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 related to quarterly results in addition to those provided in its quarterly reports on Form 10-Q and the letter to shareholders, which have been posted to the company's website, and will use this conference call to respond to questions. Acting as moderator for this call will be Julia Korinek. At this time, I will turn the call over to Ms. Korinek.
Thank you, Marsha. Good morning. Welcome to Progressive's conference call. Joining us on today's call are our CEO, Tricia Griffith, our CFO, John Sauerland, and our Chief Investment Officer, Bill Cody. The call is scheduled to last 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 2016 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 risks, uncertainties, and other challenges we face. These documents can be found via the investor's page of our website, progressive.com.
Before we open the call to questions, I would like to turn the call over to Tricia.
Thank you, Julia. Good morning, everyone. Thank you for joining us for the first quarter call. First of all, I'm very pleased with our results for the first quarter, and we look forward to answering your questions. Before that, I'd like to outline some changes we are making, starting with the second quarter call that is currently scheduled for the first week of August. We will be moving away from the Q&A format that we've been doing for quite some time. In place of solely questions and answers on the call, we will have a webcast each quarter. The webcast will begin with a presentation on a specific topic that either you have previously expressed interest in or one that we believe is relevant to this audience, while at the same time providing you exposure to other leaders at Progressive.
Following the presentation, we will answer your questions about both the presented topic and quarterly results. To accommodate this agenda, we will lengthen the event to 90 minutes. Our first topic will be what we call our Runway project, and it will be presented by John Curtis. He's the leader of our personal auto product development group within our R&D department. We know that there's a great deal of interest in the opportunities and challenges that evolving vehicle technology presents. John plans to discuss the industry trends, including long-term frequency and severity. In addition, he'll outline what information we're collecting both internally and through third parties regarding vehicle technology trends and how that data might influence our future product design. We truly hope this format will provide you with more current information on the topics that interest you, rather than a once-a-year annual investor relations meeting.
Details on how to access that webcast and conference call lines will be provided during July. At this time, Marsha, we're ready to take our first question.
At this time, we are ready to begin the formal question and answer session. If you would like to ask a question, you may press star one on your touchtone phone. You may press star two to withdraw your question. After pressing star one to ask a question, you will be prompted to state your name and company to help with pronunciation. Please be advised that during this process, you will be momentarily blocked from hearing the live call. To allow the company to respond to as many callers as possible, you'll be limited to one initial question and one follow-up question per request. If your telephone has a mute capability, we ask that you use this function during the time your question is being answered to minimize any background noise.
To the extent you have additional questions, you will need to place your name back in the queue by selecting star one on your telephone. The first question comes from Elyse Greenspan of Wells Fargo. Your line is open.
Hi. Good morning. My first question is just about your accident, your ex-cat loss ratio. As the new business that you guys wrote last year seasons and loss costs just for the industry appear to be moderating, as we think about the balance of the year from here, do you expect to see continued improvement in your underlying ex-cat accident year loss ratios?
Well, a lot of it has to do with the business that we're bringing on the books. That will be reflected in our loss ratio. We are bringing on, as noted in the Q as well as my letter, a higher percentage of preferred customers, which frequently cause for less losses. While we can't predict what will happen from a loss perspective, we are working continually and diligently to bring on more of our preferred customers from both how we align our product and, of course, our auto and home bundles.
I'd add to that we had raised rates a good deal in 2016. That is in the process of what we could call earning into the book. Took about five and a half points of rate in our auto programs, about nine and a half in our Commercial Lines programs. We've continued to raise rates at a bit slower clip but still materially raised rates through the first quarter. That obviously helps the loss ratio throughout the rest of the year as well.
Great. My second question, in terms of following up on the bundling concept, can you provide some disclosure or numbers on how have you seen a pickup in terms of your customers that are purchasing both the auto and home products? Information just on the penetration of that Platinum product. Also just where the bundling stands today within your book compared to when you announced the ASI acquisition and the potential additional bundling from here.
