Q4 2023 Allstate Corp Earnings Call

Operator: Good day, and thank you for standing by. Welcome to Allstate's 4th Quarter Earnings Conference Call. Currently, all participants are in a listen-only mode.

Okay.

Speaker Change: Good day, and thank you for standing by welcome to Allstate's fourth quarter earnings Conference call.

Speaker Change: 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.

Operator: After the prepared remarks, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. Please limit your inquiry to one question and one follow-up. As a reminder, please be aware this call is being recorded. And now, I'd like to introduce your host for today's program, Brent Vandermeer, head of investment relations. Please go ahead, sir.

Brent Vanderme: Please limit your inquiry to one question and one follow up as a reminder, please be aware this call is being recorded and now I'd like to introduce your host for today's program Brent Vander me as head of Investor Relations. Please go ahead Sir.

Brent Vandermeer: Thank you, Jonathan. Good morning, and welcome to Allstate's fourth quarter 2023 earnings conference call. After prepared remarks, we will have a question and answer session. Yesterday, following the close of market, we issued our news release and investor supplement and posted related material on our website at allstateinvestors.com. Our management team is here to provide perspective on these results and our strategy. 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 forward-looking statements about Allstate's operations. Allstate's results may differ materially from these statements, so please refer to our 10-K for 2022 and other public documents for information on potential risks. Now, I'll turn it over to Tom. Good morning.

Brent Vanderme: Thank you Jonathan Good morning, and welcome to Allstate's fourth quarter 2023 earnings Conference call. After prepared remarks, we will have a question and answer session yesterday. Following the close of market, we issued our news release and Investor supplement and posted related materials on our website at Allstate investors dot com or management.

Brent Vanderme: Team is here to provide perspective on these results and our strategy.

Brent Vanderme: <unk> 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 forward looking statements about allstate's operations Allstate's results may differ materially from these statements. So please refer to our 10-K for 2022 and other public documents for information on potential risk.

Brent Vanderme: And now I'll turn it over to Tom.

Tom: Good morning, we appreciate your taking the time and spending your.

Thomas Joseph Wilson: We appreciate you taking the time and making the effort to explore why Allstate's an attractive investment. So I'll begin with an overview of our strategy and results, and Mario and Jess are going to go through the operating performance. Then we'll have time for your questions at the end.

Tom: Your efforts at explore why I'll say, it's an attractive investment so I'll begin with an overview of our strategy and our results and Mario and guests are going to go through the operating performance. Then we'll have time for your questions at the end.

Thomas Joseph Wilson: Let's begin on slide two, which depicts Allstate's strategy to increase shareholder value. So we have two components to the strategy, increase personal property liability market share and expand protection provided to customers, which are shown in the two ovals on the left. On the right-hand side, you can see the highlights for the fourth quarter.

Speaker Change: Let's begin on slide two which depicts allstate's strategy to increase shareholder value. So we have two components in our strategy increase personal property liability market share and expand protection provided to customers, which are shown on T. Mobile's on the left and the right hand side you can see the highlights for the fourth quarter, we generated net income of one.

Thomas Joseph Wilson: We generated net income of $1.5 billion. The strong results reflect our actions to improve auto insurance profitability in mild weather conditions, which was a welcome reprieve from the elevated level of weather-related losses in the first three quarters of the year. The proactive approach to increasing bond duration also contributed to strong results with higher income from the market-based portfolio. To further increase shareholder value this year, we remain focused on improving auto insurance profitability. There is more work to be done, but we're well on our way.

Tom: $5 billion.

Tom: Our strong results reflect our actions to improve auto insurance profitability and mild weather conditions, which was a welcome her prey you're from the elevated level of weather related losses in the first three quarters of the year.

Tom: The proactive approach to increasing bond duration also contributed to strong results with higher income from our market based portfolio.

Tom: To further increase shareholder value. This year, we remain focused on improving auto insurance profitability. There is more work to be done, but we're well underway.

Thomas Joseph Wilson: Additional shareholder value will then be increased by increasing policies enforced across all of our businesses. The transformative growth initiative to drive property liability market share growth can be implemented in more states this year, now that auto margins have been improved. We're also focusing on expanding protection offerings to protection services businesses, which is shown in the lower oval. Protection plans, identity protection, roadside, and ARITY all have good growth prospects.

Tom: Additional shareholder value will then be increased by increasing policies in force across all of our businesses. The transformative growth initiatives to drive property liability market share growth can be implemented in more states. This year now as auto margins have been improved and we're also focusing on expanding protection offerings to protection services businesses.

Tom: Which is shown in the lower overall as protection plans entity protection roadside and they already all have good growth prospects.

Thomas Joseph Wilson: As you know, we started the process to sell the health and benefits business, and that process is proceeding on schedule. Let's review the financial results on slide 3. Revenues of $14.8 billion in the fourth quarter increased by 8.7%.

Tom: As you know we started the process to sell the health and benefits business and that process is proceeding on schedule.

Tom: Let's review the financial results on slide three.

Tom: Revenues of $14 $8 billion in the fourth quarter increased by eight 7% that reflects a 10, 7% increase in property liability earned premium and that was due to rate increases in 2022, and mostly a toy train two in that 2023, and both the auto and homeowners insurance net investment income in the quarter.

Thomas Joseph Wilson: That reflects a 10.7% increase in the property liability earned premium, and that was due to rate increases in 2022 and, mostly, in 2022 and then 2023 in both the auto and homeowners insurance. Then investment income of the quarter was $604 million, an 8.4% increase, reflecting higher fixed income yields and duration extension, which is partially offset by a lower performance base. The strong profitability in a quarter generated an adjusted net income of $1.5 billion, or $5.82 per diluted share.

Tom: There was $604 million and eight 4% increase reflecting higher fixed income yields and duration extension, which is partially offset by lower performance based income this.

Tom: Our strong profitability in the quarter generated adjusted net income of $1 5 billion or $5 83 per diluted share.

Thomas Joseph Wilson: Annual revenues of $57 billion were up $5.7 billion, or 11.1%, over the prior year. Strong fourth quarter earnings resulted in positive adjusted net income for the year. Slide four summarizes the status of the four-part auto insurance profit improvement plan. Strong execution resulted in a 6.7% point improvement in the combined ratio in 2023. Starting with rates, since 2022, the Allstate brand implemented rate increases of 33.3%, which included 16.4% in 2023 and 6.9% in the fourth quarter, driven by recent approvals in California, New York, and New Jersey. National General implemented rate increases of 10% in 2022 and an additional 12.8% in 2023.

Tom: Annual revenues of $57 million were up $5 7 billion or 11, 1% over the prior year strong fourth quarter earnings, resulting in positive adjusted net income for the year.

Tom: Slide four summarizes status in the fourth part auto insurance profit improvement plan.

Tom: Strong execution resulted in a six 7%.

Tom: Point improvement in the combined ratio in 2023.

Tom: Starting with rates since 2022, the Allstate brand implemented rate increased 33, 3%, which included 16, 4% in 2023 and six 9% in the fourth quarter driven by the recent approvals in California, and New York and New Jersey.

Tom: National General implemented rate increases at 10% in 2022, and an additional 12, 8% in 2023.

Tom: Looking forward, we will pursue rate increases in 10 states to improve margins and in other states to keep pace with increases in loss costs.

Thomas Joseph Wilson: Looking forward, we will pursue rate increases in 10 states to improve margins, and in other states to keep pace with increases in loss costs. Expense reductions were initiated in 2019 as part of the transformative growth plan to become a low-cost provider of protection. Being early in this effort helped offset the rapid inflation and loss costs. The underwriting expense ratio decreased 1.1 points in 2023 compared to the prior year when you exclude the large decline in advertising that was directly linked to lower profitability.

Tom: Expense reductions were initiated in 2019 as part of the transformative growth plan to become a low cost provider protections being early in this effort helped to offset the rapid inflation in loss costs.

Tom: The underwriting expense ratio decreased one one points in 2023 compared to the prior year. When you exclude the large decline in advertising that was directly linked to lower profitability.

Tom: Looking forward, we further cost reductions will improve our efficiencies and our competitive price position.

Tom: Given the significant improvement in prospective auto margins will increase advertising investments this year.

Tom: In addition, we implemented underwriting actions to restrict new business, where we're not achieving target returns, we're removing some underwriting restrictions as rate adequacy is achieved.

Thomas Joseph Wilson: Looking forward, further cross reductions will improve efficiencies and our competitive prices. Given the significant improvement in prospective auto margins, advertising investment issues will be addressed. In addition, we implemented underwriting actions to restrict new business where we are not achieving target returns.

Tom: Finally, enhancing claim practices in a high inflation and increasing litigious environment are required to deliver good customer value. This includes accelerating the settlement of injury claims and increasing in person inspections. This program has positioned us to increase new business levels and begin to grow policies enforced and face are acceptable.

Tom: Margins have been restored.

Thomas Joseph Wilson: Finally, enhancing claim practices in a high inflation and increasingly litigious environment is required to deliver good customer value. This includes accelerating the settlement of injury claims and increasing in-person inspection. This program has positioned us to increase new business levels and begin to grow policies in forceful states where acceptable margins have been restored. Now I'll turn it over to Mario to discuss property liability. Thanks, Tom.

Tom: Now I'll turn it over to Mario to discuss property liability. Thanks, Tom.

Mario: I'll start on slide five.

Mario: Property liability earned premium increased 10, 7% in the fourth quarter, primarily driven by an ex.

Mario: Excuse me higher average premiums from rate increases, partially offset by a 2% decline in policies in force.

Mario: Underwriting income of $1 3 billion in the quarter improved $2 4 billion compared to the prior year quarter due to increased premiums earned improved underlying loss experience lower catastrophe losses and operating efficiencies.

Mario: The chart on the right highlights the components of the 89, five combined ratio in the quarter, which improved $19 six points from the prior year quarter.

Mario Rizzo: Let's start on slide five. Property liability earned premium increased 10.7 percent in the fourth quarter, primarily driven by, excuse me, higher average premiums from rate increases, partially offset by a 2 percent decline in policies in force. Underwriting income of $1.3 billion in the quarter improved $2.4 billion compared to the prior year quarter due to increased premiums earned, improved underlying loss experience, lower catastrophe losses, and operating efficiency. The chart on the right highlights the components of the 89.5 combined ratio in the quarter, which improved 19.6 points from the prior year quarter. The impact of catastrophe losses and prior year reserve re-estimates on the combined ratio, as shown in light blue and gray, materially improved compared to the prior year. Catastrophe losses of $68 million were $711 million, or 6.3 points lower than the prior year due to the mild weather conditions experienced in the quarter and favorable loss development from prior period events.

Mario: The impact of catastrophe losses, and prior year Reserve re estimates on the combined ratio as shown in light blue and gray materially improved compared to the prior year.

Mario: Catastrophe losses of $68 million were $711 million or six three points lower than prior year due to the mild weather conditions experienced in the quarter and favorable loss development from prior period events.

Mario: Prior year reserve re estimates, excluding catastrophes were unfavorable and totaled $199 million.

Mario: Representing a one six point adverse combined ratio impact in the quarter.

Mario: Eight nine point favorable impact compared to the prior year quarter.

Mario: Approximately $148 million related to personal auto driven in part by costs related to claims and litigation and adverse development in National General.

Mario: The underlying combined ratio of $86 nine improved by 12 three points compared to the prior year quarter due to higher average premiums and a favorable influence of milder weather conditions on accident frequency.

Mario: Despite the favorable results in the quarter the full year combined ratio of $104 five was significantly impacted by elevated catastrophe losses, primarily from events in the first three quarters, resulting in a catastrophe loss ratio that was four points above the 10 year average from 2013 to 2022.

Mario Rizzo: Prior Year Reservory Estimates excluding catastrophes were unfavorable and totaled $199 million, representing a 1.6 point adverse combined ratio impact in the quarter and a.9 point favorable impact compared to the prior year quarter. Approximately $148 million related to personal auto, driven in part by costs related to claims and litigation and adverse development in national general. The underlying combined ratio of 86.9 improved by 12.3 points compared to the prior year quarter due to higher average premium and the favorable influence of milder weather conditions on accident frequency. Despite the favorable results in the quarter, the full-year combined ratio of 104.5 was significantly impacted by elevated catastrophe losses, primarily from events in the first three quarters, resulting in a catastrophe loss ratio that was four points above the 10-year average from 2013 to 2022

Mario: Now, let's move to slide six to review Allstate's auto insurance profit trends.

Mario: The fourth quarter recorded auto insurance combined ratio of $98 nine improved by 13 seven points compared to the prior year quarter, reflecting higher earned premium lower underlying losses lower adverse prior year reserve re estimates and expense efficiencies.

Mario: The chart shows the underlying combined ratios from 2022, and 2023 with quarterly reported figures adjusted to reflect the estimated average severity level as of year end for each year as you can see the underlying combined ratio decreased each quarter in 2023, reflecting the benefits of the prop.

Mario: Improvement plan, Tom discussed earlier.

Mario: As a reminder, we continually reassess claim severity expectations as the year progresses.

Mario: The current year expected severity increases or decreases the year to date impact of that change is recorded in the current quarter.

Mario: Despite a portion of that impact being driven by reassessment of the prior quarters.

Mario: In 2023, the full year estimate of claims severity decreased in the fourth quarter. So there was a benefit from prior quarters included in reported results in the fourth quarter.

Mario Rizzo: Now let's move to slide six to review Allstate's auto insurance profit trends. The fourth quarter recorded an auto insurance combined ratio of 98.9, improved by 13.7 points compared to the prior year quarter, reflecting higher earned premium, lower underlying losses, lower adverse prior year reserve re-estimates, and expense efficiencies. The chart shows the underlying combined ratios from 2022 and 2023, with quarterly reported figures adjusted to reflect the estimated average severity level as of year-end for each year.

Mario: When you adjust for this the reported underlying combined ratio of $96 four as shown in the table would be $98 two as shown in the bar on the graph.

Mario: The three preceding quarters, all benefit from the adjustment, including Q3, which improved from 105 in the presentation shown last quarter to 99, nine reflecting the latest severity estimate.

Mario: While loss cost trends remained historically elevated the rate of increase moderated in the second half of the year, mainly and physical damage coverages Allstate brand weighted average major covered severity expectations improved from 11% as of the end of the second quarter to 9% in the third quarter.

Mario Rizzo: As you can see, the underlying combined ratio decreased each quarter in 2023, reflecting the benefits of a profit improvement plan Tom discussed earlier. As a reminder, we continually reassess claim severity expectations as the year progresses. If the current year's expected severity increases or decreases, the year-to-date impact of that change is recorded in the current quarter, despite a portion of that impact being driven by reassessment of the prior quarter. For example, in 2023, the full year estimate of claim severity decreased in the fourth quarter, so there was a benefit from prior quarters included in reported results in the fourth quarter. When you adjust for this, the reported underlying combined ratio of 96.4, as shown in the table, would be 98.2, as shown in the bar on the graph.

Mario: Now the 8% to 9% at the end of the year as a reminder, this trend reflects our current best estimate for the year over year increase in average severity.

Mario: Slide seven shows the impact of our profit improvement actions across the country.

Mario: As shown on the left Allstate brand rate increases have exceeded 33% over the last eight quarters, including larger increases in California, New York, New Jersey, and Texas reflective of the elevated loss trends in these states.

