Progressive (PGR) Q3 2023 Earnings Call Transcript

Progressive (PGR -0.97%)
Q3 2023 Earnings Call
Nov 01, 2023, 9:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Doug Constantine

Good morning and thank you for joining us today for Progressive's third-quarter investor event. I am Doug Constantine, director of investor relations, and I will be the moderator for today's event. The company will not make detailed comments related to its results in addition to those provided in its annual report on Form 10-K, quarterly reports on Form 10-Q, and the letter to shareholders, which have been posted to the company's website. Although our quarterly investor relations event also includes a presentation on a specific portion of our business, we will instead use a 60-minute schedule for today's event for introductory comments by our CEO and a question-and-answer session with members of our leadership team. Introductory comments by our CEO was previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 60 minutes scheduled for this event for live questions and answers with our leadership team.

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 today's event. Additional information concerning those risks and uncertainties is available in our annual report on Form 10-K for the year ended December 31st, 2022, as supplemented by our 10-Q reports for the first and second quarters of 2023, 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 investor relations section of our website at investors.progressive.com. To begin today, I'm pleased to introduce our CEO, Tricia Griffith, who will kick us off with some introductory comments.

Tricia?

Tricia Griffith -- Chief Executive Officer

Good morning and thank you for joining us today. At the end of the second quarter, we were in a difficult place, rising loss costs, adverse development, and catastrophic weather events meant we were facing a significant uphill battle to deliver on our calendar year '96 combined ratio target while facing a very uncertain future. We made difficult decisions to steer the business through this challenging time. Despite the headwinds, I believed in our strategy and the leaders who were in charge of delivering that strategy. While we knew it wouldn't be easy, we knew that if we executed properly, we'd come out better on the other side.

While there's still much uncertainty in our future and more work to do, the results in the third quarter suggest our strategy is working. Before discussing what did happen in the third quarter, let's first discuss what did not happen. First, unlike the first half of the year, the third quarter saw modest companywide reserve development of only 0.2 points unfavorable across all lines. As we discussed in our presentation during our last call, our reserving group adjusted reserves in the first half do react to many things, including higher severity caused by steepening trends in our fixing vehicle coverages and higher attorney representation rates in Florida, precipitated by House Bill 837. In contrast to the first half, in the third quarter, we saw some flattening in the loss cost trends for fixing and replacing vehicles. We also now believe we have adequately reserved for the higher severity related to pre-House Bill 837 lawsuits.

Second, in the third quarter, catastrophe losses were 1.3 points lower in total after reinsurance than the first half of the year. We do not write homeowners in Hawaii, so our exposure to the heart-wrenching Maui fires was limited. After reinsurance, our property catastrophe losses in the third quarter were 28 points lower than the first six months of the year. And while Hurricane Idalia was devastating to the people caught in its path of destruction, the density of homes and autos we insured in that path was relatively low. What did happen in the third quarter is that our rate and non-rate actions had a positive effect on premium and profitability, including the four points of rate we took in the third quarter. We have now taken approximately 16 points in personal auto year to date with more of that rate earning in every day.

Both commercial lines and homeowners also took rate as we look to address loss trends in those lines. We continue to adjust and refine non-rate actions across the portfolio to help the business we are writing to meet our profitability targets. In addition to improved underwriting results, our net income is also benefiting from the higher interest rate environment. For the first nine months, our investment portfolio yield is 90 basis points higher, and recurring investment income is 59% higher than the same period last year. With sustained higher interest rates, we expect yields to continue to increase as securities with lower interest rates mature and those funds are reinvested at higher rates.

Many of the actions we took and continue to take to address profitability have an adverse impact on unit growth. New apps in personal auto were down 20% in the third quarter compared to the prior year and contributed to a decrease in PIPs compared to the end of the second quarter. This is a reflection of our self-imposed pullback in media spend as we seek to manage our combined ratio through the acquisition expense ratio and find the right balance in cohort pricing, which we talked about at length in our last quarterly call. We continue to assess our marketing spend, and as always, we endeavor to find the right balance between profitability and new business growth. While new applications shrank year over year in personal auto, retention reflected through our PLE measure continues to be robust at 35% in personal auto on a trailing-three basis. We believe robust retention, especially in the face of higher rates than a year ago, is an indicator that many of our competitors are still tight on underwriting and we remain competitive in the marketplace.

Despite the headwinds created by our profitability actions, our year-over-year growth was very strong. Through September, companywide PIPs were up 10% year over year. Positive year-over-year PIPs growth plus higher rates means our premium growth was spectacular with net written premium up 20% year to date, or 7.9 billion. To put the first three quarters premium growth into perspective, we've added the premium equivalent to a top eight personal auto insurance carrier, which is a truly amazing statistic.

Despite the successes that occurred in Quarter 3, we are not yet declaring victory. Our calendar year combined ratio currently stands 1.2 points above our '96 target. While loss trends have flattened, they are still elevated. Macroeconomic indicators suggest inflation is abating, but we are vigilant. Given the geopolitical and macroeconomic environment, our view of the future could change overnight.