Absolutely, Elyse. First and foremost, we call our bundled customers with auto and home Robinsons. We refer to that internally, and I think a lot of you are familiar with that. Our new business Robinsons quarter-over-quarter are up 50%. Our PIPS are up 25% year-over-year. As noted, and really very exciting to us, is the retention on the Robinson cohort is up over 25%. We build Robinsons in three different areas. Let me focus first on Platinum in the agency brand. Initially when we rolled out Platinum, it really was about integrating the sales force from ASI and making sure we could really accommodate the changing needs of this product and help our agents make sure that they knew both our auto and our home to bundle that.
We continue to move forward, and I think I said in a couple earlier calls that it was moving a little bit slower, and the integration took longer. We've gotten over that hurdle, and we feel really positive about our ability to continue to roll out the Platinum products. ASI, we're in 41 states. 35 of those, we have Platinum agents. We plan to double Platinum agents this year as well. We feel very positive about the momentum and the relationships that we have with these agents, and really their commitment to quarterly results. We know when they don't meet those results, that we talk about that with them, change course, determine what they need.
John Sauerland had talked about in the October meeting how we're really focusing on whether in each area, each state I should say, is the auto product competitive, is the home product competitive. Where we find that they're not, we make accommodations to possibly broaden coverage and to be able to sell a great bundled product. While we're not sharing specific results in terms of percentages, the momentum continues as planned, and I'm really excited about that. On the direct side, we have what we call our Progressive Advantage Agency. They have been really doing an incredible job. Now, of course, we write more than ASI in the direct channel. These are customers that have our auto, and they call in. It's our inside agency. They call in, and we fit them with the product that best suits their home.
It could be with ASI, and we have nine other unaffiliated partners. We have grown our Advantage Agency, our in-house agency, by several hundred in the last couple of years. That's gained a lot of momentum, and we feel very positive about that continuing. Just recently, we rolled out what we call HomeQuote Explorer, and that is consistent with our customers wanting to buy where, when and how philosophy. This is a very slick online process where you can get a quote, and we'll match you up with the company that is best for you with your home. Then currently, you make a call at the end of that process online to bind in our in-house agency. That is just up and running. We have eight states.
We continue to learn from that. Our plan is to roll out many more states throughout the year. We sort of have the trifecta of Platinum is really going well in the agency brand. We're seeing that momentum really gain speed. The Progressive Advantage Agency has done actually even above what we had kind of planned. We're excited about that. Now we have the online version. While we don't share right now the percentage, but we'll get to that at some point when we believe it's meaningful. I imagine at some point the overall home product and Robinsons will be a topic for one of those quarterly webcasts, because that's, I think, of interest to all of you. Possibly a future topic to go into a little bit more detail on the metrics.
Okay. Thank you very much.
Thank you, Elyse.
We'll take the next question, please.
Thank you. The next question comes from Kai Pan of Morgan Stanley. Your line is open.
Thank you. Good morning. Also thank you for your flexibility in moving the time of the call. The first question on catastrophe losses. I just wonder, how are you thinking about managing the volatility as well as your cost of the capital? Specifically, is that 2.4 points cat load in 2016 a new normal for you guys given the business mix change towards property lines?
Well, clearly, we look at a 10-year look back, obviously we continue to look at that more frequently to see what type of cat load we put in. Cats were not unexpected in first quarter and not too dissimilar to first quarter of 2016, even a little bit less. We put that load in, obviously we watch for it. You don't know what's going to happen with weather. We do our best to make sure that, one, we are ahead of pricing when we need to take rate actions, that we're, more importantly, ready to handle those claims when they happen. Although cats can be very, we can't plan them, we can plan how we react to them. On the home front, as you know, we have purchased an aggregate stop loss coverage from the cat.
Home is much more obviously volatile and expensive when cats happen than autos. I can have Trevor Hillier talk a little bit more about that or John Sauerland because they were involved in this, for the most part, we were really trying to cap our losses when we went into this aggregate stop loss agreement. We decided to do this after our Gator Re bond had expired. What we really wanted to do was to limit our downside. We already have the named storms taken care of, but we wanted to have additional protection with perils such as winter storm, which of course happened this first quarter, earthquakes, fires, things like that. That agreement caps our loss in LAE, non-named storms and liability to a 63 combined ratio. We feel really, I'm sorry, loss ratio.