Mario: These four states comprised 36% of Allstate brand auto auto total written premiums in the U S. During 2023.

Mario: As you know increases were approved in California, and New York and New Jersey in December So we have yet to see this in earned premiums.

Mario: The chart on the right shows states with an underlying combined ratio below 100 shown in the light and dark blue bars were 65% of the total in 2023 more than doubling from the percentage at year end 2022.

Mario: Excluding California, and New York, and New Jersey, The Allstate brand auto insurance underlying combined ratio was 95 nine in 2023.

Mario Rizzo: The three preceding quarters all benefited from the adjustment, including Q3, which improved from 100.5 in the presentation shown last quarter to 99.9, reflecting the latest severity estimates. While loss cost trends remain historically elevated, the rate of increase moderated in the second half of the year, mainly in physical damage coverage. Allstate brand weighted average major coverage severity expectations improved from 11% as of the end of the second quarter to 9% in the third quarter and now to 8% to 9% at the end of the year. As a reminder, this trend reflects our current best estimate for the year-over-year increase in average severity.

Mario: Slide eight shows improving profitability had a negative impact on policies in force during 2023.

Mario: On the left you can see that total protection auto policies in force decreased by two 9% compared to prior year as the Allstate brand decline of six 2% more than offset a 13, 3% increase at National General.

Mario: Allstate brand auto policies in force decreased due to reduced new business volumes and lower retention.

Mario: National General growth of 581000 policies in force was mostly driven by non standard auto insurance and to a lesser extent the rollout of new middle market standard and preferred auto insurance product launches for the customer 360 product.

Mario: The chart on the right shows total personal auto new issued applications for 2023 decreased 6% compared to prior year and the accompanying drivers.

Mario Rizzo: Slide seven shows the impact of our profit improvement actions across the country. As shown on the left, Allstate brand rate increases have exceeded 33% over the last eight quarters, including larger increases in California, New York, New Jersey, and Texas, reflective of the elevated loss trend in these states. These four states comprise 36% of Allstate brand auto total written premiums in the U.S. during 2023.

Mario: Targeted profitability actions within the Allstate brand resulted in a decline in new auto issued applications up 20% compared to the prior year.

Mario: The first two red bars reflect the impact of lower new business volume in California, New York, and New Jersey as well as the direct channel declined in the remainder of the country, which was most directly impacted by the reduction in marketing investment last year.

Mario: Outside of that the three states, where profit actions significantly reduced new business Allstate exclusive agents increased production by 6% driven by higher productivity showing the response of Allstate agents to the changes we've made to incent growth and the opportunity to continue to grow with our agency owners as part of transform.

Mario Rizzo: As you know, increases were approved in California, New York, and New Jersey in December, so we have yet to see this in earned premium. The chart on the right shows states with an underlying combined ratio below 100, shown in the light and dark blue bars, were 65% of the total in 2023, more than doubling from the percentage at year-end 2022. Excluding California, New York, and New Jersey, the Allstate brand auto insurance underlying combined ratio was 95.9 in 2023. Slide 8 shows improving profitability had a negative impact on policies enforced during 2023. On the left, you can see that total protection auto policies in force decreased by 2.9% compared to the prior year, as the Allstate brand declined by 6.2%, more than offset a 13.3% increase at National General. Allstate brand auto policies enforced decreased due to reduced new business volumes and lower retention.

Mario: <unk> growth.

Mario: The acquisition of National General strategically positioned Allstate to grow in the independent agent channel with new business applications, increasing 12% in 2023.

Mario: National General continues to grow non standard auto and generated higher volume from the customer 360 product launches.

Mario: Slide nine covers homeowners insurance results, which generated significant profits for the quarter, while full year results, where can take impacted by elevated catastrophe losses in the first three quarters of the year.

Mario: On the left you can see net written premium increased 13, 3% from the prior year quarter, primarily driven by higher average gross written premium per policy in both the National General and Allstate brand and a one 1% increase in policies in force.

Mario: National General net written premium grew 19, 6% compared to the prior year quarter, primarily due to policy enforced growth driven by the customer 360, offering and higher average premiums from implemented rate increases.

Mario: Allstate brand net written premiums increased 12, 5% driven by average gross written premium per policy increases of 12, 2% compared to the prior year quarter and a small increase in policies in force.

Mario Rizzo: National General Growth of 581,000 Policies Enforced was mostly driven by non-standard auto insurance, and to a lesser extent, the rollout of new middle market standard and preferred auto insurance product launches for the Custom 360 product. The chart on the right shows total personal auto new issued applications for 2023 decreased 6% compared to the prior year and the accompanying drivers. Targeted profitability actions within the Allstate brand resulted in a decline in new auto insurance applications of 20% compared to the prior year. The first two red bars reflect the impact of lower new business volume in California, New York, and New Jersey, as well as the direct channel decline in the remainder of the country, which was most directly impacted by the reduction in marketing investment last year.

Mario: Allstate agents continue to bundle auto and homeowner's insurance at historically high levels.

Mario: Catastrophe losses of $21 million in the fourth quarter were low by historical standards, reflecting milder weather conditions and favorable development from prior events contributing to a 62 combined ratio and $1 $2 billion of underwriting income for the quarter.

Mario: The elder whether in the fourth quarter also favorably influenced the underlying combined ratio due to lower non catastrophe claim frequency.

Mario: For the full year higher catastrophe losses drove the combined ratio increase in 2023 compared to 2022.

Mario: Full year catastrophe losses of $4 $5 billion were higher than our historical experience and translated to a catastrophe loss ratio that was 17 points higher than prior year and roughly 14 points above the 10 year average from 2013 to 2022.

Mario: As you can see from the chart on the right. The full year underlying combined ratio declined from 73 in 2022 to 67, three and 2023, reflecting higher average premiums from rate increases, partially offset by higher claims severity due to materials and labor costs.

Mario Rizzo: Outside of the three states where profit action significantly reduced new business, Allstate exclusive agents increased production by 6%, driven by higher productivity, showing the response of Allstate agents to the changes we've made to incent growth and the opportunity to continue to grow with our agency owners as part of transformative growth. The acquisition of National General strategically positioned Allstate to grow in the independent agent channel, with new business applications increasing 12% in 2023. National General continues to grow its non-standard auto business and generate higher volume from the Custom 360 product launch. Slide nine covers homeowners insurance results, which generated significant profits for the quarter, while full-year results were impacted by elevated catastrophe losses in the first three quarters of the year. On the left, you can see net written premium increased 13.3% from the prior year quarter, primarily driven by higher average gross written premium for policies in both the national general and Allstate brands and a 1.1% increase in policies in force.

Mario: With an industry, leading product advanced pricing underwriting and analytics broad distribution capabilities and our comprehensive reinsurance program. We will continue to leverage homeowners as a growth opportunity and remain confident in our ability to generate attractive attractive risk adjusted returns in this line.

Mario: Moving to slide 10, let's discuss how we are advancing transformative growth to provide customers low cost protection through broad distribution.

Mario: We remain focused on four key elements of this multi year initiative as you can see on this slide.

Mario: We have improved our cost structure to enhance our competitive price position.

Mario: In the current environment with most competitors, taking large rate increases.

Mario: Difficult to pinpoint competitive position that said, our relative competitive position likely deteriorated in 2023.

Mario: But as many of our competitors continue to implement rate increases in our expenses declined we believe our competitive position will improve enhancing growth opportunities as part of transformative growth.

Mario: Redesigned affordable simple and connected products currently available for auto insurance in seven states with plans for further expansion. This year, both improved customer value and deliver a differentiated customer experience Nash.

Mario Rizzo: National general net written premium grew 19.6% compared to the prior year quarter, primarily due to policy and force growth driven by the custom 360 offering and higher average premiums from implemented rate increases. Allstate brand net written premiums increased 12.5%, driven by average gross written premium for policy increases of 12.2% compared to the prior year quarter and a small increase in policies in force. Allstate agents continue to bundle auto and homeowners insurance at historically high levels. Catastrophe losses of $21 million in the fourth quarter were low by historical standards, reflecting milder weather conditions and favorable development from prior events, contributing to a 62 combined ratio and $1.2 billion of underwriting income for the quarter.

Mario: National General independent agent growth prospects will be further enhanced by expanding customer 360 products, which were live in 16 states as of year end 2023, and expect to be in nearly every state by the end of 2024.

Mario: Expanding customer access will also support market share growth and we've made good progress in all three channels.

Mario: Increasing sophistication and customer acquisition continues to advance and we will improve the effectiveness of increased advertising spend in 2024, as we look to grow in more states.

Mario: Our new technology ecosystem is also being deployed to improve the customer experience.

Mario: Speed to market and reduce cost for legacy technology platforms.

Just: Let me turn it over to just now to talk about expense reductions and other operating results alright. Thank you Mario on slide 11, delve deeper into how we are improving customer value through expense reductions.

Speaker Change: As shown in the chart on the left the property liability underwriting expense ratio decreased two points from 2022% in 2023, as we continued to focus on lowering cost to provide more value to customers and saw the benefits of higher earned premium growth relative to fixed costs.

Mario Rizzo: Milder weather in the fourth quarter also favorably influenced the underlying combined ratio due to lower non-catastrophe claim frequency. However, for the full year, higher catastrophe losses drove a combined ratio increase in 2023 compared to 2022. Full-year catastrophe losses of $4.5 billion were higher than our historical experience and translated to a catastrophe loss ratio that was 17 points higher than the prior year and roughly 14 points above the 10-year average from 2013 to 2022. As you can see from the chart on the right, the full-year underlying combined ratio declined from 70.3 in 2022 to 67.3 in 2023, reflecting higher average premiums from rate increases, partially offset by higher claim severity due to materials and labor With an industry-leading product, advanced pricing, underwriting, and analytics, broad distribution capabilities, and a comprehensive reinsurance program, we will continue to leverage homeowners as a growth opportunity and remain confident in our ability to generate attractive, risk-adjusted returns on this line.

Speaker Change: The right half of the chart provides additional context on the drivers of the one three point improvement in the fourth quarter compared to the prior year quarter.

Speaker Change: The first Red bar shows the 210th of a point impact from increased advertising spend reflecting the slight increase was driven by seasonal investment changes and growth investments in rate adequate states.

Just: The second Green bar shows the one 4% one four point decline in operating costs, which was mainly driven by lower employee related costs and the impact of higher premiums relative to fixed costs in the quarter.

Just: Shifting to the longer term trend in the chart on the right we remain committed to reducing the adjusted expense ratio as part of transformative growth.

Just: As a reminder, the adjusted expense ratio of starts with our underwriting expense ratio, which I just covered and excludes restructuring COVID-19 related expenses amortization and impairment of purchased intangibles and advertising expense and then and then adds our claims expense ratio excluding costs associated with <unk>.

Just: Settling catastrophe claims those expenses are excluded because catastrophe related costs tend to fluctuate.

Just: Through innovation process improvement and strong execution, we've driven significant improvement in expenses for the fourth quarter and year end 2023 adjusted expense ratio of $24. Seven this reflects decreases in both the underwriting expense and non cat claims expense ratio compared to the prior year quarter now.

Mario Rizzo: Moving to slide 10, let's discuss how we're advancing transformative growth to provide customers low cost protection through broad distribution. We remain focused on four key elements of this multi-year initiative, as you can see on this slide. We have improved our cost structure to enhance our competitive price position. In the current environment, with most competitors taking large rate increases, it's difficult to pinpoint our competitive position. That said, our relative competitive position likely will deteriorate in 2023.

Speaker Change: Moving to slide 12, I'll cover investment results.

Speaker Change: This quarter showed how our proactive approach to duration management benefits results.

Speaker Change: On the left shows changes we made in the duration of the bond portfolio in comparison to bond market yields from the fourth quarter of 2021 through the third quarter of 2022, lowering fixed income duration mitigated losses as rates rose.

Speaker Change: Beginning in Q4 of 2022, we began to extend duration, which when combined with higher yields has increased market based income.

Mario: Our fixed income yield shown in the table below the chart remains below the current intermediate corporate bond yield, reflecting an additional opportunity to increase yields as we continue to reinvest portfolio cash flows into higher interest rates. The bar chart on the right shows the income and total return benefits of these decisions.

Mario Rizzo: As many of our competitors continue to implement rate increases and our expenses decline, we believe our competitive position will improve, enhancing growth opportunities as part of transformative growth. Redesigned affordable, simple, and connected products currently available for auto insurance in seven states with plans for further expansion this year both improve customer value and deliver a differentiated customer experience. National General Independent Agent Growth Prospects will be further enhanced by expanding Custom 360 products, which were live in 16 states as of year-end 2023 and are expected to be in nearly every state by the end of 2024. Expanding customer access will also support market share growth, and we have made good progress in all three channels. Increasing sophistication and customer acquisition continue to advance and will improve the effectiveness of increased advertising spend in 2024 as we look to grow in more states. A new technology ecosystem is also being deployed to improve the customer experience. Speed to Market and Reduced Costs for Legacy Technology Platforms Let me turn it over to Jeff now to talk about expense reductions and other operating results. All right. Thank you, Mario.

Mario: As you can see in the table below the chart. The total return of our portfolio was four 6% in the fourth quarter and six 7% for the year portfolio returns in both periods reflect income earned as well as higher fixed income valuations due to the decline in market yields in the fourth quarter.

Mario: Net investment income totaled $604 million in the quarter, which was $47 million above the fourth quarter of last year.

Mario: Market based income of $604 million shown in blue was $140 million above the prior year quarter, reflecting repositioning of the fixed income portfolio into longer duration and the benefit from higher yielding assets that sustainably increased income market based income also benefited benefited from higher fixed income balances.

Mario: Yes.

Mario: Performance based income was $60 million shown in black was $87 million below the prior year quarter due to lower valuation increases and fewer sales of underlying assets. As we've stated previously the performance based portfolio is expected to enhance long term returns as Dennis demonstrated through our five and 10 year internal rates of return of.

Mario: 12% and volatility in these assets from quarter to quarter as expected.

Mario: Slide 13 covers results for our protection services businesses.

Mario: Revenue in these businesses increased 11, 8% to $719 million in the fourth quarter compared the prior year quarter. This result was mainly driven by growth in Allstate protection plans, which increased 19, 6% compared to the prior year quarter, reflecting expanded product breadth and international growth.

Mario: In the table on the right you will see adjusted net income of $4 million in the fourth quarter decreased $34 million as compared to the prior year quarter. This decrease is attributable to the results of our state income tax examination and increase the effective state tax rates that we apply.

Jesse E. Merten: Slide 11 delves deeper into how we're improving customer value through expense reduction. As shown in the chart on the left, the property liability underwriting expense ratio decreased two points from 2022 to 2023 as we continued to focus on lowering costs to provide more value to customers and saw the benefits of higher earned premium growth relative to fixed costs. The right half of the chart provides additional context on the drivers of the 1.3 point improvement in the fourth quarter compared to the prior year quarter. The first red bar shows the two-tenths of a point impact from increased advertising spend, reflecting the slight increases driven by seasonal investment changes and growth investments in rate-adequate states. The second green bar shows the 1.4% 1.4 point decline in operating costs, which was mainly driven by lower employee-related costs and the impact of higher premiums relative to fixed costs in the quarter.

Mario: <unk> increased deferred income taxes by $43 million in the quarter for future tax payments and protection services largely related to dealer services.

