What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-05 compared with 2024-05-06 · 324 added, 255 removed, 627 unchanged (48% of the section changed)

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

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.

During the second 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 4.1 points better than our 4% companywide calendar-year underwriting profit goal.

Net premiums written and earned increased 22% and 19%, respectively, during the second quarter 2024 compared to the same period last year, with all operating segments contributing to the growth.

For the quarter, we generated $17.9 billion of net premiums written, which was an increase of $3.2 billion, compared to the second quarter 2023.

On a companywide basis, we ended the quarter with 32.3 million policies in force, which was 9% 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.

During the first six months of 2024, we added 2.6 million policies in force companywide, with our personal auto products representing 2.0 million of the increase.

Personal auto new business applications were up significantly from the second quarter last year, reflecting our continued efforts to focus on driving growth.

During the quarter we increased our advertising spend, continued to unwind non-rate restrictions we put in place throughout 2023 to manage profitability, and worked closely with our independent agents to get back into their quote flows.

We also focused on delivering competitive rates to consumers and had eight personal auto states with small rate decreases during the second quarter.

Profitability for the quarter was strong with our companywide combined ratio for the second quarter 2024 of 91.9, which was 8.5 points better than the second quarter last year.

Our Personal and Commercial Lines businesses both generated an 88.6 combined ratio for the quarter, while the Property business generated an underwriting loss with a combined ratio of 166.3 that included catastrophe losses of 75.6 points.

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.

The average earned premium per policy on our vehicle businesses were higher than the prior year second quarter, primarily due to the rate increases we took, during 2023, to meet our companywide profitability target.

In addition to rate increases, on a year-over-year basis for the second quarter, our incurred personal auto accident frequency decreased 8% and severity was relatively flat, which is an indication that severity trends are stabilizing.

Also contributing to the profitability improvement was favorable prior accident years reserve development of 0.3 points in the second quarter 2024, compared to unfavorable development in the second quarter last year of 3.4 points.

Partially offsetting the favorable impact to profitability from the improved loss ratios, was an increase in our expense ratio of 2.5 points over the second quarter 2023.

On a quarter-over-prior-year quarter basis, during the second quarter 2024, our advertising spend increased nearly 150%, which brought our year-to-date advertising costs to $1.6 billion, as we focused on maximizing growth.

We will continue this focus 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.

The year-over-year increase in underwriting profitability was the primary contributor to the $1.1 billion increase in net income and the $1.7 billion increase in comprehensive income for the second quarter 2024.

During the quarter, recurring investment income increased 51%, primarily due to investing new cash from operations and proceeds from maturing bonds in higher coupon rate securities.

However, in the second quarter 2024, the portfolio recognized net realized losses on securities, compared to net realized gains in the same period last year, which more than offset the increase in the recurring investment income generated during the quarter.

In addition to the increases in net income, the increase in comprehensive income also reflected the decrease in the net unrealized losses on our fixed-maturity securities during the second quarter 2024, compared to the increase in unrealized losses during the second quarter last year.

The change in the unrealized losses during both periods were primarily driven by the then-current economic environment.

Total capital (debt plus shareholders’ equity) at June 30, 2024, was $30.2 billion, which was up $3.0 billion from year-end 2023.

During the first half of 2024, we earned $3.7 billion of comprehensive income, which was in part offset by the $0.5 billion redemption of all of our outstanding Serial Preferred Shares, Series B, during the first quarter, as discussed in further detail in Financial Condition below.

Insurance Operations

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.

During the second quarter 2024, our Personal Lines and Commercial Lines businesses each generated an underwriting profit margin of 11.4%.

Our Property operating segment recognized a 66.3% underwriting loss margin during the quarter, which included 75.6 points due to the significant losses incurred from catastrophic weather events.

Personal Lines is comprised of both our personal auto and special lines products, with the latter typically having higher losses during the warmer weather months, due to

the seasonal nature of these products (e.g., motorcycles, boats, and RVs).

The special lines profitability had minimal impact to our total Personal Lines combined ratio during the second quarter 2024.

During the quarter, our vehicle businesses benefited from higher average earned premium per policy and lower incurred loss frequency trends, with Personal Lines also benefiting from lower incurred severity trends and favorable prior accident years 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 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 adjust rates as

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.

We have taken, and when necessary will continue to take, rate increases in our TNC business to address profitability issues.

In our Property business, during the second quarter 2024, we increased rates about 4% countrywide, in the aggregate, which follows an increase of about 6% in the first quarter 2024 and an aggregate increase of about 17% on a trailing 12-month basis.

