What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-06 compared with 2023-10-31 · 316 added, 396 removed, 566 unchanged (56% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

During the third quarter 2023, The Progressive Corporation’s insurance subsidiaries recognized strong growth in both premiums written and policies in force, compared to the same period last year.

During the third quarter 2023, we generated an underwriting profit of 7.6%, which was better than our 4.0% companywide calendar-year underwriting profit goal and 6.8 points better than the third quarter last year.

The underwriting profit variance from the prior year was primarily attributable to lower catastrophe losses in the current quarter, compared to the third quarter last year, along with our pricing decisions and non-pricing actions that we put in place to help us achieve our stated calendar-year goal of a 96 or better combined ratio.

During the third quarter 2023, we experienced catastrophic weather events that contributed 3.2 loss ratio points, compared to 7.1 points for the third quarter 2022, which primarily resulted from Hurricane Ian.

During the quarter, our personal auto products profitability benefited by about five points from prior rate revisions that have earned in.

In addition, our companywide expense ratio was 2.5 points lower in the third quarter 2023, compared to the same period last year, in large part due to a 52% decrease in advertising spend in the third quarter 2023, which brought our year-to-date advertising costs to $1.3 billion, compared to $1.6 billion for the first nine months of 2022.

We currently plan to continue to manage our rate levels and discretionary spending to further our goal of achieving our companywide calendar-year target profitability.

During the third quarter 2023, companywide net premiums written grew 20% over the same period last year, with all operating segments contributing to the growth.

We generated $15.6 billion of net premiums written, which was an increase of $2.6 billion, compared to the third quarter 2022.

We ended the quarter with 29.6 million policies in force, which was an increase of 2.8 million policies, or 10%, over September 30, 2022, and nearly 33,000 more policies than were in force at the end of the second quarter 2023, and 2.3 million more than year-end 2022.

While companywide policies in force increased during the third quarter 2023, total personal auto policies in force were down compared to June 30, 2023, reflecting the decrease in new business applications discussed below, which were, in part, offset by the increase in renewal applications as our retention lengthened.

The increase from the year-end 2022 policies in force reflected both strong new application growth in the first half of the year and improved retention in our Personal Lines and Property products.

As a result of the rate and non-rate actions we have taken to manage profitability, new applications decreased during the third quarter 2023, compared to the same period last

While new business is down year over year, policy life expectancy, which is our measure of retention, has lengthened in our Personal Lines products demonstrating the competitiveness of our products in the marketplace.

As discussed below, we plan to continue to remain diligent in our efforts to achieve our target profitability and will take the necessary rate and non-rate actions, which could result in less premium and policy growth.

On a year-over-year basis, for the third quarter 2023, net income increased $1.0 billion and comprehensive income increased $1.5 billion, from a comprehensive loss in the same period last year.

The year-over-year increase in net income primarily reflected an increase in underwriting profitability as discussed previously.

During the quarter, income also benefited from a 53% increase in recurring investment income, primarily due to an increase in interest rates on floating-rate securities in our portfolio, an increase in average assets resulting from premium growth, and investing new cash and cash from maturities in higher interest rate securities given the rising interest rate environment.

The quarter-over-prior-year quarter increase in comprehensive income reflected both the increase in net income and a lower amount of net unrealized losses on our fixed-maturity securities, which experienced a loss of $388.6 million in the third quarter 2023, compared to a loss of $920.3 million in the same prior year period, with both periods being primarily driven by the then-current interest rate environment, with a significant rise in interest rates last year.

Total capital (debt plus shareholders’ equity) at September 30, 2023, was $24.3 billion, which was up $2.0 billion from year-end 2022, primarily due to our comprehensive income earned in the first nine months of 2023 and the May 2023 issuance of $500 million of 4.95% senior notes.

During the first quarter 2024, The Progressive Corporation’s insurance subsidiaries recognized strong growth in both premiums and policies in force, compared to the same period last year, and generated an underwriting profit significantly better than our 4% companywide calendar-year underwriting profit goal.

Net premiums written and earned increased 18% and 19%, respectively, compared to the same period last year, with all operating segments contributing to the growth.

For the quarter, we generated $19.0 billion of net premiums written, which was an increase of $2.9 billion, compared to the first quarter 2023.

On a companywide basis, we ended the quarter with 30.8 million policies in force, which was 7% greater than the same period last year.

Policies in force increased 1.1 million since year-end 2023 and 2.0 million from the end of March 2023.

Although personal auto new business applications were down from the prior year, reflecting the rate and non-rate actions we took throughout 2023 to manage profitability, policy in force growth benefited from improved retention in both our Personal Lines and Property businesses.

Profitability for the quarter was strong with our companywide combined ratio for the first quarter 2024 of 86.1, which was 12.9 points better than the first quarter last year and 9.9 points better than our calendar-year underwriting profitability goal.

Several factors contributed to the significant year-over-year improvement in our underwriting profit.

The average earned premiums per policy were higher than the prior year first quarter in all of our operating segments, primarily due to the rate increases we took during 2023 to meet our companywide profitability target.

Also, on a year-over-year basis for the first quarter, our incurred personal auto accident frequency decreased 9% and, while severity was up 3%, we are starting to see indications that severity trends are stabilizing.

In addition, in the first quarter 2024, we had favorable prior accident years reserve development of 0.1 points, compared to unfavorable development in the first quarter last year of 4.6 points.

Lastly, our companywide expense ratio was 2.3 points lower in the first quarter 2024, compared to the same period last year, in large part due to a 7% decrease in advertising spend.

We are increasing our media spend to maximize growth and will continue to do so as long as we remain on track to achieve our target profitability and generate sales at a cost below the maximum amount we are willing to spend to acquire a new customer.

On a year-over-year basis, for the first quarter 2024, net income increased $1.9 billion and comprehensive income increased $1.1 billion, compared to the same period last

The increase in net income primarily reflected the increase in underwriting profitability.

During the quarter, net income also benefited from a 47% increase in recurring investment income, primarily due to investing new cash from operations and proceeds from maturing bonds in higher coupon rate securities.

The quarter-over-prior-year quarter increase in comprehensive income reflected the increase in net income partially offset by the change in net unrealized losses on our fixed-maturity securities during the periods.

During the first quarter 2024, net unrealized losses increased, compared to a decrease in net unrealized losses in the first quarter last year, with both periods primarily driven by the then-current interest rate environment, with a moderate decline in interest rates during the first quarter last year.

Total capital (debt plus shareholders’ equity) at March 31, 2024, was $28.7 billion, which was up $1.5 billion from year-end 2023.

During the first quarter 2024, we earned $2.1 billion of comprehensive income, which was offset by the $0.5 billion redemption of all of our outstanding Serial Preferred Shares, Series B, during the quarter, as discussed in further detail in Financial Condition below.

Insurance Operations

During the third quarter 2023, we experienced a companywide underwriting profit margin of 7.6%, compared to an underwriting margin of 0.8% for the same period last year.

Our Personal Lines, Commercial Lines, and Property businesses generated an underwriting profit margin of 8.8%, 0.9%, and 11.8%, respectively, during the third quarter 2023.

Our special lines products experienced an underwriting loss during the third quarter due to seasonality.

In total, the special lines products contributed a 0.8 unfavorable point impact to our Personal Lines combined ratio.

The strong underwriting results in the third quarter moved our year-to-date combined ratio to a 97.2, which is just 1.2 points from our companywide calendar-year goal of a combined ratio of a 96 or better.

We strongly believe that achieving our target profit margin takes precedence over growing premiums.

With a focus on achieving our calendar-year underwriting profitability goal of at least 4%, in the face of continued volatility in our severity trends that influence higher vehicle and repair costs, we will continue to reevaluate our rate plans and intend to continue to raise rates through the fourth quarter 2023, with planned increases of about 3% in our personal auto products and about 5% in our commercial auto products.

Some of these rate increases will be subject to regulatory approval.

We will continue to monitor the factors that could impact our loss costs for both our vehicle and Property businesses, which may include new and used car prices, miles driven, driving patterns, loss severity, weather events, building materials, construction costs, inflation, and other components, on a state-by-state basis, and could change our current plans for rate increases.

In addition to rate action, we routinely monitor non-rate actions, including our advertising spend.

During the third quarter 2023, we reduced advertising costs 52%, compared to the same period last year.

On a year-to-date basis, we have spent $1.3 billion in advertising, compared to $1.6 billion for the first nine months of 2022.

During the quarter, we also continued implementing measures to support the goal of achieving our target profit margin that included slowing new business growth through verification activities, bill plan offerings, and through ongoing general operational expense discipline.

We expect to continue to reevaluate our actions through the remainder of the year and may take additional measures as necessary.

For the third quarter 2023, net premiums written grew 20% compared to the third quarter last year, with all segments showing strong growth.

During the first quarter 2024, all of our operating segments were profitable with Personal Lines, Commercial Lines, and Property reporting combined ratios of 84.5, 91.8, and 93.4, respectively.

Personal Lines is comprised of both our personal auto and special lines products, with the latter typically having lower losses during the first quarter due to the seasonal nature of these products (e.g., motorcycles, boats, and RVs).

The special lines profitability during the first quarter contributed just over a 1 point favorable impact to our total Personal Lines combined ratio.

During the quarter, all of our operating segments benefited from higher average earned premiums per policy, lower incurred loss frequency and severity trends, and lower expense ratios, with Personal Lines also benefiting from favorable prior accident year reserve development.

As a result of the rate actions we took during 2023 to help achieve our target profit margin, we currently believe that, in most states, we are adequately priced in our personal auto and core commercial auto (which exclude our transportation network company (TNC) business, business owners’ policy (BOP), and Progressive Fleet & Specialty (previously referred to as Protective Insurance)) products.

we deem appropriate.

We currently anticipate that aggregate rate changes throughout 2024 will be of lesser magnitude than those taken in each of the prior two years, but we will continue to evaluate our rate need and adjust rates as we deem necessary.

Throughout the first quarter 2024, we continued to lift the non-rate actions implemented last year, on a state-by-state basis, as our focus shifted from achieving our target profit margin to maximizing profitable growth.

For the first quarter 2024, net premiums written grew 18% compared to the first quarter last year, with all segments showing strong growth.

Personal Lines net premiums written grew 20%, with the Agency and Direct distribution channels growing 18% and 21%, respectively.

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Changes in net premiums written are a function of new business applications (i.e., policies sold), business mix, premium per policy, and retention.

While we experienced significant new application growth during the first half of 2023, due to the actions taken to address profitability there was a decrease in Personal Lines new applications, compared to the third quarter 2022.

During the third quarter 2023, we also saw a slowing of new application growth in both our Commercial Lines and Property businesses, compared to the growth rates experienced earlier in the year.

The Personal Lines decline reflected a decrease in both our Agency and Direct auto businesses, combining for a total decrease of 20% for new personal auto business applications.

While personal auto premium growth and retention were strong during the third quarter 2023, some of the profitability actions mentioned above could have a negative impact on future premium growth, retention, and could continue to negatively impact new applications.

Returning to calendar-year profitability in our Property business continues to remain a priority for us.

We plan to continue to focus on our efforts to grow in states that traditionally have less catastrophe exposure and limit growth in coastal and hail-prone states to reduce concentration mix among states.

In regions where our appetite to write new business is limited, we are prioritizing Progressive auto bundles, as well as lower risk properties, such as new construction or homes with newer roofs.

In addition, to continue to rebalance our business, we began a non-renewal effort of up to 115,000 Property policies in Florida.

Following the required filings and notices, the first of these non-renewals will go into effect in the second quarter of 2024 and will continue on a rolling 12-month basis.

To try to ease this disruption to our customers and agents, we reached an agreement with another Florida insurer to offer replacement policies to these policyholders, subject to their underwriting and financial guidelines and agent appointments where applicable.

Despite this non-renewal effort, we plan to continue to provide for the insurance needs of over 3 million Florida policyholders across all of our lines of business, including over 200,000 Florida homeowners.

In the third quarter 2023, in our Property products, we increased rates by about 2% in aggregate, following a rate increase of about 7% during the first half of 2023 and an increase of about 19% during 2022.

Similar to our personal and commercial auto products, we intend to continue to raise rates in our Property products in an effort to achieve our calendar-year underwriting profitability goal, with a planned aggregate countrywide increase of about 7% over the remainder of the year.

Some of these rate increases will be subject to regulatory approval.

New applications in the states where we are focused on growth were up about 30% over the third quarter last year.

New applications were down about 10% in the more volatile weather states.

In addition, the Property business benefited from growth in Robinsons, our bundled auto and home policies.