Mario: The impact of the tax change on the enterprise is a net benefit of $6 million.

Mario: We do not anticipate that these tax adjustments will have a significant impact on our ongoing operations.

Mario: Shifting now to slide 14, our health and benefits businesses continued to generate profitable growth.

Mario: For the fourth quarter of 2023 revenue of $630 million increased by $50 million compared to the prior year quarter driven by growth in individual health group health as well as fees and other revenue.

Mario: Adjusted net income of $60 million in the fourth quarter of 2023 increased $2 million compared to the prior year quarter as individual health revenue growth, partially offset higher benefit ratios and Grupo <unk>.

Mario: As you know late last year, we announced the decision to pursue the divestiture of our health and benefits business. Following the successful integration of all states voluntary benefits business and National General's group individual health businesses. We continue to anticipate the transaction will be completed in 2024.

Mario: I'll close on slide 15 by reviewing Allstate financial condition and capital position.

Mario: Allstate proactive capital management approach provides the financial flexibility liquidity and capital resources necessary to navigate challenging operating environment.

Jesse E. Merten: Shifting to the longer-term trend in the chart on the right, we remain committed to reducing the adjusted expense ratio as part of transformative growth. As a reminder, the Adjusted Expense Ratio starts with our Underwriting Expense Ratio, which I just covered, and excludes restructuring, COVID-related expenses, amortization and impairment of purchased intangibles, and advertising expense. It then adds our Claims Expense Ratio, excluding costs associated with settling catastrophe claims. Those expenses are excluded because catastrophe-related costs tend to fluctuate.

Mario: Providing support for long term value creation.

Mario: Fourth quarter results demonstrated the Companys capital generation capabilities, the statutory surplus and holding company assets of $18 billion.

Mario: Increasing by $1 6 billion compared to the prior quarter.

Mario: Assets held at the holding company also increased to $3 4 billion.

Mario: The increase to the prior quarter, primarily primarily reflects a return of capital from National General Stats Transit Ts, partially offset by common shareholder dividends.

Mario: Additionally, GAAP shareholders' equity of $17 8 billion increased $3 2 billion compared to the prior quarter, reflecting $1 5 billion of GAAP net income and the improved unrealized position on fixed income securities of $1 9 billion.

Jesse E. Merten: Through innovation, process improvement, and strong execution, we've driven significant improvement in expenses with a fourth quarter and year-end 2023 adjusted expense ratio of 24.7. This reflects decreases in both the underwriting expense and non-CAT claims expense ratio compared to the prior year quarter. Now moving to slide 12, I'll cover investment results. This quarter showed how our proactive approach to duration management benefits results. The chart on the left shows changes we made in the duration of the bond portfolio in comparison to bond market yields.

Mario: Sure.

Mario: We continue to proactively manage capital make progress on the comprehensive profit improvement plan and invest in transformative growth. We remain confident that these strategic actions will generate attractive shareholder returns with.

Speaker Change: With that as context, let's open it up for your questions.

Speaker Change: Certainly one moment for our first question.

Speaker Change: Yes.

Speaker Change: And our first question comes from the line of Jimmy Butler from Jpmorgan. Your question. Please.

Jimmy Butler: Hey, good morning, So I had a couple of questions first can you talk about rate adequacy in.

Jesse E. Merten: From the fourth quarter of 2021 through the third quarter of 2022, lowering fixed income duration mitigated losses as rates rose. Beginning in Q4 of 2022, we began to extend duration, which, when combined with higher yields, has increased market-based income. Our fixed income yield, shown in the table below the chart, remains below the current intermediate corporate bond yield, reflecting an additional opportunity to increase yields as we continue to reinvest portfolio cash flows into higher interest rates. The bar chart on the right shows the income and total return benefits of these decisions. As you can see in the table below the chart, the total return of our portfolio was 4.6% in the fourth quarter and 6.7% for the year. Portfolio returns in both periods reflect income earned as well as higher fixed income valuations due to the decline in market yields in the fourth quarter. Net investment income totaled $604 million in the quarter, which was $47 million above the fourth quarter of last year.

Jimmy Butler: California, and New York, New York, New Jersey.

Jimmy Butler: The new business that you're issuing there now is that adequate price for normal profitability or are you assuming that youre going to need another sort of stab at it.

Jimmy Butler: In 2020 for it to get the normal profit.

Speaker Change: Thank you Jimmy.

Jimmy Butler: There's really three different stories Mario will take you through those.

Mario: And then we'll do a follow up question.

Mario: I would just remind everybody we.

Speaker Change: Ask one question with a follow up hopefully related to the first question.

Speaker Change: But so we can make sure we get to everybody's call. So Mario you yeah.

Mario: Yes, So Jimmy first thing I'd say is we talked a lot last quarter about the.

Mario: The actions we needed to take in the three States, California, New York, and New Jersey, and I'd start with a view that says look our objective is to meet the protection needs of as many customers as many states as possible.

Speaker Change: When that can happen, we think customers are served well markets operate effectively and we can and operate our business to achieve the appropriate levels of returns.

Speaker Change: Had rate pending in all three of those states and I will just spend a minute kind of giving you. The story in each one of those because I think it's slightly different in California, Youll remember, we filed a 35% rate we got approval for 30.

Jesse E. Merten: Market-based income of $604 million, shown in blue, was $140 million above the prior year quarter, reflecting repositioning of the fixed income portfolio into longer duration and the benefit from higher-yielding assets that sustainably increase income. Market-based income also benefited from higher fixed income balances. Performance-based income of $60 million, shown in black, was $87 million below the prior year quarter due to lower valuation increases and fewer sales of underlying

Speaker Change: But we got approval earlier than our expected effective date, so effectively we filed our full rate need and got approval for our full great need as of yesterday, we're writing business in California again across all channels and we feel comfortable writing business in California, given the the rate level that we're operating at that will of course have.

Speaker Change: I said that we've got to stay on top of loss trends going forward and we will do that but we're comfortable with the rate level. We've got in California have opened up that market.

Speaker Change: In New Jersey, it's kind of the opposite story, we filed for 29 points of rate, we got approval for just under 17%.

Jesse E. Merten: As we've stated previously, the performance-based portfolio is expected to enhance long-term returns, as demonstrated by our 5- and 10-year internal rates of return of 12%, and volatility in these assets from quarter to quarter is expected. Slide 13 covers results for our protection services businesses. Revenue in these businesses increased 11.8% to $719 million in the fourth quarter compared to the prior year quarter. This result is mainly driven by growth in Allstate Protection Plans, which increased 19.6% compared to the prior year quarter, reflecting expanded product breadth and international growth. In the table on the right, you will see adjusted net income of $4 million in the fourth quarter decreased $34 million as compared to the prior year quarter.

Speaker Change: As a result of that we're going to continue to take the.

Speaker Change: The more restrictive underwriting actions that we had been taking in new Jersey, which means we will continue to get smaller and new Jersey, while we.

Speaker Change: Plan on filing additional rate as matter of fact, we have two rate to rate pending with the New Jersey Department and depending on how those things.

Speaker Change: Take out that.

Speaker Change: That will inform our future actions, we take in new Jersey, but as of right. Now we will continue to get smaller in New Jersey, just given the lack of rate adequacy and in New York is kind of somewhere in between we got approval for a 14, 6% rate in December we've implemented that that helps but we still need more rate we're active.

Speaker Change: We engaged with the department and intend to file our full rate going forward and do that in reasonably short order and again, depending on how that plays out that will inform the next set of actions we've taken in New York.

Speaker Change: Okay, and then just a follow up maybe.

Speaker Change: Likely the later than slightly unrelated in those three states if youre raising prices a lot it's reasonable to assume that you would suffer in terms of discount or at least at a minimum it wouldn't grow but how is your best fairing in the states. There you are not taking any outsized reductions versus what some of your peers are taking and just trying to assess whether you think it's reasons.

Jesse E. Merten: This decrease is attributable to the results of a state income tax examination that increased the effective state tax rate that we apply, which increased deferred income taxes by $43 million in the quarter for future tax payments and protection services largely related to dealer services. The impact of the tax change on the enterprise was a net benefit of $6 million. We do not anticipate that these tax adjustments will have a significant impact on our ongoing operation. Shifting now to slide 14, our health and benefits businesses continue to generate profitable growth. For the fourth quarter of 2023, revenue of $630 million increased by $50 million compared to the prior year quarter, driven by growth in individual health, group health, as well as fees and other revenue.

Speaker Change: Below that.

Speaker Change: Overall this count stabilizes at some point this year for the company as a whole and potentially growth later in the year or next year.

Speaker Change: Jimmy This is Tom I'll start and then Mario.

Mario: And I can add on to that.

Mario: I would say that the current competitive environment is still in flux. So we raise our rates 30 points in California.

Speaker Change: State farm gets another increase somewhere after that so it's too early to tell.

Speaker Change: What impact that will have on volume in 2024.

Jesse E. Merten: And just in that income of $60 million, in the fourth quarter of 2023, increased $2 million compared to the prior year quarter, as individual health revenue growth partially offset higher benefit ratios in group health. As you know, late last year, we announced the decision to pursue the divestiture of our health and benefits business following the successful integration of Allstate's voluntary benefits business and National General's group in the individual health business. We continue to anticipate a transaction will be completed in 2024. We'll close on slide 15 by reviewing Allstate's financial condition and capital position. Allstate's proactive capital management approach provides the financial flexibility, liquidity, and capital resources necessary to navigate challenging operating environments while providing support for long-term value creation. Fourth quarter results demonstrated the company's capital generation capabilities with statutory surplus and holding company assets of $18 billion, increasing by $1.6 billion compared to the prior quarter. Assets held at the holding company also increased to $3.4 billion.

Speaker Change: We do our goal is obviously to make.

Speaker Change: And make good money for our shareholders as Kris Barton.

Speaker Change: <unk> said the other part is we need to grow.

Speaker Change: We think we've got transfer on our growth in place, which is differentiated and our long term growth plan as well as some of the short term things you are talking about here.

Speaker Change: Would you add to that yes, I think specifically on retention Jimmy.

Speaker Change: Tom mentioned in the three states, we talked about those markets are still at a bit of a state of flux.

Speaker Change: Once that I can point to to kind of.

Speaker Change: Kind of tell the story about retention and how taking outsized rates.

Speaker Change: And then kind of lapping that impacts retention is Texas.

Speaker Change: We took significant rates in Texas in 2022 and earlier in 2023, and we showed you last quarter. There was a pretty substantial hit to retention in Texas as we lap those rates, we've seen a nice bounce back which contributed to the sequential improvement in the fourth quarter retention level in auto relative to Q.

Speaker Change: Three so.

Speaker Change: Once the rate need stabilizes that certainly has a positive.

Jesse E. Merten: The increase to the prior quarter primarily reflects a return of capital from National General Statutory Entities, partially offset by common shareholder dividends. Additionally, GAAP shareholders' equity of $17.8 billion increased $3.2 billion compared to the prior quarter, reflecting $1.5 billion of GAAP net income and an improved unrealized position on fixed income securities of $1.9 billion. We continue to proactively manage capital, make progress on the Comprehensive Profit Improvement Plan, and invest in transformative growth. We remain confident that these strategic actions will generate attractive shareholder returns. That is the context.

Speaker Change: Impact on retention going forward and hopefully as we in more and more states are really just keeping on top of loss trend.

Speaker Change: We would expect the headwind that we faced and retention to diminish going forward.

Speaker Change: Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Gregory Peters from Raymond James Your question. Please.

Greg Peters: Okay. Good morning, everyone.

Greg Peters: For my first question I'd like to focus on transformative growth.

Greg Peters: Yeah.

Greg Peters: It is kind of counterintuitive right because youre talking about lowering expenses at same time growing your policy count so.

Greg Peters: So when I think of like some of the headwinds going forward on expenses I think of increased agent Commission because profitability is going up I see maybe the potential for increased advertising expense. So maybe you can help us pull together on on how you see growth emerging at a lower expense base.

Operator: Let's open it up for your questions. Thirdly, one moment for our first question. And our first question comes from the line of Jimmy Bullar from J.P. Morgan. Your question, please. Hey, good morning.

Jamminder Singh Bhullar: So I had a couple of questions. First, can you talk about rate adequacy? California, New York, New Jersey.

Speaker Change: Greg I'll start and then Mario can jump in so.

Greg Peters: I don't know that I think there is counterintuitive that as you grow your your expenses can't go down and I would point out if you look at National General.

Jamminder Singh Bhullar: The new business that you're issuing there now, is that at a good price for normal profitability? Or are you assuming that you're going to need another sort of stab at it in 2024 to get to normal profitability? Thank you Jimmy. Mario, there are really three different stories.

Speaker Change: Its growth has.

Speaker Change: <unk> helped drive more scale and as far as expenses down.

Mario: So that's just a scale related comment to it as you look at the programs we have in place.

Mario Rizzo: Mario will take you through them, and then we'll do a follow-up question, and I would just remind everybody, we'd like, you know, to ask one question with a follow-up, hopefully related to the first question, but so we can make sure we get through everybody's call. So Mario, you're... Yeah, so Jimmy, the first thing I'd say is, you know, we talked a lot last quarter about the actions we needed to take in the three states, California, New York, and New Jersey, and I would start with a view that says, look, our objective is to meet the protection needs of as many customers in as many states as possible. When that happens, we think customers are served well, markets operate effectively, and we can operate our business to achieve appropriate levels of returns. We had rates pending in all three of those states, and I'll just spend a minute kind of giving you the story in each one of those, because I think it's slightly different. In California, you'll remember we filed for a 35% rate; we got approval for 30, but we got approval earlier than our expected effective date.

Mario: And transformative growth is really across the board everywhere.

Mario: We're at we're have programs that have been we've been working on for three plus years.

Mario: And they are rolling out as we go.

Mario: For example.

Mario: We become we are cutting costs by becoming more digital by becoming more digital we can move more jobs, either get rid of the jobs or move them offshore. That's a multi year thing you don't just take first notice of Boston.

Mario: Change it in three months, so the benefits of those programs, which have been we've been working and rolling those out in the last 18 months really still will get more of those benefits as we go forward in 2024, just based on the work we've already done in terms of agent Commission Mario mentioned this.

Mario: We've changed the agent commission structure, such that it pays more for new business and less for renewals.

Mario: And that was one of the core parts of transformative growth was how do we distribute our products at lower price.

Mario Rizzo: So effectively, we filed our full rate need and got approval for our full rate need. As of yesterday, we're writing business in California again across all channels, and we feel comfortable writing business in California, given the rate level that we're operating at. Now, of course, having said that, we've got to stay on top of loss trends going forward, and we'll do that, but we're comfortable with the rate level we've got in California and have opened up that market. In New Jersey, it's kind of the opposite story.

Mario: And still give people the value of an agent and people want an agent to buy this stuff they don't necessarily want to pay as much for attention one of the underlying assumptions, we validated with transfer growth, which quite honestly a number of analysts and other people were not so sure about youre going to keep agents head in the game and the answer is yes.

Mario: Look at the productivity numbers that Mario showed.

Mario: Do they like having renewal compensation go down no to our customers like having a better priced product yes.

Mario: And so we choose to do what our customers want and they've worked through that so we have a series of things that go on now we do spend money, but we're doing our expenses to first take care of our customers.

