Welcome to The Progressive Corporation's Fourth 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-K and the letter to shareholders, which have been posted to the Company's website. And we'll use this event to respond to questions after a prepared presentation by the Company. The 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 site. Participants on the phone can access the slides from the Event page at investors.progressive.com. In the event, we encounter any technical difficulties 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 moderator for the event will be Julia Hornack. At this time, I will turn the event over to Ms. Hornack.

Thank you, Jason, and good morning. Today, we will begin with a presentation about Progressive Home business. Our presentation will be followed by Q&A with our CEO, Tricia Griffith; and our CFO, John Sauerland. Our Chief Investment Officer, Jonathan Bauer will also join us for Q&A by phone. 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 website, investors.progressive.com. It is now my pleasure to introduce our CEO, Tricia Griffith.

Good morning and welcome to Progressive's fourth quarter webcast. We wrapped up 2019 with another banner quarter and banner year. We're very excited to start 2020 and obviously you've seen in January's results. So, we continue to be really excited about our opportunities around growth and profitability. As Julia said, today is about property. And so, we're very excited to tell our story both where we're come from and where we're going. Before I get into that about three quick items. The first one, we heard you. Many of you asked for us against the loss ratios associated with catastrophes. And as you'll see the January earnings, we started to do that for each line coverage, so hopefully that will be more transparent for all of you to understand the effect of our underlying loss ratios on any given month with any given catastrophe, especially in the more volatile lines hover just like properties. Second, as you likely read in the 10-K, Progressive and minority stakeholders an ARX decided to conclude the acquisition a year early. So we're spending 242 million to acquire the remaining shares of ARX. And we will close that, if all things go well, which we expect that to happen in 2020, April of 2020 versus 2021. I was talking to Jay Pratt right before this, and he said, he had so many e-mails from people at Progressive Home saying didn't this already happen. So, this is really something where we've been dating forever. People assumed we're married let's just get it done early and we're really excited to move forward and really execute on our plans. And then the third item, which I'm sad about, but happy for her and happy for Progressive is Julia Hornack has decided to take her talents down to St. Pete with Progressive Home. All of you gotten to know her very well over the years. She is really our Investor Relations Guru and she's filled a lot of your questions over the years, and we're going to miss her. But we're excited for her in her next stage of her career. She's been a controller. She's been a product manager. And now she's moving on to work on specialty products. Vendor management and some process management. Again, we're sorry to lose her from here, but so excited for Progressive. Congratulations, Julia.

Thanks, Tricia. Thanks a lot. And to all of our shareholders, portfolio managers and analysts, it's really been a pleasure getting to know you. And to do my best to represent Progressive in this and the facts that we provide in all of our public disclosures. It's been a pleasure serving our executive team. It's truly extraordinary and a wonderful partner, our wonderful partners. And I'm really excited to take my talent to St. Pete. Hopefully, I'm travelling back to Cleveland quite a bit to see my friends here, but I look forward to making friends with all my extraordinary colleagues founded on in St. Petersburg. So thank you.

I imagine you will be very diligent when you come to Cleveland versus what you say and in Saint Pete.

Yes, same thing.

So I'll visit you in the winter.

Exactly, exactly. Yes, great.

Let's get started. So, we changed the vision statement last year, and usually when you change the statement two words doesn't really make a difference. This really did make a difference. And as we started to think about a new vision statement, we started to think about how many bundle customers we had and so home fit right in there. But as we stepped back and thought about being consumer's number one choice, we really thought about why don't we have the word agents in there and this actually came from Heather Day because our collective consumers go into agencies and we want our agents to think of us first in each of their agencies. In fact, 60% of our business when you look at commercial lines and personal lines come from the agency channel. I'm the agency customer myself, I wrote in one of the quarterly letters last year about, how important this channel has been for us, and especially going forward. So for us, this key door is one change is really significant for our growth. In fact, recently I have the opportunity to do a fireside chat at the Big "I" with the CEO, Bob Rusbuldt. The Big "I" is national alliance of about a 0.25 million businesses to sell auto insurance products or insurance products, I should say. And I talked with his board, which have representatives for each day. And really, I told them about how important they are to us and really wanted to solidify our relationship and know that we want to get inside the hearts and minds of all of our agents and invest in them, and think about the future of our collective customer. So that word is very important. The Home word made sense because we believe in a dual…