We really think that was a good play for us to make sure, especially as we diversify throughout the country to more and more states to cap our exposure on the home side. Trevor, do you want to add anything on that?
No, I think you summed it up well. The aggregate stop loss, it helps quite a bit, just as Tricia mentioned. The Gator Re aggregate protection was limited to just severe thunderstorms, so it does add those additional perils that we're seeing, especially as we expand our footprint across the country. As we did it, we're looking at as a percentage of our premium in terms of reinsurance costs, we think it's a very reasonable deal for the additional coverage that we're getting.
Great. Thank you. A follow-up is on your PIP growth in the direct channel. It's been slowing, sort of decelerating since the middle of 2016. Recently, in your report, in your letter, Tricia, you mentioned increasing media spending. Are we going to see acceleration of the PIP growth, and will that become sort of a drag, on the other hand, on the sort of so-called new business penalty?
The slowdown in fourth quarter of advertising was very deliberate. We make a commitment to our shareholders that we will try to reach the 96, we will reach a 96 and grow as fast as we can. When we had a really heavy cat year last year, we were taking measures to make sure that we reached that 96. We did purposefully reduce our advertising in the fourth quarter. The reduction in new apps on the direct side was very deliberate and is exactly what we planned. We are in a different position coming into 2017. We've increased our spend. With increase in spend, normally that will increase prospects, sales, and ultimately, the big test conversion.
We are seeing that starting to happen, and I can't tell you exactly how that'll turn out, but we feel confident and comfortable in our spend in advertising and that it will have a positive impact on our business in direct growing in terms of new business apps and ultimately PIP. For our media spend, like I said, we are back in full bore. We look at media spend really what we call targeted acquisition cost. We want to make sure that our targeted acquisition cost and our cost per sale are in alignment. As long as we feel like we are spending money and getting the sales at the right cost, we'll continue to spend and do it as efficiently as we can.
Do you worry about the increasing new business penalty?
I don't because when we bring new business on, we look at our new business targets, and we know that those flow through. If we're over our new business targets, then we slow down, or we take action in terms of either ratings or underwriting action. We believe if you can bring on new business at or below targets, then they play out. I talked about this in the October IR meeting. It's really about the economics of bringing in new business, and it's very different. To answer that question, it's dependent on how we look at the economics. It's very dependent on channels and segments. If you recall, bringing in new business on the direct side is very expensive in the first term because we front-load all those acquisitions costs.
If we bring in that right business and they stay, that second term is substantially down, and we ultimately get to our both calendar year and lifetime 96%. A little bit different on the agency side. Then, of course, the next tranche would be is very different on the direct side if you're looking at a Sam or a Robinson. We calculate what the sort of new business drag should be and when that will fall off, and it's really all about getting the right business in at or below our targets.
That's great. Thank you so much.
Thanks, Kai.
We'll take the next question please, Marsha.
Thank you. The next question comes from Bob Glasspiegel of Janney. Your line is open.
Good morning, Progressive. I'm excited about your new format and hope you can dodge the last year's Gator Re bond next quarter.
We'll try to.
With the 90-minute call, which will be much appreciated. My questions are on the commercial auto side of the ledger. Tricia, you seem to have a bounce in your step in your letter commenting that you're now positioned to grow that business again. You came in under a 90 combined in the first quarter with March having a weather impact, I suspect. Where are you in the commercial auto cycle relative to your competitors? They need to take price. Presumably other people are seeing the pressures that you saw earlier. Are you in a position to get back to double-digit growth in that business with the rates that you've taken?
Thanks, Bob. We are excited about our commercial growth. As you know, and we were part of that, third quarter last year, we saw frequency increase substantially. We took a step back and took some rate action in September, about 9% in aggregate. Now across the book, it was very different depending on our business marketing tier to get what we needed. That is still earning in because clearly you do a rate revision per each date. We also have annual policies. We believe we have the right rate, and we're going to keep ahead of trend. That was very exciting. The second thing we did just to understand and get more enhanced in our segmentation in each of those segments in commercial, is we had some underwriting restrictions for that time period until the end of March.
