Earnings Call Transcript
PROGRESSIVE CORP/OH/ (PGR)
Earnings Call Transcript - PGR Q1 2023
Douglas Constantine, Director of Investor Relations
Good morning, and thank you for joining us today for Progressive's First Quarter Investor Event. I'm Doug Constantine, Director of Investor Relations, and I will be a 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 a letter to shareholders, which have been posted to the company website. Although our quarterly Investor Relations events often include a presentation on a specific portion of our business, we will instead use the 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. The introductory comments by our CEO were previously recorded. Upon completion of the previously recorded remarks, we will use the balance of the 60-minute schedule for this event for live questions and answers with members of 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 can 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 31, 2022, as supplemented by our 10-Q report for the first quarter 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, CEO
Good morning, and thank you for joining us today. One of the enduring lessons since the onset of the pandemic is the uncertainty of the future. Since March 2020, the world and our business have been pummeled by unforeseen events. In that vein, it is perhaps poetic that three years post-pandemic, we continue to have to manage through the unexpected in our business. In the end, I'm confident that our resilience will see us through. Through the first quarter, we're not on track to achieve our calendar year goal of a 96 combined ratio. Given our extensive history of meeting our stated goals, this has prompted many questions about how we got here and where we're going. As such, in lieu of a more traditional opening statement, I'll instead provide answers to some questions that have been asked by the investment analysts. My hope is that you will gain a clear understanding of how we are addressing the challenges as well as the urgency with which we are acting. The first question is, how are you reacting to being above your target of a 96 calendar year combined ratio? The answer to that is we will react in the same way we always have: with speed and decisiveness. The three largest levers we have to manage our margin are to decrease our expense ratio, tighten our verification and underwriting scrutiny of new business, and increase rates. I'll address these in that order. Our largest controllable variable expense is advertising spend, and we are taking action to reduce these costs, which we expect could both slow growth and help to reduce our expense ratio. Once we are confident that we can deliver our target calendar year profitability, we will consider resuming our spend. While we won't provide details on which segments of media we are reducing or how this may affect growth going forward, I will tell you that we've invested in bringing the same industry-leading science from the pricing side of our business to the acquisition side, and we will continue to spend in the places that we believe have the greatest benefit to the business. Using non-rate actions such as tighter verification and underwriting standards and limiting bill plan options will reduce our growth in the segments we believe we can't currently write at our target margins. Finally, our largest and slowest moving lever is rates. In quarter one, we took four points of rate in Personal Auto on an aggregate country-wide basis, and we are still earning in some of the prior year rate increases. We plan to take aggressive rate increases where needed across all lines through the balance of 2023 to ensure we're pricing to deliver our target profit margin. The next question, given the actions we will take to meet our profit target is: what will this do to growth? First and foremost, keep in mind that growth in the first quarter of 2023 was an all-time high for the company, and we are very proud of that. Secondly, we are still in a very hard market with lots of consumers quoting their insurance. We also continue to see ambient shopping. While policy growth may be slowed by our actions, we still anticipate there will continue to be robust demand for our products. Of course, the actions of our competitors also play a role in what growth will be. So I won't speculate on specific growth predictions. However, you can rest assured that we are focused on growing policies that we believe will meet or exceed our target margins. Lastly, we've received many questions like this one: Do you now believe your reserving is adequate? Or said another way, you said that you were confident that the biggest rate increases were behind you, what changed? The answer is fairly basic. We started seeing data come in over the last few months that was not in line with what we were anticipating, which caused us to increase reserves and react with rate increases. In Personal Lines, our reserve strengthening happened largely in the short-tailed fixing vehicle coverages. In these coverages, we can recognize and react to new trends relatively quickly, and we feel good about our reserve levels today. That being said, reserves are estimates and change over time based on evolving trends. As for the effects of Florida House Bill 837. In March, we estimated the reserve changes we believe we needed to capture the effect of the legislation, including the flood of lawsuits triggered by the law change. The reserve increases we took in March represented our best estimate of what we believe would be the full effect of the lawsuits on loss costs for pre-bill accident periods. Going forward, we believe the legislation takes positive steps to help manage the cost of auto insurance for Florida consumers. However, the situation is evolving, and we will continue to assess and react to information as it develops. In Commercial Lines, again, we believe we are adequately reserved today and are monitoring trends in frequency and severity to ensure we remain adequately reserved. Of course, any assumption on reserve adequacy comes with a caveat that trends can change. If they do, we will react to them as appropriate. The follow-up to the reserving adequacy question is: how did you miss reserving trends in the recent past? And given that, how can you be confident in your current reserve adequacy? I'll address these questions individually. The business of insurance is predicting the future. We never know our full cost of goods sold until years after premiums are collected. As such, our reserves are, by nature, estimates of our exposures based on assumptions. We use historical data, extensive knowledge about our business and customers, and advanced analytics to predict ultimate loss costs usually with an extremely high degree of accuracy. Predicting the future is hard, however, and we didn't fully predict trends that developed during the quarter. We saw higher-than-expected severity trends in previously closed claims in Personal Auto, primarily in fixing vehicle coverages. While I won't speculate on why these trends change, I can tell you that we reacted quickly and decisively to adjust our reserves for these short-tail coverages. I'm confident in the people and processes we have in place to ensure we're adequately reserved. For the five years ending 2022, prior year reserve development averaged about 0.25 points unfavorable on our year-end combined ratio, which I believe supports the statement that we always strive to set reserves adequately. Hopefully, these questions and answers address some of the most sought-after explanations of the first quarter. Rest assured that no one is more acutely aware of the results of the first quarter than myself, my team, and all the people at Progressive. I continue to be confident in the long-term direction we're headed, and I have no doubt we will continue to do everything we can to achieve our goals. Thank you again for joining us, and I will now take your questions.
