Welcome to the Progressive Corporation’s Second Quarter Investor Event. The company will not make detailed comments relating to the quarterly results in addition to those provided and its quarterly report on Form 10-Q and the Letter to Shareholders, which have been posted to the company’s website and we will use this event to respond to questions after prepared presentation by the company. This event is available via 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 site. Participants on the phone can access the slides when the Events page at investors.progressive.com. In the event, we encounter any technical difficulty with the webcast transmission. Webcast participants can connect though the conference call line. The dial-in information and passcode are available on the Events page at investors.progressive.com. Acting as the moderator for the event will be Julia Hornack. At this time, I will turn the event over to Ms. Hornack.

Thank you, Bridget and good afternoon to all. Today, we will begin with the presentation regarding the opportunities in our Commercial Lines business by John Barbagallo and Karen Bailo. Our presentation will be followed by Q&A session with our CEO, Tricia Griffith, and our CFO, John Sauerland. Also joining us by phone for Q&A will be our Chief Investment Officer, Bill Cody and the General Manager of Progressive Home, Dave Pratt. 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 in 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 website, progressive.com. It’s now my pleasure to introduce our CEO, Tricia Griffith.

Good afternoon and welcome to Progressive’s second quarter webcast. We continue to be thrilled with our results across the board and probably, more importantly, our plans to continue to gain market share. That said if you have been watching the commercial lines results they are nothing short of phenomenal on both growth and profitability. And in addition, we have taken this last couple of years to really invest in IT and talent, and we’re going to talk a lot about that today and the addressable markets that we are really running into and excited about and we are going to have a couple of guests give you a lot of details. This slide might be familiar in a little bit different form, but when we started this webcast, we literally wanted to look at the overall P&C addressable market and understand where Progressive plays and where we win. In the last couple of years, we’ve really focused mostly on the Personal Lines section, which is more than half of the P&C industry, and more specifically on auto and home, especially as we integrated ASI to Progressive Home and we have shared with you the four pillars and our cornerstones and really our ability to continue to grow market share on the auto, on the home and of course in our bundles the Robinson and we’ve proven that we can do that. The great news here is that we are less than 9% share on the Personal Lines side of the whole P&C market. So we still have a lot of runway. And as I am sure you have read, our highest growing segment is the Robinsons. The other half of this is the Commercial Lines addressable market, which is nearly half of the overall P&C market at $328 billion. Let’s…

Thank you, Tricia. Commercial Lines continues to be a really good story at Progressive, commercial auto in particular and it’s an important contributor to overall growth and profitability. Now this has been particularly true for the last five years, but it really reflects a competitive position we’ve carved out over the last two decades. And as Tricia just alluded to and as Karen will get into a lot more detail in a few minutes. We still see lots of opportunity for continued growth simply by capitalizing on the people, skills and assets we already have in place, plus some new capabilities we’ve been developing. But first, I want to talk a little bit about results because our results have truly diverged from most of the rest of the industry. So on the left you see 20-year time series of Progressive’s commercial auto direct written premium growth versus the rest of the industry. Two things popped out here. One, commercial auto has some cyclicality to it and intends to move along with the larger economy and two, when the market grows, Progressive historically has grown at a much faster pace. In fact, over the last four years, we have increased our market share by 50%. So not only are we taking advantage of an expanding market, but we are taking share from competitors. But perhaps the more important divergence is the chart on the right, which shows underwriting profit and they’re same 20-year time series. You see a consistent delta of 8, 10 and in some years, more than 20 points on combined ratio versus the industry. So how is this possible in what is generally considered to be a very competitive industry sector? Well, I think there are a number of factors that contribute to that. And I really can’t…

