Progressive Corp PGR
Q4 2012 Earnings Call Transcript
Transcript Call Date 02/28/2013

Operator: Welcome to the Progressive Corporation's Investor Relations Conference Call. This conference call is also available via an audio webcast. Webcast participants will be able to listen only throughout the duration of the call. In addition, this conference is being recorded at the request of Progressive. If you have any objections, you may disconnect at this time.

The Company will not make detailed comments in addition to those provided in its Annual Report on Form 10-K, Annual Report to Shareholders and Letter to Shareholders which have been posted to the Company's website and we'll use this conference call to respond to questions. Acting as moderator for the call will be Matt Downing.

At this time, I will turn the call over to Mr. Downing.

Matt Downing - IR: Thank you, Wendy. Good morning. Welcome to Progressive's Conference Call. Participating on today's call are Glenn Renwick, our CEO; and Brian Domeck, our CFO. Also on the line with us this morning is Bill Cody, our Chief Investment Officer. In addition, I'd like to introduce Gary Traicoff, our Chief Actuary. Gary assumed this position earlier this year when Allan Neis, our previous Chief Actuary retired. Gary will also be on the conference call today. The call is scheduled to last about an hour.

As always, our discussions on this call may include forward-looking statements. These forward-looking statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during this call. Additional information concerning those risks and uncertainties is available in our 2012 Annual Report on Form 10-K where you will find discussions of the risk factors affecting our businesses, Safe Harbor statements relating to forward-looking statements, and other discussions of the risks, uncertainties, and other challenges we face. Our documents can be found via the Investors page of our website

Wendy, we are now ready to take our first question.

Transcript Call Date 02/28/2013

Operator: Mike Zaremski, Credit Suisse.

Michael Zaremski - Credit Suisse: So, the combined ratio over the past three months, in particular, January has been running well below 96%, which Glenn you seem to have reiterated in the letter to shareholders as an important target level. So, I'm curious then whether the forces which have caused the combined ratio to run well below 96% to more temporary in nature. I guess, for example, perhaps those are elements of 'corrective actions' following the combined being above 96% in the first half. I know you guys have talked about expenses as well? Thanks and I have one follow-up.

Glenn M. Renwick - President and CEO: Fair question. Our rates clearly – I'd try to outline that fairly extensively in some of the communications, but we've clearly corrected our rates in mid-year, some of that is earning through and earning through at levels that look like will be well-suited to meet our 96% or below. I wouldn't personally read too much into like a January number. There were – winter months interesting at best. And in some cases, we had some winter weather that was a little more typical, and some that was quite atypical. We even had events that probably took out, A, for a large part of the population almost a weekends worth of driving. So, we don't know we ever be able to sort of get to the point of being able to say that was a half a point or a quarter of a point or even a couple of points, (obviously). We think we're priced at about the right level for going forward. As the nature of rate revisions you tend to be a little bit spiky, you take a rate revision. And by definition you are taking those rates up to a level that is slightly higher than you might want to if you could bleed the rate level in over time. So, I don't want to get too technical here, but we priced to a midpoint of the rate revision. And so in the early phases of a rate change, we are likely to see a little bit more of an earned premium -- as the earned premium comes in we're likely to see losses perhaps reflect a slightly better combined ratio, but over the length of that rate revision we would expect to meet our 96 or below target. So, I'd tell you we're right on track. But think of the maturing of a rate change so we take it up a little bit, it matures through and we're now coming into and I don't want to overplay this because the results will be the results but we're starting to come in to a little bit more of a mature place in our rate revision. I'd add a couple of points to that. So, it means that people who are about to renew are now going to be renewing into the rate revision they were last on, and that's an important point because they don't see the quantum jump in rates which they see the first time after we have taken rate changes. First of all what I mean by the maturing of the rate level, we also would expect to see from the time we have taken our rates competitive actions, that start to make the competitive nature of the rate change a little more favorable to conversion. Did that get at your question?

Michael Zaremski - Credit Suisse: Yeah, that's very helpful. Then lastly I noticed that policyholder life expectancy levels for the full year of 2012 were well below the levels for the first three months of 2012. So I think that implies there was a sharp drop off in 4Q. If that is correct, what were the drivers and what are the implications for the coming quarter I guess for example does that translate into perhaps the sharper PIF decline?

Glenn M. Renwick - President and CEO: Actually Brian has something to add I think to the past question and probably will carry right on to this one.

