Q3 2025 Earnings Call Transcript

Good morning, and thank you for joining us today for Progressive's third quarter investor event. I'm Doug Constantine, Treasury Controller and I'll be 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-K, quarterly reports on Form 10-Q and the 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 60 minutes scheduled for today's event for introductory comments by our CFO and a question-and-answer session with members of our leadership team.

Introductory comments by our CFO were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 60 minutes scheduled for this event for live questions and answers with members of our leadership team. 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 in our annual report on Form 10-K for the year ended December 31, 2024, as supplemented by our Form 10-Q for the first, second and third quarters of 2025, where you will find discussions of the risk factors affecting our business, safe harbor statements related to the forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investor Relations section of our website at investors.progressive.com. To begin today, I'm pleased to introduce our CFO, John Sauerland, who will kick us with some introductory comments.

John?

Good morning, and thank you for joining Progressive's Third Quarter 2025 Investor Relations Call. We had an excellent quarter with an 89.5 combined ratio, 10% premium growth and policies in force growth of 12% versus a year ago. That policies in force growth equates to 4.2 million more policyholders or almost 7 million more vehicles in force than a year ago. While growth is lower than in recent years, we are still gaining significant market share in capitalizing on the opportunities for growth through robust media spend and competitive rates.

Year-to-date, our combined ratio is 87.3%, with 13% premium growth and comprehensive income of $10 billion, which is over 30% ahead of 2024. Rounding out our key performance metrics, our trailing 12-month comprehensive return on equity stands at 37.1%. Before moving to questions, we'd like to take a moment to offer more commentary on the $950 million estimate for policyholder credit expense for Personal Auto customers in Florida that we recognized in September. Florida is Progressive's largest market, and we are the leading provider of Personal Auto insurance in Florida. In 2023, Florida legislators responded to rapidly rising insurance rates by passing House Bill 837, which, among other things, move Florida to a modified comparative negligent system, meaning drivers who are more than 50% at fault for an accident could no longer sue for damages, and this allowed one-way attorney fees.

Since House Bill 837 took effect, our average loss cost or pure premiums for Florida injury claims are down between 10% and 20%, and the percentage of Florida personal injury protection or PIP claims, for which we receive lawsuits is down around 60%. While we have been responsive in reflecting these changes in our loss costs through 2 rate reductions for Florida consumers in the past year and another plan for December, the drop in loss cost was more pronounced than we expected. Additionally, obviously, there was significant risk of very costly storms in Florida, and we have seen virtually none in 2025. The Florida excess profits law calls for the return of profits in excess of 500 basis points better than our filed and approved underwriting profit margin over a 3 accident year period.

And at quarter end, we estimated that liability at $950 million. For perspective, in 2022 alone, inclusive of Hurricane Ian, our Personal Auto combined ratio was over 100, and those results translated to around $750 million decrease to the excess profits equation for the periods that included 2022. Our Florida auto business is more than 50% bigger now than in 2022. We applaud the legislative changes in House Bill 837 and resulting in more affordable personal auto insurance premiums for consumers, and desire to continue to grow our presence in Florida. Our loss reserves will continue to develop as we handle more claims into the new system, and our estimate for the policyholder credit expense for the 2023 to 2025 period will develop accordingly, with monthly adjustments showing up in the expense line on our income statement.

Naturally, going forward, our intent is to manage profitability in Florida to avoid excess profits. And finally, in response to questions we received, while a few other states have statutes covering excess profits, we don't currently foresee other similar exposures. Thank you again for joining us, and we'll now take your questions.

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions. [Operator Instructions]

The first question is from the line of Bob Huang with Morgan Stanley.

My first question is on advertising spend. Ad spending this quarter in terms of dollar amount is fairly similar to the last quarter. Just given the increased competition policy in force growth has decelerated, specifically in Personal Auto. Curious if there's a way to think about ad spending going forward.

Clearly, these policies are very profitable. Do you need to maintain the current level of ad spending in an increasingly competitive environment? Just curious how you should think about ad spending going forward?

Yes, Bob, we monitor that every month on an ongoing basis and monitor most importantly, efficiency. So we want to make sure our cost per sale is lower than our targeted acquisition cost, and that remains to be the case. So Pat Callahan and his team, we do a lot of our buying of advertising internally. They look at it overall for a year, with things you have to buy in advance.

But ongoing, we have the lever to increase or decrease depend on competition. That's what we'll continue to do. Again, our operating goal is to continue to grow as fast as we can and advertising is a great lever to reach that goal.

Okay. Maybe just clarifying that point a little bit. When you say that you kind of have -- you're buying ads 12 months in advance. Does that mean that essentially for the next 12 months your ad spending is more or less set already? Or are there some levers around that? Or is it just that most of it still is kind of not so certain? I just want to see if there's a clarification on that point.

