前進保險 (PGR) 2010 Q2 法說會逐字稿

Welcome to the Progressive Corporation's Investor Relations conference call. This conference call is also available via an audio webcast. Webcast participants will be able it listen only throughout the duration of the call. In addition, this conference is being recorded at the request of Progressive. If you have any questions, you may disconnect at this time. The Company will not make detailed comments in addition to those provided in this quarterly report on form 10-Q, shareholders report, and letter to shareholders, which have been posted to the Company's web site, and will use this conference to respond to questions. Acting as moderator for the call will be Clark Cayad. At this time, I'll turn the call over to Mr. Cayad.

Thank you and good morning. Welcome to Progressive's second quarter conference call. Participating on today's call are Glen Renwick, CEO, and Brian Domeck, CFO. Also on the line is Bill Cody, our Chief Investment Officer. The call is scheduled to last about an hour.

Statements in this conference call that are not historical fact are forward looking statement that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. These risks and uncertainties include without limitation uncertainties related to estimates, assumptions, and projections generally, inflation and changes in interest rates and security prices, the financial condition of and other conditions -- other issues relating to the strength of and liquidity available to issuers of securities held in our investment portfolios, and other companies with which we have ongoing business relationships, including counter parties to certain financial transactions.

The accuracy and adequacy of our pricing and loss reserving methodologies, the competitiveness of our pricing and the effectiveness of our initiatives to retain more customers, initiatives by competitors and the effectiveness of our response, our ability to obtain regulatory approval for requested rate changes and the timing thereof, the effectiveness of our brand strategy and advertising campaigns relative to those of competitors, legislative and regulatory developments including but not limited to health care reform and tax law changes, disputes relating to intellectual property rights, the outcome of litigation pending or that may be filed against us, weather conditions, changes in driving patterns and loss trends, acts of war and terrorist activities, our ability to maintain the uninterrupted operation of our facilities, systems, and business functions, court decisions and trends in litigation and health care and auto repair costs, and other matters described from time to time by us in other releases and publications.

In addition, investors should be aware that Generally Accepted Accounting Principles prescribed when a company may reserve for particular risks including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for one or more contingencies. Also, our regular reserve reviews may result in adjustments of varying magnitude if additional information regarding claims activity becomes known. Reported results therefore may be volatile in certain accounting periods. With that we are now ready for our first question.

(Operator Instructions)

Our first question today is from Vinay Misquith with Credit Suisse. Your line is now open.

Hi, good morning.

Hi.

How's the rollout of the new product model that your refined segmentation resulted in lower overall pricing?

That rollout continues on, and it's always hard to answer that question on a relative basis. But for the more preferred sector, I think we told you maybe in June that, that product design had a lot of good features in it across the board. But if you had to single out one significant change, it was little bit more of an opportunity to go after the preferred market. In a way that is continuing to build on the information we've had. Clearly, that's not new for us, but we get more and more experience in that area and that model reflects it. So, if I were to answer that question, I would say in general, a little bit more aggressive pricing, actually I'll take that word back. It's not aggressive just good pricing for the preferred sector, and generally reflecting all of our best product features and where we can give greater segmentation opportunities and discounts to those who deserve it. This product is our best in the market ever.

Fair enough. And has it changed the pricing on non-preferred customers?

The nonstandard sector, the answer is yes, it changes prices because we do that sort of all the time. But this product model while good for that sector, the real emphasis is more on the preferred. Having said that, let me make sure that there's no doubt that our emphasis on nonstandard mid-market is an area we have lots of experience in. So the rate of change of our knowledge and product is not as great as it might be at the other end of the spectrum. And our interest and intensity on that marketplace doesn't waver at all. In this particular climate, we're seeing perhaps a little bit more pressure in that environment, little less demands. But for the most part our nonstandard in both channels is actually performing well for us.

Okay. That's great. As a followup, this is more a philosophical question. As a business -- has a person or business become more transactional? Whereas in the past you might have brought homeowners and auto together and stayed with a carrier for a long time, do you feel that customers now are willing to shop around more and sort of disaggregate these two pieces?

I'll break that apart into two pieces. More transactional and disaggregation. I would say on average, yes, it is more transactional today, and you reach that conclusion simply by thinking that we're collectively as an industry putting several billion dollars into advertising, telling people to be more aware of the choices that they have available to them, and they can make. And probably if I contrast that to -- and I'll go back to sort of early 1990's, proposition 103, one of the key thing that consumers ultimately were saying through that proposition is we didn't understand that prices between insurance companies were that much different. Frankly, after that we created a comparative pricing service which you are well aware of. I think that environment has changed dramatically. I don't think consumers today think that all insurance companies are the same. They've got lots of messages that say that they're not.

