PGR - NYSE

Good morning, and thank you for joining us today for Progressive's fourth quarter Investor event. I am Doug Constantine, Treasury Controller, and I will be a 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 and a letter to shareholders, which have been posted to the company's website. This quarter includes a presentation on a specific portion of our business, followed by a question-and-answer session with members of our leadership team. The introductory comments and the presentation were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 90 minutes scheduled for this event for live question and answers with the leaders featured in our recorded remarks as well as other members of our management 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, 2025, where you will find discussions of the risk factors affecting our business, safe harbor statements related to 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 off with some introductory comments. John?

Thanks, Doug, and good morning, everyone. While we're already in March, I would like to take a couple of minutes to review the very strong year that we had in 2025. Following a year of incredible growth in 2024, we added almost $9 billion in net premiums written in 2025 and almost 3.7 million additional policies in force. When we look at statutory results for the private passenger auto market through the third quarter of 2025, we believe we picked up close to an additional 2 points of market share versus last year to move to around 18.5% market share. However, what made 2025 even more exceptional was that along with that growth came remarkable profitability. We earned almost $13 billion in comprehensive income across our operating and investing units or a comprehensive return on equity of 40%. Profitability across our businesses was excellent, and policy in force growth was also positive across all the businesses with personal vehicles leading at 12% or almost 3.5 million more policies than last year. That equates to almost 5.5 million more vehicles insured by Progressive versus year-end 2024. Property profitability was the beneficiary of a lighter-than-average catastrophe year and is also a reflection of the significant work we've done to manage the risk in this product. As we indicated in our Q2 2025 investor call, we're much more comfortable with the property line and are actively looking for ways to increase growth in property through bundling. In Commercial Lines, PIF growth was primarily from business auto and contractor risks while growth in trucking was challenging as the industry continued to face headwinds. Commercial Lines also had an excellent profitability in contrast to what we believe was an underwriting loss for the Commercial Auto insurance industry. As you know, Progressive is very focused on our underwriting operations, and we believe this is the primary driver of our success. We focus on our 4 strategic pillars to win in the marketplace and grow as fast as we can at less than or equal to a 96 combined ratio at the enterprise level as long as we can provide high-quality customer service. These 4 pillars have served us quite well since we established them formally as our strategy in 2015. Our culture and our focus on the growth and profitability operating mandate are supported by a very efficient capital model and strong risk-adjusted portfolio returns. This leads to high comprehensive returns on equity over the medium and longer term. We view our comprehensive return on equity along with growth to be the ultimate measures of our financial success. And we believe success on these measures drives higher multiples for Progressive stock. As you can see from the slide, return on equity in our industry is correlated with price-to-book ratio. Additionally, we believe growth plays a considerable role in our multiple being substantially above the line derived from the large public property and casualty competitors. Comprehensive return on equity is a function of the operating discipline we so frequently discussed on these calls and also very much a function of discipline around our financial policies. Today's discussion will go deeper on those policies, highlighting recent changes in operating leverage, providing insight around our variable dividend and detailing our approach to managing our nearly $100 billion portfolio at year-end. At the same time we execute our capital-efficient strategy, we need to ensure that we give ourselves maximum flexibility as we encounter uncertainty. While we believe strongly in our operating model, we are unable to predict broader geopolitical and macroeconomic changes with certainty. Therefore, we have set up a model that allows for flexibility in both our capital allocation and our investment risk. Since we run with higher operating leverage and a fair amount of financial leverage, we need to make sure that we can retain more capital when we believe it is beneficial to the business. We believe that our variable dividend policy and a liquid more conservative investment portfolio give us the capital we need to grow when growth is significant and an off-ramp when we hit periods of volatility. As an example of how our model balances these goals, if we look back to the 2022 to 2023 period, Progressive saw faster premium growth that required a significant amount of capital. On top of that, margins were volatile due to the surge of auto-related inflation. Further, that same inflation drove significant investment market volatility. In response, we are able to significantly reduce share repurchases and variable dividend payments, take down investment risk, and raise debt capital in order to ensure the fuel for our strong organic growth in 2022 and beyond. This flexibility allows us to aim for strong growth while also operating with a high degree of capital efficiency. More recently, capital generation has been very strong. In 2025, we earned almost $13 billion in comprehensive income across our operating and investing units. Our below 90 combined ratio, along with more than a 7% return on the investment portfolio, drove historically high profits for Progressive. The combination of the strong capital position in which we entered 2025, robust income generation and increased operating leverage allowed for Progressive to reward our shareholders with a $13.50 per share variable dividend in January. This came on top of modestly higher pace of share repurchases in recent months. Given this pace of income generation, the variable dividend and the announced change in our operating leverage last year, we thought this would be a good time for us to review with you how we think about capital, leverage, capital allocation and investment risk at Progressive. While we focus on comprehensive ROE for the purpose of benchmarking, I want