We currently anticipate that aggregate vehicle 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 second quarter 2024, we continued to lift the non-rate actions implemented last year in our vehicle businesses, in all but a few states, as our focus shifted from achieving our target profit margin to driving growth, delivering competitive rates to consumers, and providing an exceptional customer experience to our policyholders.

For the second quarter 2024, net premiums written grew 22%, compared to the second quarter last year, with all segments showing strong growth.

Personal Lines net premiums written grew 26%, with the Agency and Direct distribution channels growing 22% and 29%, 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.

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.

In the second quarter 2024, we experienced a significant increase in Personal Lines new business applications, primarily reflecting increased advertising spend, the reversal of the non-rate restrictions, and our efforts to get back into the independent agents’ quote flows.

New personal auto applications increased 34% for the second

quarter 2024, compared to an increase of 37% in the second quarter last year and a decrease of 9% in the first quarter 2024.

New applications in our core commercial auto business increased 7% during the second quarter 2024, compared to the same period last year.

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.

New applications in the Property business were up 35% over the second quarter last year, driven by significant growth in our renters policies.

In addition, 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.

Compared to the end of the second quarter last year, policies in force grew about 20% in the less volatile weather states and decreased about 6% in the coastal and hail-prone states.

During the second quarter 2024, on a year-over-year basis, average written premium per policy grew 11% in personal auto and 8% in core commercial auto, and was down 4% in Property.

The growth in personal auto and commercial auto primarily reflected rate increases taken throughout 2023, that continued to be earned through the second 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 BMT.

The decrease in Property average written premium per policy reflected a shift in the mix of business as we continued to focus on growing in less volatile weather states.

We are also seeing a mix shift towards more renters policies which have lower average written premiums.

These mix shifts were partially offset by rate increases taken over the last 12 months and higher premium coverages reflecting increased property values.

Given that our commercial auto and Property policies are predominately written for 12-month terms, rate actions take longer to earn in for these products.

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

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.

During the second quarter 2024, the adoption rates for consumers enrolling in the program decreased about 15% in Agency auto and increased about 5% in Direct auto, compared to the second quarter 2023.

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

As we continue to relax restrictions on new business and get back into the independent agents’ quote flows, we

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.

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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Consequently, increasing retention continues to be one of our most important priorities.

Our efforts to increase our share of multi-product households remains a key initiative and we will continue to make investments to improve the customer experience in order to support that goal.

Our efforts to increase our share of Progressive auto and home bundled households (i.e., Robinsons) remains a key initiative and we plan to continue to make investments to improve the customer experience in order to support that goal.

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.

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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.

As of the end of the second quarter 2024, our trailing 12-month total personal auto policy life expectancy increased 9%, compared to last year.

The Agency and Direct channels trailing 12-month measure was up 18% and 2%, respectively.

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.

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

We believe the 12-month measure was positively impacted by a shift in the mix of business, in addition to our competitiveness in the marketplace throughout 2023, following the rate increases that we took in 2022 ahead of many of our competitors.

However, our total personal auto trailing 3-month policy life expectancy was down 5% at the end of the second quarter 2024, due to rate and non-rate actions put in place throughout 2023, compared to the 40% increase experienced in the same period last year, which we believe reflected our competitiveness in the marketplace in the prior year.

Our trailing 3-month policy life expectancy was flat compared to the first quarter 2024.

At the end of the second quarter 2024, our trailing 12-month policy life expectancy increased 3% in special lines, 5% in Property, and decreased 19% 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 fair value of our investment portfolio was $72.4 billion at June 30, 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 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.

At both June 30, 2024 and December 31, 2023, 7% of our portfolio was allocated to Group I securities with the remainder to Group II securities.

Our recurring investment income generated a pretax book yield of 3.9% for the second quarter 2024, compared to 3.1% 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.

Our investment portfolio produced a fully taxable equivalent (FTE) total return of 0.9% and 0% for the second quarter 2024 and 2023, respectively.

Our fixed-income and common stock portfolios had FTE total returns of 0.8% and 3.6%, respectively, for the second quarter 2024, compared to (0.4)% and 9.0%, respectively, last year.

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

The decrease in the common stock portfolio total return reflected general market conditions in the respective periods.

At June 30, 2024, the fixed-income portfolio had a weighted average credit quality of AA- and a duration of 3.2 years, compared to AA and 2.9 years at June 30, 2023 and AA- and 3.0 years at December 31, 2023.

Our decrease in weighted average credit quality compared to June 30, 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.

