Personal automobile insurance claims severity slowed in the third quarter as higher rates continued to lift premiums and unfavorable development and inflation abated, Progressive Corp. President and Chief Executive Officer Tricia Griffith said during a third-quarter earnings call.
But reduced spending on marketing and rate and underwriting actions taken to improve profitability also adversely impacted unit growth, said Griffith.
Personal auto new applications fell 20% from the prior year, contributing to a decrease in policies-in-force, compared with end of the second quarter, she said.
Retention remained robust, which she said was a sign of the carrier’s competitiveness, and year-over-year policies-in-force rose 10% in the quarter, said Griffith. Personal auto rates were up 4% in the quarter and about 16% for the first nine months of 2023.
Progressive’s third-quarter net income shot up to $1.1 billion from $124.1 million a year earlier. The combined ratio improved 6.8 points to 92.4. Net premiums written rose 20% to $15.6 billion for the quarter at Progressive.
“We made difficult decisions to steer through difficult times … this suggests our strategy is working,” said Griffith.
The second quarter had closed on a much different note, when Progressive was in a difficult place amid rising loss costs, adverse claims development and catastrophic weather events, she said. “We were facing a significant uphill battle to reach” the company’s targeted annual combined ratio of 96, a number it adjusted to 97.2 for the first three quarters.
Progressive was facing “a very uncertain future,” said Griffith. “We ended this quarter on much more solid ground.”
Personal auto claims severity rose about 5% from the prior-year period, markedly lower than the 12% increase recorded year-over-year in the second quarter, Griffith said, while frequency is stable.
Chief Financial Officer John Sauerland called the return to single-digit auto severity fantastic, adding, “I think we’re moving in to a more normal environment.”
While automakers Ford, General Motors and Stellantis appear to have reached tentative deals that would end a United Auto Workers strike, Griffith said Progressive analyzed the potential strike impact on auto insurance writers and believes any impact will be short-term, tied to repair parts delays.
Severe storms across the country caused catastrophe losses in September and Progressive said it recorded a reinsurance recoverable of approximately $21 million under its 2023 catastrophe aggregate excess of loss reinsurance program, bringing the year-to-date total to about $23 million.
It doesn’t write homeowners in Hawaii and otherwise had limited exposure to the catastrophic wildfires there in the quarter, said Griffith.
And it started reducing risk in volatile states such as Florida, where it will nonrenew up to 115,000 property policies, and Louisiana.
In Florida, Griffith said, “We were over-indexed. We were not making money.”
The company also suspended payment plans and took other non-rate actions to improve profitability and would remove first some of them to stimulate growth, said Griffith. It would increase marketing in 2024 if profits continue.
“We have to find the right balance in cohort pricing . . and continue to assess” marketing spend to strike the right balance of new business growth and profitability, the CEO said, with weather-related claims significantly factoring into the mix.
Also, she said, “We’re a growth company … We can react every quickly when our competitors take actions” to reduce exposure or raise rates.
Sauerland said Progressive has been growing more preferred customers who are likely to “stick with us longer.”
On the commercial side of the business, Griffith said smaller competitors will have a more difficult time keeping up with a Progressive’s technology, segmentation, brand recognition and distribution capabilities.
She’s therefore reluctant to acquire policyholders from those companies. “I wouldn’t want to pay a premium to get those policies on our books. I think we can get them based on our size and efficiency,” she said.
Progressive Insurance Group is the second-largest writer of all-private-passenger insurance and the 10th-largest writer of homeowners multiperil insurance in the United States, based on 2022 direct premiums written, according to BestLink.
Most operating entities of Progressive Corp. currently have a Best’s Financial Strength Rating of A+ (Superior).