Douglas Constantine, Director of Investor Relations
This concludes the previously recorded portion of today's event. We now have members of our management team available live to answer questions. We will now take our first question.
Operator, Operator
Our first question comes from the line of Mike Zaremski with BMO.
Michael Zaremski, Analyst
Thanks for the helpful prepared remarks. As a follow-up to the Florida comments, can you elaborate on the legislation? You said the situation is evolving. But you also said you feel that the legislation is positive. So now ultimately, sometimes past, has there been less claims in Florida in April due to the legislation? Do you feel like it has teeth and there could be a payback for the charges that were taken due to the influx of claims?
Tricia Griffith, CEO
Good question, Mike, thanks. So we think the long-term effects of the legislation, as it's written today, would be very positive for the consumers of Florida. In the meantime, we're very familiar with the plaintiff bar, and we don't know that they will not try to challenge those. So what we did in March was we took a look at the fact that more lawsuits were being filed. And every time we consider our cost, we look at, is it estimable and probable. And that's why we strengthened the reserve for possible and likely lawsuits that are going to occur between the time that the governor talked about the legislative bill and the time that he signed it. In fact, in March, there were 280,000 lawsuits filed in Florida, not ours, overall in Florida, civil lawsuits, which is up nearly 130%, the all-time high of May 2021. So significant lawsuits. So short term, we are going to prepare to obviously get through those. Long term, this will be good. So a couple of good things that came out of the House Bill 837. Comparative laws changed from pure to modified comparatives. So if you're greater than 50%, you don't collect. The statute of limitations is from 4 years to 2 years. There's a safe harbor for bad faith, which is really important to us because it takes some time when you get into claim to actually gather the information to start to negotiate if there's a demand and probably most importantly, repealing one-way attorney fees. There's a little bit more than that, but we think those are really good. In the short term, though, this could evolve, and we don't know if it will be challenged. So we will just react accordingly as we have more information. But overall, we feel very good about the law changes, and we think it's really good, more importantly for the consumers of Florida.
Michael Zaremski, Analyst
Understood, that’s helpful. For my final follow-up, I know you mentioned this in your prepared remarks, but I want to focus on the strong growth in Personal Lines. I'm trying to understand the contrast between the record levels of new applications you mentioned and your comments about the need for some corrective actions. It seems you still believe Progressive will achieve significant market share growth. I don't want to misrepresent your thoughts, but it appears that as long as there’s increased shopping and Progressive's rates are generally lower than those of your competitors, you remain optimistic about the overall growth.
Tricia Griffith, CEO
Yes. I believe that reducing advertising may lead to a slight decline in subscriber growth, which is evident in our data. We've observed our competitors' growth rates surpass ours. The challenging market conditions are largely due to customer shopping behavior, which is ongoing. However, we remain optimistic about our growth. In terms of key statistics, this quarter, we increased policies in force by 1.4 million and grew premiums by $2.6 billion, equating to about 1 point of market share. Over the past 12 months, we've seen an increase of more than $5 billion, which is comparable to the size of a top 10 carrier. These figures are noteworthy and promising. When analyzing growth, it's essential to consider both unit growth and premium growth. While unit growth may slow down, we recognize the relationship between advertising spend and growth. As we adjust rates to reach our desired profit margin, we expect to see an increase in premiums. Ultimately, our objective is to also broaden our margins.