Mario Rizzo: We filed for 29 points of rate, and we got approval for just under 17%, and as a result of that, we're going to continue to take the more restrictive underwriting actions that we had been taking in New Jersey, which means we'll continue to get smaller in New Jersey while we plan on filing additional rate increases. As a matter of fact, we have two rates pending with the New Jersey Department of Health and Human Services, and depending on how those things shake out, that'll inform future actions we take in New Jersey. But as of right now, we will continue to get smaller in New Jersey, just given the lack of rate adequacy. And then New York is kind of somewhere in between.

Mario: Second build long term value, we're not running our expenses to make particular P&L number in a quarter. We just don't do that we cut the advertising as you pointed out because there is no sense growing if you're losing money on the product. It wasn't because we were trying to make some combined ratio target.

Mario: It certainly helped that but we're like whitewater and advertise if youre going to write it at 105 combined ratio. So we think about it economically first.

Speaker Change: And in terms of creating long term value alright, do you want to talk about how you're thinking about expenses and where you go. This year, yes. So Greg I think when you when you combine the pieces that Tom talked about.

Speaker Change: I think you can get comfortable that.

Speaker Change: That we can continue to improve our expense ratio on our cost structure to get more competitively priced and invest in marketing at the same time. So when I think about the broad areas, where we're looking to get more efficient and where we've gotten more efficient over the last several years.

Mario Rizzo: We got approval for a 14.6% rate in December. We've implemented that. That helps, but we still need more rates. We're actively engaged with the department and intend to submit our full rate needs going forward and do that in reasonably short order. And again, depending on how that plays out, that'll inform the next set of actions we take in New York.

Speaker Change: Distribution costs. So when you look at the progress we've made on creating a lower cost, but more productive Allstate agency distribution system, and we're really happy with the progress we've made there and I talked a little bit earlier about the increases in overall production, but under.

Thomas Joseph Wilson: Okay, and then just to follow up, maybe slightly related and slightly unrelated, in those three states, if you're raising prices a lot, it's reasonable to assume that you would suffer in terms of PIF counts, or at least, at a minimum, it wouldn't grow. But how is your PIF faring in the states where you're not taking any outsized rate actions versus what some of your peers are taking and just trying to assess whether it's reasonable to assume that your overall PIF count stabilizes at some point this year for the company as a whole and potentially grows this year later in the year or next? Jimmy, this is Tom. I'll start, and then Mario can add on to that.

Speaker Change: <unk> be even more significant increases in average productivity as we have fewer agents producing more volume today than was the case a couple of years ago and within our expense ratio of the distribution cost component of our expense ratio has continued to come down while we've been able to do that so I'm really optimistic that as we move.

Speaker Change: Forward.

Speaker Change: And look to grow in more states that are Allstate Agency force is going to be a core part of that.

Speaker Change: We will continue to be able to do that but do that at a district, a lower distribution cost overall on the operating cost side through the combination of of becoming more digital outsourced outsourcing offshoring, just improving processes, we've seen pretty significant reduction in operating costs.

Thomas Joseph Wilson: I would say that the current competitive environment is still in flux. So, you know, we've raised our rates 30 points in California, and State Farm gets another increase somewhere after that, so it's too early to tell what impact that will have on volume in 2024. We do, our goal, though, is obviously to, one, make good money for our shareholders. That's the first part, and as Jeff said, the other part is we need to grow. So we think we've got transformative growth in place, which is differentiated by a long-term growth plan, as well as some of the short-term things you're talking about here. Mario, what would you add to that?

Speaker Change: Going forward and we're going to continue to hammer on that one we are also seeing similar.

Speaker Change: Improvements on the claim side, although I will say, we are going to continue to invest in claims as part of our profit profit improvement plan to get more effective on a number of processes and I think the combination of of the efficiencies will get in those three areas will help fund the marketing investments that we want to make and will make.

Speaker Change: As we look to accelerate growth.

Speaker Change: But if we need to spend money to grow and advertising and we like the profitability, we're going to spend more money in advertising.

Speaker Change: That makes sense.

Speaker Change: Can you just help remind me how the transformative growth plan.

Speaker Change: Moves over and touches national general or National General has sort of been its own ecosystem in terms of how you're thinking about expenses.

Mario Rizzo: Yeah, I think specifically on retention, Jimmy. As Tom mentioned in the three states we talked about, those markets are still in a bit of a state of flux. One state I'd point to to kind of, kind of, tell the story about retention and how taking outsized rates and then, you know, kind of lapping that impacts retention is Texas. You know, we took significant rates in Texas in 2022 and earlier in 2023, and, you know, we showed you last quarter there was a pretty substantial hit to retention in Texas. As we've lapped those rates, we've seen a nice bounce back, which contributed to the sequential improvement in the fourth quarter retention level in auto relative to Q3. So, you know, once the rate need stabilizes, that certainly has a positive impact on retention going forward, and hopefully, as we, in more and more states, are really just keeping on top of the loss trend, we would expect the headwind that we've faced in retention to diminish going forward. Thank you. Thank you.

Speaker Change: No no national General's, a core part of transformative growth.

Speaker Change: The reason, we acquired National General.

Speaker Change: First and foremost improve our competitive positioning in the independent agent channel and we've done that.

Speaker Change: With the business, we got a very well run non standard auto business that we've continued to grow.

Speaker Change: And grow profitably over the last several years.

Speaker Change: We're in the I'll say early stages of rolling out what we call customer 360, as I mentioned, that's the standard and preferred auto and homeowners offering. So we think there's significant opportunity in the independent agent space.

Speaker Change: When you look at the the size of the National General business, when we bought it compared to what it is now our total IAA presence at the beginning of 2021 was a little over $5 billion, which included National General plus the Allstate independent agent business.

Speaker Change: As well as the encompass business.

Speaker Change: Over $9 billion. Currently so we've had a lot of success in that channel and we think there's just a ton of opportunity.

Speaker Change: Both in non standard auto, but in standard preferred homeowners in the.

Operator: One moment for our next question. And our next question comes from the line of Gregory Peters from Raymond James. Your question, please. Okay, good morning, everyone. For my first question, I'd like to focus on transformative growth. And it's kind of counterintuitive, right?

Speaker Change: Channel and we expect to continue to to capture that opportunity and that's a core part of how we're going to grow in our core part of the transformative growth strategy.

Speaker Change: Got it thank you for the answers.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And.

Speaker Change: Our next question comes from the line of your own Qunar from Jefferies. Your question. Please.

Greg Peters: Because you're talking about lowering expenses at the same time growing your policy count. So when I think of some of the headwinds going forward on expenses, I think of increased agent commissions because profitability is going up, I see maybe the potential for increased advertising expenses. So maybe you can help us pull together on how you see growth emerging at a lower expense. Greg, I'll start, and then Mario can jump in. So I don't know that I think it's counterintuitive that as you grow, your expenses can't go down. And I would point out, if you look at National General, its growth has helped drive more scale in as far as expenses are concerned. So that's just a scale-related comment.

Yaron Kinar: Thank you good morning, I wanted to stay on the line of growth if I can.

Qunar: So based on the expectation that obviously will be better.

Qunar: Competitively positioned in 'twenty for how quickly and aggressively can you pivot to growth and is it more a matter of the retention rates, which I would think would be pretty quick or is it more about the ability to pivot to new business.

Qunar: How quickly it will depend what happens in the marketplace and so.

Qunar: I fully expect that progressive geico are going to spend more money in advertising and seeking to grow this year based on where their profitability is state farm has also been aggressive in trying to grow although they still have to improve their price position said that they're earning profit, but I expect that they can.

Thomas Joseph Wilson: As you look at the programs we have in place for transformative growth, it's really across the board. Everywhere we are, we have programs that we've been working on for three plus years, and they're rolling out as we go. For example, we're cutting costs by becoming more digital. By becoming more digital, we can move more jobs, either get rid of the jobs, or move them offshore. That's a multi-year thing. You don't just take the first notice of loss and change it in three months.

Qunar: Continue to be a competitive environment.

Qunar: But youre right about the and then it would just be how effective are we versus them.

Qunar: We feel Mario showed you the numbers, where two thirds of the country, where like all systems go.

Speaker Change: When you add in California, that's another big chunk. So we think we've got plenty of.

Speaker Change: Open field, so to speak to run and to compete.

Speaker Change: With transformative growth.

Speaker Change: We validated a lot of the underlying assumptions, but we've yet to bring it to market.

Speaker Change: Consolidated way in particular states with all of our channels on Mario's list to do this year. So.

Thomas Joseph Wilson: So the benefits of those programs, which we've been working on and rolling those out for the last 18 months, really will still get more of those benefits as we go forward in 2024, just based on the work we've already done. In terms of agent commission, Mario mentioned this, we've changed the agent commission structure such that it pays more for new business and less for renewals. And one of the core parts of transformative growth was, how do we distribute our products at a lower price and still give people the value of an agent? And people want an agent to buy this stuff.

Speaker Change: We feel good about that.

Speaker Change: Those opportunities so we'll grow as fast as we can.

Speaker Change: And still make sure we have a good combined ratio Mario what would you add to that yeah. No I think that's a comprehensive answer Tom and I think the short answer your own is going to be both through retention and new business acquisition and certainly as we said earlier as more states get into the right zone from March.

Mario: <unk> perspective, we would expect the amount of rate we need to take in those states to diminish Thats really again as Tom said earlier, it's going be a function of what the future loss trend looks like but.

Thomas Joseph Wilson: They don't necessarily want to pay as much for retention. One of the underlying assumptions we validated with transformative growth, which quite honestly, a number of analysts and other people were not so sure about, you're going to keep agents' heads in the game. And the answer is yes.

Mario: Having to take less rate is a good thing from a retention perspective, and we'll continue to focus on that and then in terms of new business as we.

Mario: Begin to invest in more states and do things like unwinding some of the restrictive underwriting actions, we have to take to limit growth invest in marketing.

Thomas Joseph Wilson: Look at the productivity numbers that Mario showed. Do they like having renewal compensation go down? No.

Mario: And take full advantage of the broad distribution capabilities, we've built across the Allstate exclusively exclusive agency <unk>.

Thomas Joseph Wilson: Do our customers like having a better-priced product? Yes. And so we choose to do what our customers want, and they work through this. So we have a series of things that go on. Now, we do spend money, but we're doing our expenses to first take care of our customers, and second, build long-term value. We're not running our expenses to make a particular P&L number in a quarter. We just don't do that.

Mario: System direct and independent agent, we think we can fully leverage.

Mario: All the things we've been building with a better competitive position to help drive growth, but timing will be dependent on state by state market by market and.

Mario: And influenced in large part by.

Mario: The competitive marketplace, we're going to be operating at.

Mario: Thanks.

Speaker Change: And then maybe as my follow up tying the appetite to grow as much as you can profitably.

Thomas Joseph Wilson: We cut the advertising, as you pointed out, because there was no sense in growing if you're losing money on the product. It wasn't because we were trying to make some combined ratio target. It certainly helped that.

Mario: The question of capital.

Speaker Change: You talked in the past and anybody on this call about b.

Speaker Change: About maybe following the health and benefits business you talked about the stop.

Speaker Change: Stop loss that you were looking to maybe purchase last year.

Thomas Joseph Wilson: But we're like, why go out and advertise if you're going to write it at a 105 combined ratio? So we think about it economically first and in terms of creating long-term value. Mario, do you want to talk about how you're thinking about expenses and where you're going this year? Yeah.

Speaker Change: Do you need to take any of these <unk>.

Speaker Change: Actions or other strategic actions in order to satisfy the growth appetite or do you have.

Speaker Change: All the capital you need to grow as much as you want today.

Speaker Change: No we don't have to take any of those extra script, we have plenty of capital.

Speaker Change: And do we have plenty of.

Speaker Change: Capital today, when you look at our earnings power will have plenty of capital to fund.

Mario Rizzo: So, Greg, when you combine the pieces that Tom talked about, I think you can get comfortable that we can continue to improve our expense ratio and our cost structure to get more competitively priced and invest in marketing at the same time. So when I think about the broad areas where we're looking to get more efficient and where we've gotten more efficient over the last several years, first, distribution costs. So when you look at the progress we've made on creating a lower cost but more productive all-state agency distribution system, we're really happy with the progress we've made there. And I talked a little bit earlier about the increases in overall production, but underneath that, the even more significant increases in average productivity, as we have fewer agents producing more volume today than was the case a couple of years ago. And within our expense ratio, the distribution cost component of our expense ratio has continued to come down while we've been able to do so.

Speaker Change: Never growth, we think we can achieve.

Speaker Change: Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Okay.

Speaker Change: And our next question comes from the line of Elyse Greenspan from Wells Fargo. Your question. Please.

Elyse Greenspan: Hi, Thanks. Good morning. My first question is on the hold co cash it did go up in the quarter.

Elyse Greenspan: Did you guys take a dividend out of AIC are another entity.

Elyse Greenspan: In the third quarter.

Speaker Change: Good morning, Lisa suggests so as it relates to Holdco cash you did see that it went up.

Speaker Change: From the prior quarter and this was really in accordance with our normal practice of moving capital around to maximize flexibility. So what we did do.

Lisa: Some capital up from a statutory legal entity was not AIC.

Lisa: But we moved some money up from some statutory legal entities as well as a few dividends out of non insurance companies into the holding company I know when we've talked in prior quarters. We had a few insurance companies that had a fair amount of capital in them and didn't have risk because the risk was all reinsured into the Allstate insurance company. So.

Mario Rizzo: So I'm really optimistic that as we move forward and look to grow in more states, that our all-state agency force is going to be a core part of that, and we'll continue to be able to do that. At a lower distribution cost overall on the operating cost side, through the combination of becoming more digital, outsourcing, offshoring, just improving processes, we've seen pretty significant reductions in operating costs going forward. We're going to continue to hammer on that one.

Lisa: In the normal course of creating flexibility we looked at those entities and move some of that surplus up to the holdco in the quarter.

Lisa: Yeah.

Speaker Change: Thanks, and then my second question is on policy growth, but on a napkin side like you guys have been showing you know with Goldman.

Speaker Change: Within the Allstate brand, you've been showing pretty strong growth within with a napkin policies in force.

Speaker Change: Just hoping to get some color there as you've kind of quick weight through both books like what's been what's been driving the growth the growth within that Shannon how should we think about that continuing from here.

Mario Rizzo: We've also seen similar improvements on the claim side, although I will say we're going to continue to invest in claims as part of a profit improvement plan to get more efficient on a number of processes. And I think the combination of the efficiencies we'll get in those three areas will help fund the marketing investments that we want to make and will make as we look to accelerate growth. But if we need to spend money to grow on advertising and we like the profitability, we're going to spend more money on advertising. That makes sense.

Speaker Change: Yes, Hi, Elyse, it's Mario.

Mario: So most of the growth that we've been experiencing a national general has been in the non standard auto.

Mario: Space and as you know Thats a part of the market. That's had a lot of disruption competitively where a lot of carriers have really either pulled out or certainly slowed.

Mario: Their growth.

Mario Rizzo: Can you just help remind me how the transformative growth plan moves over and touches National General, or is National General sort of in its own ecosystem in terms of how you're thinking about expenses? No, no; National General is a core part of transformative growth. The reason we acquired National General was to, you know, first and foremost, improve our competitive positioning in the independent agent channel. And we've done that with the business. We've got a very well-run, nonstandard auto business that we've continued to grow and grow profitably over the last several years. We're in the, I'll say, early stages of rolling out what we call Custom 360.