We'll do some buys in advance to get some discounted buys, but -- a big majority, a big majority of the ads that we buy are in the auction, and we can -- that's where we can have the levers to pull back or go forward that you've seen in the last several years.

The next question is from the line of Elyse Greenspan with Wells Fargo.

My first question, I was hoping you could just comment just on the competitive environment in general and what you observed in the Q3, and I guess, like a forward view, right, we've seen others pivot to growth as we move through the year? And just how has that impacted that combined, right, with the fact that we're in this environment where you guys said in the Q, you don't need that much rate right now? How does that help you formulate your view about growth, right, both in the near term, like in the fourth quarter, but then also as we think about 2026?

Thanks, Elyse, and thanks for acknowledging your report last night that we had strong growth in Q3 of '24 because I've been comparing the growth and the fact that we've slowed is sort of funny to me because of how much we've grown on such a big base. So I appreciate you acknowledging that. So yes, the competitive environment has gotten stronger, which we knew would happen. That's why we got out in advance of rates to capture all the growth that we did, and we did.

This is when the fun starts. So competition is great. It's great for customers and consumers. And so we'll continue to find ways with which to grow.

We have a lot out there in terms of as we look at each state, each channel, different factors in terms of Sams, Wrights, Robinsons, and we have a strategy to grow all of the above. And probably, the biggest growth point for us, Elyse, is when we think of Robinsons. So we have -- we want to grow in every single persona. So we love Sams as long as we can make our calendar year profitable.

But we want to grow Robinsons because that market is about a $230 billion addressable market, and we have a low percentage of that share. So there's a lot of opportunity. I'll probably go into a little bit more detail than you need. But I think as you think about not just fourth quarter, but especially as we get into '26 and '27. And the area of our focus will be more Robinsons because we're in such a different position than we were a few years ago.

So as you know, we needed rate increases, we needed better segmentation, we needed some cost sharing to go into the policies, we needed to exit DP3. There's a lot of things that we did that I referred to a couple of different times of our 5-point blueprint to get to where we need to go to. We did just that. We increased rates from 22% to 24%, about 55% and continue, but on a much more moderate level because we're in such a different position. Our calendar year combined ratio now on property is about 78%, and granted some of that is favorable reserve development as well as we haven't had many storms at all in 2025, but that is a great position to be in.

And so as we think about our growth, we think about -- we have a framework that we're using called a new business readiness growth. And we look at the assessment of adequate rate level, segmentation, so which product is in the market, cost sharing, interstate diversification, regulation and market conditions. And when we look at all those factors, what we look at state by state is where do we want to grow and where we think we can grow and how are we positioned in those states. So currently, there's about 30 states -- 33 states where we want to -- we're going to spur on growth.

And about 20 of those are in our growth states that we've called growth states and 13 are more volatile. We'll be a little bit more conservative in the volatile state, but that really opens us up broadly for more Robinsons, for more growth. And as you can imagine, in John's opening statement, he talked about VIF, Vehicles in Force, which we don't publicly talk about. We talk about PIF.

But when you compare the $4.2 million PIF growth year-over-year, that equates to about $7 million VIF growth. You can imagine that this growth with more Robinsons is much higher because they're multicar and multiproduct households. So competition is there. We have a lot on the horizon to spur on growth, and we're pretty excited about it.

And then my follow-up is just, I guess, on margins and tariffs. It seems like from the Q commentary that you guys really have not seen an impact yet. So I just want to make sure I'm reading the comments correctly. And then, do you guys still expect that perhaps we could see an impact on loss trend in margins as we move through the balance of the year?

Yes, you read that exactly correct. We haven't seen much on that. It might be because there's inventory and of course, the tariff schematic has changed along the way. But we're still -- we're looking at low single digits, and we have the margins to be able to absorb that.

So we're not too worried about tariffs at this point. Of course, that could change. But at this point, we're not too worried about it.

The next question is from the line of Mike Zaremski with BMO.

My first question is on, hopefully, teasing out premiums per policy when we just kind of prudently divide premiums by PIF, and this is for Personal Auto. It's been slightly negative for a while now, which appears to be different from the kind of the flattish pricing you've been speaking to. So trying to tease out whether the negativity is coming from just some of the Florida rate reductions? Is the December one going to be a large one if you want to preview that?

Or is it coming from just other actions you're talking about policyholders switching to lower-cost policies, et cetera?

Yes. I think, Mike, there's a lot of things happening. Our average written premium is affected by our rate decreases. And obviously, it went up tremendously in '23 into '24 with all of the increases that we took based on inflation.

I think the reaction might be a little bit on growth, although 12% PIF growth on a 14% PIF growth to me is really unheard of. And any time we're in anywhere near that double-digit growth, we're pretty darn excited, at an 89.5% with the $950 million accrual. So the Florida situation is just that. And we're going to tell you what we know when we know it.