John Sauerland, CFO
Mike, the one point I'd add on that is, we don't live in a vacuum, obviously. And our actions, I would say, all else equal, will certainly adversely affect growth, less advertising dollars, higher rates for sure. But as we saw last year, as the competitive marketplace was in a bit of disarray, even with our aggressive actions, we saw growth. So it will remain to be seen what our competitors do in this environment that we are currently experiencing. If they react aggressively as well, then obviously, our growth won't be as adversely affected.
Operator, Operator
Our next question comes from the line of Elyse Greenspan with Wells Fargo.
Elyse Greenspan, Analyst
My first question, I wanted to get some additional color on the magnitude of additional rates you guys are looking to take from here. In the 10-Q and in your comments, you mentioned being aggressive with rates, raising rates over the remainder of the year. So more specifically, like within Personal Auto, when you say aggressive rates, is that in the low single digits, in the high single digits? Can you just give us a sense of the magnitude of rate increases you're now expecting to take?
Tricia Griffith, CEO
Sure. I assume that would come up when I didn't give a number. We're going to take as much rate as we need to try to get to our target profit margin. I believe what we've shown, not just over this inflationary period, but over decades with Progressive, that we execute on our ability to do that. Now there's all the caveats of regulatory approval, what can happen with weather, which could increase or decrease our desire to have more rates. And of course, it's very specific to state, channel product, et cetera. What I would say at this point in time, and again, all the caveats that this is really quite a dynamic time, we think we'll take in the neighborhood of around 10 more points this year to catch up and stay ahead of trend in private passenger auto. So low single digits. But again, that could be 8% to 12%. We don't know. Right now, that's our plan as of today. We're watching as things unfold.
Elyse Greenspan, Analyst
Okay. And then could you maybe break down your business for us, the portion you just said, right, 8% to 12% price needed, but the portion of the book that needs rate versus perhaps the portion that you're still looking to grow in? Is there a way to kind of give us a sense of which percentage, and I'm really concerned in talking about Personal Auto, would still perhaps be where you might be looking to grow versus the portion where you just think you need these aggressive level of rate?
Tricia Griffith, CEO
Yes. From an auto perspective, we always want to grow as fast as we can, but we are limited sometimes with the regulatory approvals. So obviously, there are places where we haven't got as much rate as we've needed, think the Coast, which we've talked about before, going to need more on those because we've been waiting for some rate increases in some of those states. Some are less where we feel like we're ahead of it. We don't really want to go into details, but suffice it to say, on a country-wide average, we think in the neighborhood about 10% additional this year.
Operator, Operator
Our next question comes from the line of Brian Meredith with UBS.
Brian Meredith, Analyst
A couple of them here for you, Tricia. The first one, Tricia, I remember back to 2016 and all of the discussion about new business penalty as you're growing pretty rapidly. What's the impact of that new business penalty on your Personal Auto results today or in this quarter?
Tricia Griffith, CEO
In this quarter, our media expenses increased, which will be particularly noticeable on the direct side since we front-load those costs. I mentioned this in the last call; I view the new business penalty as an investment in our future and future policyholders. However, we did observe a higher expense ratio, and we continued to increase our media spending in the first quarter of this year. Therefore, expenses were indeed higher.
Brian Meredith, Analyst
I was thinking more on the loss ratio side actually, just because new business typically carries a higher loss ratio.
Tricia Griffith, CEO
Yes, yes, new business does carry a higher loss ratio. That was part of it as well, including a lot of things that happened in the first quarter, record level compared to the last five years with weather losses, et cetera. But yes, there is a penalty there as well anytime we have new business.
Brian Meredith, Analyst
Okay. And then my second question, I'm just curious, if I adjust for the reserving actions taken in Personal Auto in the first quarter, I come up that you're kind of like a 94 combined ratio, excluding those reserving actions still below the 96. I guess my question is, why are you having to tap the brakes right now given that you're kind of at a 94 excluding those actions, which I'm assuming you're expecting not to happen here going forward?
Tricia Griffith, CEO
Yes, it's that balance, Brian, of our calendar year commitment and our lifetime cohort commitment. And so we're always thinking about the future; we're always trying to balance it. I would say we're not putting on the brakes. We're definitely going to reduce our media spend, but our intentions are that we still want to grow. I just wanted to say that normally, when we reduce media, it could have anticipated slow growth. Now John just mentioned too, a lot of it depends on what's happening with competitors. We're still seeing a lot of ambient shopping. We still see a very hard market. So our intentions are to get to our calendar year 96 as soon as we can. If we get to that, depending again on weather, regulatory things, et cetera, we can easily ramp up our media spend to grow. So it's really that balance of accident year and calendar year commitments.