Thanks, Tricia. So I will echo Tricia and reinforce that Progressive continues to invest in the independent agent channel. We recognized the value that agents provide to consumers that are looking for both products depth, and local professional advice. So our commitment to working with independent agents has been long standing, but it lines up well with recent market research and trends. The graph that you see on the left is from J.D. Power, and shows that over the last 5 years, independent agents have made steady gains in purchase satisfaction compared to captive agents, or exclusive agencies J.D. Power would call them. The satisfaction levels today are 20 points higher and what they found when they were digging deeper it was the preference for flexible product offers that really drove the largest performance gap amongst these channels. And this area of successful product offers is a place where independent agents thrive based on their ability to place clients among several different brands, compared to a captivate agents that simply lacks that flexibility. So this change in purchase satisfaction correlates to market trends. There was a parallel shift in market share beginning in 2015, 2016. A time when most major carriers were taking rate increases. Consumers started purchasing more in the independent agent and captive channels where price comparisons could be made most easily. Direct carriers may gain in personalized market share, independent agents carriers held steady while captive carriers gave up share. Now Progressive has steadily grown our own share in the independent agent channel. And that's accelerating in recent years as we have had the home to the lineup. And if we look back at our recent growth, we were clearly well positioned heading into a hard market. And our overall agency results were boosted by our product…

Good morning. I'll begin with a very brief overview of our financial results, and then dive into some of the details. Our growth is meeting our expectations. You see, last year, our direct written premium and property grew to just over $2 billion. And we're leveraging not only the Platinum agency program that Heather just described, but Progressive brand and marketing strength in the directional. The combined ratio improved by about four points last year, but it's still not meeting our goals and we'll talk in a lot more detail about that. So, I start with growth. I'm showing here growth in our new business deals over the last three years. The blue bar at the bottom is sales from local independent agents, and all of the growth that you see there is coming from bundles from auto and home bundles that we're writing largely through the Platinum program. The orange bar is our direct to consumer business. That's pretty new to ARX until we're seeing very high percentage growth in the direct channel. We've almost completed the conversion from the ASI brand to Progressive Home. So those of you who ensure your home was Progressive on your most recent deck page, you saw the Progressive Home logo. We've made investments in the quoting channels. So the portfolio program for agents that Heather described is now in 29 states. On the direct side, we're part of the home called explorer quoting platform. And we've actually built the capability to go all the way from quote to buy the policy without having to talk to an agent in 14 states as of the end of the year. And we'll continue to roll out both of those platforms in 2020. And then the light blue bar at the top, mostly in 2018…

Thanks Dave. [Operator Instructions] And before I kick it over to Jason to take our first question from the conference call line, there's been a lot of discussion in the property casualty industry about the effects of this concept of social inflation. And so, Tricia and John, I thought you might want to start off by talking about how that concept of social inflation can affect, particularly bodily injury, severity and in PIP trends.