So as John said, we'll continue to revise our accrual as the year plays out. So in a couple of weeks, you'll know if the accrual has gone up or down for October and then there are sometimes late year storms, I think in 2024, Helene and Milton were both in September and October. So we'll watch those. But I feel really good about where we're at.

I mean if we had a crystal ball in Florida, we might have done things differently. But I think we have handled that really well. We're very large. They're the largest.

And as John said in his opening statements, I -- and I've said this before, I'm going to commend Governor DeSantis and Commissioner Yaworsky for this legislative change with House Bill 837. It really has had a profound and a momentous effect on the state of Florida's insurance market. And I've been in this business about 38 years. I would never imagine these changes and how great they are for the benefit of Florida consumers. So we'll continue to watch that.

But I think from a premium per policy, we're always going to be competitive and segments change, and that kind of all goes into the math.

Okay. Got it. Maybe pivoting to, Tricia, your remarks about share buybacks potentially being a bigger lever than historically. Can you talk about just the framework there? Should we -- are you alluding to the special dividend being put into buybacks instead at current valuations or for both? Or anything -- any color would be helpful.

Yes. When we have excess capital, we think of it in 3 ways. And obviously, we're -- I just talked a little bit when I answered Elyse's questions about our desire to continue to grow and our actions around that. And then, of course, we look at share buybacks if we believe it's under our intrinsic value.

Of course, we always buy enough shares to dilute the stock compensation in any given year. We have the ability to do that. And you'll see in our monthly release the actual number of shares we buy back each month as well as the average price. And so you'll see that in a few weeks as well.

We have a company-wide 10b5-1 that we file with certain price points to buy back stock if we think it's under our value. And so you'll see our actions that we took in October in a few weeks. And then we've been in party discussions with the Board of Directors in the last couple of meetings on what we think could be a dividend. And of course, that will ultimately be their choice, and we'll have another conversation in December.

And with that, we'll kind of be watching our ability to buy back more as well as what we think if we have a dividend, what it will be. But those are conversations that are constantly happening within our walls and with our Board of Directors.

So just, Tricia, just to be clear, were you signaling a change in capital management tone by stating the buyback language? Or are you saying this is just business as usual discussion with the Board?

All I was saying was that we're very cognizant when the shares -- when we believe the shares are under our intrinsic value, and we typically, if we have the capital, take action when that happens.

The next question is from the line of Tracy Benguigui with Wolfe Research.

I have a question about your Florida excess profit statute. When you perform the same exercise next year, let's call it, September for accident years '24 to '26 to see if you owe any excess profits in early '27. Is there a scenario where you'll be paying another Florida excess profit statute given all the favorable reserve development you experienced in the state in recent years? Or do the excess credits you're paying in '26 basically neutralize a lot of those excess profits that you could owe in '27?

Well, we don't know. And we're going to -- as I said earlier, we're going to continue to refine our accrual as each month goes by for this 3-year trailing period. It's -- and at that point at the end of this year, we'll know the sort of fully like you said, neutralized amount for that. And so the hard part, and we've tried to signal this about Florida is the storm season is typically at the end of the year.

So we're putting another decrease in, in December. We'll watch that closely. I think John said, we'll do what we can to avoid a similar situation in '27 for calendar year '26, '25, '24, but we feel good about where we're at right now with the accrual and we'll continue to revise that.

Okay. And you saw that Florida auto business is more than 50% bigger now than in '22, and you're managing the profitability in Florida to avoid those excess profits and you took two rate cuts and you're going to take another one. So my question is on bundling. Can you share how much of your homeowner policies have grown in Florida?

And how you're thinking about your property exposure relative to your risk appetite?

Yes. Our property growth in Florida has been minimal. Several years ago, we reviewed our policies in Florida to get to where we -- where we are in terms of our readiness growth. We had a lot of DP-3. We had a lot of coastal properties.

And so we had a lot of nonrenewals that we gave to another company to be able to write. We will write a little bit in Florida now, mostly new construction. That's a place where like we say, when we talk about volatile states that we will not be -- have huge aggressive growth, but we'll grow where we think we can and make our target profit margins. But the growth in the property book has not been huge.

The next question is from the line of Jimmy Bhullar with JPMorgan.

I had a question just on competition in Personal Auto. Most competitors have been increasing marketing spending in recent months. Many have alluded to potential price reductions as well just given strong margins. So your comments on competition, is that what they reflect?

Or are you seeing competitors get more aggressive with pricing and writing business either with sort of implied losses or very low margins, so just whether its exactly rationale?

Yes, I just want to say, I think we're seeing all of the above. I think we're seeing a lot of -- we saw a lot of price decreases. We've seen more increase in advertising, and I think that all goes to competitiveness. So I think we think that's good for consumers.

And when we think of -- when we think of the strategic pillars, that's one big piece of it but you have to have a really great brand, and our brand has continued to evolve and will continue to evolve to get us on that short list. You have to have for us broad coverage where, when and how customers want to shop. And we have that across the board from our independent agent channel, our direct channel and then we have multiple different areas with which to buy our products or the products of our unaffiliated partners. And then we have -- and this is sometimes underestimated because part of what's been Progressive's success is our people and our culture.