Thank you, John. As both Tricia and John referenced, we have a growing and profitable Commercial Lines business and with our investments, we have an expanding addressable market that affords future opportunity for growth. The road map for growing the business focuses investments in three areas, pursuing untapped commercial auto potential, expanding the distribution of our products, and then expanding our product portfolio. I will start with the opportunity in our core commercial auto business where we have investments and additional enhancements that are fueling growth. We don’t have time for a comprehensive review of everything under way, so I’ll cover a handful of items that we are excited about and how we are opening up new substantial and under-penetrated markets with more competitive offerings. I will cover preferred truck, fleet and how our two telematics space programs are fueling our competitive position. This chart specifically highlights growth in our truck segments with written premium index to the year 2000. Now, we have been investing in our truck business for quite some time and we’re excited about our progress, but also the opportunity ahead. Reflecting on recent contributions to growth, I’ll start with the year 2012. Back in 2012, we rolled out our long-haul product more broadly and we also began using business market targets or BMTs in our segmentation and our product. And then in 2015, we launched a new product with a proprietary scoring model for trucking risks. That model included parameters around tenure, safety and stability, and introduced powerful segmentation into our product. And then between 2017 and 2018, there were a number of things going on in the marketplace for which we were well positioned for growth. The economy was growing, the trucking industry was all also growing in terms of new truck sales and new…

Thanks, Karen. Yes, this is actually a very exciting development for Commercial Lines and that’s in May, we introduced our own manufactured business owners policy or BOP and we now have 144 independent agents trained and authorized to sell it. So again, BOP is a multi-line policy that provides business liability coverage and covers common property exposures that many small businesses would have. So we see this as a first step in a country wide roll-out of the product that will open up that $20 billion addressable market that Tricia mentioned in her opening, as well as begin to unlock an additional $12 billion addressable market for commercial auto that today is tied up in auto BOP bundles. I’m going to tell you a little bit about the product and we will be updating you on results in the coming months. So our Commercial Lines strategy has always been to be low cost and easy to use. And similar to commercial auto, for BOP, we want to have a streamlined intuitive quote flow and we have competitive pricing derived from expense discipline and price segmentation. Now we chose to deploy our BOP product in the agency channel first and we’re designing the product, systems and experiences to succeed with agents, while keeping an eye on the requirements for the digital channel. Reality is today this business is in the agency channel and agents continue to deliver real value on small business insurance. Initially, we have a limited – we have limited our underwriting appetite to the five categories you see depicted on the screen. These categories are big enough to matter, will allow us to develop pricing and segmentation skills, and will allow for that straightforward intuitive quoting and binding process. Those five categories account for about half of the…

Thanks, John. [Operator Instructions] So Bridget, can we please introduce our first participant from the conference call line?

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

Thank you. Good afternoon. My first question is just on the personal auto side of things. In the 10-Q, you guys make mention of a softening market place, which I know you had also mentioned last quarter and you allude to the fact that you’re going to continue to take rate action. Can you just give us a sense, does that imply that you’re going to take some rate clients from here as you look to maintain your growth levels in a softening market, if you could just give us a sense of what to expect from you guys on the rate side of things?

Absolutely, thanks, Elyse, before I answer that question, you’ll notice that I have two Johns with me, because we had so much information on Commercial Lines, we thought it’d be best to have John Barbagallo up here as well to answer any questions you have about what we presented today, really anything about Commercial Lines. So if you have a specific question on that, just make sure you say John Barbagallo or John B or John S, just wanted to clarify that. So yes, Elyse, we’ve seen the market continues to soften, and so less shopping. And as usual we look channel by channel, state by state, segment by segment, to see opportunities where we believe we can either increase inversion due to the competitors’ actions to grow rate. And with that we have taken several actual rate decreases. And we mentioned that as well. So we were going to do, like we’ve done in the past though, because I don’t want to overshoot, because there’s a lot of unknown. So we really want to make sure that we continue to grow as fast as we can within our target margins. We’ve enjoyed these really great margins, and we don’t want to give those away unless we believe it converts. So we are very surgical in our approach. I think I mentioned last time Pat Callahan and his team did a soft market summit and we kind of went literally so deep to say what are ways we can win, what are places where conversion seems to be going really well. And let’s not mess with that. So, yes, when we believe we will grow, we’ll take rate action for that positive growth, but we won’t just try to grow just to grow, because we want to make sure that our conversion. We know that the – marketing is working harder than ever, but we’re still well within our allowable costs.

Okay, great. And then my follow up I guess this is for John B, this is on some of the – when you were guys, we are talking about BOP and that you’re going to need to revise some of your rates in October to try to see the conversion move up. I just want to get a sense of I guess how you maybe where you guys set the rates off a little bit to start and how we could think about the rate-setting as you roll out that product more widely across the country.