to share the history of results around ROE. Over the medium and longer term, our model has produced returns on capital that have outperformed not only our P&C peers, but most other financial firms. In order to achieve this continued outperformance, we have to not only be disciplined on the operating side, but also with our investments and our capital allocation. A key consideration around capital allocation is our operating leverage or, in other words, premium to surplus ratios at our insurance companies. As we conveyed in our Form 10-Q for the third quarter of 2025, we have received approval from our regulators that oversee most of our operating entities to move our operating leverage up to a maximum of 3.5:1 premiums to surplus. As a reminder, The Progressive Corporation is a holding company, and we own 45 insurance entities and some non-insurance companies. Insurance companies follow statutory accounting rules and are subject to regulation in their state of domicile. Surplus in statutory accounting is essentially equivalent to equity in GAAP accounting. Statutory accounting differs slightly from GAAP accounting, primarily around recognition of expenses more in line with cash flow and investment-grade bonds are valued at amortized cost versus mark-to-market. Regulators have numerous tests to monitor and regulate insurance company solvency. Premiums divided by surplus is one ratio for which limitations are set by regulators to ensure that insurance companies have the capital necessary to pay out policyholders when needed. For our core vehicle lines of business, we have always believed that based on our rigorous underwriting acumen, conservative investment posture and relatively modest reserve development that we did not need to hold as much capital as regulators were expecting us to. Those same factors are generally considered in risk-based capital ratios that regulators use to monitor solvency, and in extreme cases, to force changes in the management of insurance companies. Our risk-based capital ratios are very good in most of our insurance companies, and this fact helped us receive approval to hold less capital or surplus at most of our operating subsidiaries. We hold a significant amount of capital outside the insurance companies as well, and we'll talk more about that in future slides. As you can see, there's a wide range of operating leverage models in the property and casualty insurance industry. Progressive, with our consistent operating results, is normally near the top. This exhibit shows just the surplus in our insurance subsidiaries relative to net premiums written. As noted previously, The Progressive Corporation is a holding company, and we hold surplus in the insurance companies and generally balance those insurance companies to our target premiums to surplus ratios towards the end of each year. At year-end, we generally hold contingent and additional capital at the holding company level. At year-end 2025, we held around $13 billion in an investment subsidiary of the holding company. In January, we paid almost $8 billion in a variable dividend out of that $13 billion. Naturally, the next question is what this change in operating leverage means for our overall capital position. We think of capital in terms of 3 different layers, which are regulatory, contingent and additional capital. As I previously mentioned, our regulatory capital is overseen by our state regulators. However, our contingent capital layer is fully determined by our risk appetite and controls. It is currently set at an amount in which it would take a one in 200-year modeled scenario to go from the top of our contingent capital to our regulatory layer. As the name is contingent, our goal is for that layer to generally not be fully eroded to the point of reaching the regulatory layer. So we normally hold some level of capital above the contingent layer. How much additional capital we hold on an ongoing basis is a function of factors such as operating and investment volatility and financial leverage and the potential opportunity to deploy capital towards investments, acquisitions or share repurchases. While we will always be open to holding on to additional capital for future opportunities, management is very focused on Progressive's return on equity over the medium and longer term. We won't do a deep dive on our reinsurance program today, but it is certainly worth noting that our reinsurance program is integral to the size of our contingent capital layer. Relative to our balance sheet, we have fairly modest retentions in our reinsurance program, and our catastrophe limits are relatively high. This naturally allows us to need to hold a lower level of contingent capital all else equal. As you can see from the graphic on this slide, the change in our premiums to surplus means lower capital needs at our insurance subsidiaries but does not require us to hold any more capital at either our contingent or additional layers. Therefore, this move has the potential to incrementally raise Progressive return on equity due to the lower capital needs. I will also note that the incremental $1.6 billion freed up in 2025 resulting in our premiums to surplus ratio at the enterprise level to move closer to 3, relative to an average of 2.8 over the previous 5 years. Our insurance company subsidiaries are subject to numerous regulations on capital beyond net premiums written to surplus. So while we may have approval from the state of domicile to move to 3.5 for the net premiums to surplus ratio, additional regulations may limit at what pace we may move to that ratio and how close exactly we get to that ratio. Our intent is to work to move closer to 3.5 going forward. Our operating leverage has historically helped us to achieve industry-leading returns on equity and this change will naturally further that positioning. And while operating leverage is important, it is only one element of our capital model. Now to continue the discussion on financial leverage and capital allocation, I will pass it along to our Treasurer, Maureen Spooner. Before I do that, allow me to give a brief bio on Maureen and our Chief Investment Officer, Jonathan Bauer. Maureen has been with Progressive more than 20 years and has previous experience in Treasury at another public company as well as public accounting. During her tenure at Progressive, she has held controller roles in our special lines and IT groups, managed our comparison rating offering in our direct group served as our Ohio Auto Product Manager and most recently, our Audit Business Leader. Jonathan Bauer has been with Progressive almost 20 years, all within our investment management group and has previous experience in investment banking in New York and London. Thank you again for your time this morning. And now to you, Maureen.

