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Progressive Corp  (NYSE:PGR)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 1:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to The Progressive Corporation's Fourth Quarter Investor Event. The Company will not make detailed comments related to the quarterly results in addition to those provided in its Annual Report on Form 10-K and the letter to shareholders, which have been posted to the Company's website and will use this event to respond to questions after a prepared presentation by the Company. This event is available via a moderated conference call line and a live webcast with a brief delay. Webcast participants will be able to view the presentation slides live or download them from the webcast website.

Participants on the phone can access the slides from the Events pages at investors.progressive.com. In the event, we encounter any technical difficulty with the webcast transmission, webcast participants can connect through the conference call line. The dial-in information and passcode are available on the Events page at investors.progressive.com. Acting as moderator for the event will be Julia Hornack.

At this time, I will turn the event over to Ms. Hornack.

Julia Hornack -- Investor Relations

Thank you, Karmen, and good afternoon to all. Today, we will begin with a brief presentation by our Chief Human Resources Officer, Lori Niederst, about our culture and people being a competitive advantage. This presentation will include two videos. So we recommend joining our live webcast through the Events page on investors.progressive.com. Our presentation will be followed by a Q&A session with our CEO, Tricia Griffith; and our CFO, John Sauerland. Our Chief Investment Officer, Bill Cody; and our General Manager of Progressive's Home business, Dave Pratt will also join us by phone for Q&A. This event is scheduled to last 90 minutes.

As always, discussions in this event may include forward-looking statements. These statements are based on management's current expectations and are subject to many risks and uncertainties that could cause actual events and results to differ materially from those discussed during the event. Additional information concerning those risks and uncertainties is available on our 2018 annual report on Form 10-K, where you will find discussions of the risk factors affecting our businesses, safe harbor statements related to forward-looking statements and other discussions of the challenges we face. These documents can be found via the Investors page of our website, progressive.com.

It's now my pleasure to introduce our CEO, Tricia Griffith.

Tricia Griffith -- President and Chief Executive Officer

Good afternoon, and welcome to Progressive's fourth quarter webcast. We have a great session for you today. I'm going to quickly recap 2018, hopefully, you had a chance to read the annual report and my letter to shareholders but in a nutshell, an incredible year, 20% net-written premium growth, at a 90.6 combined ratio. So, a lot of margin, a way more than our actual goal of hitting at least $0.04. We grew the top line over $5.4 billion in net written premium. And that was on top of 2017 when we grew $3.8 billion on top of 2016 when we grew $2.8 billion. So, $2.8 billion, $3.8 billion, $5.4 billion, incredible growth, that momentum has really sustained since we head into 2019. All of this, compiled into a comprehensive return on equity with our investment returns of just around 24%. So, great results.

We also had a lot of celebrations and milestones that we were able to accomplish this year. I wrote about them in my annual letter to shareholders, but it's been a really wonderful year internally to progressive to make sure that we celebrated both internal and external goals that we reached. I will let you know though, specifically for this audience, we don't rest on our laurels. We're hitting the ground running in 2019 and again, always trying to grow as fast as we can make at least $0.04 of underwriting profit and take a good care of our customers.

So from then I wanted to just take a second and thank all the Progressive employees for all they've done this year and how we succeeded in such an incredible year and we've done it together, which is the theme of this year's annual report.

This slide should be very familiar with you. It's our four cornerstones, who we are? Why we're here? Where we're headed? And how we're going to get there? Who we are? We have five core values, we talk about them all the time. I'm not going to go into detail in them today, but Lori Niederst will, when she gives her presentation. Why we're here? We've a purpose statement, true to our name Progressive, and that's really about doing better today than yesterday. Progress on how we are as a people and culture, progress for our shareholders and the customers that we're privileged to serve. We want to continue to challenge ourselves to have that always grow mindset and continue ask ourselves questions, how we can continue to get better. Where we're headed? Our vision, we want to be consumers' number one choice and destination for auto and other insurance. We get closer to that goal every single day as we add more and more customers. And how we're going to get there? That is our strategy. And that's really been, the crux of what we've talked about in the last several webcast sessions.

If you notice, there's a little bit different graphic on this one and that, I'll tell you about a little while, but it really is part of our employees of our Colorado Springs call center, been a participant in the artwork for the employee annual report. The tactics in the deep dives we've done in terms of our strategy pillars in the blue sections really been around segmentation, brands, cost effectiveness and those are really important, but it doesn't work without our people and our culture. So these are some people in Colorado Springs, several months ago as part of our annual report.

I was there that day. It was actually the same day we did Keys to Progress where we give vehicles away to veterans in need. Very cold day, but really a wonderful day to be able to have all these celebrations. So let me back up a little bit and talk about how we think about the annual report. As most of you know, art is a really important part of our culture and work environment of Progressive. Peter Lewis started that many, many years ago. And in 1988, he decided to make art a part of the annual report. So he would think up a theme and choose an artist and we would have a piece may, whether it's a sculpture or a painting or a picture that reflected that theme.

So as an example, in my first year as CEO, my seamless transition that made sense. I took over in July of 2016 and Glenn had really prepared me to take over. And so that, that seamless transition was really important to us as a Company. Last year when we had that growth on top of 2016's growth I felt -- really felt like we were accelerating. So that was the theme, acceleration, we put our foot on the gas and we're able to really accelerate.

This year's theme, is together. And it really came to me as we were going through the year about August, I thought, man this has been such a great year and doing it together in unity and that doesn't make it easy all the time, it doesn't make you great all the time in terms of not challenging each other. That's actually the best part of Progressive, challenging each other, having great discussions and debate, that ultimately lead us to the outcome that we had and an incredible 2018.

So to illustrate this theme, we chose Nathaniel Parsons, and he created what we called camp waterfall, wonderful. And what it does, it really takes, it took a bunch of Progressive employees across the country that he worked with to create an installation that we'll ultimately be back here at our campus locations for us to enjoy.

I was going to go through kind of step by step how Nathaniel created this and how our thought process was around the theme of together, but instead we thought, we put together a four-minute video to show you the making of the 2018 Annual Report.

(video presentation)

So hope you enjoyed that. And all of the art work is also on our Investor Relations web page, so please, and feel free to view that. It's funny how much we've grown, because in that video, that was only a couple of months ago, I said 36,000 people. Now we have over 38,000 people, which has been pretty incredible.

But because our people and our culture are such an important advantage, I've asked Lori Niederst, our Chief Human Resource Officer to come up and talk about that today. Following her will be John Sauerland and he is going to talk about our dividend policy change. And of course we did some QA in our November's earnings release and I wrote about it in my annual letter to shareholders. So hopefully, there's a lot of clarity around why we made the change, we will come up and talk about that as well. So, let me give you a little background on Lori.

So, Lori started her career in public accounting as a CPA. She came to Progressive about 21 years ago as an analyst in the finance group. She quickly moved to our call centers, which now we refer to as CRM, Customer Relationship Management centers and did a variety of jobs with increasing responsibility.

I first met, Lori, when I was in her role and was hiring a comp and benefits Director. And she was first interviewed -- we had a couple of different interviews. I love the fact that she cared deeply about our people and our culture really has always been a steward of our culture. Then she had this balance of great business acumen and I love the fact that she could bring to that job as comp and benefits manager.

That's where she really learned the business of HR. And she and I along the years talked about other opportunities that she might do and how, how to best suit her up for that. So we thought it would be good for her to do a field HR job. So in the claims field HR job came open, she applied for that and landed that role. And that was a perfect HR field role, because one is the, most employees, we have for the Company and we spend a lot of money in claims, every dollar that comes in, the most we spend dollars in the claims organization. So she learned very deeply that part of our organization.

And then a little bit over two years ago, Lori became, Chief Human Resource Officer and she continues to apply that great balance of incredible business acumen and just carrying so much about our culture. And the one thing I love about having her on our team. And I think the rest of my team will agree is that, pretty much on any given day, Lori challenges us. And she challenges to be better, and I think that's really important with an HR partner. So, I'm going to let Lori take it from here.