Sure, Elyse. Again, we have no data of our own to price off, so we’re using ISO data as a base, we are building in our assumptions about expense ratios at run rate and we have introduced some of our own segmentation using external data that we’ve tested. So we have a good base, it wasn’t really until we got into market and had some competitive quotes that we could start looking at to see where we were relative to the market. And we believe with just a few really minor modifications to our rate calculation, we’re going to be right where we want to be long-term we think in a couple of ways. One, we believe at scale, we will have a better expense ratio than a lot of the people writing this business, we believe we will out execute on segmentation over time and we just think the breadth of our distribution and our marketing power is going to drive a lot of business our way.

Yes. And to add, we actually have a new marketing campaign coming out shortly that I think really tells the story well, with the small business and other products.

Great, thanks. Bridget. Can you take the next caller from the line please?

Our next question comes from the line of Greg Peters with Raymond James. Mr. Peters, your line is open.

Good afternoon. My first question, in your letter, you spoke about rolling out a new property product. I think you call the product 4.0. Moreover, you talked about the results in your property business being affected by catastrophes. I’m curious as you roll out this product and make adjustments, how do you think you’re going to mitigate weather-related challenges going forward in your combined ratio results?

Yes, so we did roll out what we call Next-Gen 4.0. It’s in two states now we’ll plan on rolling it across the country. And that product really is much more aligned with what we’ve done over the years with our auto product on the Personal Lines side, so much deeper segmentation, understanding deductibles in areas where – that are more hail prone, etc. And really our R&D teams are working lockstep together to understand how to more deeply have segmentation on the homes. So although we won’t be able to prevent mother nature, we’ll set some parameters within our product to be able to mitigate us some portion of the loss.

Great. My follow-up question would be on Slide 16, you talk about your accurate and efficient claims handling and you talk about your LAE ratio and you show a nice chart where your LAE ratio is trending down. Can you talk about some of the levers you’ve used to lower your LAE expense ratio on top of just the growth in the business?

Yes, I can start with that and then I think you – specific to the commercial, if you want to add to the can and stuff . So yes, overall we have worked on our loss adjustment ratio for many, many years, making sure that we pay the accurate amount every time. We do in-depth training, especially during these years of high growth, we’ve hired in advance of need to make sure we have in-depth training to really understand to get the right file to the right rep at the right time. We’ve also centralized a lot of our claims organization to make sure that we have people to do similar activities over and over again. And so some of the slides that John B showed were really about the larger losses that happening in commercial and making sure that we have people that handle litigation files every day, large loss files every day, non-litigation files. So that really helps us with our efficiency to be able to get more throughput with the right people and the right leadership.

Yes. So, Greg, the chart you’re referring to that LAE is strictly commercial auto LAE. And I guess a more pointed question might have been, hey, you’ve doubled the business and it’s kind of stayed the same instead of going down, but the point is we have actually made a lot of investment in commercial-specific capabilities over the last few years and the fact that it’s kind of held level, while we’ve dramatically increased our volume, one, I think it’s a positive, and two, portends for much greater efficiency and accuracy, as we go forward. I feel really, really good about where we are on the claim side with commercial auto and I think you’ll see us continue to win in the market, in part because of our claims organization, how efficient it is and the outcomes we get.

Thank you for your answers.

Thanks, Greg.

Thanks, Bridget. Can we take the next caller from the conference call line, please?

Our next question comes from the line of Mike Zaremski with Credit Suisse. Your line is open, Mr. Zaremski.

Great. First question, can you give us an update on personal auto, bodily injury, inflation levels they stayed higher, we could see in the 10-Q and in the last quarter you, had mentioned it was coming from a specific number of states. And I think we were all trying to decipher whether this was a kind of Progressive-specific issue or an industry issue.

Absolutely, Mike. So, we started to see really in Q4 2018 both Progressive and industry having inflation BI. So, if you look at our results for the quarter specifically and incurred BI severity, it’s up about 9 points. Take two of those points out for just strengthening of our reserves. And so, we see it at about 7 points. We’ll be anxious to see the quarter two results for the industry. A couple of our competitors that have announced earnings for the second quarter, we’re very much in line with them. So, a couple of things. We have continued to narrow down a handful of states specifically five states where we believe we have opportunity for some process improvements. We’ve also kind of narrowed down what we’re seeing in terms of increased specials. So, more attorney rep files, a little bit more surgeries, more injections, things like that. So, we’ll keep an eye on that and I think that I think that will affect the whole industry but I obviously can’t count assess that. In addition, we’ve changed our mix of business with higher limits. So, with those higher limits, you’re going to get the premium associated with those limits. So, we believe we’re in a good place. Net-net, what I would say is frequency in BI is down, average written premium is up. We feel comfortable across the board with our loss cost, which in turn of course result in combined ratios lower than our targets.