We continue to refine our plans for the rest of 2023 and 2024 as new information comes in. We have built a business where we can quickly take advantage of the opportunities the market offers us. So, I'm confident that, as things change, we'll react with the goal of delivering the best-in-class results we expect of ourselves. Finally, as a reminder, and as we've previously announced, beginning this fourth quarter, we will move to reporting results on a Gregorian calendar basis versus our historical approach of a 5-4-4 convention. Consequently, for the next year, we will limit historical comparisons on a monthly basis and will continue such comparisons on a quarterly basis.

Thank you again for joining us, and I will now take your questions.

Doug Constantine

This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions. [Operator instructions] We will now take our first question.

Questions & Answers:

Operator

Our first question comes from the line of Bob Huang with Morgan Stanley. Your line is now open.

Bob Huang -- Morgan Stanley -- Analyst

Thank you. Just a quick question on the way you think about growth. Obviously, you are getting closer and closer to your 96% targeted combined ratio. Curious as to how should we think about the future growth trajectory going forward.

Like, once -- now it appears that losses are improving, reserving appears to be more manageable. Heading into 2024, once you -- assuming you get to a 96% combined ratio in 2023. should -- is it reasonable to assume that you would reaccelerate growth into 2024?

Tricia Griffith -- Chief Executive Officer

Yeah, that's definitely reasonable, Bob. Here's how I'm thinking about it. We obviously have 1.2 points to diminish to get to our 96. We're going to continue to work on that.

We're still seeing a pretty hard market out there. So, we're getting a lot of ambient shopping. And if you caught the last part of the statement, even with us doing the self-imposed pullback from our media spend and from non-rate actions, we were able to grow the company nearly 8 billion compared to the first nine months of last year; 10% PIPs is a little bit higher in the direct auto side. So, we're pretty excited about what we were able to achieve this year.

And I say that not necessarily for the analytical community out there but mostly for the 60,000 people that got us there. So, profit comes before growth, we'll continue to work on that. And what we'll start to do in the relatively near future, start to pull back some of our non-rate actions. So, we have a hierarchy of non-rate actions that will look to start to pull back; we can test. There's obviously been a lot of uncertainty out there, so we're going to go -- we're going to be measured, and then we can pull back that next tranche in the hierarchy of non-rate actions. And we just met with our media team and are working on a pretty robust budget that will plan to put into effect.

You know, we still have obviously marketing the rest of this quarter but into 2024. So, I would say we're excited. I will say that there's been a lot of uncertainty, and so we're going to -- we're going to be really diligent and cautious. But our goal is to grow as fast as we can at a 96 or better.

Bob Huang -- Morgan Stanley -- Analyst

Thank you. That's very helpful. Maybe pivot a little bit on reserving. On the 10-Q, you -- you had a lot of disclosure on -- any -- any explanation on how severity trends are developing over time? But just kind of curious, in terms of frequency, specifically on bodily injuries, it looks like frequency normalized -- improved quite a bit. Just curious if you have any commentaries there around what's causing the frequency numbers to improve.

And is that a trend that we should be expecting that it will normalize back to a generally negative frequency number going forward?

Tricia Griffith -- Chief Executive Officer

Yeah, it's really hard to discern frequency. A lot of it has to do with geography mix, CMT mix, it could be -- have to do with our underwriting effects. So, I don't really want to focus too much on that because there's just a lot of inputs. What I would say from a stability perspective is we are down, you know, overall, about 1.5%, 13 to 24 months. So, we've been pretty stable as far as frequency overall, but I'll also say is when we look at our UBI data, we are seeing about 15 months of stability where VMTs are still down about 15% pre-COVID.

Now, again, I can't confirm that that stability will continue. But what we're seeing is not a lot of -- a lot of more -- more movement to commute hours. And we have some external data that shows that badge swipes in office remain pretty stable at about 50% of office workers, working from home versus office. So, there is some stability. There's always a lot of inputs, and there's always a lot of change that's happening, especially as we talked about, you know, rolling back some of our non-rate actions. But it's been stable for quite a while.

Bob Huang -- Morgan Stanley -- Analyst

OK, thank you. That's -- that's very helpful, and congratulations on a sort of three month.

Tricia Griffith -- Chief Executive Officer

Thank you, Bob.

Operator

Thank you. The next question comes from the line of Mike Zaremski with BMO. Your line is now open.

Mike Zaremski -- BMO Capital Markets -- Analyst

Hey, good morning. I guess I'll follow up on ambient shopping. You know, should we be thinking about it as kind of just looking at the industry's profitability and capital position? And then, ultimately, you know, as as the industry heals as long as -- as well as Progressive's profit margins healed, the ambient shopping benefit, which is pretty extraordinary, kind of, should dissipate? Or how are you guys -- internally, do you guys have -- have your own kind of view, or has your view evolved at all on -- on the benefit you're getting from kind of lower LTV to ambient shopping?

Tricia Griffith -- Chief Executive Officer

How I think about that, Mike, is, you know, it's been a hard market for a while. We did get out in front of rates to begin with and then again to beginning of this year as we saw the trends change specifically in severity of fixing cars. So, getting out in front of that when others might be behind, we're going to get that ambient shopping. We watch it really closely in the auction environment. And the great part about that is that you can -- you can get a really low cost per sale.