Operator, Operator
Our next question comes from the line of Andrew Kligerman with Credit Suisse.
Andrew Kligerman, Analyst
Tricia, you cited overall severity up about 10%. So I'm trying to unpack the pieces. You cited the repair category being the most severe. Could you specify a number around that? And the second part of it is, I noticed the Manheim Index sequentially up 8.6% in the first quarter. So that was a big move. How are you thinking about used car prices as the year moves forward?
Tricia Griffith, CEO
That's a great question. The severity of car repairs involves several factors. One significant issue we've encountered, both as a company and an industry, is shop capacity. This affects our ability to process cars efficiently, which can lead to longer rental durations. Additionally, parts prices have increased by just under 3%, and labor rates are also going up. This is influenced by the overall unemployment rate and the challenges in hiring, especially for mechanical technicians in body shops, with repair rates rising between 4.5% and 5%. Furthermore, parts costs have not decreased either. Our President of Claims is actively collaborating with our body shop partners to enhance capacity and reduce turnaround times. Weather conditions also complicate these matters. While we've noted a slight decrease in the Manheim Index, it has fluctuated significantly over the years. The positive aspect is that these issues are short-tailed, allowing us to respond quickly as we observe trends to adjust our rates as needed for the present and future.
Andrew Kligerman, Analyst
I see. And you've mentioned non-rate actions, particularly for Commercial. And I think you may have touched on it in Personal. But given the non-rate actions have kind of been a part of the practice for the last couple of years, is there really much leverage there non-rate actions?
Tricia Griffith, CEO
Yes. Yes. I would say there's a lot of leverage, especially on the Commercial side. I won't go into all of what we're working on with restrictions on new business, et cetera. But yes, we're able to pretty quickly put those into play to make sure that the new business we're bringing on reaches our target profit margins.
Operator, Operator
Our next question comes from the line of Jimmy Bhullar with JPMorgan.
Jamminder Bhullar, Analyst
So first, I had a question on advertising. And if you can talk about or quantify how much you're pulling back on advertising? And is it in specific regions? Or are you doing it throughout the country?
Tricia Griffith, CEO
Yes. We won't share exactly where we're pulling back, just like we don't share our budget and actually where our budget goes to whether it's mass media or digital. But I will say when we pull back on advertising, we have an incredible media group, and they will look at the most inefficient media and pull back accordingly. So that's something that we can dial up or down depending on what's happening with our profit margins. But we won't share that. We can more easily turn local off if we need to, if we can't get right, et cetera. So that's kind of the approach we take to our media. We're really flexible and nimble as we've shown in the past.
Jamminder Bhullar, Analyst
Can you discuss the pricing environment and how favorable the regulatory conditions are for implementing price adjustments? There seemed to be considerable resistance from regulators when companies were increasing prices in 2021. Is the regulatory landscape more accommodating for price increases now compared to the past? Or do you anticipate continuing challenges and delays from regulators when trying to raise prices?
Tricia Griffith, CEO
I think most of the regulators really do see and are watching these trends, and it's not Progressive alone. It's definitely the industry seeing these inflationary trends continue. And so for the majority, as we show the data, they understand what we need for prospective rates. There's always going to be some challenges, and we continue to have challenges. Like I said, if you take the two states on each coast that we always have a challenge with. But you know what, we're working with the departments of insurance to show and share our data and the need for it because in the long run, what we want to have is competitive prices. That's what makes our industry great, and we want to have available and affordable coverage for people in every state. So availability is really important. We know that. And so we're going to continue to work with the regulators to get that, but there's always a couple of states that could be challenging.
Operator, Operator
Our next question comes from the line of Alex Scott with Goldman Sachs.
Alexander Scott, Analyst
First one I had is just on frequency trends. And I think they've run reasonably favorable for you all over the last 12 months and just how they've contributed to loss trend. So I just wanted to see if there was any sort of evolving view there and how that will play out and what you saw in 1Q, if you have any update?
Tricia Griffith, CEO
Yes. I mean frequency in Q1 was relatively flat. We haven't quite seen it come back necessarily to solidly pre-COVID. It's really hard to flesh out frequency trends because there's still so many macroeconomic things that go into, and we kind of just try to react to it. There's always a little bit of noise in one quarter. So we'll continue to watch how frequency goes. Obviously, we have a lot of data from miles driven, vehicle miles traveled from our UBI data, so we watch for that. But that's something that we watch and react to, and there's a lot of inputs and a lot that we don't control.