It's a great. I'll take a stab at that on both the personal auto side and commercial line side, and then John, if you can weigh in on anything you forgot or anything that that's important to note. And then why don't I have Gary Traicoff, our Chief Actuary, let come up and talk about the reserve part of it, I think that's a really important part. So, first and foremost, in the personal auto side, frequency is down about 3% and if you compare it to the last data point, we have for the competition, it sound lower because it's flattening out. It's was about zero for the competition in quarter three. That is the 12th consecutive quarter that our frequency has been down. Again, we talked about trying to attribute certain things to frequency, it's really difficult. And we would say that our mix shift to more preferred customers seems to be a part of it. But again, it's really hard to attribute any one particular thing we'll watch that very closely. On the severity side, we're about a point different from the industry at this juncture. The typical reasons in collision and property damage component parts, actually labor rates have been increasing and total losses. We're having more frequent total loss. So those are continuing the trends we've talked about for several quarters. On the BI severity part, which we take more seriously because they have a slightly longer tails and I talked a lot internally about injuries are not like fine line, they do not to get better with age. So, we really tried to make sure we have the right file at the right rep at the right time. So here's what I would say at this point. We see the BI trends, flattening out…

We're going to ask Gary to come on and talk about reserves. I'll fill in well he makes his way with two thoughts. So one, it's important to take a little step back when you're thinking about trends, frequency and severity, and look at the longer term trends. We think in aggregate our severity trends are normally very consistent with the industry and frequency trends, we actually have been enjoying bigger drops in frequency more recently over the past three years actually, than the competition. Tricia mentioned some of that is due to writing more preferred mix of business. I would offer we also believe that is due to more robust underwriting we put in our upfront process in binding new business. We think that's had a lot of great outcomes in terms of avoiding risks whose intent is not to ensure but to prefer. So longer term severity sort of where the industry is frequency better than the industry is it also offer where Tricia was mentioning on the commercial side matching price risk, we are also very agile in the personalized side and was certainly continue to make sure we are matching prices that we perceive should rise and at least on the liability side due to the trends with risk as fast we can.

Okay. What are your thoughts?

Well, I think this is Gary Traicoff, Chief Actuary. Hello, everybody. Tricia and John gave a great overview and description. With respect to reserves, as you know, we developed unfavorably last year, about $232 million, which was six tenths of a point on the combined ratio. And that development was primarily related to the increasing injury severity trends that we were seeing and led to unfavorable case development. We recognized that early in 2019. And over the course of the last three quarters, we increased reserves from actuarial changes, roughly about $60 million. So we ended up going up about $186 million during 2019. And in addition to that, our claims adjusters continue to strengthen reserves, through natural movements as well. So when we look at overall, with some the changes that we took, we know in an accident year basis are up about 12% for commercial auto year-over-year , and 6%, or personal auto that would be lost and LAE for liability, which you probably noted in the annual report. Of course, LAE is a little bit flatter. So on an indemnity side, we're a little bit north of that. And when we think about how development is occurring recently, last year, over the last two quarters, we did develop slightly unfavorably about $20 million, of that $230 million that we saw come through two tenth of it was in the first half of the year, and a much smaller amount during the second half of the year. In January, we ended up developing unfavorably about $78 million, which was a little over two points on a combined ratio. In January, though the development was really related to some other areas. We primarily developed unfavorably due to December claims that were reported in January. When we look at our injury case reserved development between personal and commercial auto combined, we actually developed slightly favorably in January. Now that's just one month. So it's hard to say that how the future will go. And I definitely can predict how we see development and for the year of the changes that we take during the year. But as you know, as the year plays out, primarily, the development we see on the injury case reserves are a main driver of what we end up seeing.

Great, thanks, Gary.

Okay. Thank you.

So, Jason, now, can you please take the first question from the conference call line?

Certainly, your first question comes from the line of Mike Zaremski from Credit Suisse. Your line is open.

Hey, thank you for all the details. My first question is on any potential impact from the current situation with a coronavirus. The New York Times has come out and said that they're seeing just recently ad spend fall fairly materially across the brand with [indiscernible]. Curious if you think Progressive should in the near term is or is this at this part of that? And also, are you seeing any impact maybe from your [indiscernible] drivers on lower frequencies, if people are maybe working from home? Thanks.