So their interests are well served in looking around. And we reported during the aftermath of really the height of the economic crisis that we had a very high demand in our direct channel. And that's continued for some time. And, again, while we can't always know what motivates a consumer, we always speculated that, that would simply be people taking a great deal more interest in their personal finances and saving money where they could. So the transaction volume has increased simply because, a, marketing, b, greater availability of means and channels, the internet being primary amongst them, mobile will sort of be in that league in a few years. So transactional, I would say, yes. Absolutely. Doesn't on the other hand mean that retention has failed. So for those who actually have good services and products and those transactions have brought new customers, we've been able to show you and we showed you in June that our retention has monotonically increased now for several years.

With regard to bundling, as much as it would be in Progressive's best interest to see everybody buy the best of breed product, auto and homeowners, and combine those in a way that makes sense, I would say that the predominant practice in the industry today is still bundling from the same carrier.

However, as you've seen from our reported results and some others, Geico would be another company that tends to use their own best of breed auto products combined with an accommodating homeowners product, that is something that the -- that offering really for all intents and purposes in the market is relatively new. Sort of within the last decade, more concentrated in the last five years. And seems to be appealing to people in ways that perhaps reflects to the strength of the brand of the company offering them. So we offered under the Progressive home advantage moniker. And the Progressive brand is appealing for people. And we're selling a very comfortable amount of our package policies, and we hope that that'll become something that consumers accept in even greater numbers from what we see so far. We're very encouraged.

That's great. Thank you.

Thank you. Our next question is from Meyer Shields with Stifel Nicolaus. Your line is now open.

Thanks. Good morning, all. Glenn, does the pricing or the segmentation data from snapshot indicate any significant market segments where Progressive can earn better than a 96% combined ratio?

Surely from Snapshot, as we talked to you in June about, l think we really are well advised just to say let's talk about that in two quarters from now. The data from Snapshot and that configuration is way too immature to draw conclusions. To the extent that clearly the UBI, which is really the usage based that's the core of all of this is something that we had a lot of experience with, and we've actually shown you on different occasions that we believe that as a predictor of pure premium segments it's extraordinarily good.

So the answer is, yes, it's an extraordinarily good segment for pure premium. Snapshot as the reconfiguration out of it, we really don't have significant data to report on that. And to get to the other phraseology of the question. Not really a question of whether we would find a segment that we could write at a combined ratio less than 96. We would -- we try to normalize all segments and frankly if that segment was sizable enough we would use the pricing power of that segmentation to allow us to get greater numbers in that and still meet our target combined ratio.

Right. That's assuming that there's enough elasticity I guess on the margins?

Yes. I mean, the fact is there are segments of this business, I don't know that we've got a lot of specific facts on this. There are segment this business that are relatively unearthed. People have bought their insurance policies and are not quite, in response to the first question, not as transactionally oriented as others. This is an opportunity for us to have an offering which is new, different, distinctive, and might very well appeal to a segment that we don't get at. And if that segment is such that their lost cost and this exposes those lost costs to be very favorable, it may be our opportunity to really get some serious marketing approval.

Okay. By way of follow up, we've been talking for a while about the agents shift to competitive raters. I'm wondering if we're at a point now where sort of the bulk of that mindset has changed so that you can track the trends in your hit ratio, as amenable?

Could you say the last piece of that question again, you faded out?

Sorry. I'm trying to understand whether there are credible trends in your hit ratios that would delineate the overall competitive position. Based on how you're doing with competitive raters.

Yes. Brian, maybe you can go at that, as well. I'm not sure that I totally got your question so redirect if you need to. But to the extent that we talked about comparative rating become a shifting paradigm, I think that shift is wisely in place now, and the sort of results and conversion ratios and quoting activity that we see is more normalized. We probably went through a period of knowing it was going change somewhat, and it did.

Now I think that we are actually comfortable with that. And we've reported that we've responded in our own presentation of rates well in that regard. But I -- I don't see a mega shift happening. There may be states that are a little bit more active than others, but for the most part, that shift is over. Brian, any thoughts on that?

Yes. I think the shift to comparative raters and the usage in the agency channel, I mean, it's a migration over time, and I think it's fairly entrenched in those agencies they're going to available themselves of that.

Certainly that has driven what we call our quote volume up. And particularly in the more preferred segment of the marketplace. And as a result of more quotes, we've actually seen our conversion rate decrease slightly relatively in the second quarter, relatively flat for the year. But I think most of that migration is over now, and certainly we actually look at conversion rates on an individual state level relative to our positioning them in that front. But in terms of the migration, I think it's largely already done.

Okay. Thank you very much.

Thank you. Our next question is from Matthew Heimermann with JP Morgan. Your line is now open.

Hi, good morning. A couple questions. First, and I apologize, I can't remember if this was covered at the analyst day or not. But with respect to kind of the efforts to improve agency relations for lack of a better description, can you talk a little bit about two things. One, whether or not changes in commission ratios will play a significant role in that, and the second thing is from an outsider's perspective, how would you recommend that we think about monitoring the progress in that area?

We touched on it, but not necessarily those exact questions. And we talked to the first question. We really don't have any macro changing commissions planned. So we run our commission level ten, 10.5 in the agency channel.

What we did talk about was a bullet point in our Progressive on a page strategy that we shared with you. And that was that specific agents who have engaged with us and we sell more preferred policies and in their agency we are a valued writer of preferred business, that we are planning -- more than planning, we've already rolled out and will continue to roll out a program we call Signature. And that is a multi-class program to an agent including some marketing activities that we can support them on and other things that John Barbagallo covered in his comments.

But it does involve increased commission. And that's a program that needs to be somewhat earned by the agencies. So it's really a contractual commitment to give us a certain volume of business and keep that program. And that program carries with it an increased commission.

We also talked about what the implication of an increased commission, does that mean pricing effect, and what we said is far from clear yet. If we get the kind of business that we're looking for, we may very well be able to handle that commission load with relatively little pricing impact.

To the second point on progress with agent relationships, while there are always different views, we have our own monitoring and NPS net promotor score that we track our agents with. And while there may be issues in the marketplace from time to time, and there's always going to be some issues around commission, we feel very comfortable with our agent relationships that we have. Comfortable's not a state that we necessarily rest on.

And our sales leadership, our agent relationship sales are doing a lot of work to continually improve that. We've got agent advisory councils. We bring our agents into Cleveland and share with them what's going on in the Company. We tried to do many special events.

Again, we've got the signature program, so our own internal measure of NPS is the way that we would track that. To be perfectly frank with you, I'm not aware of any measure that I would feel totally comfortable with being global enough with 38,000 agents to suggest that there is anything credible from an external perspective, and our internal measures are really that, so I don't plan to change and share those. They are favorable, showing continued favorable improvement. But there's nothing particularly dramatic to report there.

Just a couple follow-ups. First, with respect to -- for the preferred agents. I'm assuming that, you know, part of the goal there is to sell the package products. I guess should we think about the potential commission upside for those agents being similar to what other independent agency companies might pay for a package, which is probably at least on new business, probably more like 15?

Yes. I think that's reasonable to think on that, we will have a split between new and renewal. But 15 is probably a better way to think about the net.

Okay. And then the -- with respect to the eight -- tracking the agency progress, I guess is it fair to say that net -- I would assume that net promoter, there's a relationship between share of office and net promoter score. But I guess maybe more broadly, can you maybe touch on of that -- of those 38,000 agents that you might have a business relationship with, I guess of how many of those agents are you in the top three of their office from an auto production standpoint?

That's a fair question. And I don't know that data right off the top of my head so I'd rather not even take a stab at that. It may well be off by more than I would like it to be. So fair question. Don't know the answer. Happy to report on that if you --

Well, I'm curious if going forward you think that might be a fair way to think about --

Yes.

The relationship --

You made a comment that is NPS a way to think about share of agency. That may not necessarily be quite as direct relationship as we might all like. There are many, many agents that think extremely highly of Progressive, but they have other credible carriers, in some cases. Some cases.

They are comfortable packaging, as I said, the home and owner -- home and auto together with a carrier that they've got a long-established relationship with. But it doesn't mean that they don't have a very strong feeling and relationship with us. It's just a question of how they use us in the agency.

We clearly are trying to become more of a first choice from a more monoline preferred auto. We are clearly in many, many agents. I wish I knew the number I don't, so I don't want to wing it, but I think sort of preferred choice for nonstandard mid-market. I think we're there maybe even in the vast majority of agencies. We're not necessarily there as the preferred carrier of choice. And we're gaining in that regard. Maybe your question has prompted some thinking of just how can we calibrate and report some credible measure of that gain. I'll take that as a to do.

And with regard to the homeowners combination, that's another way of giving agents something that truly is an opportunity to give us a different positioning in the agency, and while that will remain a work in progress for some time, we've got off to a very good start. But I think we've still got more work to do on making those two products work exactly the way the agents would like them to work. And we're very committed to getting that done.

So your question is really sort of how are we penetrating agents from the many, many years ago, we were a combination -- a good choice for market of last resort. We're very, very differently perceived in the agency channel today. And we've still got a ways that we think we can penetrate agents even greater. I will give some thought to how we might be able to calibrate that and give you some meaningful measure.

All right, much appreciated. Thanks.

Thank you, our next question is from Michael Nannizzi with Oppenheimer. Your line is now open.

Thanks. Just a portfolio question if I could. So the duration came down from 2.3 years to a couple years. It looks like you sold some short-term securities. I'm sorry, sold longer term security, bought some short term, which makes sense. One question just -- how much of that lower duration is a result of the change in fair value in the mortgage backs?

None, I would say. Nothing material. This is Bill Cody by the way. That was a conscious effort on our part to reduce the portfolio duration as the rates came down.

Okay. And then, so are you -- looks like you're allocating more funds to corporate. Have you talked about how much is triple B -- you mention investment grade and below. But just the triple B and below category of your run-off or cash flows from operations.

Cash flows from operations, we treat cash from operations as -- the same as cash from the portfolio in the run-off when we look at investments. So we have our overall portfolio credit rating constraint, which we've held relatively steady at the double A level. Corporates that we've added have been mostly in that BBB range, more recently but I don't think we've broken that out publicly. We considered doing that, though.

And then -- and so it's shorter duration. Is it fair to assume that the intersection of -- you're buying shorter duration, lower rated corporates or you're buying lower rated corporates and also short duration, maybe treasuries something else?

What we've added I'd say in the quarter has been a mix of corporates in that intermediate duration range, think in the kind of two to five-year range. And a little bit out longer than that, would have been opportunities in corporates. We've probably added a little bit over $400 million of corporates on the quarter. We also added some of the ABS sector. And in the CNBS sector, where we saw some opportunities there. Most of the ABS and CNBS has been in the higher rating categories.

Okay. And then -- so the orientation clearly sensitive to inflation. As the environment has changed, do you have thoughts on your outlook for inflation and maybe how changes there might change your perspective on reinvestment in the portfolio?

Sure. I think what you're noting is that we are defensively positioned on the rate front. Our view is that the inflation although it's low and likely to stay low near term, the deflation stories that we're hearing about or discussions about deflation is certainly not our base case or high probability case. We're more defensively positioned against a -- I'd say a rising or steady rate of inflation or reasonable rate of inflation, as you look at rates at low level, two-year treasuries, 50 basis points and threes at 75. Five at 1.5%, that doesn't buy us much in the way of protection against the rising rates at any point before we have a loss from a total return perspective. What we've done is keep the duration short and look for solid credits, whatever they happen to be rated because we don't focus on that as much. But solid fundamental credits that will perform well in even a weak economy and provide us with some reasonable return on an absolute basis under most any plausible circumstance.

Just as a followup, we did shrink our treasury and cash position net together on the quarter. So looking at the net buying, those were reduced a small amount in the quarter.

Great. Okay great. Thank you very much.

Thank you. Our next question is from Paul Newsome with Sandler O'Neil. Your line is now open.

Thank you and good morning. One of your competitors mentioned to me the other day that they felt that advertising spend which had gotten obviously a lot for you folks and for the rest of the industry had reached essentially a point of diminishing returns. And I think some of this argument was the direct business was going to end up with a rising expense ratio as the ad spend sort of reached as the incremental dollar gives you less. I was curious if you had seen that in your own data, and if you think that that's something that could actually happen?

Let me answer that without necessarily commenting on someone else's view of it. We clearly have communicated pretty often, I hope, that we'll spend as much money in advertising as we think is appropriate relative to the yield we get from that. So on numerous occasions even on this call we've discussed -- we don't have a fixed budget, so we're not out there spending it. So we're calibrating all the time to the yield that we get on our advertising dollars spent.

Any advertising dollars spent is going to be added to the expense ratio. That's by definition. We have not spent as much as some in the marketplace. And we tend to do that because we're focused on the effective yield. I would tell you that there is almost mathematically a cost at which the marginal dollars spent can become ineffective.

We're always trying to spend up to the point that we think that the marginal dollar, the last dollar we spend is still effective relative to the overall yield on the book. Knowing exactly where that is, hard to know. We look at it simply from our own results, and I wouldn't be in major opposition to saying that the amount of advertising for the entire industry now may be closer to its long-term peak than not. But we'll see.

I think all we can really do is just manage our own spending very wisely. And we have resisted it many times in the past, where we didn't feel we should spend more because the yield didn't seem to be worth it. When we've got our products priced at a great level and our conversion rates are high, we can afford to spend. It's also a function of the effectiveness of the creative. So right now we feel our creative is working quite well for us. So it's a combination of things, I think on a macro basis. Yet, I don't think we're going to see advertising in the industry double and we may be closer to the top. But only time will tell.

This is Brian. Just a few additional thoughts. As Glenn talked about and we mentioned in June, we measure our yield by cost per sale relative to a target acquisition cost. That which we've incorporated in the pricing. And that cost per sale would be a function of a couple things, one, how many people to do we get to quote with us? And then our conversion rate on that. So even if the number of prospects or the number of shoppers which has still increased for us, but if that were to -- the rate of change topper slow down as our conversion rate has improved, that has enabled our cost per sale to still meet our target acquisition cost.

And the other component piece is if your policy life expectancy stays longer, you can increase as you can have a higher targeted acquisition cost. And our policy life expectancy has been growing over the last few years. So it's a combination of those. But-- so it's a combination of those. But if the question were the advertising spend relative to the number of shoppers, that incremental cost is likely increasing. For us we have seen it increase. I suspect in the whole industry it has increased somewhat.

That was wonderful, thank you.

Thank you.

(Operator Instructions)

Our next question is from Josh Shanker with Deutsche Bank. Your line now open.

Thank you. Good morning. My question which I think might have been answered in Meyer Shields' question, I was wondering whether we might see the first commercial advertising snapshots and, likewise, when I might be driving by the first agency that I see a Progressive sign outside in the new Signature agent-type format.

I'm happy to give you more information on that next time we talk. But I would set your expectation at first quarter for commercials on Snapshot. And the reason is the effectiveness of advertising that we really put our money behind is national. We don't want to advertise something on a national basis when we don't have it deployed in sufficient quantity to appeal to almost all viewers. So first quarter would be my guidance on your first question. And I'll update that at the next conference call if you remind me.

With regard to Signature -- you should have been already able to drive by many agents, countrywide for many years, displaying Progressive signs. And specifically the Signature Agent designation, we have no current plans for changing that sign. The Progressive sign is really all that's important. The Signature is really a relationship business to business relationship between Progressive and the agent. I don't think that's of great value to the consumer at this point.

And in terms of the rollout of Snapshot, how many states should we expect in by the end of 3 Q, and how about by the end of 4Q?

I'll give you the guidance relative to your question of advertising. We would expect to have it at about 75% of our written premium base before we did advertising to the general public.

Okay. Thank you.

Thank you. Our next question is from Ian Gutterman with Adage Capital. Your line is now open.

I have a Snapshot question if I can. How common will it be for someone to get close to that 30%, say 20% to 30% discount, or is more normal going to be, say, 5% or 10%?

Brian, do you have some data on that?

I think the average discount would be higher than that five -- or the expected average discount would be higher than that 5% to 10% range that you referenced. Modestly higher than that 10% range. Is what we expect and we'll see over time as we figure out which consumers take advantage of the program, et cetera, and then what their experience is. But based upon what we have seen today and our models, we would expect the average to be higher than that 10%.

Is 20% to 30% going to be a relatively small percentage? Maybe less than a quarter?

Honestly, not hedging the question there. Ask it again next time. But we'll roll this out in June in two states. July we've actually increased the number of rollouts, but we are really talking about June here. So two states, we just don't have that distribution. I think when we talk about this would be a distribution of the percentage discount.

Right. But --

You have a very clear understanding of what our expected mean mode and distribution looked like. But when you throw something out in the marketplace, we'll see how consumers respond to that.

That is it -- the reason I'm asking is trying to get the price data points and more, I was wondering how you thought about this from a marketing standpoint. You know, if you're going to be advertising, you can save up to 30%. My guess is the average person is going to think, hey, I should be getting pretty close to $30. And if they get 12%, maybe they're going to say, you know, hey, Progressive doesn't think I'm that good a driver. And then they get mad at you as opposed to -- you know what I mean? If it's a regular commercial, you can save 15% in 15 minutes and I only save 8%. I don't think it's a judgment on me. But if I only save 12% and I hear I can save 30%, it means Progressive's telling me other guys are better drivers than me. And I get frustrated.