Alexander Scott, Analyst
Understood. Okay. And as a follow-up, I just wanted to ask on bodily injury severity. If you have any update, if you learned anything through 1Q on that front. It sounds like the decisions you're making in terms of the ad spend and growth and so forth are more property damage severity driven, but I just wanted to make sure that there wasn't more of a bodily injury component to this.
Tricia Griffith, CEO
Yes. Bodily injury has shown relative stability over the past few quarters. Some of the increase in severity we observed in the first quarter was related to our significant losses in areas such as soft tissue claims, attorney involvement, non-litigation cases, and some settlements of soft tissue claims. We have been able to analyze this closely and monitor any changes. However, it's important to note that these trends may also fluctuate. It appears that the levels of attorney representation are becoming more stable as well. I will mention Florida since it is a major state for us, and the situation there could also change depending on the number of losses we encounter due to House Bill 837.
Operator, Operator
Our next question comes from the line of Paul Newsome with Piper Sandler.
Jon Newsome, Analyst
A little bit of a follow-up. I was a little surprised not to hear commentary on distracted driving and faster driving being kind of an issue with the reserve issues. And it seems like it's all sort of pieces affecting fixing things and the process of the shopping. Is that part of the equation as well? Or has that sort of stabilized well?
Tricia Griffith, CEO
It’s challenging to determine distracted driving in isolation because we consider a variety of factors. We have extensive data from our usage-based insurance program to help us understand these variables. There is a connection between distracted driving and other behaviors, like hard braking. We don’t only focus on distracted driving; instead, we discuss the overall increase in accidents. What we can respond to is the data that reflects accidents, frequency, vehicle miles traveled, and congestion. We analyze all of this information to comprehend the situation and take action. However, I don’t have additional insights solely on distracted driving at this time.
Jon Newsome, Analyst
And then quite separately, can you talk a little bit about the Commercial business. It looked like the big picture that maybe it was all the same trends affecting private passenger auto, but that hasn't necessarily been the case in the past. So is that the case or all these kind of comments about where the reserve issues are and where the severity is happening in the Commercial business as well? Or is there a difference that's notable between the two businesses from a trend perspective?
Tricia Griffith, CEO
Yes. So our Commercial Lines, especially when you look at the reserving, is mostly in our core auto, and they’re seeing very similar trends. In the trucking segment, those are expensive to fix as well. From the perspective of reserving, we're seeing a little bit more late reports in our reps. Our case reserves are just strengthening from the rep perspective, but pretty similar trends.
Operator, Operator
Our next question comes from the line of David Motemaden with Evercore ISI.
David Motemaden, Analyst
Tricia, regarding the approximately 10 points of rate you need to consider, I believe this is in addition to the 4 points you've already implemented this year, but please correct me if I'm mistaken. Can you explain how much of that is due to catch-up versus what is necessary to keep pace with trends?
Tricia Griffith, CEO
Yes. It was additional to the rate that we took in quarter one. I won't go into actually talking exactly about what's catch-up, et cetera, because we also look at rates prospectively, but we believe at this point with what we're seeing that, that will get us both of those. It will get us to the point where we are at our target profit margin eventually, hopefully, and rate to come to stay ahead of trend specifically.
David Motemaden, Analyst
Got it. It sounds like you are still planning to grow and feel optimistic about that growth despite the decrease in ad spending. Am I correct in understanding that you believe you are not far off from your existing prices and feel confident about that situation?
Tricia Griffith, CEO
Yes, I do feel good about growth. Someone asked a question about underwriting scrutiny, and that's where you can really make sure that you gather more data to be more confident that the new business you're bringing on reaches your target profit margin. So we feel comfortable with the growth, with the caveats of making sure that we do some extra scrutiny just to make sure that new business for the future is profitable. Pat, do you have anything to add?
Patrick Callahan, Executive
Yes, just a little other color commentary on Q1's growth. So half of the incredible new business growth we had was from conversion improvements. In the agency channel, it's more like 3/4. So when you talk about how competitive our prices are on the street, that's a pretty good indication that even with some media pullback, we will continue to have strong competitive rates and with higher levels of ambient shopping, feel pretty good about continuing to grow the business.
Tricia Griffith, CEO
Yes. What I always love to, and we've talked about this the other day in one of my meetings, is every time a situation like this happens and this has been such an incredibly volatile three years. When you pull back on advertising or expenses, you always learn something. So we try to take advantage of these times as well to learn something about our advertising and efficiency, et cetera. So we continue to do that as well, just as another comment.