During 2024, our duration was increased to take advantage of higher yields in the market.

At June 30, 2024, we continued to maintain a relatively conservative investment portfolio with a greater allocation to cash and treasuries.

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.

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 third 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 $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.

Operations generated positive cash flows of $7.5 billion and $4.8 billion for the six months ended June 30, 2024 and 2023, respectively.

The increase in operating cash flow for the first six months of 2024, compared to 2023, was primarily driven by the growth in profit from our underwriting operations.

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 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.

As of June 30, 2024, we held $41.6 billion in short-term investments and U.S.

Treasury securities, which represented nearly 60% of our total portfolio.

Based on our portfolio allocation and investment strategies, we believe that we have sufficient readily available marketable securities to cover our claims payments and short-term obligations in the event our cash flows from operations were to be negative.

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

Our total capital (debt plus shareholders’ equity) was $30.2 billion, based on book value, at June 30, 2024, compared to $23.6 billion at June 30, 2023, and $27.2 billion at December 31, 2023.

The increase from December primarily reflected the comprehensive income recognized during the first six 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 22.8% at June 30, 2024, 29.2% at June 30, 2023, and 25.4% at December 31, 2023.

Our financial policies include a goal of maintaining debt below 30% of total capital at book value.

While we are comfortably below that target at June 30, 2024, 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, 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.

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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 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.

During the first six months of 2024, 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 both the first and second quarters of 2024.

These dividends, which were each $58.6 million in the aggregate, were paid in April 2024 and July 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).

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 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.

During the first six months of 2024, we repurchased 0.3 million common shares, at a total cost of $48.0 million, including 0.1 million shares in the second quarter 2024, both in the open market and 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.

At June 30, 2024, 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 June 30, 2024, our estimated consolidated statutory surplus was $24.8 billion.

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

During the second quarter 2024, we increased our noncancellable purchase obligation commitments for reinsurance contracts by $352.0 million, primarily related to the renewal of our catastrophe excess of loss per occurrence reinsurance program, bringing our total commitments related to reinsurance contracts to $384.1 million at June 30, 2024.

There have not been any other material changes in off-balance-sheet leverage, which includes purchase obligations, from those discussed 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.

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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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Personal Lines

Agency 37 % 38 % 36 % 36 %

Direct 44 41 43 41

Total Personal Lines 1

Commercial Lines 14 16 17 19

Property 5 5 4 4

Total underwriting operations 100 % 100 % 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;

1 Personal auto products accounted for 92% of the total Personal Lines segment net premiums written during the three months ended June 30, 2024 and 2023, and 94% and 93% during the six months ended June 30, 2024 and 2023, respectively;

our special lines products accounted for the balance.

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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.

At June 30, 2024 and 2023, 13% and 14%, respectively, 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 in the Agency 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.

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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.

At June 30, 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 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.

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.

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 11% and 10% of our total core commercial auto premiums written for the six months ended June 30, 2024 and 2023, respectively.

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

Just over 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-month terms.

Profitability

2 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

Profit (Loss) Underwriting

Profit (Loss)

($ in millions) $ Margin $ Margin

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

Personal Lines

5 unchanged sentences

Other indemnity 1

(0.3) NM (3.4) NM

(0.6) NM 0 NM (0.9) NM (3.4) NM

Total underwriting operations $ 1,386.6 8.1 % $ (64.3) (0.4) % $ 3,636.5 10.9 % $ 77.3 0.3 %

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.

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.

Several factors contributed to the significant increase in underwriting profit for the three and six months ended

June 30, 2024, compared to the same periods in 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 11% and 8%, respectively, for the second quarter 2024, and up 12% and 9% for the first half of 2024.

Also, on a year-over-year basis for the second quarter and first six months of 2024, our incurred personal auto accident frequency was down 8%, compared to the same periods last year when our frequency trend was relatively flat.

Severity was relatively flat for the second quarter and first six months of 2024, compared to the prior year periods when personal auto incurred severity was up 12% and 11%, respectively.

With personal auto severity trends stabilizing, our loss costs have been less volatile.

In addition, we experienced favorable prior accident year reserve development year-to-date in 2024, compared to unfavorable prior year development for the same period last year.

During the second quarter and first six months of 2024, we recognized 0.3 points and 0.2 points, respectively, of favorable prior accident years development, compared to unfavorable development of 3.4 points and 4.0 points during the same periods last year.

Partially offsetting the factors that favorably impacted our underwriting results for the second quarter 2024, was an increase in our companywide expense ratio of 2.5 points, compared to the same period last year, due in large part to a 147% increase in advertising spend during the quarter.

