Q2 2021 Allstate Corp Earnings Call
[music].
Thank you for standing by and welcome to the Allstate second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question. During the session you will need to press star 1 on your telephone as a reminder, today's program is being recorded and now at <unk>.
Like to introduce your host for today's program of Mr. Mark Nogle head of Investor Relations. Please go ahead Sir.
Thank you Jonathan Good morning, welcome to Allstate second quarter of 2021 earnings Conference call. After prepared remarks, we will have the question answer session. Yes.
Yesterday following the close of the market, we issued our news release and Investor supplement and posted related materials on our website at Allstate, but sort of dot com our management team of tier to provide perspective on these results.
Furniture, and expanding availability to home depot stores.
Strong execution generated excellent financial results with revenues increased 23, 8% compared to the prior year adjusted net income of $3 billion and of return on equity of 23, 8% for the last 12 months.
Shareholders benefited from of 50% increase in the quarterly common dividend and a reduction in outstanding shares by 2.4% just this year under the current $3 billion a share repurchase program yesterday. The board of proof the new 5 billion dollar common share repurchase program, which represents approximately 13% of current market.
Capitalization and we expect the complete that by the end of March of 2023.
Let's continue on slide 3 in addition to operating execution, we're innovating to create long term value. The transform it of growth plan to create a digital insurance companies, making good progress today, we're going to spend time talking about the distribution component of that plan.
Allstate is amongst the leaders in telematics capabilities of drive wise in the industry, the largest pay per mile product mile wise, which offers customers unique value.
<unk> R. Telematics service platform Company recently launched Eric IQ, which when combined with lead cloud of transparently platforms will integrate telematics information into the pricing at the time of quote rather than at the times after the sale.
We enhance our competitive position an independent agent channel by using the national general to consolidate and improve our business model.
We executed agreements to sell Allstate life insurance company, and Allstate Life Insurance Company, New York to redeploy capital out of the lower growth in return businesses and reduce exposure to interest rates.
Increasing market share on maintaining attractive returns and expanding protection solutions to transformation targeted acquisition and divestitures will create shareholder value.
Slide 4 lays out the store Allstate strong second quarter performance revenues of 12.6 billion in the quarter increased 21.6% compared to the prior year.
Largely reflects the net national General the acquisition and higher net investment income.
Property liability premiums earned and policies enforced increased by $12.9 and $12, 1% respectively.
Net investment income of $974 million increased by over 3 quarters of of $1 billion compared to the prior year quarter, reflecting $649 million of income from the performance based portfolio net.
<unk> net income of 1.6 billion was reported in the second quarter compared to 1 of $2 billion on the prior year.
Adjusted net income was $1.1 billion of the <unk> dollars 79 cents per diluted share. If you can see from the table on the Bob as of 40% increase from the prior year quarter.
Allstate excellent execution of strong operating results in the quarter contributed to that return on equity, which had just mentioned of 23.8% over the last 12 months.
Let's move the slight 5.
Discuss our progress on the building transformative of growth.
Business models.
So the transport with both of the multiyear initiative.
What we are working to do is build a low cost digital insurer with broad distribution.
And that's going to be accomplished through 4 areas expand the customer access.
Improving customer value.
Increasing sophistication and investment in customer acquisition, and deploying new technology ecosystems and transfer of grow you wouldn't do it all on 1 day of course sort of get 5 phases and substantial progress has been maintenance basis 2 of 3.
Phase 2 successive include improving the competitive price position of auto insurance.
Protecting margin by reducing costs.
The advertising was launched with increased investment.
We also off to an excellent start with National General.
And of course of the pages overlap. So progress is also be made in phase 3 so we're transforming the distribution platform, including supporting transition of all of the agents the higher growth and lower cost models, which will discuss on the next slide.
Improving customer acquisition sophistication will lower costs relative to the lifetime value.
We continue to focus on lowering underwriting claims expenses to deliver the lower cost of protection of customers.
And we've designed the new technology architecture, we've coded much of the new applications. The next step for US is to launch an integrated system with 1 product in once a day.
Turning to slide 6 let's review, how we're transferring the Allstate agent of the direct sales and independent EG distribution platforms to grow market share.
The illustrative slides on the right side of the slide show provide of view into our growth expectations by channel overtime.
Starting with Allstate exclusive agents, we're making progress transitioning to a higher growth in the lower cost model. This year, we changed each in compensation by increasing the business compensation opportunity.
And reducing of bonus paid on policy renewals.
We expect to continue the shift from renewal compensation to new sales because of the lines with what consumers want consumers want assistance with purchasing insurance more than they want routine policy service.
The lower costs for agents were digitizing processes redesigning products increase self service and expanding centralized server support.
We're also working to reduce the agent operating expenses in real estate costs.
These changes will improve the customer value proposition with lower cost and easier service.
Now of course, you're not going to do this in 1 day, either so multi year transformation transition program is a place to support existing agents, we've initiated it and it has different levels of the support based on agent performance.
Given this transition we reduced knew each of your appointment last year, which is near the negative impact on business new business level.
