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Profit margin ‘always’ takes precedence over growing premiums: Progressive CEO

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Progressive CEO Tricia Griffith has said in a letter to shareholders that taking action to reach the company’s target profit margin “always takes precedence” over growing premiums.

“While it doesn’t feel great to not be able to welcome as many new customers as possible, it is necessary to get us well positioned for the future,” Griffith said in the letter.

“Our increase in rate level during 2021, addressing rising loss costs, and our slowing of advertising spend as we focus on regaining profitability in our auto product are also contributors to the lower growth rate.”

Progressive’s September results reflected the prior trend line of elevated loss trends, with the underlying loss ratio of 76.2% higher than pre-pandemic levels. The firm reported $0.07 in operating EPS, down from $0.57 year on year, with a combined ratio of 100.1% vs 88.3%. Progressive has now missed its 96% combined ratio target for the past four months.

On elevated regulatory scrutiny amid rate increases, Griffith said Progressive identifies risks taking place in two forms: regulatory mandates based on 2020 carrier profitability and regulatory resistance to prospective rate increases.

“As we continue to see personal auto claims costs rise and the frequency of losses returning to pre-pandemic levels, our product management organization is directly engaged with our regulators to ensure we’re managing rate level based on established actuarial principles and to ensure prospective rates comply with state regulations,” the executive said.

Griffith went on to say that the carrier continues to engage with many regulators that “understand the importance of ensuring healthy and competitive voluntary markets”.

“Year to date, rate increases that were filed represented about a 5% increase in our personal auto rate level,” she said.

Commercial auto continued to grow and benefitted from increased demand, Griffith noted.

“The core commercial auto business is benefitting from exceptional freight market conditions attributed to strong demand, intermodal bottlenecks and supply constraints,” she said.

Griffith also mentioned the company’s transportation network company line of business, which posted a growth in net written premiums, in part due to an increase in ride-share mileage, as both usage in Uber and Lyft recovered.

Finally, the executive noted that Progressive was taking steps to address “persistent underperformance” in its property segment.

In addition to adequate rates, accurate price segmentation and underwriting procedures, Griffith emphasized the need to avoid concentrations of risk in areas with “significant catastrophe exposure”.

“As we review our property results relative to the industry,” she said, “much of our underperformance is driven by our higher market-share concentrations in more volatile states, such as Florida and Texas, in concert with inadequate rate levels and coverage combinations.”

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