Lori Niederst -- Chief Human Resource Officer

Thank you, Tricia. So as I was preparing for today, I assumed I'd have to make the case for why culture is a relevant topic for this audience. But then about a month ago in a letter to Board members, State Street CEO made that case for me. He described corporate culture as one of the many growing intangibles that affects the Company's ability to execute its long-term strategy. He also cited a recent EY study that concluded intangible assets such as culture, drive more than half of an organization's market value.

We not only think culture is a relevant topic. We believe our people and our progressive culture, are our greatest source of competitive advantage. So, my objective today is to describe, why we believe that to be true. Our culture is the foundation upon which we have designed people strategies and together they generate our business outcomes. If there are any cracks in this foundation, our results will suffer. If our people strategies aren't aligned with our business objectives, our results will suffer. However, it's the strength of our culture and our successful people strategies that have allowed us to achieve exceptional results and sustain truly competitive advantage.

Our culture as Tricia said, is deeply rooted in our core values, the Peter Lewis introduced over 30 years ago. These five values aren't just words on paper. We take them to heart. We introduced our core values and new higher training and we reinforced them on a daily basis. Our core values, guide our business decisions and define how we treat each other, our customers and our investors. Although they have been in place for decades, our core values continue to be closely aligned with our Company's strategy. As an insurance Company, our product is a promise. It's a promise to be there when our customers need us most. We must have a culture of integrity. If we want to make good on that promise and earn our customers' trust.

Our customers have choices, when it comes to insurers. We must have people that believe in and abide by the golden rule. If we want to provide service that motivates our customers to stay. We have formidable competitors in an industry that's evolving. We must have a culture of excellence. One that's always striving to improve, if we want to anticipate and respond to the changes in our industry's landscape. We seek to consistently provide consumer and shareholder value. We must have our team of 38,000 Progressive people with clear objectives, motivated and focused on growing as fast as possible at or below a 96 combined ratio.

As Peter said when he introduced our core values, we are pragmatic and we recognize that we must earn a profit in order to be successful business. But it's the first four values that ensure we earn this profit in the right way. We are confident that our core values, and therefore our culture, continues to be aligned with our Company's strategy in the interests of our people, our consumers and our shareholders. Beyond the words in our core values, our culture can be really hard to describe. So to give you a sense or a feeling of our progressive culture, I'd like you to hear it from our people.

(video presentation)

Tricia said it so well. Whatever part of the Company I've worked in, whatever job title I was in, to me, it always just felt like Progressive. But how do we know that our culture is strong? How do we know that it's creating competitive advantage? Well, first, our people tell us. Just last week, I received an email from Tim, an analyst in our IT control group. And Tim described our core values as the anchor of our culture and he compared his time at Progressive to a service in the Coast Guard. And Tim shared that even when he is working with someone new, he always just feels immediately like they are on the same team.

In addition to the anecdotes, we've got data to support our conclusion. For decades, we've been conducting an annual employee survey and we recently started using Gallup's Engagement Index. As we expected, engagement at Progressive is significantly higher than the US workforce. 68% of Progressive people are engaged, compared to 33% of US workers. And only 4% of Progressive people are actively dis-engaged compared to 16% of US workers. Our 2018 results place us in the 96th percentile of all companies, who use Gallup survey, and only 2% of Progressive people disagreed with the statement, our core values guide our business decisions and define how we treat each other.

For years, we've also conducted an annual compliance and ethics survey. And here too, we learned the strength of Progressive's culture. Our results last year where the best of all 32 companies using Ethisphere survey. And 99% of Progressive people, said they are familiar with our core values. And we don't have any easy jobs at Progressive, we work really hard and we have very high expectations, but we're unapologetic about this. And as a result, Progressive isn't the place for everyone. Yet, our 8% voluntary turnover rate in this job market is further proof that a strong culture produces business benefits.

Upon this strong foundation we've designed people strategies that leverage our talent, ideas and energy. These strategies are in fleeting. They've been tested and proven successful in every phase of the insurance cycle. While we foresee these strategies continuing to serve us as well, like every other part of our business, we're constantly analyzing outcomes, monitoring the results and we made changes whenever its necessary. I'll highlight three of our key people strategies that we think are uniquely Progressive. The first is transparency and openness.

In our 2002 annual report, we said that our desire for transparency demonstrates our belief, that good decisions flow from clear information. There are many examples of how we've managed our relationship with investors and consumers with transparency. The most notable are reporting our financial results, monthly to our investors and providing comparison rates to our customers. We are committed to the same transparency and openness with our people.

If you missed everything I just said, because you were distracted by the art in this particular annual report, then I'll probably have to tell Glenn, that 16 years later, it's still having the intended effect. So, let's get back to transparency and openness. For us, it all starts with our approach to communication. Similar to our practice of reporting our results monthly to investors, we make a commitment to tell our people, what we know? When we know it? This means we're often sharing information before we have all the answers. And at times, this can be uncomfortable, but we believe, it builds trust in our leaders and strengthens our culture.

Another example of our transparency and openness in communication is our diversity in inclusion report that we first published last year. In this report, we summarize our progress, highlight our opportunities and tell the story of some of our incredible people. In this report, we also disclose our employee demographics to our people and to the public and we declare our commitment to pay equity and probably state that we have gender and racial pay equity at Progressive.

Another example of our transparency and openness and communication is what we call our open-door policy. And Progressive person can reach out to any manager or any HR representative in the Company, when they have a question or a concern or they want to share an idea. It's not uncommon for Tricia or anyone else on our executive team to get a phone call or to get stopped in the hallway by someone who wants to share their perspective.

But we don't just hope our people speak up, we expect them to. And when they do, we protect them. That's our open-door policy. Our commitment to transparency and openness transcends communication and it applies in other areas like compensation. Much like we provide comparison rates to customers, we provide comparison rates for our jobs. We published the salary range and bonus target for every job in the Company and we also provide market median data to help our people understand how much they might earn at a similar job at another Company. We believe this transparency with compensation generates good conversations and produces fair outcomes.

It requires us to be really diligent in managing compensation and it forces our Progressive managers to make fair and equitable decisions when they set pay. Transparency and openness, our key people strategies. There are model for the behaviors that we expect of ourselves as we interact with our customers, our shareholders and each other.

The second people strategy that I'll share with you is what we call cohesive diversity. At Progressive, we leverage each of our unique differences to make that collectively stronger. We're disciplined and focused and we like to win, but we don't compete against each other. We compete together to become consumers' number one choice for insurance.

We reinforce this cohesiveness or togetherness as Tricia described it in many ways. We have aligned job objectives that cascade throughout our organization and provide each of us line of sight into how the work we do -- each of us do contributes to our Company goals. Our performance evaluation process is rooted in coaching and development and every progressive person participates in our gain share bonus program. Gain share rewards us altogether based on Company growth and profitability.

This was true last year when our gain share factor was 1.91 meaning each of us earned almost twice our annual bonus target. It was also true in 2,000 when the factor was zero and none of us received a bonus. On gain share day this past December, Tricia received a really touching message from Eric (ph) one of our call center consultants who has been with us since 2002. Eric told the story of his mother who sadly passed away, not long after he joined Progressive. Eric promised him mom, that he would send his son Noah to college and he has been saving his gain share bonus every year, so that he could afford to make his mother's dying wish come true. Eric reached out to Tricia to thank her for last year's bonus, because it was the final savings he needed to fund Noah's tuition.

For Eric, this was a very personal celebration, in addition to the Progressive gain share celebration that included all 38,000 of us. This cohesion may seem like a small detail, but it has a profound impact on our culture. Our people are motivated to teach and help one another. In fact, it's not uncommon for peers who are competing for the same promotion to encourage each other and even share interview strategies. I experience this several times in my Progressive career and most recently, it was about 2.5 years ago when I applied for the CHRO position.

