Q2 2024 Allstate Corp Earnings Call
Unknown Executive: followed our 10-Q and posted related material on our website at allstateinvestors.com. Our management team will provide perspective on our strategy and an update on the results. After prepared remarks, we will have a question and answer session.
Unknown Executive: filed our 10-Q and posted related material on our website at allstateinvestors.com.
<unk> on our website at Allstate investors Dot Com, our management team will provide perspective on our strategy and an update on the results. After prepared remarks, we will have a question and answer session.
Unknown Executive: Our management team will provide perspective on our strategy and an update on the results. After prepared remarks, we will have a question-and-answer session.
Unknown Executive: 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 all states' operations. All states' results may differ materially from these statements, so please refer to our 10-K for 2023 and other public documents for information on potential risks.
Unknown Executive: 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. However, Allstate's results may differ materially from these statements, so please refer to our 10-K for 2023 and other public documents for information on potential risks. As some of you know, this will be my final earnings call as the leader of our Investor Relations team since I will be transitioning to a new role. Investor Relations will be in the capable hands of Alistair Gobin, who will be a great partner for you all. And now, I'll turn it over to Thomas. Good morning.
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 2023 and other public documents.
For information on potential risks.
Unknown Executive: As some of you know, this will be my final learnings call as the leader of our investor relations team since I will be transitioning to a new role.
As some of you know this will be my final earnings call as the leader of our Investor Relations team since I will be transitioning to a new role investor relations will be in the capable hands of Alastair Goldman who will be a great partner for you all.
Unknown Executive: Investor relations will be in the capable hands of Alistair Gobern, who will be a great partner for you all.
Unknown Executive: And now I'll turn it over to Tom.
And now I will turn it over to Tom.
Tom: Well, good morning. Thank you for investing your time at Allstate. I'll provide an overview of results. Mario and Jess will go through operating performance, and then we'll address your questions. Let's start on slide two.
Thomas Wilson: Thank you for your time at Allstate. I'll provide an overview of results, Mario and Jess will go through operating performance, and then we'll address your questions. Let's start on slide two. Allstate's strategy has two components, increased personal property liability market share and expanded protection provided to customers, which are shown in the two ovals on the left. On the right hand side, you can see highlights in the second quarter.
Tom: Allstate strategy has two components: 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 highlights in the second quarter. Nan income was $301 million and a quarter with elevated catastrophes. The auto-profit improvement plan is being successfully executed. National General continues on a four-year profitable growth trajectory. The homeowners' business had good results with an improved underlying combined ratio and underwriting profit for the first six months of the year. Then investment income was up almost 17 percent over the prior year of order.
Thomas Wilson: Net income was $301 million, and the quarter with elevated capacity. The Autoprofit Improvement Plan is being successfully executed. National General continues on a four-year profitable growth trajectory. The homeowner's business had good results with an improved underlying combined ratio and underwriting profit for the first six months. Then investment income was up almost 17% over the prior year quarter as the fixed income portfolio continues to benefit from repositioning into longer duration and higher yielding assets. Protection Services had another good quarter led by a proper growth in protection.
Tom: As the fixed income portfolio continues to benefit from repositioning into longer duration and higher yielding assets. Protection services had another good quarter, led by a profitable growth in protection plans.
Tom: Let's move to slide three and show how that operational execution improved underlying results in the quarter. Revenue increased the $15.7 billion, reflecting higher average property liability earned premiums and that was mostly from rate increases in auto and homeowners insurance and increased net investment income. Net investment income for the second quarter was $712 million higher than the prior year of order, reflecting that fixed income duration extension in 2022 and 2023, and then which also included lowering public equity holdings to take advantage of higher fixed income yields. Adjusted net income was $429 million for a $1.61 per diluted share.
Thomas Wilson: Let's move to slide three and show how operational execution improved underlying results in the quarter. Revenues increased to $15.7 billion, reflecting higher average property liability earned premiums. And that was mostly from rate increases in auto and homeowners insurance and increased net investment. That investment income for the second quarter was $712 million higher than the prior quarter, reflecting that fixed income duration extension in 2022 and 2023, and which also included lowering public equity holdings to take advantage of higher fixed income yields. Adjusted net income was $429 million, or $1.61 per diluted share. Now, I'll turn it over to Mario for property liability.
Mario: Now I'll turn it over to Mario for property liability results. Thanks, Tom. I'll start by covering slide four. On the top left of the table, you can see property liability earned premiums of $13.3 billion increased 11.9 percent in the second quarter, driven by higher average premiums. The underwriting loss of $145 million improved by $1.9 billion compared to the prior year quarter due to improved underlying margins and lower catastrophes. The expense ratio of 2021.3 was 0.8 points higher than prior year due to increased advertising as we continue to accelerate growth investments in rate act with states and risks.
Mario Rizzo: Thanks, Tom. I'll start by covering the slides. On the left side of the table, you can see property liability earned premiums of $13.3 billion increased 11.9% in the second quarter, driven by higher average premiums. The underwriting loss of $145 million improved by $1.9 billion compared to the prior year quarter due to improved underlying margins and lower catastrophe costs. The expense ratio of 2021.3 was 0.8 points higher than the prior year due to increased advertising as we continue to accelerate growth investments in rate-adequate states and risk sectors. The adjusted expense ratio, which excludes advertising costs and other non-core expenses, was down 1.6 points in the quarter. The chart on the right depicts the components of the 101.1 Combiner.
Mario: The Adjusted Expense Ratio, which excludes advertising costs and other non-core expenses, was down 1.6 points in the quarter.
Mario: The chart on the right depicts the components of the 101.1 combine ratio. By higher average term premium and moderating lost cost trends. Prior year reserve re-estimates excluding catastrophes had only a minor impact on current quarter results as favorable development in personal auto and homeowners insurance offset increases in personal umbrella liabilities and commercial auto reserves related to the transportation network contracts we began exiting in late 2022.
Mario Rizzo: Catastrophe losses of $2.1 billion were 6.7 points favorable to the prior year quarter. The underlying combined ratio of 85.3 improved by 7.6 points compared to the prior year quarter, with the improvement driven by higher average earned premium and moderating loss costs. Prior year reservery estimates, excluding catastrophes, had only a minor impact on current quarter results as favorable developments in personal, auto, and homeowners insurance offset increases in personal umbrella liabilities and commercial auto reserves related to the transportation network contracts we began exiting in late 2022.
Tom: If the losses of $2 $1 billion were six seven points favorable to the prior year quarter.
Tom: The underlying combined ratio of 85, three improved by seven six points compared to the prior year quarter with the improvement driven by higher average earned premium and moderating loss cost trends.
Speaker Change: Prior year reserve re estimates, excluding catastrophes had only a minor impact on current quarter results as favorable development in personal auto and homeowners insurance offset increases in personal umbrella liability and commercial auto reserves related to the transportation network contracts, we began exiting in late 'twenty.
Speaker Change: 'twenty two.
Mario: Turning to slide five, you can see that we continue to successfully execute our profit improvement plan. The second quarter recorded auto insurance combined ratio of 95.9, improved by 12.4 points compared to the prior year quarter. The bars in the chart show consistent improvement in the quarter of underlying combined ratio. I will note that we have adjusted 2022 and 2023 reported quarterly figures to reflect the updated average severity estimates as of the end of each of those years to remove the volatility related to entry year severity adjustments. You can see that the auto business has seen six sequential quarters of underlying combined ratio improvement, with an underlying combined ratio of 93.5 in the second quarter of 2024.
Speaker Change: Turning to slide five you can see that we continue to successfully execute our profit improvement plan.
Mario Rizzo: Turning to slide five, you can see that we continue to successfully execute our profit improvement plan. The second quarter recorded an auto insurance combined ratio of 95.9, improved by 12.4 points compared to the prior year quarter. The bars in the chart show consistent improvement in the quarterly underlying combined rates. I will note that we have adjusted 2022 and 2023 reported quarterly figures to reflect the updated average severity estimates as of the end of each of those years to remove the volatility related to intra-year severity.
Speaker Change: The second quarter recorded auto insurance combined ratio of 95, nine improved by 12 four points compared to the prior year quarter.
Mario Rizzo: You can see that the auto business has seen six sequential quarters of underlying combined ratio improvement with an underlying combined ratio of 93.5 in the second quarter of 2024. The dark blue line in the chart shows how rate increases throughout 2022 and 2023 pushed average premiums above underlying losses and expenses, represented by the light blue line, starting in the second half of 2023. As average premium increases have outpaced losses in expense, profitability has improved.
Mario: The dark blue line in the chart shows how rate increases throughout 2022 and 2023 pushed average premiums above underlying losses and expenses represented by the light blue line starting in the second half of 2023. As average premium increases have outpaced loss and expense, profitability has improved. Relative to the prior year quarter, average underlying loss and expense was 5.5% higher, as you can see in the second row of the table. This reflects higher current year incurred severity estimates, primarily driven by bodily injury coverage, offset by lower accident frequency as well as higher advertising investments. Physical damage severity increases continue to moderate, while bodily injury severity continues to trend above inflation.
Mario Rizzo: Relative to the prior year quarter, average underlying loss and expense was 5.5% higher, as you can see in the second row of the table. This reflects higher current year incurred severity estimates, primarily driven by bodily injury coverage, offset by lower accident frequency, as well as higher advertising. Physical damage severity increases continue to moderate, while bodily injury severity continues to trend above inflation.
Mario: Our claims team is focused on operational actions to mitigate the impact of inflationary trends, including identifying injuries earlier in the claims process to improve overall cycle time and focus on fast and fair resolution.
Mario Rizzo: Our claims team is focused on operational actions to mitigate the impact of inflationary trends, including identifying injuries earlier in the claims process to improve overall cycle time and focus on fast and fair resolution. Let's review homeowners insurance on slide six, which has improved underlying performance. Allstate is an industry leader in homeowners insurance, generating low 90s combined ratios over the last 10 years, as you can see in the chart on the right.
Speaker Change: You're in the claims process to improve overall cycle time and focus on fast and fair resolution.
Mario: Let's review homeowners insurance on slide six, which had improved underlying performance. All State is an industry leader in homeowners insurance, generating low 90s combined ratios over the last 10 years, as you can see in the chart on the right. This performance compares favorably to the industry, which experienced an underwriting loss and a 103 combined ratio over that same time period. Moving to the table on the left, all state protection homeowners' written premium increased by 13.7% compared to prior year, reflecting both higher average gross written premium for policy and policy and force growth of 2.2%. The second quarter combined ratio of 111.5 resulted in $375 million of underwriting losses compared to the $1.3 billion loss in the prior year.
Speaker Change: Let's review homeowners insurance on slide six which had improved underlying performance.