Mario: With National General we've taken the same approach from a profit improvement perspective, as we have in Allstate we've taken.

Mario: Almost 23 points of rate over the last two years and National General the non standard auto book.

Mario: It tends to turnover quickly. So you can reprice the book on a continual basis.

Mario: And so we stayed in that market, we've generated meaningful growth.

Mario: And non standard auto and more comfortable with the.

Mario: The margins that we're experiencing in that in that book of business and look to continue to grow that on top of that as I said earlier, we're rolling out the customer 360, which is going.

Mario: Going upmarket.

Mario: Channel to write standard preferred auto and homeowners again early stages there the good news is.

Mario Rizzo: As I mentioned, that's the standard and preferred auto and homeowners insurance offering. So we think there's significant opportunity in the independent agent space. When you look at the size of the National General business when we bought it compared to what it is now, you know, our total IA presence, say, at the beginning of 2021 was a little over $5 billion, which included National General plus the Allstate independent agent business as well as the Encompass business. It's over $9 billion currently.

Mario: That product is in 16 states, we're getting good traction it accounts for in the fourth quarter. It was about 70% of our.

Mario: Standard auto and preferred new business production in the IAA channel will expand that into additional states.

Mario: About the course of 2024 and into 2025, so we think that'll be an additive opportunity in the IAA space, but we're comfortable with what we've been writing non standard auto and National General and we think Theres, an additive opportunity as we look to really leverage allstate's capabilities in the middle market to expand national General.

Mario Rizzo: So we've had a lot of success in that channel. And we think there's just a ton of opportunity, both in nonstandard auto and in standard preferred homeowners in the IA channel. And we expect to continue to capture that opportunity. And that's a core part of how we're going to grow and a core part of the transformative growth strategy.

Mario: In that space in the IAA channel.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Bob <unk> from Morgan Stanley. Your question. Please.

Operator: Thank you. One moment for our next question. Yeah. Our next question comes from the line of Yaron Kinar from Jefferies. Your question, please. Thank you. Good morning. I want to stay on the line of growth. If I...

Bob: Hi, good morning.

Bob: Quick question on the capital side.

Bob: Do you play.

Bob: <unk> seen.

Bob: Seems to be very sufficient.

Yaron Kinar: So, based on the expectation that Allstate will be better competitively, Quickly and Aggressively Canyon Pivoted Growth, and is it more a matter of improving retention rates quickly, or is it more about the ability to pivot to? Well, how quickly will depend on what happens in the marketplace, Yaron.

Bob: I'm curious as to how you think about the path to resuming buybacks, especially given the.

Bob: Material rebound in capital level, so far.

Bob: So.

Bob: Hi, This is Tom Massaro, our capital has always been sufficient so.

Thomas Joseph Wilson: So, you know, I fully expect that Progressive and Geico are going to spend more money on advertising and seeking to grow this year based on where their profitability is. State Farm has also been aggressive in trying to grow, although they still have to improve their price position so that they're earning profit. But I expect it to continue to be a competitive environment. But you're right about that, and then it'll just be how effective we are versus them. We feel, Mario showed you the numbers where it's, you know, two-thirds of the country where all systems go. When you add in California, that's another big chunk.

Tom Massaro: I'd like reiterate what the position we've had.

Tom Massaro: As it relates to buybacks when we're looking at capital regenerate.

Bob: Start with first making sure we have enough capital to run the business and to grow the business and we have.

Bob: Had put aside more capital for growth given the dramatic increase in premiums and the risk.

Bob: And we think with transformative growth, we will continue to have opportunities to deploy capital at high Roe.

Bob: In that growth. So that's the first thing we do is like how do you drive shareholder value and and.

Bob: And so I think youre looking forward with.

Bob: Those opportunities we will have less capo.

Thomas Joseph Wilson: So we think we've got plenty of open field, so to speak, to run in and compete with transformative growth. We've validated a lot of the underlying assumptions, but we've yet to bring it to market in a consolidated way across states with all of our channels. That's on Mario's list to do this year.

Bob: For share buybacks than we had historically that said we have a strong track record of buying shares back I think since I've been CEO, maybe it's $30 billion worth of.

Bob: Shares we bought back if we don't have a good use for the capital.

Bob: And we will give it back to shareholders because there's no sense hold onto extra capital between growth in the property liability business.

Mario Rizzo: So we feel good about those opportunities and will grow as fast as we can and still make sure we have a good combined ratio. Mario, what would you add to that?

Bob: Growth in some of our protection services business they tend to be a little lighter in terms of capital needs and then our investment portfolio.

Mario Rizzo: Yeah, I think that's a comprehensive answer, Tom. And I think the short answer you wrote is it's going to be both through retention and new business acquisition. And certainly, as we said earlier, as more states get into the right zone from a margin perspective, we would expect the amount of rate we need to take in those states to diminish. That, really, again, as Tom said earlier, is going to be a function of what the future loss trend looks like. But having to take less rate is a good thing from a retention perspective, and we'll continue to focus on that. And then, in terms of new business, as we begin to invest in more states and do things like unwinding some of the restrictive underwriting actions we had to take to limit growth, invest in marketing, and take full advantage of the broad distribution capabilities we've built across the country.

Bob: Derisked, our investment portfolio last year because of what.

Bob: What we didn't see as great market opportunities and if we saw there was opportunities to put more risk into the investment portfolio that would be another use of capital.

Bob: I think you think about capital is we're always trying to manage and maximize shareholder value and we will do that through whatever form that is best.

Speaker Change: Alright. Thank you that's very helpful and apologize for.

Speaker Change: This state of the capital side of things.

Speaker Change: Bye bye.

Speaker Change: Yeah.

Speaker Change: My second question really is on the.

Speaker Change: Alright.

Speaker Change: So one thing we hear typically from a litigation lawyer that off.

Speaker Change: Well social inflation is an issue because the insurance companies carrier sense of underfunded claims department that often have inexperienced claim staffing.

Mario Rizzo: All-state-exclusive agency system, direct and independent agent; we think we can fully leverage all the things we've been building with a better competitive position to help drive growth. But timing will be dependent on – it'll be state by state, market by market, and influenced in large part by the competitive marketplace we're going to be operating in. Thanks. And then, maybe, as my follow-up, tying the appetite to growth.

Speaker Change: You think about expenses going forward and how can we think about re pivoting back to growth can you maybe help us think about what areas within expenses are you cutting and what are the areas where it's.

Speaker Change: It is a very critical and other things that are youre not going to all the expense side is it possible to provide some colors.

Speaker Change: Let me maybe address the litigation piece Mario can talk about expenses and claims and then if you want we can go above that and claims are made sure. If youre just focused on claims.

Yaron Kinar: & Profit, questions about capital. You know, you talked in the past and then even on this call about maybe selling the health and benefits business.

Speaker Change: I am not shocked that.

Speaker Change: Lawyers would say that the only reason they exist is because we.

Yaron Kinar: Stop Loss that you were looking to maybe purchase last. Um, do you need to take any action or other strategic actions in order to satisfy the growth appetite, or do you have all the capital you need to? No, we don't have to take any of those actions. We have plenty of capital. And we have plenty of capital today. When you look at our earnings power, we'll have plenty of capital to fund whatever growth we think we can. Thank you. One moment for our next question.

Speaker Change: We don't have good people settling claims that's just not true.

Speaker Change: Bodily injury claims and where our customers into an accident and heard somebody else. So we take those very seriously we try to resolve as quickly try to make sure people get there.

Speaker Change: A fair amount so I don't think I've seen any systemic changes either in the way, we do it or the way the industry doesn't I will say there have been a couple of things that have led to increased number of suits.

Speaker Change: In litigation first is just more severe accident. So during the pandemic people set of driving faster that keep driving faster and so when you look at the severity of the accidents severity is up when severity is up people tend to get hurt and work and when people get hurt more they tend to have more damages and that leads to.

Operator: And our next question comes from the line of Elyse Greenspan from Wells Fargo. Your question, please. Hi, thanks. Good morning.

Elyse Greenspan: My first question is on Holdco cash. It did go up in the quarter. Did you guys take a dividend out of AIC or another entity in the third quarter? Good morning, Elyse. This is Jess.

Speaker Change: A greater increase in use of lawyers to help them resolve their claims. So therefore, it seems completely natural to me.

Jesse E. Merten: So, you know, as it relates to Holdco cash, you did see that it went up, you know, from the prior quarter. And this is really in accordance with our normal practice of moving capital around to maximize flexibility. So what we did was move some capital up from a statutory legal entity; it was not AIC. But we moved some money up from some statutory legal entities, as well as a few dividends out of non-insurance companies into the holding company. I know when we talked in prior quarters, we had a few insurance companies that had a fair amount of capital in them and didn't have risk because the risk was all reinsured into Allstate Insurance Company. So, sort of, in the normal course of creating flexibility, we looked at those entities and moved some of that surplus up to the holdco in the quarter. Thanks.

Speaker Change: There is obviously.

Speaker Change: <unk> been a big change in the way those litigation firms go to market, obviously, but if you look at our advertising spend today, it's over $1 billion a year.

Speaker Change: So they're out looking for customers. Some of those are people who need their help because they've been in severe accidents and they are more of them. Some of them are there people that maybe don't need as much help.

Speaker Change: They've also gotten much more sophisticated in the use of data and analytics.

Speaker Change: And trying to hunt down.

Speaker Change: Claimants.

Speaker Change: Hospital clients.

Speaker Change: Some of that would be good some of that we're not so sure they're actually doing what they're supposed to be doing so I think it's just it's just a process that we want to make sure people get the right amount, we don't want to get to live and we are on we get too much work to do that you saw we mentioned in the release for sure of that.

Elyse Greenspan: And then my second question is on policy growth, but on the Nat gen side, right? You guys have been showing, you know, as growth has, you know, slowed within the Allstate brand, you've been showing pretty strong growth within Natchan Policies Enforced. Just hoping to get some color there as you've kind of put weight through both books, like what's been driving the growth within Natchan and how should we think about that continuing from there. Yeah, hi Elyse, it's Mario.

Speaker Change: We've also been settling claims faster I guess, we mentioned in the presentation as well so to counter that.

Speaker Change: What we have found is that if we can put more resources on and claiming satellites faster than people are less likely to.

Speaker Change: It needs to go get a lawyer.

Speaker Change: They're happy we're happy and its cheaper for everybody because nobody has to pay the 30% to attorneys.

Mario Rizzo: So most of the growth that we've been experiencing in National General has been in the non-standard auto space. And as you know, that's a part of the market that's had a lot of disruption competitively, where a lot of carriers have really either pulled out or certainly slowed their growth. With National General, we've taken the same approach from a profit improvement perspective as we have in Allstate. We've taken almost 23 points of rate increase over the last two years in National General. The non-standard auto book, you know, tends to turn over quickly, so you can reprice the book on a continual basis.

Speaker Change: <unk> talked more about claims maybe bodily injury other claim expenses I guess, where I'd start is.

Speaker Change: As we talked over the last.

Speaker Change: A couple of years about our profit improvement plan, it's multi dimensional in one dimension that we've continued to focus on is just improving.

Speaker Change: Claim operational execution.

Speaker Change: The fact is as much as continuing to reduce our cost structure improves our competitive position.

Speaker Change: Really operational excellence in claims is another way to make sure that we pay what we owe but that also will translate into better competitive position over time. So we're focused on really I would say all elements of the claim process. It's people. It's process, it's technology analytics, and we're going to we're going to end.

Mario Rizzo: And so we've stayed in that market, we've generated meaningful growth in non-standard auto, and we're comfortable with the margins that we're experiencing in that book of business and look to continue to grow that. On top of that, as I said earlier, we're rolling out the Custom 360, which is the emerging market in the IA channel to write standard preferred auto and homeowners. Again, early stages there.

Speaker Change: <unk>.

Speaker Change: In the claims process moving forward across all those dimensions to just continue to.

Mario Rizzo: The good news is, you know, that product is in 16 states, we're getting good traction, and it accounts for, in the fourth quarter, about 70% of our standard auto and preferred new business production in the IA channel. We'll expand that into additional states throughout the course of 2024 and into 2025. So we think that'll be an additive opportunity in the IA space, but we're comfortable with what we've been writing in non-standard auto in National General, and we think there's an additive opportunity as we look to, you know, really leverage Allstate's capabilities in the middle market to expand National General in that space in the IA channel. Thank you.

Speaker Change: To invest in terms of people, making sure we have the right.

Speaker Change: Adjust our capacity we went through.

Speaker Change: Pretty significant turnover it was really in 2022 that has largely subsided.

Speaker Change: So we have much more stability in terms of claims staffing, but we're focused on.

Speaker Change: Training claim staff and providing them the tools both in bodily injury and in physical damage.

Speaker Change: To operate in a way that again, we pay what we owe but we.

Speaker Change: We ensure that we eliminate any leakage in the system and again, that's been a core part of the.

Speaker Change: The profit improvement plan going forward.

Speaker Change: We're investing in people to provide more oversight.

Operator: One moment for our next question, and our next question comes from the line of Bob Huang from Morgan Stanley. Your question, please. Hi, good morning.

Speaker Change: Get more eyes on cars and the physical damage side do.

Speaker Change: A much more effective job in terms of total loss evaluation on the injury side, Tom mentioned, we're paying claims faster we've reduced our pending inventory.

Bob Glasspiegel: Just a quick question on the capital side. Obviously, your capital now is very sufficient. Curious as to how you think about the path to the resuming buybacks, especially given the materially rebounding capital level so far. So, hi, this is Tom.

Speaker Change: On the casualty side to the lowest level, it's been since well before the pandemic.

Speaker Change: We think that <unk>.

Speaker Change: <unk> to reduce reserve risk going forward. So I would say the really the answer is we're going to continue to invest in claims broadly because we just to believe it's a core part of.

Thomas Joseph Wilson: Let me start by saying our capital has always been sufficient. So just like to reiterate what the position we've had. As it relates to buybacks, when we're looking at capital we generate, we start by first making sure we have enough capital to run the business and to grow the business. And we have had to put aside more capital for growth given the dramatic increase in premiums than the risk. And we've seen, I think with transformative growth, we will continue to have opportunities to deploy capital and high ROEs in that growth. So that's the first thing we do is ask, how do you drive shareholder value? And so I think looking forward, with those opportunities, we will have less capital for share buybacks than we have historically.

Speaker Change: Enabling us to be more competitive and ultimately translate into growth.

Speaker Change: And linked this to greg's question as well because I think sometimes when we set goals out there and we talk about specific line items in the P&L.

Speaker Change: We don't always show the subtleties of how Theyre linked together. So we clearly have a goal to reduce expenses related to transfer our growth. So we can be a low cost provider.

Speaker Change: That said that's not our primary goal our primary goal is to treat our customers really well to.

Speaker Change: To build a great long term business platform and to settle our claims and run our business properly. So.

Speaker Change: If it means we have to spend more money on claims personnel. So that we lower loss costs come down and we think thats in the best interest of our shareholders and our customers then we're going to do that even if expense the expense number goes up.