But it is Mario will discuss next this has been offset by higher productivity from existing agents at.
At the same time, we have 2 new age of model to market, which have personal touch bit of lower cost structure.
All of these changes are supported by more competitive auto insurance pricing and increase marketing spending which is designed to continue to grow the as you can see on the right. The net impact of these changes for the of the agent channel. It has to be flat to a slight decline in sales in the short term, but increased growth thereafter.
The Allstate direct sales effort leverages the capability that we built of the Sheriff sprint.
And we've shifted our advertising focus of waste of Esurance to be totally focused on the Allstate brand and utilizing the direct channel for Allstate, Brian sales as well the pricing is lower than the Allstate, Egypt model of since it doesn't come with the help of an agent.
And is this business grows we're improving our operational and marketing effectiveness direct sales now represent 29% of new auto business sales and we expect that the continued to grow rapidly as you can see on the Brian.
Independent of the agent distributions also represented a track of growth appetite.
The acquisition of the National General enhance our capabilities in this channel and the and its 4 million policies and of course Ado.
The additional growth is expected by broadening the product portfolio from hybris drivers to middle market Auto home insurance due to the existing agent relationships. We also expect to increase the number of agents actively engaged in selling national channel products.
So when you combine this effective and efficient distribution with more competitive auto insurance of pricing enhanced marketing advanced pricing and telematics in the digital experience. That's the transformative growth plan that will drive property liability market share growth.
So of Mario will now discuss the second quarter results of more detail.
Thanks, Tom turning to slide 7 looks type deeper into near term results on our multifaceted approach to grow property liability market share.
As you can see on the chart on the left side of the slides property liability policies of course grew by 12.1% of compared to the priority of your quarter, primarily driven by National General and growth and Allstate brand new business.
National General, which includes encompass contributed growth of 4 million policies and Allstate brand property liability policies increase in the quarter driven by growth in homeowners and the other personal lines.
Allstate brand auto policies enforced declined slightly compared to the prior year quarter, what increase sequentially for the second consecutive quarter, including growth of of 111, the policies compared to prior year and as you can see on the table on the lower left.
The chart on the right show the breakdown of personal auto new issued applications compared to prior year.
We continue to make progress on building higher growth business models, as we look to achieve leading position leading positions and all 3 primary distribution channels.
The Middle section of the chart on right shows Allstate brand impacts by channel, which in total generated of 6.7% increase in new business growth compared to the prior year.
Modest increases from existing agents, excluding the appointments and of 31% increase in the direct channel more than offset the volume that would normally have been generated by newly appointed agents as we pilot new agent models with higher growth and lower costs.
The addition of National General also added 481, new auto applications in the court.
Let's turn to slide 8 to review property liability margin results in the second quarter.
The reported combined ratio of 95, 7 increased 5.9 points compared to the prior year quarter.
This was primarily driven by increased losses relative to the historically low auto accident frequency experienced in the prior year quarter due to the pandemic.
Increased losses were partially offset by lower pandemic related expenses, primarily shelter in place payback from 2020 as well as the lower catastrophe losses.
These are represented by the Green bars, and the combined ratio reconciliation chart on the lower loss of the slide.
Shifts shifting to the chart on the bottom right. We continue to make progress in reducing our cost structure. This enables improvement in the competitive price position of auto insurance and investments and marketing and technology, while maintaining strong returns.
The total property liability expense ratio of 24, 7 and the second quarter decreased by 7.1 points compared to the prior year again, driven by lower Corona virus related expenses. This.
This was partially offset by the amortization of the purchased intangibles associated with the acquisition of National General restructuring charges and a bureau, 7 increased from higher investment in advertising.
Excluding these items as shown by the dark blue bars, the expense ratio of decreased by 4 points in the second quarter compared to the prior year period decreased 1.7 points below year, and 2019 and 2.5 points below year and 2.2018, reflecting continued progress.
And improving cost efficiencies.
Claims expensive expenses have also been reduced true innovate innovations such as quick photo of claim virtual assist and the aerial imagery.
Which also improves the customer experience. These claim improvements are not reflected in the expense ratio, but are in the loss ratio and also helped maintain margins.
Moving the slide 9 let's discuss how our auto insurance profitability, which remains very strong and it's still favorable to prepandemic levels, Despite pandemic driven volatility.
Allstate protection model underlying combined ratio of finished at 91.
As you can see from the chart the level of remains favorable to 2017 through 2019 historical second quarter and the year and levels, despite increasing by 9.4 points compared to the prior year quarter.
The increase the the prior year quarter reflects the comparison to of period with historically low auto accident frequencies the.
The improvement relative to historical levels.
Is driven by auto accident frequency remaining below prepandemic levels, partly offset by Otto severity increases and competitive pricing enhancements.
To illustrate the pandemic driven volatility Allstate brand auto property damage gross frequency increased 47, 3% from the prior year quarter.
What is 21% lower than the same period in 2019.