Speaker Change: Allstate as an industry leader in homeowners insurance generating low ninety's combined ratios over the last 10 years as you can see in the chart on the right.
Mario Rizzo: This performance compares favorably to the industry, which experienced an underwriting loss and a 103 combined ratio over that same time period. Moving to the table on the left, Allstate Protection's homeowners written premium increased by 13.7% compared to the prior year, reflecting both higher average gross written premium for policies and policy enforced growth of 2.2%. The second quarter combined ratio of 111.5 resulted in $375 million of underwriting losses compared to the $1.3 billion loss in the prior year.
Speaker Change: This performance compares favorably to the industry, which experienced an underwriting loss and a 103 combined ratio over that same time period.
Speaker Change: Moving to the table on the left Allstate protection homeowners written premium increased by 13, 7% compared to prior year, reflecting both higher average gross written premium per policy and policy enforced growth of two 2%.
Speaker Change: The second quarter combined ratio of 111, five resulted in $375 million of underwriting losses compared to the $1 $3 billion loss in the prior year.
Mario: The underlying combined ratio of 63.5 improved by 4.1 points due to higher average premium and lower non-catastrophe claim frequency, which more than offset modest increases in non-catastrophe severity.
Mario Rizzo: The underlying combined ratio of 63.5 improved by 4.1 points due to higher average premium and lower non-catastrophe claim frequency, which more than offset modest increases in non-catastrophe severity. For the first six months of 2024, homeowners insurance generated an underwriting profit of $189 million. Moving to slide seven, let's discuss transformative growth, our multi-year strategy to create a low-cost digital insurer with broad distribution. The five components of transformative growth are shown in the blue panels on the left side of the page, and we continue to make good progress on all of them.
Mario: For the first six months of 2024, homeowners insurance generated an underwriting profit of $189 million.
Unknown Executive: Moving to slide seven, let's discuss transformative growth, our multi-year strategy to create a low-cost digital insurer with broad distribution. The five components of transformative growth are shown in the blue panels on the left side of the page, and we continue to make good progress on all of them. On the right-hand side, we show the tangible outcomes and proof points that we're delivering through this transformation, which improve the customer experience and support our objective to profitably grow market share over time. Two examples of those tangible outcomes that I'd highlight are the new affordable, simple, and connected auto insurance product that was built on our new technology platform and is now available in 19 states.
Mario Rizzo: On the right-hand side, we show the tangible outcomes and proof points that we're delivering through this transformation, which improves the customer experience and supports our objective to profitably grow market share over time. Two examples of those tangible outcomes that I'd highlight are the new affordable, simple, and connected auto insurance product that was built on our new technology platform and is now available in 19 states. And that in the second quarter, we increased our advertising investment by approximately $300 million to support growth efforts in states with attractive returns.
Unknown Executive: And that in the second quarter, we increased our advertising investment by approximately $300 million to support growth efforts in states with attractive returns.
Unknown Executive: Moving to slide eight, we'll double-click on the multi-channel distribution strategy, which enables us to serve customers based on their personal preferences. Our exclusive agents are available for local customers seeking personalized advice to fulfill broad insurance needs. Agency productivity has increased, and bundling rates at point of sale are at all time highs. Enhancements to direct capabilities and increased advertising attract more self-directed customers, with new business production of the direct channel in the second quarter nearly doubled that of the prior year.
Mario Rizzo: Moving to slide eight, we'll double click on the multi-channel distribution Strategy, which enables us to serve customers based on their personal preference. Our exclusive agents are available for local customers seeking personalized advice to fulfill broad insurance. Agency productivity has increased, and bundling rates at the point of sale are at an all-time high.
Mario Rizzo: Enhancements to direct capabilities and increased advertising attracted more self-directed customers with new business production in the direct channel in the second quarter nearly double that of the prior year. The National General Acquisition significantly expanded the independent agent. If you look at the distribution of new business we write, shown in the pie charts on the bottom of the slide, you can see the power of expanded customer access. The combination of broader distribution capabilities, increased advertising, greater pricing sophistication, and product expansion has resulted in a 90% increase in new business applications since 2020, with a much more balanced split across distribution chains.
Speaker Change: More self directed customers with new business production in the direct channel in the second quarter nearly double that of the prior year.
Unknown Executive: The national general acquisition significantly expanded the independent agent channel. If you look at the distribution of new business we write, shown in the pie charts on the bottom of the slide, you can see the power of expanded customer access. The combination of broader distribution capabilities, increased advertising, greater pricing sophistication, and product expansion has resulted in a 90 percent increase in new business applications since 2020, with a much more balanced split across distribution channels.
Speaker Change: The National General acquisition significantly expanded the independent agent channel.
Speaker Change: If you look at the distribution of new business, we write shown in the pie charts on the bottom of the slide you can see the power of expanded customer access the combination of broader distribution capabilities increased advertising greater pricing sophistication and product expansion has resulted in a 90% increase in new business <unk>.
Speaker Change: Locations since 2020 with a much more balanced split across distribution channels.
Unknown Executive: Now let's turn to slide nine to delve deeper into how the national general acquisition has allowed us to better serve customers who prefer to engage with independent agents. The $4 billion acquisition included a number of businesses, including personal auto insurance, group health, individual accident and health, and digital marketing platforms. Prior to the acquisition, we offered insurance in the independent agent channel through both the Allstate and Encompass brands, with the Encompass brands solely dedicated to selling through IAs. With the acquisition of National General, we now go to market in the independent agency channel primarily through the National General brand.
Speaker Change: Now, let's turn to slide nine to delve deeper into how the national National General acquisition has allowed us to better serve customers, who prefer to engage with independent agents.
Mario Rizzo: Now let's turn to slide nine to delve deeper into how the National General Acquisition has allowed us to better serve customers who prefer to engage with independent agents. The $4 billion acquisition included a number of businesses, including personal auto insurance, group health, individual accident and health, and digital marketing platforms. Prior to the acquisition, we offered insurance in the independent independent agent channel through both the Allstate and Encompass brands, with the Encompass brand solely dedicated to selling through independent agents.
Speaker Change: The $4 billion acquisition included a number of businesses, including personal auto insurance group health individual accident, and health and digital marketing platforms.
Speaker Change: Prior to the acquisition, we offered insurance and the independent independent agent channel.
Mario Rizzo: With the acquisition of National General, we now go to market in the independent agency channel primarily through the National General brand. Through the ownership of National General since January of 2021, we have significantly increased the number of customers we protect through independent agents, having added almost 1.7 million policies in force, reflecting a compound annual growth rate of 8% in policies over the past four years and bringing premiums written to over $5.1 billion for the first six months of this year. Underwriting margins remain attractive, and National General is now one of the largest independent agent personal lines insurers, with expansion into lower risk customer segments, supporting additional growth going forward in the IH.
Unknown Executive: Through the ownership of National General since January of 2021, we have significantly increased the number of customers we protect through independent agents, having added almost 1.7 million policies and force, reflecting a compound annual growth rate of 8% in policies over the past four years, and bringing premiums written to over $5.1 billion for the first six months of this year. Underwriting margins remain attractive, and National General is now one of the largest independent agent, personal lines insurers, with expansion into lower risk customer segments, supporting additional growth going forward in the I.A. Channel.
Mario: SLI-10 reviews property liability policies and force for all brands. Given the successful execution of the auto insurance private improvement plan, investments in growth were made in states that offer attractive return opportunities. These higher growth investments led to a 17% increase in personal auto new business applications in the second quarter, as you can see at the top of the chart on the left. The green bars show the components of that growth in new policy sales. The first two bars reflect the drivers of the 23% increase in new business volume in the All-State brand. Higher productivity for exclusive agent drove a 9% new business increase compared to prior year.
Mario Rizzo: Slide 10 Reviews Property Liability Policies in Force for All Brands. Given the successful execution of the Auto Insurance Profit Improvement Plan, investments in growth were made in states that offer attractive return on investment. These higher growth investments led to a 17% increase in personal auto new business applications in the second quarter, as you can see at the top of the chart on the left.
Mario Rizzo: The green bars show the components of that growth in new policies. The first two bars reflect the drivers of the 23% increase in new business volume in the Allstate brand. Higher productivity per exclusive agent drove a 9% new business increase compared to the prior year, and advertising investments and enhancements to direct operations resulted in a 92% increase in the direct channel compared to the prior year. The last two green bars reflect national general growth in both the non-standard auto business and higher sales volume from the custom 360 middle market offering that we continue to roll out.
Mario: An advertising investment and enhancements to direct operations resulted in a 92% increase in the direct channel compared to the prior year. The last two green bars reflect national general growth in both the non-standard auto business and higher sales volume from the custom 360 middle market offering that we continue to roll out. On the right, you can see that total protection auto policies and force decreased by 1.6% compared to prior year, as the Allstate brand decrease was partially offset by growth at National General. All-state brand auto policies and force decreased by 4.5% compared to prior year, as policies lost from customer defections more than offset the increase in new policy sales.
Mario Rizzo: Allstate brand auto policies in force decreased by 4.5% compared to the prior year, as policies lost from customer defections more than offset the increase in new policies. Performance-based income of $107 million, shown in black, was $20 million below the prior year quarter due to lower real estate investment results. Adjusted Net Income of $58 million in the second quarter was slightly higher than the prior year quarter, reflecting increased group health and employee benefits adjusted net income that was partially offset by a decrease in individual health.
Mario: All-state brand auto retention of 85.7 did improve by 0.2 points compared to prior year, as the negative impact of large rate increases in 2022 and 2023 continues to moderate. National general growth of 548,000 policies and force offset almost 60% of the All-State brand decrease. While margin improvement actions have negatively impacted policy growth, the actions were necessary to mitigate lost cost trends during a period of rapid lost cost inflation.
Jess: And now I'll turn it over to Jess. All right, thank you, Mario. Slide 11 details profitable growth and protection services. In second quarter revenues in these businesses increased to $773 million, which was 12.7% higher than the prior year quarter. This result was primarily driven by growth in all-state protection plans. Revenues in our roadside business decreased 22.7% compared to the prior year quarter, reflecting the impact of exiting a large unprofitable wholesale account. In the table on the right, you will see an adjusted net income of $55 million in the second quarter increased $14 million compared to the prior year quarter, with most businesses showing improvements.
Jess: Profitable growth in all state protection plans resulted in a adjusted net income of $41 million, a $10 million increase compared to the prior year quarter, as revenue growth and improved claims trends continue to benefit the bottom line. Slide 12 provides additional insight into the shareholder value created by protection plans. Since acquiring SquareTrade in 2017 for $1.4 billion, this has become a significant growth platform with scale and attractive profitability. Protection plans provide warranties for a wide range of products, including consumer electronics, computers and tablets, TVs, mobile phones, major appliances, and furniture. The power of the Allstate brand has helped secure partnerships with large retailers in North America.