About mid-March, we made the decision at the end of March to lift many of those underwriting restrictions because we really believe we have the right rates and the right segmentation to bring on that business at or below our targets. We are positive about our growth. We saw pretty immediately, and we believe we have the right rate, once we lifted those underwriting restrictions, new app growth start up again. The great thing about Progressive is that we do react to rate need very quickly. Even in a channel that takes a little bit longer to earn in than our auto with the majority of fixed month policies, we feel very positive that we got out ahead of trend quickly as we saw those frequency trends increase. We are seeing a very hard market.
We obviously watch the competition closely, people are getting a lot of rate. We feel very good, very positive about our growth in commercial.
I think you averaged under a 90 over the last decade in that segment and have a dominant market share along with Travelers. How do you think about what your goals are in this segment? It doesn't seem like it operates with the same 96 parameter that your personal auto business does.
Definitely commercial can be more volatile, especially when you have annual policies, if you don't react quickly, you get caught behind rapidly. We're number one in commercial auto, we're very proud of that. We also know that there's a lot of opportunity out there. We're creating a Business Auto Policy to be able to really delve deeply into the commercial part of the company as much as we have on the auto. Think of how we outlined several years ago our Destination Era on the auto part. We're doing very similar things on the commercial part, where we're really thinking about that small business owners and their needs. John Barbagallo and his team are working on the addressable market to have not just the auto, but other products, whether we manufacture them or not. We'll be manufacturing the BOP product.
To enhance that, what you'd almost consider the commercial auto Destination Era. It's a $300 billion opportunity. Along with the $300 billion opportunity on the auto and home, we feel like we're really positioned across the company for a long runway and a lot of growth. We're going to continue to try to be number one in commercial auto because we're proud of that. We know we need to do more for our customers that expect more. Again, we're going to have the products and services they need, not unlike what we rolled out in auto a few years ago.
Can I squeeze in one more, or am I the allotment now?
Go ahead.
Squeeze one more.
Okay. Does this fit into Uber and carpool strategy as well to have this business segment?
Yes. Let me talk about how I think about Progressive in the future in terms of that. I think about it in horizons, three horizons. What I just described in both the auto and commercial segments are really surgically executing on things we know we can do well right now. Picture now in the next four or five years. I want our focus to really be on our ability to capitalize on having great rate, great service, improved retention, and the products and services our customers need. When I think of Uber and the sharing economy and other things, we're clearly working on those right now for that next horizon. Think maybe four to eight or four to 10 years. We just recently renewed our Uber contract, actually in April, with our commercial business in Texas.
We're enthusiastic to continue to learn more and work with Uber. In addition, on the personal auto side, we continue to add endorsements in many states to cover the Uber drivers during the time that they're working. I see Uber, sharing economy, think of all that type of things where there's some knowns and some unknowns that we should be working on now in the R&D portion of the company to roll things out probably more aggressively in that horizon 2. Horizon 3, which we'll touch on a little bit during the August webcast, is really about autonomous. Whether it's autonomous vehicles, autonomous commercial vehicles, autonomous P&C vehicles, how we think about that, how we're working with third parties to gather data and understand how we need to continue to set up the company to be an enduring business.
Thank you. Look forward to hearing about that.
Thanks, Bob.
All right. Thanks, Bob. Marsha, we'll take the next question, please.
Thank you. The next question comes from Adam Klauber of William Blair. Your line is open.
Thanks. Good morning. A couple questions around bundling. One, you mentioned that bundling capability is up and running in 35 states today. What was that roughly a year ago?
I'd have to check on that.
To be clear, that was in the independent agent-
Independent agent, yeah
direct channel, where our Personal Lines countrywide.