Otto severity increases persisted relative to the prior year quarter, and prepandemic periods across coverages largest largely driven by the shift and mix to more severe higher speed of auto accidents, and rising inflationary impact in both the used car values and replacement part costs.
The encouraged severity increases are running higher than general inflation, which are reflected in the recorded combined ratio.
To counteract rising severity, we're on leveraging advanced claimed capabilities predictive modeling <unk>.
The advanced photo and video utilization and deep expertise and repair process management to enable of scaled response to inflation and supply constraints.
Targeted price increases will also be implemented as necessary to make to maintain attractive auto insurance return.
Now, let's shift to slide 10, which highlights investment performance for the second quarter net.
Net investment income totaled $974 million in the quarter, which was $754 million above the prior year quarter driven by higher performance based income as shown on the chart on the left.
Performance based income totaled $649 million on the second quarter as shown in Greg, reflecting both idiosyncratic and broad based evaluation increases in private equity investments and to a lesser extent gains from the sales are real estate equity.
Market based income shown in blue was $3 million above the prior year quarter, the impact of reinvestment rates below the average interest bearing portfolio Ye'll was mitigated in the quarter by higher average assets under management and prepayment fee income.
Our total portfolio return on the second quarter of totaled 2.6%, reflecting income as well as high higher fixed income and equity valuations.
We take an active approach the optimizing our returns per unit of risks over appropriate investment horizons.
Our investment activities are integrated into our overall enterprise risk and return process and play an important role in generating shareholder value.
We draw on of deep an experienced team of roughly 350 professionals to leverage expertise and asset allocation portfolio of construction fundamental research deal leadership quantitative methods manager selection and risk management.
While the results for this quarter were exceptionally strong, particularly for the performance based investments we manage the portfolio with the longer term view on return at the right. We have provided our annualized portfolio returns over of 3.5 and 10 year horizon.
As disclosed on our investors supplement or performance based portfolio has delivered on a tool unattractive, 12% IRR over the last 10 years, which compares favorably to relevant public and private market comparisons are.
Our performance based strategy takes a longer term view, where we seek to deliver attractive absolute and risk adjusted returns and supplement market risks with idiosyncratic birds.
Moving the slide 11 protection services continues to grow revenue and profit.
Revenues, excluding the impact of realized gains and losses increased 27.1% to $581 million on the second quarter.
The increase was driven by continued rapid growth in Allstate protection plans and expanding marketing services at parity due to the integration of lead cloud and transparently, which worked wired as part of the National General acquisition.
Policies of course increased 15.5% to 147 million also driven by Allstate protection plans and supported by the successful launch with the home depot in the first quarter.
On just the net income was $56 million on the second quarter, representing an increase of $18 million compared to the prior year quarter, driven by profitable growth and Allstate protection plans and profits at equity and Allstate identity protection.
Allstate protection plans generated adjusted net income of $42 million on the second quarter and $155 million over the past 12 months.
Now, let's move the slide 12, which highlights all states attractive returns and strong capital position on.
I'll say continue to generate attractive returns on the second quarter with the adjusted net income return on equity of 23, 8% for the last 12 months, which was 581 is higher than the prior year.
Excellent capital management and strong financial results have enabled allstate to return cash to shareholders, while simultaneously investing in growth.
We continue to provide significant cash returns to shareholders in the second quarter through a combination of $562 million in share repurchases and $245 million in common stock dividends.
We announced the acquisition of safe auto in June leveraging national General success, and integrating companies to accelerate growth.
The current $3 billion share repurchase program is expected to be completed in the third quarter and yesterday. The board approved the new $5 billion share repurchase authorization to be completed by March 31, 2023. This represents approximately 13% of our current market capitalization.
This new authorization continues Allstate strong track record of providing cash returns to shareholders and reflects in part of the deployable capital generated by the sale of our life and annuity businesses.
Moving the slide 13, it should be clear that Allstate is an attractive investment opportunity.
When you invest in Allstate, you get ownership of the company with advanced capabilities and of clear strategy delivering superior financial results relative to peers and the broader market.
The table below shows Allstate across key financial metrics over the past 5 years compared to the S&P 500, and property casualty insurance peers with the market cap of $4 billion or more.
As you can see by the 4 measures on the top operating EPS operating return on average equity cash yields and total shareholder return all state is consistently ranked in the top 2 or 3 amongst the spears.
In the case of of operating EPS and cash yields the common shareholders Allstate is in the top 10, and top 15%, respectively compared to the S&P 500.
Moving down 1 row, all states top line revenue growth relative to peers and the S&P 500 is in the middle of the pack we.
We are committed to accelerating topline performance through transformed of growth and innovate and innovating protection, while continuing to deliver excellent financial results.
Moving down to the price to earnings ratio Allstate as well below average 8 out of 10, P&C peers and and the 10th percentile amongst the S&P 500.
This is an attractive valuation given on a market, leaving capabilities excellent returns future growth prospects and commitment to accelerate growth.
But let me turn it back over to Tom.
Of of turn to slide 14.