In total, Property new applications were up 9% over the third quarter 2022.

During the third quarter 2023, on a year-over-year basis, average written premium per policy grew 12% in both personal auto and Property, and 4% in commercial auto.

The growth in personal auto, commercial auto, and Property primarily reflected rate increases taken throughout 2022 that continued through the third quarter 2023, in response to rising loss costs.

In the first quarter 2024, we experienced a decrease in Personal Lines new business applications, primarily reflecting the significant volume of new applications written in the prior year first quarter.

On a quarter-over-prior-year quarter basis, new personal auto applications decreased 9% for the first quarter 2024, compared to an increase of 83% in the same period in 2023.

As certain new business restrictions began to be lifted during the quarter, we saw personal auto new business application growth stabilize towards the end of the quarter.

New applications in our core commercial auto business increased 2% during the first quarter 2024, compared to the same period last year.

Excluding the impact of the for-hire transportation business market target (BMT), which had a year-over-year decrease in new applications, our core commercial auto new application growth would have been 9% during the first quarter 2024.

The for-hire transportation BMT continues to be adversely impacted by challenging freight market conditions that have caused a decline in the active number of motor carriers in this BMT.

New applications in the Property business were up 31% over the first quarter last year as we continued to focus on growing new business in less volatile weather states and home and auto bundles, as well as lower risk properties, such as new construction or homes with newer roofs, in regions where our appetite to write new business is limited.

During the first quarter 2024, on a year-over-year basis, average written premium per policy grew 14% in personal auto, 10% in core commercial auto, and 2% in Property.

The growth in personal auto, commercial auto, and Property primarily reflected rate increases taken throughout 2023, in response to rising loss costs, that continued to be earned through the first quarter 2024.

The rate increases taken in commercial auto were, in part, offset by a shift in the mix of business, primarily driven by decreased demand in our for-hire transportation product.

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We believe a key element in improving the accuracy of our rating is Snapshot ® , our usage-based insurance offering.

During the third quarter 2023, the adoption rates for consumers enrolling in the program increased about 15% in Agency auto and was flat in Direct auto, compared to

the third quarter 2022.

Snapshot is available in all states, other than California, and our latest segmentation model was available in states that represented about 50% of our countrywide personal auto premium at September 30, 2023.

During the first quarter 2024, the adoption rates for consumers enrolling in the program decreased about 20% in Agency auto and was flat in Direct auto, compared to the first quarter 2023.

The decrease in the Agency auto adoption rate primarily reflects a shift in the mix of agencies through which we wrote new business during the first quarter 2024, as a result of the rate and non-rate actions implemented after the first quarter of 2023.

As we continue to lift certain non-rate restrictions during 2024, we would expect the mix of agencies where we write new business will begin to shift in the direction of the agency mix that was in place prior to the implementation of those restrictions.

Snapshot is available in all states, other than California, and our latest segmentation model was available in states that represented about 70% of our countrywide personal auto premium at March 31, 2024.

We continue to invest in our mobile application, with mobile devices being chosen for Snapshot monitoring for the majority of new enrollments.

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Policy life expectancy, which is our actuarial estimate of the average length of time that a policy will remain in force before cancellation or lapse in coverage, is our primary measure of customer retention in our Personal Lines, Commercial Lines, and Property businesses.

We evaluate total auto retention using a trailing 12-month and a trailing 3-month policy life expectancy.

The latter can reflect more volatility and is more sensitive to seasonality.

As of the end of the third quarter 2023, our trailing 12-month total personal auto policy life expectancy increased 19%, compared to last year, which marks the second consecutive quarter the trailing 12-month measure has been positive since the beginning of 2022.

We evaluate total personal auto retention using a trailing 12-month and a trailing 3-month policy life expectancy.

Although the latter can reflect more volatility and is more sensitive to seasonality, this measure is more responsive to current experience and may be an indicator for the future trend of our 12-month measure.

As of the end of the first quarter 2024, our trailing 12-month total personal auto policy life expectancy increased 20%, compared to last year.

The Agency and Direct channels trailing 12-month measure was up 28% and 13%, respectively.

We have seen improvement in our trailing 12-month policy life expectancy on a month-over-prior month basis for the last several months although recent and future rate increases could potentially have an adverse impact on our retention.

Our trailing 3-month policy life expectancy for total personal auto was up 35%, compared to the same period last year.

We believe that the improved retention on a trailing 3-month basis reflects our continued competitiveness in the marketplace.

At the end of the third quarter 2023, our trailing 12-month policy life expectancy increased 5% in special lines, 14% in Property, and decreased 9% in Commercial Lines, compared to the same period last year.

The decrease in Commercial Lines was across all business market targets (BMT), with the decrease in for-hire transportation BMT demand providing the largest contribution to the overall decrease.

Commercial auto retention is being negatively impacted by our rate and underwriting actions, a slowdown in the rate of economic activity, and challenging freight market conditions, which we believe are driving increased shopping and causing motor carriers to exit the industry.

The fair value of our investment portfolio was $61.9 billion at September 30, 2023, compared to $53.5 billion at December 31, 2022.

The increase from year-end 2022 primarily reflected solid cash flows from operations and the $0.5 billion of proceeds from debt issued in May 2023, as discussed further below, partially offset by valuation decreases in U.S.

government securities.

As of the end of the first quarter 2024, we have seen improvement in our trailing 12-month policy life expectancy on a year-over-year basis for each of the last ten months.

Rate increases could have an adverse impact on our retention, as potentially indicated by our total personal auto trailing 3-month policy life expectancy no longer showing improvement, compared to the same period last year.

At the end of the first quarter 2024, our trailing 12-month policy life expectancy increased 6% in special lines, 11% in Property, and decreased 15% in Commercial Lines,

compared to the same period last year.

The decrease in Commercial Lines policy life expectancy in all BMTs, reflected rate and non-rate actions taken in 2023 to achieve our target profitability, as well as the continued decrease in demand in the for-hire transportation BMT.

The fair value of our investment portfolio was $69.0 billion at March 31, 2024, compared to $66.0 billion at December 31, 2023.

The increase from year-end 2023 primarily reflected cash flows from operations, in part offset by the redemption of all of our outstanding Serial Preferred Shares, Series B, and the payment of our annual variable common share dividends.

Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities (the securities allocated to Group I and II are defined below under Results of Operations – Investments ).

At September 30, 2023, 7% of our portfolio was allocated to Group I securities and 93% to Group II securities, compared to 10% and 90%, respectively, at December 31, 2022.

Our recurring investment income generated a pretax book yield of 3.3% for the third quarter 2023, compared to 2.5% for the same period in 2022, due to the increase in interest rates on our floating-rate securities and the investment of cash and maturities at relatively higher interest rates.

Our investment portfolio produced a fully taxable equivalent (FTE) total return of (0.2)% and (1.9)% for the third quarter 2023 and 2022, respectively.

Our fixed-income and common stock portfolios had FTE total returns of (0.1)% and (3.1)%, respectively, for the third quarter 2023, compared to (1.8)% and (4.5)%, respectively, last year.

The favorable change in the fixed-income return reflected lower portfolio valuation decreases in third quarter 2023, compared to third quarter 2022, as the market experienced smaller increases in interest rates and a more stable environment for credit spreads versus third quarter 2022.

The year-over-year change in the common stock return reflected general market conditions.

At September 30, 2023, the fixed-income portfolio had a weighted average credit quality of AA- and a duration of 2.9 years, compared to AA and 2.7 years at September 30, 2022 and AA and 2.9 years at December 31, 2022.

Our decrease in weighted average credit quality since December 31, 2022, was mainly due to two major credit rating agencies rating U.S.

Treasury debt at AA+ instead of AAA which led us to lower our U.S.

At both March 31, 2024 and December 31, 2023, 7% of our portfolio was allocated to Group I securities and 93% to Group II securities.

Our recurring investment income generated a pretax book yield of 3.7% for the first quarter 2024, compared to 3.0% for the same period in 2023.

The increase from prior year primarily reflected investing new cash from operations, and proceeds from maturing bonds, in higher coupon rate securities.

Our investment portfolio produced a fully taxable equivalent (FTE) total return of 0.8% and 2.3% for the first quarter 2024 and 2023, respectively.

Our fixed-income and common stock portfolios had FTE total returns

of 0.3% and 9.9%, respectively, for the first quarter 2024, compared to 2.0% and 7.3%, respectively, last year.

The decrease in the fixed-income portfolio FTE total return, compared to last year, primarily reflected movements in Treasury yields year-over-year.

The increase in the common stock portfolio total return reflected general market conditions in first quarter 2024.

At March 31, 2024, the fixed-income portfolio had a weighted average credit quality of AA- and a duration of 3.2 years, compared to AA and 3.0 years at March 31, 2023 and AA- and 3.0 years at December 31, 2023.

Our decrease in weighted average credit quality compared to March 31, 2023, was mainly due to a second major credit rating agency downgrading U.S.

Treasury debt to AA+ from AAA during the third quarter 2023, which led us to lower our U.S.

Treasury positions to AA+.

During first quarter 2024, we took advantage of higher interest rates to increase the portfolio duration.

At March 31, 2024, we continued to maintain a relatively conservative investment portfolio with a greater allocation to cash and treasuries and relatively shorter interest rate risk.

We believe that this portfolio allocation, coupled with a lack of maturities of our outstanding debt until 2027, positions us well to benefit from a higher interest rate environment.

We also believe that we are in a very strong position to face the current dynamic operating and investment marketplaces as we move into the second quarter of 2024.

FINANCIAL CONDITION

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As primarily an auto insurer, our claims liabilities generally have a short-term duration.

Operations generated positive cash flows of $8.2 billion and $5.9 billion for the nine months ended September 30, 2023 and 2022, respectively.

The increase in operating cash flow for the first nine months of 2023 compared to 2022 is primarily attributable to collecting more premiums in 2023 relative to paying losses, mostly driven by rate increases and volume growth, partially offset by higher loss severity trends.

Operations generated positive cash flows of $4.2 billion and $2.4 billion for the three months ended March 31, 2024 and 2023, respectively.

The increase in operating cash flow for the first three months of 2024 compared to 2023 is primarily attributable to collecting more premiums in 2024 relative to paying losses.

The increase in premiums collected were mostly driven by rate increases and policies in force growth.

While loss payments also increased during the first three months of 2024, primarily due to higher loss severity trends, the increase in loss payments was not as substantial as the increase in premiums.

We believe cash flows will remain positive in the reasonably foreseeable future and do not expect we will have a need to raise capital to support our operations in that timeframe, although changes in market or regulatory conditions affecting the insurance industry, or other unforeseen events, may necessitate otherwise.

As of September 30, 2023, we held $36.1 billion in short-term investments and U.S.

As of March 31, 2024, we held $39.9 billion in short-term investments and U.S.

Treasury securities, which represented about 58% of our total portfolio.

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Securities and Exchange Commission for the year ended December 31, 2023, for a discussion of certain matters that may affect our portfolio and capital position.

Our total capital (debt plus shareholders’ equity) was $24.3 billion, based on book value, at September 30, 2023, compared to $21.2 billion at September 30, 2022, and $22.3 billion at December 31, 2022.

The increase from December reflected the comprehensive income recognized during the first nine months of 2023, primarily driven by recurring investment income reflecting continued increased interest rates, our underwriting profitability, and the issuance in May 2023 of $500.0 million of 4.95% Senior Notes due 2033.

Our debt-to-total capital ratio was 28.4% at September 30, 2023, 30.2% at September 30, 2022, and 28.7% at December 31, 2022.

Our total capital (debt plus shareholders’ equity) was $28.7 billion, based on book value, at March 31, 2024, compared to $23.3 billion at March 31, 2023, and $27.2 billion at December 31, 2023.

The increase from December primarily reflected the comprehensive income recognized during the first three months of 2024, mainly driven by our underwriting profitability, partially offset by the redemption of all of the outstanding Serial Preferred Shares, Series B.

During the first quarter 2024, we redeemed all of the outstanding Serial Preferred Shares,

Series B, at the stated amount of $1,000 per share, for an aggregate payout of $507.8 million, including accrued and unpaid dividends to, but excluding February 22, 2024, which was the redemption date.

Our debt-to-total capital ratio was 24.0% at March 31, 2024, 27.5% at March 31, 2023, and 25.4% at December 31, 2023.

While our financial policies include a goal of maintaining debt below 30% of total capital at book value, we recognize that various factors, including rising interest rates, widening credit spreads, declines in the equity markets, or erosion in operating results, may result in that ratio exceeding 30% at times.

