Welcome to The Progressive Corporation's First Quarter Investor Event. The company will not make detailed comments related to quarterly results in addition to those provided in its Annual Report on Form 10-Q and the letter to shareholders, which have been posted to the company's Web site and will use this event to respond to questions after a prepared presentation by the company. This event is available via a moderated conference call line and a live webcast with a brief delay. Webcast participants will be able to view the presentation slides live or download them from the webcast slide. Participants on the phone can access the slides from the Events pages at investors.progressive.com. In the event, we encounter any technical difficulty with the webcast transmission, webcast participants can connect through the conference call line. The dial-in information and passcode are available on the Events page at investors.progressive.com. Acting as a moderator for the event will be Julia Hornack. At this time, I will turn the event over to Ms. Hornack.

Thank you, Joel, and good afternoon to all. Today, we will begin with a presentation by two senior portfolio managers, Richard Madigan and Jonathan Bauer. That presentation will be followed by a Q&A with our CEO, Tricia Griffith; and our CFO, John Sauerland. Our Chief Investment Officer, Bill Cody will also join us by phone for Q&A. This event is scheduled to last 90 minutes. As always, discussions in this event may include forward-looking statements. These 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 the event. Additional information concerning those risks and uncertainties is available on our 2018 annual report on Form 10-K, where you will find discussions of the risk factors affecting our businesses, Safe Harbor statements related to forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investors page of our Web site at progressive.com. It's now my pleasure to introduce our CEO, Tricia Griffith.

Good afternoon and welcome to Progressive's first quarter webcast. We are delighted with our first quarter results growing net written premium 16% at 88.8 combined ratio, really great start to 2019 especially after several years of profitable growth. Today's webcast is going to be a little bit different than what we have done in the past. We have focused the recent webcast on our operational strategies and how they help us make investments to ultimately achieve our vision. Today, we're going to talk about the investments side of the house. Before we get into that I want to step back a little bit and just make sure we are all clear on our overall objective function and now it's for both the operating side of the business and the investment side of the business. We want to grow as fast as we can at or below at 96 combined ratio as long as we can service our customers. The great news is, we have been achieving that goal many times over the last several years, 2016, we grew 2.8 and net written premium 2017 another 3.8, last year 5.4 and comparing quarter one of 2019 with quarter one of 2018, we've already grown nearly 1.3 billion. What that has made us a huge asset under management for our investment firm to invest of about $35 billion and of course premium flow is one of the input to our investment strategy. Progressive Capital Management or PCM as you look here called today is based in Norwalk, Connecticut. It's a 13-member strong a small but mighty team. It's first talk about overarching risk. We want to balance our operating risk with the risk of financing and investment activities to have sufficient capital to support all of the insurance we can possibly underwrite…

Thanks Tricia. Richard and I appreciate the opportunity to give you a more detailed understanding of who Progressive Capital Management is, what our strategy is and how do we fit into the larger organization. To start with, it's important to mention that we only manage the money of Progressive. We do not take in any outside funds as we believe it could distract from our core mission. As of March 31, 2019, we have 13 investment professionals who manage just under $35 billion in assets. That $35 billion is composed of $32 billion in fixed income and $3 billion of equities. We manage the fixed income portfolio on an active basis, while almost the entire equity portfolio is passively indexed to the Russell 1000 Index. If you look back over the last 10 years, you can see a sharp increase in our assets under management, especially over the last three years. One of the benefits of investment management is the scalability of the business. As you can see, we have only added three members to the team even though our assets have more than doubled. However, that scalability does have limits, and as Progressive grows further, we will continue to make sure we have adequate resources. Before we go any further, we thought it might be useful to review what the sources of our investment funds are. Starting at the bottom of Progressive's capital stack is our shareholders' equity which comes from the company's retained earnings. Next up is our preferred stock. Progressive issued $500 million of preferred stock in March of 2018 to support our operating growth. Above that, you can see our deck. Some of you on the call may have participated in our two issuances in 2018 as we came to market in both March and October.…