I knew many of my peers would also applied for the role and a few of them even called me before the interview started to see what I could have learned from my HR experience. When it was announced that I was offered for the position. One of the first people I saw was one of those peers and she came right up to me, congratulated me, gave me this giant hug and then reminded me that she is not a hugger (ph).

Our togetherness or cohesion is only part of the strategy that cohesion is stronger because we embrace our diversity. Diversity and inclusion are strategies that we thread through every facet of talent management. From our hiring practices that ensure we have diverse candidate pools to our development programs that teach cultural competency and make us more aware of our unconscious bias, to our job objectives that hold each of us as leaders accountable for cohesive diversity.

Like many companies, we leverage our ERGs our employee resource groups to support our efforts. And at Progressive, the results speak for themselves. More than 13,000 Progressive people belong to an ERG and these numbers are more engaged, more likely to apply for a promotion and more likely to stay with Progressive. But unlike other companies our ERGs aren't just affinity groups, they'd bring us together to tackle the difficult topics that are dominating the headlines.

A great example is our courageous conversation series which brings small groups together to talk about real examples of bias in the workplace. Courageous conversations makes us feel uncomfortable and vulnerable, but in a safe environment where we're learning from each other. For more than 40 years, we've also been leveraging our collection to spark conversation and learn to respect our differences.

One of the first art works that Peter Lewis installed in the '70s was a series of Andy Warhol's mouse. It being the end of the Vietnam War era, these images upset many progressive people and they wrote to Peter expressing their opposition. In fact 300 of the then 400 employees shared their opinions. Peter was invigorated by this response and it's inspired the art collection's mission a provocation.

We continue to leverage our art today to foster conversations about our values and our cohesive diversity. As an example, our three-day workshop for new leaders includes of course that we call uniquely meet together Progressive where we use art works to help recognize a variety of perspectives and learn to leverage them as we lead our teams. Our ERGs and our art collection are just two examples of our cohesive diversity, come to life, leveraging our differences and making us stronger.

The third people strategy that I'll share with you is our talent pipeline strategy. For decades, we've been developing claims reps, call center reps analyst and product managers into talented business athletes that rise to our executive ranks. This grow our own strategy is a real differentiator for us. So let me explain how it works. Over 90% of our people in our entry-level jobs were hired from the outside where we're able to attract a talented and diverse candidate pool. In our manager ranks over 90% of our people were promoted from within.

Now, I'm sure we're not the only Company who is focused on promoting from within. But when we compare our internal promotion rates to those of our peers on Fortune's best companies to work for list, we find, that our internal promotion rate is far above the average. Feeding our pipeline starts with external hiring. And the growth in our business has required us to feed this pipeline with over 20,000 external hires in the past three years.

Our growth has come during one of the lowest unemployment periods in 50 years. And adding to our challenge, we're competing in over 250 labor markets each with their own local competitors. Add to that we're selling a career in insurance. Despite the constricting labor market and in contrast with other companies who are really struggling to find talent we are consistently filling our open positions, and we're making great hires.

Our Progressive brand helps us attract a significant number of candidates for each job that we post. In fact we hire less than 2% of the people who apply for a job at Progressive. To help us manage the significant applicant volume, we're leveraging sophisticated analysis that help us understand the number of candidates, we need by job and by market to have confidence that we've got a qualified hire in the group.

We are also adopting many of the approaches that we've learned from our marketing and media teams to advertise our jobs. We know our cost per hire, candidate demographic and success on the job by channel and by source and we're leveraging this data to optimize our spend. While our marketing budget in recruiting has several fewer zeros inflows, we like to think, we're learning from the best and we're applying the same discipline. We seek to hire the right talent with the right raw materials, but the real advantage comes from our ability to develop, retain and promote our people.

All of our HR practices are designed to support this talent pipeline strategy, including our compensation plans. If you want to earn more at Progressive, you look to get promoted and because of our transparency, you know exactly what promotions are available and how much more you can earn. Again promoting from within isn't unique to Progressive, but promotions at Progressive are different. They aren't appointments or designations instead openings are posted and anyone who is interested and qualified can apply. It's an open and transparent process.

This process requires more responsibility on our employees to chart their own career path. But it also results in some pretty Progressive career paths. Tricia shared my journey from analyst to CHRO, and I'll share John Barbagallo's. John was hired as a claims rep. He was promoted to a supervisor, moved to a field sales manager, who was promoted again to a product manager and then a national accounts manager, before pursuing a job at another Company. John soon learned the arrows in his ways and he came back to progressive to hold positions in product design and agency management, before becoming our commercial lines President. But this isn't unique to me and John.

Our pipeline strategy has produced our current class of executives. The average company tenure of our executive team is 22 years. According to our review, a proxy and other publicly available information, this is a lot higher than the average on our industry competitors. And this tenure translates to a leadership team that deeply understands our business and our culture and can pass it on to the next generation of progressive leaders.

In fact, Jeff Charney is the only current executive who was hired into his position from the outside. That's not to say we will never hire another executive or another senior leader externally, but when we do, it's because our business changed and required skills or experiences that we don't currently have. This was true for the talent we've recently added in our strategy organization and it was true when we hired Jeff, nine years ago, which makes it pretty funny that we also think of Jeff as a new guy, even though it's been nine years already. This strategy has served us well for decades. But when our organic opened posting process, isn't creating enough opportunity for development, we manufacture those opportunities with job swaps.

I'll share a recent example. Last year we identified seven high performing senior leaders, who we thought would benefit for leading in a different part of our business. Sanjay Vyas, who presented at our last webcast was part of this job swap. Sanjay had 15 years of experience in our product organization. He was promoted through the ranks and became General Manager, a very soon. Sanjay's deep product background is a huge asset to us. But we wanted to give him the opportunity to learn a different side of our business at a very granular level. So, we ask Sanjay to become our claims controller, where he will learn claims, which he knew, but not nearly as well as he well after serving as controller. We are so committed to developing talent that we conduct these jobs swaps, when we think the time is right for our people. Not necessarily when it's a ideal for our business. This was the case with the swap, I just mentioned.

We were experiencing significant growth, which creates a whole host of business challenges, but we were willing to disrupt what was working well and introduced some risk. Because, we deeply believe in the long-term benefits of our talent pipeline strategy. We also deploy functional groups of leaders to solve complex business problems. We assembled a diverse group and assigned them what amounts to a part-time job on top of their day job. This experience provides individual development and it provides business benefits. The most significant recent example is the team that we put together to identify our Horizon Two and Horizon Three opportunities. And this team ultimately formed the strategy organization, which is led by Andrew Quigg. For our newer leaders, we invested in a whole host of development programs aimed at comparing them for more senior roles. Our flagship program is one that sponsored by our ERGs. This 18 month development program teaches business acumen, analytical skills and cultural competency.

Because our talent pipeline is a key people strategy, we analyze promotions and career moves like other companies, analyze turnover. We know that participants of the development program that I just described are 50% more likely to get promoted. We know our people who work in an office apply for promotions at a higher rate than our people who work from home. And we leverage data like this to design career pass, to best leverage our talent. Now is one thing for me to tell you that this is a competitive advantage, but it's a quite another when it's validated by an external source. We recently assessed our organizational effectiveness using McKinsey's Organizational Health Index. We ranked in the top decile of companies using this tool. And we were aligned with their leadership factory classification, meaning we have strengths in developing emerging leaders and in open and trusting culture.

The third component of our talent pipeline strategy is managing staffing very efficiently. Over-staffing and under-staffing both present significant risk to our business. And we consider the implications of both as we make staffing decisions. Our primary measure of staffing efficiency is PIPs per FTE. And that measure improved in the last several years and was flat in 2018. We also measure employee expenses as a percentage of premium, which shows how our people costs are impacting our combined ratio. This measure improved just over a point last year. Much of the operational efficiencies that we've gained have been generated by an increase in mobile utilization, automation and outsourcing. In claims, photo estimating and outsourcing glass claims are just two examples. In CRM we're automating less complex customer service tasks and eliminating some work, that had historically been manual policy servicing.