Let's finish where we started with a more macro and longer term view of of Allstate execution innovation net margin value creation as the this as of all of our current this is what you get by investing in our state.
Empowering customers with protection as the core part of our share of purpose.
We provide of broad set of protection solutions with over $180 million protection policies of course, you see our name way to watch on television or in Walmart and target. Your Casco here in the home depot Allstate is ubiquitous out there protecting customers, we constantly achieve industry, leading margin of auto and home insurance and he of attractive risk adjusted investment return.
As a result of the adjusted net income return on equity the average 15.6% of 2016 to 2020. The number 2 in our peer group. This has led to of 14.9% annualized total shareholder return over the last 5 years, we have a history of of innovation transfer of growth of the <unk>.
<unk> personal property liability strategy to build the digital platform. It offers low cost the affordable the simple and connective protection solutions.
We're simultaneously innovating protection of by expanding through telematics product on teeth and it ended the protection.
In telematics, we've taken abroad, an aggressive approach the insurance offerings and of creation of Airy Ah leading telematics business.
Allstate is also innovating of corporate citizenship, focusing on climate change privacy and equity for example, we used in the underwriting syndicate for 1 of $2 billion bond are offering the last year that was exclusively minority women and veteran on banking enterprises.
Long term value is also being created through proactive capital management and strong governance over the past 5 years 10 years, we've repurchase 25% and 50% respectively of outstanding shares among the S&P 500 of savings in the past 15% of cash provided to shareholders.
At the same time, we've successfully invested over $6 billion on acquisitions, including Allstate protection plans of state of Denny protection and National Channel.
And of course strong governance is key to delivering those results Allstate has an experienced in the first management team and board with relevant expertise. This is acknowledged by the leading proxy advisory firm that ordered off day at the top score for governance.
Execution innovation and long term value creation will continue to drive to increase shareholder value.
With the context, let's open the line for your questions.
Certainly ladies and gentlemen of you have a question of this time. Please press star within 1 of the new Touchtone telephone. If the question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Greg Peters from Raymond James of your question. Please.
On good morning.
So I'd like to go back 2 slides fives Tom.
Where you lay out the transformative growth.
The strategy and in the Phase 2 area of you report on substantial progress being made in terms of improved competitive price position of an auto insurance.
When I went to a supplement.
I observed that you the average gross premium.
In the auto brand.
Continue to be lower relative 2 prior quarters.
And I'm just curious how you think about pricing today, given the increase in frequency and certainly the increase in severity in the context of your your strategy tablet improves competitive the price position.
Okay, Let me start and then I'll get Glenn.
Jump in.
The first in terms of the transformative of growth.
We made a conscious strategic decision to improve the competitive position of auto insurance when.
When we looked at our <unk>.
Cost structure, we looked at where other people work, we decided we need to be more competitive on the price.
And so we've been working on that we reduce our costs, we've reduced price, we know or more competitive in the market at night can you can't you can't really look at the average prices Greg day, everybody starts in the different place. So if you are at 100 and I'm it.
<unk> 95, and you go down 2% doesn't make you realize mentioned more competitive but not competitive so we look at close range.
We know are we look at the people come to us the quote what percentage to be close and when the clothes rate goes up you assume you're more of price competitive and the aircraft of value proposition. In fact average has been true the share 1.
The reasons wiring of business.
Now, we do that of course.
With great surgical precision.
So let me maybe providing the overview of.
Auto insurance profitability, because there was the focus so many of the report the issue last night and a Glenn could jump into what you're echoing full of it.
And I'll start with the analytical structure that I use to evaluate our performance in ways that hopefully will be helpful from the investment perspective the <unk>.
Headline would be to evaluate starting with the current absolute number Don.
Don't use 1 analytical method to assess the future and build on a margin for error. So the current combined ratio auto insurance this quarter of generated and attract the return on capital of when you look at the number it's a good return on capital looking forward to horses.
I need to do and investors need to do in the forecasting challenges at the volatility of the components of so high that it's hard to do a poorly forecast is accurate enough to make an important decision. So for example, let's take the percentages up and down they are really hard to evaluate the outcome of 50% decrease.
And of 30% increase as of 65 of <unk>.
45% decrease at 35% increase it sounds pretty similar right, but it's the 74 at the <unk>.
More of 5 different on each side created 9 different to the margin.
They are typically the less than that so given the volatility of the percentage of changes, we build and margin for error. So as it relates to our projections of forecasts are fixed so far this year has been pretty good Ah severity was higher than expected, but given the volatility of those percentages in the environment. We made sure there was enough margin and pray.
Missing and reduce the expenses so as a result of our absolute level of profitability of is good and Betty better than many of our competitors per quarter of ourselves. So the overall goal of course is profitable growth and the best way to manage the total advantage of focused on the components, whether that state by state line by line or inside of the actual.
The cost structure, so Glenn had established goals for the rest of the on price increases the very control and expense reductions and.
And we have the process is the math the state managers, there enable us to achieve and adapt what should we have a consistent track record. During so I think when I see people, making percentage of changes over each quarter of looking at the percentage change of us versus the percentage of change of competitors. Unlike with you that the numbers moving around this.