Thanks, John. While operating leverage is important, it does not tell the full financial or capital picture. First, because it only reflects the capital needs at our insurance subsidiaries. Second, it does not differentiate between equity and debt capital. So it does not consider financial leverage. And finally, it doesn't include our capital allocation policy or it does not consider where we can invest. So I will briefly review our financial policies while sharing our capital allocation process. First, we want to ensure we have the capital we need to write as much profitable insurance as we can. This is our best use of capital. We want to ensure we have the regulatory surplus plus contingency capital to grow our business at less than or equal to a 96 combined ratio. While our decisioning is not linear, we have a decision tree on the next few slides to demonstrate how we think about capital allocation. Once we have determined we have excess capital over and above our operating needs. If we have excess or additional capital, we then consider how we would deploy that excess capital, and we consider the valuation of each opportunity. We consider 3 areas of potential investment. Additional capital may be deployed for corporate development or acquisitions and strategic investments, for share repurchase or for increased investment risk. Jonathan Bauer, our Chief Investment Officer, will be covering investment risk here shortly. In all three instances, we evaluate the investment and valuation and determine if the return is attractive for the investment. With respect to corporate development, we introduced our Three Horizons framework to you back in 2019, which covers our strategic approach, including acquisitions. Horizon 1, our products within our current constellation of businesses. Horizon 2 are products that are adjacent to our current product footprint. Then Horizon 3 includes businesses outside of the P&C insurance landscape that we currently play in. We continue to fully integrate and optimize our previous two acquisitions, and we have continued to work on our skill set throughout the organization in preparing for future investments. Secondly, we may use excess capital to repurchase shares. Our policy is to repurchase shares to neutralize the impact of employee stock compensation. We also consider repurchasing shares if the share price is attractive to what we believe is our intrinsic value. We have not repurchased a significant number of shares over recent years, even though we have board authorization to repurchase 25 million shares annually for the past 9 years. In some recent periods, our growth rate was high enough that we needed to preserve capital to support growth. At other times over recent years, we had additional capital available to repurchase shares but we did not view the market price of our shares to be attractive or below our view of intrinsic value. Over the past few months, we have begun to be more active with repurchases, but obviously not yet at a significant level. As highlighted in the chart, in January 2026 in 1 month, we repurchased shares at a value similar to the repurchases made for all of 2025 as we felt the share price was attractive. Once we have exhausted considering capital needs for both business growth and investments, we consider returning underleveraged capital to shareholders via dividends. For greater flexibility, we modified our dividend policy in 2019, moving to a modest quarterly fixed dividend of $0.10 per share and an annual variable dividend that is no longer formulaic and is completely variable. Before 2019, we tied the annual variable dividend to our gain share factor, which is a score we use internally to calculate annual cash bonuses for all Progressive employees. We made the change because there were times that the formulaic approach had us returning capital via dividends and at the same time, needing to raise capital to support growth. The annual variable dividend is entirely at the discretion of the Board, which considers current capital levels relative to prospective expected capital needs and determines generally in December of each year, if to pay a variable dividend, and if so, how much. The $13.50 annual variable dividend declared in December and paid in January 2026 largely reflected robust capital generation in 2025 from both underwriting and investments, along with the shift to higher operating leverage at our insurance subsidiaries. As John noted, we held $13 billion of capital at the holding company level at our year-end and naturally net of the declared dividend, that number was $5 billion. There's obviously judgment here, and we believe it's prudent to retain some capital above our operating needs for growth above our expectations, stock repurchases, investment risk, other strategic opportunities or contingency growth. And the $5 billion, along with our ongoing earnings, certainly provides us that flexibility. Once we have determined how much capital we are retaining for operating growth and investing, we need to consider what is the right mix of equity and debt. We have a publicly stated guideline of keeping our leverage under a debt-to-capitalization ratio of 30%. That does not mean that we will take any dramatic action if it drifts over that level. but that our intention will be to have it under 30% over the longer term. You might ask why 30% is the right limit. Given Progressive's very steady stream of earnings and cash flow generation, we could likely support a more leveraged balance sheet. While we always keep challenging ourselves as part of Progressive's culture. At the current moment, we believe that the 30% level strikes the right balance between efficiency and having a strong balance sheet, which gives us strong debt ratings and allows us to prosper through economic cycles. When reviewing our historical monthly financial leverage ratio, we did surpass the 30% guideline of debt to total capital during the financial crisis and then again briefly in 2022, largely due to unrealized losses in our investment portfolio. However, in both instances, we brought the ratio in line with our guidelines through the normal course of business. While we have a goal of staying below 30%, we do not have a policy regarding a minimum amount of leverage as we want to give ourselves maximum flexibility. Over the last 18 months, you can see that we have been trending below our historic range. The main drivers of that decrease have been significant income generation in 2024 and 2025 from both our underwriting business and investment portfolio. Also, when you look at our financial leverage relative to our stock insurance company competitors, you'll note it is broadly in a similar range. Ultimately, we believe that an appropriate amount of financial leverage will help ensure a strong balance sheet and along with our now higher operating leverage, maintain our industry-leading return on equity. In summary, while operating leverage is important, strong financial discipline is also a focus. We ensure we have enough capital for our operating growth or to write as much insurance as possible at less than or equal to a 96 combined ratio. We allocate additional capital where it can be beneficial to the business in corporate development, share repurchases or increased investment risk, while also neutralizing impact of employee stock compensation. We look to return underleveraged capital to shareholders via dividends and we maintain a debt to total capital target below 30%. That covers our financial policies at a high level, and I'll now turn it over to Jonathan Bauer, our Chief Investment Officer, to discuss our close to $100 billion investment portfolio.