Brian C. Domeck - Vice President and CFO: The only thing I was going to add to Glenn's comment for your first question, I lot of it sort of the earning in of the rate change that has improved. So, the loss ratio -- the other thing I would say which we referenced in the letter in the like particularly towards the last half of that last year, we did reduce our advertising spend which was influencing the expense ratio. We have since the beginning of the year come up to more comfortable levels to a year ago. So, in January, we did ramp up our advertising more so than what we had in the second half of the year, since we were more confident in our rate level. And the other thing I would – which we talked about before, at least in the aggregate when you look at the aggregate combined ratio, keep in mind some of our special lines products. There is some seasonality in terms of losses for our specialized products, for example, boats and motorcycles much less usage in sort of the winter months. But for the auto perspective, most of it the rate change related. In terms of your question related to policy life expectancy, a large part of it and the decline is due to the rate changes we took. And we know every time we measure it in terms of retention rates, renewal rates et cetera when we take rate changes there has a negative effect on that. What I would say is most of the rate changes and most of the significant rate changes we took were more in the late second quarter, early third quarter timeframe, not all of them but most and most of those, as Glenn has mentioned, have cycled through the system such that subsequent renewals will not see as bigger rate change as they might have seen in the last several months. So, can't clearly predict what the PLE change will be, but certainly the decrease was reflection of the rate changes that we made.

Michael Zaremski - Credit Suisse: Am I correct in saying that there was a big drop off in 4Q, even though you started raising rates in 2Q and 3Q like you just said?

Brian C. Domeck - Vice President and CFO: Yeah, the retention rate since policies for auto are six months policies, each and every month our cohort of policies are renewing and so each and every month, yes, we have started seeing lower renewal rates than we might have previously seen. So, that would be contributing to the deceleration of the policy in-force (growth), as well as certainly the rate changes have influenced our new business conversion rates.

Glenn M. Renwick - President and CEO: Just to be clear about that, some customers might see the rate change the day after we make them and some may see them six months after make them, so it takes a full six month cycle, actually it's even longer than that because there is a little bit of delay from when we take them to and they are affective for renewals because we quote renewals quite a way in advance. So, without getting more detail on that cycle, I will just tell you that cycle now has gone all the way through.

Operator: Josh Sterling, Sanford Bernstein.

Josh Sterling - Sanford Bernstein: The question I'd like to ask would be, obviously we are talking about the BOEs coming in, conversion rates coming down from the cyclical exchange rate taking. When you look across other larger companies that also seem to be shrinking units while, the rate in pricing and people are still talking about severity, so the first part of this is really just do you still think severity is systemic and this is an issue that's going to work its way through the rest of the system? Then the question is, when we think about some of the lagging competitors, regional, some mutual perhaps I'm not asking by name but broadly is this something that you think will lead to an increase in the rate base with those firms over the next 6 to 12 months or is this going to be a thriller story play out?

Glenn M. Renwick - President and CEO: Let me see if I can get to some of those pieces, clearly I think we are pretty clear about what we saw and how we discuss our need for rate last year. So, the real question sort of comes what do we see now, and I'd let's break it down pretty simply, frequency, I'd tell you not much of a story of frequency it's sort of really benign and if you put a range around not much happening to plus and minus two you probably capture everything we know about frequency by almost every coverage and probably even closer than the two plus or minus two. So, that’s good but it can change at any point in time, so as you know we watch that very closely. Severities, you'll see even from our most recent publication, sort of, five is a number that you can reasonably hang onto. We have some belief that maybe in the bodily injury range there might be some reason to believe it's a little less than five; four, five. It gets really to sort of split hairs on that. What's driving it? For us it seems to be the litigated and non-litigated but attorney represented soft tissue claims, and there we're seeing just a little bit of a difference in the general damages or the settlement ratio relative to special. So we sort of have a sense of what we're looking for. Sometimes that can be hard to find. We kind of have our eye on the right things, but I think your takeaway, think about severity, trend or inflation if you like, sort of 4 to 5, and you can put that on collision, you can put that on (PD), and you can put that on BI and I think that's how we see the world right now. To the extent that we are the size we are and have a representative book of business, it would be very unlikely, although no one ever seems to match perfectly with your estimates of frequency and severity. We are generally all within a relatively close range. If others are experiencing the same sort of things we are experiencing, and I would just say it's hard for me to see why they would not be, then it's over to them to decide what their objective function is, but we all know where interest rates are. It'd be very hard to sort of think you could ultimately subsidize a lot of trend in your underlying book of business and how and when they take rate is sort of their business. I don't think it's hard to trace the breadcrumbs of the last for or five months. You've seen quite a few companies make announcements about their relative rate level. We track rate level pretty much a scatterplot of every rate revision we can see for every trust every competitor and it's clear to us that rates are generally on the rise but in some cases more dramatic in other cases not as dramatic. We are looking closely at all results that being reported and we don't know what others will do, but we would be reasonably expecting there are still some rate changes to be taken in the marketplace if people are acting on the same day that we think we are seeing.

Josh Sterling - Sanford Bernstein: The other thing I’d love to just briefly touch on is if you guys can give us an update on your general thinking on the snapshot. Both, obviously, sort of iterating the marketing messages you go on things over the past year in terms of both how do you think you can sort of better position us, vis-a-vis customers. It would be great to get some insight on that. And I think we would also be interested just generally in sort of what you are kind of thinking as our licensing and what kind of response you have from companies now that you have been positioning sort of your offers to the broader market for a couple of months.