Okay. And my last question is a little bit of a follow-up on Greg Peters’s question on the expense ratio. If I recall correctly, over the last couple of years a couple of years ago, you guys came out with kind of an improvement in certain expense ratio targets. And I don’t believe you met the target and one of the reasons was because you had decided that it was a good decision not to meet the target because you want to spend more on advertising. You are winning more. So just curious and then you got also a competitor recently, a major competitor come out and announce a major expense ratio improvement initiative that are taking place now. And so I know this is a long-winded question, but kind of curious, are there is there low-hanging fruit in the coming years to improve the expense ratio, and also if the competitive environment continues to increase, will the these are kind of a natural lever for the expense ratio maybe to tick down due to less advertising? Thanks.

Yes, we look at expense ratio in two different ways. Overall expense ratio and non-acquisition expense ratio. So, when we are growing and when we believe we have sufficient spend in both agency commissions in our advertising, we will continue to spend because we’ll continue to grow as long as we believe it’s sufficient. What we look at on the claims side, we talked about loss adjustment expense. The rest of the house we talk about expense ratio or not acquisition expense ratio. And we always believe there’s opportunity to be more efficient to understand how technology advancements will help us. So, I think I’ve talked a couple of times about a cohort in the claim side a cohort of claims that we do from either video or photos that the insured send and those are really efficient. We’re always looking at ways to learn new technology through that, same thing on the non-acquisition expense ratios. So, we’ve rolled out many things in our CRM organization, whether it’s chat through AI or natural language IVR, there is some things that we rolled out. So, our intentions are to continue to push down expenses and it’s the balance of course of investing in things for the future like we’ve done across the board with commercial lines and we’ll continue to do. We know that one of our strategic pillars is competitive costs. We know that customers care a lot about that. So, we always want to be competitive in order to win when people are shopping for insurance, so that’s expenses are something that are always on our mind, but we do bifurcate that with acquisition cost. Do you want to add anything?

Sure. You mentioned targets for expense ratio. We don’t have a target for the overall expense ratio, as Tricia noted, to the extent we think we can advertise effectively and bring business in below our allowable costs, we’re going to do that. And as you’ve noted in the Q, advertising costs are up about 30% year-over-year. In the agent side, we know we have to pay a competitive commission to bring in the business. So, we focus on that non-acquisition expense ratio as Tricia noted, we have had internal targets for that ratio and bringing it down. We’ve actually been hitting those targets. And for the Personal Lines business year-to-date that non-acquisition expense ratio continues to drop. We expect that the marketplace will continue to get even more competitive as you mentioned. So, it’s our intention to continue to drive or we think of those infrastructure costs, those non-acquisition expense costs down.

Thank you.

Thanks.

[Operator Instructions] Bridget, can we take the next call, please?

Our next question is from the line of Paul Newsome with Sandler O’Neill. Mr Newsom, your line is open.

Good afternoon and thanks for the call. This may be almost housekeeping question, where are the expenses that you’re making in Commercial Lines running through? Is it all through the Commercial Lines segment, and are they material to the expense ratio, if they are in that segment?

Yes. All expenses related to Commercial Lines activity, including all the investments we’ve been making some of which you heard about today run through the P&L for the Commercial Lines. So, we need to in effect self-fund what we do and still achieve our overall combined ratio and expense ratio targets, if that’s responsive to your question.

Yes, I think the only thing I would add is, they have they also have their own marketing budget. However, I’m certain that they get some brand from the whole Progressive brand to help out as well. And that’s something that we obviously attribute to each area of the Company, but everybody sort of gets it because our brand is so well known.

And then, slightly different question, do you plan to use any level of reinsurance to cap some of the different risk that you are taking here in the commercial investment?