Thanks, Maureen. I'm happy to get a chance to speak about how our investment risk decisions are part of the overall Progressive model that has driven strong shareholder returns over time. Given the relatively high operating and financial leverage that we spoke about earlier in the presentation, along with a focus on capital efficiency, our investment leverage defined as invested assets over shareholders' equity runs relatively high. This means that gains and losses are more magnified than many of our peers, who run with a more significant capital base. Therefore, we tend to run with a more conservative investment policy, especially in times of significant operating growth. So if we go back to the broader discussion of our capital deployment, if we have excess capital, we could deploy it towards corporate development, share repurchase and another option is to take more investment risk. In order to assess this decision, we think it might be useful to take a step back to review our investment policy since it has been a few years since we have engaged on this topic. We have two different parts of the portfolio that are managed distinctly. Our fixed income portfolio, which currently makes up about 95% of the portfolio is actively managed by our team. Our equities portfolio, just under 5% of the portfolio is a passive replication strategy to the Russell 1000 Index. We decide how much to allocate to equities, but after that, you should expect returns to broadly match the index. Our goals are twofold for the portfolio: first, we want to ensure that the operating business has all the capital it needs to grow as fast as it can at a 96 or better combined ratio. Second, after we have comfort in the capital position, is to achieve a strong risk-adjusted return over the longer term. If we look at two distinct periods over the last 6 years, you can see how our priorities are borne out in specific actions. In 2020, as COVID caused immense volatility in both the world and financial markets, we were in a strong enough capital position to both support our internal growth and take on additional investment risk at attractive levels. However, in the inflationary period between 2021 and 2023 that we spoke about earlier, the combination of incredibly strong growth with volatility in both operating margins and investment markets meant that a reduction in investment risk was appropriate to ensure no hindrance to our growth model. If we take a step back, we can see that over the last 10 years, Progressive's explosive premium growth has led to a portfolio that neared $100 billion at the end of 2025, up from $21 billion at the end of 2015. The portfolio growth is even more impressive when accounting for the significant dividends paid out over that time. We thought it might be useful to review how the different elements of our portfolio flow through our financial statements. The investment income that you see on our income statement is mostly driven by our interest income, along with the dividend income from our equities portfolio. These flow through into our operating income and are generally viewed as more recurring in nature. As we will talk about on the next slide, we have seen strong growth in this category over the last 10 years. Further down our income statement, you will see the realized gains and losses in our fixed income portfolio as well as the holding period gains and losses within our equities portfolio. This is driven by the actual sales in our portfolio and any change in the unrealized value of our equities. The final element of our investment returns and flows is the changes in unrealized gains and losses in our fixed income portfolio. This number does not flow through to our net income, but only through our comprehensive income. If we think about the significant interest rate volatility felt across the insurance industry over the last 5 years, that has been mostly seen through comprehensive income. But the important point that I would want to get across is that we manage the portfolio on a total return basis as opposed to a book yield or an investment income number. We believe this allows us greater flexibility in our investment decisions and allows for a longer-term thinking in our strategy. Our portfolio growth as well as the shorter duration nature of our portfolio has combined with rising interest rates to create significantly larger investment income flows over the last few years. We believe that if valuations improve in the fixed income credit markets over the next few years that we could have a further opportunity to drive additional returns. As John mentioned earlier, 2025 was an incredibly strong year for capital generation. Our investment portfolio returned 7.33%, with strong results coming from both our fixed income and equity portfolios. On the fixed income side, the combination of lower interest rates and tighter credit spreads drove strong absolute gains. The after-tax contribution of our investment results was just short of $5 billion, which combined with our operating results made up the almost $13 billion in comprehensive income. As mentioned earlier, Progressive continues to be a company with significant growth and we run with higher leverage. So it's important that we have the right guidelines in place for our investment team. You can see some of the more important guidelines on this slide. Our Group 1 allocation is a combination of what we consider our riskiest or at least most volatile assets in the portfolio, which include high-yield bonds, certain preferred stocks and common equities. As you can see, we are nowhere near our limit due to our view on where valuations sit amongst these assets. The second guideline measures our duration or interest rate risk. As can be seen, we are in the upper half of our range as we have been shifting our duration higher since mid-2022. The third guideline establishes our minimum average credit rating on the portfolio as A rated or better. While the team does its own credit work on all securities in the portfolio, we feel it's an important benchmark for our stakeholders to have a general idea of the credit strength of our portfolio. At year-end, the average credit rating of the portfolio was AA- as the current valuation environment does not lend itself to significant investment in lower-rated securities. The last guideline addresses the financial leverage that Maureen spoke to earlier, which even after our significant variable dividend remains below 20%. Our investment team is based in Stamford, Connecticut and manages over $95 billion using year-end numbers. As mentioned earlier, the portfolio is split between an actively managed fixed income portfolio and an equities portfolio that is managed through an index replication strategy. This split in strategy is based on the view that active management and fixed income can provide value that is more difficult to achieve on the equity side. The goals of the investment portfolio are to both support the operating business while also achieving a strong risk-adjusted return on the portfolio. That portfolio return is measured versus a benchmark on a 1- and 3-year basis. We believe we are able to attract unique talent to our team, both due to Progressive's culture and the structure of our team that allows for employees to rotate amongst different asset classes and industries throughout their career. The investment group is split up into three units: Our economics team provides macroeconomic research and analysis to both the investment team as well as broader Progressive. They've done a great job of helping with investment strategy through some significant swings in growth, inflation and employment. As our operating business has dealt with a very dynamic insurance marketplace, the economics team has partnered with them to understand and model out labor and claims trends. Our core investment research team drives our portfolio strategy as well as our security selection. Our model is somewhat different in that after spending several years in an asset class, we will rotate those individuals around to other portfolios. We believe this broader investment knowledge assists our portfolio managers and analysts in determining relative value across different investment types. Our trading and execution team supports all of our fixed income trading as well as the company's share repurchase program. I should also take this time to mention that we have an incredibly strong investment reporting and accounting group based in Cleveland that reports separately up through John. Each of our investment professionals are informed by the team's macroeconomic views, but are focused on detailed analysis at the security level. They are examining not only the credit risk, but the relative value versus other securities in their sector and other asset classes in the portfolio. The incentive compensation of the team is partly measured based on the overall portfolio performance. This is meant to encourage collaboration and discourage building the size of one's portfolio if there is no absolute or relative value. One of the major focuses of the investment team is our interest rate risk, which is measured by duration. The investment team spends a significant amount of time on macroeconomic analysis and engagement with our internal economics team to determine our interest rate positioning. You can see at year-end, we were close to 3.5 years in duration, which is close to the highest we have been over the last 25 years. This is up from 2.75 years in mid-2022 and 1.6 years in 2014. The movement to a higher duration over the last couple of years has been driven by a view that we had turned the corner on inflation and the Federal Reserve was likely to move to an easing posture. Our portfolio duration is reported monthly in our earnings release. The other major focus of our investment team is on credit risk. We invest across the fixed income universe, including asset-backed securities, commercial mortgage-backed securities, corporate debt, municipal bonds, preferred stocks, residential mortgage-backed securities, short-term or cash and U.S. treasuries. There are not fixed sizes of any of these portfolios, and we will shift our exposures around significantly over the short, medium and long term. One great example of that is our municipal bond portfolio, which has shrunk significantly over the last decade due to corporate tax reform, which has made municipal bonds significantly more attractive to high net worth individuals as opposed to corporations. As we look at comparisons versus our competitors, we see that Progressive has historically held more common equities than our public peer group, but significantly less than the mutuals and conglomerates that we compete against. We have not historically invested in the alternative space viewing public fixed income and public equities as a better risk return and liquidity profile. However, as some of those alternative markets develop, we will continue to search for the best way to achieve our goals of capital stability and strong total returns. Our relative fixed income performance has been strong over various time periods. The drivers of that outperformance come from interest rate risk and credit risk throughout the portfolio. We believe that our ability to take a long-term view towards investment valuations has allowed for us to continue to outperform our benchmarks over time. With a portfolio that is extremely liquid with mostly publicly traded securities, even though we have grown to a significant size, asset allocation changes are not difficult to execute. An easy example to look at is how quickly we were able to generate the cash needed for our variable dividend from under $2 billion at the end of October to over $10 billion at the end of December, we were able to satisfy the dividend needs with very low transaction costs. To bring the conversation back to where we started, Progressive's #1 focus is to grow as fast as we can at a 96 or better combined ratio. We believe that goal, along with our incredibly strong culture will continue to drive Progressive's growth over time. The focus of this call has been to try to inform about how we can best translate that growth and a capital-efficient structure into strong financial results. We believe that higher operating leverage, combined with an appropriate amount of financial leverage and a relatively more conservative investment portfolio can provide Progressive with both a strong financial position that can withstand volatility while also generating significant returns over time. With that, I will pass it back to Doug.