Our current estimate of the remaining benefits of these changes is a meaningful cost savings, but what we believe to be a very manageable staffing impact as we are currently hiring a 1,000 people per month and we've got a successful track record of redeploying talent as our business changes. A very recent example of this is a change we made to our service center model. This evolution of our business required significant modifications to our systems, our workflows an to our staffing. Yet, we were able to redeploy 95% of the 650 people impacted by this change. As a result of our talent pipeline strategy and the strength of our culture, we knew our people had the experience to be successful in other jobs and they had the desire to stay with Progressive.

Now, I realize that I'm speaking to an audience of financial analysts and so it's probably hard for you guys to get excited about some of the softer stuff, but it's our culture and our people strategies that are generating the results you care whole lot about. Here's the proof. Despite the very low median tenure of 1.6 years, the quality and efficiency of the work done by our claims reps has improved. Despite even lower median tenure for our reps in CRM, our sales conversion is up two points and our service measures are holding steady. In our product organization, we have increased speed to market by 50% and reduced quality defects at almost the same rate.

These impressive individual results have collectively produced our 2018 growth of $5.4 billion at a 90.6 combined ratio with a 2.7% improvement in PLE. Our performance over the years, allows us to claim the number three position in the auto insurance industry and the top spot in the commercial auto, specialty RV and motorcycle markets.

Our Progressive culture and the people strategies that I shared with you today are the result of the contributions of 1,000s of individuals over many years. I'm honored to share this story on behalf of all 38,000 of us at Progressive and all those who came before us, who are contributing to this truly sustainable competitive advantage.

And now I'd like to turn it over to the former Progressive intern, who is now our CFO, John Sauerland.

John Sauerland -- Chief Financial Officer

Thank you, Lori. Good afternoon, everyone. So I'm sure you all know, culture is not your typical topic for an Investor Relations meeting and frankly, I think Lori nailed it. Our culture and our people are absolutely at the core of our success. I believe we have the best people in the industry. I believe we have some of the best people in all of industry. I'm continually in awe of the caliber of people we are able to attract and retain, while at the same time maintaining a collaborative and a driven environment. I'm very confident we will continue to foster this culture moving forward. And I look forward to that journey.

Now, we are on to a far more typical topic for this environment, our new dividend program. In December of last year, we announced that our Board declared the 2018 variable dividend. We also reiterated that time that, that dividend would not be paid unless comprehensive income was in excess of after-tax underwriting income.

In our upcoming Q&A, we expect and welcome questions from you all around our dividend program. So we thought a little more of a rationale around that program would be good lead in to the Q&A. As a reminder and Tricia mentioned this as well are our prepared Q&A in the November news release as well as the associated 8-K that was filed on December 12th.

On February 11th, we paid the 2018 variable dividend in the amount of $2.51 a share or around $1.5 billion in aggregate. Comprehensive income for the year was $2.52 billion. After-tax underwriting income for the year was $2.303 billion. So based on our stated hurdle around comprehensive income and after-tax underwriting income, we were $217 million from not paying any variable dividend for 2018 subject of course to Board discretion.

The intent of this hurdle is clear and certainly well intended. That said, we think being in that situation, meaning potentially paying no dividend or potentially paying a $1.5 billion dividend is not in the interests of owners or management. So that is part of our rationale around the change.

Funding growth is another part of our rationale around the change. Our insurance company subsidiaries are generally required by regulators to carry statutory surplus equal to at least a third of net premiums written. In 2018, we added, as Tricia and Lori, both mentioned $5.4 billion of incremental premium. So all else equal, we were required to have $1.8 billion of incremental surplus in the insurance companies. In addition, we carry what we call an extreme contingency capital layer. That layer is derived from a number of factors, but in short, it generally scales with our balance sheet. So net, for that $5.4 billion of growth in 2018, we've carried an incremental $2 billion in capital.

Now, of course, we can generate capital by maintaining comprehensive income or by raising incremental capital. We are very clear around our leverage policy, which is to maintain debt at 30% or below total capital. And depending upon the composition of comprehensive earnings and projected growth, the formulaic (ph) dividend could have us in a position where we would be challenged to continue to grow as fast as we can at that 96 combined ratio. So that, in short, is additional rationale around the change. Obviously, growth has been robust lately. We have great momentum. So we want to ensure we have the capital we need moving forward.

While we've been making investments in many near-term growth opportunities, we also want to ensure we're investing for the long-term growth of Progressive. We've been very focused on our core offerings. This has served us really well. We want to be continued to be hyper-focused on our core, meaning our -- what we call our Horizon 1 offerings and at the same time, we want to be investing for the long-term growth of Progressive for decades to come. So further rationale for the change is to ensure that we have the flexibility to invest for that long term. A great example of our investments today in Horizon 2, our investments to bring to market commercial -- in our Commercial Lines business, our general liability business and business owner policies program.

We think our strategy plays really well with those markets. We also think that grows the addressable market for our Commercial Lines group probably in excess of three-fold. So we're looking to bring that to market in the near term and -- actually in the first half of this year. Naturally, we're working on further opportunities to continue to grow those Horizon 2 and 3 opportunities, and we'll keep you informed as we come to market with those opportunities.

Our final rationale for the change is that while we believe the variable approach to dividends is very aligned with our goal of growing as fast as we can with that 96 combined ratio, we understand that the variability in cash flows from a shareholder's perspective can be perhaps a bit out of sync with expectations. What you're seeing here on the slide is our trailing 12-month dividend yield without specials and including specials relative to our peer set as well as a broader market group and the S&P 500.

Interestingly, when you look at our dividend yield over a longer period, so this is a trailing five-year view of the previous slide, our dividend yield is fairly robust. So we are certainly a growth stock, but we also probably don't get the attention from a broader potential ownership set due to our sole reliance on variable and special dividends. Consequently, we are adding a quarterly dividend that will start at $0.10 a share for this quarter in addition to an expected annual variable dividend. So that, at a high level, is a rationale for the dividend change. We believe we've been great stewards of capital here at Progressive, and we certainly expect to continue to be. As a reminder, we produced returns on common shareholder equity in the high teens over many periods, including the past 20 years. We've also returned 70% of net income in the form of dividends or share repurchases over that same time period while growing the topline of the Company $27 billion or 9.5% per annum.

So while the mechanics of our common share dividend are changing, our financial policies have not, and we aspire to continue to produce as good or even better results for our shareholders than we have to date. We'll now take a moment to set up for Q&A. And we certainly welcome your questions.

Questions and Answers:

Julia Hornack -- Investor Relations

(Operator Instructions) With that, Karmen, can you please introduce our first participant from the conference call line, please.

Operator

Thank you. And the question comes from the line of Elyse Greenspan at Wells Fargo. Your line is open.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Hi, good afternoon. My first question, going back to some of, I guess, your closing comments, John. You just spoke about your efforts to expand into general liability and business owners policies, I know you guys mentioned that briefly on your last quarter's call. I guess, I'm just trying to get a little bit of an update in some numbers, how big do you think that, that opportunity can be? And you said in some of your comments today that you guys would think more about, potentially it seems like some other lines as well. Do you envision Progressive continued expansion in Commercial Lines assuming it all goes well? Could this all be done on organically or do you see inorganic potential M&A helping to expand your initiatives there at some point?

Tricia Griffith -- President and Chief Executive Officer

Let me start, Elyse. Let me start with that. So we believe the addressable market is really big, and we're doing it not unlike we did our Progressive Advantage Agency over on the Personal Lines side, so we're starting with partners that we work with third party unaffiliated partners and then, of course, we're right on our own paper this year with Bob. So, I will go a little bit slower this year. We've obviously been investing in this for a while, but we believe that there is such a good synergy with having the Number 1 commercial auto position and then, really at some point having the whole household and I really think about the business owner that has business in their home or nearby their house and they have the vehicles with us, maybe a toy, their home and kind of taking care of that entire customers. So I would say a lot of opportunity. We will use both written on our own paper, as well as partners to make sure we can cover as many small business people as possible.