Glenn M. Renwick - President and CEO: Josh could you just quickly give me your first part of the question again?

Josh Sterling - Sanford Bernstein: So, most specifically want to get a sense of what you think about consumer interest in the product and you are going to iterate as you can – obviously you are kicking up a new campaign we're all dying to see. We'd love to understand sort of some of thought that goes behind it and how do you think the message in media evolves?

Glenn M. Renwick - President and CEO: I think I tried to put some for me at least you know if I say things like some of the most exciting things I have seen that’s about as well, as I get my commentary so the snapshot is truly amazing for a lot of reasons. One is it is a lot more consumer friendly because it's a little bit more causal, they relate to that then some of the variables we use which are little more car related. So, no issues there in terms of acceptance, we get about – and these are going to be numbers that you can reasonably rely on but they will be not necessarily perfect at any point in time to the changes about 35% of new business in direct is actually opting to take that, so it's a good percentage. The number is closer to 10 in our agency distribution, but a very recent times, very recent being this year, we have actually done again one more push to our agents to see if we can get them even more excited about this proposition and of recent times we have had somewhere in the range, I don't know the exact number here, but my range will be good enough for this conversation. About 8,000 of our agents actually take us up on a test drive, which for us is very exciting, because when they've actually got more of a tactile feel for the product and what it does and how to install and so forth, we think they're more likely to be confident to be all the push that notion on to their customers. Loss results continue to be, I mean the data is just so rich, we do sense that we will have product modification that forecast that even a year ago that we are going to have to sort of figure out how to bring this into the fold of the greater product, so here 24 it is largely being a discount and we are going to have to sort of integrate that with the product, I alluded to that in my letter. So, lots of work to do, but how do we feel about Snapshot, its hit us today, there's no question about that and how to use it. There are some drivers and not a small number that really do get a significant benefit and as a segmentation variable it just clear -- it just so powerful. I mentioned in the letter so just try to anticipate things somewhat beyond your mind that test drive didn't meet expectations, that's true and it might be our expectations that we're wrong. I will tell you that those who have taken the (sub-long) test drive, we do get at least some of the other statistics that we wanted to understand a little better of those who take a test drive will they actually put it in, will they do the whole test drive, will they actually quote after they've test drive and are they – is there some sort of proxy even in they are taking it tends to suggest that they may be the people that are eligible for a fairly significant discount. We're actually got some pretty good data around that, so while the numbers are not as great, as we would like. The calibration and the metrics now are actually quite exciting for us, and yes, we do have some new advertising and probably if we have to critique ourselves what we believe is that a lot of consumers sort of understand the notion I gave you some statistics in my letter. They attributed with Progressive, but they haven't quite yet figured out, why are you talking to me and we will try to do a significantly better job and it will be a little bit more aggressive job. Some advertising that will come out early April timeframe, where we will try to make it a little clear for consumers actually I'll take that back. We're going to try making a lot clear for consumers sort of the difference between if you are good driver and you're not the implications to your rates, so it will be pretty much a little more in your face advertising in that regard and we hope that people will get the clear notion that Snapshot is a solution to a real problem, they'll need to determine whether that's a problem that they want to solve. I think your follow-on with regard to licensing. We've been clear make last year that we intended to licenses. We made commitment to put out some of the details of licensing before the end of the year. We've done that and I'm just going to sort of probably end there. I will say that we are very conscious of many efforts going on that are not necessarily under the terms of our licensing agreement and those are best left for us to deal with at this point.

Operator: Vinay Misquith, Evercore.

Vinay Misquith - Evercore Partners: The first question is how do you plan to use pricing as a tool for generating growth? Do you plan to reduce price or are you waiting more for competitors to take rates up in order to generate growth.

Glenn M. Renwick - President and CEO: Vinay, I'll tell you that we price to our cost. So we don't try to price per se. We know exactly how to get growth, but unfortunately it is that very important combination of growth and combined ratio and I tried to take little more time this year in the annual report letter. So that's the combination and frankly that's the only acceptable combination that works for us. So let me try to be specific to your question. We took rate because we felt we needed to do and that best represented our view of current and future costs. We're happy with the rate. There are places almost inevitably where we get it a little bit off, a little bit over, sometimes a little bit under, and there are some places that we will take some adjustment, but it's less about specifically the competitive environment. It's more a reflection of whether or not we are matching price with our cost. So we have actually taken a slight decrease in Florida and in Texas, and Florida specifically was a very tough state last year with things that were quite one-off situations. PIP was going in a very different direction. We saw a new legislation in PIP, so there were some changes we needed to make in Florida, a lot of moving parts there, and to get that exactly right would have been more than heroic. And we will fine tune that; that's what we do. We will fine tune. Second is how do we get growth? We continue to really create a high demand function. And while I don't want to get too far out ahead of the results that we have published, I would tell you that our demand specifically on the direct side is actually very strong; so the first half of the year or the first two months of the year now a very strong demand. Our conversion because of rate level is not what it had been at the most optimal point of rate competitiveness in the marketplace. We sense that we're coming closer to that sweet spot and it is a function of the age of our own rate revisions coming closer to the midpoint pricing and some competitive action and hopefully some yet to come. So, in short, I don't see – we generate demand and we're doing really well at that. I'm actually very happy with the demand functions, specifically on the direct side. Agency there is a little more tidiness to the equivalent numbers from last year. But we're in the right ballpark there. So, demand, I'm happy with. The maturing of the rate revision, I am happy with, it may be yet another month or so before we're in an absolute sweet spot. We'll never know that until after the fact. And competitive actions everything I'm seeing in the marketplace would suggest that the rate will come to us, and if our conversion rate goes up a tick or two, we would be in a very advantage position.