In such a situation, as we did during 2022, we may choose to remain above 30% for some time, dependent upon market conditions and the capital needs of our operating businesses.

In such a situation, we may choose to remain above 30% for some time, dependent upon market conditions and the capital needs of our operating businesses.

We will continue to monitor this ratio, market conditions, and our capital needs going forward.

None of the covenants on our outstanding debt securities include rating or credit triggers that would require an adjustment of interest rates or an acceleration of principal payments in the event that our debt securities are downgraded by a rating agency.

During the second quarter 2023, we amended the unsecured discretionary line of credit (the Line of Credit) with PNC Bank, National Association, and raised the maximum principal amount to $300 million from the previous amount of $250 million.

In April 2024, we renewed the unsecured discretionary line of credit (the Line of Credit) with PNC Bank, National Association, in the maximum principal amount of $300 million.

We did not engage in short-term borrowings, including any borrowings under our Line of Credit, to fund our operations or for liquidity purposes during the reported periods.

During the first nine months of 2023, we returned capital to shareholders primarily through common share dividends and common share repurchases.

Our Board of Directors declared a $0.10 per common share dividend in each of the first three quarters of 2023.

These dividends, which were each $58.5 million in the aggregate, were paid in April 2023, July 2023, and October 2023.

During the first three months of 2024, we returned capital to shareholders primarily through common share dividends and common share repurchases.

In March 2024, our Board of Directors declared a $0.10 per common share dividend, or $58.6 million in the aggregate, that was paid in April 2024.

In January 2024, we also paid common share dividends declared in the fourth quarter 2023, in the aggregate amount of $497.9 million, or $0.85 per share (see Note 9 – Dividends for further discussion).

In addition to the common share dividends, in March 2023, June 2023, and September 2023, we paid Series B Preferred Share dividends in the aggregate amount of $13.4 million, $9.5 million, and $10.3 million, respectively.

Beginning March 15, 2023, the annual dividend rate for the Series B Preferred Shares switched to a floating rate equal to the three-month London Interbank Offered Rate (LIBOR) plus a spread of 2.539% applied to the stated amount per share.

During the floating rate period, dividends on the Series B Preferred Shares are payable quarterly, if and when declared by the Board of Directors.

We, as calculation agent under our Series B Preferred Shares, determined that the reference rate for the Series B Preferred Shares, for any determination date after June 30, 2023, shall be the sum of (i) 3-Month CME Term Secured Overnight Financing Rate (SOFR) plus (ii) a tenor spread adjustment of 0.26161%, and (iii) a spread of 2.539%.

The new reference rate became effective for the dividend period determination date commencing September 15, 2023.

The reference rate was determined in accordance with the successor base rate provisions of the Series B Preferred Shares and the Adjustable Interest Rate (LIBOR) Act and the regulation issued by the Board of Governors of the Federal Reserve System on December 16, 2022, implementing the LIBOR Act.

Consistent with our financial policies, we repurchase common shares to neutralize dilution from equity-based compensation granted during the year and opportunistically when we believe our shares are trading below our determination of long-term fair value.

During the first nine months of 2023, we repurchased 0.6 million common shares, at a total cost of $79.8 million, including 0.3 million shares in the third quarter 2023, both in the open market and to satisfy tax withholding obligations in connection with the vesting of equity awards under our equity compensation plans.

During the first three months of 2024, we repurchased 0.2 million common shares, at a total cost of $37.1 million, to satisfy tax withholding obligations in connection with the vesting of

equity awards under our equity compensation plans.

We will continue to make decisions on returning capital to shareholders based on the strength of our overall capital position, the capital strength of our subsidiaries, and potential capital needs to expand our business operations.

At March 31, 2024, we had $3.2 billion in a consolidated, non-insurance subsidiary of the holding company that can be used to fund corporate obligations and provide additional capital to the insurance subsidiaries to fund potential future growth.

As of March 31, 2024, our estimated consolidated statutory surplus was $24.6 billion.

During the first three months of 2024, our contractual obligations and critical accounting policies have not changed materially from those discussed in our 2023 Annual Report to Shareholders.

There have not been any material changes in off-balance-sheet leverage, which includes purchase obligations and catastrophe excess of loss reinsurance contracts, from those disclosed in our 2023 Annual Report to Shareholders.

We seek to deploy capital in a prudent manner and use multiple data sources and modeling tools to estimate the frequency, severity, and correlation of identified exposures, including, but not limited to, catastrophic and other insured losses, natural disasters, and other significant business interruptions, to estimate our potential capital needs.

Based upon our capital planning and forecasting efforts, we believe we have sufficient capital resources and cash flows from operations to support our current business, scheduled principal and interest payments on our debt, anticipated quarterly dividends on our common shares and dividends on the Series B Preferred Shares, our contractual obligations, and other expected capital requirements for the foreseeable future.

At September 30, 2023, we had $4.1 billion in a consolidated, non-insurance subsidiary of the holding company that can be used to fund corporate obligations and provide additional capital to the insurance

subsidiaries to fund potential future growth.

As of September 30, 2023, our estimated consolidated statutory surplus was $20.2 billion.

During the first nine months of 2023, our contractual obligations and critical accounting policies have not changed materially from those discussed in our 2022 Annual Report to Shareholders.

During the second quarter 2023, we renewed our catastrophe excess of loss per occurrence reinsurance contract, which increased our noncancellable purchase obligation commitments about $139.5 million, bringing our total commitments related to the excess of loss contracts to $252.6 million at September 30, 2023.

There have not been any other material changes in off-balance-sheet leverage, which includes purchase obligations and catastrophe excess of loss reinsurance contracts, from those disclosed in our 2022 Annual Report to Shareholders.

In May 2023, we decided to raise additional capital to take advantage of attractive terms in the market and to provide additional financial flexibility, and we may decide to do so in the future.

We have an effective shelf registration with the U.S.

Based upon our capital planning and forecasting efforts, we believe we have sufficient capital resources and cash flows from operations to support our current business, scheduled principal and interest payments on our debt, anticipated quarterly dividends on our common shares, our contractual obligations, and other expected capital requirements for the foreseeable future.

Nevertheless, we may decide to raise additional capital to take advantage of attractive terms in the market and provide additional financial flexibility.

We currently have an effective shelf registration with the U.S.

Securities and Exchange Commission so that we may periodically offer and sell an indeterminate aggregate amount of senior or subordinated debt securities, preferred stock, depository shares, common stock, purchase contracts, warrants, and units.

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The following table shows the composition of our companywide net premiums written, by segment, for the respective periods:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

Personal Lines

Agency 34 % 34 %

Direct 45 43 42 41

Total Personal Lines 1

Commercial Lines 20 21

Property 5 5 5 5

operations 100 % 100 % 100 % 100 %

1 Personal auto products accounted for 94% of the total Personal Lines segment net premiums written during the three and nine months ended September 30, 2023, and 93% for the three and nine months ended September 30, 2022;

Total underwriting operations 100 % 100 %

1 Personal auto products accounted for 96% and 95% of the total Personal Lines segment net premiums written during the three months ended March 31, 2024 and 2023, respectively;

our special lines products accounted for the balance.

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• Robinsons - homeowners who bundle auto and home.

While our personal auto policies are primarily written for 6-month terms, we write 12-month auto policies in our Platinum agencies to promote bundled auto and home

At September 30, 2023 and 2022, 14% of our Agency auto policies in force were 12-month policies.

To the extent our Agency application mix of annual policies grows, the shift in policy term could increase our written premium mix by channel as 12-month policies have about twice the amount of net premiums written compared to 6-month policies.

While our personal auto policies primarily have 6-month terms, we write 12-month auto policies in our Platinum agencies to promote bundled auto and home growth.

At March 31, 2024 and 2023, 14% of our Agency auto policies in force were 12-month policies.

To the extent our Agency application mix of annual policies grows, the shift in policy term could increase our written premium mix by channel as 12-month policies have about twice the amount

of net premiums written compared to 6-month policies.

Our special lines products are written for 12-month terms.

Our Commercial Lines business writes auto-related liability and physical damage insurance, business-related general liability and property insurance predominately for small businesses, and workers’ compensation insurance primarily for the transportation industry.

Our Commercial Lines business operates in the following five traditional business market targets (BMT):

• business auto;

• for-hire transportation;

• contractor;

• for-hire specialty;

Within Commercial Lines, we refer to these BMTs as our core commercial auto business.

In addition to the core commercial auto business, Commercial Lines writes TNC, Progressive Fleet & Specialty (formerly referred to as Protective Insurance) and BOP products.

At March 31, 2024, about 90% of Commercial Lines policies in force had 12-month terms.

The majority of our Commercial Lines business is written through the independent agency channel although we continue to focus on growing our direct business.

To serve our direct channel customers, we continue to expand our product offerings, including adding states where we offer our business owners policy (BOP) product, as well as adding these product offerings to our digital platform that serves direct small business consumers (BusinessQuote Explorer ® ).

The direct commercial auto business, excluding our transportation network company (TNC) business, BOP, and Protective Insurance Corporation and subsidiaries (Protective Insurance) products, represented 10% of our commercial auto premiums written for the nine months ended September 30, 2023 and 2022.

We write about 90% of Commercial Lines policies for 12-month terms.

To serve our direct channel customers, we continue to expand our product offerings, including adding states where we offer our BOP product, as well as adding these product offerings to our digital platform that serves direct small business consumers (BusinessQuote Explorer ® ).

Our core commercial auto business written through the direct channel represented about 11% of our total core commercial auto premiums written for the three months ended March 31, 2024 and 2023.

Our Property business writes residential property insurance for homeowners, other property owners, renters, and umbrella insurance.

We write the majority of our Property business through the independent agency channel.

We continue to expand the direct distribution of our Property product offerings, and, for both the nine months ended September 30, 2023 and 2022, nearly a quarter of our Property business premiums were written in the direct channel.

All of our Property policies are written for 12-month terms.

About three-fourths of our Property business is generated through the independent agency channel with the balance in the direct channel.

All of our Property policies have 12-months terms.

Profitability

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For the respective periods, our underwriting profitability results were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Profit (Loss) Underwriting

Three Months Ended March 31,

Profit (Loss) Underwriting

Profit (Loss)

($ in millions) $ Margin $ Margin $ Margin $ Margin

($ in millions) $ Margin $ Margin

Personal Lines

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Commercial Lines 209.0 8.2 37.2 1.6

74.6 11.8 (141.0) (25.1) (164.9) (8.9) (289.6) (17.1)

Property 46.9 6.6 (32.7) (5.5)

Other indemnity 1

(3.3) NM (2.1) NM (6.7) NM (9.3) NM

(0.3) NM (3.4) NM

Total underwriting operations $ 2,249.9 13.9 % $ 141.6 1.0 %

1 For the three and nine months ended September 30, 2023, pretax profit (loss) includes $2.9 million and $10.7 million, respectively, of amortization expense associated with acquisition-related intangible assets attributable to our Property segment, compared to $5.0 million and $24.1 million for the respective periods last year.

The year-over-year decrease in amortization expense reflects intangible assets that were fully amortized during the first and second quarter 2023, and the first quarter 2022.

1 Underwriting margins for our other indemnity businesses are not meaningful (NM) due to the low level of premiums earned by, and the variability of loss costs in, such businesses.

For the third quarter 2023, the higher pretax underwriting profit primarily reflected 3.9 fewer points of catastrophe losses and a 2.5 point reduction in our companywide underwriting expenses predominately due to a reduction in advertising expenses, compared to the third quarter 2022.

For the year-to-date period ended September 30, 2023, our profitability decreased from the same period last year

primarily due to the impact from unfavorable prior accident years reserve development, in part, offset by lower underwriting expenses.

Several factors contributed to the significant increase in underwriting profit for the first quarter 2024, compared to the first quarter 2023.

As a result of the rate increases we took throughout 2023, our personal and core commercial auto average written premium per policy were up 14% and 10%, respectively, and Property was up 2% year over year.

During the first quarter 2024, we recognized favorable prior accident years development, compared to significant unfavorable development in the first quarter last year, which accounted for 4.7 points on a quarter-over-prior-year quarter basis.

Lastly, our companywide expense ratio was 2.3 points lower in the first quarter 2024, compared to the same period last year, in large part due to a 7% decrease in advertising spend.

We are increasing our media spend to maximize growth and will continue to do so as long as we remain on track to achieve our target profitability.

See the Losses and Loss Adjustment Expenses (LAE) section below for further discussion of our frequency and severity trends, reserve development, and catastrophe losses incurred during the periods.

