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Progressive (PGR)

Q2 2010 Earnings Call

August 06, 2010 10:00 am ET


Brian Domeck - Chief Financial Officer and Vice President

Glenn Renwick - Chief Executive Officer, President, Director and Member of Executive Committee

Clark Khayat - Head of Corporate Development

Bill Cody - Chief Investment Officer


Vinay Misquith - Crédit Suisse AG

J. Paul Newsome - Sandler O'Neill

Michael Nannizzi - Oppenheimer & Co. Inc.

Ian Gutterman - Adage Capital

Matthew Heimermann - JP Morgan Chase & Co

Meyer Shields - Stifel, Nicolaus & Co., Inc.

Joshua Shanker - Deutsche Bank AG

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Welcome to the Progressive Corporation's Investor Relations Conference Call. [Operator Instructions] The company will not make detailed comments in addition to those provided in this quarterly report on Form 10-Q, Shareholders' Report and Letter to Shareholders, which have been posted to the company's website, and will use this conference to respond to questions. Acting as moderator for the call will be Clark Khayat. At this time, I will turn the call over to Mr. Khayat.

Clark Khayat

Thank you, and good morning. Welcome to Progressive Second Quarter Conference Call. Participating on today's call are Glenn Renwick, CEO; and Brian Domeck, CFO. Also on the line is Bill Cody, our Chief Investment Officer. The call is scheduled to last about an hour.

Statements in this conference call that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein.

These risks and uncertainties include, without limitation, uncertainties related to estimates, assumptions and projections generally; inflation and changes in interest rates and security prices; the financial condition of, and other issues relating to the strength of, and liquidity available to, issuers of securities held in our investment portfolios and other companies with which we have ongoing business relationships, including counterparties to certain financial transactions; the accuracy and adequacy of our pricing and loss reserving methodologies; the competitiveness of our pricing and the effectiveness of our initiatives to retain more customers; initiatives by competitors and the effectiveness of our response; our ability to obtain regulatory approval for requested rate changes and the timing thereof; the effectiveness of our brand strategy and advertising campaigns relative to those of competitors; legislative and regulatory developments, including but not limited to, healthcare reform and tax law changes; disputes relating to intellectual property rights; the outcome of litigation pending or that may be filed against us; weather conditions; changes in driving patterns and loss trends; acts of war and terrorist activities; our ability to maintain the uninterrupted operation of our facilities, systems and business functions; court decisions and trends in litigation and healthcare and auto repair costs; and other matters described from time to time by us in other releases and publications.

In addition, investors should be aware that Generally Accepted Accounting Principles is prescribed when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for one or more contingencies. Also, our regular reserve reviews may result in adjustments of varying magnitude if additional information regarding claims activity becomes known. Reported results therefore may be volatile in certain accounting periods.

With that, we are now ready for our first question.

Question-and-Answer Session


[Operator Instructions] Our first question today is from Vinay Misquith with Crédit Suisse.

Vinay Misquith - Crédit Suisse AG

How's the rollout of the new product model that you refine segmentation resulted in lower overall pricing?

Glenn Renwick

That rollout continues on and it's always hard to sort of answer a question on a relative basis. But for the most preferred sector, I think when we told you may be in June that, that product design had a lot of good features in it across the board. But if you had to single out one significant change, it was a little bit more of an opportunity to go up to the preferred market in a way that is continuing to build on the information we've had. Clearly, that's not new for us, but we get more and more experience in that area, and that model reflects it. So if I was to answer that question, I would say in general, a little bit more aggressive pricing. Actually, I'll take that word back. It's not aggressive, just good pricing for the preferred sector and generally reflecting all of our best product features and where we can give greatest segmentation opportunity and discounts to those who deserve it. This product is our best in the market ever.

Vinay Misquith - Crédit Suisse AG

And has it changed the pricing on non-preferred customers?

Glenn Renwick

The nonstandard sector, the answer is yes. It changes the prices because we do that sort of all the time. But this product model, while good for that sector, the real emphasis is more on the preferred. Having said that, let me make sure that there's no doubt that our emphasis on nonstandard mid-market is an area we have lots of experience in. So the rate of change of our knowledge and product is not as great as it might be of the other end of the spectrum, and our interest and intensity on that marketplace doesn't waver at all. In this particular climate, we are seeing perhaps a little bit more pressure in that environment, little less demand. But for the most part, our nonstandard in both channels is actually performing very well for us.

Vinay Misquith - Crédit Suisse AG

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