Vinay Misquith - Evercore Partners: Just as a follow-up to that on the conversion rate. Historically, I have noted that Progressive is very smart, you drop pricing only if you can grow PIF. What if we actually don't see the conversion rates improve, would you be willing to let the combined ratio slip more towards the bottom end of the range?

Brian C. Domeck - Vice President and CFO: Say, what do you mean by bottom end of the range, higher?

Vinay Misquith - Evercore Partners: Closer to 90% versus 96%. So, let's say that you don't see. So, if we don't see the conversion rate improving would then say that had some more competitive environment and we'd rather go for profitability versus growth?

Glenn M. Renwick - President and CEO: I'm just not going to go there. We have a great product. We have great marketing and very clear objectives. We want to grow profitably. So, I know what you're asking and that just isn't really on the table right now. There's no reason to believe that we don't have a product that consumers want and as our price point comes in, we think that – well they are asking for it, I know they are asking for it already, while I'd love to have a conversion rate a couple ticks higher than we currently have. My bet is that we'll see that a lot more than I'll have to take an action to say let's just in cheap terms sort of eke out more profit. I'm here for a long run with consumers and I don't want to take that kind of action here for a long run with them. We've set our preferred form of growth is new policyholders. So, I wouldn't be banking on that.

Operator: Michael Nannizzi, Goldman Sachs.

Michael Nannizzi - Goldman Sachs: I guess just to follow-up on that a little bit, Glenn. So, it sounds like -- my initial question was going to can be if you want to grow but you're not advertising how are you going to grow? But it sounds like what you're saying is that there's like a tied level of rate in the industry that's not quite where you feel like it needs to be, so interest rates high, but the rate level in the industry is just not quite at that point where you'll start getting that sort of conversion. I guess, my only question would be what happens if that doesn't happen right away or this year or in the next six months I mean are you willing to just continue to let TIF recede until the market kind of clicks with where you think it needs to be. And then I just have one follow up?

Glenn M. Renwick - President and CEO: First of all, we are not pulling back on advertising. Now my letter to the extent that I clearly indicated that in the second half of last year and I think your analogy of a tide tells me you are getting this point. We pulled back in the second half of last year, but as I said there was no good reason as we were seeing entering this year to get off of a run rate that's more comparable to the first part of last year. Though advertising were back on the gas on that and we have a very valid product and a valid conversion. This is not like we're not converting a lot of people, we're making a lot of sales. Taking conversion means a lot. I'm betting that that will come back to us from all the reasons that I have described. To us the question how long would we sustain that is sort of an impossible one to answer. We are always looking to refine things in the marketplace. Even at the time – this is a little more detail and you probably want. Even at the time that we took rates up, when we know we have customers that are coming to us that are not going to meet our profit targets we also take some other underwriting restrictions. It might be bill plan type restrictions we may have similarly filters that we apply. And as we get rate, we are also able to go back and evaluate those filters. So, there is actually a lot more going on than just rate that can help us grow. I don't see any signs as I am seeing data coming in that would suggest that we are on the wrong track for getting our units back where we would like them in a reasonable timeframe.

Michael Nannizzi - Goldman Sachs: Just thinking about and I know you've talked about inputs which makes sense. And I mean we unfortunately kind of focus on the outputs on the earnings side that's kind of what we see. But if we're here and you're kind of looking at this sort of 96% combined and you reiterated that as kind of an underlying component of your operations and this sort of tide notion in the industry is something you can't really predict, and the portfolio stays where it is. How should we think about what allows earnings to kind of make that jester back to like '07 levels, if that's something that you think about or maybe it's on?