We increased 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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

Underwriting Performance 1

2024 2023 Change

2024 2023 Change 2024 2023 Change

Personal Lines – Agency

28 unchanged sentences

Losses and Loss Adjustment Expenses (LAE)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(millions) 2024 2023 2024 2023

4 unchanged sentences

Claims costs are a function of loss severity and frequency and, for our vehicle businesses, are influenced by inflation and driving patterns, among other factors, some of which are discussed below.

In our Property business, severity is primarily a function of construction costs and the age of the structure.

In our Property business, severity is primarily a function of construction costs and the age and complexity of the structure, among other factors.

Accordingly, anticipated changes in these factors are taken into account when we establish premium rates and loss reserves.

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 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.

Our total loss and LAE ratio decreased 11.0 points for the second quarter 2024, compared to the same period last year, and 10.8 points on a year-to-date basis, primarily due to a decrease in loss frequency, relatively flat personal auto severity, higher vehicle premium per policy, and favorable prior accident years reserve development in 2024, compared to unfavorable development in the first half of last year.

On an accident year basis, our loss and LAE ratio was 7.3 points and 6.6 points lower for the three and six months ended June 30, 2024, respectively, compared to the same periods last year.

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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

2024 2023 2024 2023

($ 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 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.

In the second quarter 2024, our catastrophe losses reflected severe weather events throughout the United States, with nearly 40% of the storm losses in Texas.

Weather events in Florida, Colorado, Missouri, and Nebraska contributed about another 30% to the total catastrophe losses for the quarter.

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.

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

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

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.

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.

During the second quarter 2024, we entered into new reinsurance contracts under our per occurrence excess of loss program for our Property business.

The reinsurance program has a retention threshold for losses and allocated loss adjustment expenses (ALAE) from a single catastrophic event of $200 million.

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

When including the Florida Hurricane Catastrophe Fund that is specific to Florida, this coverage reaches an estimated $2.3 billion.

For 2024, we also 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.

As of the end of the second quarter 2024, we estimate that, based on the particular contract, we were about $3 million to $40 million below the annual retention thresholds under the first coverage layer of our 2024 catastrophe aggregate excess of loss program.

Once the retention thresholds are exceeded, we have reinsurance coverage up to $85 million for non-named storm property catastrophe losses, under our first layer of coverage, with $100 million of additional coverage available under a second layer that also covers named storms to a certain extent.

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.

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.

While the availability of reinsurance is subject to many forces outside of our control, the types of reinsurance that we elected to purchase during the first half of 2024 were readily available and competitively priced.

On a year-over-year basis, we did not incur a material change in the aggregate costs of our reinsurance programs.

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

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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 core 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 period, was as follows:

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

Growth Over Prior Year

Quarter Year-to-date

Coverage Type 2024 2024

4 unchanged sentences

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

Through the second quarter 2024, our core commercial auto products’ incurred severity increased 5%, 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 period, was as follows:

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

Growth Over Prior Year

Quarter Year-to-date

Coverage Type 2024 2024

3 unchanged sentences

Property damage (6) (7)

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.

Total (8) (8)

The year-over-year decrease in frequency, in part, reflects a shift in the mix of business to a more preferred tier of customers and underwriting actions taken to reduce new business during 2023.

On a trailing 12-month basis, our core commercial auto products’ incurred frequency decreased 3% during the second quarter 2024, compared to the same period last year.

We closely monitor 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.

We will continue to analyze trends to distinguish changes in our experience from other external factors, such as changes in the number of vehicles per household, miles driven, vehicle usage, gasoline prices, advances in vehicle safety, and unemployment rates, versus those resulting from shifts in the mix of our business or changes in driving patterns, to allow us to react quickly to price for these trends and to reserve more accurately for our loss exposures.

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 March 31,

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2024 2023 2024 2023

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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 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.

Our ability to meet this objective is impacted by many factors, such as, changes in case law and storms occurring close to quarter end.

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

The favorable development during the first half of 2024 was, in part, due to lower than anticipated personal auto frequency in Florida following tort reform that passed in the first quarter 2023 and lower than anticipated property damage severity across the majority of states.

This was partially offset by higher than anticipated severity in core commercial auto for California and New York.

For the first half of 2023, about 80% of the unfavorable development was in our personal auto products, 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 the first half of 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.

2 unchanged sentences

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 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.

For the second quarter 2024, our underwriting expense ratio was up 2.5 points, compared to the same period last year, and up 0.2 points on a year-to-date basis.