This concludes the previously recorded portion of today's event. Before we take questions today, our CEO, Tricia Griffith, would like to take a few minutes to discuss changes in our executive leadership. Tricia?

Thanks, Doug. As we stated in our recent news release, our CFO, John Sauerland announced he will be retiring in July of this year. And as you know, we are planning for Andrew Quigg to assume that role in July. I thought it would be great if you started to sit in on the IR calls and today, before we start Q&A, I've asked Andrew to talk a few minutes -- take a few minutes to introduce himself to all of you. Likely, you've seen him over the years if you've covered us for a longer period of time. Andrew?

Thank you, Tricia, and good morning, everyone. I'm excited to join you for this earnings call as I transition to the role of CFO of The Progressive Corporation, when John Sauerland retires in July. My background is available on our Investor Relations site. I thought I might provide three themes you'll see in that bio. First, I know Progressive. Since joining Progressive more than 18 years ago, I've been inspired by the extraordinary people of Progressive. What has kept me energized is how deeply our core value is aligned with my own values. Our culture and people give me confidence in our ability to continually innovate and bring value for our customers, while also delivering industry-leading returns for shareholders. I'm also very proud of the past 7 years during which I served as Chief Strategy Officer, reporting to Tricia. I've been a member of the executive team that has led our company through the pandemic and the subsequent cost inflation environment. This period has been great training for the CFO role. The second theme is that I'm a lifelong learner. I received a Bachelor of Science from Yale University. I earned an MBA from Harvard Business School, graduating as a Baker Scholar. I've grown through many roles in investment banking, finance at General Mills, consulting and a handful of different opportunities at Progressive. I enjoyed learning about new aspects of Progressive and our industry. I'm bringing that mindset to the CFO role. Finally, I love solving big problems. My career at Progressive began as a Personal Auto product manager, a core role where we balance growth and profitability. In particular, I led a turnaround of our Massachusetts Personal Auto business, after we entered the state and found we were underpriced for the environment. I also led our Direct Media team, buying advertising for our direct-to-consumer businesses. My first investor presentation came at this time in 2013. And as I shared insights into the marketing and competitive advantages we achieved from [ Dana ]. In 2015, I moved to be a General Manager in customer relationship management. where my team created experience improvements for our customers. I spoke to investors in 2016 about the science around our experience and retention efforts. During these years, I was proud to pioneer notable advancements as the business sponsor for our first big data project and the data science team that implemented our first AI chatbot. Nearly 8 years ago, I was asked to build a new strategy organization at Progressive from the ground up. This has included creating corporate strategy and corporate development teams. The strategy organization has also started Progressive life insurance and recently Progressive pet insurance as we add products around our market-leading vehicle insurance a franchise. In 2019, I spoke with investors for the third time, sharing our plans to grow across the Three Horizons. Just a final word of thanks to Tricia and our Board of Directors for providing me with several months to learn from our current CFO, John Sauerland. John is an institution at Progressive, and I am accelerating my learning to have a smooth handoff from John. I'm excited for this opportunity and look forward to connecting with you all on future investor relations calls. Thank you.

Thanks, Andrew. We now have members of our management team available live to answer questions, including presenters Maureen Spooner and Jonathan Bauer, who can answer questions about the presentation. [Operator Instructions] We'll now take our first question.

Our first question comes from Bob Huang with Morgan Stanley.

My first question is on severity. On the 10-K, when we look at auto severity, it does look like it's marginally deteriorating, but it looks very manageable. It really hasn't spiked as the way I think we all thought it would have at the middle of 2025. Just curious, as we head into 2026, can you maybe comment on your thoughts on severity? Is it still a big concern for you going forward? Or do you feel in the current environment, the inflationary pressure is just simply not going to be there?

Yes. I think overall, severity isn't as concerning. It's been relatively flat for both the trailing 12 and the quarter. Probably the one area that we watch closely is BI severity. And of course, we report incurred. And we see that through more attorney reps, larger loss costs. We've been seeing more specials in generals. But overall, we will continue to watch as the world evolves. And we do see some parts prices increasing, a little bit higher than labor rates. So we'll continue to watch that with the supply and demand of both parts and labor.