John Sauerland -- Chief Financial Officer

Just to elaborate a little bit, we're the Number 1 commercial auto writer in the country by a wide margin. We are having great results in that space right now. You saw the 2018, I think, 20% growth, a tremendous combined ratio. We got to continue to have a runway there and GL and Bob probably has a marketplace three times the size of commercial auto. As Tricia said, we've started to -- our foray into other products predominantly through third party's Personal Line side as well as Commercial side on predominantly the direct side of the business, and that affords us a lot of experience and opportunity into what works with our customer set. And GL and Bob are products that we do offer through third parties today in our direct business for Commercial Lines. Similarly to how we started with auto in -- I'm sorry, with home in the Personal Lines group, we expect to offer our own products up us alongside third-party products. It's worked really well in the homeowners space. We think it'll work really well in the Commercial Lines space as well to ensure we've got the product to keep that core household as Tricia was saying and ensure that, if the product that is right for them is the Progressive product we have that for them as well.

Tricia Griffith -- President and Chief Executive Officer

And we refer to that as BusinessQuote Explorer. So we had HomeQuote Explorer, BusinessQuote Explorer, you'll be hearing a lot more about that and likely we will have our John Barbagallo or -- and someone on his team at a webcast later this year.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Okay, that's helpful. And then in terms of you guys brought up your commercial auto results, you have been pretty exceptional compared to what we've seen across the industry as some others really deal with both adverse frequency and severity issues. Can you just talk about what you're seeing within your book, the price that you've been taking as well as the loss cost trends and how you kind of see the margin profile of that business running in 2019? Thank you.

Tricia Griffith -- President and Chief Executive Officer

So, if you go back to 2016, we're really challenged from a profitability perspective and John Barbagallo who runs that organization took a step back and these are 12-month policy. So we know when we need rate is going to take some time to earn in and also we really got ahead of that. In 2016, we said, OK, here's what we think we need. In addition, just like we do on our Personal Lines side, we use segmentation for all of our BMTs and for us, this is really important to understand and match rate to risk. And so, we've got out ahead of that. We feel great about our rate. We took about 5.5% in commercial last year, and we feel great about our ability to pull back if we need to, segment and as you know, in a couple of states, we had some restrictions for quite some time until we felt like we were in a really good position. And we've lifted most of those, but obviously, you saw the numbers. We're doing incredibly well from a margin perspective, as well as a growth perspective and we think that really helped to spearhead like you talked about, Elyse, our small business insurer.

John Sauerland -- Chief Financial Officer

I'd take one more moment to tout our successive positioning right now in commercial. The other, we're really excited about is in electronic logging devices. So we think we've been at the forefront of employing usage-based insurance rating in the commercial side similar to what we've done for well over a decade on the personal side with Snapshot. Here, we are providing pretty significant discounts to interstate truckers who are now required to have electronic logging devices on their vehicles, provides a great insight into the driving behavior and allows us to apply that to the insurance premium. So, we think -- Tricia was talking about matching rate to risk, that is a huge step-forward in the commercial business in doing so.

Operator

And our next question comes from Yaron Kinar with Goldman Sachs. Please go ahead. Your line is open.

Yaron Kinar -- Goldman Sachs -- Analyst

Hi, good afternoon everybody. (inaudible) with the expense ratio, if I could and it's a two-part question. So first, I noticed that the January expense ratio was up quite a bit relative to 2018 and was hoping that maybe you could talk about the drivers for that. And also within the expense ratio, I think you had talked in the past about achieving the target of non-acquisition expense ratio of about 9% by year-end '19. I think, you're already essentially there now in Personal Lines. So, is there another leg there? And similarly for LAE, I think you had targeted at 9% there as well for -- by the end of '19 and hope like you had about 10% at the end of '18. So do you think that you are -- are you still on track to get that 9%?

Tricia Griffith -- President and Chief Executive Officer

Again, that was -- it's an internal target that we look to and a lot of it depends in a good way on where gain share flows in from a debt perspective, from an expense perspective. We look at that a one-off gain share kind of our target gain share if it's higher, obviously it's tougher to control expenses. I would say from an overall expense ratio, we've been doing a lot of advertising, which flows into our expense ratio and that's why we bifurcate the non-acquisition expense ratio with all other. So, that's -- so advertising has been a big part of our expenses and we only advertise when we feel like it's an efficient use of our funds and that we can get in customers at costs lower than our targeted acquisition costs or cost per sale. So, we forget about that. And again it's one month into it and things flow there, but part of it right now in January is internal gain share in advertising.

Yaron Kinar -- Goldman Sachs -- Analyst

Okay. And then my second question is around PIP in Florida, where are we there? How many reopened claims you expect to still flow through into '19 and beyond? Have you kind of capped this at this point? And also, do you think that there is any risk that PIP will become an issue in other states?

Tricia Griffith -- President and Chief Executive Officer

Yeah. The actual number, there's a lot of variables that go into it at the type of claims, some would be preset demand, some are out there, some are already in lawsuit. Here's how we treated those. So we watch that litigation really closely. And it was the industry watching. So we all felt like the deductible we were doing it in the correct way. And the Fourth District Court of Appeals affirmed that, went to the Fifth District Court of Appeals and they overruled that and then of course, you know the results from the Florida Supreme Court. We treated this. We had -- we knew the files that were at risk. And we had the inventory. We obviously reopened a bunch immediately and treated this almost like a cat, where we got people down there and resolve those claims and we have a big portion of them resolved and all of them reserve to the best of our knowledge obviously. So we feel really good about of our position here.

From an overall -- this does go to other states, PIP is really different in each state. So PIP isn't in every state, it's only in about 15 states and it's very different. And different states have a very different litigious atmosphere. Florida happens to be one that is always ripe for litigation. So, I don't feel -- I'm not nervous about going to other areas of the country, because it's just different. This was a very specific about how deductible was treated. And so I'm not concerned about that particular litigation go into other states.

Yaron Kinar -- Goldman Sachs -- Analyst

Thanks for the insights.

Julia Hornack -- Investor Relations

Karmen, can we take the next question from the conference call line please?

Operator

Thank you. Our next question comes from Amit Kumar with Buckingham Research. Your line is open.

Amit Kumar -- Buckingham Research -- Analyst

Thanks and good afternoon. One comment and two questions. First of all, I do want to applaud you on this presentation. These are actually very helpful. And I do hope that other companies follow your lead and give us these additional insights. So, I know you made a comment regarding the investment community, but we all look forward to these presentations.

Tricia Griffith -- President and Chief Executive Officer

Thank you.

Amit Kumar -- Buckingham Research -- Analyst

That's that. The questions I have -- the first question I have is going back to the comments you made in the 10-K regarding the PLE and there's a comment that it's declined due to targeted underwriting changes introduced in our new model, can you just talk about that a bit more?

Tricia Griffith -- President and Chief Executive Officer

It was really just a process change in terms of when we determined you would renew with the lapse in coverage and we used to do it at a certain time frame and we've reduced that time frame because we found those customers we weren't reaching our target margin. And so when we looked at that, we modeled out what we saw -- what the effect we thought would be on PLE and that's just flowing through to what you're seeing now.

Amit Kumar -- Buckingham Research -- Analyst

Got it. The second question I have is, I guess is a bit more broader question. In the 10-K, you talk about pricing of 1.2%, you talk about premium per policy growth and 5% in agency 4% in direct, and I think a lot of it is due to the shift in business mix. How are we thinking about, I guess the trends as we head further into 2019, should we expect the Robinsons, this whole thing to continue or anything, which could lead to a different outcome? Thanks.