Yeah, direct channel we've been doing it for a while. We were in 41 states. The Platinum was in the 35. We actually do have home with ASI in the agency channel in 41 states. I will check on that number because I'd hate to guess, and I'm sure we'll have that readily available, and I can let you know that.
Okay. Thank you. As far as Snapshot, around how much of your, I guess, policy in force or your policy base has or is currently using Snapshot today versus a year or two years ago?
It's different in the direct channel and the agency channel. Much higher in the direct channel. I think John Rippel from about a third. I think it's up to 35% from maybe 33% in direct. A fair amount. From the Snapshot perspective, I wrote in my letter that we rolled out our Snapshot Mobile. We did that in four states in December. As of today, this morning, we rolled out another 22 states. We are excited about mobile for a couple of reasons. One, because it just fits with the changing technology environment. Two, it's much less expense on our side. Three, we believe, and I'm not in the position right now to talk too much because it's still early on, but talk too much about segmentation enhancements that we believe we will garner from the mobile as a device.
In terms of talking on the phone, handheld, whether you're on a phone or on an application. We believe that we're seeing already some interesting data on the mobile as a device. We are excited about that. Adam, to answer your first question, we were in 16 states with Platinum a year ago.
Okay. That's helpful. Also back to the bundling, not asking for an exact number, but you're clearly growing a lot in the Robinsons. You've given us some good statistics. Is that more in the agency channel than the direct channel?
No, it's actually in both channels. I think our approach was really to be available when, where, and how. The agency channel, I would say last year had not gained the momentum that we're starting to see now. Our direct channel, it was a little bit easier because our customers already had the auto with us, and they were interested in home, so we were able to have ASI and many other carriers help them. Whereas in the agency channel, it's a little bit different because it may be a customer that doesn't have a Progressive or an ASI product. They were coming in, it was new to some of these agents, and the whole process was new. I would say we're happy about both channels as well as our ability to roll out the online version.
Okay. Just one more follow-up. Online, you mentioned you're quoting homeowners now. You put up that new system. Are you actually quoting a bundle online, or is that still being quoted separately?
You are able to do that. You're able to do that at the end. Yes, that's the whole theory, is to be able to be in one place at one time. The only caveat is that you're not able to bind the home part online, you talk to our agents in the Progressive Advantage Agency currently.
Okay. That's very helpful. Thank you.
Thank you. Marsha, we'll take the next question.
Thank you. The next question comes from Ryan Tunis of Credit Suisse. Your line is open.
Hey, thanks. I just had a couple follow-ups and then a broader question. I guess on the last question about Snapshot, and this may have been something you guys have touched on in the past, is there a meaningful difference in frequency between a driver who isn't on Snapshot and then goes to Snapshot?
Very little.
There's not like a someone's watching me in the back seat type of thing that would make someone a more careful driver?
We do have the ability to alert you to let you know when you're doing things like hard braking and things like that can influence it, you know what we're looking at. Ultimately, there's sort of your DNA as a driver, we believe that we're able to gather the type of driver you are and ultimately how that will lead to loss cost pretty early on just with what we've looked at in terms of time of day, hard braking, et cetera.
Okay. Just following up on Kai's question on the media spend. Is there a way we can think about, I don't know if it's year-over-year in terms of the expense ratio uplift that you're thinking, the higher media spend will have, or perhaps just a % increase that you kind of have in your mind in terms of what you're thinking you might spend on media over the entire year?
We always do, we don't necessarily share this. We do a budget at the beginning based on all of our models of how we believe the year and several years will roll out. What we look at from our expense ratio is we look at it, we bifurcate it. We look at our overall expense ratio, and then we look at our non-acquisition expense ratio. That way we can firm up activities that we do on the efficiency side as well as advertising spend. We truly look at advertising with the caveat that we do have a stated goal for our shareholders to grow at a 96 or less. We look at advertising as if we can get it efficiently and our cost per sale is less than our targeted acquisition cost, then we will increase our spend.
We buy a majority of our media in-house and we are very in tune with how much to spend, when we think the incremental spend is worth it. Actually, we're working on, more recently, just the lifetime value of different customers coming in the door and how much we think we should spend on each of those customers and getting much more detailed on that. The short answer is, we'll spend as much as we can with the right amount, knowing that we have promises that we make to our shareholders in terms of profitability.
Okay.
It's all about getting things at or below the targets that we set.
Got it. Then I guess my last one was just on the competitive environment in general today versus six or 12 months ago, because I think we've seen some competitors that have, I guess, started to lean in on a rate more recently. Others that had been doing it maybe 24 months ago that seem to be coming back to the marketplace. Would you say it's more competitive today than it was six or 12 months ago, or are you still benefiting from either a new business retention standpoint from a lot of competitors taking rate? Thanks.
From our competitive intelligence, we are seeing a pretty hard market. We're seeing people take a fair amount of rate. Like John said, we took about five and a half points last year. This quarter, we took a little bit over one. We are seeing shopping. We do believe that we're benefiting from, one, having a competitive product, a competitive price, and more consumer shopping. All right. We'll take the next question, please, Marsha.
Thank you. The next question comes from Meyer Shields of KBW. Your line is open.
Thanks. I wanted to follow up on your response to Kai, because if I understood you correctly, what you were saying is that you pulled back advertising spend and whatever sort of long-term value creation was associated with that because of sort of short-term casualty losses, which seems a little bit surprising to me. Am I thinking about that the wrong way?
No. Because we have that commitment to a 96, we sometimes will not be able to take advantage of something very short term to get to our long-term goal. We make that commitment. We're very public about that. For me, it's about making sure that we care as much about the bottom line as the top line. Yeah, it was very deliberate when we pulled back advertising. We knew that we might have some missed short-term opportunities, but we really take our commitment to shareholders very seriously, and we did what we could to make sure we got to that 96. There's a couple ways you can do that. We felt like we had the right rate, and we've made so much movement on retention that we didn't want to just raise rates and have people leave because of that.
We felt like we were in a good position, pulled back a little bit. Obviously, we care a lot internally about expenses as well, so we made some changes internally, on the expense ratio side and the loss adjustment ratio side. Yeah, we knew that we might have some short-term opportunities missed, but it is very much in keeping with our philosophy of making at least $0.04 of underwriting profit.
No, I completely get it. How would I put it? I trust you enough to say maybe the commitment should be changed. Not that you are doing anything inconsistent-
Yeah
with what you've said. Second question, completely unrelated. Does the current sort of free fall in used car pricing, is that something that's going to affect underwriting results in the near term?
I don't know if I would be able to speculate on that. I think it's really dependent on, it really ends up being losses. I guess in terms of severity on the collision or PD side, we'll start to see that, and we'll react to that when we see it. I wouldn't want to speculate it, but we obviously are keeping our eyes on both new car sales as well as used car prices and salvage prices.
Okay, perfect. Thanks so much.
Thanks.
All right. We'll take the next question, please. Marsha? Thank you. The next question comes from Brian Meredith from UBS. Your line is open.
Yeah, thank you. Just a couple quick questions here for you. First, just to follow up on that, the severity increases you saw in the quarter, BI severity up six, PD up seven. Anything to read into that? I believe the BI was just versus a pretty tough comp.
Yeah, I think we're seeing things not unlike what the industry is seeing. I will say we're seeing a little bit more attorney reps at time of loss. We know that will equate to possibly higher payments, we're baking that into our pricing indications. On PD as well, everyone, I think, is looking at paying the right amount. When we talk about shared liability, we're seeing that a little bit on the PD side. Again, we have put that into our pricing indications. Gary, do you want to add anything on that?
Sure. This is Gary Trajkov, our Chief Actuarial.
Sure. Hi, Brian. I think to your point, when we look at BI severity, in the last quarter, we're about 6%. Our paid severity is a little bit lower than that, but we know it's lagging a little bit to Tricia's point about the attorney rep inventory going up a little bit. When we still look at our overall severity on a trailing 12-month calendar basis over the prior 12 months, we're up about 4% on BI. To Tricia's point, we've built that into our pricing and reserving overall. We feel pretty comfortable where we're at with that as well. On the PD side, we were up this last quarter. Part of that was just some closures and some inventory shifting. On an accident period basis, we see PD more in the 5% range.