That's really hard to put on the spreadsheet for an analyst. We just finished our Gallup survey, we're in the 99% of culture and engagement. That's really important because when you have times where you want to get something done, whether it's growth or decrease expenses or roll out a new product, execution is the name of the game and you have to have a great culture to be able to do that because people want to be able to rally around a singular goal. So those four things we think about all the time.

But as far as competitive prices, we're seeing increased advertising and much more competitive pricing out there.

Okay. And then maybe on a different topic, if I think about your commercial lines business, I would have thought that it would be growing at a fairly fast clip since you were expanding your target markets, broadening coverage, adding new types of coverages, policies. And if we look at the numbers the last couple of years, they've been high single digits, which is decent, but high single-digit premium growth the last couple of quarters. I think premium growth has actually been negative off of modest comp.

So how do you think about like maybe talk about your aspirations or growth potential of your Commercial Lines business over the longer term?

Yes. I think longer term, we have great aspirations. Clearly, FHT has been a headwind, those are -- that was -- it's higher margin business, but we have slowed growth there, a lot due to both rate and non-rate actions. And we've increased our growth in business owners and contractors which are a lower premium, and we've done some 6-month policy.

So there -- so what you're seeing is real in the data. However, I think you're correct. We have a couple of areas that we have grown over the years and really wanted to understand them more deeply. And we have pretty complex plans to spur on growth in a couple of different areas.

I'm not going to talk about those today. I'll talk about those maybe as we get into them. More specifically, I don't want to show my cards. But yes, we believe that the runway in Commercial Lines continues to be really strong.

The next question is from the line of Gregory Peters with Raymond James.

In your letter in previous comments, you've talked about new products, your Personal Auto product, 8.9 and 9.0 and then in the property area, your next-gen product, 5.0. So as we're sitting here on the outside watching these developments, trying to understand what does Personal Auto product 9.0 mean versus product 8.9 and is the difference that material? And the same question would be applied to the property next-generation product, too?

Yes. That's a great question. First, I would say we're not very creative when we name our new product model. So I'm going to give you that because you'll see on 5 -- we're 5.0 and 5.1 in property, 8.9, 9.1. I'm going to let Pat take that.

But what I would say is years ago, probably around 2016 maybe, we decided that we really wanted to have the pace of our models increase to get more and more variables out there that are predictive of either loss cost or if we wanted to increase a certain segment like the Robinsons. And that's why we end up doing that. But -- and we -- I don't think we're going to go into the specific variables. But I'll let Pat talk about that a little bit more because we have very large R&D groups that work on these product models constantly.

Pat, do you want to add anything?

Sure. So from a product perspective, we try to do a couple of things every time we roll out a new product. And the first is primarily to match rate to risk better than we did in the prior product. And insurance is a scale game.

We have more data than most competitors, and our product is more complex. So we have more segmented or finite data than virtually all competitors in market. So that data enables us to solve what predicts and fits losses more precisely or more accurately than others can. So the first and foremost is to match rate to risk.

Second, though is to introduce differentiating coverages that meet consumers' needs to transfer risk to us as the carrier to smooth household cash flows. So a couple of examples of that between 8.9 and 9.0. So 8.9, we introduced Progressive vehicle protection. Think of it as a mechanical breakdown coverage for vehicles that supplements a new car warranty and provides things like lost key fob and dent and ding repair as well as supplementing the OEM warranty as the powertrain warranty or bumper-to-bumper warranty kind of runs off on a new car. And 9.0, similarly, we come out with new segmentation where we solve all the math and the factors to fit the loss curve more precisely while also introducing with 9.0 embedded renters.

So now you can embed and buy a renter's insurance coverage as part of your progressive auto policy. So we recognize that renters insurance is a potential gateway product for us in the property space, and we want to make sure that we are attracting multiline customers early in their insurance shopping and buying journey, and we want to protect their household goods as part of a renter's product and allow them to move them into a home or a condo as they change their living situation. So really, a couple of things we do with every product, but primarily it's solved the math to make sure we're as accurate as we can, leveraging our massive scale; and secondarily, get that product to market, as Tricia mentioned, as quick as possible.

As a follow-up question, I'm going to focus pivot to technology and autonomous driving. The new cars coming out have a lot of embedded technologies. Some of them actually can drive themselves to locations, the new Tesla I'm thinking about, in particular. So I think it's appropriate for us to -- as we think about Progressive, what's your view on this technology, emerging technology?

And in that moment in time, maybe 15 years from now when we get to a fully autonomous type of environment. Can you talk about how the company is thinking about that? And any color there would be helpful.