So you really have to go back to the absolute to say.
Did you make money.
How did you make money and how do we make sure you keep making money going forward with that let me turn it over Glenn and can talk a little bit about what he's kind of got planned for the rest of the year.
Thanks, Tom and Greg.
If I go to the first part of your question on on price position. The best measure of price competitiveness are closer a car clothes rates are up so we've seen the good result on the fact that for a few years is Mario covered earlier, we've taken expenses out of the system, we've taken those expenses and and essentially.
The customers to get better value from us and and that's improving our clothes rates, which has helped.
The second part when you talked about going forward with frequency and severity as Tom said, we have a pretty good forecast on frequency and it's continued to be of.
Lower when you go on a 2 year basis. The 1 year comparisons right now are interesting on just about everything but on 2 year basis to prepandemic, there continue to be meaningfully lower.
Some of that will be just the new different world that we're in with fewer people working in office buildings and traveling at the in rush hour. Some of that will revert back over time, but we've had really good forecast on that the frequency has been higher.
Sorry, the severity of his but higher with inflationary factors.
So we're looking at that and what where we have to take pricing, we will and I guess when you put them together the key is and how we've been forecasting and when we look at Wimbledon line will cross and what I mean by that is.
We knew that look severity is compounds overtime, so what you're a couple of years in which we are now with the compared to 2019, you've got a couple of years of the severity increases.
At some point, it's going to be greater than the benefit that is persisting on frequency and you cross that line.
And so we're pretty good at forecasting about the time, we're crossing that line.
Moved price of slightly down in some places we're still good with those down we still have opportunity to even be more competitive and other places we're going to have to take them up.
But we don't have of wild swings happening in terms of our pricing we've been pretty.
Careful and cautious to do things that we thought were sustainable and we're going to continue to do things that we think are sustainable. So as we take expenses out continuing to do for the remainder of the year. The loss cost management of the claims team is doing and our pricing actions.
We think there's more ground, we can make up from a competitive position standpoint.
That was a very thorough answer on what is going to ask a question of the expenses, but I kind of just follow up on your point on severity and crossing the line.
As you know, there's so much oxygen going on around the inflationary pressures in the marketplace and.
Some of it's viewed maybe perhaps being transitory some of of being structural longer term.
And nature.
And I guess, what I'm looking for from you guys is what's your view on the severity of trends and can you give us some perspective on net crossing the line.
Analogy the used Glenn.
Greg will do forecast of.
Combined ratio or the components of the combined ratio.
But I think when you look at.
An interesting devote when you look at the supplement you'll see the paid on property damage it down.
That is not related to the way we are bookings.
They just happened to be paid and there are some timing. So when you look at severity of saline clear of difference between what you pay and what you think you're going to pay eventually.
And so we think severity we know severity of the up this year, we booked it up.
The first quarter and second quarter, even a little more.
And but so Glenn it's got affected interest price of blend of it and you want to say about current may be talking about Lopez.
The severity of control.
And just to the point about what's transitory and what's what's in there I think if you look at both frequency and severity of that way like the or components of frequent the like we get really detailed into looking at the miles driven it is it just the total miles driven out there. It's it's by state it's urban versus rural.
Commuting time versus not it's it's weekend versus week day and night day. So when we look at all of this.
We have a view on what we believe is transitory of what is more sustainable on frequency as well as on the severity but.
The the controls that we have from a claim standpoint, we were really strong claims team and they use first of all proprietary models that we have the escalate claims that either need to be.
The expedited moved faster or need to be prepared for the defense in the terms of injury claims.
Tell us the likelihood of litigation the likelihood of representation things like that we leverage our scale really well in that we have long term pricing deals on a lot of the the parts and labor that are out there for whether it's auto or home. So some of that acts of the hedge towards inflation and saw perfect because.
We're on the same inflationary environment that others are in but we do with our buying power had have good long term deals that we've negotiated that helped to hedge that to some degree and then really strong quality process that the manager across the system. So.
We feel good about our ability to manage within the environment, but also we have to price for it as it moves.
Guess I'll close by saying.
If anything on our history has been proven I would say, we do a really good job managing to our returns and Mario Tom talked about those in the opening quite a bit we will.
Managed to produce the right returns and when we need to take breaks to do that we do it.
It makes sense. Thank you for the answers.
Thank you. Our next question comes from the line of Paul Newsome from Piper Sandler Your question. Please.
Good morning.
A little bit more of a kiosk.
The last question is the.
1 of the questions on getting a lot is whether or not there'll be sort of regulatory issues with volume in particular.
Need to get moving.
Right I'd love to hear your thoughts on how that how that gets managed to adults do.
Of of 8 maybe 7 low macro name's Glenn could talk about anything in return.
Specifically.
Paul I think the first place I would start is the <unk>.
Regulatory reaction tends to start with what the consumers day.
And consumers are in a pretty good place of our customers their previous plays the game of $1 billion back last year.