Glenn M. Renwick - President and CEO: No, and this is one other point too as I broke off, I'll come back to that, but one other point that I broke off. It's an important, so I'm going to reiterate it. Renewals are a big, big chunk of what we do and people renewing into the rate level that they were previously on that was point I made to an earlier question that becomes a very important point. It would be the first point. Earnings, it's not a day goes by that anyone here is not focused on all the same kinds of things that you care about we care about the same things. We're just trying to be abundantly clear of saying how we will get our earnings. And having a very clear objective function which is why I took the time in the letter to reiterate that, there is nothing – there was no new information there that was a clear explanation of what we already do. We are everyday focused on trying to grow our book of business. We want to be a growth company, grow our customers. We have an absolute threshold constraint of 96% combined ratio that is not something we will violate. And that will be the driver of the operating part of the business. As we will support that with another huge part of our earnings stream in investments, I think, we’ve been very clear about our philosophy in investments. So, while instantaneously, we may be in a low interest rate environment we think operationally we're in a very good place and that well I kind of hate coming into the year without the momentum that we came into last year. My hope is that we don't have the inflection point this year that we had last year and that momentum will build from here on out. So, we're going to continue to be a very strong operating company, grow on the basis that we've given you and when our opportunities for investment income are even stronger than they are now and I think we had a pretty strong year last year that will be an absolutely delightful add-on.

Operator: Paul Newsome, Sandler O'Neill.

Paul Newsome - Sandler O'Neill: I wanted to follow-up a little bit on the investment question in it, how much did you reexamine or think about changing the investment strategy given the low interest rate environment? I guess sort of second question somewhat related, would that change if we have a different type of reporting, we're looking at financial instruments forcing the equity portfolio results on a mark-to-market through your income statement and with that change, how do you think about your investment results, so two parts of that question?

Glenn M. Renwick - President and CEO: Sure. Bill, why don't you take the investment strategy part of that?

William M. Cody - CIO: Sure. We think about it every day and we're always looking for ways to improve our total return of the portfolio and not necessarily just our book yield or a GAAP yield, because we do run it on a total return basis with our goals of protecting the capital of the company to protect our underwriting business and then as much as we can. So, it's always that balance of are we getting paid to take some of the risk that you need to take to improve your returns. So, we could easily increase our yield or our investment income by moving up the credit curve or moving down the credit or out the yield curve a bit. But to us our judgment is that that's not the best way to reach our long-term goals of boosting the total return. We are very mindful of the fact that even for a small increase in rates whether it is treasury rates or the spreads on non-treasury products that the current low yield levels out of producing negative total return pretty quickly. So, we constantly evaluate it, but our philosophy and our goals always stay the same. What Glenn I think was referring to earlier is that the environment changes. And I think we all know now the environment is pretty tough with very, very, very low yields. But if that environment changes and there were more opportunities for us we would take a bit more risks. Our duration is at the short end of the range and it has been there for a while again to protect capital, and not to take much interest rate risk and our credit quality is high. I feel good about how we are positioned, I'd love it if rates were higher and we saw more opportunities, but that's not the case. So, we are not going to stretch and try to hit some artificial yield bogey or some number.

Brian C. Domeck - Vice President and CFO: Paul, this is Brian. On the second half of your question, no, I don't think changes in accounting would change our investment strategy at all. Bill mentioned our objective function is on a total return basis, that's not going to change. The fluctuations in the equity markets they are already reflected in comprehensive income which are already in the income statement. We have previously reported on comprehensive income before they changed this year that have more reflected on the income statement. And, yes, if it all flows through the income statement it will create a little bit more volatility in earnings per share, absolutely, but on a comprehensive income basis, which we think is a better measure of all in, it's no change.

Operator: (Meyer Shields, KBW.)

Meyer Shields - KBW: Glenn, in past investor days, you've talked about different customer segments that have different retention tendencies and I was wondering if you could talk about how the different segments retention rates were impacted by the rate increases you took in the middle of last year?

Glenn M. Renwick - President and CEO: Sure, I can do that. I'm not going to do it with great specificity, because it might be something others want to know as well, but unfortunately, it probably was across all what we call our CMTs, don't worry about it just call it customer segments and to the extent that if there was any slight bias it would be towards the upper end of the client that we actually would like the most and the ones that stayed the longest. So, again it's a bias that there in the data and it's not sort of over jumping off cliff kind of concern, but more preferred customers clearly are showing that they don't like the rate volatility. I don't think anyone likes rate volatility, but sort of across the spectrum with a slight bias towards the preferred's. I would also tell just to sort of at least give a nice piece of good news there and I remarked on demand and relative comfort with demand as we see it through the first two months of this year and I'm doing that relative to prior years for the first two months, because this is a high period anyway. We're actually seeing a slight skew to more preferred shoppers in our direct channel as well. We also put out and I commented on this, mobile applications we've really quite enriched our mobile applications and while putting three by three which is three vehicles, three driver capability on mobile it's also given a notable shift towards. It's not huge numbers, but notable shift towards more preferred customers quoting on mobile devices, which is great. On a personal note it would be very hard for me to do three by three on my phone, but that's probably more eyesight related than anything else. But it's very clear that people and we're getting now absolutely meaningful percent of our shopping coming in from mobile devices, whether it'd be iPad, iPhone or Android devices.

Meyer Shields - KBW: When you talked in the letter and earlier during this call about the free trial falling short, was that just in the number of people that wanted to use the free trial or where there different steps in the process to conversion that also did not meet expectations?

