The Progressive Corporation (PGR) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Annual Meeting of Shareholders of The Progressive Corporation. In light of the public health and travel concerns of our shareholders, employees and Directors and the protocols that are in place in response to the COVID-19 crisis, we are holding this meeting solely via live webcast. Shareholders who provided their 16-digit control number to access the webcast have the same rights as if they attended the annual meeting in person. Shareholders will have the opportunity to vote on the proposals if they have not already voted or wish to change their vote and may submit questions during this meeting in the space provided on the meeting website. Please refer to the rules of conduct included in the meeting materials section of the meeting website for additional details. Shareholders or other guests who logged on to the webcast without providing a 16-digit control number will be able to listen to the proceedings. However, these guests will not be able to vote, submit questions or otherwise participate in the annual meeting. Following the formal annual meeting, Tricia Griffith, Progressive's President and Chief Executive Officer, will provide an update on Progressive's response to the COVID-19 crisis. At this time, I would now like to turn the meeting over to Tricia.

Good morning. I'm Tricia Griffith, and as President of Progressive, I have the honor of presiding over the 2020 Annual Meeting of Shareholders. The meeting will come to order. Dan Mascaro will act as Secretary of the meeting and keep the minutes. The Chairperson of our Board, Lawton Fitt, is joining us today, and other Directors are listening to this meeting. I ask Mr. Mascaro to report on the notice of the meeting, together with the proof of the mailing of the notice.

I have a copy of the notice of the meeting, the proxy statement dated March 30, 2020, the company's 2019 annual report to shareholders, the form of proxy and a copy of the 2019 annual report of the company in a summarized format. In addition, I have an affidavit from an officer of Broadridge Financial Services Corporation confirming the mailing of the notice of meeting and other required documents to each shareholder of record at the close of business on March 13, 2020, the record date for this meeting, all of which Broadridge commenced distributing to shareholders on April 1, 2020. A list of shareholders of record at the close of business on March 13, 2020, is available for inspection during the duration of this meeting via the link provided through the meeting website. These materials will be filed with the minutes of this meeting. This concludes the report on the notice of and proof of mailing related to this meeting.

I declare that proper notice of this meeting has been given, and I direct the Secretary to cause the affidavit of mailing to be filed and preserved with the records of the company. At this time, I appoint Amy Pavich from Broadridge Financial Services Corporation, and Mary Brumbaugh from the company as inspectors of election. I ask Mr. Mascaro to report on whether we have a quorum present for the meeting.

I have been informed by the inspectors of election that more than a majority of the common shares outstanding as of the record date are represented either in person or by proxy at this meeting.

I declare that a quorum is represented at the meeting in person or by proxy, and this meeting is properly convened. All Progressive shareholders who logged into the meeting with their 16-digit control number are entitled to vote at this meeting and have the ability to do so during this meeting. If you are a shareholder entitled to vote and have not yet voted or if you want to change your previously cast vote, you can do so by clicking the Vote Here icon. Please remember that if you've already voted by proxy, it is not necessary to vote again. After voting has been completed on all matters on the agenda, we will close the polls, and the inspectors of election will provide their preliminary report. I now ask Mr. Mascaro to review the matters that have been submitted for shareholder action at the meeting.

As described in our proxy statement dated March 30, 2020, this meeting has been called by the Board of Directors for shareholders to act on 3 matters. First, shareholders will vote on the election of 12 Directors, each to serve a term of 1 year. All nominees for Director have been nominated by the Board and are current Directors. The nominees include: Philip Bleser, Stuart Burgdoerfer, Pamela Craig, Charles Davis, Roger Farah, Lawton Fitt, Tricia Griffith, Jeffrey Kelly, Patrick Nettles, Barbara Snyder, Jan Tighe, Katherine van Dyke (sic) [ Kahina van Dyke ].

I declare the nominations are closed. Mr. Mascaro, please continue to review the other matters that have been submitted for shareholder action at this meeting.

The second matter is an advisory vote, often referred to as say on pay, to approve our executive compensation program as described in our proxy statement. The third matter shareholders are being asked to ratify is the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2020. There were no other items properly submitted to be included as a proposal to be voted on by our shareholders today.

