss costs, adverse development and catastrophic weather events meant we were facing a significant uphill battle to deliver on our calendar year 96 combined ratio target while facing a very uncertain future.

Griffith reminded listeners that the first-half reserve actions reacted to higher claims severity “caused by steepening trends in our fixing vehicle coverages and higher attorney representation rates in Florida precipitated by House Bill 837.” She said that Progressive witnessed “some flattening in the loss cost trends for fixing and replacing vehicles” in the third quarter. “We also now believe we have adequately reserved for the higher severity related to pre-House Bill 837 lawsuits,” she said. (Editor’s Note: In Florida, plaintiffs lawyers moved to file tens of thousands of lawsuits before a tort reform bill favorable to insurers, HB 837, became law in late March.)

As for catastrophe losses, the combined ratio impact was 1.3 points lower (in total, after reinsurance) than the first half of the year, Griffith reported, noting that Progressive had no exposure to the Maui wildfires and low exposure to Hurricane Idalia.

While the reserve and cat impacts of prior quarters didn’t have an effect on the third-quarter 2023 underwriting results, “what did happen in the third quarter is that our rate and non-rate actions had a positive effect on premium and profitability,” Griffith said. The carrier has taken roughly 16 points of rate for personal auto year to date, including 4 points in the third quarter, “with more of that rate earning in every day,” she said.

In spite of a combination of rate and non-rate actions that curbed new business growth in personal auto in the quarter, companywide policies in force (PIF) were up 10 percent.

“Positive year-over-year PIF growth plus higher rates means our premium growth was spectacular, with net written premium up 20 percent year to date, or $7.9 billion,” Griffith said, referring to the additional premium on the books across all lines of business that vaulted nine-month premiums to $46.4 billion.

“To put the first three quarters of premium growth into perspective, we’ve added the premium equivalent to a top 8 personal auto insurance carrier, which is a truly amazing statistic,” she said. (Editor’s Note: For just auto, $6.8 billion of additional personal auto premium brought nine-month volume to $36.4 billion—a boost of 23 percent.)

“We believe robust retention, especially in the face of higher rates than a year ago, is an indicator that many of our competitors are still tight on underwriting, and we remain competitive in the marketplace,” she said.

Throughout the call, Griffith referred to a “self-imposed pullback in media spend” in the second quarter, as well as non-rate actions—that had an adverse impact on the new business group with new applications in personal auto falling 20 percent in the third quarter compared to the same period last year.

Personal lines President Pat Callahan explained that non-rate actions included restricted bill plans and verification actions—requiring additional checks to make sure Progressive gets accurate information on the risks that are coming in the door. And both executives said that Progressive is prepared to pull back on the non-rate actions this year and to ramp up ad spend next year.

“We do expect that that will ramp back up, but it will be a ramp as we spend only what we need to [in order] to efficiently and cost effectively attract customers. We’ve seen that the hard market persists. We’ve seen there’s a lot of competitors who still need to push rate through their systems. And a lot [of competitors] write annual policies. So, there’s still a lot of rate effect to be had in the market on consumers,” he said, loosely referring to what Griffith and Chief Financial Officer John Sauerland referred to as “ambient shopping” effects during the call—shoppers seeking lower prices as other companies raise theirs.

Sauerland noted at one point that while Progressive was dissuading these shoppers from becoming new customers as it worked on getting nearer to its profit target of a 96 combined ratio for the year, as Progressive starts to ease non-rate actions, that unmet demand will add another avenue of growth.

Griffith began the call stating, “At the end of the second quarter, we were in a difficult place. Rising loss costs, adverse development and catastrophic weather events meant we were facing a significant uphill battle to deliver on our calendar year 96 combined ratio target while facing a very uncertain future.”

“We made difficult decisions to steer the business through this challenging time,” she said, referring to reserve and underwriting actions. “While we knew it wouldn’t be easy, we knew that if we executed properly, we’d come out better on the other side.”

Progressive’s year-to-date combined ratio across all lines stands at 97.2, but the target is in sight.

“While there’s still much uncertainty in our future. and more work to do, the results in the third quarter suggest our strategy is working,” Griffith said, repeatedly referring to the cautious approach the carrier will take going forward.

Asked what might hold Progressive back from achieving the targeted 96 this year, Griffith said that “weather is going to be the big variable.”

Other questions from analysts focused on whether Progressive is benefitting from a loss of business at GEICO and other competitors who lagged Progressive in putting rate on the books, and about results in Progressive’s property business, where the combined ratio stands at 108.2 year-to-date.

Executives stayed away from identifying competitors that could lose business to Progressive. Sauerland, instead, offered that Progressive is growing in “the more preferred segments” of its business—customers with families that bundle home and auto (referred to as “Robinsons” by Progressive) and not-yet-bundled homeowners starting families (“Wrights”)—while shrinking on the nonstandard end of the spectrum (“Sams”).

“That bodes really well for our future growth because obviously those customers stick with us longer,” he said.

Reacting to one analyst’s supposition that the still unprofitable property book might be viewed as a “loss-leader” by the executives, as part of a strategy to grab a larger share of “Robinsons,” Griffith said this was not the case. Instead, she described actions that started last year to “de-risk the book” so that Progressive will have fewer policies in volatile states and more policies in the least volatile states. As an example, “we’re nonrenewing about 115,000 policies in Florida,” she said. “We are just over-indexed in Florida…We love Florida. We have a lot of Robinsons. We have a lot of autos and continue to have a lot of homes. But we were not making money, and we needed to nonrenew some,” she said, indicating that the nonrenewals will take effect over the next year or so.

“We knew it would take a long time, but I think really what our strategy is on the property channel is not unlike it was years ago in the auto channel. We are investing more in segmentation. We’re investing more in understanding rate to risk and the…need for reinsurance. But we will get there,” she said.