Glenn M. Renwick - President and CEO: No, mostly the top of funnel and it's worth repeating because this is sort of important because we're going to take another shot at this. Really the top of the funnel and that's why I said maybe our shortfall was really on making this real for other people like compelling enough reason for me to go out of my way to try it, insurance isn't necessarily the most engaging topic, so for people to actually engage in an insurance-related activity when they are not really highly motivated to do so that puts a fair onus on us to make the move. But of those that came through the funnel and we did have our priority estimates of how many would actually install the device. Remarkably, people do take this and then never actually install a device and that's important. Then complete the full trial. Then actually get a quote after the fact. We had estimate of all those things obviously when it's brand new you have nothing, but an estimate. But in many cases we were very close. In some cases we were able to show that we were conservative and in others couple under, but in aggregate pretty nice. So we're not worried too much about once you're in the funnel the kind of dilution effect that gets you down to the point of taking a quote and ultimately realizing a discount. The funnel looks good. Now we just need to fill the funnel at the top with a lot more consumer demand and that's going to be tricky. It's just not something that is buying a Coke. It's very different and we are going to have to make it very compelling for people.

Operator: Joshua Shanker, Deutsche Bank.

Joshua Shanker - Deutsche Bank: I have two questions, one very short-term and one very long-term. On the short-term at the risk of sounding foolish, January was – as far as I can tell, the first January where you lost customers. Can we quantify whether the ad spend was high in January or low, the degree to which the tide had receded over the rate filings? And am I just making (indiscernible) that January is a long month, let's look at February and forward?

Glenn M. Renwick - President and CEO: Advertising in January was – it turns out the actual amount spent was a little less than the January last year, but that is more an actual versus sort of budgeted versus a plan to do something, most probably some media purchasing that would've happened prior to that, so don't read too much into that. We're back roughly at the spend levels of January, and our realization of interest, I think I've already said, is pretty strong and you can take that through January and even stronger into February, but let's not talk too much about February at this point. Results will be out somewhat, a couple weeks. So it's mostly you're right. PIP is falling in January. No one is happy about that, but that is really just the same story that we've had several times in this call. You've got the rate revisions coming through, you've got people renewing into it, and for the most part we are now through that cycle that would be the biggest reason. Brian anything else to add on to that?

Brian C. Domeck - Vice President and CFO: Advertising is we much before we wrapped up to higher levels starting in January ended up to me spending a little bit less than last January, but still at pretty high levels more at conversion. Conversion influence depressed new business production and it will live on the retention side.

Joshua Shanker - Deutsche Bank: On the long-term if five years ago you has asked me how much of the market would be net driven I would think it would be very high, today GEICO is probably about 8%, you're about 4%, I assume the whole industry is less than 20%, that kind of to surprises me in retrospect. Is the market saturated by or is there a higher percentage of traffic for buying auto insurance probably through the internet right now?

Glenn M. Renwick - President and CEO: Probably a fair question. I don't know that we view it quite the same way. Of our direct book of business an extraordinary high percentage is Internet. So, your numbers -- I know where you're coming from in those, but we are probably very oriented to having our customers deal with us online. We believe that's a sweet spot for us. External reviews of websites and so on and so forth, believe that's a sweet spot for us. So of our direct business, and you know that the mix there and you see the vectors have changed over time and suddenly they're a little less dramatic now than they were when you introduce something, but call it 55-45 a little in favor of the agency channels that split the works. So, even if you say 50-50, what you probably should take away for, you say short-term and long-term, consumer behavior has switched pretty dramatically in a fairly short period of time. But you might conclude that it's stabilizing in terms of how they want to buy; with an intermediary or without an intermediary, you might conclude that. I don't think there's any need for us to conclude anything. We just want to make the options available and be able to be pricing different between the channels. But of the direct channel, a very significant percentage is Internet driven for us. So you can sort of do your own math on that, 50% and significant percentage. And I also just alluded to the fact that mobile devices are a nontrivial, and I should give you some indication, let's say more than 15%, but not 25% of our direct business. So, that's a pretty big chunk, and of the people that shop or quote on their mobile device, about 60% of those are actually then consummating the buy on the mobile device. The remainder it's phone or they go to the Internet, and of that percentage actually it skews a little bit more to they pick up the phone. So you've got some really interesting behaviors, and I think it's probably a little too simple of a segmentation now to say it's Internet or intermediated. The Internet can be a combination of a lot of different things. We actually have people start on the phone and finish on the Internet, start on the Internet finish on the phones, start on the mobile device finish on the phone, and lots of different combinations, but frankly we are largely orienting ourselves to be indifferent but highly, highly attractive for people who want to use some form of technology to get their insurance quote and sale, and I don't think long-term – you say long term five years. You go out even further, it's hard for me to imagine even further it is hard for me to imagine, even in the agency world that that is not the trend that will dominate.