Tricia Griffith -- President and Chief Executive Officer

We are enthusiastic about 2019 specifically as you talk about with the Robinsons. So, as you know, we have more platinum agents than ever. We're continuing to add in that, we're continuing to expand across the country. So for us, both on the agency and the direct side, we have a lot of runway. And in fact we're less than 2% of the Robinson market, I used to say in a peer probably several years ago. And John, I think you did too, and forever, we were about 1%, we are 0.7 (ph) forever. We've built the infrastructure now, so that progressive advantage agency that at one point, had 25 people now has 100s of people for those direct callers to come in. We have a broad array of home products for them whether it's Progressive home or others. Then we've built an online version of the HomeQuote Explorer, we're building buy button. So we feel like we have a lot of runway in that bundled as point of sale and as we graduate.

So, even when you think about our increase in our renters policy, that's a pre-allude to the people, they're are going to buy our homes. So, we think that's really important on the agency side. I was just with a platinum blue agent this morning who we become the number one in his shop and it's a big shop and we're talking about how we're going to continue to work with him to grow our business and our -- and take care of our mutual customers. So from my perspective. And John, you can weigh in. I feel very bullish on our ability to continue to grow in that preferred market.

John Sauerland -- Chief Financial Officer

Yeah. We have tremendous opportunity on the preferred and as Tricia said our share there is very low. Our share, however, on the other segments is actually affords us plenty of growth opportunity as well and we've grown very nicely across all segments certainly more with what we call the Robinsons and others. But we've been growing all segments and all channels, in terms of loss cost trend premium trend if that was part of your question. We can't perfectly predict loss trends going into 2019, obviously our product managers and pricing team attempts to do that when we set the prices, we can't know for sure. Clearly our claims frequency has been coming down. That's been a fairly consistent trend. Claim severity, going the other way in a fairly robust way. We think that will probably continue for a lot of reasons as well. We continue to take rates up in our commercial business, in our property business, our core auto business, our rate increases have slowed, you've probably seen that, it's becoming a bit more competitive in the marketplace, but obviously our margins remain very robust.

Julia Hornack -- Investor Relations

I'm actually going to take a question now from the webcast. So you talked about preserving culture. But as you get bigger and you just noted that you've hired over 2,000 people or you've added 2,000 headcount to the employee base in the last few months. How do you really preserve this when senior management is unlikely to personally ever get to meet many of these people. The Company's change in size alone would strongly suggests that culture today isn't the same as it was 10 years ago. So how do you deal with us.

Tricia Griffith -- President and Chief Executive Officer

That's a great question and couldn't disagree more, because we make it such a passion to talk about our culture. So we will hire 10,000 people this year. I go to, and speak at every new higher class as does my senior leadership team. So, believe me that has been almost on a weekly basis. I go the claims new hire, I go the corporate new hire which includes commercial. I go to CRM, new hire, and I spend an hour, oftentimes right in this area that we're sitting in. And I talk about our culture, our values, what I need from them. So I do get to one on one either in person or via webcast meet nearly every new hire. There might be an occasion when I'm gone, think that as hugely important, and my whole team does that.

In addition, I think it's important for me as a leader to travel out extensively as those my team we are out in about all the time. Oftentimes it's sitting in rooms of 20 people saying, tell me what you don't like, or tell what I -- what you may talk about that, we would know about, Lori, in particular, who you just met, our Head of HR constantly goes out and just does in town halls to see what's on our mind and tell us what we can change. Many of our changes we've made over the years were from the employee base saying. Have you thought about this? Can you make this change? Would you consider this? And that's our passion, and for us culture has evolved, it will continue to evolve, because we have different demographics and different needs.

But we are very intend to that and this is something that is so critical to our success that we spend a big majority of our time, a large part of our time making sure that we hear our people that we're here for our people and they were open. I can tell you that it's not uncommon like Lori said for someone to stop me or for someone to step up in my office and say. Hi, I knew you're up here, can we talk and I purposely making efforts on, usually I try to do on Friday, some other days and I'm actually going to venture out of the building, I'm in. I walked downstairs, grab lunch and randomly sit with five or six people that I haven't met. And it's usually super awkward for like five minutes after I ask them, if I can join them and then 10 minutes later, we're laughing and have gotten to know five or six employees, and it was funny, because, this week I said to my assistant, let's plan on -- me going to different offices around Clevelan, because I said in one of the campus locations, but we have a lot of locations.

It won't be perfect. But this is something we talk about everyday. We talk about culture, diversity, engagement, every single one of our meetings and that flows, all the way down. So to me, it could be something with companies grow too fast. We will not let that happen.

Julia Hornack -- Investor Relations

Karmen, can we take the next question from the conference call line. Please.

Operator

And our next question comes from Michael Phillips with Morgan Stanley. Your line is now open.

Michael Phillips -- Morgan Stanley -- Analyst

Thank you. Good afternoon, everybody. I want to follow back up on one of the earlier questions on the small commercial. You're getting into that, at the same time, we've seen some recent announcement some pretty formidable competitors on the same thing. And so I guess, even though there's pretty recent announcements, I'm wondering how that factors into your thoughts of how competitive that landscape is, in the small commercial especially direct. And then, I think John said, above is three times as far the commercial. John, did you mean -- the overall market or specifically in the space that you play in a small commercial for that three times. Thank you.

John Sauerland -- Chief Financial Officer

Let's start with that. I meant that GL Bop (ph), I'm going to around little over $100 billion in the US commercial auto around little over $30 billion. So, three times the commercial auto marketplace. We don't compete specifically in every niche of that market. Of course, but it gives you a perspective on the breadth of market, we are opening up, by being able to offer those products. The other thing, similar to the personal line side of the graph or it's not only about writing incremental GL Bop, it's about keeping the commercial auto longer. So to the extent of business evolves and grows and buys the location et cetera. They have broader needs, today we can't meet broader need, especially with our agency channel, those incremental products will afford us ability to retain our current customer set longer. Again same path we took with personal auto and home in order to increase PLA.

Tricia Griffith -- President and Chief Executive Officer

And Michael, I would say that competition is great. It makes us all better, it makes us all think about the customer differently. I like where we're positioned, because we've invested in this -- in the last 18 months or so. No, it would take some time to get it right and own it and we also have the advantage like we try to do with broaden coverage where, when and how customers want to shop. So we have our agency customers who wants to need any kind of understand the coverages for their small business and then we'll have direct just like we did in personal lines on the phone or online. So having a variety of ways with which to buy as a small business consumer depending on your tenure and kind of your knowledge of what products need to protect you. So, I think to me competition makes all of us better. I'm excited about what the future will bring.

Michael Phillips -- Morgan Stanley -- Analyst

Okay, great. Thank you, John and Tricia. That's all I have. I appreciate it.

Tricia Griffith -- President and Chief Executive Officer

Thanks, Michael.

Julia Hornack -- Investor Relations

Karmen can we take the next question from the conference call line, please.

Operator

The question comes from Ryan Tunis with Autonomous. Your line is open.

Ryan Tunis -- Autonomous Research -- Analyst

Hey, thanks. Just a few questions, the first one is, the advertising expense disclosed in the 10-K. I remember that was up about $0.5 billion year-over-year. What are the type of range that outcomes we can expect in terms of thinking about that. I mean is it -- could that be $700 million less next year, could it be $700 million more. I mean just trying to get a feel for how that might flex in any given year for these levels.

Tricia Griffith -- President and Chief Executive Officer

Yeah. We look at advertising and look at it from an efficiency perspective, when we look at that from everywhere we advertise, so whether it's radio, mass media, digital and what we really look at it as a target acquisition costs. And that can be different for customers and we've also started to look at sort of a lifetime customer value. And we look at the home. So there's a lot of different things that go into that. But when we have a targeted acquisition cost and our cost per sale is less than that or less than or equal to that. We believe that's efficient use of our dollar.

So we will use those dollars and flex them depending on what's going on in the other part of the Company as needed. So, this last couple of years has been great, because we've been able to really put on the gas in terms of advertising and we've had a lot of different advertising campaigns that have brought in new prospects and ultimately conversion. As you know, in 2016. We reduced advertising cost a little bit when we got close to our 96 target combined ratio.

So those things happen and 96 takes priority over everything, but we believe if we play it right and we have a efficient marketing and great segmentation and a great brand and a low cost structure, we can -- we can have it all. Some years, we have to flex.