Yes. We've been watching this for many, many years. I think we first did our first, what we call runway model, in 2012 and to try to understand, okay, the implications of cars that are safer. First of all, safer cars are better for the world.

So we think that's a great thing. And I think we build that into our product as we think about vehicles that have safer components. Just like you would have at any time with seat belts or backup cameras, those sorts of things. So we're continuing to revise our model.

In fact, we're in the midst of doing it right now to try to understand when that will impact us. And we see a lot -- we gather a lot of data. We see a lot of data even when you compare like the Waymo cars in Austin, and we look at our relationships with TNC, we've not seen too much of a change and the changes there with pretty heavy Waymo use has not muted TNC miles. So we're continuing to watch that getting as granular as we can.

But at a higher level, what we did years ago is we constructed the 3 horizons to really understand how we can grow across the board, not just in where we've typically grown in our private Passenger Auto and our Commercial Auto, which we're still going to continue to do. But that's when we really built our Commercial Lines product models out. So think of BOP fleet, our relationships with our TNC partners and many other things. And then, of course, our Horizon 3, which are smaller now, but we believe will be bigger in the future.

We're going to continue to look at that, we call it, execute, expand, explore to make sure that we have a really robust model as cars get safer and as frequency goes down, and we'll watch that and make a determination of what we need to do to continue to grow. And we talk about this all the time because it's important for society, but it's also important for us to know areas where we can grow, where we can leverage our people, our data, our scale to grow in different ways, and that's what we talk about as we think about autonomous vehicles. It's -- the time frame is always sort of the big question mark.

Because if you look at articles in 2012, it would have said everyone is driving around playing bridge in the back of their car. In 2019, that hasn't been the case. So we still think there's a lot to go again. We don't have our heads in the sand, and we'll continue to think about growth in different areas.

The next question is from the line of Alex Scott with Barclays.

First one I had is on shopping and retention. I was just interested if you could compare sort of the time period where you're taking bigger increases or the industry is taking bigger increases in the shopping activity that was going on then in sort of reaction to higher prices as opposed to maybe what you're expecting over the next 12 months on retention related more to well, you could shop and go get a lower price potentially somewhere. Are you seeing different kinds of sensitivity to that related to up in pricing versus potential for down?

Yes. I mean I think we're seeing a lot of shopping, which means all customers are going to shop including ours, and you see that in our PLE. Our feeling is just as we talked about in the Q, oftentimes, our customers will reach out to us and we can do a policy review with our cancer preservation team to see if there's something we can do to help them out from a price perspective. If we end up writing a brand-new policy that starts the clock ticking.

So that is a little bit of a headwind to PLE, but not when we think about our consumer life expectancy, our household life expectancy. When you look at that, we don't share that data externally. We share PLE. But if you look at our, say, household life expectancy of having a product with Progressive, that's relatively flat.

So we feel decent about that. Now if you shop and you end up leaving us, we believe that is just adverse selection because we believe we have the most current up-to-date price, as Pat talked about and I talked about briefly. Our models are constantly changing and revising them to make them more specific to rate versus risk. And if you end up leaving, we believe that we have more data than wherever that customer is going to in terms of profitability.

Got it. That's helpful. And then going back to the capital discussion. I mean, M&A was something you didn't mention as much relative to like the buyback and variable dividend conversation.

And just in light of that conversation you had on autonomous and potentially expanding into other products and so forth. I mean, how does M&A fit into that? How do you think about M&A over a little bit longer time period? And why wouldn't you use a really strong capital position now to explore that?

I mean M&A is really complicated. We've done a couple of acquisitions in the last 10 or so years, and they were very specific. So we bought ASI, which is now Progressive Home because we wanted that bundled customer and access to that customer, especially in the agency channel. We bought Protective a few years ago to increase our fleet capacity and we'll continue to kind of close the gap on that on the Commercial Lines part.

But acquisitions can be tough and integrations can be tough. So we want to make sure it's the right company, the right culture and something that can be additive. . So if we think we want to grow, and there's a company that has a bunch of private passenger auto that we believe we can get anyway, I'm not sure you want to pay the premium on that. That said, we have a group of corporate development group that's always scanning to look to see if something makes sense.

And we always want to have dry powder in case something comes up. But again, that's something that I think every company does, including us in terms of just making sure we're on the growth trajectory. Do you want to -- John, do you want to reiterate sort of our capital structure and how we think about regulatory contingent in excess?

Sure. So M&A would be one deployment of excess capital in our minds. Reinvesting capital in the core business is always the first option that we pursue is obviously our returns in that space have been very good. We also obviously considered previous discussions here, the dividend and buyback.

And as Tricia noted earlier, as we believe the stock is below what we view as fair market. We will be in market buying back shares when we have the capital to do so. And obviously, right now, our capital position is robust. So we -- as Tricia noted, we have a corporate development team.