Brian C. Domeck - Vice President and CFO: Yeah, I think, agents themselves are also figuring out how to use the Internet to build their own business. So, it is not just, oh, it is only the direct channel that's using the Internet to market to customers. So, whether it is, hey, was the shift to the direct channel per se, I am still pretty confident that lots of shopping will occur in the direct channel, but the agents as well are using the Internet to their advantage and we try to help support them in that regard.

Joshua Shanker - Deutsche Bank: Maybe it is the same answer. But is there any reason for me to believe that direct net sales are being saturated?

Brian C. Domeck - Vice President and CFO: I don't think so.

Operator: Ian Gutterman, Adage Capital.

Ian Gutterman - Adage Capital: My first question is on the January results. I think, historically, in January, we tend to see a trend where there is very high favorable development and a very high accident year. And I think the interplay with that, as I recall, is December claims that settle in January and get recorded as development. This January we saw a little bit of the opposite, you actually have some average development and a very favorable accident year compared to historic January. So, I guess, I am wondering when is – are those two related. Is some of the better underlying accident year in January related to the lack of favorable? And I guess, the second part of it sort of why didn't we see the traditional favorable development from December?

Brian C. Domeck - Vice President and CFO: I'll make some comments, and, Gary, feel free to chime in if you like. You are right, in past several years we have seen a fairly significant amount of favorable development particularly in 2010 and '11 less so actually in 2012, and partly because we actually changed some of our reserving methodology, because we saw all this favorable development in past year, so we actually changed, how we set all the reserves for each of the month, et cetera. So part of it, we intentionally tried to improve our loss reserving methodology to avoid large swings of favorable development from previous years. So, we think about that we've set separate reserves for each of the months in terms of the aging of the inventory, so some of it was process change, intentional process change. Then secondly for just comment on this January, which is where we saw some unfavorable development for the month, $11 million, up $4 million or so if it was in commercial auto, which is an area where we actually had unfavorable development throughout most of last year. So, a slight continuation of that in the commercial auto side and some of it on the value entry side a little bit of higher reopen rate on value entry, but I wouldn't want to wait a lot on just the one month development, but certainly trying to avoid the large favorable development that we had in the 2010, 2011 timeframe we actually changed processes to try to improve that. Gary, feel free to add any other comment?

Gary Traicoff - Actuarial Manager: Yeah, I think Brian gave a nice summary. We've changed our process in terms of how we're setting our aging factors more closely try to align on a monthly basis, so it's little hard to compare to prior years. Then as Brian pointed out within January, there was a couple areas that came in a little bit higher not by much commercial auto $4 million and a little bit more reopen activity on the BI.

Ian Gutterman - Adage Capital: My other one is a bit more wind school, Glenn, but I'm just wondering any thoughts I know this isn't a near term issue but I'm guessing if anyone studied it would you guys. Any thoughts on what the (global) car or driverless cars means long-term for the auto insurance industry, I mean I now it's not a tomorrow thing, but if 10 years from now it's a high penetration of total cars on the road, is that a bad thing for the auto insurance industry?

Glenn M. Renwick - President and CEO: Well, we don't take that as a wind of school thing at all. We actually have a great deal to focus on those things and so excuse me if I don't say everything that we think we know. It is critically important ultimately the size of this industry depends on really good estimates of future frequency to some extent severity which is harder to do. So we are very, very active in tracking almost all elements of automotive and road safety that can affect frequency. In fact, maybe I'll regret saying this, in our upcoming Investor Relations Meeting I think will give you some insight as to how we think about those problems. We probably will not give you our any conclusions relative to significant future breakthroughs including autonomous cars and then the like. We are actively involved with not only universities, but OEMs and other subject matter experts, we take that future forecasting very seriously and actually have some very strong positions on that. I would tell you that while I believe the 50 year trend of reduced frequency in auto accidents which is from a suicidal point of view a great thing will continue, I don't think that takes much of a brave person to say that. The real issue is what the slope of the line, are there any discontinuities. The autonomous car will emerge a lot faster than it will see population on the roadways. The technology to do an autonomous car is being around for a while we are now seeing them we'll see a lot of talk about them. The real issue is exactly how they are able to be part of the fleet of vehicles on the road in America and that is probably not something that needs to keep anyone awake for quite some time. We'll take you through a little bit of that methodology and thinking on how we actually do things that are a little bit more tangible and give you a look of some things that we have done in the past, that I think will give you some insight into our methodology of thinking and you can well consider that the autonomous curve or even approaching connected vehicles, connected intersections, those sort of things, you can assume that we are looking at them, we may not be as forthright with all of our productions.

Ian Gutterman - Adage Capital: I guess my instinct is, if you're willing to address it as in the sort of the immediate term when it's the small part of the population it's probably a benefit from the better frequency, but if it ever got to a tipping point where it was a large part of the cars on the road is probably a negative just because it destroys so much demand because frequency would fall off the cliff. Is that the right way to think about it generally?