Speaker Change: With scale and attractive profitability.
Speaker Change: Protection plans provides warranties for a wide range of products, including consumer electronics computers, and tablets Tvs mobile phones major appliances and furniture.
Speaker Change: The Allstate brand has helped to secure partnerships with large retailers in North America, we sell Allstate protection plans at point of sale through successful retailers, such as Costco home Depot, Sam's club target and Walmart all under the Allstate brands. We're also expanding internationally into Europe and Asia.
Jess: We sell Allstate Protection Plans at point of sale through successful retailers such as Costco, Home Depot, Samsung, Target, and Walmart, all under the Allstate brands. We're also expanding internationally into Europe and Asia. As you can see from the charts to the right, broad distribution and customer-focused operational execution has resulted in rapid growth in this business. Revenue has grown 20% compared to the same 12-month period in 2023, while returns have been strong. A adjusted net income over the last 12 months totaled $139 million and almost $700 million cumulatively since 2017.
Speaker Change: As you can see from the charts to the right broad distribution and customer focused operational execution has resulted in rapid growth in this business revenue has grown 20% compared to the same 12 month period in 2023, our returns have been strong adjusted net income over the last 12 months totaled a $139 million in all.
Speaker Change: Most $700 million cumulatively since 2017.
Jess: Now let's shift slide 13 to discuss investment results. Results again benefited from active portfolio management that seeks to optimize return per unit of risk across the enterprise. Net investment income shown in the chart on the left totaled $712 million in the quarter, which is $102 million above the second quarter of last year. Market-based income of $667 million, which is shown in blue, was 131 million above the prior year quarter, as the fixed income portfolio continues to benefit from repositioning into longer duration and higher yielding assets. Performance-based income of $107 million shown in black was 20 million below the prior year quarter due to lower real estate investment results.
Speaker Change: Now, let's shift to slide 13 to discuss investment results.
Jess: The performance-based portfolio is constructed to enhance long-term returns, and volatility on these assets from quarter to quarter is expected. On the right, you can see our annualized portfolio return in total and by strategy over a short-term and long-term horizon. The market-based portfolio delivers predictable earnings, while the performance-based portfolio enhances risk in return and diversifies the $71 billion investment portfolio.
Unknown Executive: Moving to slide 14, the Health and Benefits business continues to perform well. Revenues of $620 million increased by 45 million compared to the prior year quarter, driven by premium growth in group and individual health. Adjust the net income of $58 million in the second quarter was slightly higher than the prior year quarter, reflecting increased group health and employee benefits, adjust the net income that was partially offset by a decrease in individual health. As a reminder, the decision to pursue a divestiture of these businesses was based on a belief that potential buyers with complementary products and capabilities will unlock value beyond what is achievable by all funds.
Thomas Wilson: As a reminder, the decision to pursue a divestiture of these businesses was based on a belief that potential buyers with complementary products and capabilities will unlock value beyond what is achievable by all. Slide 15 recaps Allstate's strategy in this quarter's report, auto and home homeowners insurance profitability has improved, and National General is profitably growing policies enforced. We're accelerating transformative growth to increase auto and homeowners policies and force, seeing this strong. We highlighted National General this quarter because, you know, it's a $10 billion business now on an annual basis, and we feel like the market's really not looking to that one in terms of growth as much.
Speaker Change: We'll unlock value beyond what is achievable by Allstate.
Unknown Executive: The process is progressing well and has confirmed our strategic logic.
Speaker Change: The process is progressing well and has confirmed our strategic logic.
Speaker Change: Slide 15, recaps Allstate's strategy in this quarter's results auto and home homeowners insurance profitability has improved national General is profitably growing policies in force were accelerating transformative growth increased auto and homeowners policies in force.
Unknown Executive: Slide 15 recaps all state strategy in this quarter's results. Auto and homeowners insurance profitability has improved. National General is properly growing policies and forests. We're accelerating transformative growth to increase auto and homeowners' policies and forests. Proactive risk and return management of the investment portfolio continues to generate value. And protection plans is expanding with broadened product offerings and distribution. We're confident that this strategy will continue to create value for our shareholders, and with that context, let's open the line for your questions.
Speaker Change: No active risk and return management of the investment portfolio continues to generate value.
Speaker Change: And protection plans is expanding with broadened product offerings and distribution. We're confident that this strategy will continue to create value for our shareholders and with that context, let's open the line for your questions.
Speaker Change: Yes.
Unknown Executive: Certainly, and our first question for today. It comes from the line of Gregory Peters from Raymond James. Your question, please.
Speaker Change: Certainly and our first question for today.
Speaker Change: It comes from the line of Gregory Peters from Raymond James Your question. Please.
Gregory Peters: Good morning, everyone. So for my first question I'll focus on growth and time. I know you've been talking about transformational growth now for several years, and we're seeing this strong increase in new issued applications. So I'm wondering if you might help us understand how you think that new issued application result is going to drive increased policies enforced in the auto in the auto stats that we see in some of your supplements.
Gregory Peters: Good morning, everyone. So for my first question I'll focus on growth.
Gregory Peters: And Tom I know you've been talking about transformational growth now for several years.
Speaker Change: And we're seeing the strong increase in new issued applications. So I'm wondering if you might help us.
Tom: Well, good morning, Greg. Thank you for both being here and paying attention over years. Mario talked about the growth by channel, and we highlighted National General in this order because you know it's a $10 billion business now on an annual basis, and we feel like the market's really not looking through that one in terms of growth as much.
Tom: Transformer to growth includes of what we're doing in national general but to your point it really also includes remaking a lot of the business processes inside the All-State brand. So let me make a couple of comments about that and give it to Mario to talk about specific things he's doing in various geographies. He's just the most macro view you know growth for everybody to factors sell more for your point out and keep more. And so we spent a bunch of time Mario talked about selling more. We feel good about the trajectory; there you can see the benefits of the increase in advertising and the direct volume Mario talked about, and that also will translate into increased growth and productivity in the All-State agent channels we roll it out.
Thomas Wilson: Transformative growth includes what we're doing at National General, but to your point, it really also includes remaking a lot of the business. It's not clear what that trend will be at this point in time, and the reason I say that is not that I think traditional economics of don't ask me to pay a lot more and I'm more likely to stay will break down; it's just that the price elasticity curves broke down when we raised prices over the last couple of years, so it's a little hard to tell what the tail of that will be. Property Liability Combined Ratio and is coming down a little bit. So Transform Growth had five components that Mario walked through.
Tom: So the other question then is, of course, how many do you keep, and retention was up slightly in the quarter versus the prior year quarter. To kind of look over the last 12 months, it's been reasonably flat in auto insurance. I assume you're talking about auto insurance; by the way, we can talk about home as well because I think that's a great opportunity for us. But on auto insurance, it's been relatively flat, and normally you would expect, as rate increases come down, you would expect retention to increase. It's not clear what that trend will be at this point in time, and the reason I say that is not that I think traditional economics of don't ask me to pay a lot more, and I'm more likely to stay breakdown.
Tom: It's just that the price elasticity curves broke down when we raised prices over the last couple of years, so it's a little hard to tell what the tail on that will be. And it's hard to figure out attribution of why it did in the face of a 33% increase in rates. We were able to hold retention pretty well. Some have been, you know, maybe car people understood the cars were worth more, or maybe they had a bunch of cash. The government gave them some of its competitors were also raising rates. So you can't really do attribution as to why we are where we are.
Tom: So looking forward, we said it's a little hard to tell exactly what retention will do in the future. It takes, then it goes up because we are taking through a price increases. That's almost, you know, it's pretty close to one to one in terms of moving retention rate and growth, which is really a good thing, obviously. But we're not waiting around to see what happens there.
Tom: We're working on improving the customer experience. We have a goal of proving 20 million customer reactions on the unit basis by next year. We're well on the goal and that. So we're doing a whole bunch of continuous improvement. We're going to do tech tools out there, new products, all of which are designed around improving retention and growth.
Mario: Mario, do you want to talk about specific aspects of growth in terms of states?
Mario: Sure. Thanks for the question, Greg. So maybe the place I start out and like Tom said, retention is obviously critically important to growth. And we're pleased with the fact that retention is stabilizing. But we also recognize there's a handful of states that we have taken. So pretty significant rate increases more recently, California, New York, New Jersey. Those are going to continue to have an impact on retention going forward. But absent those three states, we kind of like the trends that are emerging.
Tom: To have an impact on retention going forward, but absent those three states, we kind of like the trends that are emerging but I want to talk a little bit about new business production and get at your question. So Greg where I would start would be kind of how did we get here and the reality is as we've been implementing the auto profit improvement plan over the past couple of years.
Mario: But I want to talk a little bit about new business production and get at your question. So Greg, where I would start would be kind of, how did we get here? And the reality is, you know, as we've been implementing the auto profit improvement plan over the past couple of years. That's obviously being executed on a state-by-state, market-by-market basis. But as states have gotten to a rate adequate level, we've begun to lean in and invest more in growth to drive production in those states. And that would include things like unwinding, underwriting guidelines to restrict business, increasing advertising spend both nationally and locally.
Greg: That's obviously being executed on a state by state market by market basis, but as states have gotten to a rate adequate level, we've begun to lean in and invest more in growth to drive production in those states.
Speaker Change: And that would include things like unwinding, our underwriting guidelines to restrict business, increasing advertising spend both nationally and locally.
Mario: And as, you know, where we sit right now, as I'd say, about two thirds of our states, you know, the premium volume represented by two thirds of our states are what we would consider at profit target levels. And then there's about another 10% or so that are kind of on the path to getting there. So overall, we feel really good about the vast majority of the country in terms of geographically where we're comfortable investing. And you see the momentum that's really been building over the course of the year. Last quarter production was up about 9% in total.
Speaker Change: And as where we sit right now is I would say about two thirds of our states. The premium volume represented by two thirds of our states are what we would consider at.
Speaker Change: At target levels.
Speaker Change: And then theres about another 10% or so that are kind of on the path to getting there. So overall, we feel really good about the vast majority of the country in terms of geographically.
Speaker Change: We're comfortable investing in.
Speaker Change: And you see the momentum that's really been building over the course of the year last quarter production was up about 9% in total this quarter. It was up 17% as we further ramped up.
Mario: This quarter was up 17% as we further ramped up growth investments. And we're going to continue to do that. At the same time, you know, you've seen us take less rate, which, as Tom mentioned, helps retention. But we're going to continue to be diligent about staying on top of lost cost trends, really broadly across states. And, as I mentioned, you know, there's some states that aren't in that growth category right now that we've got to get to target levels of profitability. We're going to continue to focus on taking rates that are necessary there. And when we're successful, those will become additive to the parts of the country where we can invest.
Speaker Change: Growth investments and we're going to continue to do that at the same time.
Speaker Change: <unk> seen us take less rate, which as Tom mentioned helps retention, but we're going to continue to be diligent about staying on top of loss cost trends really broadly across states and as I mentioned there are some states that aren't in that.
Speaker Change: Growth category right now that we've got to get to target levels of profitability, we're going to continue to focus on.
Speaker Change: Taking rates that are necessary, there and when we're successful those will become additive to the parts of the country, where we can invest so that kind of got us to where we're at in terms of geography, and new business and the good. The good news is we're seeing the growth across brands and across channels.
Mario: So that kind of got us to where we're at in terms of geography and new business. And the good news is we're seeing the growth across brands and across channels.
Unknown Executive: Great.
Speaker Change: Right.
Tom: I guess in a related question as a follow-up, my follow-up would be on the expense ratio side. You know, you called out. the increased advertising expense in the second quarter, I think it was three points of your property liability combined ratio. When we look forward, what kind of expectation do you have about how maybe the adjusted expense ratio is going to move through the balance of this year and sort of what your longer term objectives are there?
Tom: Let me answer that both by first going up and then coming down a bit. So it transformed growth head five components of Mario Walkthrough. On each of those, the underlying assumptions between whether that was a good thing to do or not, we've proven out. They are not working all at the same time right now, so that you're seeing the growth we think we can get, which is to increase market share. So we're confident we're going to increase market share on personal property liability. When you get into what's retention next quarter, what happens, the new business next quarter, we're confident that all of those things will work in the same direction.
Thomas Wilson: We've proven out the underlying assumptions of whether that was a good thing to do or not, and they are not all working all at the same time right now so that you're seeing the growth we think we can get, which is to increase market share. So we're confident we're going to increase market share on personal property liability. When you get into what retention will be next quarter, and what happens to new business next quarter, we're confident that all of those things will work in the same direction. As it relates to expenses, we think we need to continue that. I mean, we want to do affordable, simple, connected protection. Affordable means a low price.
Tom: As it relates to expenses, we think we need to continue. I mean, we want to do affordable, simple connected protection. Affordable means low price. That means we're going to continue to reduce costs. And so we've got a whole bunch of things we're working on. Now that we've been working on this for a couple of years, you point out that we are starting to generate benefits. But we have more to go. Like we don't, we think there's with the age of digitization and the things we can do in our business, we can still do our response on.
Thomas Wilson: That means we're going to continue to reduce costs. And so we've got a whole bunch of things we're working on now that we've been working on for a couple of years, as you point out, that are starting to generate benefits. But we have more to go. We think with the age of digitization and the things we can do in our business, we can still drive costs down. As it relates to advertising, the reason we broke that out separately is that it does relate to the fact that we don't want people to miscommunicate to people that we think taking advertising down and making that lower is a good idea. Jimmy, it's Jeff.
Speaker Change: It's too expensive.
Speaker Change: We think we need to continually I mean, we might have to affordable a simple Ah connected protection affordable means low price that means we're going to continue to reduce costs.
Speaker Change: And so we've got a whole bunch of things. We're working on now that are we've been working on for a couple of years as you point out that are starting to generate benefits, but we have more to go like we don't we think there's with the age of Digitization.
Speaker Change: And the things we can do in our business, we can still drive costs down as it relates to advertising.
Tom: As it relates to advertising, the reason we broke that out separately is that that does relate to the fact of, we don't want people to miscommunicate to people that we think taking advertising down and making that lower is a good idea. Because we think growth creates value for shareholders as long as we're operating in attractive returns. We've got a good set of capabilities there, and we continue to invest in growth, get good returns, lower expenses, same time, increase market share, which then will lead to a re-grading of the earnings multiple.
Speaker Change: The reason we broke that out separately is that that does relate to the fact of we we don't want people to be so to miscommunicate to people that we think taking advertising down and making that lower is a good idea because.
Speaker Change: Because we think growth creates value for shareholders as long as we're operating at attractive returns. We've got a good set of capabilities are and I'd be happy to talk about that if anybody wants to get there, but we're comfortable that we can continue to invest in growth.
Speaker Change: Get good returns lower expenses same time increased market share we spend will lead to a re rating of the earnings multiple.
Speaker Change: Yeah.
Unknown Executive: Thank you.
Speaker Change: Thank you.
Andrew: Thank you Andrew.
Jimmy Bueller: And our next question comes from the line, Jimmy Bueller from KPMorgan. Your question, please. Good morning. So just had a question on what you're seeing in terms of competitive trends in the personal auto market, both in terms of pricing and advertising. Seems like margins for most of the companies are getting closer to normal. So wondering if that, if you're starting to see some of them get aggressive on price. I know certainly advertising spending and going up a lot, but what are you seeing out there?
Speaker Change: And our next question comes from the line of Jimmy Buhler from J P. Morgan Your question. Please.
Jimmy Buhler: Good morning, So just had a question on what Youre seeing in terms of competitive trends in the personal auto market, both in terms of pricing and advertising it seems like.
Speaker Change: Margins for most of the companies are getting closer to normal. So I'm wondering if that if you're starting to see some of them get aggressive on price I know certainly advertising spending has been going up a lot, but what are you seeing out there.
Tom: Let me talk about advertising. I already jumped in on price. Of course, there's a lot of competitors, but let's focus on the biggest competitors for the time being, because those are the ones that are mostly playing here. So, we were just talking about growth is good for shareholders. It's good because we're earning good returns. Secondly, we're leveraging capabilities over broader capital-based, which drives more shareholder value creation, and that should lead to re-grading of the multiple.
Speaker Change: Well, let me talk about advertising married jump in on pricing.
Jimmy Buhler:
Speaker Change: And of course, there's a lot of competitors, but let's focus on the the biggest competitors for time being and because those are the ones that are mostly in play here.
Speaker Change: So from a.
Speaker Change: We're just talking about growth is good.
Speaker Change: For shareholders. It's good because we're earning good returns secondly, we're leveraging capabilities over a broader capital base, which drives more.
Tom: And they say, well, what needs to be true for you to do good advertising and head into and fight on that one? And first, you've got to have a product that's differentiated and appeals to customers. So we have that with a new ASC Auto product. We know it from the close to quote ratios higher with that product. You've got to have, you've got to be getting a track of returns when we've talked about that at length. You've got to have a great brand because that increases consideration. Like if people, if you're the first time people have heard of you, your dollar advertising is not effective.
Tom: Obviously, we have a great brand and great consideration. You have to have broad access, and this ties together with transform growth. We advertise; you can go to exclusive agents, you can go to our website, you can go direct. So you want to make sure that however they want to come to, they advertise in dollars effectively.
Tom: Now, I would say advertising today, though, is a game of precision. Much as auto insurance pricing went through this great push on sophistication, those who are good at sophistication win, and you can see that when you look at the combined ratios of people like Allstate, Progressive, Geico. We all have really good combined ratios because we're sophisticated in how we price our product. Same thing as true in advertising today, so you have to be good at bidding strategy. How much are you bidding for a lead? We're good at bidding for a lead. That's not like we're perfect.
Tom: We've got other stuff we need to do. You've got to figure out how you're using different kind of messaging for different groups, and you can imagine with the blurrification of number of media channels, number of messages you can do now, particularly with AI, the number of segments you have, your pricing sophistication, it gets complicated really fast, and we're really good at it.
Speaker Change: You can imagine with the what we're referring <unk>.
Speaker Change: Number of media channels number of messages you can do now, particularly with AI.
Speaker Change: They never have segments, you have the pricing sophistication it gets complicated really fast.
Speaker Change: And we're really good at it so when we go into this and we're thinking about us increasing advertising versus other people you're like well how good are you and we think we're good at it if you look at.
Tom: So when we go into this and we're thinking about us increasing advertising versus other people, you're like, well, how good are you? And we think we're good at it.
Tom: If you look at where we are with Erie and our telematics work, that's to really end up. We're going to run around having more information on who you bid at because we track 15% of the U.S. population they're driving, so we can decide how good a driver you are without even sticking a device on your phone or a device in your car. So we'll competition increase in advertising probably. It'll be from those carriers where the same kind of capabilities we do, so we're pulling up to winning that game. I think there'll be some other people who hold back or even drop out because they don't have the capability and expertise to do it.
Speaker Change: Where we are with arity, our telematics work, that's to really and run around having to having more information on who you bid on.
Speaker Change: Because we track 15% of the U S population, they're driving so we can decide.
Speaker Change: How good a driver you are without even sticking a device on you for an app on your phone or device in your car. So.
Speaker Change: Oh, well competition increase in advertising probably drive.
Speaker Change: It'll be from those carriers, who has the same kind of capabilities. We do so we're fully up to a winning that game I think there'll be some other people who hold back or even drop out because they can't they don't have the capabilities and expertise to do it. So that's where we are in the advertising good for shareholders because it's good for growth and we use the money.
Mario: So that's where we are in advertising. Good for shareholders because it's good for growth, and we use the money effectively.
Speaker Change: Mary you want to talk about pricing.
Mario: Murray, do you want to talk about pricing? Yeah, and Jimmy, thanks for the question. I'll answer the question broadly, but I put a caveat around it that obviously what I'm going to say is going to vary by company, and it's going to vary geographically because the business is just operated that way, and there's a lot of competitors in the market. But I would say, by and large, as we discussed this morning, and as many of our competitors have reported profitability and auto is improving, as loss cost trends have improved, and all of the things being equal, when that happens and margins are better, there's just less rate activity in the system, and that's what we're saying.
Speaker Change: And Jimmy Thanks for the question I'll answer the question broadly, but I'd put a caveat around is that obviously, what I'm going to say, it's going to vary by company and it's going to vary geographically because the the.
Speaker Change: The business is just operated that way and there's a lot of competitors in the market, but I would say by and large as we are.
Speaker Change: <unk> discussed this morning, and as many of our competitors have reported profitability in auto is improving as loss cost trends have improved in all other things being equal when that happens and margins are better theres just less.
Speaker Change: Rate activity in the system and that's what we're saying companies generally taking less rate than they were over the last couple of years and again that will vary by company. Some started later than others are still catching up others are a little further along but generally we see less right getting pushed through and then certainly that varies.
Mario: Companies generally taking less rate than they were over the last couple of years. Again, that'll vary by company. Some started later than others and are still catching up. Others are a little further along, but generally we see less rate getting pushed through, and then certainly that varies geographically as well.
Tom: Geographically as well, having said that I would just take that along with what Tom talked about in terms of advertising and say that when you take the totality of where we're positioned and what we're building with transformative growth.
Mario: Having said that, I would just take that along with what Tom talked about in terms of advertising and say that, you know, when you take the totality of where we're positioned and what we're building with transformative growth, we like where we're positioned and our ability to be able to increase growth investments and be successful in a competitive marketplace. That's what we're building. And we like to of our chances.