John Sauerland, CFO
David, regarding your question about catch-up versus forward looking, our pricing is always focused on future expectations. As Tricia mentioned earlier, we were somewhat off on the severity of car repairs at the beginning of the year, and this was factored into our projections. We've received additional data points, which are influencing our future trend selections. There was also a discussion about Manheim. Looking back, our projections for Manheim to decline more sharply have not materialized. Overall, car pricing has remained higher than we had initially expected, and this contributes to our future trend selections as we assess our pricing indications. We have recently adjusted our approach and concluded that we need to be more aggressive with our rates.
Operator, Operator
Our next question comes from the line of Tracy Benguigui with Barclays.
Tracy Benguigui, Analyst
Since higher severity and auto physical damage were key drivers behind adverse development in the quarter, can you reconcile how you got comfortable lowering your view of auto physical damage loss trend this quarter to 15% versus 20% last year?
Tricia Griffith, CEO
Well, I can give you a color of why we believe there's higher severity this quarter. And there's always a lot of noise in the quarter, but much of what you're seeing with the higher versus collision has to do with some older claims that are now working their way through our inbound subrogation. So if you think about claims at the height of ACV, et cetera, we're working through those. So that would be my point about the property damage severity trend. I'm not sure if I answered your question or...
John Sauerland, CFO
Maybe a clarification. It's not our view of loss trend there. That is a retrospective looking number. So that is simply saying physical damage severity this quarter versus last year first quarter, similarly, when you looked at last year's numbers. So it is a consecutive retrospective metric. Does that help?
Tracy Benguigui, Analyst
Okay. And so would 20% even be the right number to think about for last year, given all the adverse development you've taken in that accident year, or it's not correlated to what you just said?
John Sauerland, CFO
So each quarter we're providing you versus the previous period change in severity there. So we normally provide you the quarter and the year-to-date. And so right now, we're up 15% versus previous quarters for property damage. So you mentioned physical damage. Property damage is the third-party coverage for fixing cars.
Operator, Operator
Our next question comes from the line of Josh Shanker with Bank of America.
Joshua Shanker, Analyst
If we go back two years ago to this conference call after the 1Q '21 10-Q, you announced that you were taking rate. And when we saw May 2021 results, growth had just ground to a halt. You had very little regulatory approval at that point, very little premium written or earned at the new rates. And you were able to stop the growth almost immediately. What were some of the skills that you had that you were able to do that before you had even taken the rate? And what aren't you going to do this time compared to the urgency that you were able to stop the growth in 2021?
Tricia Griffith, CEO
Yes. We will utilize similar strategies as before, which I mentioned in my initial Q&A. At that time, we were ahead of regulators and competitors. They were still concerned about the impact of situations like COVID, which I take pride in managing. We're applying much the same tactics we used previously. However, it is a challenging market right now. Pat and John noted that our competitors are increasing rates, leading to some shopping around. Even though we're employing similar strategies, we've seen growth, as I shared some first-quarter statistics. We anticipate this can continue depending on competitive actions. Regulators are noticing more companies entering the market with comparable data, and they understand the necessity of ensuring coverage for their constituents, which requires us to navigate the system. This reflects the current inflationary trends we're observing. All right. And then in the 10-Q, you mentioned that the current year impact of HB 837 was less than 100 basis points on the quarter. Can I extrapolate that it was 200 or 300 basis points for the month of March? Yes, you could likely do that. I haven't calculated it precisely. However, we considered what we believed would be probable and estimable based on recent lawsuits that occurred shortly before the bill was signed. That situation may change because some of those events might or might not actually take place. Nevertheless, that calculation is probably quite accurate, and it will continue to change over time.
Operator, Operator
Our next question comes from the line of Yaron Kinar with Jefferies.
Yaron Kinar, Analyst
My first question is about the significant growth we've experienced this quarter. Can you discuss the distribution of customers like Sam's, Diane's, Wright's, and Robinson's among those added? Are the new applications roughly aligned with the distribution in your existing customer base?
Tricia Griffith, CEO
Yes. I believe we are out of the queue. Pat or John can add to this. I think we experienced growth in all segments. We have seen an increase in Robinsons due to the auto-home bundle. Sam's will likely continue to shop, and there is always the PLE aspect to consider. Overall, I believe we grew across all segments.
Patrick Callahan, Executive
Yes, that's right. From an app perspective, we saw positive growth in the quarter for new apps across all segments. And our fastest growth was really in the Wright and Robinsons, and Diane's also grew. So Sam's grew just a little slower, but they grew as well. From a PIF perspective, we also saw positive growth across all segments during the quarter. So faster in the segments that are not Sam's, but...