So, we'll watch that, but we will definitely put on the gas as needed if we feel like the market is softening at all, I can't really speak to what other competitors do, but, you know, I imagine is they're trying to get to their target profit margins. And that means they're going to put a lot of rate out there, which means shopping is going to happen. And that's how we get that business.

John Sauerland -- Chief Financial Officer

Mike, you know, much of the ambient shopping today we are dissuading from purchasing a policy with Progressive. So, as Tricia was saying, we are going to pull back on some of the non-rate actions we've had in place that have been obviously designed to improve profitability. And as we do so, more of those ambient shoppers are going to get through to potentially buy a Progressive policy. So, we have some, what I'll call, unmet demand out there that as we're -- more adequately priced will become growth.

Mike Zaremski -- BMO Capital Markets -- Analyst

OK, that's helpful. Lastly, I was hoping to switch gears to the TNC business on the commercial side. You know, there's been a lot of growth there. You've taken a lot of market share to peers.

I'm assuming that that business is coming to you at hefty price increases, but it's also been a cause of -- of reserve development. I guess any color you can offer on -- on what's going on with that business? And just lastly, does this business come with a bigger new business penalty than -- than other parts of, you know, the personal auto or commercial non-TNC?

Tricia Griffith -- Chief Executive Officer

Yeah, I'll start with the last part of -- I think what it comes with is, you know, sometimes we don't necessarily know that product in a state. So, just like any new business where we're learning the costs associated with it, we've seen that in TNC. So, said another way, the more mature state, so we've had it performing much better. But you're right on the rate increases, we've over doubled the rates since -- since 2021 -- sorry, 2021 in the TNC business. And specifically, what we are seeing is the rate increases are driven by just a few states.

And those states have some structural challenges relating to limit mixes, specifically UM/UIM. So, what we've been doing with both of our customers is really gathering the data that we have. You know, we have a treasure trove of data being the largest commercial auto rider and then they have their own data. We obviously separate and bifurcate the two companies but talk with them about how to get to the right rates in a more timely fashion and work with them to develop approaches just around flexibility. So, think of six-month policies or greater segmentation, and that's what we're working on right now. I can't go into a lot of specifics because it is proprietary, but we're working very closely to get the rate we need, specifically in the States I talked about with the high UM/UIM limits in the other states we're more comfortable with because they're performing better.

Mike Zaremski -- BMO Capital Markets -- Analyst

Thank you.

Tricia Griffith -- Chief Executive Officer

Thanks, Mike.

Operator

Thank you. The next question comes from the line of Jimmy Bhullar with J.P. Morgan. Your line is now open.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

Hey, good morning. So, first, I had a question on commercial line reserves. We had an issue for several months where you guys had consistent adverse development in the personal auto side. And I think, in September, you had adverse development on the -- on the commercial side as well.

So, maybe discuss what the drivers of that were and what gives you the confidence that this is sort of not the beginning of a trend where you -- where adverse development might continue for a few months in commercial lines as well?

Tricia Griffith -- Chief Executive Officer

Yes, we saw some -- some of the similar things we did in private passenger auto in commercial lines. Really the two factors, the one I just talked about was the TNC reserves in those specific states and the other was late reported injury claims. And I think those make up the majority of the commercial lines. You know, we'll continue to look. We obviously feel in some of the reserving that, you know, Gary's -- Gary and his team have looked at it pretty deeply.

So, think of the Florida House Bill 837, think of fixing cars, and Gary will continue to look at those high-limit states throughout the year to make sure we're adequately reserved for commercial lines as well.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

OK, and then secondly, on your expense ratio, has the decline been mostly driven by a disturbed proactive view on your part to pull back from the market while you're seeking price hikes and not be as active on marketing? Or are there -- are there any structural changes in expenses as well?

Tricia Griffith -- Chief Executive Officer

Well, we're always looking to reduce expenses, especially on the non-acquisition expense ratio. But we've pulled back significantly in advertising, and that obviously hits the expense ratio as well as the increase in premium.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

And you'll come back -- I guess, what do you need to see before you start coming back into the market with more marketing spending?

Tricia Griffith -- Chief Executive Officer

Yeah, we -- you know, we -- we have -- even if you look at our marketing spend and the reduction, we spend a significant amount in marketing, and that will continue into the fourth quarter of pre-planned spends that we already have. But like I said, what we're going to do is be really cautious and initially start to roll back non-rate actions. And we have a robust media spend planned for 2024. Again, that's a plan. So, that is one lever where we can pull forward if we think there's a lot of business to be had as long as we're making our target profit margins or pull back if we find ourselves in the place that we did in the first half of 2023.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

Thank you.

Tricia Griffith -- Chief Executive Officer

Thank you.

Operator

Thank you for your questions. The next question comes from the line of Yaron Kinar with Jefferies. Your line is now open.

Yaron Kinar -- Jefferies -- Analyst

Thank you. Good morning. Two questions. So, first, do you see any potential impact from the UAW strike, which is hopefully behind us now?

Tricia Griffith -- Chief Executive Officer

We do a little bit because even though the strike wasn't that long, I think around eight weeks total, there's about 12 to 18 weeks before we start to see recovery in some of the parts, as well as new vehicles being made. So, immediately, when we -- we saw the strike happen, John Murphy and his group went into this sort of mode of sensitivity analysis around this. We have deployed and executed a plan on that. And our -- our main issue for this next 12 or so weeks is really to just minimize the disruption in both our customers and the company.