Both increases were primarily driven by increases in our advertising spend, partially offset by growth in net

premiums earned.

In total, our companywide advertising spend increased 147%, or 2.7 points, in the second quarter 2024, and 44%, or 0.8 points, for the first half of 2024, compared to the same periods last year.

For the first six months of 2024, our total companywide advertising costs were $1.6 billion, which is equal to the amount of advertising spend for the full year of 2023.

As previously discussed, we increased 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 (e.g., advertising and agency

commissions) from our underwriting expense ratio.

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.

During the second quarter 2024, our NAER was flat in Personal Lines, increased 0.1 points in Commercial Lines, and increased 0.9 points in Property, compared to the same period last year.

The increase in our Property NAER primarily reflected additional investments we made during the quarter in underwriting and pricing functions as we continue to focus on rebalancing our Property product offerings.

On a year-to-date basis, our NAER decreased 0.3 points and 0.7 points in our Personal Lines and Commercial Lines businesses, respectively, and increased 0.3 points in our Property business, compared to the same period last year.

We remain committed to efficiently managing operational non-acquisition expenses.

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

2 unchanged sentences

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 March 31,

($ in millions) 2024 2023 % Growth

Three Months Ended June 30, Six Months Ended June 30,

($ in millions) 2024 2023 % Growth 2024 2023 % Growth

Net Premiums Written

6 unchanged sentences

Other indemnity 1

0.2 0.1 100 0.4 0.3 33

Total underwriting operations $ 17,901.6 $ 14,716.9 22 % $ 36,863.8 $ 30,826.6 20 %

7 unchanged sentences

Other indemnity 1

0.2 0.1 100 0.4 0.8 (50)

Total underwriting operations $ 17,209.5 $ 14,464.4 19 % $ 33,358.1 $ 27,997.5 19 %

9 unchanged sentences

Personal Lines – total 27,853.4 25,501.4 9

26,524.0 24,805.7 7

Commercial Lines 1,117.6 1,101.1 1

6 unchanged sentences

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

Growth Over Prior Year Quarter

Growth Over Prior Year

Quarter Year-to-date

2024 2023 2024 2023

New 29 % 31 % 10 % 49 %

Renewal 8 7 9 4

Total 13 12 9 12

Written premium per policy - Auto 11 7 12 8

2 unchanged sentences

Trailing 12 months 9 1

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.

In our Personal Lines business, we experienced significant year-over-year new application growth in the second quarter 2024.

The increase in new applications during the second quarter and first six months of 2024, was driven by both our personal auto and special lines products, with increases in each of our four consumer segments.

We believe the increase in new applications was driven by the continued lifting of non-rate underwriting restrictions that were put in place to slow new business growth in 2023 to achieve our calendar-year underwriting profitability goal, price competitiveness in the marketplace, and, in the Direct business, a significant increase in our media spend.

Personal auto policies in force across all consumer segments grew in the second quarter 2024 between 3% and 14%, compared to the same period last year.

During the first six months of 2024, on a countrywide basis, we had aggregate rate increases of 2%, following the 19% rate increases taken during 2023.

We continue to see the 2023 rate increases earn into the policies and contribute to our growth in written premium per policy.

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

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.

Given the solid underwriting profitability we generated during the first half of 2024, we took measures that we believe will position us 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 96% of the Personal Lines segment net premiums written during the first quarter 2024.

The channel discussions below are focused on personal auto insurance since this product accounted for 92% and 94% of the Personal Lines segment net premiums written during the second quarter and first six months of 2024, respectively.

The Agency Business

Growth Over Prior Year Quarter

Growth Over Prior Year

Quarter Year-to-date

2024 2023 2024 2023

Applications - Auto

1 unchanged sentence

Renewal 9 4 8 0

Total 9 12 6 10

Written premium per policy - Auto 12 9 13 9

3 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.

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.

During the second quarter 2024, we generated new auto application growth in 40 states, including six of our top 10 largest Agency states.

Compared to the same period in the prior year, new application and policy in force growth varied by consumer segment:

• Sams experienced a single digit and moderate decline in new application growth during the second quarter and first half of 2024, respectively, with a single digit decline in policies in force growth at the end of the period;

• Dianes experienced single digit growth and a moderate decline in new application growth during the second quarter and first half of 2024, respectively, with near flat policies in force growth at the end of the period;

• Wrights and Robinsons experienced significant new application growth during the second quarter and first half of 2024, with strong policies in force growth at the end of the period.