Speaker Change: Like where we're positioned in our ability to be able to increase growth investments would be successful in a competitive marketplace. That's what we're building.
Speaker Change: And we like our chances.
Jimmy: And then just on the benefits sale, the world late in the year, and there hasn't been an announcement, but maybe talk a little bit about how the process is going. And I'm assuming it's probably not going to close this year, but are you still assuming a close within the next few months, even if it drags on to next year?
Speaker Change: And then just on the <unk>.
Speaker Change: Benefit sale.
Speaker Change: They were late in the year and there hasn't been an announcement, but maybe talk a little bit about how the process is going and I'm, assuming it's probably not going to close this year, but are you still assuming a close.
Speaker Change: Then the next.
Speaker Change: Few months, even if it drags on to next year.
Jess: Hey, Jamie, it's Chef. First, I guess I would start by reminding everyone of the third great businesses you saw in the results that I covered, so we're really happy to continue to focus on execution in the operations. It might be helpful if I give you a little bit of a window into the process to help you understand where we're at and where we're going. So if you think about our process, we started out with a preference for a single transaction, but in this same note, we're unwilling to compromise value for that preference. So we spent a lot of time with a single transaction buyer that thought they could, in the end, change the terms and/or that we didn't have better options, quite frankly.
Jess: Hey, Jamie it's Jess.
Jeff: First, I guess I would start by reminding everyone that they're great businesses. You saw that in the results that I covered. So we're really happy to continue to focus on execution in the operations. It might be helpful if I gave you a little bit of a window into the process to help you understand where we are and where we're going. So if you think about our process, we started out with a preference for a single transaction, but on this same note, we were unwilling to compromise value for that preference, right?
Jamie: First I guess I would start by reminding everyone. The third great businesses you saw it in our results that I covered so we're really happy.
Speaker Change: To continue to focus on execution and the operations it might be helpful. If I give you a little bit of a window into the process to help you understand.
Speaker Change: Where we're at and where we're going so if you think about our process. We started out with a preference for a single transaction, but in the same note. We are unwilling to compromise value for that preference right. So we spent a lot of time with a single transaction buyer that thought they could in the and change the terms and or that we didn't have better.
Jeff: So we spent a lot of time with a single transaction buyer that thought they could, in the end, change the terms and or that we didn't have better options, quite frankly. So we spent a lot of time on a process there, and ultimately, what we decided was to work with other buyers, and that has created a delay in things. It just has.
Speaker Change: Or options quite frankly, so we spent a lot of time on our process there and ultimately what we decided was to work with other buyers.
Jess: So we spent a lot of time on a process there, and ultimately what we decided was to work with other buyers, and that has created a delay in things; it just has, but we're confident that by making that switch, we'll get a better outcome. A better outcome for our shareholders, a better outcome for the businesses. So what I would say right now, and I don't want to get into the timing of announcements from close, but I would say it's that we're likely to be in a position to announce transactions this year, and you'll get more details about the what and how when those announcements come.
Speaker Change: That has created a delay in things that just has but we're confident that by making that switch will get a better outcome a better outcome for our shareholders better outcome for the businesses. So what I would say right now and I don't want to get into timing of announcements from close but I would say is that we're likely to be in a position.
Thomas Wilson: But we're confident that by making that switch, we'll get a better outcome, a better outcome for our shareholders, and a better outcome for the businesses. So what I would say right now, and I don't want to get into the timing of announcements from close, but I would say is that we're likely to be in a position to announce transactions this year, and you'll get more details about the what and the how when those announcements come.
Speaker Change: Two announced transactions this year and you'll get more details about.
Speaker Change: The what and the how when those announcements come but that's just a little bit of a window into the process and why you still havent heard anything if that's helpful.
Jess: But that's just a little bit of a window into the process and why you still haven't heard anything, if that's helpful.
Jess: And you intend to sell or dispose of the entire unit eventually, even if it goes into pieces, or are there some pieces you might decide to retain? Still intend to make the divest of the health and benefit segment.
Speaker Change: And do you intend to sell or dispose of the entire unit eventually even if it goes into pieces or are there some pieces that you might decide to retain.
Speaker Change: Still intend to make the divestiture of the health and benefits segment.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Thank you.
Bob Huang: And our next question comes from a line of Bob Huang from Morgan's Family. Your question, please. Hi, good morning.
Bob <unk>: And our next question comes from the line of Bob <unk> from Morgan Stanley. Your question. Please.
Bob <unk>: Hi, good morning.
Speaker Change: Maybe.
Tom: Maybe one homeowner, I think last year, when it comes to cat loss, the beer convective storm was a one-in-18 event, if I remember correctly, which obviously was a headwind to your cat numbers. Just given how things are developing so far, curious how is it tracking this year? Is it going to be more of a work than one in 18 event? Just based on what we have in the first half, curious in terms of like how are the weather they're developing for the homeowner side?
Speaker Change: <unk>, a homeowner I think last year.
Speaker Change: When it comes to cat losses severe convective storm with a one an 18 event if I remember correctly.
Speaker Change: Which obviously was a headwind to your cat numbers, just given how things are developing so far curious how is that tracking this year is it going to be more of a worse than one an 18 event just based on what we have in the first half.
Speaker Change: Curious in terms of like how are the whether they are developing for the for the homeowner side of it.
Speaker Change: Up.
Tom: Bob, thanks for the question of homeowners. I would look at homeowners on a longer term basis than one year. So if you look over the last 11 years, we've made three quarters of the profit that the whole industry has made because we have a pretty sophisticated business battle. We've talked about before, and we're happy to go into, but we're good at homeowners. It's currently turning into a, I guess what would you domestically be called a hard market, but a lot of people are bailing on growth in that market because they were either part of the 25% or they were part of the negative amount that left us having three quarters of an entire profit pool when we have less than 10% of the total business.
Speaker Change: Tom Thanks for the question of homeowners.
Speaker Change: I would look at homeowners on a longer term basis than one year.
Speaker Change: So if you look over the last 11 years, we've made three quarters of the profit that the whole industry has made.
Speaker Change: Because we have a pretty sophisticated business model, we've talked about before and be happy to go into but.
Speaker Change: We're good at homeowners.
Speaker Change: Currently turning into a I guess, what we do for mystically be called a hard market, but a lot of people are bailing on growth in that market because they were either part of the 25% or they were part of the negative amount that led to us having three quarters of that.
Speaker Change: Entire profit pool, when we have less than 10% of the total business.
Tom: So we think that's a great growth opportunity. Is it related to this year? Too hard to predict whether, you know, it comes and goes. For the first six months, we made money on an underwriting basis. That makes me feel better than last year, where we didn't make money for the whole year, the prior 10 years. We made money in each of those 10 years, so I feel good about our business model.
Speaker Change: So we think that's a great growth opportunity as it relates to this year too hard to predict whether it comes it goes for the first six months, we made money on an underwriting basis that makes me feel better than last year.
Speaker Change: We didn't make but I think for the whole year. The prior 10 years.
Speaker Change: We made money in each of those 10 years, so I feel good about our business model.
Tom: As it relates to any individual quarter, their key thing for us is to be there for our customers. Like when they got a problem, and we're good at getting there fast, we want to be there to take care of their claims. They tell their friends, our homeowner business, you saw that unit growth is up. It's particularly, we're doing extremely well in our all state agents with bundling customers. So other people are interested in that segment. We're just killing it right now on cross-line sales, so we feel good about that. Some of that's the hard market, some of its great relationships, some of it's the product and the pricing we have; it all kind of comes together.
Speaker Change: As it relates to any individual quarter their their key thing for us is to be there for our customers like when they got a problem and we're good at getting there fast we werent be there to take care of their claims and they tell their friends are.
Speaker Change: Our homeowner business you saw that unit growth is up.
Speaker Change: It's particularly where we're doing extremely well in our Allstate agents.
Speaker Change: With bundling customers. So other people are.
Speaker Change: Interested in that segment.
Speaker Change: We're just killing it right now on cross science sales. So we feel good about that some of that is the hard market. Some of it's great relationships. Some of it's the product and the pricing we have it all kind of comes together. So we like the business. We think it's got good long term growth potential.
Tom: So we like the business; we think it's got good long-term growth potential, and on a quarterly basis, I wouldn't get too focused on whether it's up or down. This second quarter, you can decide it's either higher or lower, depending on which period of time you want to evaluate it against.
Speaker Change: And then.
Speaker Change: On a quarterly basis, I wouldn't get too focused on whether it's up or down.
Speaker Change: The second quarter.
Speaker Change: As you can decided either higher or lower depending which period of time you wanted to evaluate it against and so I would just say focus on the long term results from it.
Tom: So I would just say focus on the long-term results.
Tom: Okay, thanks.
Speaker Change: Okay. Thanks.
Tom: My second question, a little bit of a shot in the dark here for the DOJ lawsuits for National General. There has been precedence where under Fourier civil enforcement actions where SEC can potentially get involved under the current litigation environment. Do you expect that the National General case to get SEC involved at some point down the road? Not sure if that's the question you can't answer at the point. Well, you know, we don't give a lot of specifics on active litigation, obviously. And I certainly can't speak for what other people want to do when, you know, we have, I don't know what the SEC will or will not choose to do.
Speaker Change: My My second question is a little bit of a shot in the dark here.
Speaker Change: For the Doj lawsuit for National General.
Speaker Change: There has been precedent where under for Ria Civil enforcement actions, where etsy, you kept potentially getting involved.
Speaker Change: Under the current litigation environment do you expect that the National General case.
Speaker Change: Forget FCC involved at some point down the road not sure about the question you can't answer at this point.
Speaker Change: Well, we don't give a lot of specifics on active litigation obviously.
Speaker Change: I certainly can't speak for what other people want to do.
Speaker Change: We havent I don't know what the SEC will or will not choose to do what I can't give you a little bit of information. This is.
Tom: What I can't give you is a little bit of information.
Tom: This is the lawsuit is in reference to a lender-placed insurance program. So not stuff sold through agents. It's focused on auto insurance. Our program was transparent. We borrowers were treated fairly. And we're confident that we will prevail in this and that the lawsuits will have no impact on our own business.
Speaker Change: The lawsuit.
Speaker Change: In reference to our lender placed insurance programs, so not stuff sold through agents.
Speaker Change: It's focused on auto insurance.
Speaker Change: Our program was transparently borrowers we're treated fairly.
Speaker Change: We are confident that we will prevail in this and as the lawsuits will have no impact on our business.
Tom: Okay, thank you.
Speaker Change: Okay. Thank you.
Michael Zorimski: Thank you. And our next question comes from the line of Michael Zorimski from BMO. Your question, please. Hi, good morning.
Speaker Change: Thank you and our next question comes from the line of Michael So Rimsky from BMO. Your question. Please.
Speaker Change: Hi, Good morning, this is Jack on for Mike.
Jack: This is Jack on from Mike. Just a follow up on the advertising spend strategy. I'm curious how your strategy and focus today compare to the last cycle. And more specifically, how much of your ad spend has historically been geared toward direct to consumer targeted sales versus supporting your agents. And then how is that evolving today given the success of your transformative growth strategy in your lower expense base? Jack, I would say that the third component of transformative growth was increased the sophistication and investment in new customer acquisition. We didn't talk about it here much, but we've gotten much more sophisticated versus the last time we did this.
Jack: Just a follow up on the advertising spend strategy.
Jack: Just how your strategy and focus today compares to the last cycle.
Speaker Change: Typically how much of your AD spend has historically been geared towards direct to consumer targeted sales versus supporting your agents.
Speaker Change: And how is that evolving today, given the success of your transformative growth strategy.
Speaker Change: Space.
Speaker Change:
Speaker Change: Jack I would say that.
Jack: The third component of transformative growth was increase the sophistication and investment in new customer acquisition.
Jack: We didn't talk about it here much but we've gotten much more sophisticated versus the last time, we did this.
Tom: But I think other people have to, so I'm not like I don't want to include, you know, five miles ahead of anybody else, but we're good. And so we feel much better about our specification. The way in which we go through the allocation of investment is think about it is upper and lower funnel, upper funnel being, you know, get the brand out there, do some TV advertisements, make sure people are considering you when they're getting insurance. So you'll notice that more advertising on TV. Then there's what we call lower funnel, which is, you know, you're on the website, you're cruising around for a new car, and we pop something into your web for housing that says, hey, what about Allstate or we use addressable TV to do it.
Speaker Change: Other people have to so I'm not like I don't want to conclude by.
Jack: Myles had anybody else, but we're good.
Myles: And so we feel much better about our sophistication.
Myles: The way in which we go through the allocation of investment.
Myles: As I think about it as upper and lower funnel upper funnel being.
Speaker Change: Get the brand out there do some TV advertisements to make sure people are considering you when theyre getting insurance, so youll notice that more advertising on TV and there is what we call lower funnel, which is you're on the website, you're cruising around for a new car and.
Speaker Change: And we pop something into your.
Speaker Change: And do you have into web.
Speaker Change: For housing that says hey, what about Allstate or we use addressable TV to do it. So there's lots of different ways, we tried to do.
Tom: So there's lots of different ways we try to do call below or funnel, and the first one you do because we are off a little bit for last couple of years in terms of down and advertising. We've increased our upper funnel some just because we want people to remember there. We got a great brand because we've been investing in it forever. It's got great unated recognition, and we want to keep investing that the biggest portion of our increase would be in the lower funnel piece. And then it's tightly tied to what Mario described, which is really by save by market by risk class.
Speaker Change: Called lower funnel.
Speaker Change: The first one you do because we are off a little bit for last couple of years in terms of down in advertising, we've increased our output farnell. Some just because we want people to remember there we've got a great brand because we've been investing in it forever.
Scott: Scott Great unaided recognition and we want to keep investing at the biggest portion of our increase would be in the lower funnel piece.
Speaker Change: It's tightly tied to what Mario described which is really by state by market by risk class.
Tom: And it's highly sophisticated in terms of how we do that. And so it relates to both of those upper and lower funnel work for both all of the All State branch channels. So agents and and Direct. Our agents also do some of their own lead generation, you know, whether they go to mortgage brokers or other people in the local areas and buy leads. I think there's an area where we need to bring increased sophistication to it, because we're just better at it doing it globally than you would be if you, you know, live at the boy or something like that.
Speaker Change: And it's highly sophisticated in terms of how we do that as it relates to the both of those upper and lower funnel work.
Speaker Change: For all of our all of the Allstate brand channel so agents and.
Speaker Change: And direct our agents also do some of their own lead generation.
Speaker Change: Where they go to mortgage brokers or other people in their local areas and by elite I think there is an area, where we need to bring increased sophistication to it.
Speaker Change: Because we're just better at doing it globally. Then you would be if you look at the Boeing or something like that.
Tom: So there's increased sophistication there. But think of it as a large machine. It's got a number of different levers we can pull, and we have it has got good gauges on it, so we can tell what's coming out on the other end. And so we're constantly turning and dialing those levers and watching the gauges so that we beat our competition. That's helpful.
Speaker Change: So there is increased fabrication, there, but think of it as a large machine that's got a number of different levers we can pull.
Speaker Change: And we have got good gauges on it so we can tell what's coming out on the other end and so we're constantly turning in dialing those levers and watching the gauges said that we'd beat our competition.
Speaker Change: That's helpful. Thank you.
Jack: Thank you. And then be switching gears to auto loss cost trends. If you look at the average average underlying loss, you disclose it's now running slightly lower compared to 2023. I guess is that mean you're now seeing frequency benefits more than offsetting higher severity. And then curious how you view how you view the sustainability of current favorable frequency trends. I know last quarter you mentioned favorable weather. Just curious how this piece is removing.
Speaker Change: And maybe switching gears to auto loss cost trends.
Speaker Change: If you look at the average underlying loss do you disclose it's now running slightly lower compared to 2023.
Speaker Change: Does that mean youre now seeing frequency benefits more than offsetting higher severity.
Speaker Change: And I'm curious how you view your how you view the sustainability of current favorable frequency trends I know last quarter, you mentioned favorable weather I'm.
Speaker Change: I'm just curious how those pieces are moving.
Mario: Jack, I'll let Mario jump into both frequency and severity and by coverage. I can just say it's nice to have it be about halfway through the call on loss cost and be talking about growth, which is much more optimistic. A year ago, that would have been the first, second, and third question. So it's a good question. Mario will go to it, but I'm happy we're talking about growth because we think that's where we're going to create a lot of shareholder value. I'm sorry. Sure. Thanks, Jack. I guess the place I start is as much as we dig into the components of profitability.
Speaker Change: Jack I'll, let Mario jump into both frequency and severity in bi coverage I can just say, it's nice to have it be about halfway through the call on loss costs and be talking about growth, which is much more optimistic.
Thomas Wilson: But that's just a little bit of a window into the process and why you still haven't heard anything, if that's helpful. [inaudible] Jack, I'll let Mario jump into both frequency and severity and by coverage, but I can just say it's nice to have it be about halfway through the call on loss costs and be talking about growth, which is much more optimistic. A year ago, that would have been the first, second, and third question. So it's a good question.
Mario: Year ago is that would've been the first second and third question. So it's a good question Marshall will go to it but I'm happy we're talking about growth because we think that's where we're going to create a lot of shareholder value. So Mario do you sure. Thanks Jack.
Mario Rizzo: Mario will go to it. But I'm happy we're talking about growth, because we think that's where we're going to create a lot of shareholder value. So Mario, to you.
Mario Rizzo: Sure. Thanks, Jack. I guess the place I'd start is as much as, you know, we dig into the components of profitability, they're all important, but we shouldn't lose sight of the fact that the way we manage the car.
Mario: The place I'd start is as much as we.
Mario: We dig into the components of profitability. They are all important but we.
Mario: They're all important, but we should not lose sight of the fact that the way we manage the auto business is to generate mid 90s combined ratios across the entirety of the system. And we use levers like rates, and we look at premium whether that's frequency and severity and expenses. They all matter. And certainly, the lost trend helps inform what we need to do with some of the other levels. As I mentioned, the negative trend, the negative 0.8% that you see in the supplement. As I mentioned in my prepared remarks, there's a little bit of noise in there in terms of year-over-year comparisons because we were moving severity targets around intra-quarter last year.
Speaker Change: We shouldnt lose sight of the fact that the way we manage the auto business is to generate mid ninety's combined ratios across the entirety of the system and we use levers like rates and we look at a pure premium whether that's frequency and severity in expenses they all matter.
Mario: And certainly the loss trend helps inform what we need to do with some of the other levers what I would say as I mentioned the negative.
Speaker Change: Trends of negative 8% that you see in the supplement as I mentioned in my prepared remarks, there's a little bit of noise in there in terms of year over year comparisons because we were moving severity targets around intra quarter last year.
Mario: So the adjusted numbers, it's slightly positive. It's about 1%. So it's not, it's not all that different. But I would say it's, you know, favorable frequency has continued through the first half of the year. It's been offset by higher severity; severity predominantly in bodily injury, which continues to run above inflation. And on the physical damage side, we continue to see some good tailwinds with things like used car prices and, you know, stabilizing repair costs, and so on. But that's kind of the overall lost trend that we're reacting to in terms of the sustainability of frequency.
Mario: The adjusted numbers, it's slightly positive it's about 1%. So it's not it's not all that different but I would say it's.
Speaker Change: Favorable frequency has continued through the first half of the year.
Mario: That's been offset by a higher severity severity predominantly in bodily injury, which continues to run above inflation and.
Speaker Change: On the physical damage side, we continue to see some good tailwind with things like used car prices.
Speaker Change: Stabilizing repair costs and so on but that's kind of the overall loss trend that we're reacting to it in terms of the sustainability of frequency. It's a really difficult question to answer things like weather and geography and risk segments all come into play frequency has been better.
Mario: It's a really difficult question to answer. Things like weather and geography and risk segments all come into play. Frequency has been better than it was a year ago when we look at our telematic data, which gives us a lot of rich information. And miles driven per operators up a little bit, but trips are shorter. So, you know, that could be having an impact on frequency weather, favorably impacted frequency in the first quarter. The other thing I'd say is, you know, as we've been looking to improve profitability over the last couple of years and not growing.
Speaker Change: Then it was a year ago, when we look at our telematics data, which gives us a lot of rich information Myles.
Mario: Miles driven per operators up a little bit but trips are shorter so.
Mario: That could be having an impact on on frequency.
Mario: Other favorably impacted frequency in the first quarter.
Mario: The other thing I'd say is.
Mario: As we've been looking to improve profitability over the last couple of years and not growing the the risk segmentation and the mix of our auto book has shifted around a bit too.
Mario: The risk segmentation and the mix of our auto book has shifted around a bit to, you know, higher lifetime value, let lower frequency type business. That's having an impact as well. So, there's a lot of moving parts in there. One thing I would say is, as we go forward and write more new business, you know, that'll impact prospective frequency trends. But I'll go back to where I started. We managed the system and its entirety to generate mid-90s combined racial profitability, and we're going to continue to do that despite, you know, hover frequency bounces around. Thank you.
Mario: Higher lifetime value lower frequency type business, that's having an impact as well so theres a lot of moving parts in there one thing I will say is as we go forward and write more new business.
Mario: That'll that'll impact.
Mario: Prospective frequency trends, but but I'll go back to where I started we manage the system in its entirety to generate mid ninety's combined ratio profitability and we're going to continue to do that.
Mario: Despite hover frequency bounces around.
Speaker Change: Thank you.
Mario: Yes.
Speaker Change: Thank you.
Yaron Kinar: And our next question comes from the line of Yaron Kinar from Jeffries. Your question, please. Thank you. Good morning. I wanted to go back to growth or continue to focus on growth. I think ever since the transformative growth program was announced and launched, clearly we've had some issues with COVID in the aftermath of COVID. But now that we're hopefully starting to come out of that transitionary period and all the levers from transformative growth are kind of kicking in.
Mario: And our next question comes from the line of Huron Qunar from Jefferies. Your question. Please.
Huron Qunar: Thank you good morning.
Huron Qunar: Wanted to go back to growth.
Speaker Change: Continuing our focus on growth.
Speaker Change: I think ever since the transformative growth program was announced and launched clearly we've had some.
Speaker Change: Issues covered in the aftermath of Covid, but now that we're hopefully starting to come out of that transition period and all the levers from transformative growth are kind of kicking in.
Tom: Can you maybe help us think through, I'm not even asking about a one or two year horizon, but maybe over the cycle, what you think reasonable growth expectations should be on a P&L basis for Allstate. And I say this also in the context of if we see something industry leaders in growth, achieving pretty consistent. I'm going to call it high mid to high single digit growth and piss. Do you think that you can be at that level? So we haven't given out a target for PIF growth that it's the right way to think about it, because when you look at market share, a lot of times market share is done in the industry by premiums. Also, you know, charge more, have fewer customers and presumably increase your market share on that basis.
Speaker Change: Can you maybe help us think through.
Speaker Change: I know you've been asking about a one or two year horizon, but maybe over the cycle, what you think reasonable growth expectations should be.
Speaker Change: On a per basis for.
Speaker Change: For for all state and I say this also in the context of I think we see some of the industry leaders and growth achieving pretty consistent.
Mario: The high mid to high single digit growth.
Speaker Change: Do you think that you can be at that level.
Speaker Change: So we haven't given out a target for growth, but it's the right way to think about it.
Speaker Change: Because when you're looking at market share a lot of times market share is done.
Speaker Change: In the industry by premiums.
Mario: Also charged more have fewer customers and presumably increase your market share on that basis, that's not our goal our goal is pip growth.
Tom: That's not our goal. Our goal is PIF growth. If you want to assume that if you said, OK, the US economy, terms of number of cars, houses and stuff like that, it's going to be a low, low single-digit increase. So 1% is not going to be a whole bunch more new cars and houses in that state. And so obviously, PIF growth is going to be higher than that. And it is higher than that. You can see right now in homeowners because we're winning in that business. When you look at how far up is up, we don't have a limit on that.
Speaker Change: If you want to assume that if you said, okay. The U S economy in terms of number of cars houses and stuff like that it's going to be a low <unk>.
Speaker Change: Low single digit increase so 1% is not going to be a whole bunch more new cars and houses United States.
Speaker Change: And so obviously pip growth is going to be higher than that.
Speaker Change: And it is higher than that you can see right now in homeowners because we're winning in that business.
Speaker Change: When you look at how far up is up we don't have a limit on that if you look at national General.
Tom: If you look at national general, which is one of the reasons we call that out, it's got every bit as good a growth as some of those. Our competitors, who get much higher evaluations than we do, and it's got really good profitability. So we know how to do it. And the question is how do you translate it into, and what is the timing. We think there's great growth potential here. And that when you put on, you know, just call it if you take 1% for the overall growth in assets in the United States. You put on top of that, what would be modest increases in premiums, then you should get revenue growth, which is above 5%.
Speaker Change: One of the reasons, we called it out.
Speaker Change: Got every bit as good a growth as some of those.
Speaker Change: Our competitors, who get much higher valuations than we do.
Speaker Change: And it's got really good profitability. So we know how to do it and the question is how do you translate it into and what is the timing we think there's great growth potential here.
Speaker Change: And that when you put on just call. It if you take 1% for.
Speaker Change: The overall growth in assets in the United States.
Speaker Change: You put on top of that what would be modest.
Speaker Change: Increases in premiums and you should get revenue growth, which is above 5%.
Tom: And so, you know, what does that turn into? You know, you can do the math as well as we can, but we think there's great potential here. When you look at other people, we don't think they figured out how to turn 11 to gold. They're just really good at what they do. We think we can be every bit as good in the All State brand that growing that business, particularly now that we've gotten direct. What I would say is improved and unleashed that, and you can see that from Mario's charts on how much new business we're writing there.
Speaker Change: And so what does that turn into you can do the math as well as we can but we think there's great potential here when you look at other people.
Speaker Change: We don't think they figured out how to turn went into go there just really good at what they do we.
Speaker Change: We think we can be every bit as good.
Speaker Change: In the Allstate brand and growing that business.
Speaker Change: Particularly now that we've gotten direct what I would say is.
Speaker Change: Improved and unleashed.
Speaker Change: And you can see that from Mario's charts on how much new business. We're writing there. So we think there's lots of potential like we're very optimistic, but we don't have a here's our magic number that we're going to get to but whatever the number is it would lead to a higher valuation of earnings and we currently have.
Tom: So we think there's lots of potential; like we're very optimistic, but we don't have here's our magic number that we're going to get to. But whatever the number is, it would lead to a higher valuation of work. So we currently have. There's a company have reps and warranties insurance associated with the Nat Jen acquisition that's still in effect. If you're relating to the DOJ lawsuit, I don't think that will impact what eventually happens, but let me just reiterate, we're really confident in where we are with that claim. Okay.
Speaker Change: Same question.
Speaker Change: Does the company have reps and warranties insurance associated with the Nat Gen acquisition Thats still in effect.
Speaker Change: If you are relating to the Doj lawsuit I don't think that will impact when it eventually happens, but let me just reiterate we're really confident in where we are with it that claim.
Speaker Change: Tony.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you and our next question comes from the line of David <unk> from Evercore ISI. Your question. Please.
David Motemaden: And our next question comes from the line of David Motemaden from Evercore ISI. Your question, please. Hey, thanks. Good morning. I was wondering if you could just talk about within the auto underlying loss ratio. If there's any way to size, if there was any one time or unsustainable benefit from frequency in there, one of your peers had called out. I think it was a two and a half point benefit from unsustainable factors in the quarter. I wonder if you could give us any insight in terms of if any of the improvement was driven by something that is unsustainable within the auto business.
David: Hey, Thanks. Good morning, I was wondering if you could just talk about.
David: Within the auto underlying loss ratio, if theres any way to size.
Speaker Change: If there was any one time or unsustainable benefit from frequency and there one of your peers had called out I think it was a two and a half point benefit from unsustainable.
Speaker Change: Factors in the quarter.
Speaker Change: Wonder if you could give us any insight in terms of Ah if any of the improvement was driven by something that is unsustainable within the auto business.
Tom: No, let me give you a little. I'll give it a summary and then go through, and Mario can jump in here. I don't know how you determine what's sustainable or why not sustainable in frequency examples. If it, if in the winter, if it snows at 3 p.m. and it's kind of wet, and then the temperature drops quickly and it turns to ice. By the time you get to 5:30 rush hour, a bunch of cars get in an accident. If it snows at 2 a.m. doesn't matter so much. So I'm not really sure how you, and that's just one example of the myriad of things that Mario talked about: how far you're driving, how often you drive, how fast you drive, what city driving, who else drives. I don't know how you, I don't know if they, I don't know who it was, I'm not remembering who said that, but I'm not sure how we would be able to, with our math and the precision that we were able to, be able to determine what's sustainable or unsustainable.
Speaker Change: No.
Speaker Change: Let me give you a little I'll give you the summary, and then go through and Martin can.
Speaker Change: To jump in here from I don't know, how you determine what's sustainable or not sustainable and frequency.
Speaker Change: Examples.
Speaker Change: It.
Martin: In the winter.
Martin: If it snows at <unk>.
Martin: <unk> P M.
Martin: And it's kind of wet and then the temperature drops quickly and it turns the ice by the time you get to $5 30 rush hour a bunch of cars getting accident.
Speaker Change: If it snows at two a M doesn't matter so much.
Martin: So I'm not really sure how you and that's just one example of the myriad of things that Mario talked about how far you're driving how often do you drive how fast you drive what city driving who else drives like I don't know how you I don't know if they.
Martin: I don't know who it was on that.
Martin: Remember, who said that.
Speaker Change: But I'm not sure how we would be able to with our math and the precision that we require to be able to determine what's sustainable or unsustainable, what I would come back to us for Mario said.
Tom: What I would come back to is what Mario said; we price on what is. So what it is, is what we factor in. Just the frequency goes down in a quarter; we don't suddenly decrease rates. Just like if it goes up in a quarter, we don't suddenly increase rates. We price to get a mid-90s combined ratio in auto insurance, and that's what we'll keep doing.
Martin: We price on what is.
Mario: What it is is what we factor in.
Speaker Change: A frequency goes down in a quarter, we don't suddenly decrease rates just like if it goes up in a quarter. We don't suddenly increase rates, we price to get a mid <unk> combined ratio in auto insurance and that's what we'll keep doing.
Martin: Yeah.
David Motemaden: Got it. That's helpful; I understood it. It is pretty complex to do that, so that's fair.
Speaker Change: Got it that's that's helpful understood. It it is a it is pretty complex to do that so.
Speaker Change: So that's fair.
Tom: My follow-up question is just on the ad spend and just the, I think in the past you've shown, I think it was the states that are under a 96 combined. I guess I'm assuming that clearly went up this quarter, and I guess I'm wondering are there any states where you're holding back on ad spend, and if so, could you just size how big those are as a percentage of the total box? Mark. I'll let Mario answer the percentage questions. I would say in hold back, I was trying to think of it as a lever that you're a dial that you turn.
Speaker Change: My follow up question is just on the AD spend in and just the I think in the past you've shown I think it was the states that are under a 96.
Martin: Bind.
Speaker Change: I guess I'm, assuming that clearly went up this quarter and I guess I'm wondering are there any states, where you are holding back on ad spend.
Martin: And if so could you just size how big those are as a percentage of the total book.
Mario: I'll, let Mario answer the percentage question I would say in hold back.
Speaker Change: Think of it I was trying to think of it as.
Mario: A lever that you have dialed that you termed some states we're wide open and testing really high levels other states for.
Mario: Some states were wide open and testing really high levels. Other states were at what we think is appropriate. So we were constantly managing and testing and learning and in a live market on how much we did on stuff. I mean, there's just, it's very sophisticated. So it's not like there's a goal or no goal level, but there is, to your point, important from a macro standpoint, like how many states you're making money in? Yeah. And David, what I'd say, as I go back to what I said earlier, as we look at that kind of same mix of states, about two thirds in terms of premium volume of states are at or below, you know, our target combined ratio.
Mario: What we think is appropriate there. So we were constantly managing and testing and learning and in a live market and how much would bid on stuff I mean, there's just it's very sophisticated so its not like Theres a go or no go level, but there is to your point important from a macro standpoint like how many states you are.
Speaker Change: Making money yeah.
David: David what I would say I'd go back to what I said earlier as we look at that kind of same mix of states about two thirds in terms of premium volume of states are at or below our target combined ratio and I'd say about another 10% or so are on the path to getting there with rate that we've already approved.
Mario: And I'd say about another 10% or so are on the path to getting there with the rate that we've already approved. I guess, you know, there's a handful of states that we're not leaning in, and that that's true beyond just the advertising spend, but it would be around things like on writing guidelines and so on. You know, we, as much as we've talked about California, New York, New Jersey. California is over California. We got approval for a 30% rate. We are writing new business across all channels in California. As a matter of fact, we filed an additional 6.9% rate to stay ahead of the lost trend because you don't want to get behind in California. But, we are now writing in California and we're spending some marketing dollars there.
Speaker Change: I guess, there's a handful of states that.
Mario: That we're not leaning in and Thats true beyond just the advertising spend but it would be around things like underwriting guidelines and so on.
Martin: As much as we've talked about the California, New York, New Jersey, California.
Martin: California, We we got approval for a 30% rate we are writing new business across all channels in California as a matter of fact, we filed an additional six 9% rate.
Martin: To stay ahead of the loss trend because you don't want to get behind the California, but but we are now writing in California, where we're spending.
Martin: Marketing dollars there the two that are on.
Mario: The two that, you know, on the other side of the country, New York and New Jersey are ones that we are still effectively, you know, managing what we write, and we're writing very low volumes of business. Having said that, we've gotten rate approvals in New York or active conversations with the department on a 24% rate that we filed that we hope to get resolution on, hopefully reasonably soon. And then we'll revisit that dance, and in New Jersey, we got a rate approved at the end of last year. We just implemented another low teens rate in July, and we've got another one coming in December.
Mario: On the other side of the country in New York, and New Jersey are ones that we're still.
Martin: Effectively managing what we write and we are running very low volumes of business, having said that we've gotten rate approvals in New York. We're in active conversations with the department on a 24% rate that we see.
Mario: All of.
Martin: We hope to get resolution on hopefully reasonably soon.
Martin: And then we will revisit that stance and in New Jersey, We got a rate approved at the end of last year, we just implemented.
Martin: Another a low teens rate in July and we've got another one coming in December.
Mario: And as we evaluate where that positions us, you know, we'll reassess our risk appetite and how much we want to invest. And I'll go back to saying what I've said multiple times: you know, our objective function is to be able to write in every state. But the reality is we need to see a path to attractive returns and profitability to be able to do that. Once we get there, you know, then we'll expand our appetite across geographies.
Martin: And as we evaluate where that positions us.
Martin: We'll we'll reassess our risk appetite and how much we want to invest and I'll go back to saying what I've said multiple times is our objective function is to be able to write in every state.
Martin: But the reality is we need to see a path to attractive returns and profitability to be able to do that once we get there.
Martin: Then we will expand our appetite across geographies.
Tom: I would add a couple of things first. I don't think we'll ever be at 100%. But I also think that the high growth competitors that your competitor, I guess that you're comparing us to, probably has the same situation. You know, like not everything, but as well on every state in this business. So I can see what people are trying to do. You're trying to triangulate between the gap of, you know, a small decrease in order insurance to what the increase can be. And how does that translate into the increase in valuation multiple appropriate thing? We're focused on it as well.
Martin: Good.
Martin: And a couple of things first I don't think we'll ever be at 100%.
Speaker Change: But I also think that the high growth competitors that your competitor I guess is you're comparing us to.
Speaker Change: It probably has the same situation you know like not every not everything goes well in every state in this business. So I can see what people are trying to you're trying to triangulate between the gap of small decrease in auto insurance to whats the increase going to be and how does that translate into the increase in valuation multiple appropriate thing.
Speaker Change: We're focused on that as well I would just say that the gap between the.
Tom: I would just say that the gap between the current growth and what potential is, is probably narrower than the gap that between the valuation. Like our valuation multiple could be substantially higher, even with small moves in the growth rate. You have to decide what you think that's worth and whether you want to pay for it or not. But I think that focusing, it's not going to be a one-to-one thing, and it's not all going to happen at the same time. But, you know, we're confident we can grow like we know how to run this business.
Speaker Change: Current growth and what potentially is.
Speaker Change: It's probably a narrower than the gap there between the valuation like our valuation multiple could be substantially higher even with small moves in the growth rate you have to decide what you think thats worth and what whether you want to pay for it or not.
Speaker Change: But I think that.
Speaker Change: Focusing its not going to be a one to one thing and it's not all going to happen at the same time, but we're confident we can grow like we know how to run this business.
Unknown Executive: James.
Unknown Executive: Great. Thank you.
Speaker Change: Great. Thank you.
Ann: Thank you Ann.
Vikram Gandhi: And our next question comes from the line of Vikram Gandhi from HSBC. Your question, please. Vikram, you might have your phone on mute. We're still not hearing you.
Speaker Change: Our next question comes from the line of Vikram Gandhi from HSBC. Your question. Please.
Speaker Change: Vikram you might have your phone on mute.
Speaker Change: We're still not hearing you would you like to proceed.
Charlie Lee: Why don't we go to the next question? I heard next question, then comes from the line of Charlie Lee, from City.
Speaker Change: Yeah, why don't we go to the next question.
Speaker Change: [laughter] Alright next question then comes from the line of Charlie due from Citi. Your question. Please.
Your question, please. Hey, can you talk about the new issue to app mix on slide eight? I guess, how does your customer appetite differ across channels as you open things back up? And how do you see that impacting your margins given direct tends to have a higher upfront expense ratio, as I understand it? First, I would say we want all customers, all all all locations, or most locations, but all wrist levels.
Speaker Change: Hey.
Charlie due: Can you talk about the new issued App mix on slide eight I guess, how how does your customer appetite.
Charlie due: Differ across channels as you open things back up and how do you see that impacting your margins given.
Speaker Change: Direct tends to have a higher upfront expense ratio as I understand it.
Speaker Change: First I would say we want to all customers.
Mario: <unk> of all locations are most locations, but our risk levels Mario do you want to talk about maybe.
Mario, do you want to talk about maybe, especially, you know, non-general, not standard standard? Yeah, Charlie, I'd say, you know, from a channel perspective, like in the Allstate brand, we have differentiated pricing between agency and direct, so we have the ability to do that, to match the cost of doing business in the channel with the price that we charge. In terms of underwriting risk appetite, you know, we write in standard and prefer it across the entirety of the risk segment, and if we have the right price, in the agent channel, we'll write it in the agent channel, and we'll also write it in direct.
Speaker Change: Specialists non general.
Speaker Change: Standards standards, Yes, Charlie I'd say from a channel perspective like in the Allstate brand, we have differentiated pricing between agency indirect. So we have a we have the ability to do that to match the cost of doing business in the channel with the price that we charge.
Speaker Change: In terms of underwriting risk appetite, we write in standard and preferred across the entirety of the risk.
Speaker Change: And if it if we would have the right price.
Speaker Change: In the agent channel, we are writing in the agent channel and we're also rated into indirect so theres very few exceptions in terms of.
So there's very few exceptions in terms of different underwriting standards across channels. In terms of brands, the one risk segment that, you know, I think is new in the sense of it, we acquired it when we acquired National General, is the non-standard auto business, which historically Allstate really didn't participate in in a meaningful way. That's a very well-run business. That's the lion share currently of the non-standard auto premium, generating really strong growth, you know, just under 12% with really strong profitability. And the one thing I'd say on that segment of business, there tend to be a lot of shoppers in that segment.
Speaker Change: Different underwriting standards across channels.
Speaker Change: In terms of brands. The one risk segment that I think is new in the sense of it is we acquired it when we acquired National General is the non standard auto business, which historically allstate really didn't participate in in a meaningful way.
Jenna: That's a very well run business, that's the lion's share currently of the non standard auto premium Jenna.
Speaker Change: Generating really strong growth unit growth of just under 12% with really strong profitability.
Speaker Change: And the one thing I'd say on that segment of business there.
Speaker Change: There tend to be a lot of shoppers in that segment. So you can turn growth on an off a lot more rapidly in.
So you can turn growth on and a lot more rapidly. You tend to be able to reprice the book pretty quickly because the retention is lower. And I think that's become a real growth lever for us. As you can see in our numbers, we've been able to grow that business, grow it profitably, because we now have the right capabilities to write in that segment, which we didn't have when we started transformative growth. So, but we're, as Tom mentioned, we're positioned to write across channels, across brand, and equally importantly, across risk segments, you know, through National General in non-standard auto.
Speaker Change: You tend to be able to reprice the books pretty quickly because the retention is lower.
Speaker Change: And I think that's become a real growth lever for us as you can see in our numbers, we've been able to grow that business grow it profitably because we now have the right capabilities to write in that segment, which we didn't have when we started transformative growth so but we're as Tom mentioned, we're positioned to write across channel.
Tom: Our cross brand and equally importantly across risk segments.
Tom: Through National General and non standard auto, but now as I've talked about customer 360 in rolling out <unk>.
But now, as I've talked about, custom 360 enrolling out, middle market standard preferred and homeowner product, we can go up market in the independent agent channel as well. But we're positioned to write across the entirety of the business. of the system.
Tom: Middle market standard preferred and homeowner product, we can go upmarket in the independent agent channel as well, but we're positioned to right across the entirety.
Tom: Of the system.
Okay, thank you all for spending your time with us as we move forward. We will keep doing what we do well, which is serve our customers. We're going to work on accelerating our growth and profitability business, making sure we're proactively investing.
Speaker Change: Okay. Thank you all for spending the time with us to move forward, we will keep doing what we do well which is serve our customers.
Speaker Change: And it worked out and accelerating our growth in the property liability business, making sure. We're proactively investing in we didn't have spent a lot of time on that today, but we've had really great yourselves and your investment portfolio and then expanding our protection offerings.
We didn't have spent a lot of time on that today, but we've had really great results in our investment portfolio, and then expanding our protection offerings to great platforms like protection offerings. Thank you all.
Speaker Change: Great plan for it it's like protection. Please. Thank you I'll see you next quarter.
Operator: Thank you all. 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. Good day.
We'll see you next four.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: [music].
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Speaker Change: [music].
Speaker Change: [music].