Yaron Kinar -- Jefferies -- Analyst

Got it. So, near-term impact potentially but not really beyond 12 to 16 weeks or so?

Tricia Griffith -- Chief Executive Officer

That's what we're thinking. You know, of course, you know, we'll watch just like all of the data, and especially as we continue to earn in more rates where the states were adequately priced, you know, it may not have any impact. The thing we worry about the most is delays in fixing vehicles, which has been, you know, a concern going forward -- or in the past, I should say, just based on talent in the body shops and having the right mechanics to do that. But we'll be able to see that really quickly and react to that should we need to.

Yaron Kinar -- Jefferies -- Analyst

Got it. And then, my second question, maybe you can help us think through this. So, you've implemented a lot of rate in personal auto, so earning a good chunk of that as well. You're talking about some stabilization of the loss trends.

So, if and when you accelerate this growth on a much healthier rate adequacy, do you expect that to ultimately improve the loss ratio, or is the immediate impact an adverse impact because of the new business penalty?

Tricia Griffith -- Chief Executive Officer

Well, you know, if we spend more on marketing, there's -- you know, there is a new business penalty. But if we believe we are putting new units on the book at a lifetime 96 -- a cohort '96 calendar year, then we feel good about it, and we'll -- we'll price to that. We -- we are very efficient in our media spend, and we'll price to that. And really, we feel better every day in all products as each day goes by as more rate earns in.

But we know that's part of new business, and we're happy to do it if we think we can make the target profit margin that we go to.

Yaron Kinar -- Jefferies -- Analyst

Thank you and good luck.

Tricia Griffith -- Chief Executive Officer

Thank you.

Operator

Thank you. The next question comes from the line of Josh Shanker with Bank of America. Your line is now open.

Josh Shanker -- Bank of America Merrill Lynch -- Analyst

Thank you for taking my question. Looking at competitor behavior, I don't need you to speak about individual competitors, but Geico lost a lot of customers over the past year. And I looked at some other publicly traded companies. And the leakage of policies has not been so significant elsewhere where I can tell yet that Progressive has grown dramatically.

In thinking about the year to come and the year that's passed, when you think about captive independent and direct channels, where has most of the market share growth that Progressive has achieved come from? And next year, if a company like Geico becomes more aggressive in its desire to add new customers, does that change the calculus on what the market share gains and the type of customers might be in the new year?

Tricia Griffith -- Chief Executive Officer

Well, I think -- you know, we're a growth company, Josh, and I think we're going to try to do anything we can to grow as long as we make our target profit margins. We understand where much of our business is coming through because we know the proof of the prior carrier. And so, it's been, not just Geico, but other companies that don't want to talk specifically about the percentage of where it's coming from. But it really depends on are people priced right in the market, do they have the right brand, do they care about expense ratio which keeps the prices competitive. And so, you know, for us, it's really -- and we've talked about before, it's making sure that we have all four of our strategic pillars, really starting with our people and culture and then going on to our brand, competitive prices, and broad coverage. And that's where I think we're able to win and continue to grow.

We can react very quickly when our competitors do, you know, have actions. And really, that's our focus is to make sure that we have those four strategic pillars and that we invest in all of them to continue to be a high-growth company.

John Sauerland -- Chief Financial Officer

The other thing to consider there, Josh, is which segments we're growing in would be somewhat indicative of where they're coming from. So, we are growing -- continue to grow well in the more preferred segments of our business, the Robinsons, but also we call Wrights, who are homeowners that do not bundle yet their home and auto with Progressive. And we have not been growing actually this year, have been shrinking a little bit on the Sam, and so the nonstandard end of the spectrum. So, that is -- bodes really well for our future growth because, obviously, those customers stick with us longer. So -- and I think where they come from is important but also whom we're -- whom we're bringing into our customer set is a -- is a really important way to think about it.

Josh Shanker -- Bank of America Merrill Lynch -- Analyst

And given that answer, is there a way of bifurcating or segmenting the property business such that -- I guess that's the question, what percentage of the business is operating at a 96% or better and growing as fast as it can? Obviously, there's some states where you're not there yet and maybe it's segmented by state, but to what extent have you achieved the goal of the property business running the way you want it in the geographies that you operate?

Tricia Griffith -- Chief Executive Officer

Yeah, I think we start with what we started with about a year ago, and that was to derisk the book and, you know, have less new apps and policies in volatile states and more in nonvolatile. And you saw the data on that and the Q that we -- we believe we're doing a great job. You know, we're now renewing about 115,000 policies in Florida. You know, Florida, we're just over-indexed in Florida. And so, we love Florida, we -- we have a lot of Robinsons, we have a lot of autos, and continue to have a lot of homes, but we were not making money and we needed to non-renew some of them.

So, that'll happen over the next year or so. We knew it would take a long time, but I think really what our strategy is on the property channel is not unlike it was years ago in the auto channel. We were investing more in segmentation. We're investing more in understanding rate to risk and the necessary need for reinsurance. But we will -- we will get there.

And obviously, third quarter was a lot better than it was in the past. And, you know, there's a lot of -- there's a lot of buts because Ian came off and there wasn't as many storms. But we feel good about our plan. It'll still take some time to execute, but we're in the heart of that.