Glenn M. Renwick - President and CEO: I think that's a very fair scenario and I say, scenario because it takes a lot to sort of have enough of that tipping point, so that the population of vehicles will behave in a controlled manner, but also understand there will be a level of threat and issue that frankly bothers your mind. Very few networks, very few connectivity's work a 100% of the time, and what does that really mean, what is it mean in terms of liability, who has liability. What does it mean are there potential issues for insurability, there are elements of that model that might create opportunities for insurers and certainly there are opportunities for big datasets. So, I would say to you, yes, but you might be surprised when you add the complexities of what that means including, even network reliability it has all sorts of tangential issues.

Operator: Adam Klauber, William Blair.

Adam Klauber - William Blair: As user base technology gets rolled out to more and more insurers to use it longer term does that have the potential to depress pricing in the better drivers and ultimately depress margins for that segment?

Glenn M. Renwick - President and CEO: I think if we start with the premise that the entire – if one company had the entire book of business the net premium wouldn't change but the distribution of premium between sort of the better drivers and the less good drivers might very well change; the whole fundamental concept of segmentation. So, you could very much assume that those whose pure premium or real premium, I would just call it, the real best estimate of what they should be paying, yeah, should go down. I think we have more than enough evidence to suggest there are people on the road today that are paying a little bit because they are indistinguishable from other people like them that deserve a lower rate. Margin go down (indiscernible) delta would get push to people who are higher consumers of lost cost and better assign the premiums to those individuals. But unless there was some overlay factor that reduced losses in general. I wouldn't assume that the market changes a great deal at all. It's a reallocation of the costs. Take that on to a competitive marketplace and you can apply the competitive dynamics of knowing the information before your competitors and so on and so forth, something that obviously we're very intrigued by.

Adam Klauber - William Blair: So that would assume then the heavier user of loss costs will have to more for insurance down the road to compensate for the better drivers paying less for insurance, is that is that right?

Glenn M. Renwick - President and CEO: That's fair.

Adam Klauber - William Blair: Another question, just sort of a numbers question. Looking at cash flow from operations at the parent in the last two years it's come down from roughly $1.1 billion to $670 million, I guess why is that and should we expect that to reverse going forward?

Glenn M. Renwick - President and CEO: Brian or Jeff you want to take that? Give us a second to catch up with your specifics.

Adam Klauber - William Blair: Sure.

Brian C. Domeck - Vice President and CFO: Are you talking about from the cash flows from the consolidated statement of cash flows?

Adam Klauber - William Blair: No, from the parent.

Brian C. Domeck - Vice President and CFO: From the parent.

Adam Klauber - William Blair: Yes.

Brian C. Domeck - Vice President and CFO: Well, the primary driver of cash flows is sort of the underwriting profit and so the underwriting profit obviously as the margin was a little bit less in 2012, I would say that's a primary driver of it. It is just sort of the underwriting profit as the primary driver. As margins change that would be the primary influencing of it.

Adam Klauber - William Blair: Then one more just a quick detail question. When I look at the reserves it look like you had prior year favorable development of $85 million for 2012 calendar year. In general, is that coming from more recent or older accident years?

Gary Traicoff - Actuarial Manager: This is Gary Traicoff. That's coming from mostly older accident years. 2011 we developed unfavorably, and that was mostly on the auto BI as the severity cost increased as we've talked about. And in the older years, we had favorable development. We've adjusted our factors by ageing to try to get a more equal distribution going forward.

Operator: John Hall, Wells Fargo Securities.

John Hall - Wells Fargo Securities: Glenn, you take a lot of organizational pride in your customer experience in the claims process and I guess storm Sandy is the largest event that we've seen since you've been distributing homeowners through the Progressive channel as it work. I was wondering if you could offer us some of sort of the report card or maybe some observations as you could take away from the performance of your homeowners' partners from that event.

Glenn M. Renwick - President and CEO: You are right, and we don’t do it just as a (indiscernible) really very genuine. Your question is a great one. I am not going to able to give you as good answer as you might like. Feel free to ask me again on that. The reason I am saying that is we are doing that study right now. We do know that our NPS scores dropped as it related to our PHA experience. I guess, we shouldn't be overly shocked about that because of the nature of people sustaining a significant loss, what we need to know is was that drop somewhat consistent with overall themes, was it specific to us. I mean it, please feel free to ask me again. But we're doing that exact question for ourselves to assess a little score card on our partners and how they manage through a specific event. We have had other events and we have had post action reviews on those events and our early indications would tell us notwithstanding the NPS scores, not heading in the direction that obviously we'd like or staying stable. The earliest takeaway is that in general our partners performed very well.

Operator: Thank you. That was our final question. This concludes the Progressive Corporation's Investor Relations' conference call. An instant replay of the call will be available through Friday March 15, by calling 1-888-566-0574 or can be accessed via the Investor Relations section of Progressive's website for the next year. Thank you very much for joining. You may disconnect at this time.