They are constantly looking at opportunities. And as she said, those opportunities would be focused on expanding the breadth of offerings for Progressive and less so around adding to our core products is our market share growth has shown pretty consistently that we can acquire that business efficiently and effectively in the marketplace, and we think that's a better way to go.

The next question is from the line of Josh Shanker with Bank of America.

A couple of things. I'm looking at the Travelers numbers and the Allstate numbers and Hartford's and I have some guesses around GEICO's numbers looking at what they've done. And it doesn't seem like they're growing very quickly as Progressive's on net policy count growth has decelerated. I'm not looking for you to name names, maybe you have some thoughts on where the business is churning to, whether it's mutual, whether it's smaller competitors who are stronger than they've been in the past, whether it's direct business that's going to agencies.

Where do you think the churn is moving towards?

Well, I think that -- and I won't talk specifically about competitors either, but there have been competitors that were all captive and now have access to a nonstandard in the independent agent channel. There's competitors that were only direct that are trying to get into the agency channel. We've always been broad. So that's really the beautiful part about our growth and trajectory, and that's an important part to make sure we are where customers are.

And so I won't talk about where things are coming from. But again, I have to reiterate, our growth is substantial based on the best year in the history of Progressive. So much of that growth comes to us. And so we feel great about that, and we'll continue to grow.

And I think I've said this the last couple of calls that I want to make sure as we compare ourselves to the best year in the history of Progressive, that we're that were pragmatic about the fact that we still grew PIFs 4.2 million year-over-year, which is substantial, especially at the margins that we have. So that gives us the opportunity to continue to spur on growth, especially with our efficiency around our media spend.

And then changing gears a little bit and following up on some other questions. From 2007 to 2019, the dividend program at Progressive is pretty formulaic. We could play at home using gain share month-to-month to figure it out. And then I think in '19, you said there were so many opportunities for investment that you don't want to be forced into that paradigm and it became less possible for us to follow along.

And now while you said when the stock is attractive to us, we would also be repurchasers of that, if that were the right thing to do. Is there any formula or way that investors can think about the transparency of capital return the way it was prior to the 2020 year?

Probably not. That was pretty formulaic, and we were -- one of the reasons we changed that to go from the gain share was that we were experiencing high growth, and we needed that capital to grow. And so we didn't want to have something that we needed to pay out when the better use of that capital was to grow the firm, which is what we were doing over those years. But that program worked well during that time frame, but no longer served us.

I mean how you can think about it is we have a lot of capital right now. The Board will make a decision as we do in our 10b5-1 for stock buybacks. The Board will make a decision to make sure that we think about that and the best use of it and the best use of any capital returns to our shareholders. And I can't give you a formula because, again, we do want to have dry powder.

We want to make sure that we thought of a bunch of contingencies. But I think that's -- and that's sort of what I tried to say in my letter is that we feel like we have excess capital at this juncture.

I might add a bit on that, Josh. So you all recognize our regulatory capital needs. So historically, we've been in the 3:1 range for our Personal Lines businesses -- Personal Auto business, excuse me, and about half that for home. You might have noted in the Q that we now have approval in a couple of key markets to move to 3.5:1 predominantly for our Personal Auto businesses, but a fairly broad approval so we can move operating leverage higher.

So you can do the math around what required surplus is necessary. And when we do that math, we look forward, of course, and we expect to grow. And then we have that contingency capital layer that doesn't change based on that regulatory layer, and that is intended to ensure that we, on a modeled basis, have a very low percentage chance of needing additional surplus. Capital in excess of that, again, we first want to reinvest.

But secondly, we look to dividends and buybacks to the extent we feel our stock is undervalued. But you can come to a pretty close estimate of what we consider capital in excess of regulatory and contingency and that would be the capital from which a variable dividend would come. Now what portion of that is up to ultimately the board. But that is a good way to frame what a variable dividend or first excess capital would be, but secondly, what a variable dividend would be.

The next question is from the line of Paul Newsome with Piper Sandler.

I was hoping you could give us a little bit more thought on and information on the severity trends for auto, both the private passenger and Commercial Auto businesses. It looks like severity is accelerating a little bit in Personal Auto and a little bit more about why that may or may not be happening. And similarly, in Commercial Auto, you've got some peers who have had some pretty significant troubles in that line. Any thoughts on where you may or may not be experiencing similar trends for them?

Yes, Paul, that's a good question. Just as a reminder, when we look at severity trends, we report out incurred and a lot of our competitors report out in paid. So as an example, when you look at our PD from quarter 3 '24 to '25, it appears to be about 7%. We had a large decrease in reserves in quarter 3 '24, about 2.5 points.

So that would be about 4.5 points versus the 7. So that's where it might be a little bit different comparison. BI continues to be specials are outpacing attorney rep, meds are up. So -- and actually some states that minimum limits have gone up. So we feel like industry severity where we're pretty close to the industry on the private passenger auto side.

On the commercial line side, I feel like we are in a better position than most of our competitors. We got ahead of rate. The severity is up. But again, same sort of thing with you've got high limits, you've got attorney reps.