Josh Shanker -- Bank of America Merrill Lynch -- Analyst

I look forward to speaking again in the new year, and good luck to you.

Tricia Griffith -- Chief Executive Officer

Thanks, Josh.

Operator

Thank you. The next question comes from the line of Greg Peters with Raymond James. Your line is now open.

Greg Peters -- Raymond James -- Analyst

Good morning, everyone. I want to step back to your comments about the non-rate action. And, you know, it sounds like you're getting ready to dial back some of those actions. Can you remind us exactly what some of those actions were? Did they include any things around commission or fees to lead gen companies? Do you expect those things to change over the next year?

Tricia Griffith -- Chief Executive Officer

I'll let Pat come on in that. It was -- was less about commissions and more on our strategy around some underwriting and pay plans. But, Pat, you want to talk about that a little bit?

Pat Callahan -- President, Personal Lines

Yeah, Greg, Trish's comments are centered around -- kind of John's comments as well around how much business we let in the front door. So, we have more restrictive bill plans in place. We have more verification to require additional checks and make sure we get the accurate information on the risks that are coming in the door to ensure we're priced adequately. So, that's -- when we talk about non-rate actions, those are the primary things that we are leaning into lifting in some markets as we approach the end of the year. Your point about lead gen and actually spending more that would be a 2024 thing, where once we're confident that we put the 96 in the books for calendar year '23, then we would start investing more to generate demand as needed. And we've been out of the market for a while in those markets.

So, we do expect that -- you know, that will ramp back up. But it'll be a ramp as we spend only what we need to -- to efficiently and cost effectively attract customers. You know, we've seen that the hard market persists. We've seen there's a lot of competitors who still need to push rate through their systems and a lot rate annual policies. So, there's still a lot of rate effect to be had in the market on consumers, and we'll lean into that as we get more into the -- the new year from a spend perspective.

Greg Peters -- Raymond James -- Analyst

Great, thanks for that answer. I guess the other question, pivoting to some of the previous comments around the property business, you know, you're -- you're definitely trending in the right direction from a combined ratio perspective, but it's still running above your -- your 96 target for a corporatewide. Is it your objective that -- or your view that you're going to get that property business to a 96 combined ratio next year? It seems like it's been a drag on your consolidated results for -- for several years now. Just -- or maybe you're using it as a loss leader to grab share in the Robinson cohort.

Just some updated views on that would be helpful.

Tricia Griffith -- Chief Executive Officer

Yeah, we're not -- we -- we're not attempting to use it as a loss leader. I'll tell you that. It has been a drag. Over time, when you -- when you look back, home has done pretty well.

Now, what we did was, you know, we should have probably seen the need to de-risk a little bit in states like Florida, Texas, Louisiana, and across the country. That's why we're doing that now. That's why we're investing in technology and segmentation and new product models. So, we do feel good. We have different target profit margins depending on if you're bundled or not, etc.

But no, our desire -- I can't predict a future. I have no idea what's going to happen next year, but our goal is to continue our plan to de-risk and make the target margins that we have on property and have that be a robust part of our book because we know the Robinson cohort is super important to our future.

John Sauerland -- Chief Financial Officer

And we have actually been exceeding the objectives we set out for the 2023 period in terms of growing more where we think, what we know historically, results are far less volatile in property and shrinking considerably in areas, including Florida, as Tricia noted, that, you know, have been way more volatile from a weather perspective historically. And just to the 96 point, as Tricia was noting, we price to an aggregate 96 for the company. So, by segment, we actually have different combined ratio targets. And we think about those as all deriving a return on capital equivalent to or better than the personal auto business. So, the '96 calendar year is our commitment to achieve that in aggregate. But below that, we're pricing the different targets based on the characteristics of each business.

Greg Peters -- Raymond James -- Analyst

I got it. Thanks for the detail.

Operator

Thank you. The next question comes from the line of David Motemaden witn Evercore. Your line is now open.

David Motemaden -- Evercore ISI -- Analyst

Thanks. Good morning. So, I had -- my first question was just on the -- the auto accident, your loss ratio excluding catastrophes. And last quarter, in the presentation, you spoke about mix shift between renewal and new business and the benefit that that could have -- having less new business could -- could have on the loss ratio. I'm wondering if you can just size how much of the improvement in the loss ratio this quarter is coming from just that lower new business as opposed to improvement on the renewal book?

Tricia Griffith -- Chief Executive Officer

That's pretty tough to size and I think when we -- when we obviously, renewal, we know more about you as a customer, but when we bring new business on, our intentions are that we reach our target profit margin.

John Sauerland -- Chief Financial Officer

And I would offer that -- that the rate actions we've taken have far larger influence on that accident year loss ratio than the -- the renewal mix. So, as we noted, we had five points earn-in just in the third quarter alone for our personal auto business. On a year-to-date basis, that's more than double that number. So, when you get the denominator up significantly, that's the best way to improve. Well, obviously, there's a numerator, but you know, that is where we have gotten most of the loss ratio improvement from.

Obviously, severity moderating a bit this quarter has helped us considerably as well. But the rate that we've taken and continue to take is earning in, and you're seeing that in the loss ratio.