That's pretty close to what you see running on the long-term calendar period as well.
Great. Tricia, just a really quick question. On the mobile app with Snapshot, is the difference in cost significant enough that we would see it actually in your expense ratio over time here? I'm also just curious on that, the mobile app, can you detect distracted driving, and then will that give you some better insight into distracted driving?
Great questions, Brian Meredith. That's one of the reasons why, years ago, we knew after a certain period, say 60 days, that we were able to identify driving trends of our UBI drivers. That was a big difference in terms of the dongle device. As we go to mobile, it's even less expensive, and ultimately, we'll get that data from the car. We will see that as part of our expense ratio. As far as distracted driving. When you drive on the road, as I'm driving, I'll see someone, and I'm like, "What are they doing?" You'll drive past, and you'll see them on the phone or on an app, and it's frustrating, but we really like to make sure we have the data to confirm things.
Anecdotally, we all think that, but the mobile device will give us much more insight into actual distraction. Whether I'm talking on the phone hands-free, or I'm holding my phone, or there's an app open, we'll be able to, at some point, correlate that to loss cost. We believe that distracted driving, more than likely, has influencing on losses, but we want to be able to have that data to confirm it. We're excited about gathering that data. It'll take some time, but as we gather more and we feel more confident in that, we'll let all of you know what we find.
Does the mobile app collect the same data that you collect with the dongle? I know there was three or four things that you collected that kind of determine the rate, or is there more stuff that you'll be collecting to determine the rate?
It collects the same things, the hard braking, the time of day.
Yep
We put this in a while ago, we also collect, and this is only for research and development at this point, we collect GPS.
Great. Thank you.
Thanks, Brian.
Thanks, Marsha. We'll take the next question, please.
Thank you. Just a reminder, if you would like to ask a question, you may press star one on your touchtone phone. The next question comes from Gary Ransom of Dowling & Partners. Your line is open.
Good morning. I'd like to ask about frequency. If I look back at all your frequency disclosures, you did see a little bit of a bump in frequency increases back in 2015 and maybe into early 2016, which seems to have at least leveled off or become more moderate. What are you thinking about frequency going forward? Are we at a new normal level? Are you building in a continued increase into your pricing? What do you see right now?
Well, the last quarter, we actually saw a 4% decrease in frequency. We're not going to react to one quarter because there's so many inputs that go into frequency, whether it's mix of business or macroeconomic data. On a trailing 12, we're about a half a point up. We obviously collect things like miles driven, gas prices, macroeconomic data to understand long-term frequency trends. We also internally create hypotheses to try to understand why a frequency goes up or down. Just recently, with the down tick in frequency, we have a couple hypotheses that we're thinking about. One, we don't believe that actually it's influenced by the weather. We do believe, as we bring on a more preferred mix of business, that those customers will typically result in lower frequency.
We're also seeing higher miles driven with our UBI customers and a greater mix of trips that are longer trips, that we define as over 15 miles. In addition to that, and the data's very thin, but it's interesting, we're seeing less hard brakes per participant. Our theory is that some of our UBI customers or our UBI customers in the aggregate are driving more highway, longer trips, which could result in lower frequency versus a congestion in sort of the city. Again, that's a hypothesis. We'll continue to gather data on that. Obviously, the last several years with our product models, we've have a much more enhanced segmentation and with our underwriting as well, and we believe that allows us to put business on the book that aligns with our ability to reach our profit goals.
We have some facts about frequency and some theories and hypotheses that we'll continue to watch the data. Again, frequency, we can react to it, but I don't want to predict it because there's so many things that can come into play at any given time.
Okay, well, that's helpful. Another question on the catastrophe reinsurance, the stop loss. Is the way the accounting works, I just want to be sure I have it right, that as long as you're in this band and barring all of the things that are not included, the named storms, liability, the loss ratio will basically be 63 or thereabout, as long as you're inside the band of coverage. Is that true?