Thomas Joseph Wilson: That said, we have a strong track record of buying shares back. I think, I don't know, since I've been CEO, maybe it's $3 billion worth of, you know, shares we bought back. Like, if we don't have a good use for the capital, then we will give it back to shareholders because there's no sense holding on to extra capital. But between growth in the property liability business and growth in some of our protection services business, they tend to be a little lighter in terms of capital needs. And then our investment portfolio; we de-risked our investment portfolio last year because of what we didn't see as great market opportunities. And if we saw that there were opportunities to put more risk into the investment portfolio, that would be another use of capital. So I think the thing about capital is that we're always trying to manage and maximize shareholder value. And we'll do that, in whatever format is best. Okay, thank you.

Speaker Change: We put those numbers out there to help you say well, let you know we're managing them, but we're not captured by just that one line item.

Speaker Change: Got it thank you very much.

Speaker Change: Thank you one moment for our next question.

Speaker Change: And our next question comes from the line of Josh Shanker from Bank of America. Your question. Please.

Josh D. Shanker: Yes. Thank you for taking my question once upon a time you used to combined ratio guidance.

Josh D. Shanker: And now you talk more about our ROE guidance, which is sensible.

Josh D. Shanker: I look at the results in homeowners and they are quite volatile and good this quarter.

Josh D. Shanker: I want to know where we stand in terms of pricing adequacy broadly.

Josh D. Shanker: For the homeowners line, but more importantly, I want us in pricing adequacy for Bundlers I assume that you have a pricing actually for mono line drivers and it's different for the Bundlers are we at a point, where you are very happy to take on Bundlers at a nice level of profitability today.

Bob Glasspiegel: That's very helpful. And apologies for, you know, misstating the capital side of things. So my second question really is about the expense. So one thing we hear typically from litigation lawyers is that, well, social inflation is an issue because insurance companies and carriers tend to underfund claims departments and often have inexperienced claims staffing. As you think about expense savings going forward, and as we think about re-pivoting back to growth, can you maybe help us think about what areas within expenses you are cutting and what are the areas where it is very critical, and then the things that you're not going to cut on the expense side? Is it possible to provide some color?

Josh D. Shanker: I'll, let Mario take on the bundling question, because we're really happy about that.

Mario: In terms of the homeowners business, we really like the business.

Mario: Do you look at our six year combined ratio before this year with 92, that's a really high return on equity, it's a great combined ratio.

Mario: If you look at our underlying combined ratio this year, which excludes catastrophes, it's come down from last year.

Josh D. Shanker: Obviously, we had a bad two quarters, but a band two quarters is make a bad business. So we still really like the business. We have raised prices in the low teens.

Thomas Joseph Wilson: Let me maybe address the litigation piece. Mario can talk about expenses in claims, and then if you want, we can go above that in claims. I'm not sure if you're just focused on claims. I'm not shocked that lawyers would say that the only reason they exist is because we don't have good people settling claims.

Josh D. Shanker: This year for a variety of different ways. So we like that business if cats, if the first two quarters.

Josh D. Shanker: Our indicative of where we go in the future.

Josh D. Shanker: Our costs were up $2 $5 billion this year versus the prior year. So if that's the case I am confident we have a business model, which will adapt to it.

Thomas Joseph Wilson: That's just not true. You know, bodily injury claims are where our customers get into an accident and hurt somebody else. We take those very seriously, and we try to resolve them quickly. We try to make sure people get a fair amount, so I don't think I've seen any systemic changes either in the way we do it or the way the industry does it. I will say there have been a couple of things that have led to an increased number of suits and litigation. First, there have been more severe accidents. So during the pandemic, people started driving faster. They keep driving faster.

Josh D. Shanker: We might not catch it before it you won't catch it before it happens, but we haven't really great go to market business model. So we're really happy with the homeowners business. Mario do you want to talk about returns in the homeowners business and then the bundling question, yes, So Josh.

Mario: In terms of overall rate adequacy.

Mario: Through the combination of the rates we've taken over the last couple of years, plus the inflation and replacement values and homes, that's really fueling.

Mario: Pretty consistent and significant low teens increase in average premium. So this quarter that was about 12, 5%. So we're seeing price flow through the system and that doesn't include because as you know with a 12 month policy. It takes 24 months to earn it all of that right. So a lot of the rate we took in 2023.

Thomas Joseph Wilson: And so when you look at the severity of the accident, severity is up. And when severity is up, people tend to get hurt more. And when people get hurt more, they tend to have more damages, and that leads to a greater increase in the use of lawyers to help them resolve their claims. So that part seems completely natural to me. There's obviously been a big change in the way those litigation firms go to market, obviously. But if you look at their advertising spend today, it's over a billion dollars a year. So they're out looking for customers. Some of those are people who need their help because they've been in severe accidents, and there are more of them. Some of them are people that maybe don't need as much help.

Mario: We've yet to earn.

Mario: And we're going to we're going to keep at it in terms of staying on top of loss cost.

Josh D. Shanker: The underlying combined ratio for the year was 67% improved by about three points.

Josh D. Shanker: Mid <unk> is where we'd like that number to be so we're getting closer to that we have more rate that's going to earn in and as Tom mentioned, we feel really good about our capabilities in homeowners and we're going to continue to lean in and look to grow that business from a bundling perspective.

Thomas Joseph Wilson: They've also gotten much more sophisticated in the use of data and analytics and trying to hunt down claimants and possible clients. Some of that would be good. Some of that, we're not so sure they're actually, you know, doing what they're supposed to be doing.

Josh D. Shanker: 80% of our homeowners customers have.

Josh D. Shanker: Supporting line are bundled.

Josh D. Shanker: That's a pretty meaningful number.

Speaker Change: And that's it.

Speaker Change: I haven't got a discount at upwards of 15% and again, but we think with that pricing the lifetime value of that bundled segment is substantial and we will write bundled customers. All day long our agents are writing bundled business at an all time high level north of 70% of new business. We're in.

Thomas Joseph Wilson: So I think it's just, it's just a process, but we want to make sure people get the right amount. We don't want to get too little, and we don't want to get too much. We work to do that. You see, we mentioned in the release for sure that we've also been settling claims faster. I guess we mentioned that in the presentation as well. So to counter that, what we have found is that if we can put more resources on a claim, settle it faster, then people are less likely to. If you ever feel the need to go get a lawyer, they're happy, we're happy, and it's cheaper for everybody because nobody has to pay the 30 percent to an attorney.

Speaker Change: Sending agents to write that we're seeing more bundled business come through our our call centers.

Speaker Change: And our direct business and as I talked earlier customer 360, going upmarket is both in auto and home offering. So I think we're well positioned across all three channels to continue to attract bundled business that we can be even more competitively priced and because of the discounting element, but also.

Mario Rizzo: Mario, do you want to talk more about claims, maybe about injury, other claim expenses? Yeah, I guess where I'd start is, you know, as we talked about over the last really couple of years about our profit improvement plan, it's multidimensional. And one dimension that we've continued to focus on is just improving claim operational execution. The fact is, as much as continuing to reduce our cost structure improves our competitive position, really operational excellence in claims is another way to make sure that, you know, we pay what we owe, but that also will translate into a better competitive position over time. So we're focused on really, I would say, all elements of the claim process. It's people, it's process, it's technology, and analytics, and we're going to invest in the claims process moving forward across all those dimensions to just continue to, you know, invest in terms of people, making sure we have the right adjuster capacity. We went through a pretty significant turnover. It was really in 2022, but that has largely subsided.

Josh D. Shanker: It's a segment that we think generates substantial lifetime value and we're good at it so we're going to keep keep at it.

Josh D. Shanker: If I know you're a student of our competitor so.

Josh D. Shanker: Youll see both.

Josh D. Shanker: Geico and progressive talking more about bundling in their advertising.

Josh D. Shanker: Obviously see also good customers there are differences, we expect to make money in homeowners.

Josh D. Shanker: And if I could just close on that even even though we're going to see some modest.

Josh D. Shanker: Decline in auto policy count due.

Josh D. Shanker: Due to price increases and turning the book a little bit are you net growing bundlers everyday.

Josh D. Shanker:

Josh D. Shanker: Right.

Speaker Change: I think we probably don't give that number out but.

Speaker Change: Let's just say we have a high focus on bundling our agents are doing more bundling. These days because we've changed the way in which we reward and compensate them so where.

Speaker Change: We're continuing to hunt that one down.

Speaker Change: I think we have time for.

Speaker Change: One more question is that okay.

Speaker Change: Certainly one moment for our final question then.

Speaker Change: And our final question for today comes from the line of Andrew <unk> from TD Cowen Your question. Please.

Andrew: Hey, Thanks for squeezing me in at the end.

Andrew: Maybe some quick questions here.

Mario Rizzo: So we have much more stability in terms of claim staffing, but we're focused on training claim staff and providing them with the tools, both in bodily injury and in physical damage, to operate in a way that, again, we pay what we owe, but we ensure that we eliminate any leakage in the system. And again, that's been a core part of the profit improvement plan going forward. We're investing in people to provide, you know, more oversight, get more eyes on cars in the physical damage side, and do a much more effective job in terms of total loss evaluation on the injury side. Tom mentioned we're paying claims faster. We've reduced our pending inventory on the casualty side to the lowest level it's been since well before the pandemic.

Card to the impacts of unwinding, the restrictions and increasing advertising could you give us a sense of the impacts of the <unk> combined ratio.

Well I think the first.

Speaker Change: Principal impact of unwinding underwriting restrictions will be to kind of increase the aperture of the types of risks that will be.

Speaker Change: I'd be willing to write again now that in the states that we're going to do that we feel better and good about our rate adequacy and thats true across segments right. So we have a pretty sophisticated approach to pricing.

Speaker Change: Where are the prices accurately reflect the specific risks.

Speaker Change: Each individual segment, so as we write more business, it's going to be written at what we believe to be a rate adequate level now.

Mario Rizzo: We think that continues to reduce reserve risk going forward. So I would say really the answer is we're going to continue to invest in claims broadly because we just do believe it's a core part of, you know, enabling us to be more competitive and ultimately translate into growth. Let me link this to Greg's question as well, because I think sometimes when we set goals out there and we talk about specific line items in the P&L, we don't always show the subtleties of how they are linked together. For example, we clearly have a goal to reduce expenses related to transformative growth so we can be a low-cost provider. That said, that's not our primary goal.

Speaker Change: Now from a <unk>.

Mario Rizzo: New business perspective, as we increase the volume of new business that does tend to write or run a higher loss ratio of new to renewal relativity going forward. So it will have some impact on our overall combined ratio going forward, but we take that into account in terms of how we manage the business.

Mario Rizzo: But we we don't open the underwriting restrictions until we're comfortable with the rate level. We're at we priced the each risk. According to its unique characteristics, having said that there is a new business penalty associated with higher new business volume, but again, we factor that in in terms of how we manage the overall combined ratio in the business.

Thomas Joseph Wilson: Our primary goal is to treat our customers really well, to build a great long-term business platform, and to settle our claims and run our business properly. So if it means we have to spend more money on claims personnel so loss costs come down, and we think that's in the best interest of our shareholders and our customers, then we're going to do that even if the expense number goes up. So we put those numbers out there to help you say we're letting you know we're managing them, but we're not captured by just that one line item. Got it. Thank you very much. Thank you. One moment for our next question. And our next question comes from the line of Josh Shanker from Bank of America. Your question, please. Yeah, thank you for taking my question.

Speaker Change: Got it and then with regard to.

Josh D. Shanker: Barry just to make sure I'm clear on it you talked about 8% to 9% in 2023 is that what youre anticipating for 2024, and how are you thinking about frequency as well going into the year.

Josh D. Shanker: We don't do.

Speaker Change: <unk> forecast for either frequency or.

Speaker Change: Severity on a go forward basis.

Thomas Joseph Wilson:

Speaker Change: I was I would say is whatever it is we'll make sure we get price for it.

Josh D. Shanker: Okay. Thank you.

Josh D. Shanker: Thank you all for spending time with us this quarter, obviously with the Sunshine and little bit in a few less cats.

Josh D. Shanker: Once upon a time, you used to give us combined ratio guidance, and now you talk more about ROE guidance, which is sensible. But I look at the results for homeowners, and they are quite volatile and good this quarter. I want to know where we stand in terms of pricing adequacy, broadly speaking, for the homeowners line. But more importantly, I want to understand pricing adequacy for bundlers. I assume that you have pricing adequacy for monoline drivers. And it's different for the bundlers.

Josh D. Shanker: It gave you the opportunity to see the benefits of all the hard work. The team has been doing to improve profitability in auto insurance and making sure. We keep our homeowner business strong we didn't really get to our other businesses, but they also continued to do quite well.

Speaker Change: And our investment portfolio and team had a great year. When you look at our total return. So we feel good about where we're going forward. Thank you and we will see an export.

Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does.

Mario Rizzo: Are we at a point where you are very happy to take on bundlers at a nice level of profitability today? I'll let Mario take on the bundling question because we're really happy about that. Let me just say, in terms of the homeowner business, we really like the business. It's, you see, look at our six-year combined ratio before this year. It was 92. That's a really high return on equity. It's a great combined ratio.

Josh D. Shanker: This concludes the program you may now disconnect good day.

Mario Rizzo: Okay.

Mario Rizzo: [music].

Mario Rizzo: If you look at our underlying combined ratio this year, which excludes catastrophes, it's come down from last year. Obviously, we had a bad two quarters, but a bad two quarters doesn't make a bad business. So, we still really like the business. We've raised prices in the low teens this year in a variety of different ways. So, we like that business.

Mario Rizzo: Okay.

Mario Rizzo: [music].

Mario Rizzo: Yeah.

Mario Rizzo: [music].

Mario Rizzo: If cats, if the first two quarters are indicative of where we go in the future, you know, our cats were up $2.5 billion this year versus the prior year. So, if that's the case, I am confident we have a business model that will adapt to it. We might not catch it before.

Mario Rizzo: You won't catch it before it happens, but we have a really great go-to-market business model. So, we're really happy with the homeowner business. Mario, do you want to talk about returns on the homeowner business and then the bundling question? Yeah.

Mario Rizzo: So, Josh, in terms of overall rate adequacy, obviously, through the combination of the rates we've taken over the last couple of years plus inflation and replacement values in homes, that's really fueling a pretty consistent and significant, you know, low teens increase in average premium. So, this quarter, that was about 12.5%. So, we're seeing price flow through the system. And that, you know, doesn't include, because, as you know, with a 12-month policy, it takes 24 months to earn at all that rate.

Mario Rizzo: Yes.

Mario Rizzo: Yes.

Mario Rizzo: [music].

Mario Rizzo: So, a lot of the rate we took in 2023, we've yet to earn. And we're going to keep at it in terms of staying on top of loss costs. The underlying combined ratio for the year was 67. It improved by about three points. You know, the mid-60s is where we'd like that number to be.

Mario Rizzo: Yes.

Mario Rizzo: [music].

Mario Rizzo: So, we're getting closer to that. We have more rate that's going to earn in. And as Tom mentioned, we feel really good about our capabilities in homeowners. And we're going to continue to lean in and look to grow that business. From a bundling perspective, just, you know, 80% of our homeowners customers have a supporting line and are bundled. That's a pretty meaningful number.

Mario Rizzo: And that could, you know, have a discount of upwards of 15%. And again, but we think with that pricing, the lifetime value of that bundled segment is substantial. And we will write bundled customers all day long. Our agents are writing bundled business at an all-time high level, north of 70% of new business. We're incentivizing agents to write that, and we're seeing more bundled business come through our call centers and our direct business. And as I talked earlier, Custom 360, which is going upmarket, is both an auto and home offering.

Mario Rizzo: Yes.

Mario Rizzo: Yes.

Mario Rizzo: Okay.

Mario Rizzo: Okay.

Mario Rizzo: [music].

Mario Rizzo: Yes.

Mario Rizzo: Sure.

Mario Rizzo: Yeah.

Mario Rizzo: [music].

Mario Rizzo: So, I think we're well positioned across all three channels to continue to attract bundled business that we can be even more competitively priced in because of the discounting element. But also, it's a segment that we think generates substantial lifetime value, and we're good at it.

Mario Rizzo: So, we're going to keep at it. Yeah, Josh, I know you're a student of our competitors. So, you see both Geico and Progressive talking more about bundling in their advertising. They obviously see good customers there too.

Thomas Joseph Wilson: Our difference is that we expect to make money. And if I just close the loop on that, even though we're going to see some modest decline in the number of auto policy counts due to price increases and turning the book a little bit, are you net growing bundlers every day? I think we probably won't get that number out, but let's just say we have a high focus on bundling. Our agents are doing more bundling these days because we've changed the way in which we reward and compensate them, so we're continuing to hunt that one down. I think we have time for one more question. Sure. One moment for our final question, then.

Thomas Joseph Wilson: Okay.

Operator: And our final question for today comes from the line of Andrew Klingerman from TD Cowan. Your question, please. Hey, thanks for sweeping me in at the end.

Operator: Okay.

Operator: Yes.

Operator: [music].

Andrew Klingerman: Quick, maybe some quick questions here. With regard to the impacts of unwinding the restrictions and increasing advertising, could you give us a sense of the impacts of each on the combined ratio? Well, I think the first, principal impact of unwinding underwriting restrictions will be to kind of increase the aperture of the types of risks that we'll be willing to write. Again, now that we are in the states where we're going to do that, we feel better and good about our rate adequacy. And that's true across segments, right?

Operator: Sure.

Operator: [music].

Andrew Klingerman: Yes.

Andrew Klingerman: [music].

Andrew Klingerman: Okay.

Andrew Klingerman: [music].

Mario Rizzo: So we have a pretty sophisticated approach to pricing where the prices accurately reflect the specific risks of each individual segment. So as we write more business, it's going to be written at what we believe to be an appropriate rate. Now, from a new business perspective, as we increase the volume of new business, that does tend to write or run a higher loss ratio due to renewal relativity going forward. So it'll have some impact on our overall combined ratio going forward. But we take that into account in terms of how we manage the business. But we don't open the underwriting restrictions until we're comfortable with the rate level we're at. We price each risk according to its unique characteristics.

Andrew Klingerman: Okay.

Mario Rizzo: [music].

Mario Rizzo: Yes.

Mario Rizzo: [music].

Mario Rizzo: Okay.

Mario Rizzo: [music].

Mario Rizzo: Okay.

Mario Rizzo: Okay.

Mario Rizzo: Having said that, there is a new business penalty associated with higher new business volume. But again, we factor that in in terms of how we manage the overall combined ratio in the business. Oh, we don't do a forecast for either frequency or severity on a go forward basis.

Mario Rizzo: Okay.

Mario Rizzo: Okay.

Mario Rizzo: [music].

Mario Rizzo: As I would say, whatever it is, we'll make sure we get the price. Thank you all for spending time with us this quarter. Obviously, with the sunshine a little bit and a few less cats, it gave you the opportunity to see the benefits of all the hard work the team's been doing to improve profitability and auto insurance and make sure we keep our homeowner business strong. We didn't really get to our other businesses, but they also continue to do quite well. And our investment portfolio and team had a great year when you look at our total return. So we feel good about where we're going forward. Thank you, and we'll see you next quarter. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.

Mario Rizzo: Okay.

Mario Rizzo: Yes.

Mario Rizzo: Yes.

Mario Rizzo: Sure.

Mario Rizzo: Okay.

Mario Rizzo: Okay.

Mario Rizzo: Yes.

Mario Rizzo: Okay.

Mario Rizzo: [music].

Mario Rizzo: Okay.

Mario Rizzo: [music].

Mario Rizzo: Okay.

Mario Rizzo: [music].

Mario Rizzo: Yes.

Operator: Good day. Fun Facts 1. If you are over twice as tall, you are more of an up and coming partner than you think or know. With your weight, you can be part of mosquitoes.

Mario Rizzo: Okay.

Operator: Okay.

Operator: 2. If you are over twice as tall, you are more of an up and coming partner than you think or know. 3. If you are over twice as tall, you are more of an up and coming partner than you think or know.

Operator: Okay.

Brent Vandermeer: Thanks for watching!. .. .. .. .. .. .. .. .. .. ... ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Good day, and thank you for standing by. Welcome to Allstate's fourth quarter earnings conference call. Currently, all participants are in a listen-only mode.

Brent Vandermeer: After the prepared remarks, there will be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. Please limit your inquiry to one question and one follow-up. As a reminder, please be aware this call is being recorded. And now I'd like to introduce your host for today's program, Brent Vandermeer, head of investor relations. Please go ahead, sir.

Brent Vandermeer: Yes.

Brent Vandermeer: Yes.

Brent Vandermeer: Okay.

Brent Vandermeer: Yes.

Brent Vandermeer: Yes.

Brent Vandermeer: Yes.

Brent Vandermeer: Thanks.

Brent Vandermeer: Okay.

Brent Vandermeer: Okay.

Brent Vandermeer: Okay.

Brent Vandermeer: Yes.

Brent Vandermeer: Sure.

Brent Vandermeer: Okay.

Thomas Joseph Wilson: Thank you, Jonathan. Good morning, and welcome to Allstate's fourth quarter 2023 earnings conference call. After prepared remarks, we will have a question and answer session. Yesterday, following the close of market, we issued our news release and investor supplement and posted related material on our website at allstateinvestors.com. Our management team is here to provide perspective on these results and our strategy. 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, as well as forward-looking statements about Allstate's operations. Allstate's results may differ materially from these statements, so please refer to our 10-K for 2022 and other public documents for information on potential risks. Now, I'll turn it over to Tom. Good morning.

Thomas Joseph Wilson: Okay.

Thomas Joseph Wilson: Yes.

Thomas Joseph Wilson: Okay.

Thomas Joseph Wilson: Sure.

Thomas Joseph Wilson: Yes.

Thomas Joseph Wilson: Sure.

Thomas Joseph Wilson: Sure.

Thomas Joseph Wilson: [music].

Thomas Joseph Wilson: Thanks.

Thomas Joseph Wilson: Yes.

Thomas Joseph Wilson: Okay.

Thomas Joseph Wilson: Okay.

Thomas Joseph Wilson: Yes.

Thomas Joseph Wilson: Okay.

Thomas Joseph Wilson: Okay.

Thomas Joseph Wilson: [music].

Thomas Joseph Wilson: We appreciate you taking the time and making the effort to explore why Allstate's an attractive investment. So I'll begin with an overview of our strategy and results, and Mario and Jess are going to go through the operating performance. Then we'll have time for your questions at the end.

Thomas Joseph Wilson: Yes.

Thomas Joseph Wilson: Yes.

Thomas Joseph Wilson: Sure.

Thomas Joseph Wilson: Okay.

Thomas Joseph Wilson: Sure.

Thomas Joseph Wilson: Thanks.

Thomas Joseph Wilson: Okay.

Thomas Joseph Wilson: [music].

Thomas Joseph Wilson: Let's begin on slide two, which depicts Allstate's strategy to increase shareholder value. So we have two components to the strategy, increase personal property liability market share and expand protection provided to customers, which are shown in the two ovals on the left. On the right-hand side, you can see the highlights for the fourth quarter.

Thomas Joseph Wilson: Okay.

Speaker Change: Good day and thank you for standing by welcome to Allstate's fourth quarter earnings Conference call. Currently all participants are in a listen only mode.

Thomas Joseph Wilson: 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.

Thomas Joseph Wilson: We generated net income of $1.5 billion. The strong results reflect our actions to improve auto insurance profitability in mild weather conditions, which was a welcome reprieve from the elevated level of weather-related losses in the first three quarters of the year. The proactive approach to increasing bond duration also contributed to strong results with higher income for the market-based portfolio. To further increase shareholder value this year, we remain focused on improving auto insurance profitability. There is more work to be done, but we're well on our way.

Brent Vanderme: Please limit your inquiries to one question and one follow up as a reminder, please be aware this call is being recorded and now I'd like to introduce your host for today's program Brent Vander me as head of Investor Relations. Please go ahead Sir.

Speaker Change: Thank you Jonathan Good morning, and welcome to Allstate's fourth quarter 2023 earnings Conference call. After prepared remarks, we will have a question and answer session yesterday. Following the close of market, we issued our news release and Investor supplement and posted related material on our website at Allstate investors Dot com are managed.

Speaker Change: The team is here to provide perspective on these results and our strategy.

Thomas Joseph Wilson: Additional shareholder value will then be increased by increasing policies enforced across all of our businesses. The transformative growth initiative to drive property liability market share growth can be implemented in more states this year, now that auto margins have been improved. We're also focusing on expanding protection offerings to protection services businesses, which is shown in the lower oval. Protection plans, identity protection, roadside, and inerity all have good growth prospects. As you know, we started the process to sell the health and benefits business, and that process is proceeding on schedule.

Thomas Joseph Wilson: 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.

Thomas Joseph Wilson: 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 2022 and other public documents for information on potential risks and now I will turn it over to Tom.

Speaker Change: Good morning, we appreciate your taking the time.

Thomas Joseph Wilson: <unk> spending your.

Thomas Joseph Wilson: Your efforts at explore why Allstate is an attractive investment so I'll begin with an overview of our strategy and our results and Mario and guests are going to go through the operating performance. Then we will have time for your questions at the end.

Thomas Joseph Wilson: Let's review the financial results on slide 3. Revenues of $14.8 billion in the fourth quarter increased by 8.7%. That reflects a 10.7% increase in the property liability earned premium, and that was due to rate increases in 2022 and, mostly, in 2022 and then 2023 in both the auto and homeowner's insurance. The net investment income of the quarter was $604 million, an 8.4% increase, reflecting higher fixed income yields and duration extension, which is partially offset by lower performance basing. The strong profitability and a quarter-generated adjusted net income of $1.5 billion, or $5.82 per diluted share. Annual revenues of $57 billion were up $5.7 billion, or 11.1% over the prior year.

Speaker Change: Let's begin on slide two which depicts allstate's strategy to increase shareholder value. So we have two components in our strategy increase personal property liability market share and expand protection provided to customers, which are shown on the <unk> on the left on the right hand side you can see the highlights for the fourth quarter, we generated net income of $1.

Thomas Joseph Wilson: $5 billion.

Thomas Joseph Wilson: The strong results reflect our actions to improve auto insurance profitability and mild weather conditions, which was a welcome reprieve from the elevated level of weather related losses in the first three quarters of the year.

Thomas Joseph Wilson: Our active approach to increasing bond duration also contributed to strong results with higher income from the market based portfolio.

Thomas Joseph Wilson: To further increase shareholder value. This year, we remain focused on improving auto insurance profitability. There is more work to be done, but we're well on our way.

Thomas Joseph Wilson: Additional shareholder value will then be increased by increasing policies in force across all of our businesses. The transformative growth initiatives to drive property liability market share growth can be implemented in more states. This year now as auto margins have been improved and we're also focusing on expanding protection offerings to protection services businesses.

Thomas Joseph Wilson: Slide four summarizes the status of the four-part auto insurance profit improvement plan. Strong execution resulted in a 6.7% point improvement in the combined ratio in 2020-2033. Starting with rates, since 2022, the Allstate brand implemented rate increases of 33.3%, which included 16.4% in 2023 and 6.9% in the fourth quarter, driven by recent approvals in California, New York, and New Jersey. National General implemented rate increases of 10% in 2022 and an additional 12.8% in 2023.

Thomas Joseph Wilson: <unk>, which is shown in the lower overall as protection plans entity protection roadside and they already all have good growth prospects.

Thomas Joseph Wilson: As you know we started the process to sell the health and benefits business and that process is proceeding on schedule.

Thomas Joseph Wilson: Let's review the financial results on slide three.

Thomas Joseph Wilson: Revenues of $14 $8 billion in the fourth quarter increased by eight 7% that reflects a 10, 7% increase in property liability earned premium and that was due to rate increases in 2022, and mostly a toy train two and then 2023 in both the auto and homeowners insurance net investment income in the quarter.

Thomas Joseph Wilson: <unk> was $604 million and eight 4% increase reflecting higher fixed income yields and duration extension, which is partially offset by lower performance based income this.

Thomas Joseph Wilson: Looking forward, we will pursue rate increases in 10 states to improve margins, and in other states to keep pace with increases in loss costs. Expense reductions were initiated in 2019 as part of the transformative growth plan to become a low-cost provider of protections. Being early in this effort helped offset the rapid inflation and loss costs. The underwriting expense ratio decreased 1.1 points in 2023 compared to the prior year when you exclude the large decline in advertising that was directly linked to lower profitability. Looking forward, further cost reductions will improve efficiencies and our competitive prices. Given the significant improvement in prospective auto margins, advertising investment issues will increase. In addition, we implemented underwriting actions to restrict new business where we are not achieving target returns. We are removing some underwriting restrictions as rate adequacy is achieved. Finally, enhancing claim practices in a high inflation and increasingly litigious environment is required to deliver good customer value.

Thomas Joseph Wilson: The strong profitability in the quarter generated adjusted net income of $1 5 billion or $5 82 per diluted share.

Thomas Joseph Wilson: Annual revenues of $57 million were up $5 7 billion or 11, 1% over the prior year strong fourth quarter earnings, resulting in positive adjusted net income for the year.

Thomas Joseph Wilson: Slide four summarizes status at a four part auto insurance profit improvement plan.

Thomas Joseph Wilson: Strong execution resulted in a six 7%.

Thomas Joseph Wilson: <unk> improvement in the combined ratio in 2023.

Thomas Joseph Wilson: Starting with rates since 2022 of the Allstate brand implemented rate increased 33, 3%, which included 16, 4% in 2023 and six 9% in the fourth quarter driven by the recent approvals in California, and New York and New Jersey.

Thomas Joseph Wilson: National General implemented rate increases of 10% in 2022, and an additional 12, 8% in 2023.

Thomas Joseph Wilson: Looking forward, we will pursue rate increases in 10 states to improve margins and in other states to keep pace with increases in loss costs.

Thomas Joseph Wilson: Expense reductions were initiated in 2019 as part of the transformative growth plan to become a low cost provider protections being early in this effort helped to offset the rapid inflation in loss costs.

Mario Rizzo: This includes accelerating the settlement of injury claims and increasing in-person inspection. This program has positioned us to increase new business levels and begin to grow policies and enforcement states where acceptable margins have been restored. Now, I'll turn it over to Mario to discuss property liability. Thanks, Tom.

Mario Rizzo: The underwriting expense ratio decreased one one points in 2023 compared to the prior year. When you exclude the large decline in advertising that was directly linked to lower profitability.

Mario Rizzo: Looking forward, we further cost reductions will improve our efficiencies and our competitive price position.