David Motemaden -- Evercore ISI -- Analyst

Great, thank you. And then, just a question I guess just on -- you know, it seems like, I mean, the retention has definitely been better than I would have thought. It's obviously a hard market out there. I guess has that surprised you at all and influenced at all how you guys are thinking about growth and maybe adding a little bit more business in 2024 just given how strong the retention is on the renewal book? And Pat, as you just said, that seems to have a better or more profound impact on the loss ratio than the new business.

Tricia Griffith -- Chief Executive Officer

I mean, I don't know if it's surprised us because we watch the data. It certainly is -- delights us, I would say that. And what we want to do, you know -- and really the thing with retention is having some stable rates. And we have been increasing rates, as has the competition, in an extraordinary fashion based on inflation trends. So, what we'd love to do is have tremendous growth in 2024 but have some stability around the trends.

And I was saying, I haven't been able to say on this call for a while, small bites of the apple where we take really small rate and -- and, you know, our customers feel that -- you know, that -- that makes sense and they don't shop. So, that's our goal, but you know we're very happy with the retention on both a trailing three and a trailing 12. We'd like to see some stability, and we will grow as fast as we can as long as we see that stability.

John Sauerland -- Chief Financial Officer

And, you know, I'll say it -- the obvious, but we are coming off a fairly low point in terms of retention last year. So, last year, we were ahead of the market in taking rate. And I would think of it in sort of like maybe 10 points ahead of the market in terms of taking rate that we saw the need for. And as our customers got those rate increases, they shop and they could still find a better rate. Competitors now have caught up and, in some cases, actually surpassed us on rate take.

And consequently, even though our rates continue to rise, as -- as customers shop, they're less able to find a better rate. And so, you know, our year-over-year renewal rates are -- the changes are robust, and we're getting back closer to PLEs' lifetime expectancies that we've enjoyed previously. We're not yet back up to historical highs, but as Tricia noted, we're delighted with the trends we're seeing and we think they're going to continue.

David Motemaden -- Evercore ISI -- Analyst

Great. Thank you.

Tricia Griffith -- Chief Executive Officer

Thanks.

Operator

Thank you. The next question comes from the line of Elyse Greenspan with Wells Fargo. Your line is now open.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Hi, thanks. Good morning. My first question on -- you know, you guys pointed out, right, that you're a little bit above the 96 year to date. You guys have a sense of what rate you're going to earn-in in the fourth quarter, right? And it sounds like loss trend, right, in the Q3, you know, got better relative to the Q2. So, I'm sure you have expectations there as well.

So, what's, like, the biggest swing variable as we go into the next few months of earnings with whether you ultimately, you know, get below that 96% target for the year?

Tricia Griffith -- Chief Executive Officer

Yeah, I think weather is huge, and so watching that closely. We have another three points to earn in on the private passenger auto side. On the commercial line side, we've been earning in rate from both '21 and -- our '22 and '23 revisions. But a lot of our improvement, we believe, in commercial lines this calendar year has been through non-rate actions. And so, you know, we're headed into '24 with a lot of rate really starting to earn on the commercial line side.

But we -- we do some analysis quite often on what we think we need to do to get there. We care deeply about expenses. So, as a company, we've been trying to reduce expenses, and you know, we can continuously do that. I think weather's going to be the big variable at least.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

OK, thanks. And then, my second question, you know, advertising has come up a bunch on this call. So, it sounds like, you know, the clock obviously and the calendar, right, resets, you know, when we get to the start of next year. So, will -- is that when you expect to kind of, you know, push more advertising, right, considering where we're starting, and then you can go for the 96 next year? I'm just trying to think through the thought process around when you ultimately turn on the marketing machine.

And then, how do you balance, you know, not growing too fast too soon, recognizing, right, you know, that's -- that's what happened at the start of this year?

Tricia Griffith -- Chief Executive Officer

Yeah, I can let Pat comment a little bit. But our intentions are if we see -- if -- you know, if weather is sort of, you know, normal in the next several months, and we see some of the non-rate actions that we're pulling back on achieve new business, then we are, you know, going to be able to do like -- likely put -- put a lot more media spend into play in the first quarter. But a lot of that depends on what we're seeing. A lot of it depends on how much we need to, but I think that excites us because we do sort of get the start of a -- the clock starts over. Pat, do you want to add anything?

Pat Callahan -- President, Personal Lines

Yeah. The only thing I would add is, you know, last first quarter, so first quarter of 2023, we had sort of the perfect storm of lots of ad spend and a really hard market. And what we don't yet know is how much ambient shopping remains in market and how much shopping fatigue could be in market. So, John's point about when shopping pays off, because you find a lower price, that, you know, reinforces or rewards that.

If consumers shop in the first quarter and our rates are similar to where they are, there may not be as much ambient shopping and switching available in market. So, we don't yet know. But as Tricia mentioned, there's markets where we're off most markets for local advertising today, but there were markets we were off at the start of this year too. So, it's very dynamic based on our lifetime expectation of hitting our profit targets for new business that we generate during the period. So, dynamic system. And you're right that we will start spending more after the first of the year, but we will be leaning into that and ramping that up as needed depending on how much is available in the ambient market and which markets we feel we've got adequate rates to support the ad spend.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Thank you.