Mike, that's a great question. So I'll start with ad spent. Right now, we're going to continue to spend -- this as a prime time of the year when people are buying insurance we're getting into that season. So, we'll continue to spend. That we have some flexibility in. But again, whether you drive a little bit or a lot, you still are required to have auto insurance. And so, our intentions will be to spend as long as we feel sufficient. So again, we'll have to be nimble because all of this, as you know, is ever changing. The great question on the UBI, so with the recent death in Washington, we asked the UBI team just to take a look at UBI, vehicle miles driven or traveled by week in January and February this year, compared to the prior 2 years. We are not quite seeing a difference. And again, there's very little data, but that tells us we haven't seen it yet. Again, now then we'll look at it weekly, we can start to see that we'll look at it across the country where we can. So we'll be able to understand pretty quickly. If you go back to something like the financial crisis, I was running planes to time and we saw frequency need drop really quickly. And so we'll have some good insight, we get our frequency data on a daily basis. So we'll under very quickly where we're at. From a vendor perspective, we always think of the concerns around auto parts that are possibly made in China. So we got our property process team talked to all of our vendors, the percentage of always that we use on our vehicles, the percentage they get from China, et cetera. For the most part with the exception of one OE, we feel like there's low risk at this time. And even with that partner, they have inventory. I guarantee it's always so it's like first and second order effects. So it could be that more cars are told, because you can get parts and then there's used car parts. So if we're going to keep watching that. From an internal perspective, we already have over 25% of our people working from home. We have had many team meetings. We're having a table top pandemic exercise tomorrow, I believe and then our Chief HR leader, Lori Niederst had a meeting yesterday with our Chief Medical Officer talking about the same things that most companies are talking about in terms of non essential travel and what to do if you're coming from a country that's been affected. So, right now, we aren't seeing any effect. But again, this is such a moving target that we have a lot of data points that we're going to be looking at literally on a daily basis to understand how will it affect possibly our frequency?

And lastly, just a follow-up to the actuarial comments at the end of the prepared remarks. I believe, you said that January's reserved problem was worse than I expected, it was fairly material. And are you saying that, that was mostly due to December flames? And maybe people just to make due to the holidays. And then you said in January exit was actually favorable, and for that just implies that just last year's loss ratio was worse and then forward-looking basis things looks a little bit better?

Gary, talking about that, but partly was the December loss is like reported.

Sure, sure, great question. So in January, we were about up to 78 million pretty much all of that really related to December claims that were reported in January. And we look at it throughout the year. So when we look at January claims, they come in February claims that come into March, et cetera. Some months were high, some months were low. It's really noticeable in the first month, because it's prior year coming in. If we exclude that those late reports that came through, our development pretty much was rated right at zero. In addition to that, if we looked at just injury case reserves, which was the primary driver of the unfavorable development last year, we actually were slightly very close, but slightly favorable in January. So those claims as they paid out came in a little bit below the initial reserves we had. Again, that an indicator that that's how the year-ends up, but that's what we had in January.

Well, Gary, over the years you've shown us that that one data point in January, and how it evolves is very different, in every year you show us a comparison of three years or four years, and so what I would say Mike is, one data point strengthen it we have sort of -- oftentimes the December late reports, but I would say we are all over this and feel good about where we're at, of course we'll react quickly or should we need to strengthen.

I can put it in perhaps simpler terms in combined ratio points. So, simply because we're turning the page what Gary was saying, we're going to see some losses we categorized as prior year every January. We are 2.2 points of prior year losses in January this year, last year we started out the year with 4.8 points, that was a lot higher than we normally see but as Trisha was mentioning generally speaking in January you're going to see some prior year development and the 2.2 doesn't concern us at all.

Thank you.

Okay, great. So, again maybe possibly.

Jason, we'll take the next caller from the conference call line, please.

Certainly, your Next question comes from the line of Elyse Greenspan from Wells Fargo. Your line is open.

