Welcome to the Progressive Corporation's Investor Relations Conference Call. This conference call is also available via an audio webcast. Webcast participants will able to listen only throughout the duration of the call. 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-Q, Annual Report to shareholders 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 Julia Hornack. At this time, I will turn the call over to Ms. Hornack

Thank you, Wendy. Good morning. Welcome to Progressive's conference call. This is Julia Hornack. I recently assumed the role of Business Leader of Investor Relations from Matt Downing. Participating on today's call are Glenn Renwick, our CEO; Brian Domeck, our CFO; and Bill Cody, our Chief Investment Officer. The call is scheduled to last about an 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 2014 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. That document can be found via the Investors page of our website, progressive.com. We are now ready to take our first question.

Thank you. At this time we are ready to begin the formal question-and-answer session. [Operator Instructions]. The first quarter is from Max Zormello [ph] with Evercore ISI.

Hi, good morning. First question is on the agency channel. I am wondering are the growth challenges in that channel related to your inability to provide a well branded bundled Homeowner product or is this something else going on and how long do you think it takes before you reach an inflection point in the agency channel and we start to see an improvement in growth and policy life expectancy?

Thanks Max. Frankly of all the things that are going well for us the one that has my greatest attention is the production in the agency channel. So you are right to bring that up as a primary question. Don’t look at it is -- I would encourage you to look it as an inability to have that bundled product, our traditional offering in the agency channel didn’t rely on that. That is really sort of the next generation where we hope that to be simply additives. Obviously we are doing it for some time, we expect to ramp that up. But we have outlined quite a few challenges, some of them competitive some of them are own pricing challenges. Last year we took rate in the channel. I call it 3.5% but most of that was in the first-half or around about the midpoint. So we are still seeing it come through a little bit in our renewals but towards the later part of the year that rate was actually moderated quite substantially. So we look forward to that flowing through into the renewals and seeing a different reaction there. The competitive reactions we have said probably on a past call that we had a multi response to that. I would say many of those responses were relatively marginal and their results, one of the biggest things that we were doing which is far from marginal is introducing our new product, and I want to be careful here since other companies do this a little differently. We are always bringing out not only a new product into the marketplace where we have R&D, so from time-to-time we’ll talk about new products and also on R&D, it’s a continuous process for us but we did release what we would call…

Thanks for the thorough answer. One other quick one if I may, are you willing to, in a direction are you willing to take the consolidated compound ratio up to 96% in order to grow in that channel meaningfully this year?

Simple answer would be yes. My commitment to shareholders is that the overall company will produce 96. Clearly you know the relative size of the portion’s agency in direct column roughly equal. But it is not an intent necessarily to have combined ratios substantially lower than 96%. If we believe we can grow and grow attractively by any closure of the margin that we might be attaining in the 96%. I have quite a physical reaction to go in over 96, so that won’t happen by design but absolutely a good growth and profitability combination in our direct channel to put the combined ratio closer to 96 is a very acceptable outcome, especially if it’s coupled with that growth combination.

Thank you.

This is Brian. The only thing I’d add to that is keep in mind in the direct channel, particularly as it relates to drivers of demand one of the functions is advertising and advertising spend and we measure that on the cost per sale or yield relative to allowable acquisition cost and so as long as we are meeting those new and renewal targets we are more than willing to continue to spend on advertising and you might see that as a change in expense ratio from time to time and you saw January, you saw that our direct channel expense ratio is a little bit elevated in January and yes indeed in January we did spend a fair amount on the advertising, higher than the growth rate. But we believe meeting those cost for sale versus allowable acquisition targets. So that is one of things that we have a lever on in terms of how much we spend on the advertising. But they always have to meet those new and renewal targets.

Okay, thank you.

Thank you. The next question is from Josh Sterling with Sanford Bernstein.