Plenty of the.
If you look at savings rates in the cash and bank accounts on our cost of consumers or not.
Of some pricing.
There's not a lot of pricing pressure coming from consumers each day so.
And the kind of percentages increases that we need or not so large.
You're not talking about double digit price increase the day cause everybody to call the insurance regulator to add on like this globe.
We don't see a lot of consumer pushed back when you look at the regulators.
We have a good relationship with our regulators I mean, we were 10 day than last year, I mean, I think of his bike.
10 days into March we are like Oh, My Gosh, we gotta do something about this so we went our proactively the regulators the 8.
We don't have a requirement to this way of no contractual required to do it but we know you'll want us to do it. So we're going to do it in advance of privately led the industry and so we feel like we have good relationships with them, we've been balance as to how we approach it and we've been able to earn the economic the Reds.
In the marketplace by and compete.
Successfully equity and anything you want to talk about the arms of specifics.
First I think it's a really good point with some of the credibility of we earned last year because not only the.
The the ship the return of the Bunny, but the fact that we went out there proactively.
Had the idea to say, we're just going to waive the requirement that you have an endorsement to to do delivery slip sick with your car and turn your car to an economic vehicle for you for people that were out of work.
The appreciated the fact that we were thinking about the way people were happy to live their lives on haven't have go by an endorsement to do it and we just gave away for free filed that across 50 states in in the in a matter of days.
And special payment plans, allowing people more type of pay so I think we do a lot of credibility of that but I think the the core of this is.
The regulators have actuaries and we of actuaries and they are math based so this is.
Sometimes you get into some emotion with it but it's really of fact based on math based situations. So when the severity of go up or.
Loss ratio has moved.
They're actuary of see what our actuaries fee we have regulation.
Retro Carrasco 50 Bucks a day of $100 a day or used car price of the 40% of regulators no you got to got to collect more money to take care of that.
Makes sense.
And I would like to ask.
All of these question on tend to think the people under estimate the.
The rebuilding of impact of the whole business, you just talk a little bit about.
What's going on there.
Pricing competitive perspective.
Whether or not the.
Outlook is more favorable retire.
But it does seem to be.
It seems like the.
Feeling more of the sort of seems like the lead product to use the mood.
Oh, Paul Thank you for recognizing how successful we've added homeless.
Of our days when I feel like people think the only thing we sell at the auto insurance and like we make a lot of money in the homeowners insurance, we're really good at it.
It does require lower margin an auto insurance.
You got to put up a lot more capital because of the volatility.
And and you don't get a lot of of investment income. So we've been very good at Glenn you on top of about how the initial boy D y.
I appreciate that loss.
We feel really good about where we are in homeowners. So I'll give you a quick number on the last 5 years.
89 combined ratio that's recorded combined ratio on underlying and we've made just over $4 billion in the past 5 years of underwriting profit so.
We're good at this I don't mind being of bold enough to say that.
I think we have a sustained of systemic advantage of homeowners that we've proven over a long period of time. It goes to the at the claims capabilities. The cat management capabilities are reinsurance system that we have our risk selection or product the capability in pricing.
So it's a pretty deep skill that's been honed over a long period of time that we are able to leverage and so when you look at there's no question that inflation is hitting the homeowner side hard in the gut weather events and you look at what it's doing to the industry more broadly than us.
And there's gonna be folks taking a lot of right out there I think you've heard that from them and our product is such that year over year. We're at 6% on average premium even though we took only $3.5 points of rape because built into it they're sort of inflationary factor. So we're really well positioned to continue to me.
Money at it protect a lot of people and last point as it goes 2 of Tom talked about earlier about transformative growth.
Look at the independent agent system, we brought national General.
Primarily to really have a ticket into that system, where they have great systems, a lot of appointments great relationships and they're good at some products. While we're really good at home you get that home product into the I, a channel and I think it's kind of sell well where to protect a lot of people were to help is growth.
Hey, John.
Q. Our next question comes on the line of David moving.
Evercore, Brian some of your question please.
Hi, good morning.
I had a question just on frequency.
And I guess just a question maybe you can clarify how that trended throughout the quarter by months.
And maybe just talk about what you're seeing today and.
Should we be thinking about frequency being more flat with 2019 combined with the 14% to 15% severity increase.
Verse 19 that you guys called out in the 10-Q.
David of get Glenn the answer to the.
The question of efficacy and I'm, not sure where the 14% to 15% came from but.
So.
And how your Patrick what period of time of folks said that 2 years of that 1 year.
Because you can't think of 2 year trend and extrapolate the not the annual trenches, but maybe that's what I heard but Glenn you on taxes on frequent sure.
Yeah, No I would not the short answer would be I would not say should should just expected zero frequency trend relative to 2019.
While we don't publish any forecasting on frequency.
I think broadly.
People in the industry of talked about the fact that the the safer cars.
Have tended to have a little bit of of a tailwind for frequency even take.
Take away the pandemic for a moment that.