Hi, yes. I was hoping, Tricia, you could provide a little bit more info on your outlook on the personal auto reading environment. It sounds like from some introductory comments that you continue having to expect on pretty modest rate movements I guess throughout the majority of your book for 2020. But has anything changed or maybe in some specific states where you're taking a little bit more rate?

Great question, Elyse, we'll continue to look at that as it evolves. It's really hard to kind of have that crystal ball. So, we last year and most of the industry knows, some took some overarching rate decreases. People were taking a little bit of decreases. People want to start to grow a little bit. We're seeing less of that the industry is getting closer to 1% at this juncture. We are very surgical in each stage, like we study each channel, each product, and we'll react to that as necessary. We feel really good where we're at in terms of our profit margin. But I talked to Pat Callahan, our Personal Lines leader all the time on specific states and what we need to do to strengthen it. Again, we don't want to get behind. It's really important for us to have stable rates for our consumers. And so, we're going to take that 1% or 2% to make sure we reach our target margins. But we feel really good specifically on the direct side of the new business coming in, we have new business targets as well, and we feel really good about it at this juncture. Again, I feel like we are really nimble when we need to be, should we need rate. But we feel good at this point and again point here point there depending on what we're seeing in specific states.

Okay. And then, my second question, could you just provide an update on the small commercial side of things, you guys were kind of a rolling out some products in one state and then the expectation was to maybe expand into more state. Can you just provide an update on where those initiatives stand today and then how that's -- how you're thinking about additional steps and rollouts throughout the rest of 2020?

Absolutely. So, in mid-2019, we rolled out Ohio, like, literally small -- five agents, trying to figure out was the product ease of use, etc., got the thumbs up, got some feedback on pricing, rolled out to Ohio and three more states in 2019. Since then we've rolled out two additional states in January, two more in February. We expect to roll out two more in March. And so total for 2020 should be in 15 states. We've bought 2,000 agents selling small business, and we are really excited about the momentum. And so, this was something, as we thought about the three horizons, think about investing before you need to, to make sure you have that enduring business -- we started thinking about this a couple of years ago, and we're really excited actually about small business, both in the agency side and through our BusinessQuote Explorer. And we'll have the Progressive product hopefully on the BusinessQuote Explorer some time in 2020. We have many different unaffiliated carriers, partners that we work with and we continue to be able to give the small business owners what they need. So I would say the one word about small business would be momentum. I feel really good about where we are. And actually really good about where we are with a lot of the topics that John Barbagallo and Karen Bailo went over a couple of quarters ago. We rolled out our small fleet program to 49 states, and the conversion has increased fourfold. Obviously, our relationship with both Uber and Lyft in the TNC has increased. So we're excited about that. Just like across the board, I feel great. Our Smart Haul program is showing great conversion -- great take rate, I should say. So that's our UBI. In commercial, and in fact on the agency side, where the customer is eligible, the take rate is 25%. So I would say commercials firing on all cylinders, small business and everywhere. Do you agree?

Yes, absolutely. And I share that excitement. Just for clarification, for all viewers, when we're talking about the rollout here, we're talking about business owners' policies in general liability. So, as Tricia mentioned, we got in the four states in 2019, we've elevated two year-to-date, and we expect to actually add about 15 states for this year, so ending the year maybe around a little over 20 states. And again, this is intended to vastly broaden our addressable market for commercial lines. We've been number one in commercial auto for a number of years now, and this opens up a marketplace that is probably 2 times, perhaps even 3 times the size of commercial auto for us. So very excited about that growth, as well as the plethora of other great things we have going on in commercial lines.

Yes. When you think about bundle customer with BOP NGL, and then you think across our channels as well, there are many small business owners that actually also have our auto and home. So as we think about that we really think about the household economics going forward. That's really what's exciting as well. Thanks, Elyse.

Your next question comes from the line of Michael Phillips from Morgan Stanley. Your line is open.