We will now address any shareholder questions concerning the 3 proposals. There will be an opportunity to ask questions at the end of the meeting for issues that do not relate specifically to the matters to be acted on by shareholders today. As a reminder, shareholders who logged into this meeting using their 16-digit control numbers shown on their proxy card or voting instructions form will be able to submit a question. We will pause for a moment for these questions to be submitted. [Operator Instructions] Are there any questions?

There are no questions. Just a reminder, the polls are about to close. So if you have not voted yet, please do so. [Voting]

The time has elapsed for the polls to be open.

I hereby declare the polls are closed. I've been informed that the inspectors of election have delivered their preliminary report to the Secretary. I will now ask Mr. Mascaro to please announce the preliminary results of the election of Directors and the other proposals.

Based upon the preliminary report, I have been informed by the inspectors of election that each of the nominees for election as a Director received sufficient affirmative votes to satisfy our majority voting requirement, and therefore, each nominee has been duly elected. I have also been informed by the inspectors of election that each of the proposals included in items 2 and 3 of our proxy statement has received the required affirmative vote of shareholders and, therefore, has been approved.

We will file the final report of the inspectors of elections with the record of this meeting and will issue a Form 8-K with the final voting results of this meeting. Representatives from our independent registered public accounting firm, PricewaterhouseCoopers, are present on this webcast and available to respond to any appropriate questions. Are there any questions for PricewaterhouseCoopers? We will pause for a moment for these questions to be submitted. Are there any questions?

There are no questions.

This concludes the formal part of the meeting, and I declare the 2020 Annual Meeting of Shareholders adjourned. I would like to take this opportunity to provide shareholders with a quick update on the efforts that Progressive has undertaken to help our employees, customers, agents and communities in response to the global pandemic and the restrictions that were put in place to help stop the spread of the virus. After this update, I will respond to any appropriate comments from shareholders regarding the business or operations of the company. We refer to Progressive's efforts as our Apron Relief Program, realizing that our iconic wide apron has always stood for progress, protection and a readiness to help. We believe that what we're doing is not only helping our constituents, but will benefit our shareholders in the long run. It's times such as these where our culture shines brightly, and I'm confident we will come through this an even stronger company. First, we understood the importance of protecting the health and safety of Progressive's nearly 43,000 employees. We enacted our business continuity plans swiftly and provided any employment with -- any employee who was able to work from home the tools and resources necessary to allow them to do so efficiently. While 95% of our workforce is working from home, for the employees that need to continue to come into the office, we've adjusted the workspaces to increase social distances, and we've intensified our cleaning measures. In addition to caring for our employees' health and safety, we're also looking for ways to help relieve some of their financial burdens. Our main concern was to ensure our employees, who needed this work to, continue to get paid. To provide financial relief, we paid a portion of their annual bonus in April. We also committed $2 million to start The Progressive Employee Relief Fund to assist our employees experiencing hardships. While employees are critical to our success, we do not exist without the loyalty of the customers that we are privileged to serve. While we cannot directly keep our customers safe, we can help ease some of their financial hardships and have approached this in several ways. First, we are pleased to be able to pay back about $1 billion to our customers. This will come via credits to personal auto policies in force at the end of April and May with a 20% policy credit on premiums earned during the month. The first payment has already been disbursed. We temporarily suspended cancellations and nonrenewals on personal and commercial lines policies and paused collection activities. And we are also currently providing our policyholders the ability to defer their deductibles. To help those that are helping others, we are providing accommodation for food and medicine delivery under personal auto policies and allowing commercial auto customers additional coverage options for delivery as well. Progressive is also providing delivered meals for our for-hire trucking customers, first responders and health care providers. Through the Progressive Foundation, in total, we have funded $8 million of donations to charities focused on hunger, health and homelessness. This includes Feeding America, the American Red Cross and the National Alliance to End Homelessness. These donations are in addition to matching the contributions to charities that have already been made by our employees. To support the more than 35,000 independent agents who are business owners themselves within our communities, we are offering a wide variety of both financial and nonfinancial help tailored to their specific needs. We've made over $40 million available to agents by advancing performance bonus payments to more than 4,500 agents. The opt-in period is still open, but to date, we've had 1,650 agents opt-in for a total of nearly $20 million. We are also partnering with agent associations to provide over $2 million in grants to help agents address new challenges presented by this virus. In addition, we offered some support to our network body shops. We spent $1,000 to each of our network body shops to use however they chose. We saw this as an opportunity to help when they needed it most and show how much we value them. From a financial standpoint, we realize the importance of being prudent with our capital during these uncertain times. In March, we further fortified our balance sheet and issued $1 billion of debt. To allow us to evaluate our capital needs during these uncertain times, we temporarily suspended our open market common share buyback program. Nevertheless, we paid both our preferred share dividend in March and our quarterly common share dividend of $0.10 per share in April. While no one knows what the future holds, just as we have done historically, we will continue to respond to the ever-changing environment around us. Progressive is strong and rises to the occasion in the face of adversity. We are driven by our desire to serve, whether it is our shareholders, employees, customers, agents or communities. And it's who we are, what we are built for and why we will continue to do all we can to help those around us who need it most. I can now answer any appropriate questions from shareholders regarding the business or operations of the company. We will pause for a moment for these questions to be submitted.