Further underwriting results for our Personal Lines business, including results by distribution channel, the Commercial Lines business, the Property business, and our underwriting operations in total, were as follows:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

Underwriting Performance 1

2023 2022 Change 2023 2022 Change

2024 2023 Change

Personal Lines – Agency

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Underwriting expense ratio 28.6 30.1 (1.5)

29.4 27.9 1.5 29.0 27.2 1.8

Combined ratio 93.4 105.5 (12.1)

88.2 125.1 (36.9) 108.9 117.1 (8.2)

Total Underwriting Operations

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1 Ratios are expressed as a percentage of net premiums earned.

The portion of fees and other revenues related to our loss adjustment activities are netted against loss adjustment expenses and the portion of fees and other revenues related to our underwriting operations are netted against underwriting expenses in the ratio calculations.

2 Included in the three and nine months ended September 30, 2023, are 0.5 points and 0.6 points, respectively, of amortization expense on acquisition-related intangible assets attributable to our Property segment, and 0.9 points and 1.4 points for the respective periods last year.

Fees and other revenues are netted against either loss adjustment expenses or underwriting expenses in the ratio calculations, based on the underlying activity that generated the revenue.

2 The accident year ratios include only the losses that occurred during the period noted.

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Losses and Loss Adjustment Expenses (LAE)

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

(millions) 2024 2023

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Loss reserves are estimates of future costs and our reserves are adjusted as underlying assumptions change and information develops.

Our total loss and LAE ratio decreased 4.3 points for the third quarter 2023 and increased 1.8 points for the nine months ended September 30, 2023, compared to the same periods last year.

The decrease in the third quarter 2023, primarily reflects lower catastrophe losses and higher premium per policy, partially offset by higher severity and unfavorable current accident years reserve development.

The year-to-date increase through the third quarter 2023, was primarily driven by increased severity and unfavorable prior accident years reserve development, partially offset by the higher premium per policy due to rate increases.

On an accident year basis, our third quarter 2023 loss and LAE ratio was 5.2 points lower than the third quarter 2022, and 0.8 points lower on a year-to-date basis.

Our total loss and LAE ratio decreased 10.6 points for the first quarter 2024, compared to the same period last year, primarily due to a decrease in loss frequency, higher premium per policy, and favorable prior accident years reserve development in the first quarter 2024, compared to unfavorable development in the first quarter last year, partially offset by higher loss severity as discussed below.

On an accident year basis, our first quarter 2024 loss and LAE ratio was 5.9 points lower than the first quarter 2023.

The following table shows our consolidated catastrophe losses and related combined ratio point impact, excluding loss adjustment expenses, incurred during the periods:

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

Three Months Ended March 31,

($ in millions) $ Point 1

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1 Represents catastrophe losses incurred during the period, including the impact of reinsurance, as a percent of net premiums earned for each segment.

In the three and nine months ended September 30, 2023, we were affected by 25 and 68 catastrophic weather events, respectively, compared to 16 and 50 events in the same periods last year.

Although there were more storms during 2023, the severity of the 2022 storms were greater, primarily due to the impact of Hurricane Ian during the third quarter of 2022.

During the third quarter 2023, our catastrophe losses reflected severe weather events throughout the United States, with Texas, Minnesota, Colorado, Michigan, and Florida contributing about 55% of the losses, although 39 states and the District of Columbia were affected for the quarter and 46 states and the District of Columbia for the first nine months of 2023.

We have responded, and plan to continue to respond, promptly to catastrophic events when they occur in order to provide exemplary claims service to our customers.

Changes in our estimate of our ultimate losses on current catastrophes along with potential future catastrophes could have a material impact on our financial condition, cash flows, or results of operations.

In the three months ended March 31, 2024, our catastrophe losses reflected severe weather events throughout the United States, with five states (Texas, Missouri, Florida, Oregon, and California) contributing just over half of the losses.

We have responded, and plan to continue to respond, promptly to catastrophic events when they occur in order to provide high-quality claims service to our customers.

Changes in our estimate of our ultimate losses on catastrophes currently reserved, along with potential future catastrophes, could have a material impact on our financial condition, cash flows, or results of operations.

We reinsure various risks including, but not limited to, catastrophic losses.

have catastrophe-specific reinsurance for our Personal Lines or commercial auto businesses, but we reinsure portions of our Property business.

We do not have catastrophe-specific reinsurance for our Personal Lines or commercial auto businesses, but we reinsure portions of our Property business.

The Property business reinsurance programs include catastrophe occurrence excess of loss contracts and aggregate excess of loss contracts.

We also purchase non-weather-related catastrophe reinsurance on our Protective Insurance workers’ compensation insurance.

We also purchase excess of loss reinsurance on our workers’ compensation insurance and our higher-limit commercial auto liability product offered by our Progressive Fleet & Specialty business.

We evaluate our reinsurance programs during the renewal process, if not more frequently, to ensure our programs continue to effectively address the company’s risk tolerance.

During the second quarter 2023, we entered into new reinsurance contracts under our per occurrence excess of loss program for our Property business.

The reinsurance program has retention thresholds for losses and allocated loss adjustment expense (ALAE) from a single catastrophic event of $200 million, which is unchanged from the retention threshold on prior contracts.

In general, our program includes coverage for $2.0 billion in damages with additional substantial coverage for a second or third hurricane.

When including the Florida Hurricane

Catastrophe Fund and the Reinsurance Assistance to Policyholder programs that are specific to Florida, this coverage reaches $2.4 billion.

While the cost of our reinsurance program increased considerably over the prior year due to market conditions, we were able to successfully place 100% of the requested coverage with our reinsurers.

During 2023, we also entered into new aggregate excess of loss reinsurance contracts that have multiple layers of coverage, with the first retention layer threshold ranging from $500 million to $575 million, excluding named tropical storms and hurricanes, and the second retention layer threshold of $600 million, including named tropical storms and hurricanes.

For 2024, we entered into a new catastrophe aggregate excess of loss reinsurance contract that has multiple layers of coverage, with the first retention layer

threshold ranging from $450 million to $475 million, excluding named tropical storms and hurricanes, and the second retention layer threshold of $525 million, including named tropical storms and hurricanes.

The first and second layers provide coverage up to $85 million and $100 million, respectively.

During the third quarter 2023, we exceeded the first layer annual retention thresholds and recorded a reinsurance recoverable of $23.0 million, under our 2023 catastrophe aggregate excess of loss program.

While the total coverage limit and per-event retention will evolve to fit the growth of our business, we expect to remain a consistent purchaser of reinsurance coverage.

See Item 1 – Description of Business-Reinsurance in our Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of our various reinsurance programs.

While the cost of our reinsurance, in the markets in which we participate, increased for the coverages placed in the beginning of 2024, compared to the prior years, and the availability of reinsurance is subject to many forces outside of our control, we did not, and do not expect to in the near term, experience a significant lack of availability of any of the types of reinsurance that we typically purchase.

See Item 1A, Risk Factors in our 2023 Form 10-K filed with the U.S.

Securities and Exchange Commission, for the year ended December 31, 2023, for a discussion of certain risks related to catastrophe events and the potential impact of climate change.

See Item 1, Business – Reinsurance on Form 10-K for a discussion of our various reinsurance programs.

The following discussion of our severity and frequency trends in our personal auto business excludes comprehensive coverage because of its inherent volatility, as it is typically linked to catastrophic losses generally resulting from adverse weather.

For our commercial auto products, the reported frequency and severity trends include comprehensive coverage.

For our core commercial

auto products, the reported frequency and severity trends include comprehensive coverage.

Comprehensive coverage insures against damage to a customer’s vehicle due to various causes other than collision, such as windstorm, hail, theft, falling objects, and glass breakage.

Total personal auto incurred severity (i.e., average cost per claim, including both paid losses and the change in case reserves) on a calendar-year basis, over the prior-year periods was as follows:

Total personal auto incurred severity (i.e., average cost per claim, including both paid losses and the change in case reserves) on a calendar-year basis, over the prior-year period, was as follows:

Growth Over Prior Year

Quarter Year-to-date

Coverage Type 2024

3 unchanged sentences

Property damage 2

The year-over-year increase in severity, in part, reflects the impact of inflation, which continues to increase the valuation of used vehicles and total loss, repair, and medical costs.

To address inherent seasonality trends and lessen the effects of month-to-month variability in the commercial auto products, we use a trailing 12-month period in assessing severity.

In the third quarter 2023, our commercial auto products’ incurred severity, excluding our TNC, BOP, and Protective Insurance products, increased 5%, compared to the same period last year.

Since the loss patterns in the TNC, BOP, and Protective Insurance businesses are not indicative of our other commercial auto products, disclosing severity and frequency trends excluding those businesses is more representative of our overall experience for the majority of our commercial auto products.

In the first quarter 2024, our core commercial auto products’ incurred severity increased 4%, compared to the same period last year.

Since the loss patterns in the non-core commercial auto businesses are not indicative of our other commercial auto products, disclosing severity and frequency trends excluding those businesses is more representative of our overall experience for the majority of our commercial products.

It is a challenge to estimate future severity, but we continue to monitor changes in the underlying costs, such as general inflation, used car prices, vehicle repair costs, medical costs, health care reform, court decisions, and jury verdicts, along with regulatory changes and other factors that may affect severity.

Our personal auto incurred frequency, on a calendar-year basis, over the prior-year periods, was as follows:

Our personal auto incurred frequency, on a calendar-year basis, over the prior-year period, was as follows:

Growth Over Prior Year

Quarter Year-to-date

Coverage Type 2024

3 unchanged sentences

Property damage (8)

On a trailing 12-month basis, our commercial auto products’ incurred frequency, excluding our TNC, BOP, and Protective Insurance products, increased 4% during the third quarter 2023, compared to the same period last year.

The year-over-year decrease in frequency, in part, reflects underwriting actions taken to reduce new business and a shift in the mix of business to a more preferred tier of customers.

On a trailing 12-month basis, our core commercial auto products’ incurred frequency was flat during the first quarter 2024, compared to the same period last year.

We closely monitor the changes in frequency, but the degree or direction of near-term frequency change is not something that we are able to predict with any certainty.

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The table below presents the actuarial adjustments implemented and the loss reserve development experienced on a companywide basis in the following periods:

Three Months Ended September 30, Nine Months Ended September 30,

Three Months Ended March 31,

($ in millions) 2024 2023

11 unchanged sentences

Total development consists of both actuarial adjustments and “all other development” on prior accident years.

We use “accident year” generically to represent the year in which a loss occurred.

The actuarial adjustments represent the net changes made by our actuarial staff to both current and prior accident year reserves based on regularly scheduled reviews.

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Although we believe the development from both the actuarial adjustments and “all other development” generally results from the same factors, we are unable to quantify the portion of the reserve development that might be applicable to any one or more of those underlying factors.

About 75% of the total unfavorable development for the first nine months of 2023 was in our personal auto products.

About 60% of the personal auto unfavorable development was attributable to higher than anticipated severity in auto property and physical damage coverages, while the remaining unfavorable development was primarily due to increased loss costs in Florida injury and medical coverages and, to a lesser extent, higher than anticipated late reported injury claims.

This was partially offset by lower loss adjustment expenses than anticipated.

While it is difficult to quantify the direct impact of recent insurance legislation in Florida, Florida contributed approximately half of the total prior accident year reserve development across all personal auto product lines for the nine months ended September 30, 2023.

We continue to believe that the Florida tort reform will likely have a positive impact on the insurance industry in Florida over the long term.

We will continue to monitor the ever-changing legislative and regulatory environment and will respond as necessary.

Coverages related to fixing vehicles have seen unprecedented increases in severity trends on previously closed claims, relative to comparable periods last year, and continued to be the major driver of prior year unfavorable development countrywide.

The contributors to the increased trends came from a variety of sources, including longer vehicle repair times, longer rental times, and higher parts prices and labor rates.

Fixing vehicle coverages are short-tailed, which explains why about 80% of the total year-to-date prior year development is from the 2022 accident year.

Excluding Florida, accident years prior to 2022 have developed favorably.

Our current year actuarial adjustments are also primarily due to fixing vehicles.

Since fixing vehicle coverages are short-tailed, most of the claims that are affected by emerging trends occurred in the later part of 2022.

Accordingly, the steeper trends in fixing vehicle coverages increasingly affected claims that occurred in the current accident year.

Florida litigation has been a relatively small part of current year actuarial adjustments since the increase in litigation largely affected claims that occurred before March 2023.

During the third quarter 2023, we saw current year actuarial adjustment severity moderate, resulting in slightly favorable calendar-year development during the quarter.

We continue to monitor loss trends across all states and coverages and will remain vigilant to adjust reserves to reflect those trends.