Okay. My follow-up is on autonomous. Previously, I believe, 3 quarters ago, but I'm probably wrong on that. You were saying that the progress in autonomous has been faster than you previously thought? But just curious as we're seeing more autonomous becoming gradually commercially viable, I just curious how you plan to navigate the future of autonomous from a Personal Auto insurance context? And also from a Commercial Auto insurance context as well so.

Yes, absolutely. There's a longer answer to that question. I'm going to have Andrew answer it because his team is split into three areas and one is what we call a process group. And for years, they have looked at what we call runway. So the addressable market across the board, but specifically for private passenger auto. But before Andrew speaks and kind of goes into what his team models. And in fact, they just are wrapping up a model for our next 3-year strategy. I want to reiterate both what Maureen had talked about and also Andrew mentioned, and that was our Three Horizons. So many, many years ago, not long after I took this role, my team and I really thought about how are we going to position ourselves for the future. And we used the construct, it was from McKinsey for the Three Horizons. And so at that point, we were a little bit over $20 billion overall in written premium. And so we really thought about, okay, how are we going to use these Horizons, and really make sure we're investing in all three of them concurrently. So the first one, and you saw Maureen's side was execute. We want to execute the heck out of increasing more Commercial Auto and more private passenger auto, and we did just that. We maintained our #1 spot in Commercial Auto. And we went from #4 in private passenger auto to #2. So we're very proud of that. But we also knew we wanted a diversified portfolio. So as we thought about Horizon 2, we thought about sort of adjacent products we could do. And most of those fell into Commercial Lines. So think of our relationships with TNC providers where we've learned a lot about autonomy. We bought protective insurance to kind of expand our fleet. And now we've been really focusing on the last 5, 6 years on BOP, which we now are in 46 states and really ready to grow on that in small fleet. So having that diversity is really important. And then, of course, Andrew just mentioned what we work on in terms of a little bit further field, but products that where we think we have the ability to win, and we believe we can win. And that is a couple that we've done so far, and we have more in the pipeline, direct-to-consumer life and pet insurance. Those are products that people want, but also they help with retention for our auto. So looking at those Three Horizons, execute, we've been doing that. We're going to continue to do that. Grow as fast as we can at 96. Expand, we are going to continue to work on relationships with both mobility and overall in our commercial business specifically. And then explore, Andrew's team and our next CSO, will continue to work on really thinking about exploring, again, where we have the right to play and the right to win. So I just wanted to kind of set that in motion before I have Andrew answer the question on autonomous vehicles.

Yes, Bob, thanks for the question on autonomous vehicles. We've been thinking about advanced safety technology for more than a decade. We initially provided thoughts to our investor community in 2013 by providing long-term trends on frequency, severity and ultimately, the size of the insurance market. In 2017, we provided investors with thoughts and projections while providing modeling on outcomes that we could see in the future. The framework from those presentations are still applicable today, we think. As Tricia mentioned, we continue to invest in modeling future scenarios, including both personal and commercial, as you indicated. We have recently updated our projections. And we would say, even with strong assumptions around the efficacy of vehicle safety technology, we still project personal and commercial vehicle insurance in the United States will grow robustly for decades. It's also worth noting that our projections of the U.S. vehicle insurance market have consistently underestimated actual market growth. I'd like to spend just a couple of minutes talking about how we think about the modeling and also how we think about Progressive's position within the industry. First, on the modeling side. We do expect safety technologies like autonomous driving to continue to be added to vehicles. We often see these new technologies, first arriving in the most expensive new models. In addition, the ramp-up of voluntary new technologies and new vehicles can take a long time. The average vehicle on the road is about 13 years old. So even when mandated after a certain model year, fleet penetration is slow. To be specific, we have tracked different technologies over time. An example is electronic stability control, which we consider to be fast. We find it takes about a decade for 1% of vehicles to have a new technology like ESC and 20 years for it to reach 45% of the fleet. Reaching 90% of vehicles can take more than 3 decades. When we model on the frequency side, we consistently see that vehicle technology can lower the rate of accidents. It's worth noting that sometimes safety statistics don't provide incremental improvement above what is already present in the fleet. Double counting is a persistent challenge that we and others have to navigate through. On modeling severity, we also see that these technologies can increase the cost of claims. An example here is Tesla vehicles. I recently saw a model for the size of the auto insurance industry that assumed Teslas were already fully autonomous vehicles, providing much lower frequency with similar severity. In Progressive loss experience, we see that Tesla Model 3s have higher loss costs than similar EVs. This is due both to higher frequency and higher severity. We're also aware of some pilot insurance programs for FSD on Teslas. Teslas represent less than 1% of vehicles on the road. Only a portion of these vehicles have an FSD subscription and FSD is used on less than 100% of trips. So in total, it represents a small opportunity today. This is not to say that Teslas will not lower pure premium in the future, it just isn't in our fleet data currently. One additional aspect in the modeling that is not often called out, if drivers aren't required to monitor vehicles all the time in L3 to L5, we may see consumers increase the amount of vehicle miles traveled as they substitute personal auto transportation for other forms of transportation. So access per mile may be reduced, but the VMTs might go up. It's also worth noting that 3.2 trillion miles are driven annually in the United States. As you mentioned, we've seen companies like Waymo that seem to be leading in the commercialization of autonomous vehicles. But over the past decade, it appears that Waymo has about 200 million AV miles, which is a very small fraction of overall VMTs. On the Progressive side, we think Progressive is well positioned for changes in mobility whenever they may come. Progressive continues to invest in segmenting risk down to the vehicle level. Not all technology is equal, not all technology impacts every line coverage equally. We continue to invest in the data and the math to be extremely accurate, and we believe the proliferation of safety technology will make this focus even more valuable. Beyond the vehicle level, our UBI capabilities allow us to understand how a driver performs using this technology. Progressive has access to tens of billions of driving miles annually to observe changes in driving behavior and technology. With our Snapshot, customers now allowing us to continuously monitor their driving behavior, we will pick up any tech-enabled changes in loss costs over time and adjust our rates as individual drivers harness technologies to different degrees. We also have the capability to accept data streams directly from OEMs and third parties on an individual vehicle basis with consumer consent. This has been part of our UBI technology for many years, and our UBI capabilities extend beyond our own devices and our own applications. Progressive also has over a decade of experience in insuring transportation network companies. We believe this infrastructure on our Commercial Line side can be leveraged for further commercial deployments like robotaxis. Finally, Progressive has historically been able to compete very effectively at a local and state level. Auto insurance is regulated at a state level. And as regulations adapt, we expect that this local knowledge will continue to be critical. We certainly don't know how the world will change in the coming decades, but we believe that our competitive advantages, our very robust data assets, our leading analytics and of course, our history of execution will serve us well as safety technology changes.

Thanks, Andrew. I hope what you got out of that, Bob, was that we do a lot of modeling, a lot of detailed modeling, have been doing it for decades, and rely on that, and we put some conservatism, but we believe that there's a lot of runway under all of our Horizons.

Our next question comes from Michael

Congrats to John and to Andrew. My first question is specifically on premiums for Personal Lines policy. I know there's a lot that goes into this but I believe the overarching theme is it's been slightly negative because of just healthy competition and also price reductions in Florida. If you agree with that, just kind of curious where should we expect that ratio to stay negative in '26 or maybe it will revert back to positive territory later in the year as the Florida pricing decreases kind of level off?

Yes. It's hard to say how the year will unfold. We're going to continue to grow as fast as we can at or below 96. So if we see states where we might want to reduce new business rates in order to grow, we might do that. Florida was one big piece of it. But we're always adjusting our rates accordingly. And now we're doing more small bites to the apple of a little bit up, a little bit down. But you're right, when you look at the kind of difference between net premium growth and PIF growth, a lot of it is reducing some of those new business rates in order to grow. Some of it is highly influenced by mix. So as we've opened up our aperture to grow more in the last couple of years. Our mix has shifted back to probably more pre-COVID levels. And that's okay because every customer that comes in, we believe we have the data to make sure that we get to our target profit margin. So that's one piece of it, and wouldn't necessarily have that be your barometer. And then we are selling more 6-month policies, which is about half the premium you get in a 12-month policy. Again, just trying to kind of balance that affordability for customers that want to stay insured.

Got it. That's helpful. My final question is on technology. I'm curious if advances in recent months or quarters have kind of materially changed Progressive's view on the ability for the, let's say, the combined ratio, the LAE ratio to benefit from efficiencies on claims and underwriting.

Are you talking to more in like the artificial intelligence technology, the technology that Andrew was speaking of on the vehicles?

Correct. AI specifically.

Got you. Yes, here's what I would say. This is probably a longer answer than you need, Mike. But we have a history of innovation. And so we are really concentrating on AI across the board and have win for a while. But if you go way back, into 1995, we were the first to put our auto rates online, like we saw the future, and we did that and that was before Google was even in existence. And what a great bet that was because over half of our private passenger auto is on the direct side and increasing more of our Commercial Auto. So we're going to continue with the history of innovation, including our usage-based insurance where we evolve and are getting better and better and more closely to price to the whole curve with surcharges and discounts. And more than that, using technology for our customers. So we've talked about our accident response. That's a really powerful message when people get into accidents and they're unable to call an ambulance or a tow truck, we're able to do that for them. So we've talked I think a little bit over the last year or 2 years, maybe even longer on what we've worked on in predictive AI, a lot of models using unstructured data, voice data to trigger models, and we'll continue to do that. And I think 2 quarters ago, we had someone from claims come in and talk about Gaussian Splatting for our claims analytics. So know that we are working a lot on AI and have a lot that we are focused on. I'm not going to share with you all that we're doing. We have an inventory of items that we're doing across really the enterprise, and we're speaking across the enterprise to make sure we're doing the right thing for our customers, our employees in order to make sure -- just making insurance easier and just easier to understand, easier to work with. So whether it's digital or agentic, we're going to continue to focus on that. I did talk in my letter about marketing commercial that we did called, Drive Like an Animal, that was all AI generated with the exception of Flo's voice. And we did that in so much less time than a regular commercial and so much less money and more importantly, it worked. So we measure our new prospects, and it worked very well. So we're excited about that as well. We're going to have business models, rigorous controls and we're going to continue to invest in this, and we're going to continue to lean into now Gen AI. We recently formed an AI Strategy Council. And so while we're working on sort of the next year and here's where we're at and working with vendors and making sure that we're testing things to make sure it's a really fluid process. This AI Strategy Council is sort of looking to where the puck is going in the next 3 to 5 years. So think of how -- one, clearly efficiencies, we're going to want those. But how is this going to change our industry? How is it going to change Progressive? How is it going to change how customers shop, et cetera? And they should report to my team in a few months, and we're going to continue to evolve that because we think the puck will move because this is going really fast. Here's what I would say. Lastly, I'm super excited about the promise that AI holds for Progressive and I'm excited about all the work we're doing. As with past innovations, I'm confident we will be a leader in our execution, and we'll do it responsibly. So that's where we're at. We are getting -- we're seeing efficiencies when you look at our data, and I think that will continue.

Our next question comes from Peter Knudsen with Evercore ISI.

Just another question on AI. I'm wondering if you could talk a little bit about how you think AI agents potentially could change the Personal Lines distribution, specifically for Progressive, but also the market overall?