John Sauerland -- Chief Financial Officer

So, that I would add, we are hugely data-driven and we've gotten really good at measuring our advertising, not only in the digital space. But now in the mass media space, we buy virtually all of our advertising in-house. So we use that information we know day part television show, how our cost per sale performs on that by. And then we know where we can buy for the next show. So we have tremendous negotiating ability, because of the knowledge we've gain that we've used, historically in the digital space, but we've now expanded to mass media, which has -- had us making a lot different decisions and way more -- way more productive decisions in the mass media space. So that is how we manage it and I think we're in a way better position now to manage broadly across our spend, than we were even just a year ago. It's pretty impressive stuff.

Tricia Griffith -- President and Chief Executive Officer

And a shot on to our marketing department, who continues to evolve this campaign. So you know we had kind of flow in the superstore, and then we had Jamie (ph). And now we have a whole squad of flow. We have our campaign of parentamorphosis, that says when you buy, your first home, you become your parents, you got a couple of really great ads coming out pretty soon, and you're going to see some, some different a couple of different campaigns, that won't give a spoiler alert coming out in the next few months. One for our special lines, our motorcycle and we're delving into some things like podcast. So, I think you're going to be really interested in, but we continue to evolve our cast and characters and I mean, that to me is a big thing, we're not using the same old commercials over and over. We continue to expand.

Ryan Tunis -- Autonomous Research -- Analyst

Got it. And then I had a question on the frequency statistic down 3% for 2018 and sort of like in the annual report something that was attributable to mix. Have you heard about mix constant? Why do you need frequency over that?

Tricia Griffith -- President and Chief Executive Officer

That is a hard question to answer, because we'd have to go back and see. I mean there's a lot of things that are going on in terms of frequency. So, some of it is mix. We have a -- more of a preferred mix, but it also has to do with macroeconomic factors, people drive -- your driving behavior climate in terms of how the roads are, there's a lot of things that go into it. I would be hard-pressed to give you an answer that I felt comfortable with. I don't know if you can do any better?

John Sauerland -- Chief Financial Officer

I agree completely.

Ryan Tunis -- Autonomous Research -- Analyst

Got it. And then just quickly, one other one I have was just on -- on the January adverse development that wasn't related to Florida, it seems like whatever reason. Over the past few years, there's been that, going from December to January, just curious what's your explanation might be for it seems like consistently there might not be quite enough IBNR at year-end.

Tricia Griffith -- President and Chief Executive Officer

You know, lot of it, it depends on the year, but almost always you have late reports from December from the holidays that go into January. Sometimes you could have a late report and it's also weather related, so could be double like this year, some of the adverse development was Florida pit, and some was late -- late reporting. But if you look over the last three years, I would not use January as looking at the whole year out. So, if you look at the last three years, January was at least one point upwards in one year of like 3 points, 2 points. I think in 2018, throughout the year on the most that we've come to in the last three years at the end of the year had been 0.4 points. So less than a 0.5 point. So January is just kind of bumpy, because the timing and we kind of -- we kind of stop it there and start a new year, but a lot of its late reporting weather or some circumstance. But don't -- I don't put a lot of thought into January, because you have used if you see over the last three years, it really does smooth out and we tried to be exact as we can for our reserving and we've been pretty close to that.

Julia Hornack -- Investor Relations

Thanks for the question, Ryan. Karmen, can we go to the next caller please.

Operator

And the next question comes from Mike Zaremski with Credit Suisse. Your line is now open.

Michael Zaremski -- Credit Suisse -- Analyst

Hey, thanks. So my question is on the severity trends. I was going to ask specifically on bodily injury, which looks like, if I do the math, ended the year at 4%, so that means 4Q had to be around 8%. But then, John you also made in a number of comments earlier that, hoping you could shed some more light on about severity continuing for a number of reasons. So maybe you can talk about those trends you're seeing and why you think that will continue?

Tricia Griffith -- President and Chief Executive Officer

I'll start, and John you can -- so, in trailing on a trailing 12, it's a more benign, but a lot, the fourth quarter. Overall, a severity was up about 6.8% and we attribute that to medical expenses for injuries and cars are more expensive to fix because of the technology in those vehicles. And I believe that's why you are saying that. I mean we are -- as you look at the cars and what components are in there, they'll become expensive and obviously healthcare costs continue to be expensive. So those are a couple of things that go into -- both the collision as well as BI.

John Sauerland -- Chief Financial Officer

Yeah. I think, Tricia nailed it. BI is pretty consistently plus four early collision as you saw was plus eight for the year. Attrition mentioned that as well. Technology and vehicles is making more expensive and it is making the frequency with which we total vehicle when it's in a crash go up as well. So we think those trends are going to continue. And if you look back, they've, it's been pretty consistent for quite some time. So the frequency side of the equation is much harder to predict, the severity side, we're pretty confident, it's going to continue at a pace, it's been out for a while one.

Michael Zaremski -- Credit Suisse -- Analyst

Okay. My follow-up is on the personal auto underlying loss ratio in January. It improved fairly, very measurably kind of more volatile than it has been in the previous year. Is there any color on what made it improve so much. Was there any anomaly in there? Curious if any color, there.

Tricia Griffith -- President and Chief Executive Officer

And John, you can add anything you want me. For us, it's really about the mix of business and as we have more and more of our preferred market come in, you're going to have loss ratios change again we thought have a lot, more runway to add, more of those customers. There's a lot that goes into that, but that would be my main take.

John Sauerland -- Chief Financial Officer

That obviously is the positive side of the -- why was the development from the prior year 4.8 points. The accident year loss ratio for January was exceptional. We don't report severity and frequency on a monthly basis that would get us into some very interesting territory. So I won't really explain further there, but my previous comments around severity and frequency, I think you could bring forward to January. Weather makes a lot of difference as well. And you know, winter months, how much precipitation that's freezing et cetera in the northern part of the country matters a lot. So we're happy with the loss ratio for January and we're not going to get into specific frequency and severity for months.

Michael Zaremski -- Credit Suisse -- Analyst

And just one last one, you mentioned mass media versus digital spend much, what's really high level breakdown percent mass versus digital?

Tricia Griffith -- President and Chief Executive Officer

I don't know that we actually shared that. But I think it's really dependent on a time of year buying -- to buying time, so there's times where there's more shopping for home shopping for auto, and increasingly though, I will say our Digital is becoming much more a part of our spend.

Michael Zaremski -- Credit Suisse -- Analyst

Thank you.

Julia Hornack -- Investor Relations

Thanks. Karmen, can we take the next question from the conference call line, please.

Operator

And the question comes from Brian Meredith with UBS. Your line is open.

Brian Meredith -- UBS -- Analyst

Yes, thank you. A couple of quick ones here. The first is -- I'm just curious, your renewal retention rates look like they improved nicely, given the renewal apps that are up and your personal auto business. I wonder can you give us some sense of how much of a benefit that was to grow this year, and also perhaps maybe loss ratios obviously renewal book has a better loss ratio.

Tricia Griffith -- President and Chief Executive Officer

From an overall PIP growth, it was substantial. I mean, I think any time you can keep the customers, you've already had the acquisition costs, coming that in, I think substantially, I don't have the actual percentage with me right now. But it's substantial, that's why we put such a focus on retention and making sure that we -- the customers bring in, we satisfy, give them a reason to stay. They add more policies as their needs evolve. So it has been significant.

Brian Meredith -- UBS -- Analyst

Got it. And the reason I'm asking this, a couple of years ago, everybody is worried about the whole tenure impact right with the growth and we didn't see at this last year. That's because that was probably due to the good renewal retention improvement?

Tricia Griffith -- President and Chief Executive Officer

Yeah, I mean, I think you -- I think if you're talking about, I think a couple of years ago we're talking about sort of the new business tax and that coming in, I think...

Brian Meredith -- UBS -- Analyst

Yeah, exactly. Yes.