Our Commercial Lines business represented about 25% of the unfavorable development for the first nine months of 2023, mainly due to higher than anticipated severity and frequency of late reported injury claims, with about half of the unfavorable development attributable to our TNC business.

The trend in loss costs has been steep, as costs for medical care, vehicle repair labor, and parts continue to climb.

Although we have recently seen the inflationary environmental trends moderate, we believe the impact of these trends will continue to affect loss costs for the foreseeable future.

Our objective is to establish case and IBNR reserves that are adequate to cover all loss costs, while incurring minimal variation from the date the reserves are initially established until losses are fully developed.

Our ability to meet this objective is impacted by many factors.

Changes in case law, particularly in case law related to personal injury protection, can make it difficult to estimate reserves timely and with minimal variation.

See Note 6 – Loss and Loss Adjustment Expense Reserves , for a more detailed discussion of our prior accident years reserve development and Critical Accounting Policies in our 2022 Annual Report to Shareholders for discussion of the application of estimates and assumptions in the establishment of our loss reserves.

Changes in case law, particularly related to personal injury protection, can make it difficult to estimate reserves timely and with minimal variation.

As reflected in the table above, we experienced slightly favorable prior accident years development during the first quarter 2024, compared to unfavorable prior accident years development for the same period last year.

The favorable development during the first quarter 2024 was, in part, due to lower than anticipated frequency in Florida following tort reform that passed in the first quarter 2023.

This was partially offset by higher than anticipated severity in core commercial auto for

California and New York.

The 2023 unfavorable first quarter development in Personal Lines was primarily driven by higher than anticipated severity and increases in incurred losses on previously closed claims and the impact of the legislation enacted in March 2023 in Florida that resulted in a significant number of lawsuits being filed prior to its effective date.

In Commercial Lines, the unfavorable development for first quarter 2023 was mainly due to late reported claims from prior accident periods and changes in reserve estimates (e.g., aging of the reserves, changes to estimates by adjusters, and inflation factors) in our core commercial auto products.

See Note 6 – Loss and Loss Adjustment Expense Reserve s, for a more detailed discussion of our prior accident years reserve development and Critical Accounting Policies in our 2023 Annual Report to Shareholders for discussion of the application of estimates and assumptions in the establishment of our loss reserves.

Underwriting Expenses

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The underwriting expense ratio is our underwriting expenses, net of certain fees and other revenues, expressed as a percentage of net premiums earned.

For the third quarter 2023, our underwriting expense ratio was down 2.5 points, compared to the same period last year, and 1.1 points on a year-to-date basis, primarily reflecting growth in net premiums earned and decreases in our advertising spend.

In total, our companywide advertising spend decreased 52%, compared to the third quarter 2022, and 19% on a year-to-date basis.

The reduction in advertising spend in concert with premium growth reduced the contribution of advertising to our combined ratio by 2.5 points and 1.4 points for the three and nine months ended September 30, 2023, respectively, compared to the same periods last year.

As we continue to focus on profitability, we plan to continue to manage our expenses and discretionary spend to further our goal of achieving our target profitability.

For the first quarter 2024, our underwriting expense ratio was down 2.3 points, compared to the same period last year, due to growth in net premiums earned and decreases in our advertising spend.

In total, our companywide advertising spend decreased 7%, or 1.2 points, compared to the first quarter 2023.

As previously discussed, we are increasing our media spend to maximize growth and will continue to do so as long as we remain on track to achieve our target profitability and generate sales at a cost below the maximum amount we are willing to spend to acquire a new customer.

To analyze underwriting expenses, we also review our non-acquisition expense ratio (NAER), which excludes costs related to policy acquisition, including advertising and agency commissions, from our underwriting expense ratio.

During the third quarter 2023, our NAER was flat in our Personal Lines business, and increased 0.1 points and 0.6 points in our Commercial Lines and Property businesses, respectively, compared to the same period last year.

On a year-to-date basis, our NAER increased 0.2 points, 0.8 points, and 0.9 points, in our Personal Lines, Commercial Lines, and Property businesses, respectively, compared to the same period last year.

By excluding acquisition costs from our underwriting expense ratio, we are able to understand costs other than those necessary to acquire new policies and grow the business.

During the first quarter 2024, our NAER decreased 0.6 points, 1.4 points, and 0.2 points in our Personal Lines, Commercial Lines, and Property businesses, respectively, compared to the same period last year, as a result of general operational expense discipline.

For our underwriting operations, we analyze growth in terms of both premiums and policies.

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Policies in force, our preferred measure of growth since it removes the variability due to rate changes or mix shifts, represents all policies for which coverage was in effect as of the end of the period specified.

Three Months Ended September 30, Nine Months Ended September 30,

($ in millions) 2023 2022 % Growth 2023 2022 % Growth

Three Months Ended March 31,

($ in millions) 2024 2023 % Growth

Net Premiums Written

6 unchanged sentences

Other indemnity 1

0.1 0.4 (75) 0.4 1.9 (79)

Total underwriting operations $ 18,962.2 $ 16,109.7 18 %

7 unchanged sentences

Other indemnity 1

0.1 0.7 (86) 0.9 2.0 (55)

Total underwriting operations $ 16,148.6 $ 13,533.1 19 %

1 Includes other underwriting business and run-off operations.

September 30,

(thousands) 2024 2023 % Growth

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Companywide total 30,833.7 28,789.5 7 %

1 Includes insurance for motorcycles, RVs, watercraft, and similar items.

1 Includes insurance for motorcycles, RVs, watercraft, snowmobiles, and similar items.

To analyze growth, we review new policies, rate levels, and the retention characteristics of our segments.

Although new policies are necessary to maintain a growing book of business, we recognize the importance of retaining our current customers as a critical component of our continued growth.

As shown in the following tables, we measure retention by policy life expectancy.

We review our customer retention for our personal auto products using both a trailing 3-month and a trailing 12-month period.

We believe changes in policy life expectancy using a trailing 12-month period measure is indicative of recent experience, mitigates the effects of month-to-month variability, and addresses seasonality.

Although using a trailing 3-month measure is sensitive to seasonality and can reflect more volatility, this measure is more responsive to current experience and generally can be an indicator of how our retention rates are moving.

Personal Lines

The following table shows our year-over-year changes for our Personal Lines business:

Growth Over Prior Year

Quarter Year-to-date

2023 2022 2023 2022

Growth Over Prior Year Quarter

New (7) % 70 %

Renewal 15 (2) 8 2

Written premium per policy - Auto 14 8

2 unchanged sentences

Trailing 12 months 20 (16)

In our Personal Lines business, while we experienced significant new application growth in the first half of 2023, in the third quarter new applications decreased as a result of targeted rate and non-rate actions, with the focus of achieving our calendar-year underwriting profitability goal.

The decrease in new applications during the third quarter was driven by our personal auto products, with decreases across all of our consumer segments except Robinsons, who experienced a low double digit increase.

On a year-to-date basis, all four consumer segments experienced positive new application growth.

Our special lines products experienced strong new application growth in both periods.

Personal auto policies in force grew between 5% and 15% across all consumer segments as of the third quarter 2023, compared to the same period last year.

During the third quarter 2023, on a countrywide basis, we implemented personal auto rate increases in 25 states.

On a year-to-date basis, we increased rates about 16%, in the aggregate, following rate increases of 11% during the first half of 2023 and 13% during 2022.

We believe that our prior-year rate increases had a negative impact on our 2022 renewal business applications and policy life expectancy,

and as competitors also raised rates, our retention started to lengthen as evidenced by the growth in our trailing 3- and 12-month policy life expectancy.

Our written premium per policy increased during the third quarter and first nine months of 2023, primarily due to the rate increases taken in 2022 and 2023, as previously discussed.

Our focus on achieving our target underwriting profitability takes precedence over growth.

We will continue to manage growth and profitability in accordance with our long-standing goal of growing as fast as we can, as long as we can provide high-quality customer service, at or below a companywide 96 combined ratio on a calendar-year basis.

During the third quarter 2023, we continued to take additional measures to achieve our target profit margin that included slowing new business growth through verification activities, bill plan offerings, and through continued general operational expense discipline.

In addition to potentially slowing growth, some of these actions could reduce our retention.

In our Personal Lines business, in the first quarter 2024 new business applications decreased, compared to the same period last year, as a result of targeted rate and non-rate actions taken throughout 2023 to achieve our calendar-year underwriting profitability goal.

Throughout the first quarter 2024, we continued to lift certain non-rate measures that were put in place to slow new business growth in 2023.

In the first quarter 2023, we believe that the significant growth in new applications in part reflected competitor rate increases and our increased media spend during the period.

The decrease in new applications during the first quarter 2024, was driven by our personal auto products, with decreases in our Sam and Diane consumer segments, partially offset with the Wrights up slightly and the Robinsons experiencing a near double digit increase, reflecting a continued shift in the mix of business to a more preferred consumer tier.

Our special lines products experienced solid new business application growth during the quarter, compared to the same period last year.

Personal auto policies in force in the first quarter 2024 grew between 4% and 13%, compared to the same period last year, across all consumer segments, primarily reflecting strong policy renewals, except Sams, who saw a low single digit decrease.

During the first quarter 2024, on a countrywide basis, we implemented personal auto rate increases in 13 states, which, in the aggregate, increased rates about 2%, following rate increases of 19% taken during 2023.

We continue to see the 2023 rate increases earn into the policies written contributing to our year-over-year increase in premiums.

We currently anticipate that any rate changes throughout 2024 will be of lesser magnitude than those taken in each of the prior two years, but we will continue to evaluate our rate need and adjust rates as we deem necessary.

Our written premium per policy increased during the first quarter 2024, primarily due to the rate increases taken in 2023, as previously discussed.

We will continue to manage growth and profitability in accordance with our long-standing goal of growing as fast as we can, as long as we can provide high-quality customer service, at or below a

companywide 96 combined ratio on a calendar-year basis.

While we continued to focus on profitability, during the first quarter 2024, we began taking measures that we believe will position ourselves to accelerate profitable growth during the year, including continuing to lift the non-rate actions we put in place during 2023 to slow new business growth and increasing our media spend.

We report our Agency and Direct business results separately as components of our Personal Lines segment to provide further understanding of our products by distribution channel.

The channel discussions below are focused on personal auto insurance since this product accounted for 94% of the Personal Lines segment net premiums written during both the third quarter and first nine months of 2023.

The channel discussions below are focused on personal auto insurance since this product accounted for 96% of the Personal Lines segment net premiums written during the first quarter 2024.

The Agency Business

Growth Over Prior Year

Quarter Year-to-date

2023 2022 2023 2022

Growth Over Prior Year Quarter

Applications - Auto

6 unchanged sentences

The Agency business includes business written by more than 40,000 independent insurance agencies that represent Progressive, as well as brokerages in New York and California.

Consistent with our plan to slow new business growth, during the third quarter 2023, 14 states and the District of Columbia generated new Agency auto application growth, including only one of our top 10 largest Agency states.

During the third quarter and first nine months of 2023, total Agency auto applications increased 5% and 8%, respectively, primarily due to growth in renewal applications for the quarter and new applications for the first nine months of 2023.

During the third quarter 2023, year-over-year new application growth was strong for the Robinsons and moderate for the Wrights, while both Sams and Dianes saw a significant decrease.

During the first nine months of 2023, each of our

consumer segments experienced a significant increase in new applications year over year, except Sams who saw a low double digit increase.

Policies in force grew by low double digit percentages in each consumer segment, except Dianes and Sams who saw single digit increases, compared to the same period last year.

During the third quarter 2023, on a year-over-year basis, we experienced decreases in Agency auto quote volume of 11% and rate of conversion (i.e., converting a quote to a sale) of 9%.

For the first nine months of 2023, quotes and the rate of conversion increased 6% and 23%, respectively, compared to the same period last year.

For the third quarter, each consumer segment, except Wrights, saw a decrease in quotes, while all consumer segments, except Robinsons, saw a decrease in conversion.

For the year-to-date period, only Dianes and Wrights saw increases in quote volume, while all consumer segments saw an increase in conversion.

Written premium per policy for new and renewal Agency auto business increased 2% and 14%, respectively, compared to the third quarter 2022, and 9% and 11%, respectively, for the first nine months of 2023 on a year-over-year basis.

During the first quarter 2024, while 16 states generated new Agency auto application growth, only one of our top 10 largest Agency states generated new application growth.

Total Agency auto applications increased 3%, driven by the growth in renewal applications for the first quarter 2024.

During the first quarter 2024, year-over-year new application growth was strong for Robinsons and moderate for Wrights, while both Sams and Dianes saw a significant decrease.