Year over year, we've had a long term steady decline in frequency and so you've got a couple of years of that is true compared to 2019 on top of that we see in I alluded. This a little bit before we see of really material change of the way people are driving so even when you see the aggregate number of miles driven coming back still lower but.
Closer to 2019 levels.
Who is driving when they're driving and how they're driving is changing materially. So you see about a 4 of 5 point of difference between the the net change of urban driving being down more than rural driving so you look at on Allstate book.
Book of business, where.
Sell predominantly through exclusive agents are exclusive agents are in more populated markets that tends to favor the way the frequency comes through.
You look at the type of driving that's John I.
I mentioned before commuting is down significantly more the non commuting. So quick stat Breeze, we look at a lot of these details we can driving is actually higher right. Now. The 2019 was people just want to get out.
Of of day, driving it's materially lower and so and particularly in rush hour. So when you see <unk>.
S congested roads in the time period when the.
The predominance of accidents happen and those morning and afternoon commutes.
That is helpful too, particularly in our book of business.
The way frequency comes through so there are elements that will come back it will come back differently is the only thing I'm confident in saying is that the world will look exactly the same after the pandemic than before and that will mean, the people driving move differently, but we see some.
Non transitory of temporary.
Of impacts to frequency as well.
Got it okay. Thanks, and Tom Yes, Yes, I was referring to just the page 63 of the 10-Q, which is yeah on that 14% to 15% is over 2 years. So you are right. It's about 7% on average per year.
I guess just the just a follow up just on the right actions that true.
<unk> thinking about taking.
I just saw it I think it was like a 5% rate increase that you filed in Georgia recently.
Maybe you could you could you just talk about how widespread.
On the rate increases are the that you want to put in and maybe just talk a bit more about how you think that might impact the growth trajectory going forward.
We Don.
We've got we've got plans for the rest of the Earth of where we think we need to increase the price.
But we don't give those out for.
For competitive reasons, and we also need to bring the haters 2 of great.
So I would just say that we think we will you should rely on the fact, David that we know how to make money and.
Focus on making money as to the competitive bid I think it depends what other people do so you heard yesterday, if he listened to the progressive call.
They are all in on raising prices cutting the advertising changing underwriting stuff. So we think that gives us room to adapt.
And continue to grow and make money and make sure that we can recover of cost as they go up other competitors are of different places, but we feel good about where we're at like the transfer of growth like.
If you started off and said would you want to have the pandemic in a huge drop in frequency.
For a year to do transfer of of growth and probably would say I don't know of like it's a lot of volatility to manage to on the other hand ache in our particular case, it's worked well for us.
Got it. Thank you is it your sense of the rest of the industry is going to start raising prices.
If you look at what they've done.
We can really focus on and there have been more of of rate increases.
This year and I think probably the people would've predicted.
Ask them in the for the quarter of last year.
And that would include US like if you just said what do we think everybody else can do the share with wouldn't of had to go up as much of it.
But we also didn't think severity of is going to be as high as it is so we're increasing areas of their increase in there. So we take care of a relative advantage given our sophistication of pricing given a reduction of expenses given what we're doing on the long term basis, the gate expenses down even farther quits singular place.
So we Don we don't see anything happening that helps us we can.
Still be on the path too.
Grow market share of the specific roads, we go now might be a little different.
But we're still fail and like that goal is still there.
The objective is achievable.
Okay. Thank you.
The queue on our next question comes from the line Shields from K B W. Your question. Please.
Thanks, I wanted to get a little bit too of date, the rest of is going to understand the.
On the pricing strategy and would I mean, the that is I think we've got demographic trends favoring the rest of distribution, but also the 2 massive competitors and I wanted to know whether the.
The competitive posture is that you have to be in line with where progressive and Michael are on.
Or can.
Can you benefit from.
From the of demographic trends to achieve your goal.
China sort of through mayor here the first.
Direct should be price for what you get like you should get which paper. So when you buy Allstate direct it's I think Glenn.
On average about 7% lower than if you buy termination of because it doesn't come with health.
And so that's you get what you pay for.
And there are people there are some demographic shifts the bat, but some of it's not.
There are some young people who want to help.
And some other people who don't want health. So we're there focused not as much of the demographics of those channels, but it is the customer of value.
As it relates to our competitive position in each channel. We believe you should have a competitive price position in each channel like for like so if you are buying from geico of progressive and you are buying directly hereby at the mall state you're buying direct you should it should be the same kind of values now it gets a little dicier when you figure out.
Rice is because of what the limits are in all kinds of it.
Complicated fast, but the conceptual approach would be as being competitive in channel based on the value delivery of shareholders. The customer's Glenn how would you is there other thing out of it yeah.
Going to the point about what do we get out of just the demographic shift versus being more competitive.
Clearly.
The growing channels. So if you are if you're sitting in the boat and the current is taking you on a certain direction. So there's something to you really should be there and that's why we're there it's y transform of growth.
I wanted to be an all channels and where customers quantified. So I think there are some benefits of that but the bigger benefit is.