Operator

Thank you. The next question comes from the line of Brian Meredith with UBS. Your line is now open.

Brian Meredith -- UBS -- Analyst

Yeah, thank you. I'm just curious and kind of going maybe a little bit to Elyse's question, you know, given the experience we saw earlier this year where, you know, you guys are growing really quickly, and then, all of a sudden, we saw this pop in inflationary pressures and given the continued uncertainty just from a macroeconomic perspective, are you probably going to, you know -- are you going to be a little more cautious to kind of open up that growth engine this time around, maybe get a little bit more data under your belts before you're going to go after it?

Tricia Griffith -- Chief Executive Officer

Yeah, I think we will be more cautious, and that's why that's sort of the beauty around the 96 and the discipline around the 96, whether it's on a calendar year or a cohort year. And that's why we'll slowly pull back, watch, test. And we'll only -- we'll only be pulling back in states where we feel like we've got enough rate. And so, that -- that's a little bit of a limiting factor, but we want to grow. But I do think that there's been so much uncertainty that we will watch it closely.

So, we aren't in the same position where we have to crank up rates like we did this year.

Brian Meredith -- UBS -- Analyst

Makes sense. And the second question, Trish, and we haven't talked about this topic for a while and I saw it in a letter, the BOP business. Maybe you can talk a little bit about how the rollout on the BOP is going. I know you're in 46 states.

You know, how's the profitability trend in that business relative to what you kind of thought it was going to be? And, you know, at some point here, are we going to see that, you know, start to kind of ramp up from a growth perspective?

Tricia Griffith -- Chief Executive Officer

Yeah, we're super excited about how many states we are in BOP but still relatively small part of the business. So, we won't actually comment on it publicly. And it is -- we have targets. And of course, with new business, when you think about acquisition costs and understanding lost costs, it's obviously going to be higher than stable business. But it is what we expect, and so we'll continue to watch that and grow the business as we get more comfortable.

Brian Meredith -- UBS -- Analyst

Great. So, no surprises so far.

Tricia Griffith -- Chief Executive Officer

Exactly. Yep.

Brian Meredith -- UBS -- Analyst

Great. Thank you.

Tricia Griffith -- Chief Executive Officer

Thanks, Brian.

Operator

Thank you. The next question comes from the line of Meyer Shields with Stifel. Your line is now open.

Meyer Shields -- Stifel Financial Corp. -- Analyst

Great. Good morning. Thank you so much for taking my questions. As we get back to, you know, what should be normal, is there any way of quantifying, both in terms of growth and profitability, how much impact the fact that you're fully pricing to the telematics curves have had before COVID? I assume that you are probably generating excess profits but growing a little bit less quickly than you could have been.

Tricia Griffith -- Chief Executive Officer

Well, we -- we don't price fully to the curve. we have expanded on both the surcharge and the discount. I think it's pretty tough to quantify. That was what I'd say.

Pat Callahan -- President, Personal Lines

Yeah, so I think Trish is right, we've been expanding our offering to price closer to the curve over time. And we've been expanding to continuous monitoring in the UBI world to collect more data and to be able to more continuously price policies more accurately. As far as specific quantification of how much growth is coming from it or profit coming from it, I wouldn't comment on that at this point. It's a meaningful piece of our business, it's our most powerful rating variable. And we continue to invest in both the technology to lower the expense of collecting data and to analyze the data more precisely to price more accurately over time on a continuous basis.

So, I think we're in probably 50% of our own premium states. I think 29 states have continuous monitoring at this point in time. So, we feel really good about continuing to invest to maintain or even widen that moat that we think we have in the issues-based insurance space.

Meyer Shields -- Stifel Financial Corp. -- Analyst

OK. That's very helpful. Second question, and again, this is more thematic, there are clearly a lot of smaller personal auto insurers out there that, frankly, probably can't compete. Does Progressive look at the option of maybe buying renewal rights as opposed to simply outcompeting in the marketplace? Is that more or less economically efficient?

Tricia Griffith -- Chief Executive Officer

I think that depends. You know, we always look to, you know, if we -- if we can do book rolls. But like you said, a smaller company is going to have a more difficult time investing in technology, segmentation, brand distribution. And so, as you've seen this last couple of years, we've gotten some of that on its own. So, I wouldn't want to pay a premium to get that -- to get those policies on our book. I think we can get them regardless just based on our size and our efficiency.

Meyer Shields -- Stifel Financial Corp. -- Analyst

OK, perfect. Thank you.

Tricia Griffith -- Chief Executive Officer

Thanks.

Doug Constantine

[Operator instructions] We will take the next question.

Operator

The next question comes from the line of Tracy Benguigui with Barclays. Your line is now open.

Tracy Benguigui -- Barclays -- Analyst

Thank you. Just some quick math. You achieved 16% year-to-date rate increases in auto, and in the 10-Q, you said that you plan to take an additional 3% in 4Q, so that will get us something like 19% for the full year. I think, last quarter, you penciled in 17% personal auto rate increases for the full year.

So, it feels like you need to take more rate now. It's not a lot, but can you share the key drivers behind this additional rate need?

Tricia Griffith -- Chief Executive Officer

Yeah, I mean, I think -- I don't know that I would do read too much into a point difference. Sometimes, it could be a delay in having it approved. We have to go through each -- each department. But the same trends that we have been seeing that we've talked about are what the rate is about.

So, whether it's attorney reps or fixing cars. So, I don't know if you can comment any more on that.

John Sauerland -- Chief Financial Officer

Our rate -- our forward-looking rate action statements, it's dynamic, obviously, as you note, and it is down to the state and segment level. So, it's important to remind how we manage the business. We have product managers who manage at the state and product level, and even some cases, lower than that. And they are all assessing what is going on in their specific marketplaces, trends -- projecting the trends, understanding, as we noted, what they plan to do in terms of non-rate actions, as well as ad spend.

So, there's a lot that goes into the aggregate rate changes we take and that we say we plan to take. And again, it's going to be dynamic. We obviously have seen severity moderate. You know, we're back down to the single digits, which is fantastic. Where that goes, it's tough to know, but from what we can see, we think we're moving into a more normal environment when it comes to change in claims severity.

But in aggregate, it is -- it's very hard to dissect that, you know, 19 or 17, and it's -- it's changed today, I assure you.

Tracy Benguigui -- Barclays -- Analyst

OK, great. Also, looks like you had modest favorable personal auto prior-year development this quarter. The adverse mostly came from commercial lines. Was that because you feel good about adequately reserving the Florida tort reform? Were there other factors? And I'm curious if you're seeing reopen claims in the quarter.

Tricia Griffith -- Chief Executive Officer

That's exactly right. We're feeling much more confident in both the House bill and fixing cars.

Tracy Benguigui -- Barclays -- Analyst

OK, and, you know, you touched on it last quarter, but can you remind me what caused the reopen claims in the first half of the year that you haven't seen in the past? What had changed?

Tricia Griffith -- Chief Executive Officer

Yeah, I mean there's a couple of things that happened, but you can write an estimate. And then when the person -- the customer, whether it's an insured or claimant, goes to get the car repaired, so we've paid -- we've made that payment, the -- the features closed. And it gets into the shop, and they find more damage, and it's maybe delayed repair, it increases rental, so it really was the lead time with -- to get parts. It's labor rates, it's length of time.

So, rentals increase. So, it's a couple of different factors that have gone into fixing cars.

John Sauerland -- Chief Financial Officer

And on the injury side, there was a lot of Florida influence there -- I'm sorry. And, you know, so House Bill 837 drove a influx of attorney representation and lawsuits, and we had to take reserve increases to reflect what we believe the future cost of settling claims will be.

Tracy Benguigui -- Barclays -- Analyst

OK, so you don't wait until an actual claim closes, you estimate what the close would look like. Was it maybe perhaps premature in calling those claims closed?

Tricia Griffith -- Chief Executive Officer

No, the way our system works, so we have reserves set for different line coverages. And then, if those change and they change dynamically, not one file or two files, that's when we know we need to strengthen our reserves.

John Sauerland -- Chief Financial Officer

But yes, we are absolutely estimating the ultimate loss cost with the best information we have at this time.

Tricia Griffith -- Chief Executive Officer

But I think it's very common in our business to have supplements because you're getting -- you know, you can have parts of vehicles that are -- you can't even see, so suspension and -- and other parts. So, you write what you can see, you shouldn't write more or less. And then, as the claim evolves, especially with collision or property damage, you'll be able to see more. Sometimes it's nothing, but there could be supplements. That's really common.

Tracy Benguigui -- Barclays -- Analyst

Thank you. Appreciate it.

Operator

Thank you. The next question comes from the line of Mike Zaremski with BMO. Your line is now open.

Mike Zaremski -- BMO Capital Markets -- Analyst

Oh, hey, thanks for the follow-up. Just one on Florida. So, I guess, you know, now that the -- I guess the pig has made its way through the python in terms of reserving mostly, you know, are you seeing any positive influences from the legislation on the recently written business? I know you guys have a big PIP book in -- in Florida. Or is it just too -- too soon to tell?

Tricia Griffith -- Chief Executive Officer

I'd say it's too soon to tell. We anticipate that it'll be positive, but we have to let this play out a bit.

Mike Zaremski -- BMO Capital Markets -- Analyst

Thank you.

Tricia Griffith -- Chief Executive Officer

Thanks, Mike.

Doug Constantine

That appears to have been our last question. So, that concludes our event. Melissa, I will hand the call back over to you for the closing scripts.

Operator

That concludes the Progressive Corporation's third-quarter investor event. Information about a replay of the event will be available on the investor relations section of Progressive's website for the next year. You may now disconnect.

Duration: 0 minutes

Call participants:

Doug Constantine

Tricia Griffith -- Chief Executive Officer

Bob Huang -- Morgan Stanley -- Analyst

Mike Zaremski -- BMO Capital Markets -- Analyst

John Sauerland -- Chief Financial Officer

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

Yaron Kinar -- Jefferies -- Analyst

Josh Shanker -- Bank of America Merrill Lynch -- Analyst

Greg Peters -- Raymond James -- Analyst

Pat Callahan -- President, Personal Lines

David Motemaden -- Evercore ISI -- Analyst

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Brian Meredith -- UBS -- Analyst

Meyer Shields -- Stifel Financial Corp. -- Analyst

Tracy Benguigui -- Barclays -- Analyst

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