Thanks Jonathan. So, Jonathan walked you through how we're set up as a group, how we think about value, our performance over time, and how we think about opportunities in corporates. Now I'm going to spend a bit of time going into more depth about how we approach portfolio construction and securities selection including one example in commercial mortgage-backed securities before wrapping up and moving to Q& A. Most basic question that we ask ourselves on a regular basis at PCM is, do we want to take more interest rate risk or credit risk? And as is the case with most questions, the answer is typically, it depends. In general, we look for asymmetric risk-reward relationships in which we believe the upside is greater than the downside. As fixed income investors, we are particularly sensitive to downside scenarios and will generally look to stay away from low probability with high severity downside situations. We'd like to say that the upside takes care of itself if you're focused on protecting the downside. This chart plots the path of the 5-year treasury note against Progressive's duration positioning over the last 10 years. As a reminder, duration is a proxy for how much interest rate volatility we are willing to take on. As Jonathan mentioned earlier, we have a guideline of 1.5 to 5 years on our duration, 1.5 would be taking the least amount of rate risk possible and 5 would be the most rate risk, mathematically putting our midpoint somewhere in the 3.25 range. As you can see in the chart, we've been lower than our midpoint and in fact very close to our lower bound of 1.5 on taking interest rate risk for quite some time, for the very similar reason that U.S. interest rates have been historically low coming…

[Instructions] Joel, can you please introduce our first participant from the conference call line please?

The question comes from the line of Yaron Kinar of Goldman Sachs. Mr. Kinar, your line is now open.

Thank you very much. Good afternoon, everybody. My first question is around severity and then I have a follow-up. So, with regards to severity, I clearly saw an up tick in the BI severity in the first quarter. And physical damage severity is also continuing its creep up. I guess, do you have any thoughts as to what's leading these increases now of all times as opposed to say the last I don't know a year or two years, three years? And what actions could you take in order to offset some of that other than raising price?

Yes. on the physical damage the portion of it, we are still seeing the component parts are more expensive. So, that continues to be pretty clear as cars get -- as the technology gets more advanced. So, we can price that pretty quickly. On the BI side, what we did is we took kind of a deep dive into that trend. Mike Sieger, who is our Claims President has a group of people and they did a deep dive and have narrowed down the BI severity to seven specific states and specifically we look at segmentation and claims like we do in product, specifically soft tissue, attorney rep claims that aren't litigated. And we're actually seeing the special damages increase, not the general damages. So, think of general damages as pain and suffering, the specials as medicals. So, what Mike and his team are doing is they're taking another deep dive right now into those seven states to understand and have hypotheses to prove or disprove so they can take action, are the specials, is it more frequency of bills or more severity; is it the fact that we've grown a lot, so newer people? So, more to come on that. But Mike is all over it and literally we've gone through a lot of data to understand that BI severity so that we can correct any actions from our process improvement perspective.

Got it. Okay, we'll keep track of that I guess as we've. Then my second question is around PLE. So, I think in the 10-Q you mentioned that you've made some targeted underwriting changes in the new product model and that's what's some of the PLE erosion. Can you maybe explain what you're trying to achieve by these changes? And I don't know if you'd be able to quantify what portion of the PLE decline came from those changes specifically?

I touched about this at a little bit in the last call. A big portion of some of the decline in PLE was the process change that we made. And the reason we did it was for our lifetime underwriting profit goals. So, we had process in place. It was basically a timeframe that you could renew without a lapse. And when we looked at that timeframe, one, we thought it was too long because we were able to tell that those customers were not profitable. And when we narrowed it down, one, we're more consistent with the industry; and two, we make money on those customers. So, we knew we would lose those customers and that would decline in PLE. And I think two, and I can't necessarily quantify specifically, but we have our usage-based insurance and as we continue to evolve that model and we have people that are surcharged, they tend to leave as well. So, a couple of different components. But the process change was the biggest component. We should see that diminish a little bit after the second quarter after it's gone through the book.

Thanks so much.

Thank you.

Joel, if you could take --

Our next question comes from the line of Mike Phillips with Morgan Stanley. Mr. Phillips, your line is now open.