John Sauerland, CFO
For those who may not be familiar with our terminology, Wrights refer to homeowners who do not bundle their services with us. On the other hand, Robinsons are well-known to this audience. Wrights are homeowners who have their auto insurance and possibly some other products with us, and that's where we are experiencing the fastest growth. In the agency channel, particularly in relation to our manufacturer or underwritten property product, Progressive Home, we have reduced our presence in several markets to reevaluate our geographical scope. It’s encouraging to see that we continue to grow among home-owning households, even in markets where we are limiting the property component of that portfolio. We are growing among Robinsons as well, as Pat pointed out, and Diane's represent renters who maintain stable insurance habits. Therefore, we are experiencing growth primarily in more stable sectors and significantly increasing our homeowners, even without the bundle, which is also a positive development.
Yaron Kinar, Analyst
And then my next question, I guess, goes back to I think several other versions of this question that were asked on the call already. And I'm just looking at comments coming into my email over the course of this call. It seems like there is still some lingering investor confusion around what I would say maybe is the sense of urgency and aggressiveness coming from you talking about kind of the need to take some corrective actions. And the year-to-date data that we're seeing, mainly 95-ish combined ratio; when we take out some of the reserve adjustments that we assume will not go forward. So I was hoping to maybe take another stab at that; will give you another opportunity to clarify some of that confusion.
Tricia Griffith, CEO
Yes, our focus is on achieving our calendar year goal. We recognize the importance of both long-term and short-term growth. We have a clearly stated goal for our long-term investors, aiming for a calendar year objective of 96, but currently, we're at 99, prompting us to take decisive actions. Fortunately, we have several levers we can adjust quickly. Our agility at Progressive will play a significant role. If circumstances improve dramatically in the next four months, subject to factors like regulatory approval, weather, and inflation, we can initiate growth. It's also important to reiterate the remarkable growth we've experienced, and we do not anticipate it abruptly stopping. There is a clear connection between advertising and new business applications, and we remain optimistic. I hope my earlier comments did not suggest that growth will come to a sudden halt; rather, I intended to convey that a reduction in advertising could potentially impact growth, as has occurred historically. The extent of this impact depends on various factors, including competition.
Operator, Operator
Our next question comes from the line of Michael Ward with Citi.
Michael Ward, Analyst
I noticed policy life expectancies trended positively in the quarter. Just hoping you could help us understand what goes into that metric? And how should we think about that trending now that you're raising prices again and have added a lot of new customers?
Tricia Griffith, CEO
Well, it performed positively over the past three months, but it's still down over the past year. We believe the three-month period is a better reflection of the current situation, although that could change with the potential rate increases, which is typically what we observe. The PLE indicates how long our customers are expected to stay with us. Therefore, the three-month performance reflects more recent activity. We will need to monitor this trend to determine if any of our pricing actions impact it negatively.
Michael Ward, Analyst
And then on the investment portfolio. I was just hoping you could provide some color on the strategy in CMBS. I know there's new disclosure in the queue. Just specifically curious why you guys favor single properties, CMBS, especially office. I'm wondering if you could sort of comment on the sales that you mentioned in the Q thus far?
Jonathan Bauer, Executive
Absolutely. I'll have Jon Bauer provide some insights. I want to highlight that we included the chart for CMBS this year, and Jon was proactive in reducing our risk in CMBS over a year ago. Now, I'll let him explain his reasoning and our direction moving forward. Jon? Thank you for the question, Michael. To give you some background, in the first quarter of 2022, we reassessed our portfolio and the overall macro environment. We realized that our portfolio at the beginning of 2022 did not align with our expectations for the future. As a result, we took several actions. Initially, we ended January with an interest rate duration of about 3.8, which we found to be too high for the current climate. We gradually decreased that to around $275 million by October and plan to raise it back to 3. Regarding equities, we anticipated increased volatility, prompting us to halve our equity exposure. We also evaluated our non-cash and treasury fixed income portfolio and identified three areas where we would be uncomfortable if a recession occurred: residential mortgage-backed securities, CLOs, and commercial mortgage-backed securities. Over the last year, the housing market has performed better than expected, positively impacting our residential mortgage-backed securities. Despite reducing our exposure in that area, we are optimistic about the housing market. For CLOs, the future corporate default rates remain uncertain, but we feel secure in our position, even though it has decreased compared to last year. In the commercial mortgage-backed securities sector, we proactively reviewed the portfolio to identify securities that could potentially be affected in a severe recession, leading us to reduce our holdings. As a result, CMBS accounted for 13% of our portfolio at the end of the first quarter of 2022, but it now represents less than 8%. On the office side, we focus on two main drivers for the portfolio. The first is trophy office buildings constructed in the last decade, which we believe will see substantial demand as companies aim to shrink their physical footprint while seeking high-quality spaces. The second category includes offices that are at least 4 to 5 years past maturity with strong investment-grade tenants. This strategy allows us to select individual buildings for underwriting rather than dealing with a mix of various building qualities. As noted, we have no delinquencies in the portfolio, and we anticipate around $350 million in maturities in the CMBS portfolio over the next year, which we expect to refinance without issues. If you need any more details, please let me know.