Policies in force grew in the teens for the Robinsons and Wrights and were relatively flat for Dianes, while Sams experienced a single digit decrease, compared to the same period last year.

During the first quarter 2024, on a year-over-year basis, Agency auto quote volume and the rate of conversion (i.e., converting a quote to a sale) decreased 4% and 10%, respectively, compared to the first quarter last year when quote volume and rate of conversion were up 14% and 49%, reflecting our competitiveness in the marketplace during the period.

For the first quarter 2024, each consumer segment, except Wrights, saw a decrease in quotes, while all consumer segments, except Robinsons, saw a decrease in conversion.

Written premium per policy for new and renewal Agency auto business increased 5% and 17%, respectively, compared to the first quarter 2023, primarily attributable to the rate increases previously discussed.

Our trailing 12-month policy life expectancy in the Agency auto business lengthened significantly during the first quarter 2024, following substantial declines during the same period last year, on a year-over-year basis.

This increase was driven by our efforts to slow growth during 2023 as well as competitor rate increases.

The tailwinds of these efforts also contributed to the increase in the trailing 3-month measure.

The Direct Business

Growth Over Prior Year

Quarter Year-to-date

2023 2022 2023 2022

Growth Over Prior Year Quarter

Applications - Auto

New (6) % 92 %

Renewal 20 (1) 11 3

Written premium per policy - Auto 13 7

2 unchanged sentences

Trailing 12 months 13 (14)

The Direct business includes business written directly by Progressive online, through our Progressive mobile app, and over the phone.

During the third quarter 2023, 10 states and the District of Columbia generated new auto application growth, including only one of our top 10 largest Direct states, which is consistent with our plans to slow new business growth.

During the third quarter and first nine months of 2023, total auto applications increased 11% and 15%, respectively, primarily due to growth in renewal applications for the quarter and both new and renewal applications for the first nine months of 2023.

During the quarter, each of our consumer segments experienced a significant decrease in new applications year over year, except Robinsons who experienced a low single digit increase.

On a year-to-date basis, each consumer segment experienced a significant increase in new applications from the prior year.

The Direct business includes business written directly by Progressive online, through our Progressive mobile app, or by phone.

During the first quarter 2024, 21 states, including only two of our top 10 largest Direct states, generated new auto application growth.

Total Direct auto applications increased 6%, driven by the growth in renewal applications for the first quarter 2024.

During the quarter, each of our consumer segments experienced a decrease in new applications year over year, except the Robinson segment, which experienced a percentage increase in the single digits.

Policies in force grew between 2% and 12% in each consumer segment, compared to the same period last year.

During the third quarter and first nine months of 2023, Direct auto quote volume decreased 31% and increased 8%, respectively, while conversion increased 12% and 17%, compared to the same periods last year.

All consumer segments saw a decrease in quotes during the quarter, with all consumer segments, except Sams, experiencing increased quote volume during the first nine months of 2023.

All consumer segments saw an increase in conversion for both the third quarter and first nine months of 2023.

The decrease we experienced in our quote volume during the third quarter 2023 primarily reflected decreased advertising spend, compared to the third quarter 2022, along with the other actions taken to slow growth to focus on profitability.

Written premium per policy for new and renewal Direct auto business increased 2% and 13%, respectively, compared to the third quarter 2022, and 5% and 10%, respectively, for the first nine months of 2023 on a year-over-year basis, primarily driven by rate increases.

During the first quarter 2024, Direct auto quote volume was flat, while conversion decreased 6%, compared to the same period last year, primarily reflecting the strong quote and conversion activity in the first quarter 2023, along with the other actions we took to slow growth through the remainder of 2023, as previously discussed.

In comparison to the first quarter 2024, in the first quarter 2023, quotes and conversion increased 73% and 13%, respectively, reflecting competitor rate increases and our increased advertising spend during the period, compared to the prior year first quarter.

All consumer segments saw an increase in quotes and a decrease in the rate of conversion during the first quarter 2024, except Wrights, who saw a low double digit decline in quotes and a single digit increase in conversion.

As we slowly increased advertising and continued to lift certain non-rate restrictions in 2024, we saw Direct auto new application growth begin to stabilize by the end of the quarter.

Written premium per policy for new and renewal Direct auto business increased 9% and 14%, respectively, in the first quarter 2024, compared to the same period last year,

primarily attributable to the rate increases previously discussed.

Our trailing 12-month policy life expectancy in the Direct auto business experienced a lengthening of retention during the first quarter 2024, following substantial declines during the same period last year, on a year-over-year basis.

The drivers of the change were similar to those in the Agency business, where we focused on growing more bundled, preferred market tier, consumers.

The decrease in the trailing 3-month policy life expectancy during the first quarter 2024 was primarily driven by the previously discussed rate increases taken during 2023.

Commercial Lines

Our Commercial Lines business operates in five traditional business markets, which include business auto, for-hire transportation, contractor, for-hire specialty, and tow markets, primarily written through the agency channel.

We also write TNC business, BOP insurance, and, through Protective Insurance, larger fleet and workers’ compensation insurance primarily for the transportation industry, along with trucking industry independent contractors, and affinity programs.

The following table and discussion focuses on our commercial auto product, excluding our TNC, BOP, and Protective Insurance products.

Year-over-year changes in our commercial auto product were as follows:

Growth Over Prior Year

Quarter Year-to-date

2023 2022 2023 2022

New 3 % (6) % 4 % (1) %

Renewal 2 10 5 13

The following table and discussion focuses on our core commercial auto products.

Year-over-year changes in our core commercial auto products were as follows:

Growth Over Prior Year Quarter

Written premium per policy 10 1

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Trailing 12 months

The increases in net premiums written in our Commercial Lines business reflected growth in all of our business market targets (BMTs), except our for-hire transportation BMT, which continued to be impacted by a slowdown in the rate of economic activity and challenging freight market conditions.

The most significant growth was in our business auto and contractor BMTs.

We believe the increase in our contractor BMT was influenced by construction, employment, and spending trends.

During the third quarter and first nine months of 2023, commercial auto new application growth was positive in each of our business market targets, except for the for-hire transportation market, as previously discussed.

During the third quarter and first nine months of 2023, quote volume increased 10% and 7%, respectively, while conversion decreased 6% and 3%, compared to the same periods last year.

During the third quarter 2023, we increased rates, in aggregate, about 4% in our commercial auto products and 12% on a year-to-date basis.

Written premium per policy for new commercial auto business decreased 1% and 4% for the third quarter and first nine months of 2023, respectively, compared to the same periods last year.

Shifts in the mix of business to lower premium products more than offset the rate increases we took in commercial auto on our new business.

Written premium per policy on renewal business increased 7% for the third quarter and 5% for the first nine months of 2023, compared to the prior year periods, reflecting rate increases.

Our policy life expectancy decreased in all business market targets.

We believe unfavorable trucking market conditions and the general weakening of the economy are driving increased shopping and causing motor carriers to exit the industry, having a negative effect on policy life expectancy.

The increases in net premiums written in our Commercial Lines business reflected growth in all of our BMTs, except our for-hire transportation BMT, which continued to be adversely impacted by challenging freight market conditions that have continued to cause a decline in the active number of motor carriers in this BMT.

The most significant growth was in our contractor and business auto BMTs, primarily driven by the aggregate core commercial auto rate increases of 17% taken during 2023.

During the first quarter 2024, core commercial auto new application growth was positive in each of our BMTs, except for the for-hire transportation and for-hire specialty BMTs.

During the first quarter 2024, quote volume increased about 5%, while conversion decreased about 5%, compared to the same period last year.

During the first quarter 2024, we increased rates, in aggregate, about 1% in our core commercial auto products.

While we currently do not anticipate significant rate changes throughout 2024, we still have about 10 points of rate to earn in during the rest of 2024 from rate revisions taken during 2023 and the first quarter 2024.

We will continue to evaluate our rate need and adjust rates as we deem necessary.

Written premium per policy for new and renewal core commercial auto business increased 4% and 14%, respectively, for the first quarter 2024, compared to the same period last year, primarily reflecting the previously discussed rate increases.

Our policy life expectancy decreased in all BMTs.

We believe rate and non-rate actions, as well as unfavorable trucking market conditions, drove increased shopping and

caused motor carriers to exit the industry, resulting in negative effects on policy life expectancy.

The following table shows our year-over-year changes for our Property business:

Growth Over Prior Year

Quarter Year-to-date

2023 2022 2023 2022

Growth Over Prior Year Quarter

New 31 % 12 %

Renewal 4 7 5 8

Written premium per policy 2 10

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Our Property business writes residential property insurance for homeowners, other property owners, and renters, and umbrella insurance in the agency and direct channels.

During the third quarter and first nine months of 2023, the increase in new applications experienced in our Property business was primarily due to underwriting changes made in an effort to promote growth in less volatile weather states.

Improving profitability and reducing concentration exposure continued to be the top priority for our Property business during the first nine months of 2023.

We have concentrated our growth in the Property business in markets that are less susceptible to catastrophes and have lower exposure to coastal and hail-prone states for all products excluding renters and umbrella.

New applications in these growth-oriented states were up about 30% in the third quarter and about 45% in the first nine months of

2023, compared to the same periods last year.

Improving profitability and reducing concentration exposure continued to be the top priority for our Property business during the first quarter 2024.

We continued to concentrate our growth in markets that are less susceptible to catastrophes and lower our exposure to coastal and hail-prone states for our homeowners products, which we define as our total Property business excluding renters and umbrella products.

Homeowners policies in force in the growth-oriented states increased about 20% in the first quarter 2024, compared to the same period last year.

In regions where our appetite to write new business is limited, we are continuing to prioritize Progressive auto bundles, as well as lower risk properties, such as new construction or homes with newer roofs.

New applications were down about 10% for the third quarter and 25% in the first nine months of 2023 in these more volatile weather states, compared to the prior periods.

In addition, to continue to rebalance our business, we began a non-renewal effort of up to 115,000 Property policies in Florida.

Following the required filings and notices, the first of these non-renewals will go into effect in the second quarter of 2024 and will continue on a rolling 12-month basis.

The increase in our written premium per policy, compared to the third quarter and first nine months of 2022, was primarily due to rate increases taken over the last 12 months and providing higher premium coverages to account for inflation.

During the third quarter 2023, we increased rates, in aggregate, about 2% in our Property segment and 9% on a year-to-date basis.

The written premium per policy increase was partially offset by a shift in the mix of business to a larger share of renters policies, which have lower written premium per policy, and less homeowners growth in volatile states that have higher average premiums.

Homeowners policies in force were down about 5% in the first quarter 2024 in the volatile weather states, compared to the same period last year.

In addition, to continue to rebalance our business, late in 2023 we began a non-renewal effort of up to 115,000 Property policies in Florida.

Following the required filings and notices, the first of these non-renewals will go into effect in the second quarter of 2024 and will continue over the following 12 months.

To try to ease this disruption to our customers and agents, we reached an agreement with an unaffiliated Florida insurer to offer replacement policies to these policyholders, subject to the insurer’s underwriting and financial guidelines and agent appointments where applicable.

The increase in our written premium per policy, during the first quarter 2024, compared to the same period last year, was primarily attributable to rate increases taken over the last 12 months and higher premium coverages reflecting increased property values.

During the first quarter 2024, we increased rates, in aggregate, about 6% in our Property segment.

These impacts on written premium per policy were partially offset by less homeowners growth in volatile states, which have higher average premiums.

We intend to continue to make targeted rate increases in states where we believe it is necessary to achieve our profitability targets.

At September 30, 2023, and December 31, 2022, we had net current income taxes payable of $246.1 million and $10.9 million, respectively, which were reported in accounts payable, accrued expenses, and other liabilities, compared to recoverable income taxes of $31.0 million at September 30, 2022, which were reported in other assets in our consolidated balance sheets.

This balance may fluctuate between an asset and a liability from period to period due to normal timing differences.

A deferred tax asset or liability is a tax benefit or expense, respectively, that is expected to be realized in a future tax return.

At September 30, 2023 and 2022, and December 31, 2022, we reported net federal deferred tax assets of $1.4 billion, $1.3 billion, and $1.1 billion, respectively.

We are required to assess our deferred tax assets for recoverability and, based on our analysis, determined that we did not need a valuation allowance on our gross deferred tax assets in each period.

Although realization of the gross deferred tax assets is not assured, management believes it is more likely than not that the gross deferred tax assets will be realized based on our expectation we will be able to fully utilize the deductions that are ultimately recognized for tax purposes.