Thank you. Good morning. I want to hit on I guess my first question on the other side of the loss side and frequency. And this is not a new topic obviously, but you said in the past that that you don't price for the frequency changes, the favorable frequency. I guess I want to understand that a little bit better, if that's what you said and kind of why not if long-term trends and short-term trends are still very favorable, kind of talk about why you're choosing not to price the latter, it's what you meant by that?

What we don't do is we can't -- there are so many macroeconomic trends that go into frequency. So, severity we can pretty much pinpoint what we think is happening, where frequency, it could be vehicle miles driven, it could be our mix of business on the book, it could be gas prices. So there are so many things that go into it. It's hard to have the specific input. So what we do is, we watch that trend to see what's happening, but it's much more difficult than severity. Do you want to add anything?

Sure. Yes. We absolutely price the frequency. We have a frequency assumption that's forward looking to some degree driven obviously by the past. I think our previous statements have been that the frequency assumptions we made for forward-looking pricing weren't as big of a decrease as we've seen. So, we didn't price for the level of decrease in frequency that we've seen, we have been assuming smaller frequency declines in our pricing. But not again as much as we've seen recently.

Okay. Thank you. That's helpful. Second question on the commercial side, commercial auto, can you talk about what you see in terms of different loss experiences for I guess your core commercial versus kind of the ride-sharing business?

Yes. I mean commercial also has five different what we call BMTs. So, it is across the board from a tow truck to a sand and gravel hauler. So, they are very different across the board. And TNC is a higher frequency I think because they are in more of an urban areas. So, I can't give you specifics on that. We're look at that specifically with each of the BMTs, the TNC will look at state, we look at especially in the bigger states where there's a lot of construction going on. So, it varies dramatically. It would take me quite a while to go over it. I am going to have John Barbagallo who runs our commercial business attend the next webcast because I think he can go into a deeper dive on how we look at that product from a profitability perspective and a growth perspective.

Thanks Mike. Joel, can we get the next question from the conference call line please?

The next question comes from the line of Elyse Greenspan with Wells Fargo. Ms. Greenspan, your line is now open.

Thank you. My first question, Tricia, in your Shareholder Letter, you mentioned that there are some signals of a softening personal auto market. I was just hoping that you could just give us a little bit more color on what you are seeing and how you guys are kind of trying to combat that and just kind of policy growth thoughts given expectations that the market could be a little bit softer?

Sure Elyse. So, let me give you sort of a little bit of the punchline. But, let me walk back and walk you through how we have been thinking about for the last couple of years because we have a lot of tenure at Progressive and we've seen hard and soft markets come and go. So we're just seeing less price movements, so whether it's less rate take or actually many companies are taking slight decreases, so there's just less shopping. So, people are satisfied with their rate, less shopping. But let me walk you back a couple of years ago because as we have this robust or have continued to have this robust growth in profit, what we wanted to do is we wanted to take a look and say, okay, during times where there was a soft market, what are the things that we did or didn't do that we would want to do differently in this next market. And of course, things always change, so it's never the specific point in time. But a couple of years ago, we did -- about 1.5 year ago we did a deep dive into saying, okay, what would we do differently and sort of kind of gauged that around our operational strategies to continue on this growth. Because we really enjoy this great growth and profitability and we wanted to continue and we want to set ourselves up to continue that. So just recently as we've seen less rate take in the market, less shopping in the market, prospects are a little bit more challenging to get where we have great conversion now., so that's what has enabled us to continue to grow. We got together our group of people, Pat Callahan, our Personal Lines President, got together just to…

Okay. That's very helpful. My follow-up which is I want to go back to the severity conversation from earlier when you had mentioned there are seven states that have really kind of been a red flag for you guys. Are those states that you've grown -- that the growth was greater in over the past few years than other states that would may make you think that maybe it was greater growth?

I would say about half of them are. So, yes, we have grown so much in every state. But yes, there are couple of larger states where we have grown tremendously and that's where we are really taking the deep dive to understand and create hypotheses to get our arms around it.