Our first question is directed to the Chairperson of the Board, Lawton Fitt. Ms. Chairperson, the recent dramatic growth in size of passive mutual funds corporate ownership interest in U.S. corporations raises important public policy and corporate governance issues. Currently, BlackRock holds 7% and Vanguard, 8% of the company's outstanding shares. Vanguard is an investment manager for a portion of the assets of the company's retirement plan. Does the Board see this growing interest -- excuse me, does the Board see this growing ownership concentration as a positive or negative development as regards to the long-term corporate planning and performance? And also, are there potential conflicts of interest when a 5% holder is managing the company's retirement plan assets?

Thank you for that question. BlackRock and Vanguard ownership is primarily in index funds, which mirror the concentration in the market. We don't really have a perspective on whether the level of concentration is a positive and negative. We do not feel that inclusion of broadly held Vanguard mutual funds among the many options that are available in our 401(k) plan presents a conflict of interest.

Thank you. The next question is also directed at our Chairperson, Lawton Fitt. Ms. Chairperson, the carpenter union pension funds with a combined assets of $70 billion have a collective ownership position of 798,972 shares of the company's common stock. As long-term investors, we appreciate the company's actions to address the difficulties being experienced by employees, customers and other important corporate stakeholders related to the COVID-19 pandemic. The executive compensation plan is thoughtful and well constructed, but I would like to inquire as to why a relatively short 3-year pro rata vesting schedule is used for long-term equity restricted stock unit awards, which convey considerable value to senior executives?

Our executive compensation program is market-based. Base compensation and target annual bonus and equity awards are generally below median. A high percentage of the compensation is at risk and performance-based. Above median compensation can be earned with exceptional performance. From the standpoint of the equity awards, they vest from 3 to 5 years from grant. We believe this is reasonable and consistent with the awards granted by other companies.

Thank you. The next question is directed generally for this annual meeting. As You Sow filed a resolution seeking the company's support for anti-life policies. As You Sow subsequently withdrew its proposal. As reported by The Wall Street Journal, most proposals are withdrawn after our company makes a concession to the proponent as heeding to some of the shareholders' demands. Abortion is one of the most divisive issues in America. Why would you choose to engage in such an acrimonious culture battle? And what concessions did you make to As You Sow to get them to withdraw their resolution?

As I mentioned earlier, we believe for many years that our employees and our culture at Progressive are collectively our most powerful source of competitive advantage. Our goal is to have our employees across the United States reflect the diverse consumers and markets we serve and to offer those employees the culture, workplace and compensation and benefits package that reflects their importance and value to our enterprise. We enjoy our reputation for treating our employees fairly and well, and we are committed to safeguarding that reputation and the competitive advantage that it affords us. Progressive addresses employee health insurance and coverage needs as part of its compensation and benefits package, including as to reproductive health-related matters. Our current employee benefits policies, in our view, support employees in their role as parents and provide meaningful access to coverage for sexual and reproductive health services under insurance health plans provided by our organization regardless of an employee's geographic base or position. We will continue to have discussions with As You Sow, but there have not been any concessions made.

Thank you for that response. There are no additional questions, and this concludes today's meeting. Thank you, everyone.

Thank you for participating. You may disconnect at this time.