We believe our deferred tax

assets related to net unrealized losses on fixed-maturity securities will be realized based on the existence of prior-year capital gains, current temporary differences related to unrealized gains in our equity portfolio, and other tax planning strategies.

Our effective tax rate for the three and nine months ended September 30, 2023, was 20.5% and 20.2%, respectively, compared to 12.9% and (1.6)% for the same periods last year.

The lower effective tax rates for the three and nine months ended September 30, 2022, were due in part to the

low amount of income (loss) before taxes during those periods, resulting in permanent tax differences having a greater impact on the effective rate.

The low effective tax rate for the nine months ended September 30, 2022, was also due to the goodwill impairment charge (see Note 12 – Goodwill and Intangible Assets for further discussion).

Consistent with prior years, we had no uncertain tax positions.

See Note 5 – Income Taxes for further information.

The policy life expectancy in our Property business lengthened during the first quarter 2024, compared to the prior year, primarily driven by less frequent shopping due to a slowdown in the housing market and a shift in the mix of business.

RESULTS OF OPERATIONS – INVESTMENTS

2 unchanged sentences

The fully taxable equivalent (FTE) total return includes recurring investment income, adjusted to a fully taxable amount for certain securities that receive preferential tax treatment (e.g., municipal securities), and total net realized, and changes in total net unrealized, gains (losses) on securities.

The following table summarizes investment results for the periods ended September 30:

Three Months Nine Months

2023 2022 2023 2022

The following table summarizes investment results for the periods ended March 31:

Pretax recurring investment book yield (annualized) 3.7 % 3.0 %

3 unchanged sentences

Total portfolio 0.8 2.3

The increase in the book yield for both periods, compared to last year, primarily reflected investing new cash from operations and proceeds from maturing bonds at higher interest rates, and an increase in interest rates on our floating-rate securities.

The change in the fixed-income FTE total return for both periods, compared to last year, primarily reflected interest rate movement.

The increase in common stocks reflected general market conditions.

A further break-down of our FTE total returns for our fixed-income portfolio for the periods ended September 30, follows:

Three Months Nine Months

2023 2022 2023 2022

The increase in the book yield, compared to last year, primarily reflected investing new cash from operations, and proceeds from maturing bonds, in higher coupon rate securities.

The decrease in the fixed-income portfolio FTE total return, compared to last year, primarily reflected movement in Treasury yields year-over-year.

The increase in the common stock portfolio total return reflected general market conditions in first quarter 2024.

A further break-down of our FTE total returns for our fixed-income portfolio for the periods ended March 31, follows:

Fixed-income securities:

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(years) Average Rating 1

September 30, 2023

March 31, 2024

government obligations $ 38,562.7 55.8 % 3.9 AA+

6 unchanged sentences

Preferred stocks 1,060.6 1.5 2.3 BBB-

Short-term investments 1,795.2 2.9 <0.1 A+

Short-term investments 1,326.7 1.9 <0.1 AA-

Total fixed-income securities 65,843.1 95.4 3.2 AA-

2 unchanged sentences

$ 69,038.0 100.0 % 3.2 AA-

September 30, 2022

March 31, 2023

government obligations $ 27,350.1 48.3 % 3.7 AAA

12 unchanged sentences

December 31, 2023

government obligations $ 25,167.4 47.0 % 3.7 AAA

government obligations $ 36,869.4 55.9 % 3.6 AA+

State and local government obligations 2,202.8 3.3 3.0 AA+

5 unchanged sentences

Preferred stocks 1,075.8 1.7 2.4 BBB-

Short-term investments 2,861.7 5.4 0.1 AAA-

Short-term investments 1,789.9 2.7 <0.1 AA-

Total fixed-income securities 63,070.2 95.6 3.0 AA-

7 unchanged sentences

To the extent the weighted average of the ratings falls between AAA and AA+, we assign an internal rating of AAA-.

2 At September 30, 2023 and 2022, we had $167.3 million and $74.7 million, respectively, of net unsettled security purchase transactions included in other liabilities, compared to $34.4 million included in other assets at December 31, 2022.

The total fair value of the portfolio at September 30, 2023 and 2022, and December 31, 2022, included $4.1 billion, $4.2 billion, and $4.4 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of unsettled security transactions.

2 At March 31, 2024 and 2023, we had $16.2 million and $22.8 million, respectively, of net unsettled security purchase transactions included in other liabilities, compared to $45.6 million included in other assets at December 31, 2023.

The total fair value of the portfolio at March 31, 2024 and 2023, and December 31, 2023, included $3.2 billion, $4.1 billion, and $4.2 billion, respectively, of securities held in a consolidated, non-insurance subsidiary of the holding company, net of unsettled security transactions.

Our asset allocation strategy is to maintain 0%-25% of our portfolio in Group I securities, with the balance (75%-100%) of our portfolio in Group II securities.

6 unchanged sentences

• short-term securities, and

• all other fixed-maturity securities, including 50% of the investment-grade redeemable preferred stocks with cumulative dividends.

• all other fixed-maturity securities, including 50% of investment-grade redeemable preferred stocks with cumulative dividends.

We believe this asset allocation strategy allows us to appropriately assess the risks associated with these securities for capital purposes and is in line with the treatment by our regulators.

The following table shows the composition of our Group I and Group II securities:

September 30, 2023 September 30, 2022 December 31, 2022

March 31, 2024 March 31, 2023 December 31, 2023

($ in millions) Fair

16 unchanged sentences

Total portfolio $ 69,038.0 100.0 % $ 56,686.4 100.0 % $ 65,998.6 100.0 %

1 We did not hold any non-investment-grade redeemable preferred stocks at September 30, 2023 and 2022, or December 31, 2022.

To determine the allocation between Group I and Group II, we use the credit ratings from models provided by the National Association of Insurance Commissioners (NAIC) to classify our residential and commercial mortgage-backed securities, excluding interest-only (IO) securities, and the credit ratings from nationally recognized statistical rating organizations (NRSRO) to classify all other debt securities.

1 We held no non-investment-grade redeemable preferred stocks at March 31, 2024 and 2023, or December 31, 2023.

NAIC ratings are based on a model that considers the book price of our securities when assessing the probability of future losses in assigning a credit rating.

1 unchanged sentence

Management believes NAIC ratings more accurately reflect our risk profile when determining the asset allocation between Group I and Group II securities.

Unrealized Gains and Losses

As of September 30, 2023, our fixed-maturity portfolio had total after-tax net unrealized losses, which are recorded as part of accumulated other comprehensive income (loss) on our consolidated balance sheets, of $3.0 billion, compared to $3.1 billion and $2.8 billion at September 30, 2022 and December 31, 2022, respectively.

The decrease in net unrealized losses from September 30, 2022, was primarily due to higher valuations on our corporate debt and other asset-backed portfolios as the market experienced smaller increases in interest rates and a more stable environment for credit spreads.

The increase in our fixed-maturity net unrealized loss from December 31, 2022 through September 30, 2023, was primarily due to a lower valuation on our U.S.

Treasury portfolio.

Unrealized Gains (Losses)

As of March 31, 2024, our fixed-maturity portfolio had total after-tax net unrealized losses, which are recorded as part of accumulated other comprehensive income (loss) on our consolidated balance sheets, of $1.8 billion, compared to $2.2 billion and $1.6 billion at March 31, 2023 and December 31, 2023, respectively.

The decrease in net unrealized losses from March 31, 2023, was primarily due to higher valuations across all non-U.S.

Treasury portfolios, as tighter credit spreads in 2023 drove strong portfolio performance.

The increase in net unrealized losses since December 31, 2023, was primarily due to a lower valuation on our U.S.

Treasury portfolio caused by higher interest rates in 2024.

See Note 2 – Investments for a further break-out of our gross unrealized gains (losses).

Holding Period Gains and Losses

The following table provides the balance and activity for both the gross and net holding period gains (losses) for the nine months ended September 30, 2023:

Holding Period Gains (Losses)

The following table provides the balance and activity for both the gross and net holding period gains (losses) for the three months ended March 31, 2024:

(millions) Gross Holding

11 unchanged sentences

Total changes in holding period securities 268.8 33.3 302.1

Balance at September 30, 2023

Balance at March 31, 2024

Hybrid fixed-maturity securities 5.3 (27.2) (21.9)

3 unchanged sentences

1 Equity securities include common equities and nonredeemable preferred stocks.

Changes in holding period gains (losses), similar to unrealized gains (losses) in our fixed-maturity portfolio, are the result of changes in market performance as well as sales of securities based on various portfolio management decisions.

Changes in holding period gains (losses), similar to unrealized gains (losses) in our fixed-maturity portfolio, are the result of changes in market conditions as well as sales of securities based on various portfolio management decisions.

Fixed-Income Securities

1 unchanged sentence

Following are the primary exposures for our fixed-income portfolio.

Interest Rate Risk Our duration of 2.9 years at both September 30, 2023 and December 31, 2022, and 2.7 years at September 30, 2022 fell within our acceptable range of 1.5 to 5 years.

Interest Rate Risk Our duration of 3.2 years at March 31, 2024 and 3.0 years at both March 31, 2023 and December 31, 2023 fell within our acceptable range of 1.5 to 5 years.

The duration distribution of our fixed-income portfolio, excluding short-term investments, represented by the interest rate sensitivity of the comparable benchmark U.S.

Treasury Notes, was:

Duration Distribution (excluding short-term securities) September 30, 2023 September 30, 2022 December 31, 2022

Duration Distribution (excluding short-term securities) March 31, 2024 March 31, 2023 December 31, 2023

1 year 11.0 % 19.2 % 18.1 %

6 unchanged sentences

Credit Risk This exposure is managed by maintaining an A+ minimum average portfolio credit quality rating, as defined by NRSROs.

At September 30, 2023, our credit quality rating was AA- and at both September 30, 2022 and December 31, 2022 it was AA.

At both March 31, 2024 and December 31, 2023, our credit quality rating was AA- and at March 31, 2023, it was AA .

The credit quality distribution of the fixed-income portfolio was:

Average Rating 1

September 30, 2023 September 30, 2022 December 31, 2022

March 31, 2024 March 31, 2023 December 31, 2023

AAA 11.0 % 65.2 % 10.7 %

9 unchanged sentences

1 The ratings in the table above are assigned by NRSROs.

Concentration Risk We did not have any investments in a single issuer, either overall or in the context of individual asset classes and sectors, that exceeded our thresholds during the third quarter 2023.

Prepayment and Extension Risk We did not experience significant adverse prepayment or extension of principal relative to our cash flow expectations in the portfolio during the third quarter 2023.

The year-over-year rating shift between the AAA and AA categories was primarily due to a second major credit rating agency downgrading U.S.

Treasury debt during the third quarter 2023 to AA+ from AAA, which led us to lower our U.S.

Treasury positions to AA+.

Prepayment and Extension Risk We did not experience significant adverse prepayment or extension of principal relative to our cash flow expectations in the portfolio during the first quarter 2024.

Liquidity Risk Our overall portfolio remains very liquid and we believe that it is sufficient to meet expected near-term liquidity requirements.

The short-to-intermediate duration of our portfolio provides a source of liquidity.

During the remainder of 2023 and all of 2024, we expect approximately $7.2 billion, or 31%, of principal repayment from our fixed-income portfolio, excluding U.S.

During the remainder of 2024, we expect approximately $4.8 billion, or 18%, of principal repayment from our fixed-income portfolio, excluding U.S.

Treasury Notes and short-term investments.

1 unchanged sentence

The duration of our U.S.

government obligations, which are included in the fixed-income portfolio, was comprised of the following at September 30, 2023:

government obligations, which are included in the fixed-income portfolio, was comprised of the following at March 31, 2024:

($ in millions) Fair

16 unchanged sentences

(at period end) 1

September 30, 2023

March 31, 2024

Residential mortgage-backed securities $ 383.1 $ (9.0) 3.7 % 0.5 A+

2 unchanged sentences

Total asset-backed securities $ 10,296.1 $ (610.5) 100.0 % 1.5 AA

September 30, 2022

March 31, 2023

Residential mortgage-backed securities $ 630.0 $ (16.1) 6.3 % 0.4 A

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1 The credit quality ratings in the table above are assigned by NRSROs.

Residential Mortgage-Backed Securities (RMBS) The following table details the credit quality rating and fair value of our RMBS, along with the loan classification and a comparison of the fair value at September 30, 2023, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Residential Mortgage-Backed Securities (at September 30, 2023)

Residential Mortgage-Backed Securities (RMBS) The following table details the credit quality rating and fair value of our RMBS, along with the loan classification and a comparison of the fair value at March 31, 2024, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Residential Mortgage-Backed Securities (at March 31, 2024)

($ in millions)

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Department of Veteran Affairs (VA).