Okay. Thank you very much.

Thanks Elyse.

Thanks. Joel, can you take the next call from the conference call line please?

The next question comes from the line of Mike Zaremski with Credit Suisse. Mr. Zaremski, your line is now open.

Hey, thanks. Follow-up to one of the previous questions about the targeted underwriting changes that will continue through the second quarter. Are those changes behind some of the underlying loss ratio improvement and I think the last quarter on the call I asked you guys about that. You said it was due to business mix changes. And I'm curious if this is a major component to that?

These are really more process changes. Our underwriting is a little bit different. It would be a portion of it, I don't think it would be a huge amount. A lot of it is our ability to make sure that we care about expenses deeply. Our mix of business continues to change. I didn't mention this when Elyse asked the question, but we are seeing our agents more and more floating us the preferred business that we are starting to come to enjoy. So, it's a portion of it, I wouldn't say it's a major portion of it.

And most of our underwriting activities are focused on incoming customers. The process change that Tricia mentioned was the renewals, so obviously in force customers with us, but the predominance of our underwriting efforts when we talk about them over the past I don't know five years or so have ensured that we are getting accurate information from people coming in the door and risks whose intent is truly to ensure.

Okay, great. And my last question is regarding your ambitions to grow into small business, commercial, and BOP. In terms of the playbook, I'd be curious, is the majority of your current commercial auto book, is that sourced through brokers? And two, in terms of the BOP business you are selling today, are you privy to the underwriting and loss ratio data that is ultimately going on to the third-party paper that you're using? Thanks.

So, the majority of the BOP already now is from unaffiliated third parties. So, we just rolled out our -- and sold our first policy on Good Friday for our BOP coverage. And we're going slow as we want to understand the system implications et cetera. So, we have it in Ohio handful of agents, we're going to add on more agents in May and then continue the roll. So, it would be slow and methodical just to make sure that it's a good process for the agents, a great product for the customer et cetera. So, slow and steady. What we're happy about is that we invested in this a couple of years ago because we think -- as we think about Horizon 2 initiatives, this is an important piece of it. And again, John Barbagallo will go into detail in the next webcast on what we're doing and commercial. We don't use the data from the other companies those who inform us of what we do. We bifurcate that data.

And your commercial auto book today -- it's commercial auto, is that sourced mostly through brokers?

Commercial auto -- I get what you're saying. Through our independent agents, yeah, the majority of our commercial auto business is -- does go through commercial agents. We rolled out there BQX, the soft launch of BQX a couple of months ago, which is BusinessQuote Explorer. So, we'll continue to have more direct and online, but right now I'd say about 95% of ours goes through independent agents.

In terms of premium for first quarter was about 84% of premium went through independent agents. So, a slight majority.

Thanks so much.

Thanks.

Thank you. So, I'm actually going to take question from the webcast right now. So, this question is from a current shareholder and their question is, what is Progressive's view on investing in alternative asset classes, specifically private equity?

Do you want to take that Jonathan? Okay, we'll have Jonathan Bauer answer that.

Sure. Thanks very much for the question. We take a very thoughtful approach to all of our investing, at the moment, how we've currently decided to split it out is public equities that we index as I mentioned before, actively managing fixed income. Within that fixed income portfolio, we focused on having more liquid securities as we mentioned in terms of mortgages, treasuries and corporate bonds. We always stay open to looking at other opportunities in terms of alternative asset classes. But, at this point in time, we felt that we'd prefer to stay in more liquid asset classes and have chosen not to invest in private equity.

Great. Thanks Jonathan.

Thanks Jonathan.

Joel, can we take the next caller from the conference call line please?

The next question comes from the line of Jeff Schmitt with William Blair. Mr. Schmitt, your line is now open.

Hi, good afternoon. Question on severity, it was 7.8% in the quarter, looks to be above the industry or at least at the high-end of the industry, and I think it had been running below for you guys fairly recently. Do you have any sense on what may have driven that shift?