Thank you. Good morning. I guess, as sort of a continuation from that last question in a different angle. A large part of your earlier comments on the slide presentation this morning was on the agency channel and that's where the Robinsons lived. So with the focus there because of that, can you talk about any maybe incremental help that that does more -- more focused on the agency channel that that helps you with your commercial lines offerings?

Yes. So many commercial -- whether it's small business or commercial auto, actually go through the agency channel. So a little bit more of a complicated product, so that's actually a much higher percentage than would go on the direct side, although we believe at some point we want broad coverage -- or actually now we want broad coverage for everything. So, I believe, as I talk to agents there are some agents that are only personal lines, some are more commercial. But there's many especially large agencies we work with that are both. And for them to have access to all the products they need for that customer whether they have a small business and they're auto and home is really a great umbrella for all of them to serve their customers. And that's what they want to be able to do. And so I think it's really important in the agency channel because it is still a little bit more complicated. So if you think a person who is opening their first business, they want to make sure they're protected, they want to be educated, that is nicely done through the agents. So we're very bullish on that as well.

Okay. Great. Thanks. And then I guess back to frequency on the personal auto side, how does that vary by, I guess, age of car and model year? And maybe the reason to think about that is, is there a continuation of continued frequency to the extent that it's maybe more of the recent car years versus the prior ones?

We can't really assess that based on -- we look at it mostly based on customer. So from a preferred to a non-standard who are more likely to have accidents or we look at it in terms of the demographics of, are you a mature driver or are you just learning to drive, so that's how we look at frequency rather than types of car. And what I said is, it's really hard to attribute very specifically to frequency, but we do believe a piece of it is more of our preferred customer who likely have less accidents.

Yes. And as Tricia was saying, diagnosing exactly where the frequency is driven, meaning, by the driver of the vehicle, the environment, all that it is very difficult. That said, if you're focusing on model year vehicles, certainly newer model years are driven more miles than older vehicles, and we've been growing a lot and we've actually been increasing our share of those newer models as we write more and more preferred business. So the fact that our frequency is down in the same time period, the trends that I just described there, makes us pretty confident that we're writing the right preferred business.

Your next question comes from the line of Yaron Kinar from Goldman Sachs. Your line is open.

Good morning, everybody. My first question goes to the partnership with the ridesharing companies. Is it fair to think of the incentives as not necessarily fully aligned, namely, the ridesharing companies I would think are very focused on growth, would probably be interested in settling claims as quickly as possible, maybe not necessarily pushing back as much when you guys may think it is necessary. And if it is, if that line of thinking is correct, I guess how do you manage that risk for that misalignment of incentives?

Yes. So we -- actually that hasn't been an issue. We fully handle the claims. They're completely done in-house. And the great part about Progressive that I've always felt, especially having my upbringing in claims is we really haven't ever even differentiated between an insured and claimant. Every customer is a -- every consumers, possible customer, etc., and so we settle fair and accurately. So we don't get pushed back from them. I haven't heard anything about that. What they want is somebody out there getting their drivers car back on the road so they can make a living, and if there's injuries, making sure we're fair and settle those. So we haven't had that issue. I think they look for partners that have a world-renowned claims organization like we do. We have feet on the street because we have local presence and so it's really worked for both Uber and Lyft. And all the feedback has been that we do a really great job in that. And that's how I see it in terms of -- they want to have the claims handled by somebody who has a history of doing the right thing from indemnity perspective and that are also cost conscious from an LAE perspective.

And from a financial perspective, I'll point out that in both of our ridesharing relationships, there's quota share agreement. So in both of those cases, those companies have captive reinsurers that are part of their organization, and we are ceding premiums losses. So they are sharing in the financial results that we are experiencing with the other drivers.

Okay. And then my second question just goes to bodily injury severity, maybe broader terms. So can you maybe talk about what accident years you saw the increase in bodily severity coming from both in personal lines and in commercial?

Oh, you probably have to help me on this. I would say if I need to guess, well, he is looking it up or you can't -- more like 2017, '18, where we're starting to see it develop. I can't say for certain without looking that up. But again, those trends do develop a little bit more over time. And I know -- off the top of my head, that's what I would say.

Of the $232 million of prior year development, approximately $131 million was from 2018, $73 million from 2017 and the remainder from 2016 and prior. We detail all of that in our annual report.

Like I guessed, that's what I guessed and luckily I was right. Great.

Okay. And those ratios are relatively -- distribution between those accident years is similar in commercial lines and personal lines?

I think it's safe to assume that. Actually, don't have those numbers to quote for you. But generally speaking, older accident years have already developed previously, and by a large part, they have settled. So we also provide in the Annual Report loss triangles where you can see where we picked, if you will, the loss reserves at the end of the respective year and how that develops over time. You can also see the percent of those claims that have been paid, and obviously on physical damage claims, those get paid very quickly in a bodily injury. You can see that development. But especially on the personal side, those bodily injury claims will certainly take longer to settle than fixing a car, they developed fairly rapidly. Commercial lines a little longer. But you can see all that in the annual report. It is safe to assume that prior year development is predominantly from the most recent year.

Your next question comes from the line of Gary Ransom from Dowling & Partners. Your line is open.

Yes. Good morning. You mentioned briefly during the presentation about the direct side of the homeowners business. Can you talk a little bit more about why that's growing more rapidly, what kind of customers, whether it's bundled customers that are coming in on that side as well, or any other comments you might have on the direct growth?

And so we've grown -- I think I've talked previously -- and we're going to have one of the upcoming quarterly webcasts sort of a spotlight on our Progressive Advantage Agency. So in our Progressive Advantage Agency, we have Progressive Home, along with many other unaffiliated carriers. And that we were able to really have broad coverage for the customers that come in. So maybe Progressive Home doesn't want that risk, but another company does. So we're able to really -- we have a very low D&Q rate in there. So we're able to bring that in-house. We've grown our Progressive Advantage Agency substantially in the last three or four years, and that is one way where customers want to come in. In addition, we have HomeQuote Explorer that we developed a couple of years ago where you can go online, and we also have Progressive Home as well as several other unaffiliated carriers. And we have a buy button with that in 14 states. So when you're able to go on and actually purchase, I think it's really important, and we'll continue to roll out more and more states with that. So I think it really is customer preference, and that goes to our strategic pillar of broad coverage. And if you feel comfortable -- and the great part about HomeQuote Explorer is that we're able to gather a lot of information from publicly available data to make the quote really easy, and especially if it's a pretty simple basic home with things that we are able to get, they can get it done really quickly, and some people don't necessarily want to go through an agent. So we've got both areas growing rapidly, but it's really great in the direct cycle because a lot of people want to go either on the phone or online.

Can you just expand on that question on the -- moving it into commercial as well? On the commercial side, it also -- you're growing more rapidly on the direct side as it says in your K than in the Agency side. Is there any characteristics of the customers there that are bringing that growth stronger?

Yes. It's also on the base. So BQX is fairly new as well. The customers are -- the similar type customers. It is more complicated. I wrote in my letter that I sat with a BQX rep and it gets really complicated when they start adding different coverages that they want. So we feel like right now that we can accommodate about 70% of the small businesses. And that's why we're going to continue to have more and more partners and then ultimately have the Progressive BOP GL in our BQX. I would say BQX is less mature than HQX, HomeQuote Explorer, but they're doing similar things that we did several years ago in the personal auto side, and that is build in-house agency, utilize partners so we can cover many different types of small business owners with different products that we may or may not write on our paper. So I think that's a really important part. It's the similar thing. We want that bundle. So where we believe will have longer tenure commercial auto partners is if we have more of their commercial needs. Same thing on the personal line side.

Now, one thing I'd offer to add to that, Gary, when you're looking at the premium mix numbers, direct versus agency for commercial lines, you should be aware that we categorize the rideshare partners business as direct. So those obviously are pretty significant premium relationships, and as we add those in that states, you're going to see that growth.