In the residential mortgage-backed sector, our portfolio consists of deals that are backed by high-credit quality borrowers or have strong structural protections through underlying loan collateralization .

During the third quarter 2023, the portfolio decreased as a result of maturities on securities and we did not have any purchase or sales activity.

Commercial Mortgage-Backed Securities (CMBS) The following table details the credit quality rating and fair value of our CMBS, along with a comparison of the fair value at September 30, 2023, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Commercial Mortgage-Backed Securities (at September 30, 2023)

In the residential mortgage-backed sector, our portfolio consists of deals that are backed by high-credit quality borrowers and/or those that have strong structural protections through underlying loan collateralization.

During the first quarter of 2024, the RMBS portfolio decreased as a result of principal paydowns and maturities.

Commercial Mortgage-Backed Securities (CMBS) The following table details the credit quality rating and fair value of our CMBS, along with a comparison of the fair value at March 31, 2024, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Commercial Mortgage-Backed Securities (at March 31, 2024)

($ in millions)

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BB 0 408.7 408.7 10.6

B 0 10.3 10.3 0.3

Total fair value $ 169.7 $ 3,682.1 $ 3,851.8 100.0 %

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when we assigned the NAIC ratings for our CMBS, 62% of our non-investment-grade securities were rated investment grade and reported as Group II securities, with the remainder classified as Group I.

The CMBS portfolio continued to experience heightened volatility in the third quarter 2023 due to ongoing challenges around the commercial real estate market and higher financing costs for commercial properties.

In general, delinquencies have increased in the CMBS market as some loans that reached their maturity date continued to have difficulty refinancing.

New issuance has remained slow in the single-asset single-borrower (SASB) market and liquidity has continued to be challenged.

We continued to selectively reduce certain positions during the quarter that we believed would be sensitive to potential future economic weakness.

As of the end of the third quarter 2023, we had no delinquencies in our CMBS portfolio.

With renewed focus on the commercial real estate sector, the following table shows the composition of our CMBS portfolio by maturity year and sector:

Commercial Mortgage-Backed Securities Sector Details (at September 30, 2023)

The CMBS portfolio experienced lower volatility in first quarter 2024.

During the quarter, the pace of new issuances accelerated, which led to paydowns in the portfolio via early refinancing.

As of March 31, 2024, we had no delinquencies in our CMBS portfolio.

The following table shows the composition of our CMBS portfolio by maturity year and sector:

Commercial Mortgage-Backed Securities Sector Details (at March 31, 2024)

($ in millions)

Office Lab Office Multi-family Multi-family IO Retail Industrial Self- Storage Casino Defeased Total Average Original LTV Average Current DSCR

2023 $ 95.1 $ 0 $ 0 $ 10.5 $ 0 $ 0 $ 0 $ 0 $ 158.5 $ 264.1 53.7 % 3.7

Office Lab Office Multi-family Multi-family IO Retail Industrial Self- Storage Casino Total Average Original LTV Average Current DSCR

2024 $ 134.1 $ 0 $ 22.4 $ 31.2 $ 36.5 $ 0 $ 0 $ 0 $ 224.2 59.4 % 1.9

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We believe this ratio provides a conservative view of our actual risk of loss, as this number displays the entire mortgage LTV, while our ownership is only a portion of the structure of the mortgage loan-backed security.

For many of the mortgage loans in our portfolio, our exposure is in a more senior part of the structure, which means that the LTV on our actual exposure is even lower than the ratios presented in the table above.

For many of the mortgage loans, in our portfolio, our exposure is in a more senior part of the structure, which means that the LTV on our actual exposure is even lower than the ratios presented.

In addition to the LTV ratio, we also examine the credit of our CMBS portfolio by reviewing the debt service coverage ratio (DSCR) of the securities.

The DSCR ratio compares the underlying property ’ s annual net operating income to its annual debt service payments.

DSCR ratios less than 1.0 times indicate that property operations do not generate enough income over the debt service payments, while a DSCR ratio greater than 1.0 times indicates that there is an excess of operating income over the debt service payments.

The DSCR compares the underlying property ’ s annual net operating income to its annual debt service payments.

A DSCR less than 1.0 times indicates that property operations do not generate enough income over the debt service payments, while a DSCR greater than 1.0 times indicates that there is an excess of operating income over the debt service payments.

A number above 1.0 generally indicates that there would not be an incentive for the borrower to default in light of the borrower ’ s excess income.

The DSCR calculation reported in the table is calculated based on the most currently available net operating income and mortgage payments for the borrower, which, for most securities, is full year 2022 data.

Other Asset-Backed Securities (OABS) The following table details the credit quality rating and fair value of our OABS, along with a comparison of the fair value at September 30, 2023, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Other Asset-Backed Securities (at September 30, 2023)

The DSCR reported in the table is calculated based on the most currently available net operating income and mortgage payments for the borrower, which, for most securities, is data as of September 30, 2023.

Other Asset-Backed Securities (OABS) The following table details the credit quality rating and fair value of our OABS, along with a comparison of the fair value at March 31, 2024, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Other Asset-Backed Securities (at March 31, 2024)

($ in millions)

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Increase (decrease) in value 0.1 % (0.3) % (9.1) % (6.8) % (0.2) % (5.5) % (1.4) %

During the third quarter 2023, we selectively added to our automobile and equipment categories as we continued to view spreads, and potential returns, across this sector to be attractive.

Our automobile and equipment additions were mainly through new issue purchases, primarily focusing on higher credit tranche securities in the capital structure.

MUNICIPAL SECURITIES

The following table details the credit quality rating of our municipal securities at September 30, 2023, without the benefit of credit or bond insurance:

Municipal Securities (at September 30, 2023)

During the first quarter 2024, we selectively added to the OABS portfolio as we viewed spreads and potential returns to be attractive in certain areas.

Investments were predominately made in the automobile and equipment categories in highly rated, senior, and short-tenor debt tranches in the new issue markets.

STATE AND LOCAL GOVERNMENT OBLIGATIONS

The following table details the credit quality rating of our state and local government obligations (municipal securities) at March 31, 2024, without the benefit of credit or bond insurance:

Municipal Securities (at March 31, 2024)

Average Rating General

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A 0 36.4 36.4

BBB 0 0.3 0.3

Non-rated 0 0.2 0.2

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the remaining 16% were collateralized by Fannie Mae and Freddie Mac mortgages.

Credit spreads of tax-exempt bonds widened during the third quarter 2023, while credit spreads of taxable municipal bonds tightened.

We added short, high-quality state general obligation, higher education, and housing bonds during the quarter.

The size of our municipal portfolio decreased modestly during the quarter as purchases were less than the maturities in the portfolio.

Credit spreads of taxable municipal bonds tightened during the first quarter 2024, while credit spreads of tax-exempt bonds were close to unchanged.

We did not add significantly to this portfolio during the first quarter 2024, and as a result, municipal securities as a percentage of the total fixed-income portfolio declined.

CORPORATE DEBT SECURITIES

The following table details the credit quality rating of our corporate debt securities at September 30, 2023:

Corporate Securities (at September 30, 2023)

The following table details the credit quality rating of our corporate debt securities at March 31, 2024:

Corporate Securities (at March 31, 2024)

Average Rating Consumer Industrial Communication Financial Services Technology Basic Materials Energy Total

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B 119.3 0 0 0 0 20.6 0 139.9

Non-rated 0 0 0 0 3.0 0 0 3.0

Total fair value $ 3,559.2 $ 1,799.5 $ 629.5 $ 3,845.4 $ 771.4 $ 186.0 $ 1,730.3 $ 12,521.3

The size of our corporate debt portfolio declined slightly in the third quarter 2023 as we continued to take a more conservative investment posture.

We also continued to reduce our exposure to high-yield securities given a less certain macro environment and less attractive risk/reward profile of these securities.

At September 30, 2023, our corporate debt securities made up approximately 17% of the fixed-income portfolio, compared to approximately 18% at June 30, 2023.

We also reduced the maturity profile of the corporate debt portfolio during the third quarter 2023.

The duration of the corporate portfolio was 2.8 years at September 30, 2023, compared to 2.9 years at June 30, 2023, as we sold some of the longer duration securities with less attractive risk/reward profiles.

The size of our corporate debt portfolio increased to $12.5 billion at March 31, 2024 from $11.2 billion at December 31, 2023.

We selectively increased exposure to investment-grade securities but continued to predominately focus on shorter maturities, which we viewed as having a more favorable risk/reward profile.

At March 31, 2024, corporate debt securities made up approximately 19% of our fixed-income portfolio, compared to approximately 18% at December 31, 2023.

The duration of the corporate debt portfolio was 2.7 years at both March 31, 2024 and December 31, 2023.

PREFERRED STOCKS – REDEEMABLE AND NONREDEEMABLE

The table below shows the exposure break-down by sector and rating at September 30, 2023:

Preferred Stocks (at September 30, 2023)

The table below shows the exposure break-down by sector and rating at March 31, 2024:

Preferred Stocks (at March 31, 2024)

Financial Services

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Although a preferred stock will remain outstanding if not called, its interest rate duration will reflect the variable nature of the dividend.

Our non-investment-grade preferred stocks were all with issuers that maintain investment-grade senior debt ratings.

We also face the risk that dividend payments on any of these securities could be deferred for one or more periods or skipped entirely.

As of September 30, 2023, we expect all of these securities to pay their dividends in full and on time.

During the third quarter, our preferred portfolio declined to $1.0 billion at September 30, 2023 from $1.1 billion at June 30, 2023.

This decline was primarily due to preferred stocks that were called or sold because they had less attractive risk/reward profiles.

As of March 31, 2024, our non-investment-grade preferred stocks were all with issuers that maintain investment-grade senior debt ratings.

We also face the risk that dividend payments on our preferred stock holdings could be deferred for one or more periods or skipped entirely.

As of March 31, 2024, we expect all of these securities to pay their dividends in full and on time.

Approximately 78% of our preferred stocks pay dividends that have tax preferential characteristics, while the balance pay dividends that are fully taxable.

At March 31, 2024, the preferred stock portfolio fair value was $1.1 billion, which was consistent with the value at December 31, 2023.

During the first quarter 2024, we sold securities with less attractive risk/reward profiles and low credit spreads that we believed were less probable to be called on their call dates.

This decrease was mostly offset by an increase in valuation of the preferred portfolio during the first quarter of 2024, as credit spreads tightened.

Common Equities

Common equities, as reported on the balance sheets, were comprised of the following:

($ in millions) September 30, 2023 September 30, 2022 December 31, 2022

($ in millions) March 31, 2024 March 31, 2023 December 31, 2023

Common stocks $ 3,170.6 99.2 % $ 2,774.0 99.3 % $ 2,907.8 99.3 %

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The majority of our common stock portfolio consists of individual holdings selected based on their contribution to the correlation with the Russell 1000 Index.

We held 765 out of 1,012, or 76%, of the common stocks comprising the index at September 30, 2023, which made up 95% of the total market capitalization of the index.

At September 30, 2023 and 2022, and December 31, 2022, the year-to-date total return, based on GAAP income, was within our targeted tracking error, which is +/- 50 basis points.

We held 787 out of 1,005, or 78%, of the common stocks comprising the index at March 31, 2024, which made up 95% of the total market capitalization of the index.

At March 31, 2024 and 2023, and December 31, 2023, the year-to-date total return, based on GAAP income, was within our targeted tracking error, which is +/- 50 basis points.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995:

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• litigation challenging our business practices, and those of our competitors and other companies;

• the success of our business strategy and efforts to acquire or develop new products or enter into new areas of business and navigate related risks;

• the success of our business strategy and efforts to acquire or develop new products or enter into new areas of business and our ability to navigate the related risks;

• how intellectual property rights affect our competitiveness and our business operations;

• the success of our development and use of new technology and our ability to navigate the related risks;

• the performance of our fixed-income and equity investment portfolios;

• the impact on our investment returns and strategies from regulations and societal pressures relating to environmental, social, governance and other public policy matters;

• the elimination of the London Interbank Offered Rate;

• our continued ability to access our cash accounts and/or convert investments into cash on favorable terms;

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• legal restrictions on our insurance subsidiaries’ ability to pay dividends to The Progressive Corporation;

• limitations on our ability to pay dividends on our common shares under the terms of our outstanding preferred shares;

• our ability to obtain capital when necessary to support our business and potential growth;

• evaluations by credit rating and other rating agencies;

• evaluations and ratings by credit rating and other rating agencies;

• the variable nature of our common share dividend policy;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis