Q3 2022 Allstate Corp Earnings Call

November 3, 2022

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Good day, and thank you for standing by welcome to Allstate's third quarter Investor call. At this time all participants are in a listen only mode. After prepared remarks, there will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone please limit your inquiry to one question and one follow up.

Please be aware that this call is being recorded and now I'd like to introduce your host for today's program. Mr. Mark Nogle head of Investor Relations. Please go ahead Sir.

Thank you Jonathan Good morning, and welcome to <unk> third quarter 2022 earnings Conference call. After prepared remarks, we will have a question and answer session yesterday. Following the close of the market, we issued our news release and Investor supplement filed our 10-Q and posted today's presentation on our website at Allstate investors Dot com.

Our management team is here to provide perspective on these results.

On the first slide of the presentation, our discussion will contain non-GAAP measures for which there are reconciliations in the news release and Investor supplement and forward looking statements about allstate's operations.

Allstate's results may differ materially from these statements. So please refer to our 10-K for 2021 and other public documents for information on potential risks.

Additionally, we will be hosting our next special topic investor call on December 2nd focusing on Allstate auto and home insurance claims practices and reserving process and now I'll turn it over to Tom.

Well good morning, Thank you for investing your time with all state today.

As you know, we pre released earnings several weeks ago and reported the net loss for the quarter.

That reflected a small underlying underwriting margin that was offset by increases in reserves for prior years.

Pennant mark to market loss on public equity Securities.

Mario and Jeff will go through the details of the quarter and the reserve changes after I set some context.

Let's start on slide two allstate's strategy.

Increase shareholder value has two components increased personal property liability market share and.

Spam protection services, which are shown in the 12 volt left will.

We're building a low cost digital insurer with broad distribution through transformative growth to increase market share.

Also broadening protection offerings, and leveraging the Allstate brand customer base and capabilities with expanded distribution.

In the third quarter, we made progress executing our strategy, while we continue to implement a comprehensive approach to improve auto profitability as shown in our rightful panels that includes broadly raising auto insurance rates, what you've seen in our disclosures operating expenses were lowered including advertising and more permanent reductions in the <unk>.

<unk> cost structure.

Underwriting guidelines have been adjusted to reduce new business volume, where we're not earning adequate returns.

Our claims operating processes are being modified to manage the loss costs in a high inflation environment.

And we believe this plan will return auto insurance profitability to historical levels.

While the current environment requires focus on improving margins, we continued to advance transfer our growth strategy to gain market share when profitability.

In addition to protection services businesses generating profitable growth.

Investment returns were negative for the quarter and year to date, but better than the overall declines in the bond and equity markets. This reflects risk reductions implemented late last year.

You'll remember, we reduce the bond portfolio duration to lower exposure to higher interest rates, which enabled us to avoid about $2 billion in losses in our bond portfolio.

Our capital position is strong and as a result, we were able to deliver attractive returns to shareholders.

<unk> is going to discuss capital in his section, but let me provide a few summary points.

Since this was covered in some of the reports issued last night.

First we have plenty of capital and there is $4 5 billion of deployable capital at the holding company level.

Secondly, the significant reduction in risk with the sale of the life and annuity operations occurred last October and that needs to be considered.

This divestiture reduced assets by $34 billion and freed up capital.

Thirdly, we use a really sophisticated approach to determining of prior capital that goes far beyond statutory capital and premium to surplus ratios. For example, if you just use statutory capital to measure the life company equity would be included in capital.

Historically, which we did not believe it is appropriate so we never included it so our methodologies led to strong results.

We did decide to complete the remaining $1 4 billion stock repurchase over more than the next six months, which was our prior target we had disclosed here, but we still expect to complete it in the second or third quarter of next year.

In summary, we are really well capitalized in this year's results have not changed our strategy or earnings power.

Now, let's move to slide three as you go through the third quarter performance in detail.

Total revenues of $13 2 billion were five 8% of the prior year quarter as property liability premiums earned increased by about $1 billion or.

Or a nine 8%, which reflected higher average premiums and policy growth.

Lower net investment income and net losses on investments and derivatives negatively impacted the year over year consideration.

Impairs in there.

Our net loss of $694 million and an adjusted net loss of $420 million in the third quarter reflected a decline in underwriting income due to an increase in property liability prior year reserve estimates.

$875 million that excludes catastrophes and increased loss cost in the current year.

Looking forward beyond improving.

Profits in auto insurance, if you go to slide four youll see the flywheel of growth increase personal property liability market share. So this is a multiyear initiative designed to build a low cost digital insurer with broad distribution.

That will be accomplished by delivering on five key objectives improving customer value.

Spanning customer access increasing sophistication and investment in customer acquisition, deploying new technology ecosystems, and enhancing organizational capabilities. We made significant progress on all of these components and we're well on the way to having really being in a position where we can dial up quite rapidly when profit.

Ability improves.

Now, let me turn it over to Mario through and he'll go through our property liability results.

Thanks, Tom let's start by reviewing underwriting profitability for the property liability business in total on slide five our.

Our underwriting results reflect the high level of inflation and the impact of reserve strengthening in the quarter with a third quarter recorded combined ratio of $117 four for auto 91, 2% for homeowners $126 six for all other lines and 111 six for total property liability.

As shown on the left chart.

Remember our goal is to run the auto business with a combined ratio in the mid nineties and homeowners at around 90, while homeowners was close to our target in the quarter. We continue to focus on improving auto margins through a comprehensive plan that is being implemented to get us back to our mid Ninety's objective.

The third quarter underlying combined ratio for ordering auto insurance was 104 as you can see on the right. So we're raising auto insurance prices, reducing growth investments lowering operating expenses and adapting claims practices to a high inflationary environment.

While the homeowners business generated $245 million of underwriting profit higher severity resulted in an underlying combined ratio of 74, 6%, which is above where we manage it too and we are increasing prices through both rates and the inflationary adjustment factor embedded in our homeowners product to improve underlying.

On margins going forward.

One of the reasons that we have an industry, leading homeowners business is because we proactively manage the risk and return profile of each market that we operate in.

Based on this approach we have decided to stop writing new homeowners and condo insurance in California at this time, given our inability to fully reflect the cost of providing these products in the state, including both loss and reinsurance costs, we intend to continue protecting our existing California property customers buy off.

Offering ongoing coverage to them.

Other lines are mainly traditional small commercial auto and shared economy insurance, both of which have recorded and underlying combined ratios above target levels. As a result, we made the decision to exit five states in the traditional small commercial business and no longer provide insurance to transportation network.

<unk> unless pricing begins to utilize a telematics based framework for pricing.

These actions are expected to reduce commercial business premiums by over 50% next year.

Let's move to slide six and discuss auto profitability in more detail.

As you can see from the chart on the left which shows the auto insurance combined ratio and underlying combined ratio over time, we have a long history of meeting our outperforming our mid <unk> combined ratio targets supported by our pricing sophistication underwriting and claims expertise and expense management.

'twenty is an outlier with much better than target results due to reduced accident frequency in the early stages of the pandemic.

In 2021, and again this year, we have experienced both higher frequency than 2020, and the impacts of inflation, which have dramatically increased the cost to repair or replace cars and raise the cost of settling injury claims with third parties, who are injured in accidents with our customers.

In addition, this quarter, we strengthened prior year reserves by $643 million, which Jeff will discuss in more detail in a few minutes and experienced higher catastrophe losses, mainly from flooding associated with hurricane Ian.

As a result, the auto insurance recorded combined ratio was $117 four with reserve strengthening and catastrophes contributing $8 five and four four points respectively to this result.

The right chart quantify as the drivers in the year over year change in the underlying combined ratio, which increased from 97, 6% to 104 and excludes catastrophes and reserve changes.

The Red bar reflects the increase in underlying losses, primarily due to current report year incurred severity strengthening across major coverages and moderately higher frequency than last year.

The increase to underlying loss costs were partially offset by four three points of average earned premiums from implemented rate increases and a three one point reduction in underwriting expenses to get to the 104.

To add more clarity to current quarter results. We also highlight that to six point impact of increasing full year claim severities in the third quarter for claims that were reported in the first and second quarter of this year. This impact as noted by the Green bar on the right hand chart.

Excluding this entry year strengthening the third quarter underlying combined ratio would have been 101 four.

Current report your incurred severity for collision and property damage claims were increased to 17% above the level recorded for the full year 2021, and bodily injury severity was increased to 12%.

Moving to slide seven let's discuss key components of our multifaceted plan to deal with inflation raising auto insurance prices.

Growth in average premium per policy is accelerating due to implemented rate increases over the last 12 months, but the impacts to average earned premium per policy is on a lag due to the six month policy term.

Over the last 12 months, we've implemented implemented Allstate brand auto rate increases across 53 locations for an annualized written premium impact of approximately 13, 7% or nearly $3 3 billion.

Including four 7% in the third quarter.

The chart on the page is an estimation of when the rate increases implemented in the last 12 months will be earned into premiums.

This illustrative example assumes only 85% of the annualized written premium will be earned to account for retention and the fact that some customers some customers modify policy terms, such as deductibles or limits when faced with price increases.

As you can see looking back at Q3 2022, the estimated impact of the $3 3 billion and annualized implemented rate had only an estimated impact of $660 million on earned premium which is expected to grow by over $2 1 billion through the end of next year.

Given the ongoing loss cost inflation, we expect to implement additional rate increases in the fourth quarter of this year and into 2023 and those will be on top of increases implemented since Q4 of last year and additive to the increase is shown here.

Moving to slide eight let's discuss the timing of how these rate increases will impact the combined ratio for auto insurance.

The chart on this page is an illustrative view to show our path to target profitability, along with the magnitude of actions already taken and required prospectively.

Starting on the left through the first nine months of the year. The auto insurance recorded combined ratio is $109 three as shown by the first Blue bar.

From this starting point, we removed the impact of prior year reserve increases and normalize the catastrophe loss ratio to our five year historical average.

This improves the combined ratio by approximately six points represented by the first Green bar.

The second Green bar reflects the estimated impact of rate actions already implemented when fully earned in the premium which is an additional $2 $3 billion of premium across the Allstate and national general brands or approximately eight points.

These amounts will be mostly earned by the end of 2023.

Of course loss costs will continue and will likely continue to increase whether from inflationary impact on severity or higher accident frequency, which would increase the combined ratio.

Active rate increases must meet or exceed loss cost increases to achieve historical returns.

Combined with other non rate actions, such as reducing new business and expenses, we expect to achieve an auto insurance combined ratio target in the mid nineties.

Timing of reaching this goal will be largely dependent on the relative increase in premiums and future loss cost trends.

Moving to slide nine, let's now take a look at our industry, leading homeowners business has.

As you know a significant portion of our customers bundle home and auto insurance, which improves retention and the overall economics of both product lines.

We have a differentiated homeowners product underwriting reinsurance and claims ecosystem that is unique in the industry.

Our long term under result underwriting results reflect this dynamic with a five year average recorded combined ratio of 91 nine.

The third quarter combined ratio for homeowners improved to 91, 2%, primarily driven by lower catastrophe losses compared to the prior year quarter.

As you can see by the chart on the left.

Enterprise risk and return management actions reduced our Florida personal property market share to two 6%, which combined with our comprehensive reinsurance program, including our Standalone, Florida property coverage significantly mitigated net losses from Hurricane Ian.

Estimated gross catastrophe losses due to the hurricane totaled $671 million and were reduced by $305 million.

<unk> reinsurance recovery recoveries, primarily related to property reinsurance for our Standalone, Florida property insurance company capsule key.

Of the $366 million net loss from Ian only approximately 25% was from property lines.

Homeowners insurance is certainly not immune to a rising inflationary environment as we continue to be impacted by increasing labor and material costs.

In the third quarter non catastrophe prior year reserves were strengthened by $51 million and current current report year incurred severity was increased primarily as a result of increasing inflation in both labor and material costs.

The resulting impact to the underlying combined ratio from current year severity strengthening was three eight points in the third quarter, partially offset by slightly lower non catastrophe frequency.

Similar to auto insurance, there was an entry year impact of two four points related to claims reported in the first and second quarter of this year, which is reflected in the underlying combined ratio for the third quarter of 2022.

To combat inflation challenges are products that have sophisticated pricing features that respond to changes in replacement values.

The chart on the right shows key homeowners insurance operating statistics.

Net written premium has grown sharply throughout 2021 and into 2022, increasing nine 4% from the prior year quarter and 12, 9% year to date, primarily driven by a more than 13% increase in Allstate brand average gross premium per policy and a one four.

The increase in policies in force.

Allstate brand increases are partially offset by lower national general premiums and policies in force as we improve underwriting margins to targeted levels in this brand.

We are continuing to raise homeowners prices to address inflationary pressures growth both through the impact.

Inflation uninsured home valuation and filed rate increases.

Beyond these pricing actions, we have also decided to limit new business.

Margin targets cannot be achieved in the near term.

Including the action I previously noted of suspending the sale of new homeowners insurance policies to consumers in California.

Let's delve deeper into improving customer value through expense reductions on slide 10.

Let me start by saying, we remain on pace and committed to our long term objective to reduce our adjusted expense ratio, which is a metric we introduced about a year ago to track our underlying progress to improve customer value.

This metric starts with our underwriting expense ratio, excluding things like restructuring Corona virus related expenses amortization and impairment of purchased intangibles and investments in advertising.

Then adds in our claims expense ratio excluding costs associated with settling catastrophe claims because catastrophe related costs tend to bounce around quarter to quarter.

Through innovation and strong execution, we've achieved almost three points of improvement since 2018.

Over time, we expect to drive more than three points of additional improvement from current levels, achieving an adjusted expense ratio of approximately 23 by year end 2024, which represents a six point reduction compared to 2018.

The chart on the slide shows the Allstate protection underwriting expense ratio since 2018 and quantify the impacts from third quarter 2022, compared to the prior year quarter, reflecting actions we've taken to address the current operating environment. The.

The first green bar on the left shows the decline in advertising spend as growth investments have been reduced given our focus on improving margins.

Next Green bar shows the decline in the amortization of deferred acquisition costs, primarily driven by the phase out of enhanced compensation models for new agents.

Our future cost reduction efforts are focused on digitization sourcing and operating efficiency and continuing to reduce distribution costs.

Now I'll turn it over to Jeff to discuss our reserving actions in the quarter and the remainder of our business results in more detail.

Thank you Mario and good morning, everyone on slide 11, let's begin with our prior year Reserve development.

Property liability prior year reserve strengthening excluding catastrophes totaled $875 million in third quarter.

Pie chart on the left breaks down the impact fine line with $643 million driven by personal auto $120 million run off property liability from our annual reserve review related to environmental and asbestos exposures $63 million in commercial arguably related to auto bodily injury and $51 million in harm.

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The chart on the right breaks down Allstate protection auto prior year reserve strengthening of <unk> $643 million in the third quarter, which was primarily driven by non customer kleeman bodily injury claims. The total cost to settle these claims continues to be impacted by more severe accidents and higher medical and litigation costs.

Increases to commercial and homeowners insurance can also be attributed to these factors.

Physical damage prior year reserve increases in the third quarter from property damage collision and comprehensive coverages, excluding catastrophes were largely offset by higher subrogation collection estimates.

Now, let's move to slide 12 to discuss the drivers bodily injury development in our claims operating actions to manage loss costs.

Bodily injury severities increase mix of claims shifted to more costly claim segment's return on the left shows the relative severity of bodily injury claims by type of treatment major versus non major amount of the claim is unrepresented attorney represented for litigated.

<unk> have more expensive medical treatments greater nonmedical related damages and often more attorney involvement as a result paid severity for major injury claims and litigation represented by the first time in the last cost approximately three nine times the average paid bodily injury claim.

Non major claims shown on the right hand side of the chart have less medical and other related costs and tend not to have attorney costs. So unrepresented non major injury claims are roughly 10% of the average costs.

To be clear in all cases with several of the cases for what is fair and equitable regardless of attorney involvement.

The table below the chart shows a significant shift from non major claims that have below average cost. The major injuries that are represented in litigation in comparison to historical levels.

Shift is partially attributable to more severe accidents.

This shift to larger and more complex cases has also resulted in greater variability in paid and case reserve development patterns.

As part of our actuarial process, we review changes in claim development patterns to define an appropriate range estimated outcomes based on winning historical and more recent trends in the data.

The chart on the right side depicts the value of two standard deviations to the average paid and case severity development over the last six report years Andrew.

And you can see this measure of variability has almost doubled over the last two years, resulting in a wider range of estimated outcomes.

The third quarter reserving process showed a continuation of these development patterns. Therefore, we increased reserves for prior years to reflect the persistence of the trends in major injuries increased settlement costs and greater variability case reserves.

Proactively responding to these trends by leveraging sophisticated models, increasing medical expertise reviewing settlement processes assessing litigation risks.

Now, let's move to slide 13, and briefly discuss physical damage loss costs, which continue to pressure profitability.

Rising inflation and delays from third party carriers congregation demands are driving higher expected severity in the property damage coverage, leading to an increase in the current year.

The current report year variance from 12% to 17% when compared to 2021.

That side of the slide includes the chart, we have shown before which indexes inflation to year end 2018 for a few of the main inputs to physical damage severity on.

Used car values are below the recent peak, which is a positive indicator to continue to run more than 50% above pre pandemic levels.

Conversely, labor and parts prices continue to accelerate from the prior peak levels seen just last quarter. This continues to put upward pressure on severity in the near term.

The right hand side of the page shows third party subrogation demand dollars paid again indexed to the year end 2018.

Third party demand around our insurers in an accident in the claimant files a claim to their carrier rather than us.

Since the other carrier evaluates the claim the Allstate insurance wholly or partially at fault you will reach out to us the subrogation demand.

We have recently experienced an uptick in the volume of severity volume and severity of these demands compared to prior year trends and expectations. It's worth noting that a similar dynamic is also impacting our first party collision coverages, we are demanding and receiving elevated subrogation collections from other carriers following the declines during the pandemic.

Backlog in claim settlements due to delayed repairs.

Shifting gears now online.

14.

The protection services businesses in the lower strategic overhaul, our growing revenues and increasing shareholder shareholder value as we invest in future expansion.

Revenues, excluding the impact of net gains and losses on the on investments and derivatives increased seven 2% to $640 million in the quarter, primarily driven by a 12, 2% increase in Allstate protection plans adjusted.

Adjusted net income of $35 million for the third quarter of 2022 decreased $10 million compared to the prior year quarter due to increased severity on appliance repair for Allstate protection plans.

In the absence of onetime restructuring expenses Allstate identity protection in the prior year quarter as well as investments in growth.

Policies in force declined 5%, reflecting the exploration of protection plan warranty is primarily due to the to a high volume low premium per policy retail account and overall decline in retail sales.

Moving now to slide 15, I'll State health and benefits is also growing and attractive.

Mrs that protect millions policyholders.

The acquisition of National General in 2021 added both group and individual health products to our portfolio as you can see on the left.

Revenues of $570 million in the third quarter of 2022 increased one 2% to the prior year quarter as growth in group health and employer voluntary benefits was partially offset by a reduction in individual health.

Adjusted net income of $54 million increased $21 million from the prior year quarter, reflecting a lower benefit ratio lower restructuring charges and increased revenue.

Shifting now to investments on slide 16, we will review the performance and portfolio risk and return position that we've taken given higher inflation and the possibility of a recession.

As you may recall, we reduced our portfolio risk beginning in the fourth quarter of 2021. This.

This included shortening fixed income duration from four six years to three years through the sale of bonds and use of derivatives, which resulted in a reduction to the portfolio sensitivity to higher interest rates caused by increasing inflation.

We also reduced our exposure to recession sensitive assets to the sales of high yield bonds bank loans and public equity. We may maintain this defensive positioning in the third quarter, which continued to preserve portfolio value given ongoing market volatility rising interest rates.

In a further decline in public equity markets.

As shown in the table at the bottom left our total return for the quarter was negative 8% and year to date is negative six 4% or adverse market conditions negatively impacted the portfolio, we estimate our duration shortening mitigated portfolio losses of approximately $2 billion.

These proactive actions in the broad diversification of our portfolio produced results that were better than the S&P 500 index, which was down 23, 9% this year and the Bloomberg intermediate corporate Bond index, which has declined 11, 8%.

Net investment income shown in the chart on the left totaled $690 million in the quarter, which was $74 million below the third quarter of last year.

Performance based income of $335 million shown in dark blue was $102 million below a strong quarter in 2021, three individual investments generated approximately 97% of the performance based investment income in the quarter, including two sizeable cash realizations.

Excluding those assets results for the broader performance based portfolio were largely flat with negative valuations in our private equity fund investments, which have a higher correlation to public equity markets offset by increased valuations on other asset classes, such as real estate and infrastructure.

Our market based income, which is shown in blue was $50 million above the prior year quarter benefiting from reinvestment into market yields that are significantly higher than the overall portfolio's current yield.

The table on the right demonstrates how our shorter duration fixed income portfolio is positioned to generate higher levels of investment income as we reinvest into higher interest rates.

Our fixed income yield has begun to rise and was two 9% at quarter end well below the current intermediate corporate bond yield of five 6%.

Now, let's take a few minutes to discuss Allstate financial condition and capital position, starting with slide 17.

Allstate's corporate organizational structure provide sources of capital to the holding company for multiple reporting entities and intermediate holding companies manage capital at all levels using economic capital rating agency models and regulatory requirements to guide decisions and maximize flexibility.

We commonly reported view of capital that includes both statutory surplus and parent company parent holding company assets, we prefer to dividend money up from subsidiaries to the holding company when possible as it provides more financial flexibility for the organization, while maintaining adequate capital levels and subsidiaries to support operations.

Return on the left shows an overview of our capital position since 2016 as you can see it grew substantially beginning in 2019, following strong results, leading up leading up to and during the pandemic.

While the current level of $19 8 billion is approximately $6 billion lower than a year ago. This was largely made up of two specific items.

<unk> 3 billion or roughly half is related to the sale of the life and annuity business as represented by the first Red bar on the chart.

This transaction reduced our statutory capital as we sold the legal entities and significantly reduced our overall risk profile freeing up an additional $1 $7 billion of capital. We return this capital to shareholders as part of the current $5 billion share repurchase authorization.

The second bar reflects our cash returns to shareholders, excluding the impact of the life and annuity sale.

Together these factors reduced capital by $5 4 billion.

With more than $4 billion going back to shareholders.

The last Red bar, primarily reflects the impact of current auto insurance profitability challenges, which have resulted in a statutory loss and then changes in unrealized gains and losses on equity investments due to recent market volatility.

We also added aligned to this chart that represents our average capital from year end 2016 through Q3 of 2021, excluding surplus related to the life and annuity businesses. Our current capital position of $19 8 billion is approximately $1 billion higher than this average demonstrating that returning cash to shareholders after adjusting our risk.

Profile.

Recent years' profitability has left us in a strong capital position.

The right hand side of this page isolates holding company assets, a key component of our capital relative to the remaining authorized repurchases and fixed charges.

At the end of the third quarter, we had $4 5 billion and holding company assets with $1 2 billion remaining on our current share repurchase authorization, we would still have $3 $3 billion remaining in comparison to our annual fixed charges of $1 3 billion.

We believe holding company assets and capital resources available from statutory operating companies provides significant financial flexibility as we continue to implement profit improvement actions and invest in transformative growth.

Now, let's move to slide 18 to discuss Allstate strong cash return to shareholders.

Adjusted net income return on equity at four 3% was below the prior year, primarily due to lower underwriting income.

Achieving our targeted combined ratios for auto and homeowners insurance will bring adjusted net income return on equity back to our long term targeted range of 14% to 17%.

Through the first three quarters of 2022, we've returned $2 8 billion to shareholders through $2 $1 billion in share repurchases and $698 million in common shareholder dividends.

Over the last year shares outstanding have been reduced by seven 7%, providing more upside per shares profitability has improved.

There was $1 $2 billion remaining on the current $5 billion share repurchase authorization as of September 30, which we expect to be completed in the second or third quarter of 2023, as we moderately slow the pace of our repurchases.

That context, we're going to open up the line for your questions.

Certainly once again, ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone.

And please limit yourself to one question and one follow up our first question comes from the line of Greg Peters from Raymond James Your question. Please.

Good morning, everyone.

Focus the first question on reserves and I was looking at the information you provided on slide 12.

And some of the earlier slides and I guess, what we're trying to do is reconcile.

The charge that you took in the third quarter.

With the information, we're getting from some of your peers and then additionally, trying to understand.

Why the data that you're showing now here for the third quarter results you can start to see it in the second quarter and make adjustments then.

I mean, it's a long winded question, but ultimately we're trying to get at is there.

Risk of additional reserve charges going forward.

Greg Good morning, Thanks for the question. So they provide just a quick overview and then Jeff can give you some more specifics first course.

We estimate.

Happy to.

That depends on trends.

For the numbers.

And we can't make a comment as to what other peoples numbers, but.

Do reserving ox sorts of different ways.

And we believe ours is highly precise specific we have external people look at it.

We put up the numbers when we think we need to put them up.

And of course this quarter, we did increase it for prior years.

And that's largely due to the injury.

Trends that Jeff, so which have really been unfolding over the last couple of years and these are claims that take four years before you get 80% paid so it takes a while before it's about suggest what would how do you want to address that.

Yes, Thanks, Tom Greg what I would start with is I think it's important to be clear on one thing at the end of every quarter. We recorded reserves at an appropriate level based on all the information that we have in front of us and we did that at the end of Q3 in every quarter, leading up to Q3.

We followed the same process that we have in the past its a rigorous process that leverages internal actuarial expertise close collaboration with our claims team and third party reviews to analyze the most current data and assess the impact on of that data on our reserves.

As I look at the quarter the variability that we've seen continued to come through in the data that we reviewed as part of our actual process. So Q3 data supported more recent trends and continued variability in reserve development and while these trends aren't new and additional quarter of data did provide new <unk>.

Insights into the persistent nature of the trends have been emerging so insights from actual claims development in the quarter led us to strengthen both prior year reserves and increase our report your 2022 ultimate severity. So as I take a step back and think about.

Where we're at from a reserve perspective.

We record a program appropriate reserves based on what we know at the time, we used current data.

And all known factors to establish the reserve so I'm confident in what we set up and I think that the new insights that we cleaned in Q3 caused us to make the move.

Okay.

I guess my follow up question is on capital.

And just looking at it from a <unk>.

CRO perspective, I really don't remember in recent history at a time, where you guys have been growing.

Okay.

Topline almost at a double digit rate in that.

That by itself puts.

Puts pressure on capital resources and then.

If we look at your capital position.

As outlined in the statistical supplement and we see total capital resources, having declined year over year due to a variety of issues.

I'm wondering if you can help frame, how we should think about traditional metrics around premiums to surplus in the context of all the different moving parts.

Yeah.

I'll start and then Jeff can add as well.

So Greg first.

We don't use their tradition, but when we look at the traditional metrics that premium to surplus.

And as we go but we're much more sophisticated than that.

And it goes in the way we allocate capital.

Is it from an enterprise standpoint, and looks at specificity on risk levels down to the state base level.

<unk> line. So for example, some people would blend their premium to surplus ratio for all property liability products auto and home safe.

Do that we think capital is much higher.

For homeowners insurance.

And that's why.

When Mario went through our target ratios for.

Home insurance that are lower than they are for auto insurance. Other people just assume that same so were much very sophisticated in the way we do it we manage it from an enterprise standpoint so.

When we.

The answer would be we have plenty of capital like we've got tons of money is not going to do anything to our strategy has no impact on our future earnings power.

Which is of course, what drives the company.

And we're in the middle of a massive share repurchase program and we don't feel like we have to back off based on what we know about our business at the granular level. So we feel very good about where we're at.

Generating good returns for shareholders by doing it that way.

So there is really.

Like they they using broad measures like it doesn't really reflect the economic reality.

So chip just where would you go from there.

That's a pretty complete answer Tom, but I think the important point is that the proactive capital management that really relies on our robust economic capital approach, which looks at risk on a granular basis.

That information to understand capital needs an enterprise level.

Premium to surplus and only looks at one dimension.

Risk and capital we use.

Use more.

A complete set of measures and metrics to establish capital levels as Tom laid out so I just think it's important.

We're cognizant of and we monitor regulatory capital requirements rating agency capital benchmarks.

All in our proactive capital management process I feel the same way that Tom does it.

We certainly have plenty of money to execute on our strategies and continue.

To implement our profit improvement plan so.

Nothing more to add Tom.

Got it thanks for the answers.

Yeah.

Thank you one moment for our next question.

And our next question comes from the line of least Greenspan from Wells Fargo. Your question. Please.

Hi, Thanks, good morning.

My first question is on the capital side of things so as.

As you guys came to the decision I guess to more moderate your buyback.

Are you assuming that there's any dividends that youre going to take out of Allstate insurance company over the next year.

And then within that question I guess.

Did you guys think about pausing the buyback program completely just to have more capital flexibility within within that subsidiary.

At least for me to answer that and gesture can jump in.

First in terms of the dividends.

First we make sure that each of the insurance subsidiaries that large ones are appropriately capitalized based on what we think economic capital as Jeff said, what the rating agencies, whether its ambassador.

Others think.

I think we should have in those and then what regulators want so and we're really well capitalized.

To the extent there is extra capital in those we then moved that out of the insurance companies into the holding company as Jeff pointed out because that gives us more flexibility as.

As we look forward next year, it will depend how much money would make I.

I think in some of those assets like we have really strong earnings power.

And when you look at our profitability of our auto insurance, we think its headed up so we think theres plenty of bearings part weather.

And where we think risk is and what we need to do with risk will depend on the overall enterprise risk portfolio. So for example.

Not covered some of the things, we dialed down the risk for our investment portfolio late last year.

As a percentage of our total enterprise capital because we didn't think it was good risk return tradeoff. So we're constantly managing.

Where do we want to move capital, where do we want to make sure we get a good return on it so.

Don't feel.

We are capital constrained.

Did we consider shutting the program down in total now.

We think we have plenty of my image a $5 billion massive share repurchase program, a large part of which partially portion of which was funded because they sold the life insurance company and we said we should give back money back to the capital shareholders. So we have a historical track record.

Of doing this extremely well.

Decile amongst the S&P, providing cash returns to shareholders.

We do that without putting our customers at risk of the company. So we feel like we're in really good shape.

Okay. Thanks, and then my follow up I guess would be right you talked about that you don't manage to premium to surplus, but I know one of your peers has mentioned looking to right there.

Business to a three to one home to one and a half to one so I'm not sure. If you a frame of reference is if you look at for your businesses and then if rating agencies and regulators what are they looking at or are they holding you to a three to one.

Or are there is there other metrics that they're holding UK relative to premium to surplus or something else.

Well.

Regular we've had.

Essentially say.

Certainly my standpoint, no conversations with regulators about our cap levels, because we are so well capitalized.

Start there.

And.

Thats been true forever, and it will be true far into the future.

And so the regulators really well.

So far about their standards.

Not really been a conversation I can't speak to how other people look at their premium to surplus ratio I think some of our competitors, who don't make money in homeowners.

Should have.

Even more than we did because when you're looking at your capital.

Okay. What do we think the risk is what is the risk of loss, but you also want to factor in your earnings power and so if youre, losing 10 cents on the dollar on our lines of business. Then you have to hold more capital than if youre, making 10 cents and a line of business. So.

I think it's all very idiosyncratic to a specific company we factor all of those things.

By state really.

And even sometimes looking down at different components of the state.

To decide what price, we should get for a customer from from customers how much business, we want to write and then how much capital we have to keep in the company. So I feel very good about where we're at.

Okay. Thanks for the color.

Thank you one moment for our next question.

And our next question comes from the line of Brian Meredith from UBS. Your question. Please.

Yeah. Thanks, a couple of them here for you first I'm. Just curious this is the I think first quarter little while they've seen auto picks actually declines to what sequentially is that due to some of the actions that you're taking in California.

Or is it just in general the price increases you're taking should we expect.

Pitch kind of declined here for a couple of quarters.

Well the Pip decline.

Of course in the Allstate.

Allstate brand versus in total because we went up in the independent agent channel.

But its attention.

And I would tell you that it's actually.

The decline was less than we thought it would be when you look at historical price sensitivities.

What's your customer retention is.

Our retention has held up better than you would think from historical trends.

It's hard to do attribution down to that specific item, but when you look at it we'd say first the competitive position.

Our competitors are also raising rates so as we raise rates, we thought more people with leaf, but less did it could be because our competitors are also raising rates.

Consumers still have a fair amount of cash in their bank accounts, so that helps.

Also know that there are houses and cars are worth more so it makes sense to them that they should have to pay more for insurance when explained to them and I think that's the value of our Allstate agents at this point they are out working hard to make sure our customers understand why that prices are going up and then as Mario mentioned they'll help them work.

Two <unk>.

Figure out how do they get the right price. So this is a case where like our <unk> product is really helpful for people because.

If you're let's say your senior citizens drive much.

And you should go to minor license save a bunch of money that pay more so when you look through all of those together, we expected our auto picks to go down more in the Allstate brand net of debt.

We're happy that we're keeping the customers because with the price increases we put through that'll be good shareholder value creation, when we start earning the rate.

Great. That's helpful. Thank you and then my next question I'm just curious.

This question was asked prior quarters, but.

When youre pricing your auto insurance and homeowners insurance now.

Type of loss trend are you expecting in the future expecting inflationary trends to moderate here or do you think theyre going to stay relatively high here for a while.

Mario will you take that.

Yes, sure good morning, Brian , Yes, I think Brian .

In terms of what we're saying.

We're factoring in obviously the inflation, we're experiencing currently but but also projecting it going forward. So that we can reflect the full cost.

<unk>.

Loss cost prospectively into our into our prices and so.

So yes, we're not.

Making any kind of significant assumptions around a deceleration and inflation going forward given the current inflationary environment. That's why we made the statement that we expect to continue to take rate increases certainly for the balance of this year, but into next year.

And that's really a reflection of.

The environment, we're operating right now and the continued elevated level of inflation, which we need to kind of catch up with and then surpassed.

Going forward, so we're not assuming any.

As I said any significant reduction in inflationary trends going forward.

Great. Thanks for the answers.

Thank you one moment for our next question.

And our next question comes from the line of Tracy <unk> from Barclays. Your question. Please.

Thank you alright.

Alright.

First question far casualty line right here given the consecutive adverse reserve development charges have you worked with any external actuary to review reserves and if so what is your management estimate relative to central estimate.

Tracy, we always work with external people and looking at our reserves.

So we obviously have delayed to ensure our auditors, but we also have an external actuary called which is KPMG, which provides a statutory reports for our regulators.

We look at.

All of their stuff, we just had a detailed review with Deloitte and touche.

But weeks ago and their view ties closely to ours.

Do you have a management estimate above the central estimate at the moment or close to a couple of Sunshine.

Yes.

We don't put ranges in the financials, we put up what we as Jeff said like we put up what we think the future liability is when we pick a number and thats, where we do it and we're comfortable with the number and that number.

Is very close to what our external participants are external help thanks.

And thought historically by the way so it isn't like that.

We're in that we bought at very similar views at the end of the second quarter ended first quarter and ended the third quarter.

They believe that the actions we've taken are appropriate.

Got it.

And just going back to capital management, giving you manage capital more efficiently at the Opco level and the way you like to hold cash at the Holdco level. So you can flex that up and down I'm just curious with last time, he downstream capital to the operating company.

Having in that like are often.

Question.

I don't remember.

Certainly in the last decade, I don't remember having done that at all from.

Down to Allstate insurance company would we move money into.

The health and benefits companies, because they were growing or do.

Do we have to so we can move money around but if you said.

If you really talk about Allstate insurance company is the largest business we have I don't remember anything in the last 10 years, but.

Gesture Mario do you have any other perspective on that.

I don't have anything more than that and I think we do.

We did move some capital down into the life company.

At one point, Tom, but I think that.

Certainly is no longer an issue, but that's the last thing that I remember.

Hi, Mario.

Yes, I would concur the last time, I remember any meaningful movement of capital down into an operating company.

Would have been during the financial crisis, which obviously was a while ago, but as Tom mentioned, we move capital around but nothing in terms of shortfalls within any of the insurance companies.

Right.

Are you about this the right way, where you have capital at the parent company that you could flex it up or down in your slide when you talk about your fixed charges as Barry multiple that you want to keep like couponing.

Yes.

Keybanc.

A minimum level.

We don't manage it that way I just showed the the level of cash we would have after we used deployable capital finish this share repurchase program you can see it's still well above our fixed charges, which we intentionally manage to keep at a modest level.

Which is even though we increased the dividend by about 50% a year ago, we tried to get a lot of money back to shareholders through share repurchases. So.

So we don't have a multiple if you had a multiple and you also have to factor in how much.

Youre going to make over the next 12 months.

Obviously, our fixed charge coverage has historically had been terrific. So we don't.

Don't have like don't go below this because we've never even been close.

Thank you.

Okay.

One moment for our next question.

And our next question comes from the line of David Loeb maintenance from Evercore ISI. Your question. Please.

Hi, Thanks, good morning.

I think it was it was just who spoke about just the mix shift that you're experiencing on the claim side too.

To more expensive claims.

And as part of the reserving process you weight, both historical and more recent trends in the claim development patterns in the data. So I guess I'm wondering after the changes that you've made.

This quarter our U.

How much are you waiting more recent experience is it 100% weight on these trends that youre seeing or.

Is there still some weight being placed on more historical experience.

Yes.

David Let me answer that in just you can add anything else to it so first.

The reserving process uses all types of.

Statistical analysis triangles link ratios all sorts of different things. So theres no real like just one percentage I think we look at it.

By state by line.

Your line of business by coverage and so it's sliced and diced a whole bunch of ways. So theres no really simple way to answer that and I think what I.

Say about youre trying to get comfortable with the reserves. It really starts you got to go back to say well what's happening in the world.

And during the pandemic.

Notice when people were not in the roads people were driving a lot faster.

Because there is they could zip around and there is no traffic and off they went once we get through the pandemic at least in our data.

We see people still driving pretty fast, but as a result of that you have more severe accidents.

And that trend appears to be holding we thought that that trend might come down.

Because when.

When the little ones sort of bumps and scratches and stuff, which happened in congested traffic.

Today.

As you saw from adjusted numbers.

<unk> gone back up in the major ones have not gone down. So people are just driving faster and hurting people more so.

You have to figure out okay, well what are you going to do to take care of that those are really complicated cases, I mean people have surgery. They have all kinds of services.

And those services are more expensive and they take longer to develop.

Really severely injured it could take six months nine months two years before you really figure out how you get back to where it should be.

And it costs a lot of money. It takes a lot of time and so those cases develop over a longer period of time so.

It isn't so much that it's just that we use the same processes procedures, but as these things develop it really comes back to our <unk>.

Customers are just in a lot more similar actions and people are getting hurt and we need to make sure. We have the liability up to cover that and that's what we did this quarter. So we said okay.

These this is really continuing most of these are still severe.

And as they develop then you have to put the money out.

Got it.

So.

So so it sounds like you had assumed that the mix, which normalized somewhat away from.

Some of these more severe accidents.

And I guess now the assumption is that there is going to be no mix away from from these more severe accidents and that sort of the new normal is that correct.

Yes. It is.

Not just one item I would say so you can't pin it on just those now more major serious more majors.

Majors are harder to estimate they are taking longer to settle.

There's more legal costs associated with settling those and say you have to factor that in so there's a whole bunch of factors that relate to it so.

We look at it we're comfortable we've put up the right amount of money.

And.

What other companies do and what their reserving or some people are using less specific processes and we do.

Some.

Some processes react faster or slower to trends in the marketplace, but the important thing is we use the same processes have external views and real estate cases right online.

Got it Okay, and then maybe just a quick numbers follow up here. So see that you guys are now assuming a bodily injury severity of 12%.

I guess I'm just wondering what was the report year incurred severity on bodily injury for 2021.

After the changes that you've made.

We have not broken out.

The reserve after the reserve changes.

By prior years.

Won't break those out until we publish the 10-K.

Is that right correct correct, yes.

That's right Tom we don't disclose the split so we don't have that.

But suffice it to say David that is higher than it was before.

Yes, I mean I was looking at a five I'm just trying to get a sense for the.

Compound.

We say, okay up 12, but the base does matter.

And so I think the base was set at 5% in the first quarter for all of 2021, which has since been changed so I was just trying to get a sense for.

Where that's gone, but I guess I'll look in the K for that thank you.

Okay.

Why don't we take one more question then.

Certainly.

One moment for our final question. Our final question comes from the line of <unk> <unk> from Jefferies. Your question. Please.

Thanks, Good morning.

I'm joined by my specialty of beating dead horses here, if I can.

On our capital.

Do you expect to deploy some of the holdco liquidity into AIC over the coming year.

No.

Okay.

And then Asia.

More to the auto and home side, So I think you.

You guys shifted the exclusive agent comp structure to be more weighted to new business.

Now that.

You're kind of maybe taking a little bit of a step back on growth.

Really focusing more on fixing the margins.

Is that playing out with the agent comp structure with your conversations with them soon.

Can be a little bit of that.

Murmurings of rumblings around that how are you handling that.

Well youre adequately address embedded in all of this there's a lot of good news transformative growth.

We really don't get a chance to talk about.

One is that what you talked about which was expanding customer access with the.

Is the second key lever.

And that included.

Selling direct under the Allstate brand at 7% less than it was sold to Allstate agents and there were some concerns amongst investors as to with the agents walk away.

And would you have a decline in volume there and the answer is no.

That is the underlying assumption that they would continue to be focused on getting more new customers given what we did to the compensation plan.

That was true if.

If you look at new new business from the Allstate agents, you can see thats, where it was a year ago, even though there are fewer allstate agents out there.

And then if you look at the retention numbers as I mentioned I think our agents are doing a great job for us talking to customers who use price changes.

So we feel good that that part of the expanding access.

All of our underlying assumptions prove true.

We also have really.

Improved our web based.

And the call center close processes, so we're getting much better at selling to those two vehicles, we obviously dialed advertising way down.

And this year, because we don't want to take on new business, and then have to raise the price 15% or 20%.

First time.

So while you don't see the benefit of those improved processes coming through new business.

But when we get auto profitability improved.

We feel good about the underlying assumptions, we made in transformative growth and our progress in making those reality. So we're feeling good about where that's headed.

Thank you all for dialing in as we move forward, we have a couple of things in front of US one we have to improve auto insurance margins.

While making sure we continue to invest in transformative growth. So that we can grow market share and then continuing to expand our other protection services businesses, which also had a great quarter. So thank you and we will talk to you in December .

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect patient at today's conference. This does.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

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Good day, and thank you for standing by welcome to Allstate's third quarter Investor call. At this time all participants are in a listen only mode. After prepared remarks, there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone. Please limit your inquiry to one question and one follow up as a reminder.

Be aware that this call is being recorded and now I'd like to introduce your host for today's program Mr. Mark <unk> head of Investor Relations. Please go ahead Sir.

Our management team appeared to provide perspective on these results.

As noted on the first slide of the presentation. Our discussion will contain non-GAAP measures for which there are reconciliations in the news release and Investor supplement and <unk>.

Forward looking statements about allstate's operations update.

<unk> results may differ materially from these statements. So please refer to our 10-K for 2021 and other public documents for information on potential risks.

Well good morning, Thank you for investing your time with Allstate today.

As you know, we pre released earnings several weeks ago and reported the net loss for the quarter.

That reflected a small underlying underwriting margin that was offset by increases in reserves for prior years.

And as Mark to market loss on public equity Securities.

Mario adjusted go through the details of the quarter and the reserve changes after I set some context.

Let's start on slide two allstate's strategy to increase shareholder value has two components increased personal property liability market share and.

Spam protection services, which are shown in the 12 volt Nonetheless.

We're building a low cost digital insurer with broad distribution through transformative growth to increase market share.

Also broadening protection offerings, and leveraging the Allstate brand customer base and capabilities with expanded distribution.

In the third quarter, we made progress executing our strategy, while we continue to implement a comprehensive approach to improve auto profitability, which is shown in the rightful panels that includes broadly raising auto insurance rates, what you've seen in our disclosures operating expenses were lowered including advertising and more permanent reductions in the <unk>.

Operating cost structure.

Underwriting guidelines have been adjusted to reduce new business volume were not earning adequate returns.

Our claims operating processes are being modified to manage the loss costs in a high inflation environment.

And we believe this plan will return on auto insurance profitability to historical levels.

While the current environment requires focus on improving margins, we continued to advance transfer our growth strategy to gain market share when profitability.

In addition to protection services businesses are generating profitable growth.

Investment returns were negative for the quarter and year to date are better than the overall declines in the bond and equity markets. This reflects risk reductions implemented late last year.

Youll remember, we reduce the bond portfolio duration to lower exposure to high interest rates, which enabled us to avoid about $2 billion in losses in the bond portfolio.

Our capital position is strong and as a result, we were able to deliver attractive returns to shareholders.

<unk> is going to discuss capital in his section, but let me provide a few summary points.

Since this was covered in some of the reports issued last night.

First we have plenty of capital and there is $4 5 billion deployable capital at the holding company level.

Secondly, the significant reduction in risk with the sale of the life and annuity operations occurred last October and that needs to be considered this divestiture reduced assets by $34 billion and freed up capital.

Thirdly, we are really sophisticated approach to determining require capital that goes far beyond statutory capital and premium to surplus ratios. For example, if you just use statutory capital as measured the life company equity would be included in capital.

Historically, which we did not believe it is appropriate so we never included it so our methodologies, but strong results.

We did decide to complete the remaining $1 4 billion stock repurchase over more than the next six months, which was our prior target we had disclosed to you, but we still expect to complete it in the second or third quarter of next year. So in summary, we're really well capitalized and this year's results have not changed our strategy or earnings power.

Now, let's move to slide three as you go through the third quarter performance in detail, but.

Total revenues of $13 2 billion were five 8% over the prior year quarter as property liability premiums earned increased by about $1 billion or.

Or a nine 8%, which reflected higher average premiums and policy growth.

Lower net investment income and net losses on investments and derivatives negatively impacted the year over year consideration.

Paris in there.

With $875 million.

Excluding catastrophes and increase loss cost in the current year.

Looking forward beyond improving.

Profits in auto insurance, if you go to slide four you'll see the flywheel of growth increase personal property liability market share.

This is a multiyear initiative designed to build a low cost digital insurer with broad distribution that.

That will be accomplished by delivering on five key objectives improving customer value.

Spanning customer access increase.

Increasing sophistication and investment in customer acquisition, deploying new technology ecosystems, and enhancing organizational capabilities. We made significant progress on all these components and we're well on the way to having really being in a position where we can dial up quite rapidly when profitability improves.

Now, let me turn it over to Mario through and he'll go through our property liability results.

Thanks, Tom.

Let's start by reviewing underwriting profitability for the property liability business in total on slide five our.

Our underwriting results reflect the high level of inflation and the impact of reserve strengthening in the quarter with a third quarter recorded combined ratio of $117 four for auto 91, two for homeowners $126 six for all other lines and 111 six for total property liability.

As shown on the left chart.

While the homeowners business generated $245 million of underwriting profit higher severity resulted in an underlying combined ratio of $74 six which is above where we manage it too and we are increasing prices through both rates and the inflationary adjustment factor embedded in our homeowners product to improve underlying.

Our margins going forward.

One of the reasons that we have an industry, leading homeowners business is because we proactively manage the risk and return profile of each market that we operate in.

Offering ongoing coverage to them.

<unk> unless pricing begins to utilize a telematics based framework for pricing.

These actions are expected to reduce commercial business premiums by over 50% next year.

Let's move to slide six and discuss auto profitability in more detail.

As you can see from the chart on the left which shows the auto insurance combined ratio and underlying combined ratio over time, we have a long history of meeting or outperforming our mid <unk> combined ratio targets supported by our pricing sophistication underwriting and claims expertise and expense management.

'twenty is an outlier with much better than target results due to reduced accident frequency in the early stages of the pandemic.

As a result, the auto insurance recorded combined ratio was $117 four with reserve strengthening and catastrophes contributing $8 five and four points respectively to this result.

The right chart quantify the drivers in the year over year change in the underlying combined ratio, which increased from 97 six to 104 and excludes catastrophes and reserve changes.

The Red bar reflects the increase in underlying losses, primarily due to current report year incurred severity strengthening across major coverages and moderately higher frequency than last year.

Excluding this intra year strengthening the third quarter underlying combined ratio would have been 101 four.

<unk> current report your incurred severity for collision and property damage claims were increased to 17% above the level recorded for the full year 2021, and bodily injury severity was increased to 12%.

Moving to slide seven let's discuss key components of our multifaceted plan to deal with inflation raising auto insurance prices.

Growth in average premium per policy is accelerating due to implemented rate increases over the last 12 months, but the impact to average earned premium per policy is on a lag due to the six month policy term.

Over the last 12 months, we've implemented implemented Allstate brand auto rate increases across 53 locations for an annualized written premium impact of approximately 13, 7% or nearly $3 3 billion.

Including four 7% in the third quarter.

Chart on the page is an estimation of when the rate increases implemented in the last 12 months will be earned into premiums.

This illustrative example assumes only 85% of the annualized written premium will be earned to account for retention and the fact that some customer some customers modify policy terms, such as deductibles or limits when faced with price increases.

As you can see looking back at Q3 2022, the estimated impact of the $3 $3 billion in annualized implemented rate had only an estimated impact of $660 million on earned premium which is expected to grow by over $2 1 billion through the end of next year.

Moving to slide eight let's discuss the timing of how these rate increases will impact the combined ratio for auto insurance.

The chart on this page is an illustrative view to show our path to target profitability, along with the magnitude of actions already taken and required prospectively.

Starting on the left through the first nine months of the year. The auto insurance recorded combined ratio is $109 three as shown by the first Blue bar.

From this starting point, we remove the impact of prior year reserve increases and normalize the catastrophe loss ratio to our five year historical average.

This improves the combined ratio by approximately six points represented by the first Green bar.

The second Green bar reflects the estimated impact of rate actions already implemented when fully earned into premium which is an additional $2 $3 billion of premium across the Allstate and national general brands or approximately eight points.

These amounts will be mostly earned by the end of 2023.

Of course loss costs will continue we will likely continue to increase whether from inflationary impact on severity or higher accident frequency, which would increase the combined ratio.