Yes, we do, so I’ll just talk a little bit about limits in retention. So, for the BOP product that I introduced today, we will have a maximum total insured value on any risk of $5 million. But our retention in any coverage group is capped at $1 million. So, we’re using reinsurance to cap that exposure at $1 million per occurrence within each coverage group. So again, our target is small businesses with 20 or fewer employees or fewer than 20 employees, about 31 million of those in the United States. Those limits going up to a $5 million total insured value, TIV, is more than adequate for the vast majority of those businesses. And I think generally our limit distribution will be much below that, but we are capping at $1 million through the use of reinsurance.

Like you said, to the extent we are going into lines that we are less familiar with or coverage is, we are also having quota-share arrangements and at least in one line one-line coverage I believe we have 100% agreement. So, I think our intent and going in is not only to cap the maximum exposure, but also to provide competitive product while learning and getting our own experience while we do so. As John mentioned, we come into it without any of our own experience. And we are very intent on pricing accurately and segmenting really well. So, we have to gain our experience, but we’re doing so to some degree with help from re-insurers.

I think John, both used the words we’re going to be measured and disciplined because this is really exciting, but we’re not just growing these addressable markets just to grow. We want to grow and we want to be profitable for sure.

Great. I’m actually going to take a question from the webcast, Bridget. So, if you could bear with me for a moment. So, this question and I’m going to paraphrase a little bit. Can you discuss the role that service revenue and expense, of course, that’s the other side of it, such as commission income will play an, Progressive’s income model in the future? This item has been increasingly rapidly over the past couple of years. Do you see this continuing to increase, what is the margin on this revenue, etcetera? So, what role does that play in our future?

From a commission revenue perspective, we look at it differently depending on actually different types of agents in our books I referenced when I introduced Karen the platinum agency. So, those agents that are we they are broad across the board, but they have access to the Robinsons, auto, home bundles that we have, we’ll pay them more on commission. If you have if you’re a No-POP agent that writes a lot of non-standard, we’ll pay a little bit less. So, on average, they’ve been increasing a little bit but not extraordinary. We want to make sure, as we expand our footprint and become more and more preferred that we pay our agents commensurate to that.

You might be referring to the service revenue and expenses lines on our P&L. And if that’s the case, they have been growing a lot. You’re right, and that is predominantly because we are writing a lot more property with third-party companies direct to consumers. Obviously Progressive Home is a part of that offering as well. But we still have a stable of a number of other third-party property carriers that we write a good run of business with and a growing amount of business. So that commission is recognized as service revenue. Naturally, we have some costs associated with that. We have, I don’t know how many, hundreds or maybe in approaching 1,000 people in the group that actually takes the phone call. So, homeowners we have what we call Home Quote Explorer which allows people to get rates and in a lot of circumstances buy online. That said, homeowners, is little more complex product than auto. So, we have more phone calls where consumers want to ensure that they’re getting the right coverage and we close over the phone. So all of those costs flow into that service expense category and as you can see, there is a slight margin there, but by and large, the intent of that whole effort is to open up the Robinsons for us as a segment direct in this case, get those auto policies and retain those policies for decades.

Great, thanks, Bridget. Can we take the next caller from the conference call line, please?

Our next question comes from the line of Meyer Shields, KBW. Your line is open.

Great, thanks. I think this is going to sound like a question about competitors, but I’m really asking from the perspective of growth potential. We’ve seen phenomenal growth in underwriting results within commercial auto at Progressive and most competitors seem to be struggling to catch up with worsening results. That’s been the case for several years, and I’m wondering in your view how much of the competitor challenge is because Progressive segmentation allows for picking the best accounts leaving them with sort of unintentional adverse selection.

I don’t know that I can quantify how much, certainly segmentation is a key strategy for us again I go back to just having a really intense focus on commercial and really kind of getting deep and granular in terms of how we analyze what’s going on with the business and then having that will to react to what we’re seeing. So, I think with some of our competitors – and I really can’t speak for our competitors, commercial is thrown in with other commercial lines and they manage on an account level or portfolio level and that’s really never been our approach. I think we definitely extract advantage there just by kind of moving faster in a more timely way. The market is not in great shape. Yes, our results continue to diverge from the overall market, but I would say the rate and magnitude of competitor rate activity is starting to slow a little bit. So, it’s potentially getting a little bit healthier out there, but I would not say we’re seeing the same softening that perhaps you’re seeing on the personal side.

And I would say, from that perspective from John’s team, when we need to react or when we needed to react back in 2016, we did swiftly and really, we’re able to turn the corner, especially when we’re thinking about annual policies.

I will say Karen talked a lot about telematics. We really believe in the power of telematics and we think we have a significant lead in the commercial auto space there.

Okay, that’s very helpful. Somewhat unrelated question in the queue, you talked about business mix within commercial auto shifting to shorter PLE products and I’m wondering if we connect what you’re talking about today with that phenomenon?

I think, yes, to the extent the business mix shift by BMT changes, yes, we’re growing faster in some of the lower PLE categories. That’s really all that is. And we’re very happy with our truck growth, and as Karen shared with you earlier, we’re ecstatic about our ability to start penetrating the preferred truck market. And that will actually improve PLE within that segment, although again that’s still lower than what we see in business auto and some of the other areas.

Great. Thank you.

Great. I am actually going to take another question from the webcast. And it follows on actually well to the last question that Meyer just had. Paraphrasing a little bit again, but the question is really about adding bundled customers to the Commercial Lines and what that will do to the Commercial Lines segment’s combined ratio as well as policy life expectancy.

Sure. And I did talk a little bit about how having our own BOP and GL offer will at least give us access to that commercial auto that’s bundled today, I would say at this time, we have less of an explicit bundling strategy in commercial. I mean, we’re really focused on kind of getting BOP deployed getting it like, I think we have the product design right, getting rate levels right, improving segmentation and just winning in that category. But again, it will certainly improve our consideration for those more established businesses that do tend to bundle, and that will be higher PLE business at this point. I couldn’t speculate what that will mean for loss ratio, but generally higher PLE business is a good thing for loss ratio. Hopefully that’s responsive to your question.

Yes, I think we talked I talked a little bit about the opening about that being the Robinsons and that was sort of it was our approach when we went into homeowners just to make sure that we extended auto PLE and as we have more Robinsons they have the highest PLE. So, I would we’ll have to wait and see, but I think...

Well, one thing I would add is within our in-house agency and Karen talked about BQX, what we find is, there’s a lot of what I would call bundling of a personal auto in a business insurance policy. And again, we’re very focused on small businesses and about one in seven small businesses is actually home based. So, we actually think there’s a lot of bundling opportunity there between personal and small business.

One more addition on that one, so the direct business in our commercial group is a little over 10% of the business and there we are working with third parties and have had experience bundling, we have actually seen some increased retention policy life expectancy for those customers who have more than one product with us. Obviously, the predominance of the commercial business in the US is sold through independent agents, and that is why we are now providing our own BOP and GL product to independent agents. So, I think we can take that same experience from our direct business replicated in an arena that is 85% or so of the marketplace and enjoy the benefits of both PLE and as John mentioned, and we would expect loss ratio as well.

We basically want more share of wallet in every household in America.

I’m actually going to take another question from the webcast. We’ve got a bunch of good questions from longtime shareholders today. So, in light I’m sorry, wrong one. Give me a moment, got it. In light of a somewhat softening pricing environment, what other steps are being taken to maintain the impressive and important gains in PLE?

Well again, we continue to make sure that we have and then John mentioned this John Sauerland mentioned this, available home whether it’s Progressive Home or unaffiliated partners that we have been working with for a long time to make sure that we can have a conversion on every almost every policy that comes in, whether it’s through our home quote explorer, whether it’s through HQX or Progressive Home in the agency channel. And so, we continue to make sure that we make efforts around segmentation. Our advertising has been huge, our brand continues to get back, we have obviously everyone knows flow, but we have less reliance because we’ve really, broaden the aperture of how we look at customers and what they need. And I think that’s been really key, we have a very fine campaign coming up as well. I’ll give you a hint, it’s during NFL season, I won’t give any more of that, but it’s going to be really good as well as the new campaign we have in commercial lines. We’re constantly getting new creative, you’ve probably seen some of the commercials that don’t have any superstore in it, which is what we call it the store the flows [indiscernible] you become your parents when you buy your first home. So, what we’re noticing is we thought if we went in and advertise something that talked about home, it wouldn’t increase our prospects on the auto and we were wrong, they absolutely do. So, we’re seeing, because we have such an overall brand a lot in that perspective. And I think, lastly, we’ve really look at all four of the strategic pillars that I’ve talked about when I talk about our four cornerstones. So, we want to make sure we have competitive prices. So, we continue to look at how we can continue this segment across the board and how we can be competitive on LAE and NAER, and we talk about that obsessively. We talked about brand. We want to have broad coverage. We want to be we follow the customer where, when and how our customers want to shop in and be serviced. And I think lastly, and this is something that I wrote in the shareholders letter or the president’s letter was we care a lot about our culture. We have 40,000 people here that are all marching to the same tune. We want to take care of our customers. We want to grow. We want to profitably grow and we do it all while we’re following our core values. So, all those things together, it’s not one thing and we talk about this all the time, not just in my team, but across the country.