Can I answer that with a -- you are sounding very similar to some internal discussions. And we have acted upon that because this is way to good to have people feel like, gee, I didn't get an A, even if I got a passing grade in the test it makes me better than others. So, yes, you're highlighting a very real marketing issue, and you may well see that reflect in our marketing messages.

We don't want to set an expectation, have someone feel that they didn't get that expectation, but they were still far better than anything they could have gotten in the marketplace but some how don't have the kind of feeling towards Progressive that we would all like. So, we're conscious of exactly the same thing. Initial marketing, yes, we did say up to 30%.

We will be very conscious of that marketing message, and as we do with almost everything that we roll out, we'll make sure that we double back on all sort of the positives and the potential negatives to see exactly how it's being received, what are the possible pitfalls, and that is the beauty of having -- there are times that I could say it's not beautiful to have 50 regulatory environments, but given that we can roll it out, we actually get the benefit of a rollout and some measurement before we have to commit to the bulk of the states.

Got it. All right. Thank you very much.

Thank you.

(Operator Instructions)

Our next question is from Vinay Misquith of Credit Suisse. Your line is now open.

Hi, just another followup. On the higher retentions, it seems that your retentions are increasing. I'm wondering how much of that is pricing because of keeping pricing flatish. Because the average payment per policy I believe on the agency is down about a half percentage point and on the direct is also down about 3% to 4% points. How much of that is pricing and how much of that is maybe name your price where people are selecting also a lower price point for their insurance coverage?

Yes. What you're referencing is what -- let's what we would call pricing and more the average premium. Average premiums can change for lots of different reasons, especially when you look at them in the aggregate. That can be mixed, geographies, as we talked about several times, cars are getting older. So we're seeing sort of a negative premium trend there. Which, hopefully will be one source of inflation in years to come.

No question when consumers have a rate that's not going up, that will contribute to retention. I wish I could tell you after a lot of years of thinking about it exactly how we could pull out the individual pieces. It is a piece, I think our brand strength is a piece. We've talked to you a fair amount about the work that we've done and continue to do about eliminating reasons customers leave, giving them reasons to stay, like our loyalty program. We've hit a good number of these things.

Unfortunately, while I'd love to say here's the contribution value of each of them, we know the activities we're taking, we measure each of those activities individually before we sort of commercialize them. If they look good, name your price, we clearly we're able to test that. We told you, I think, that the selected price by a consumer tends to differ by less than 1% over the recommended price. So we don't think that's a great driver of average premium reductions. But it may be a driver of consumer satisfaction in their selection. Those are very hard to pull out.

So all I can really tell you is that all of the actions that's we do, we try to test them individually. When we put them together, we're then at the point of only being able to measure the aggregate outcomes. The aggregate outcomes are good, individual pieces seem good, but I can't tell you the relative contribution value when we put them together.

Okay. Fair enough. In terms of lost cost trends, they seem to be reasonable right now. So are you moving pricing at all, or have you been moving pricing over the last three months because lost cost trends are more reasonable?

We're always moving pricing. And I don't mean that to be less than full disclosure answer. We're always moving pricing. That's what we expect of our product managers, managing every product every state. So it continues to move over the first six months this year. The average price change, slightly positive. A couple of points. And while I make no predictions of the future, I would expect to -- more likely to be slightly positive, but not a lot. You're right. Trends are quite moderate at this point in time. Both on a frequency level and a severity level.

My suspicion is, again, we've talked about a couple of activities that could reverse trends and could accelerate them. We don't know. That's why we'll continue to watch in the data and act very quickly. We talked about the medical costs, trends shifting, we've talked about that in June. I've referenced that cars are getting considerably older, that means that when a car's in an accident, the likelihood of it being totaled is much higher now than it is of it being repaired relative to what it was a few years ago. That trend will eventually change. And we'll start to see newer cars, and shifting dynamics of the claims process. All of which could bring about new trends that we'll have to stay on top of. And those are the things that can happen reasonably quickly.

That's great. Thank you.

With that there are no more questions. So we'll end the call and look forward to speaking with you in the third quarter.

Thank you. That concludes the Progressive Corporation's Investor Relations conference call. An instant replay of the call will be available through August 20 by calling 1-800-839-3139, or can be accessed via the Investor Relations section of Progressive's web site for the next year. Thank you for participating, you may disconnect at this time.