During the second quarter and first six months of 2024, on a year-over-year basis, we experienced an increase in Agency auto quote volume of 6% and 1%, respectively, with a rate of conversion (i.e., converting a quote to a sale) increase of 7% and decrease of 2%, compared to the same periods last year.

Compared to the same period in the prior year:

• Sams experienced a decrease in both quote volume and conversion for the second quarter and first half of 2024;

• Dianes experienced an increase in both quote volume and conversion for the second quarter 2024, despite a decrease in both measures for the first half of 2024;

• Wrights experienced an increase in both quote volume and conversion for the second quarter and first half of 2024;

• Robinsons experienced a decrease in quote volume and an increase in conversion for both the second quarter and first half of 2024.

Written premium per policy for new and renewal Agency auto business increased 6% and 14%, respectively, compared to the second quarter 2023, and 5% and 16%, respectively, for the first six months of 2024 on a year-over-year basis, primarily attributable to the rate increases previously discussed.

At the end of the second quarter 2024, on a year-over-year basis, we experienced a lengthening in our trailing 12-month policy life expectancy.

This increase was driven by competitor rate increases in 2023, as well as a shift in the mix of business.

During 2023, as part of our efforts to slow growth to achieve our target profitability, we focused our efforts to attract a more preferred tier of customers, along with more Robinsons, who tend to stay with us longer.

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

The Direct Business

Growth Over Prior Year Quarter

Growth Over Prior Year

Quarter Year-to-date

2024 2023 2024 2023

Applications - Auto

New 50 % 29 % 17 % 60 %

Renewal 8 10 10 7

Total 17 14 12 16

Written premium per policy - Auto 10 6 12 7

3 unchanged sentences

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.

As we increased advertising spend and continued to lift certain non-rate restrictions during the second quarter 2024, we saw significant Direct auto new application growth.

During the second quarter 2024, we generated new auto application growth in all but one state and the District of Columbia, with growth in nine of our top 10 largest Direct states.

During the second quarter 2024, each of our consumer segments experienced a significant increase in new applications year over year, offsetting the decreases in the first quarter, producing new application growth for the first six months of 2024 in each consumer segment.

Policies in force grew between 10% and 14% in each consumer segment, compared to the same period last year.

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.

During the second quarter and first six months of 2024, Direct auto quote volume increased 84% and 31%, respectively, compared to the same periods last year, primarily driven by increased advertising spend, while conversion decreased 17% and 10%, primarily due to a greater number of casual shoppers obtaining quotes, who are less committed to purchasing a new insurance policy.

In the second quarter 2023, quotes and conversion decreased 7% and increased 35%, respectively, reflecting competitor rate increases and our decreased advertising spend during the period, compared to the second quarter 2022.

All consumer segments saw an increase in quotes and a decrease in the rate of conversion during the second quarter and first six months of 2024.

Written premium per policy for new and renewal Direct auto business increased 10% and 12%, respectively, in the second quarter 2024, compared to the second quarter last year, and 9% and 13%, respectively, for the first six months of 2024 on a year-over-year basis, 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 at the end of the second quarter 2024, 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.

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

While our trailing 3-month policy life expectancy is down compared to the prior year, this measure remained flat compared to the first quarter 2024.

Commercial Lines

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

Growth Over Prior Year Quarter

Growth Over Prior Year

Quarter Year-to-date

2024 2023 2024 2023

New 7 % 7 % 4 % 4 %

Renewal 1 6 1 6

Total 4 6 2 6

Written premium per policy 8 0 9 1

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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.

During the second quarter and first six months of 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 second quarter and first six months of 2024, quote volume increased about 7%, while conversion was flat for the quarter and decreased 2% on a year-to-date basis, compared to the same periods last year.

During the second quarter 2024, we increased rates, in aggregate, about 2% in our core commercial auto products.

While we currently do not anticipate significant rate changes for these products throughout 2024, we still have about 7 points of rate to earn in during the rest of 2024, primarily from rate revisions taken during 2023.

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.

Written premium per policy for new and renewal core commercial auto business increased 1% and 13%, respectively, for the second quarter 2024, and 2% and 13%, respectively, for the first six months of 2024, compared to the same periods last year, primarily reflecting the previously discussed rate increases.

Our policy life expectancy decreased in all BMTs, which we believe is due to rate and non-rate actions.

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

Growth Over Prior Year Quarter

Growth Over Prior Year

Quarter Year-to-date

2024 2023 2024 2023

New 35 % 12 % 33 % 12 %

Renewal 6 5 7 6

Total 16 7 15 8

Written premium per policy (4) 12 (1) 11

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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.