And as we’ve had softening market as portions of a couple of questions, maybe a few just some general commentary. The rates were dropping among competitors pretty markedly in the first quarter. I would characterize the second quarter as continuing decreases but far fewer of them and for less in terms of severity of the decreases. So, in aggregate even the industry and we are experiencing increased severity, but decreased frequency, but net loss costs are rising. So, rates can’t keep dropping as loss costs keep rising and the industry continue to have acceptable combined ratio. So, we have seen some softening in the softening conditions, so to speak. It’s still a difficult market for sure, but we think that trends over time will take us away from that.

Thank you. Our next caller has been very patient as we go through the webcast questions. So, Bridget, can you please introduce the next caller.

Our next question is from Brian Meredith with UBS. Mr. Meredith, your line is open.

Yes, thank you. A couple of ones here for you. First, I’m just curious, if I look at your commercial written premium growth that slowed down in the second quarter. You had this increase in the number of states, you have with Uber. Just curious why that happened, was there some the reinsurance you bought something happen?

No, nothing like that. The Uber premiums tend to get recognized in big chunks in certain months of the year. So, it’s kind of distorts the view a little bit. So that would have been in March. First quarter. And there is not a similar event in the second quarter. So, I think that’s a little bit of what you’re seeing. And for about four years, we grew at 20% compound rate. So, we have slowed a little from that, but we still have very, very robust growth on a much larger base, but yes, it is slowing somewhat.

Great. And then I’m just curious, as far as the severity, you guys are seeing on collision obviously you addressed it, you said it’s a lot of its new technology in cars. Are you seeing in the rest of the industry react to that as far as new cars? I know it is often a challenging for insurance companies to when new car comes, a lot to understand all the options and stuff on and on. Is that something that you’re able to kind of measure pretty quickly and pretty well, and maybe have an edge over everybody else?

Yes, I don’t know what’s going on with our competition in that aspect, but we look at that very carefully and we continue to hone in on our models to understand what type of ADAS equipment it has, do they have it on, what is the ultimate loss for those so we can, one, give the right discounts, two, understand the cost associated with those losses, whether it’s more total losses or more components that cost more. So, I believe we have a good model that continues to get better and better.

Great, thanks.

Thank you. Alright. We have one more question from the webcast. Here we go. So, the question is really about deploying excess capital. Given Progressive’s recent growth in profitability, could the company being more aggressive with share repurchase activities over the new few over the next few years? If not, what other ways would you look to deploy what seems to be a growing amount of excess capital?

Yes. We have, and we always talk about what we want to do with under-leveraged capital. And so really this past couple of years, we’ve really wanted to make sure with the opportunities that we have to grow the company and continue to grow. And with that growth, obviously we have to make sure we have the right a capital adequacy. So, we’ve got the 3:1 premium-to-surplus that has grown as we have grown. We want contingent capital in case unforeseen events happen, and that continues to grow as we get bigger. So, we consider share repurchases when we think it makes sense. What we have been doing clearly is growing the company and we have so many opportunities that we feel are worthy of using capital in that aspect. Obviously, we changed our dividend program this year, and toward the end of the year, we’ll be talking with the board and working toward what would be a variable dividend payable next year. And likely we will use some of the excess capital for that.

Great. Well, that’s actually the last question that I have in either queues. So, Bridget, can I hand it back over to you for the closing scripts?

That concludes Progressive Corporation’s second quarter investor event. Information about a replay of the event will be available on Investor Relations section of Progressive’s website for the next year. You may now disconnect.