2 other things 1 would be being competitively priced why we're going after expenses of why we did the pricing differential at the top talked about and then the third 1 which.
Maybe even the most important is just your execution.
The fact that.
We have.
We've used the capabilities of insurance, but we're still newer at being a large national player with the brand. We've got of Allstate doing this it's building the capabilities, whether its web sales processes marketing sophistication integration of marketing into it.
So that we are winning our fair share of there because.
You got to get the price to be competitive, but you also have to be great. Great. The prophet himself. So if you go back to the slide where we show the 3 different channels of direct us up as we said, it's now 29% of sales we expect it to continue to go up at the Glenn said as we get better there are some shifts to that channel.
It's just look globally some of that because more people will feel comfortable buying over the web and not going through some of that some of the just cause directed the whole bunch of advertising in the drives people to it but were is Glenn pointed out in that boat and increasing our capabilities, but that doesn't mean were waiving the plague on people's people at the.
Change.
And so the key part of the transfer of growth is there are people who want help.
We just need to give it to of metal of lower cost.
And that's what I'm working on so people were more than happy to pay.
The court.
A lot of money the edge of an online but to be paid for to help the by the insurance. They just don't want to pay 10% for ongoing service when they can do self service. It is not as much to be done or you can do at a lower cost centrally so that's our shifts and transfer, but we're not waving the flag on person to person sales in fact, we're.
Leaning in and say we of our great position, there we ever great brand people know us.
We just need to do it more effectively integrate higher growth model. So.
That will take us some time to transition as we talked about like I don't expect the Allstate agent business. The jump up the way you will see the direct business increase over the next 12 months, but.
But I do think it's got great long term potential and we're investing heavily and making sure. The agents can deliver what people want is they want help volume product.
Okay that was very forgetful.
Quick follow up on my Tan has the I guess reconsider already issues.
The in both auto and home.
Change the timeline for rolling out of the standard products on National T on those popcorn.
Short short answer would be no. We think we can be really competitive and that market and we're excited to get into the independent agent channel and do it as quickly as we can.
We'll have some of our middle market products this year on on.
On the net Gen platform branded as National General at Allstate Company. So it will get the benefit of the endorsed brand and and then over the next 2 years will be rolling that out as quickly as we can.
Perfect. Thank you so much.
Thank you. Our next question comes from the line of Michael Philip Morgan Stanley. Your question. Please.
Hey, Thanks, good morning.
Part of homeowners.
Having purchasing power of having really good deals in place over the long term on flooring on roofing.
And other products used in home repair.
The helps hedge that inflation and.
With our size with our buying power of the capabilities of our claims team, we've been able to do that and it helps hedge it again im not suggesting it eliminates.
The problem of the deflation, but it does help mitigate it so that not all of that cost is passed through to your customers because I view the the job your customers. Obviously, we got to put them back to where they were we've got a charge people on appropriate price and give them the best value possible and part of that is mitigating the cost of claims.
So that was in the purchase of purchasing power of the proprietary models I mentioned before is we've just invested a lot in our analytics and data capabilities over the years in order to flag claims that were at risk for accelerating cost so that we could get it.
And to the right experts hands at the right time and it allows us to do a better quality job on those and also manage the costs.
Okay. Thank you Dan.
1 other quick 1 if I could then there's a lot.
The talk on the direct to consumer channel for auto and clearly that's the growth the growth area.
What's your view on that channel.
Longer term for for the homeowners market.
We think it's fit.
I think people people do want a sometimes a little more help on the home because they care more about the home.
But we think that.
Those people, who are comfortable using advanced technology, but Chad.
Chad kind of stuff you can get online now.
Should be able to buy more homeowners correct.
Okay. Thank you.
Thank you for taking on maybe just close on a few things first on investment results.
I totally understand the view that 1 would not fully count the.
The <unk>.
Huge increase in performance based income, but when I read some of the reports on Mike I think it's fair to say it was an outsized quarter, but that doesn't mean that our long term results should be George we're good investments. We've had good results our acquisitions are performing well whether that be Allstate protection plans, which we didn't really get questions on today.
I just wanted to remind them of bought that company 4 years ago of $1.4 billion gallons. Its now over $1 billion in revenue, it's growing at 27% of year. It made of $155 million, which means we paid 9 times.
The earnings.
For a business that go on 27%. So we think it's worth a lot more than that National General. We also think will be highly successful, but we're off to a really good start there you can see that in the current numbers.
And it's not just the 4 million policies we have.
By the way when you look at the net cash we had to lay out after statutory capital I do not believe we could have acquired 1% market share by putting a couple of billion dollars into advertising. So we think it was also just an economic growth opportunity straight up forget the day of strategic potential of further growth.
And then.
Share repurchases, we continue to really do well this is the biggest.
Share repurchase program, we've ever announced both in dollars and percentage of market capitalization on not to be overlooked. So thank you for participating today, we had great results. This quarter, we look forward to talking next quarter.
Thank you, ladies and gentlemen for your participation on today's conference. This does conclude the program you may now disconnect good day.
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