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

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

Homeowners policies in force in the growth-oriented states increased about 20% during the second quarter 2024, compared to the same periods 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.

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.

Homeowners policies in force were down about 6% in the volatile weather states during the second quarter 2024, 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.

Following the required filings and notices, the first of these non-renewals went 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.

The decrease in our written premium per policy, during the second quarter and first six months of 2024, compared to the same periods last year, was primarily attributable to a decline in homeowners policies in force in volatile states, which have higher average premiums, and a shift in the mix to more renters policies which have lower average premiums.

This was partially offset by rate increases taken over the last 12 months and higher premium coverages reflecting increased property values.

During the second quarter 2024, we increased rates, in aggregate, about 4% in our Property segment, bringing the year-to-date aggregate rate increase to 10%.

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

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.

The policy life expectancy in our Property business lengthened during the first half of 2024, compared to the prior year, primarily driven by our competitiveness in the marketplace.

RESULTS OF OPERATIONS – INVESTMENTS

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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 March 31:

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

Three Months Six Months

2024 2023 2024 2023

Pretax recurring investment book yield (annualized) 3.9 % 3.1 % 3.8 % 3.0 %

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Total portfolio 0.9 0 1.7 2.3

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:

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, in higher coupon rate securities.

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

The common stock return reflected general market conditions and while stocks had a strong start in 2024, the return was less than what was recognized in the first half of 2023.

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

Three Months Six Months

2024 2023 2024 2023

Fixed-income securities:

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(years) Average Rating 1

March 31, 2024

June 30, 2024

government obligations $ 40,894.0 56.5 % 4.0 AA+

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Corporate debt securities 12,974.6 17.9 2.6 BBB+

Residential mortgage-backed securities 383.1 0.6 0.5 A+

Residential mortgage-backed securities 975.7 1.3 3.2 AA+

Commercial mortgage-backed securities 3,970.0 5.5 2.0 A+

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$ 72,355.5 100.0 % 3.2 AA-

March 31, 2023

June 30, 2023

government obligations $ 31,600.5 53.3 % 3.4 AAA

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

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.

2 At June 30, 2024 and 2023, we had $74.1 million and $248.0 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 June 30, 2024 and 2023, and December 31, 2023, included $4.1 billion, $4.3 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.

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

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

June 30, 2024 June 30, 2023 December 31, 2023

($ in millions) Fair

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Total portfolio $ 72,355.5 100.0 % $ 59,265.6 100.0 % $ 65,998.6 100.0 %

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

1 We held no non-investment-grade redeemable preferred stocks at June 30, 2024 and 2023, or December 31, 2023.

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 (NRSROs) to classify all other debt securities.

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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.

As of June 30, 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 $1.7 billion, compared to $2.6 billion and $1.6 billion at June 30, 2023 and December 31, 2023, respectively.

The decrease in net unrealized losses from June 30, 2023, was primarily due to higher valuations across all fixed-maturity sectors, most prominently in our U.S.

Treasury, corporate debt, commercial mortgage-backed and other asset-backed 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.

Treasury portfolio caused by higher interest rates in 2024, partially offset by a higher valuation on our commercial mortgage-backed portfolio.

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

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:

The following table provides the balance and activity for both the gross and net holding period gains (losses) for the six months ended June 30, 2024:

(millions) Gross Holding

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Total changes in holding period securities 372.9 29.3 402.2

Balance at March 31, 2024

Balance at June 30, 2024

Hybrid fixed-maturity securities 5.1 (23.7) (18.6)

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

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.

Interest Rate Risk Our duration of 3.2 years at June 30, 2024, 2.9 years at June 30, 2023, and 3.0 years at 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) March 31, 2024 March 31, 2023 December 31, 2023

Duration Distribution (excluding short-term securities) June 30, 2024 June 30, 2023 December 31, 2023

1 year 9.5 % 19.8 % 18.1 %

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

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

At both June 30, 2024 and December 31, 2023, our credit quality rating was AA- and at June 30, 2023, it was AA.

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

Average Rating 1

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

June 30, 2024 June 30, 2023 December 31, 2023

AAA 12.1 % 68.4 % 10.7 %

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Treasury positions to AA+.

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 first quarter 2024.

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.

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 second quarter 2024.

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

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Treasury Notes and short-term investments.

Cash from interest and dividend payments and our short-term portfolio provide additional sources of recurring liquidity.

Cash from interest and dividend

payments and our short-term portfolio provide additional sources of recurring liquidity.

The duration of our U.S.

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

government obligations, which are included in the fixed-income portfolio, was comprised of the following at June 30, 2024:

($ in millions) Fair

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(at period end) 1

March 31, 2024

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

June 30, 2024

Residential mortgage-backed securities $ 975.7 $ (6.8) 8.7 % 3.2 AA+

Commercial mortgage-backed securities 3,970.0 (487.2) 35.3 2.0 A+

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Total asset-backed securities $ 11,230.4 $ (575.6) 100.0 % 1.6 AA

March 31, 2023

June 30, 2023

Residential mortgage-backed securities $ 562.7 $ (12.8) 5.7 % 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 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)

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 June 30, 2024, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Residential Mortgage-Backed Securities (at June 30, 2024)

($ in millions)

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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)

During the second quarter of 2024, we increased our exposure in this portfolio.

Our additions were mostly concentrated in higher-rated debt tranches, in deals that were originally issued over a year ago, that have benefited from strong home price appreciation over the past few years.

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 June 30, 2024, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Commercial Mortgage-Backed Securities (at June 30, 2024)

($ in millions)

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when we assigned the NAIC ratings for our CMBS, 66% 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 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 CMBS portfolio continued to experience lower volatility in the second quarter 2024.

New issuance activity remained elevated and modification/delinquency rates moved higher for maturing deals.

Spreads were mostly unchanged over the first six months of 2024 as the market digested the large volume of new deals.

Our portfolio grew slightly as we purchased AAA securities in the multifamily and industrial/logistics sectors while making a limited number of sales in subordinated office bonds.

As of June 30, 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)

Commercial Mortgage-Backed Securities Sector Details (at June 30, 2024)

($ in millions)

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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 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)

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 June 30, 2024, to our original investment value (adjusted for returns of principal, amortization, and write-downs):

Other Asset-Backed Securities (at June 30, 2024)

($ in millions)

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Increase (decrease) in value 0 % (0.2) % (9.1) % (5.9) % (0.2) % (4.7) % (1.3) %

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.

During the second 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.

Additionally, the collateralized loan obligation assets decreased due to elevated call redemptions while the whole business securitization assets increased as we made investments in both new issue and secondary 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)

The following table details the credit quality rating of our state and local government obligations (municipal securities) at June 30, 2024, without the benefit of credit or bond insurance:

Municipal Securities (at June 30, 2024)

Average Rating General

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the remaining 17% were collateralized by Fannie Mae and Freddie Mac mortgages.

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.

Although credit spreads of municipal bonds widened during the second quarter of 2024, we still view most of the market as relatively unattractive.

However, we selectively added to this portfolio, with a focus on higher-quality securities with shorter maturities, which we viewed as having more favorable risk/reward profiles.

CORPORATE DEBT SECURITIES

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

Corporate Securities (at March 31, 2024)

The following table details the credit quality rating of our corporate debt securities at June 30, 2024:

Corporate Securities (at June 30, 2024)

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

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Total fair value $ 4,039.4 $ 1,773.7 $ 608.7 $ 3,851.8 $ 833.7 $ 151.1 $ 1,716.2 $ 12,974.6

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.

The size of our corporate debt portfolio increased during the second quarter to $13.0 billion at June 30, 2024, from $12.5 billion at March 31, 2024.

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

At both June 30, 2024 and March 31, 2024, corporate debt securities made up approximately 19% of our fixed-income securities portfolio.

The duration of the corporate debt portfolio declined to 2.6 years at June 30, 2024 from 2.7 years at March 31, 2024.

PREFERRED STOCKS – REDEEMABLE AND NONREDEEMABLE

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

Preferred Stocks (at March 31, 2024)

The table below shows the exposure break-down by sector and rating at June 30, 2024:

Preferred Stocks (at June 30, 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.

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

As of June 30, 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.

As of June 30, 2024, we expect all of these securities to pay their dividends in full and on time.

Approximately 79% 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.

At June 30, 2024, the preferred stock portfolio’s fair value was $1.0 billion, which is a slight decrease from $1.1 billion at March 31, 2024.

During the second quarter 2024, we sold securities with low credit spreads that, in our view, had less attractive risk/reward profiles and 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 second quarter of 2024, as credit spreads tightened.

Common Equities

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

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

($ in millions) June 30, 2024 June 30, 2023 December 31, 2023

Common stocks $ 3,271.7 99.3 % $ 2,686.2 99.2 % $ 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 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.

We held 770 out of 1,010, or 76%, of the common stocks comprising the index at June 30, 2024, which made up 95% of the total market capitalization of the index.

At June 30, 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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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