Hi, good morning. Thank you for taking the call. So Glenn I was hoping we could chat a little bit about more about your acquisition of the Homeowners company. I think you did a nice job in your shareholders letter of talking about sort of the destination era and how this sort of fits in both as an offensive opportunity as well as a defensive one of making sure you have the ability to continue to manufacture and you continue to have or have partnership and the ability to deliver Homeowners business in sort of any conceivable scenario in the future. But I’d love to get a better sense if we think, not on the defensive side but on the offensive side, what are you guys really hoping to do with this? What does -- I think you just said are creating product that agents want to sell. I think I can imagine a few different things that might fit there but I'd really love to hear kind of what you guys are thinking that you'd really like to do with this to actually drive agency sales growth of bundled products, whether that’s, I mean commissions, new product designs, introductions in more states, it would be really, really great to have a better handle on what the actual operating agenda is going to be and then sort of a realistic timeframe of what you're going to hold the organization to. Thank you.

Yes, very fair question Josh and hopefully I have sort at least outlined, what I can outline at this stage. There is work going on and I am not one to sort of avoid the question, so it always makes me awkward when I just know more than I am prepared to say right now. There is work going on right now in a joint design with ASI/Progressive folks as to what a responsive product for agents will look like, and you mentioned some factors in there. Those are all being considered. I am going to suggest to you that that will be a better question for us to address; we may or may not be ready, but if we are we will address it in our IR meeting in May. I am not avoiding the question. I am just saying that it's a real-time discussion going on right now with the answers having not been determined in specific detail but there are lot of things on the table that could happen. I think you know me well enough to know that we don't sell futures, we absolutely are working on things. So are things like commissions on the table? Could be. Are things like policy period and coordination of policy period on the table? Could be. Those sorts of things are absolutely important and do we think that there will be a group of agents that will see the combination of a Progressive/ASI as something potentially special and more importantly those that can think see what would that look like five years from now, 10 years from now. We're going to try to put that proposition out there with real substance. So for me this is exciting, we didn't go in just to get something because it was available or that we liked it. It is to make a meaningful difference for both companies and their ability to create a bundle that will be meaningful for consumers and to the extent I think I heard this in your question, yes, it does provide a lot of optionality for us going forward. We won't get everything right out of the gates but this relationship will provide an awful lot of optionality to be able to continuously change, modify and have the relationship that isn't. So the two companies are trying to sort of work through agendas, it will be very much a one agenda with regard to bundled policies.

That's great. We'll stay tuned for the investor meeting. If I could, I have to ask something, I mean you brought up the Missouri product launch of your sort of recent Snapshot generation. I am wondering if you can give us a better sense of what you think the impact of that would be if we could imagine that it sort of were rolled out nationally. Is this going to be something that actually moves the needle on the margin side or is this new business growth vehicle and if that's the case, now how do we think we should be thinking about sizing that?

There’s two choices. I wouldn't think about it as a margin issue at all. We try to get the same margin across the board regardless of rating segmentation. So to me it's just a segmentation variable, if it’s segments we feel that are favorable then we will price them to the point that their favorability is incorporated into their rate. So don't think of it as a margin issue, think of it as a growth issue. Last year you almost threw me asking ASI before our step short questions. So I thought I would cover a couple of other Snapshot issues. We were up with our Snapshot program about 28% last year; targets or margins very, very close to what we're looking at and where we're off, it's off on older models. So we're very comfortable with what we're doing in the marketplace. The Missouri entry which will be followed by many other states this year, the roll out will start, I believe late April into May. What we have seen so far and I'll just restrict this to a snapshot is I mean I report the news and I will be the first to admit when it's not the news or different but we have seen a substantial tick up in agent take rate as measured by quoting activity. So first of all it was very low to start with. So the fact that we have seen a tick up is promising, it's encouraging. It's supportive of what we saw in Massachusetts where we tried the same sort of issue. It is not at the levels that we see on a direct basis but we see directionally that we have made a difference and hopefully for agents and to be very and to be very fair, this is something…

Glenn, you just answered about seven questions. So thanks for the response.

Okay. Thanks Josh.

Thank you. The next question is from Joshua Shanker with Deutsche Bank.

Yes, good morning everyone. And thank you for taking my question. Why is the moving to Homeowners happening now on an equity basis? What changed in the past year, I mean, I maybe going to mischaracterizing it and you please can correct me. But I feel in some ways Progressive has always said, we don’t want to take on that kind of risks, it doesn’t fit with how we run our business and it makes this feel like the least worst option? Or I’m totally mischaracterizing and please just excuse me of that, but it seems like this is a change of strategy, something you’ve avoided in the past. Am I mischaracterizing it?