And -- but we feel good about where we're at from a margin perspective and our ability to grow perspective as well.

Maybe a second question and a different one. Could you talk a little bit about the level of telematics and whether or not we're getting to at least closer to a point where that is a more mature part of what it does in terms of usage and the ability to slice and dice?

Yes. I mean telematics has always been a key part of us understanding. I threw out some specific data that we have on our OBD device, I think I did, at least on -- I guess maybe I didn't. It was on frequency.

We know from our OBD device that vehicle miles traveled have been down to about 4% in the quarter. So those are kind of things we can point to as we try to dissect and attribute frequency and severity changes. It's -- we have our mobile device, which is the majority of what people choose now in 47 states. So we feel like it's a really powerful part of our variables.

And more importantly, for customers that drive safely, it is really an ability to lower your insurance rates pretty substantially. And so that's really the main component of it. And we learn a lot. We have many, many, many miles.

How many miles do we have now, do you think? Some billions -- yes lot of miles, a lot of data. And so it will continue to be a big part of it. I'm not sure if that answered your question.

No, I was just trying to get a sense of whether or not we're getting to a point where the amount of folks that are using the telematics is where you can sort of a maximum given how a certain percentage will never use it, right? So just whether or not we're getting towards the maturity of the product itself.

I think we have an opportunity to increase that specifically on the agency channel is what I would say.

Yes. What I would add to that is Telematics is a really predictive rating variable but it's not one size fits all. So we continue to collect data. We continue to innovate and we continue to refine how we use that data against what you would expect to see from similar drivers and similar vehicles to rate more accurately.

So Telematics is a broad brush. And while we're seeing strong consumer adoption, and I think your intuition there is that consumers are getting more comfortable with monitoring on a continuous basis, which, as Tricia mentioned, is just a great way to modify their own behavior to control their insurance costs. But we are not standing still by any means. We have an entire team that leverages larger and larger data sets on a continuous basis to refine how accurately we can use it to ensure that people are getting the most competitive price that's personalized for them and how they drive.

And one thing I'll mention, which is a little bit further field, but important because it's important for consumer safety is we have the ability for -- to understand that people have been in accidents. And whether the tow-truck or ambulance, I think is really a key important part of feeling like you're cared for as a customer with our Snapshot devices or mobile devices.

The next question is from the line of Ryan Tunis with Cantor Fitzgerald.

I just had a follow-up on what's going on in Florida and I wanted to know if I'm thinking about something right. But clearly, that's been an important market for Progressive. I think you guys have top market share there by a mile. I guess my perception has always been an important reason for that is it's a tricky market to underwrite.

But talking about the listing of some of the tort reforms, it sounds like it's become a more insurable market. So I guess my concern would be, just like any state where you have meaningful amounts of tort reform kind of creates a lever for competition to come in. So I'm wondering if I'm thinking about that right or if it's something maybe that's unique to Florida that we wouldn't necessarily see in some random state like Minnesota?

Yes. I think every state has a little nuance, right? You said Minnesota, I went to their high PIP coverage. So I have like all of my thoughts of every state.

I think the fact is that it will be more -- there will be more competition because of the tort reform. I think that's good. But again, we are so well ahead of it because it's been our biggest state for a long time, and we feel really good about it, and we feel great about serving the consumers of Florida, and we want to grow there. So we're going to continue to grow and having the right rates and the right legislative changes is going to make that, I think, better for everybody, but most importantly, consumers.

Got it. I better shore up my knowledge on Minnesota, sorry about that, Tricia. But the follow-up is -- you mentioned in the 10-Q, there's this dynamic of customers replacing existing policies with new progressive policies. I was just curious if that had a meaningful impact on the new issued app number?

Yes, I think it does and had a meaningful on the PLE numbers because this is a very unusual dynamic that's been happening. And I think I've heard in other calls, it's happening in some of our competitors. So yes, I don't have the specifics for you. But I think customers are super sensitive right now.

We get it. We're doing our best to keep rates stable, lowering rates when it makes sense and we believe that we can grow in certain demographics. But I think it's meaningful kind of across the board.

Yes. I think the ultimate metric, Ryan, is PIF growth. So yes, you're right. To the extent we are rewriting more customers. Those we do report as new customers. But at the end of the day, the PIF count and VIF count to previous conversations, I think, is what you should look at in terms of our growth and our market share.

The next question is from the line of David Motemaden with Evercore ISI.

I was hoping just to touch a little bit on pricing. And I was a little surprised the stable pricing that you put through in the third quarter, just given how strong the margins are even if we put in sort of like a normal catastrophe loss level for the auto business. Is this something that you guys are considering? Is there something on the horizon that would prevent you from doing this?

It didn't sound like you were concerned really about tariffs. But just trying to get you just a sense for how you're thinking about potentially lowering price to accelerate growth and also improve retention.