I mean I think it's probably a different answer if I'm talking about our direct business versus our agency business. Our direct business, I think it could change it dramatically because if we have agentic agents for some policies. So I think there'll still be the desire for more complexity to talk to a human. But for some easy policies, and if I think it flows well, we should be able to change as these evolve and get better and better. Independent agents, I think it's a little bit different. Oftentimes, customers go to independent agents for more complexity of needs, feeling confident in their decisions. We've seen that especially on the Commercial Line side, where it's a little bit more of a complex policy coverage contract, and so they want to be able to kind of have that knee to knee. But I do think it's changing. If we can make it easy for our customers, one of our strategic pillars, John shared those is broad coverage. We want to be aware when and how customers want to shop and be serviced and some of that might be through an agentic AI agent.

Okay. And then one thing I've seen in the past cycles is that frequency on first-party coverages has bounced back 1 year or 2 after we've seen auto prices moderate. And so I'm wondering if you would sort of agree with that hypothesis, if you have seen any evidence of this in your book? And then if yes, basically, how is that changing your assumption for frequency in the coming year now that we've seen a softer prices?

Yes. I think frequency is obviously -- there's so many attributions that happen, but we have seen that. John, do you want to take a little bit more detail on that?

Sure. We are always analyzing frequency at the coverage at the state, at the most finite level we can and our product managers are constantly assessing what they think the future looks like to ensure that our prices that we are setting today ensure that 96 or better combined ratio moving forward. You're right. When the market tightens up, we do -- we believe it's tough to see it exactly. But when the market tightens up, there is some change in claiming behavior. And as the market loosens, we do think sometimes we see some loosening in claiming behavior. It's, again, tough to tease out relative to everything else going on in the marketplace. Additionally, we watch coverages very closely when things like recessions happen because claiming behavior changes there as well. So yes, we are certainly in a softening environment. The availability of insurance is certainly opening up relative to where it's been, and that can have influences on first-party claiming behavior. I won't try and put a number on it for you today. And I would tell you, it's not a large number ever, but it does have some influence in the direction of frequency.

Our next question comes from Katie Sakys with Autonomous Research.

Can you hear me?

Yes, Katie.

My first question is really on the regulatory environment. I think as you guys are well aware, there have been several state legislatures that are looking to push forward legislation that would focus on consumer affordability. Several states have pointed to Progressive specifically as an example of ways in which the auto insurance industry can be further regulated to support this goal. I'm just kind of curious how you guys are thinking about the potential for additional regulatory changes over the next year or 2? And really what that might mean for your overall approach to underwriting in those states.

Yes, it's hard to say, except for where we have the data, and that's from Florida. And so you saw the tort reform, the House Bill 837 that they put into play. And that has had a tremendous effect on affordability for Floridians. And in fact, if you bought a policy today versus 1 year, 1.5 years ago, you're going to pay on a new policy, 20% less, which I think is really significant. So that's been pretty powerful. I know Governor Hochul from New York is, I think, proposing some legislation on to reduce fraud and lawsuit abuse in New York, we think we support that. So we support that because we do think affordability is an issue, and competitive prices, again, is one of our strategic pillars, and we want to make sure that we take into account things like affordability. I'll talk about some of the other things we've been doing internally, though. So we will abide by the rules of any state. We know how to work, state to state. We've done that for nearly 90 years. But we internally also have felt it important to make sure that we take actions to help with affordability. So specifically on the CRM side, and we've talked about this before as it relates to PLE, we have something called customer preservation team. And customers can call in and we can talk about maybe changing coverage. We'll do a whole policy review. So maybe it could be changing coverages, lower deductibles and we can kind of work our way around different types of that. Sometimes when people call in, they will have a different product model. We rewrite that. But the 4 million customers that called in, in 2025, had an average decrease of 21%, which is significant for those customers. We also do proactively call out to customers that we think might defect to kind of help them work through the policy review. Another piece that we've had for a long time are our loyalty rewards. So think of loyalty for tenure, for minor child discounts, accident forgiveness, things like that. And that's equated to about $1.5 billion in savings in 2025. I've talked about this for years, especially during and after the pandemic, Snapshot. If you -- Snapshot whether it's the OBD device or the mobile device, if you're a good driver, you can have really, really generous discounts because we understand that rate to risk. And then we try to be flexible with what's happening in our country at any given time. So when the federal government shut down, we made sure if those employees called in that we gave them some lenience in terms of when they would pay their bill. And I know that really helped a lot of our federal employees. We talked a little bit about reducing some new business rates where we want to grow, and I think that is important. We feel like right now, we're in a really great competitiveness from a price perspective, there's a lot of shopping, and it is a soft market. But we are having really high conversion. In fact, the highest we've had in decades. So we do feel really good about that. But we applaud any reforms that can make insurance more affordable. And we think Florida is a perfect example of that.

I appreciate the extra color there. I guess maybe zooming in on Florida then, it was great to see that loss trend on the Florida Personal Auto book sort of came in below you guys' expectations last year and drove a lot of the favorable development on that book. On the flip side, that also translated to the policyholder credit charge growing to $1.2 billion by the end of last year. How are you guys thinking about rate relief in Florida over the course of '26? And how that might translate to a policyholder credit charge, if any, taken this year?

Yes. We're watching our combined ratio there closely. You sort of think of it's a 3-year rolling, so you've got '24 and '25 sort of in the book with this credit. In '26, we'll continue to watch. We've reduced rates 3x in the last year. The hard part about that area of the country is catastrophes usually come towards the end of the year. But I know Pat's team is watching that. And if we feel like we need to take more new business rate decreases, we'll do that. So more to come on that. I will tell you, we're watching it very closely and modeling it continuously.

That was our last question. And so that concludes our event. Daniel, I'll hand the call back over to you for the closing scripts.