Tricia Griffith -- President and Chief Executive Officer

Yeah. I just see that flow through. I think it's really important. I think part of that as well is the type of new business that we bring in. So we really, and do a lot more underwriting now to make sure that we bring in customers where we believe we can make at or below our target margins. So the inflow is changing, we're keeping people longer. So those two things together I think has been a good story.

Brian Meredith -- UBS -- Analyst

Great. And then my second, just curious, as you kind of continue to shift a little bit here more toward some commercial, you've got the homeowners and renters, it's going to can you just ship, should we expect your premium to surplus ratios to decline here going forward just for those are generally more capital intensive businesses? And also as a result, is your target combined ratio going to have to be different in those businesses?

Tricia Griffith -- President and Chief Executive Officer

So I'll take the last part first. Our combined ratio that 96 is an aggregate number. So they are, we have different targets in every different part of our business, sometimes in different states, definitely new in renewal in different products. So that 96 is really an aggregate. So we already have different targets, depending on the volatility of the business. From a premium to surplus perspective, so, I think John, used in one to three which is auto, it's about half of that for home. So those do change as we have different types of products.

Brian Meredith -- UBS -- Analyst

And commercial I'm assuming is 1 to 1.5 also I think.

John Sauerland -- Chief Financial Officer

Commercial be lower than auto for sure, but recognize, if you think about total return on the business. We try to target underwriting margin in concert with investment return to that to reach similar ROEs across our business lines. So commercial is a great example where much longer tail in terms of the claims, much greater investment return. As a result, we blend that with our underwriting expectations. So yes, the surplus requirements for those other lines outside of auto are more robust than our auto lines, but at the same time, we're targeting returns similar across those lines.

Tricia Griffith -- President and Chief Executive Officer

And like homeowners we have for our higher limits, we have reinsurance on the commercial side.

Julia Hornack -- Investor Relations

Thanks. Karmen, can you take the next question from the conference call line, please.

Operator

And the question comes from Adam Klauber with William Blair. Your line is open.

Adam Klauber -- William Blair -- Analyst

Thanks. Good afternoon. You shown some very good early signs as far as your digital effort and homeowners and bundling. How we can accelerate that in 2019? And then a second part of the same question is, as you think about rolling out more and more commercial, is there -- is part of that strategy also more of a digital effort?

Tricia Griffith -- President and Chief Executive Officer

Absolutely, yes. So we're going to continue to have the ability on our home quote explorer which is what we call our digital capacity to not only quote but bind online, to have that buy button. So we'll continue to invest in doing and rolling out that to more and more states, because normally when people go online, they want to be able to seal the deal, so we'll do that. And that's the great thing about having your own home plus partners as you have -- you have the ability to service almost every customer. The same thing on the commercial side, we will have the business quote explorer, we did a soft launch last year, we'll continue to invest in that and almost follow suit with what we did on the personal line side, which we found very successful. So we're putting a lot of investment in technology on in both of those platforms.

Adam Klauber -- William Blair -- Analyst

And then the home quote explorer from whatever you had just a couple of states up and running, this year, should that expand pretty aggressively. I mean last year, should that expand pretty aggressively this year?

Tricia Griffith -- President and Chief Executive Officer

Yeah. We will do everything we can to get more and more states and the buy button as we can.

Adam Klauber -- William Blair -- Analyst

Okay.

John Sauerland -- Chief Financial Officer

So, the buy button right now for Progressive home is in a limited number of states. Home quote explorer is broadly rolled out. I don't about 50 states, but the predominance of the country for sure. The piece, that Tricia was talking about that helps conversion alive is if you present the potential customer, the ability just click a button to buy. We don't have that progressive home across the country. That's what we are rolling out.

Adam Klauber -- William Blair -- Analyst

Great. Thank you very much.

Julia Hornack -- Investor Relations

Karmen, we'll take another caller from the conference call line, please.

Operator

And the question comes from Gary Ransom with Dowling & Partners. Your line is open.

Gary Ransom -- Dowling & Partners -- Analyst

Yes. Good afternoon. I saw that you mentioned in your letter Tricia that you have a new algorithm for distracted driving in your telematics product. Could you talk a little bit more about that about how effective that is qualitatively or what that -- will that spread out to more states?

Tricia Griffith -- President and Chief Executive Officer

Yeah, it is from our handheld for mobile as a device. So as you know, we have two different ways you can have a usage based insurance with the dongle and with the handheld. With the handheld, we're more able to tell when you are using the phone hands-free or holding it, which we have found is a very correlated to losses. I can give you all the data, because it's private, too confidential to Progressive, but we find that people that use their phones either on app or a phone call, x amount time or it's more correlated to losses. So it's sort of the next wave of how we think about our usage based insurance and I think for years people said. If someone is in the left lane and they're using their phone or they on their phone and they have to be worst drivers, that was our premise as well, but we like data and so we took a long time to understand this. And then we developed an algorithm and are using it now with the people that choose our mobile device for UBI.

Gary Ransom -- Dowling & Partners -- Analyst

Is it fair to say something like it's just as powerful as either the breaking factor you use or the time of day factor?

Tricia Griffith -- President and Chief Executive Officer

I don't know if I have that data, I think we believe is powerful and I would be probably be able to tell you that when we have more development, more a time.

John Sauerland -- Chief Financial Officer

We're confident, it is quite additive and we haven't rolled that every year -- everywhere yet, but we're working to do so expeditiously.

Gary Ransom -- Dowling & Partners -- Analyst

All right. Thank you. I -- just one of the things that, you also mentioned in your letter about savings and loss adjustment expenses. That's a piece of the expenses. We usually don't get to look at carefully, but it sounds like you have a number of initiatives to bring those costs down. Are there some that might be the main components of helping that it LAE piece move downward in the future?

Tricia Griffith -- President and Chief Executive Officer

I guess, there is a couple of things. The main one, that we're working on a lot of technology. But, the main one that we've been working on, we continue to roll out in the last couple of years. We call photo method of inspection. So, customers being able to take photos or video and we're able to be very, very efficient in writing those estimates, because you don't have to be side of the car by the sheet metal and we've been doing really well.

But rolling it out slowly, because if you -- you can do that and reduce LAE but, if you increase indemnity that doesn't make any sense. We're trying to be really exact of that and we believe that will ultimately and we're testing it right now lead to the machine being able to write a portion of the estimates that are -- that are pretty (inaudible) And so, we'll be testing that this year. Those two things are going to be really big in claims. And we continue to always chip away a different processes in the claims organization to figure out, how to get more efficient. What are we doing that doesn't add value. So, we chip away that and have a whole, a kind of spectrum of process, type of things we're working on as well as obviously been accurate, making sure we pay the right amount every time for our customer. But, I would say those are the big things really with our estimatics.

Gary Ransom -- Dowling & Partners -- Analyst

That's very helpful. Thank you very much.

Tricia Griffith -- President and Chief Executive Officer

Thanks, Gary.

Julia Hornack -- Investor Relations

Well, unfortunately, we've exhausted our scheduled time. And so that concludes our event today. Karmen, I'm going to turn it back to you for the closing scripts.

Operator

And that concludes The Progressive Corporation's fourth quarter investor event. Information about a replay of the event will be available on the Investor Relations sections of Progressive website for the next year. You may now disconnect.

Duration: 95 minutes

Call participants:

Julia Hornack -- Investor Relations

Tricia Griffith -- President and Chief Executive Officer

Lori Niederst -- Chief Human Resource Officer

John Sauerland -- Chief Financial Officer

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Yaron Kinar -- Goldman Sachs -- Analyst

Amit Kumar -- Buckingham Research -- Analyst

Michael Phillips -- Morgan Stanley -- Analyst

Ryan Tunis -- Autonomous Research -- Analyst

Michael Zaremski -- Credit Suisse -- Analyst

Brian Meredith -- UBS -- Analyst

Adam Klauber -- William Blair -- Analyst

Gary Ransom -- Dowling & Partners -- Analyst

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