Yes, we absolutely have been thinking about that. We were more conservative, I think, when the tariffs came out. And so now that, that seems today to be more certain, we are a little bit less concerned. Of course, that could change.

I think we decreased rates in about 10 states in this quarter, increased rates in about 6. So we're very surgical on channel, product, state, but we do want to grow. And so we will look to that for both growth and retention in terms of reducing rates. We just want to make sure because of the competitive environment that if we -- we get something for that. So that you don't want to reduce your margins and not get growth.

So we're trying to be, like I said, really surgical in each state of when we think we can get growth and that unit growth is important. And so we know we have some margin to play with, and that's really what we're talking about now at every individual state and DMA level.

Got it. And then maybe sort of a higher-level question. Just as we think about the impact of collision avoidance systems and ADAS as it penetrates the fleet more and more. I don't think -- I'm sort of looking at ISO data.

I think for 10 years up until 2019, industry frequency was pretty flat. And now when I sort of look since 2019, we obviously had COVID in there, but it's a pretty substantial decrease. So I'm wondering if you can think of -- like just maybe just talk about unpacking some of that decline and improvement in frequency that looks like it's still continuing and sort of how we can think about that as impacting the longer-term growth of the business?

Yes. I can't predict the future, but take aways that kind of couple of years during COVID because things were so strange with driving. Frequency has been going down for the last 50 years. And as vehicles get safer, as laws around DUIs and other things get more stringent and have gotten more stringent, I think that's a really good thing.

Now it's been offset and then some by severity. And that's been where when you look at the models, we have -- when we do our models for our runway, we look at that and severity has increased well more than frequency. And so we'll continue to see what happens in terms of parts, the ability to repair vehicles, the ability to have talent that can actually repair those vehicles as they get more complex, and those are things that we can't predict, but we look at those all the time, and we're deeply looking at those right now as we think about our next 3-year strategy.

The number of cars on the road -- I'm sorry. I was just going to add that the number of cars on the road has also increased. The average age of those vehicles has increased. So all those factors, in addition to the pure premiums or the frequency and severity, affect the size of the marketplace.

And the marketplace actually has grown faster than we had anticipated when we first started assessing the long-term runway or market size of the Personal Auto marketplace.

Got it. That's interesting. Yes, it definitely feels like -- I mean, I think it's like '07 until 2019 industry frequency was flat. So like if we look at it over a 50-year time frame to this point, it's definitely still down, but like there is definitely an air pocket in there where the industry was benefiting from like flattish frequency.

And so yes, just something I'm sort of thinking about, but I appreciate the -- I appreciate the answers there.

The next question is from the line of Brian Meredith with UBS.

The first one, and this is I know it seems like it comes up every quarter, but on the PLE drop, can you talk maybe a little bit, is it mix driven this quarter that's kind of dropping everything? Or is it kind of across all the cohorts that you're seeing the drops in PLE?

I think it's probably more pronounced than Sams. I'm not quite sure, but I think it's mainly across the board. I think everyone's shopping. And when we look at our mix of business just in terms of even growth as you look through our Q and think about just our prospects and conversion, you can see that -- even though that's relating to consumers coming in, we think that has an impact.

Do you have anything to add, Pat?

Yes, it's pretty much across the board, but driven by different aspects and that Sams are obviously more price-sensitive and household costs are rising. On the Robinsons side, we certainly have taken some action to redistribute our book and to limit access to our property product at some agencies, which has an effect on where they place that business and whether it retains with us. So we are seeing it more broadly. But -- yes, more broadly.

Great. That's helpful. And just a second question, if I look at where your pure premium was in the third quarter, and granted, I understand it's calendar year, so it's not exact here. And versus average written premium per policy, there's a pretty meaningful kind of spread difference, which would imply some pretty meaningful margin compression here going forward, granted from very attractive margins you're seeing right now.

As you think about kind of going forward and what you're looking at, is that something you're anticipating? Is that your margins will compress here in personal auto insurance going forward here closer to the target level?

I mean I think it depends on if we can get the growth for that. So our operating goal is to grow as fast as we can at a 96 or lower. We're obviously well in advance of that. We've had some conservativeness baked in because of tariffs and some other things.

But yes, we could see it compress if we believe we can get that growth, and we're always kind of managing that trade-off. But I believe that's an accurate statement going forward because our ultimate measure of growth is units. So PIFs and VIFs, as we talked about today, and we'll do what we can to continue that growth because, again, if we have a plan around our property, the more auto we can get in there, the more bundles we can get in sort of a nice circle. So we're going to do what we can to grow as long as it serves us in terms of our target profit margins and our operating goal that has been in place for decades.

We've exhausted our scheduled time. And so that concludes our event. Those left in the queue can direct their questions directly to me. Alissa, I will hand the call back over to you for closing scripts.

That concludes the Progressive Corporation's third 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.