The Progressive Corp.'s personal lines business generated a combined ratio of 84.5% in the first quarter in results released April 12, well below management's 96% target and the lowest such result for the segment in a first quarter since 2004.

The March combined ratio in Progressive's personal lines business, which includes its private auto business but notably excludes its homeowners products, fell to a 47-quarter low of 79.6% after normalizing for the impact of catastrophes. When including catastrophes, the personal lines result of 82.3% marked a reduction of 22.2 percentage points from the year-earlier month. Said differently, March represented the best month for Progressive's personal lines business excluding catastrophes since the worst of the COVID-19 lockdowns in March and April 2020.

An unexpected negative turn in underwriting results beginning in March 2023 led Progressive to take decisive action to dial back its pace of expansion, including a curtailment of its spending on advertising. With the company now having produced five consecutive months of personal lines combined ratios of less than 88%, we wonder whether it will take an even more aggressive growth posture beyond a rebound in advertising and what President and CEO Tricia Griffith during a February conference call characterized as an "unraveling" of the tighter underwriting standards Progressive temporarily employed.

Amid the highly favorable underwriting results and removal of the temporary growth curbs, the March results showed evidence of an uptick in Progressive's pace of expansion. Sequential growth in personal auto policies in force of 2.2% between February and March represented the business's fastest rate of increase since the first two months of 2023, just before management decided to tap the brakes. Growth rates accelerated in both the agency and direct channels. Progressive had posted six consecutive months of sequential contraction in personal auto policies in force between June and November 2023.

Personal lines net premiums written rose by 19.6% in the first quarter and by 22.3% for the trailing-12-month period ended March 31. It marked an eighth straight month in which the trailing-12-month growth rates exceeded 20%.

US property and casualty industry results in the private auto business, including Progressive's, improved materially during the second half of 2023 as many carriers raised rates and took other actions to address the impact of loss-cost inflation. S&P Global Market Intelligence calculates that the fourth-quarter 2023 private auto direct incurred loss ratio of 72.7% marked a seven-quarter low and a decline of 13.2 percentage points from the year-earlier period. Progressive's statutory results in that business showed a direct incurred loss ratio of 63.7% for the last three months of 2024. The resulting year-over-year improvement of 5.6 percentage points lagged the overall decline for the industry due to the effects of reserve building by some of Progressive's peers in the fourth quarter of 2022.

For full-year 2023, Progressive's statutory basis direct incurred loss ratio in the private auto business was less than 69.2%, according to S&P Global Market Intelligence. But results by state varied widely, ranging from a low of 57.8% to a high of 79.7%.

Griffith said in February that the company was still "working with" states "get the rate that we need" in California, New York and New Jersey, where Market Intelligence calculates that its 2023 direct incurred loss ratios in the private auto business were 77.6%, 70.1% and 72.1%, respectively.

To that end, Progressive Garden State Insurance Co. and Drive New Jersey Insurance Co. on March 29 filed to raise private auto rates in their namesake state by 6.9% and 7.0%, respectively, approximately six weeks after a 4.3% increase took effect. The companies stated in the filing that they face "an urgent need of rate," which as filed was well below the actuarial indications for increases of 39.8% for Progressive Garden State and 28.9% for Drive New Jersey.

"[W]e continue to struggle to achieve rate adequacy in both of our companies to address the frequency recovery in the aftermath of the pandemic and the steep severity trends observed since 2021," Progressive said in the New Jersey filing in explaining what it described as "persistent rate inadequacy."

Two Progressive subsidiaries, United Financial Casualty Co. and Progressive Select Insurance Co., are seeking rate increases of 16.1% and 15.1%, respectively.

In Nevada, where Progressive's 2023 direct incurred loss ratio in the private auto business was 75.4%, the company has been seeking to raise rates by 15.0% and 9.6%, respectively, for private auto business written by Progressive Northern Insurance Co. and Progressive Direct Insurance Co. The state regulator has twice requested that Progressive provide updated profitability reports in support of the requested rate increases, first in January due to what it characterized as the short time elapsed since the companies' last rate increases took effect, then on April 3 to determine the extent of the improvement that may have occurred during the first quarter of 2024.

Rising private auto insurance rates have received increased public attention in recent months given the outsized growth in the motor vehicle insurance category of the US Consumer Price Index. At 22.3% in March, the year-over-year growth rate in that category hit its highest point since November 1976, well above the overall 3.5% increase in the overall index.

We view that index as a lagging indicator of pricing trends, given the time that often elapses between an insurer filing for a rate increase in a prior-approval state and the first renewal date for policies affected by the increase subsequent to the filing's approval and implementation. For example, a California customer of United Financial Casualty could see the first effects of a 6.9% increase the company originally submitted for approval on Sept. 8, 2022, as late as May 2024 depending upon their policy's renewal date — a spread of 20 months.

This nuance is likely not well understood by the general public, and with first-quarter results for the rest of the industry potentially poised to suggest a disconnect between the rapidly rising pricing trends indicated by the CPI and sharply improving business line profitability, the industry faces headline risk to its ongoing efforts to secure rate adequacy across geographies.

We saw a similar scenario play out in the second half of 2021 as negative headlines and initial resistance emerged in certain jurisdictions in response to carriers' efforts to address rapid loss-cost inflation in relatively close proximity to the abnormally favorable results produced during the COVID-19 lockdowns.

If nothing else, we would expect more regulators to follow Nevada's lead and request the most current experience data to attempt to account for the significant underlying margin improvements that appear to have emerged in more recent months.

^{This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.}