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

Great. I just want to start by thanking you for the enhanced catastrophe disclosure and maybe more importantly for the responsiveness. Tremendously welcome.

Our pleasure.

This is a bit of a leading question for Gary. When I look at the triangles in the 10-K, the age-to-age factors for auto liability, agency, direct and commercial, they are all speeding up, and I was wondering what that actually reflects.

Yes, sure. Gary would be up in a second, Meyer.

Hi, Meyer. Now, when you are relating to that, are you looking at the paid or the incurred?

Paid.

On the paid side? Yes, so on the paid side, there is a couple of things going on, right. There are definitely some states where we are seeing a speed-up in closure rates, particularly 30 days, 60 day, 90 days coming in as well. And then on the incurred side, you may noticed some changes. What we have seen is our adjusters we feel are recognizing larger claims quicker and so they are recognizing those claims and we're seeing the numbers come up quicker, which would mean theoretically then we would see lower development factors on the paid and incurred later in the triangle, right. And so that's some of the subjectivity that's coming through now where we're seeing that speed up early. And then the question is, how much of that do we think will materialize later on where it backs off as it develops to ultimates.

Okay. No, that's very helpful. All right. Thanks. And then second question. This is completely unrelated. I want to understand the thought process of raising deductibles in the health space and changing the coverage instead of pricing for the specific option that the customer would want.

Well, part of it is, if you have a 20-year-old roof, you couldn't have rates enough to cover that if someone has a hailstorm and we replace that fully. So we tried to create different coverages that put skin in the game. It's been really difficult with vendors out there. We'll go through the storm process and you can see it as they develop, they'll go through, and you're knocking on the door and you're making sure don't you need new roof, your insurance company should pay for that. So we're trying to always pay fairly, always do the right thing for our insurers but have some skin in the game that you don't just replace your roof every single time there's a hailstorm when there isn't damage. Or when there is slight damage that isn't actually changing the structure of the roof product. So we'll see how it goes. To price to a health state would be no growth, I believe. So we're trying to be creative in our product development.

Okay. Great. Thank you so much.

Thanks.

Great. I'm actually going to take a question from the webcast. So it's about policy life expectancy, an important topic we haven't really talked about yet, and I got a couple of questions about it. So particularly in direct, what is causing the decline in policy life expectancy both on a 12 month and three month basis?

Well, a couple of things. We had gone over a process that we changed a while back, and occasionally we have that happen. There is another one that we're doing that I don't want to talk about for competitive reasons that will actually negatively affect PLE but we think it's the right thing to do to have the right customers on the book that are actually we can make money on. And also, it's been very competitive. So rates have been really stable and there's a lot of advertising out there, and it's really easy to change. And there is a lot of consumers that are just price sensitive, and they shop all the time. So they're going to shop the likelihood they can find a lower rate with us or some of our competition. I will say -- and of course this is one data point, that -- and PLE has lagged. The December development has actually increased in both the trailing -- the appeal in the three month and the 12 month. Again, I don't want to say that that's the future. We look at that as a possibility. We look at PLE very specifically with nature, nurture and price. So nature is our mix of business, obviously we want more of the preferred business. Nurture is how can we take care of our customers? We are investing a lot in the CRM organization around sort of N=1 personalization; how can we be there for you, you particular -- communicate with you in the way you want. And then of course price is the competitive landscape and the ease of going back and forth. So those three things we look at from PLE. We continue to have a team that works on PLE. I mean, the executive sponsor…

Great, and unfortunately, we've run out of time today. So I'm going to kick it back to Jason for the closing scripts. Thanks for joining us.

That concludes the Progressive Corporation's Fourth Quarter Investor Event. Information about the replay of the event will be available on the Investor Relations section of Progressive's website for the next year. You may now disconnect.