Michael Ward, Analyst
Yes. No, that was tremendously helpful. Maybe just on what you shedded recently, recent quarters, did you trim California, Seattle?
Jonathan Bauer, Executive
Yes, I would broaden the discussion beyond just commercial real estate. Our approach across the portfolio involves constantly assessing whether we are being compensated for the risk associated with each security. For CMBS specifically, we started this evaluation in February and March of last year by considering any potential tenant rollovers that could leave buildings vacant as their maturities approached. We also looked at buildings where we doubted the owners would invest in necessary improvements to enhance leasing potential. This process left us with high-quality trophy real estate and properties with strong tenancies, typically with leases extending five years or more beyond maturity. My focus is less on geographical considerations and more on the quality of both the buildings and the tenancies. This assessment has resulted in a portfolio with no delinquencies, giving us confidence in managing the maturities we face in the next 12 months.
Operator, Operator
Our next question comes from the line of Ryan Tunis with Autonomous Research.
Ryan Tunis, Analyst
Yes. Just a couple here. So I guess the first question, on the 10 points of rate. So when we go back like a year ago, I think it was on this call, where you guys said you were done taking outsized rate increases. I guess since then, you guys never stopped taking rate increases. I think since then, you've gotten like 9 points in the aggregate, so I guess when I think about like this extra 10 points that you're saying you need over the next three quarters and thinking about the fact that you've actually taken almost that much like in the trailing four quarters, it really just doesn't seem like that much of a step-up versus what we're seeing. But yes, just your comments on whether or not I'm thinking about that correctly.
Tricia Griffith, CEO
Yes. I mean what we prefer to do is, obviously, we want to be ahead of the rates to achieve our target profit margins. We prefer to take small bites to the apple, which we did in first quarter, but then we saw the data change dramatically. For our future rate need, we believe at this point that around 10 rates is sort of the neighborhood of what we'll need on the private passenger auto side. I think you're thinking about it okay. I mean what we said in the quarter is that we thought the largest rate increases were behind us, but this has been a really volatile time. And so we're just reacting to what we're seeing right now.
John Sauerland, CFO
Right. I would just add that over time, we have been very well served analyzing the data very expeditiously and taking action as we see changes. So as Tricia mentioned, if things don't play out in terms of loss trend as we are expecting, we can always pull back. We can always even take rates down. I would be surprised if we do that, but we can certainly pull back. But continually, we find we are way better off looking at the data every single month. And to the extent we think things have changed taking action expeditiously.
Ryan Tunis, Analyst
I have a couple of questions about whether there might be some adverse selection occurring. Can you comment on where you're seeing the loss trend and the issues in the book? Is it primarily related to the new business you’ve written, or is it more general across the entire portfolio?
Tricia Griffith, CEO
No. I mean I think where adverse selection comes into play specifically is for those companies that have industry-leading segmentation. We believe we have that. We believe we have that with our variables, with our UBI, et cetera. So we actually feel good that we talked a little bit about the underlying loss cost. We feel pretty good about that. There are just some trends that we're seeing that we need to get ahead of. Our goal, of course, is to rate accurately and be aggressive in getting the right rate at the right time on the street. If you do that and you have segmentation like we do, adverse selection should happen, but not to us.
Patrick Callahan, Executive
Yes. The only thing I would add is that we feel very good about the quality of business we've acquired during the fourth quarter and the first quarter. We are always vigilant and closely monitor the mix of business being shed by our competitors as they transfer market share to us. We are observing clean business, including homeowner policies, long policy periods, and multi-car insurance. This is exactly the type of business we aim to grow, and we are quite satisfied with our observations, contrary to any concerns about adverse selection.
Douglas Constantine, Director of Investor Relations
We've exhausted our scheduled time, and so that concludes our event forum. I will hand the call back over to you for the closing scripts.
Operator, Operator
That concludes the Progressive Corporation's First 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.