Well, we don't have the industry quarter results yet, so we'll compare after that. But there is the three components that we talked about, the BI severity specifically soft tissue in several states, the physical damage or severity in terms of components and car parts. And then PIP severity went up a little bit based on, I talked about this on the last call on a Supreme Court case with the industry lost in Florida. And that's the main piece. We'll continue to watch it and watch what happens in the industry.

To that I'd add, we are looking at a quarter and maybe you've seen a couple of other reads from other companies for the quarter. If you look over the long-term, I mean decades or even years, generally you see our severity trends track fairly well with the industry. We are also the subject to the same inflation trends for parts, for medical services et cetera. Where you see our trend diverge from the industry is on frequency. So, our frequency trends have been going up less than the industry over the longer term, or more recently going down more. And we think there's a lot of things that go into that, but certainly we think our pricing, segmentation goes into that, the underwriting efforts that I mentioned previously as well as our shift to a more preferred end of the customer spectrum. So, over the longer term, I think you'll generally see our severity trends similar to the industry, we think if you look over the longer term, again, frequency is where we find the advantage.

Okay. That's helpful. And just one more on the Robinson's segment. Could you discuss how growth looks there versus the year ago and what your outlook is?

Yes. Growth continues to be strong. We're growing the fastest in Robinson's I think in both direct and agency by a lot. We only have about 2.5% of the home market with our PHA and our Platinum agents. So, we believe that there is a lot of runway there. And we have our agency and team working with our agents to make sure they think about us when they are thinking about auto and home bundle, but that's a place where we continue to be really bullish on our ability to grow and grow substantially which of course the more we have that preferred segment relates to frequency. So, we're really excited about that.

And on the direct side, obviously we've been putting a lot of new products in place or new methods of coding, our HomeQuote Explorer is a great example where we're making it easier for Robinson's to either graduate to Robinson's with us or come to us as new customers, our advertising mix has shifted toward messages that are geared toward that segment of the population. So, that's helping drive business there. And as Tricia mentioned, getting agents to change behavior around whom they think are Progressive best serving, it takes a while. And we've seen that shift she mentioned earlier in agents coding us we think their most preferred households. Within the independent agent channel, we actually find a lot more potential for Robinson's growth than the direct channel. So, we're really excited about that.

Thanks Jeff. Joel, can we take the next caller from the conference call line please?

The next question comes from the line of Meyer Shields with KBW. Mr. Shields, your line is now open.

Great. Thanks very much. Tricia, I was hoping you could comment on whether the growth that you're seeing in Robinson's sector implies that all else equal Progressive is less vulnerable to market competition than five years ago or some prior period?

Yes. I mean it's hard to quantify, but I would say that's one of the reasons why we chose to invest in ASI and invest in relationships with other unaffiliated partners. We know from data when customers have more than one product, their likelihood to stay is longer, their stickiness is better. And we wanted to be -- as part of our strategy, we wanted to make sure that -- and I think you said this in a webcast, I think John Sauerland said, we want to be able to say, yes, we got that, we can get that for you. And so whether it's on our paper or not, yes, I do believe you are less vulnerable if you have more and more products and services that can take care of as many consumers as possible.

Okay. Thanks. That's helpful. Second question, unrelated. Is the shift to the Robinson's having any impact on the average claim settlement in the legacy non-standard book, in other words, is it changing the mindset of claims adjusters?

No. I mean I would say our claims adjusters and this is I think a little -- couldn't be different than what I've heard from adjusters who are coming from other companies. We focus on every customer whether they are Sam, Diane, Wright or Robinson and make sure we give them the best service ever. So, I don't believe that Robinson's affect the Sam's. Of course, a lot of the Robinson's have higher limits, so that could be a dependent factor as well, but I don't think that has an effect.

Great. Thank you very much.

Thanks Meyer.

Well, that actually appears to be the last question in the queue. So, Joel, I'm going to hand the -- I'm going to hand it back over to you for the closing scripts.

That concludes the Progressive Corporation's first quarter Investor event. Information about a replay of the event will be available on the Investor Relations section of Progressive's Web site for the next year. You may now disconnect.