Mario Rizzo: Let's start on slide five. Property liability earned premium increased 10.7 percent in the fourth quarter, primarily driven by, excuse me, higher average premiums from rate increases, partially offset by a 2 percent decline in policies in force. Underwriting income of $1.3 billion in the quarter improved $2.4 billion compared to the prior year quarter due to increased premiums earned, improved underlying loss experience, lower catastrophe losses, and operating efficiency. The chart on the right highlights the components of the 89.5 combined ratio in the quarter, which improved 19.6 points from the prior year quarter. The impact of catastrophe losses and prior year reserve re-estimates on the combined ratio, as shown in light blue and gray, materially improved compared to the prior year. Catastrophe losses of $68 million were $711 million, or 6.3 points lower than the prior year due to the mild weather conditions experienced in the quarter and favorable loss development from prior period events. Prior Year Reservory Estimates excluding catastrophes were unfavorable and totaled $199 million, representing a 1.6 point adverse combined ratio impact in the quarter and a.9 point favorable impact compared to the prior year quarter. Approximately $148 million related to personal auto, driven in part by costs related to claims and litigation and adverse development in national general.

Mario Rizzo: Given the significant improvement in prospective auto margins will increase advertising investments this year.

Mario Rizzo: In addition, we implemented underwriting actions to restrict new business, where we are not achieving target returns, we're removing some underwriting restrictions as rate adequacy is achieved.

Mario Rizzo: Finally, enhancing claim practices in a high inflation and increasingly intelligent environment are required to deliver good customer value. This includes accelerating the settlement of injury claims and increasing in person inspections. This program has positioned us to increase new business levels and begin to grow policies enforced in phase <unk>.

Mario Rizzo: Festival margins have been restored.

Mario Rizzo: Now I'll turn it over to Mario to discuss property liability.

Speaker Change: Thanks, Tom.

Mario Rizzo: Start on slide five.

Mario Rizzo: Property liability earned premium increased 10, 7% in the fourth quarter, primarily driven by an ex excuse me higher average premiums from rate increases, partially offset by a 2% decline in policies in force.

Mario Rizzo: Underwriting income of $1 3 billion in the quarter improved $2 4 billion compared to the prior year quarter due to increased premiums earned improved underlying loss experience lower catastrophe losses and operating efficiencies.

Mario Rizzo: The chart on the right highlights the components of the 89, five combined ratio in the quarter, which improved $19 six points from the prior year quarter.

Mario Rizzo: The impact of catastrophe losses, and prior year Reserve re estimates on the combined ratio as shown in light blue and gray materially improved compared to the prior year.

Mario Rizzo: Catastrophe losses of $68 million were $711 million or six three points lower than prior year due to the mild weather conditions experienced in the quarter and favorable loss development from prior period events.

Mario Rizzo: Prior year reserve re estimates, excluding catastrophes were unfavorable and totaled $199 million.

Mario Rizzo: Representing a one six point adverse combined ratio impact in the quarter.

Mario Rizzo: The underlying combined ratio of 86.9 improved by 12.3 points compared to the prior year quarter due to higher average premiums and the favorable influence of milder weather conditions on accident frequency. Despite the favorable results in the quarter, the full-year combined ratio of 104.5 was significantly impacted by elevated catastrophe losses, primarily from events in the first three quarters, resulting in a catastrophe loss ratio that was four points above the 10-year average from 2013 to 2022. Now let's move to slide six to review Allstate's auto insurance profit trends. The fourth quarter auto insurance combined ratio of 98.9, improved by 13.7 points compared to the prior year quarter, reflecting higher earned premium, lower underlying losses, lower adverse prior year reserve re-estimates, and expense efficiencies.

Mario Rizzo: Eight nine point favorable impact compared to the prior year quarter.

Mario Rizzo: Approximately $148 million related to personal auto driven in part by costs related to claims and litigation and adverse development in National General.

Mario Rizzo: The underlying combined ratio of $86 nine improved by 12 three points compared to the prior year quarter due to higher average premiums and a favorable influence of milder weather conditions on accident frequency.

Mario Rizzo: Despite the favorable results in the quarter the full year combined ratio of $104 five was significantly impacted by elevated catastrophe losses, primarily from events in the first three quarters, resulting in a catastrophe loss ratio that was four points above the 10 year average from 2013 to 2022.

Mario Rizzo: Now, let's move to slide six to review Allstate's auto insurance profit trends.

Mario Rizzo: The fourth quarter recorded auto insurance combined ratio of $98 nine improved by 13 seven points compared to the prior year quarter, reflecting higher earned premium lower underlying losses lower adverse prior year reserve re estimates and expense efficiencies.

Mario Rizzo: The chart shows the underlying combined ratios from 2022 and 2023, with quarterly reported figures adjusted to reflect the estimated average severity level as of year-end for each year. As you can see, the underlying combined ratio decreased each quarter in 2023, reflecting the benefits of a profit improvement plan Tom discussed earlier. As a reminder, we continually reassess claim severity expectations as the year progresses.

Mario Rizzo: The chart shows the underlying combined ratios from 2022, and 2023 with quarterly reported figures adjusted to reflect the estimated average severity level as of year end for each year as you can see the underlying combined ratio decreased each quarter in 2023, reflecting the benefits of the prop.

Mario Rizzo: Improvement plan, Tom discussed earlier.

Mario Rizzo: As a reminder, we continually reassess claim severity expectations as the year progresses.

Mario Rizzo: If the current year's expected severity increases or decreases, the year-to-date impact of that change is recorded in the current quarter, despite a portion of that impact being driven by reassessment of the prior quarter. For example, in 2023, the full year estimate of claim severity decreased in the fourth quarter, so there was a benefit from prior quarters included in reported results in the fourth quarter. When you adjust for this, the reported underlying combined ratio of 96.4 as shown in the table would be 98.2 as shown in the bar on the graph. The three preceding quarters all benefit from the adjustment, including Q3, which improved from 100.5 in the presentation shown last quarter to 99.9, reflecting the latest severity estimates.

Mario Rizzo: The current year expected severity increases or decreases the year to date impact of that change is recorded in the current quarter.

Mario Rizzo: Despite a portion of that impact being driven by reassessment of the prior quarters.

Mario Rizzo: In 2023, the full year estimate of claims severity decreased in the fourth quarter. So there was a benefit from prior quarters included in reported results in the fourth quarter.

Mario Rizzo: When you adjust for this the reported underlying combined ratio of $96 four as shown in the table would be $98 two as shown in the bar on the graph.

Mario Rizzo: The three preceding quarters, all benefit from the adjustment, including Q3, which improved from 105 in the presentation shown last quarter to $99 nine reflecting the latest severity estimate.

Mario Rizzo: While loss cost trends remain historically elevated, the rate of increase moderated in the second half of the year, mainly in physical damage coverages. Allstate brand weighted average major coverage severity expectations improved from 11% as of the end of the second quarter to 9% in the third quarter and now to 8% to 9% at the end of the year. As a reminder, this trend reflects our current best estimate for the year-over-year increase in average severity.

Mario Rizzo: While loss cost trends remained historically elevated the rate of increase moderated in the second half of the year, mainly and physical damage coverages Allstate.

Mario Rizzo: Allstate brand weighted average major covered severity expectations improved from 11% as of the end of the second quarter to 9% in the third quarter and now the 8% to 9% at the end of the year. As a reminder, this trend reflects our current best estimate for the year over year increase in average severity.

Mario Rizzo: Slide seven shows the impact of our profit improvement actions across the country. As shown on the left, Allstate brand rate increases have exceeded 33% over the last eight quarters, including larger increases in California, New York, New Jersey, and Texas, reflective of the elevated loss trend in these states. These four states comprise 36% of Allstate brand auto total written premiums in the U.S. during 2023. As you know, increases were approved in California, in New York, and in New Jersey in December, so we have yet to see this in earned premiums. The chart on the right shows states with an underlying combined ratio below 100, shown in the light and dark blue bars, were 65% of the total in 2023, more than doubling from the percentage at year-end 2022. Excluding California, New York, and New Jersey, the Allstate brand auto insurance underlying combined ratio was 95.9 in 2023. Slide 8 shows that improving profitability had a negative impact on policies enforced during 2023.

Mario Rizzo: Slide seven shows the impact of our profit improvement actions across the country.

Mario Rizzo: As shown on the left Allstate brand rate increases have exceeded 33% over the last eight quarters, including larger increases in California, New York, New Jersey, and Texas reflective of the elevated loss trends in these states.

Mario Rizzo: These four states comprised 36% of Allstate brand auto auto total written premiums in the U S. During 2023.

Mario Rizzo: As you know increases were approved in California, and New York and New Jersey in December So we have yet to see this in earned premiums.

Mario Rizzo: The chart on the right shows states with an underlying combined ratio below 100 shown in the light and dark blue bars were 65% of the total in 2023 more than doubling from the percentage at year end 2022.

Mario Rizzo: Excluding California, and New York, and New Jersey, the Allstate brand auto insurance underlying combined ratio was $95 nine in 2023.

Mario Rizzo: Slide eight shows improving profitability had a negative impact on policies enforced during 2023.

Mario Rizzo: On the left, you can see that total protection auto policies enforced decreased by 2.9% compared to the prior year as the Allstate brand declined by 6.2%, more than offset a 13.3% increase at National General. Allstate brand auto policies enforced decreased due to reduced new business volumes and lower retention. National General Growth of 581,000 Policies Enforced was mostly driven by non-standard auto insurance, and to a lesser extent, the rollout of new middle market standard and preferred auto insurance product launches for the Custom 360 product. The chart on the right shows total personal auto new issued applications for 2023 decreased 6% compared to the prior year and the accompanying drivers. Targeted profitability actions within the Allstate brand resulted in a decline in new auto insurance applications of 20% compared to the prior year. The first two red bars reflect the impact of lower new business volume in California, New York, and New Jersey, as well as the direct channel decline in the remainder of the country, which was most directly impacted by the reduction in marketing investment last year.

Mario Rizzo: On the left you can see that total protection auto policies in force decreased by two 9% compared to prior year as the Allstate brand decline of six 2% more than offset a 13, 3% increase at National General.

Mario Rizzo: Allstate brand auto policies in force decreased due to reduced new business volumes and lower retention.

Mario Rizzo: <unk> general growth of 581000 policies in force was mostly driven by non standard auto insurance and to a lesser extent the rollout of new middle market standard and preferred auto insurance product launches for the customer 360 product.

Mario Rizzo: The chart on the right shows total personal auto new issued applications for 2023 decreased 6% compared to prior year and the accompanying drivers.

Mario Rizzo: Targeted profitability actions within the Allstate brand resulted in a decline in new auto and issued applications of 20% compared to the prior year.

Mario Rizzo: The first two red bars reflect the impact of lower new business volume in California, New York, and New Jersey as well as the direct channel declined in the remainder of the country, which was most directly impacted by the reduction in marketing investment last year.

Mario Rizzo: Outside of the three states where profit action significantly reduced new business, Allstate exclusive agents increased production by 6%, driven by higher productivity, showing the response of Allstate agents to the changes we've made to incent growth and the opportunity to continue to grow with our agency owners as part of transformative growth. The acquisition of National General strategically positioned Allstate to grow in the independent agent channel, with new business applications increasing 12% in 2023. National General continues to grow its non-standard auto business and generate higher volume from the custom 360 product launch.

Mario Rizzo: Outside of that the three states, where profit actions significantly reduced new business Allstate exclusive agents increased production by 6% driven by higher productivity showing the response of Allstate agents to the changes we've made to incent growth and the opportunity to continue to grow with our agency owners as part of transfer.

Mario Rizzo: <unk> growth.

Mario Rizzo: The acquisition of National General strategically positioned Allstate to grow in the independent agent channel with new business applications, increasing 12% in 2023.

Mario Rizzo: National General continues to grow non standard auto and generated higher volume from the customer 360 product launches.

Mario Rizzo: Slide nine covers homeowners insurance results, which generated significant profits for the quarter, while full-year results were impacted by elevated catastrophe losses in the first three quarters of the year. On the left, you can see net written premium increased 13.3% from the prior year quarter, primarily driven by higher average gross written premium for policies in both the national general and Allstate brands and a 1.1% increase in policies in force. National General Net Written Premium grew 19.6% compared to the prior year quarter, primarily due to policy and force growth driven by the Custom 360 offering and higher average premiums from implemented rate increases. Allstate brand net written premiums increased 12.5%, driven by average gross written premium for policy increases of 12.2% compared to the prior year quarter and a small increase in policies enforced. Allstate agents continue to bundle auto and homeowners insurance at historically high levels.

Mario Rizzo: Slide nine covers homeowners insurance results, which generated significant profits for the quarter, while full year results were intake impacted by elevated catastrophe losses in the first three quarters of the year.

Mario Rizzo: On the left you can see net written premiums increased 13, 3% from the prior year quarter, primarily driven by higher average gross written premium per policy in both the national General and Allstate brands and a one 1% increase in policies in force.

Mario Rizzo: National General net written premium grew 19, 6% compared to the prior year quarter, primarily due to policy enforced growth driven by the customer 360, offering and higher average premiums from implemented rate increases.

Mario Rizzo: Allstate brand net written premiums increased 12, 5% driven by average gross written premium per policy increases of 12, 2% compared to the prior year quarter and a small increase in policies in force.

Mario Rizzo: Allstate agents continue to bundle auto and homeowner's insurance at historically high levels.

Mario Rizzo: Catastrophe losses of $21 million in the fourth quarter were low by historical standards, reflecting milder weather conditions and favorable development from prior events, contributing to a 62 combined ratio and $1.2 billion of underwriting income for the quarter. Milder weather in the fourth quarter also favorably influenced the underlying combined ratio due to lower non-catastrophe claim frequency. For the full year, higher catastrophe losses drove a combined ratio increase in 2023 compared to 2022. Full year catastrophe losses of $4.5 billion were higher than our historical experience and translated to a catastrophe loss ratio that was 17 points higher than the prior year and roughly 14 points above the 10-year average from 2013 to 2022. As you can see from the chart on the right, the full-year underlying combined ratio declined from 70.3 in 2022 to 67.3 in 2023, reflecting higher average premiums from rate increases, partially offset by higher claim severity due to materials and labor costs.

Mario Rizzo: Catastrophe losses of $21 million in the fourth quarter were low by historical standards, reflecting milder weather conditions and favorable development from prior events contributing to a 62 combined ratio and $1 $2 billion of underwriting income for the quarter.

Mario Rizzo: The elder whether in the fourth quarter also favorably influenced the underlying combined ratio due to lower non catastrophe claim frequency.

Mario Rizzo: The elder whether in the fourth quarter also favorably influenced the underlying combined ratio due to lower non catastrophe claim frequency.

Mario Rizzo: For the full year higher catastrophe losses drove the combined ratio increase in 2023 compared to 2022.

Mario Rizzo: Full year catastrophe losses of $4 $5 billion were higher than our historical experience and translated to a catastrophe loss ratio that was $17 higher than prior year and roughly 14 points above the 10 year average from 2013 to 2022.

Mario Rizzo: As you can see from the chart on the right. The full year underlying combined ratio declined from 73 in 2022 to 67, three in 2023, reflecting higher average premiums from rate increases, partially offset by higher claims severity due to materials and labor costs.