Progressive's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Progressive (PGR)

Q4 2011 Earnings Call

March 01, 2012 9:00 am ET

Executives

Matt Downing -

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

Brian C. Domeck - Chief Financial Officer and Vice President

Analysts

Michael Zaremski - Crédit Suisse AG, Research Division

Joshua D. Shanker - Deutsche Bank AG, Research Division

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

Josh Stirling - Sanford C. Bernstein & Co., LLC., Research Division

Vinay Misquith - Evercore Partners Inc., Research Division

Michael Nannizzi - Goldman Sachs Group Inc., Research Division

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

Alison Jacobowitz - BofA Merrill Lynch, Research Division

Ian Gutterman - Adage Capital Management, L.P.

Presentation

Operator

Welcome to the Progressive Corporation's Investor Relations Conference Call. This conference call is also available via an audio webcast. [Operator Instructions] In addition, this conference is being recorded at the request of Progressive. If you have any objections, you may disconnect at this time. The company will not make detailed comments in addition to those provided in its annual report on Form 10-K and letter to shareholders, which have been posted to the company's website, and will use this conference call to respond to questions.

Acting as moderator for the call will be Matt Downing. At this time, I will turn the call over to Mr. Downing.

Matt Downing

Thank you, Wendy, and good morning, and welcome to Progressive's conference call. Participating on today's call are Glenn Renwick, our CEO; and Brian Domeck, our CFO. Also on the line is Bill Cody, our Chief Investment Officer. The call is scheduled to last about one hour.

As always, our discussions on this call may include forward-looking statements. These forward-looking 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 this call. Additional information concerning those risks and uncertainties is available in our 2011 annual report on Form 10-K, where you will find discussions of the risk factors affecting our businesses, Safe Harbor statements relating to forward-looking statements and other discussions of the risks, uncertainties and other challenges we face. Our documents can be found via the Investors page of our website, progressive.com.

We are now ready for -- to take our first question.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today is from Mike Zaremski with Crédit Suisse.

Michael Zaremski - Crédit Suisse AG, Research Division

The 10-K cites 35,000 independent agencies. That's up from 30,000 in more recent years. Have the new agencies been a driver of the PIP growth? And I was curious also what your penetration rate is among independent agencies.

Glenn M. Renwick

Mike, unfortunately, the answer's probably not a significant driver of growth. We obviously know agencies, agents, and we've always sort of held to a number that we could reasonably represent was a fair representation. But every so often, we take a more detailed senses, and this is our change, our formal change to report. It's now -- 35,000 is more representative than 30,000, which we used for a long time. So it's a little bit more of a consistent PI change, and not representing a sudden shift or a sudden increase in agent. So no to the driver of additional volume, but our independent agency channel, overall, has actually been doing quite nicely, so we're happy with that. But don't focus too much on the change of number. You'll see that number going forward as a much more representative number in our PR and general releases.

Michael Zaremski - Crédit Suisse AG, Research Division

Okay. And lastly, policy life expectancy had -- has been decreasing indirect despite Snapshot and Home Advantage, which I believe are bigger contributors in that channel. Could you talk about that, and also what the driver of the increased life expectancy in agency has been -- what's been behind that?

Glenn M. Renwick

Sure. PHA and Snapshot both remained positive. So unfortunately, when you have questions like this, it tends to be little pieces of data and sometimes hard to connect the dots, so I'll try to do that as best I can. We had taken a significant -- and we talked about this in past calls -- significant rating action in Florida. Now I point out one state, and then you might say, well, just one state. Florida represents a significant chunk of our business, and therefore, it does matter. When those rate changes take place, which are very -- unfortunately, very necessary, they have a delayed effect on future renewals. And a large piece of the retrenchment on PLE, which we are certainly not happy with, is a result of our rate changes -- our necessary rate changes in Florida. We have sort of beaten ourselves up quite appropriately to see if there was anything that we were doing internally. And frankly, there were a few things that we were doing internally that also were destructive to our PLE. A couple of those were more specific to direct than they were to agency. So the results are as we report them, but I don't sense any systemic issue or major change between direct or agency. And as long as our rate levels remain adequate for, certainly, our large states, I would expect to see those stats to reverse themselves and come back to the levels that they were at. That's not a -- anything other than my expectation, but the reason for the decline, primarily, a price shock, a little bit more accentuated indirect, where we also had some things that we needed to fix with regard to build plans and some what we call on-boarding activities, where we bring new customers on board, some things that we could do considerably better. All of those are either remediated or very close to remediation.

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