Correct
For every month going forward?
Correct. Yeah, on a calendar year.
Okay. Then on last year's Gator Re bond, some of the press is saying that all but $35 million has been returned, yet the losses have developed beyond that. I wonder if you could give us any insight as to what was going on there.
Yeah, I'll let Trevor take that one.
Yeah, all $35 million hasn't been collected yet, we have let investors know that the loss is above that number. It's slightly above that number. Really, the development is, we're seeing a lot more late reports than we had seen in our previous history and continue to see them, it just caused a little bit of adverse development there, it's not a ton over the 35.
Does the fact that that can happen, where you may not actually collect as much as you're supposedly due, does that make you shy away from cat bonds at all in the future?
No, not at all. It was just we had adverse development that we weren't entirely expecting. It's not anything in the mechanics of the cat bond. It was just we had development that we didn't originally expect.
Yeah. Okay. Thank you very much.
Thanks, Gary.
All right, we'll take the next call, please.
Thank you. Just a reminder, if you would like to ask a question, you may press star one on your touchtone phone. The next question comes from Amit Kumar of Macquarie. Your line is open.
Thanks, Marsha. Good morning, and thanks for fitting me in. Two quick follow-ups. One is going back to Meyer's question on new cars and used cars declining. If I were to ask this another way, has the average age of the automobile you insure, has that changed over, let's say, the five years, or has it remained somewhat static-y at, let's say, 11 or 12 years of age?
I would say not much. We look at our fleet every year, I would say it has not changed dramatically.
Is that number like 11, 12, or is that different from that?
I'm sorry?
Is that the number, the average age is at 11 years or something like that?
It's like 11 and a half. Yeah.
Okay. Got it. The other question, going back to the discussion on mobile app. In the letter, you talked about the penetration. I think it's in four states right now. Have you talked about some sort of timeline as to how we should think about the expansion, is this sort of concurrent with the dongle, or does it at some point replace the dongle? That timeline would be very helpful. Thanks.
These are for new business. We had rolled out four states in December. We rolled out 22 states today. We're in 27 states, we intend to roll out the mobile device for new business throughout the country in 2017. Pretty aggressive timeline for that. Our customers that have the dongle, we recycle those fairly quickly. At some point, the majority of our customers will have mobile, or we will have had the information on their loss characteristics or their driving characteristics, I should say, from the Snapshot device.
Just to be clear, today, the mobile device is an option for consumers. They can also opt into the dongle. Additionally, in the future, we would expect more and more of this data to come directly from the vehicles. If you noted our October presentation, we talked about an effort with GM. GM vehicles, I believe model year 2016 and newer, have the ability to send the data that we collect, similar to the data we collect with the dongle or the mobile device, to us directly from the vehicle. We have been running a pilot whereby GM customers opt into sharing their data with us, we calculate a rate based on the data they share with us, we'll sell them a new policy with that discount incorporated at inception.
It's been in pilot mode, actually this month we'll sort of flip over to more active mode. We think the volume in that area is going to increase, albeit it's just vehicles 2016 or newer. The longer-term model there, we see migrating actually to vehicles delivering the data.
That is very helpful. If I could just sneak a follow-up to that. Do you have plans to talk to other auto manufacturers, or are you in advanced stages in terms of rolling out this sort of pilot program with them too, or is this a one-off thing? Thanks.
We're always interested in talking to the OEs about opportunities, but we wouldn't be able to talk about any that would be in play. Yeah, we're always interested in learning more and being a part of advancing what we think is really a great pricing algorithm and a variable for pricing. Yeah.
I'll stop here. Thanks for the answers, and good luck for the future.
Thank you. Gary, I had one correction. I said calendar year 63 for the aggregate stop loss. I meant to say accident year.
We actually have no other questions at this time, that concludes our call. I'll turn it back over to you, Marsha, for the closing script.
That concludes The Progressive Corporation's Investor Relations conference call. An instant replay of the call will be available through Friday, May 19th by calling 1-800-964-3773 or it can be accessed via the investor relations section of Progressive's website for the next year.