I’m not going to say you’re mischaracterizing that. Look out of my list is definitely the words that I’m not interested in Homeowners as a fundamental use of our capital. The leverage is different, order was absolutely where our focus was and I am if nothing else someone who believe a great deal in focus. So what has changed? It’s a fair question and I tried to address that in a couple of different ways, but let’s take one more shot.

Now I guess.

Yes, that's fair. Why now, we have for probably and I might be mischaracterizing but let me say five years, maybe six had a multiple relationships with Homeowners to be able to bundle our auto. There is a segment and let's just start with the segment. There is a segment of consumers that we simply don't really have the product that represents their long-term interest. We call them the Robinson, it doesn’t matter if you haven't sort of caught up on that nomenclature but Progressive has been incredibly successful in my mind, attacking certain market segments and getting over indexed market share relative to our indexed share of the entire PPA market. But that leaves about a 40% part of the consumer base that is not really well represented by our product. Is it because our auto product is not a fit. I think the answer to that is no. It's because those customers need more product and tend to bundle. So I have no interest with the brand that we have of being left out of 40% of the marketplace. So why now, because A, we have a brand that's appealing to what we consider to be the future long tenured customers. Auto is a primary first product purchase and we are very aware that many people in their relationship with us simply because their life is changing and they need additional products. We would like very much to use our business model, leverage the business model that we've had but use it to start to say how can we keep those people for a longer period of time and that does require additional products. We are more than happy to provide those additional products under our brand umbrella which is working well for us even if we don't…

Yeah, and just to add to that. I think it's -- we saw the success that we have with Progressive home advantage in the direct channel, where we had many companies and we saw the success of having our auto policy holders take a property product, the benefits of the POE extension and the like and we want it to have a similar entry into the agency market for that same type of customer who wants to bundle or have both of their products together. And so the ARX transaction was an investment in the agency channel to give us a vehicle to have agents and consumers in the agency channel also have that opportunity. And prior to this investment and acquisition, the penetration in the agency channel was pretty modest. And so this is an investment to get to a higher share of those customers in the agency channel. And our belief was where in the direct channel, we have multiple companies a multi-company approach in the agency channel will be very difficult to achieve. So we've worked with ARX/ASI for a number of years, love what they do in terms of their discipline and their results and their management. And so that's why we thought now would be a good time because we need to have a viable product offering that can suit the needs agents and the consumers in that segment.

And just one more comment on this so we don’t perhaps lose the focus and I have stated this really clearly in several places, it is ultimately our goal to retain the customers that we bring on, we lose customers, some don’t pay. There’s a lot of reasons you lose customers early in their tenure. The last thing I want to do is lose a customer who has been with us for a reasonable period of time and has no dissatisfaction with our service or our product simply because they need more product. We will find that and meet that need for them even if we don’t manufacture it.

That’s perfectly reasonable. The one follow-up that I have is how should the investors think about Progressive’s long-term commitment to returning earnings to shareholders in light of this change?

No, I don’t see any change. I am trying to comment but don’t see…

I don’t think it’s changed at all.

Your ability is unchanged you believe?

Well in terms of the ability, I think what we all have always said is we will return under leveraged capital, if you will to shareholders, right. And so to the extent that we have sufficient capital and more capital then we need our commitment is returning that extra capital back to shareholders, where it that via dividends or shareholders. So that philosophy of returning under leveraged capital hasn’t changed at all. How much capital is generated and the like, certainly we believe this acquisition helps us retain some of our customers longer, which should generate more capital and we also have expectations based upon ARX’s historical results that we can generate capital there as well. Certainly the capital requirement of the Homeowners business will be different. It’s unlikely that we can write at a 3:1 ratio for Homeowners but the philosophy of returning under leveraged capital to shareholders hasn’t changed at all.

Thank you for all your answers and I wish you good luck.

Thank you. The next question is from Meyer Shields with KBW.

Thank you, good morning. Glenn, I was hoping you could clarify the comments you made in the letter about commercial auto. The way it sounded to me that you are now optimistic about achieving faster growth without really sacrificing the very strong margins that you’ve been putting up, and the response ratios getting [indiscernible].

Yes, I think you are getting it correct. Let me put a little color on it. That commercial lines group is really quite a phenomenal group and they do really great work. The last couple of years has been a lot more bouncy and John Barbagallo clearly gave some indications of where we got behind the A pool [ph] on a couple of places and they have worked very hard to get caught up. So in my commentary there, sort of reiterated that we get profitability but no growth, no growth in profitability. It has been a little rockier than you would take the long term history of that group. Where I truly believe they are now is having found a very nice combination of pricing and profitability. The reported numbers that you are seeing in profitability are great when you get them. Don’t assume that we price to those and that if all our pricing decisions are as rational as we hope them to be, those margins will close to some degree but they will still be very attractive. And a good way to think about that is that in the last three months thereabouts rate changes in commercial have been sort of plus or minus about a half a point. So while we have over the last couple of years being taking bigger swings those swings now have moderated significantly and to me that is really finding the equilibrium. So not only are we positioned very well in our own internal perspective for where we need to be but the market’s coming to us a little bit as well. So trying not to do too many forward-looking statements that I might live to regret but I feel very good about commercial and hopefully that was the general intent of the paragraph in the Annual Report notwithstanding that has definitely been lot more rocky for the last couple of years, my expectation is that we are on a much better glide path now.

Okay, that’s very positive. On a related note you talked a little bit earlier about the relationship between the gas cycles and frequency and so on, is there any similar relationship on the commercial side?

I am going to have say better not to answer that because I really don’t know with any specificity. We do have an arrangement right now where we actually have in truck monitoring but it’s a fraction small, small fraction of anything we have on the auto side. So I don’t really have good indications to that. We as an organization may have information that I'm not up to speed on. I just don’t know. I think freight miles are probably a lot more indicative of supply and demand in supermarkets and other retail and all the rest of it. A fair question, let’s see if we don’t have a better answer for you in May but I don’t have the level of insight that we do vis-à-vis specialty auto.

Okay thank you very much.

Thank you. [Operator Instructions]. The next question is from Paul Newsome with Sandler O’Neill.

Good morning and thanks for the call. I was hoping you could give us your most recent thoughts on the aggregators in the direct channel because there’s been a lot of talk about various websites trying to aggregate the direct channel more and just maybe talk a little bit about how do you see barriers and opportunities within that particular market segment?

Yes, fair question Paul. We’re very well aware of that. We talk to a lot of them. So I'm going to be a little bit hedging on my comments because those conversations are sort of ongoing. For the most part I would tell you that we concentrate a lot on our own brand and bringing people directly to us rather than intermediation that may or may not be value added. That’s not a commentary on that side. I'm just saying that we would prefer consumers to understand our brand, to respect our brand, know what we can do for them and come directly to us. That’s the model that works best for us. I think it’s pretty clear that the other major player in the direct space probably feels the same way I don’t know. So aggregators don’t always get a fair representation of competitors relative to market share. So that’s always the challenge for aggregators. It might sound attractive to some consumers that I have X but if X doesn’t necessarily include the major suppliers that can be awkward. So we’re going to focus primarily on our own brand from a direct perspective. We’re very well aware of aggregators in the agency arena as well. Aggregators in the direct arena I think it’s no great surprise that Google has interest in things in where they could clearly consult with us. We have never exactly set enough timeframes on that one. So a lot of things going on. Ultimately we know best product best price is going to be a big win and we feel very good about our ability to get that message out. If I were in a different position and didn’t have a consumer brand, my answer to this might be quite different.

That leads me to a follow-up question. I know you folks have looked outside the U.S. at different markets and had some experiments there. And my sense, and please tell me if I'm wrong, is that the U.S. market is different and the brand has a different impact in the U.S. versus other markets. Is that right, have you seen evidence of that and is there any way to kind of think about and quantify that from our perspective?

I think you are right, Paul and the conference call would not be the right setting to get into it but for example I know the UK market, I think quite well and the differences, I think are quite notable and what necessarily or what might work in one market may or may not work in another market. I'm sure that’s a healthy debate with everybody having sides in that, but we do think we understand the U.S. market very well. We like our positioning in it. That will be our focus so while we look outside the United States we always look to get different ideas but for the most part our focus is close to a 100% here.

Great thank you and best of luck for 2015.

Thanks.

Thank you. [Operator Instructions]. The next question is from Brian Meredith with UBS.

Yeah, good morning. A couple of quick questions here for you. First one, Glenn, I'm just curious with respect to getting better growth in your agency segment, Homeowners going in hopefully that helps out. But what about commission rates, I mean is there a need here do you think to raise commission rates to get that preferred customer, particularly maybe on packaged business and stuff.

The answer to that Brian is maybe. We are very comfortable with our commission rate that we provide relative to our monoline auto and so on and so forth. And we recognized where that is in many respects relative to others. The but on that is we think we're providing agents with effectively a cost structure that is very close if not so to modeled off what we see in that direct structure. To the extent that we are trying to do something quite different with bundles, treat agents very differently, do what I said before, really have them feel great about the product, commissions and other things will be on the table and I'm sure if you caught the very beginning but those are very active conversations going on right now. So rather than sort of get ahead of those when the decisions haven't been made but do I think commissions maybe a part of that when the agent’s doing considerably more work to package things together, maintain that relationship? Yes absolutely. It's not an aversion to paying more commission. It's just trying to make sure that we've got a product that is priced well overall for the consumer that's buying it and wants to stay with that combination for a long period of time.

Great. And then the next question, I'm just curious you all do a terrific job using Big Data for risk selection pricing and analytics and stuff. I'm just curious from a technology perspective, any thoughts on kind of using that for value added services to customers, be it through risk mitigation, loss mitigation for customers when they’re driving or Homeowners products and that kind of things?

None yet, we have a pretty long list of things that we're very interested in doing internally which I sort of harp on that, because it's fun, it’s exciting, but none yet. I suspect there will be other opportunities for us to do things. You mentioned risk mitigation in homes. We're all very well aware of sort of the daily articles about autonomous cars and driverless cars and this and the like. Clearly what excites me about that, I get excited about it is the technology journey that will get us there. I don't necessarily opine exactly what the end outcome might be but the technology journey that will get us there. We've said very publicly that we expect our long-term trend on frequency to be down. So far that has been matched or more than matched by severity change. But I think that same trend will happen in homes. While homes don't drive themselves they certainly could put out their own fires before anyone knew. And technology will have a great deal of influence in the home and while we are not home owner savvy per se, ASI certainly is. And as we match our own Big Data competencies those are sort of opportunities that while will not be next week by any stretch of imagination, you should think of Progressive as continuing to leverage its fundamental strengths around data analysis and segmentation as we create some additional options for ourselves as well.

Great, thanks for the answer.

Thank you. [Operator Instructions]. The next question is from Mike Zaremski with Balyasny.

Hey, good morning. Just have a question about frequencies. One of that largest auto writers in the U.S. on uptake and frequencies are relative to their expectations, late in 2014, and I was curious if you guys experienced that phenomenon as well. I believe Glenn you spoke earlier about being able to I think you had talked about being able to react faster than in the past to the data you've encountered from Snapshot.

That's true. That would be more pricing for frequency, so we should see the same frequency. I think I understand the company you're referring to and that's fine and different companies will see different things. But on the frequency basis we actually saw flat to even slightly negative in the very later part of the year. Always tricky to take any one measurement in any one quarter, but if we look to the whole year we probably have a slightly negative frequency in BI that doesn’t necessarily match with some of the numbers that I've seen. That's just data, so we're looking at a flat frequency right now and as we think about the future, gas price could very well have an effect on future frequency employments. While we can't always say what's positive, we definitely have correlations between employment and frequency or unemployment and frequency whichever way you want to look at that. So there are several things. We believe frequency long-term is declining and that is based largely on vehicle technology. But they'll always be some short term variations based on more micro events in the economy, gas prices employment. And those are things that are very hard to forecast with any accuracy, but as of right now we're seeing a more mitigated frequency than some of our competitors apparently.

That's helpful. Thank you.

It looks like that was the last caller. So that concludes our call today. Wendy I will turn it back over to you for the closing script.