Q4 2024 Earnings Call Transcript

And thank you for standing by. Welcome to The Allstate Corporation's third quarter earnings investor call. At this time, all participants are in a listen-only mode. To ask a question during this session, you'll need to press star one one on your phone.

If your question has been answered and you wish to remove yourself from the program, it is being recorded. And now I'd like to introduce your host for today's program, Alastair Gobin of investor relations. Please go ahead, sir.

Thank you, Jonathan. Good morning. Welcome to The Allstate Corporation's fourth quarter 2024 earnings conference call. Yesterday, following the close of the market, we issued our news release and investor supplement and posted related material on our website at allstateinvestors.com.

Our management team will provide perspective on our strategy and an update on results. After prepared remarks, we will have a question and answer session. 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 The Allstate Corporation'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.

Our 10-K for 2024 will be published later this month. And now, I'll turn it over to Tom.

Good morning. We appreciate you investing time at The Allstate Corporation. I'll start with an overview, and then Mario and Jess will go through the operating sales. Let's begin on slide two.

So as you know, Allstate's strategy has two components: increased personal property liability market share and then expand protection provided to customers, which is shown in the two o's on the left-hand side. On the right hand, you can see Allstate's strong performance in 2024 and the topics we're gonna cover this morning. Total revenues were $16.5 billion in the fourth quarter, up 11.3% compared to the prior year quarter. Allstate generated net income of $1.9 billion in the fourth quarter, and $4.6 billion for the full year.

Adjusted net income return on equity was 26.8%. Let me just repeat that, 26.8% over the last twelve months. Successful risk return management resulted in excellent underwriting and investment. Transformative growth has strengthened our competitive position.

We'll spend a few minutes on that today. The sale of our group health and employee voluntary benefits to companies with greater strategic alignment will generate $3.25 billion of expected proceeds representing attractive valuation multiples. Let's move on to slide three. That shows the operational execution produced excellent financial results in the quarter and for the full year.

Revenues increased to $64.1 billion in 2024. Property liability earned premiums were up 10.6% in the quarter and 11.2% for the full year. Net investment income was up 37.9% about the prior year.

And up almost 25% for the full year. Income was $1.9 billion in the quarter and $4.6 billion for the full year. Adjusted net income, which, you know, we make a few changes on amortization of intangibles, things we just can walk you through. The amount was $7.67 per share for the fourth quarter.

On the lower right, you can see the adjusted net income return to that equity was 26.8%. So 2024 was an excellent year for Allstate both financially and strategically. Let's move on and talk strategically about transformative growth at slide four. We launched this project in December of 2019. So five years have gone by, so that'd be a good time to give you a five-year look as to where we are.

And as you know, there's five components at the plan to increase market share and property liability, two of which we'll cover today. Improving customer value requires us to lower our cost and provide differentiated products. As you can see on the right-hand side, the adjusted expense ratio, which excludes advertising cost, has improved almost five points since 2019 by eliminating work outsourcing and digitizing activity using less real estate and lowering distribution. That's just lower cost enable us to offer more competitive prices.

Without impacting margins. Substantial progress has also been made in introducing products. New products. So affordable simple connected auto insurance is now in thirty-one states.

And the new homeowners product is in four states. Differentiated custom three sixty middle market standard and preferred auto and homeowners price have also been introduced to the independent agent channel in thirty states. One of the most significant changes is the expansion of customer access to improve growth. So this effort has three components.

Improve Allstate agent productivity, expand direct sales, and increase independent agent distribution, all of which have been successful. Allstate agency productivity has increased. Enhancement to direct capabilities, lower pricing, and increased advertising is attracting more self-directed customers. The National General acquisition significantly expanded our presence in and capabilities in the independent agent channel.

As you can see on the right, in 2019, more than three out of four new business policies came from the Allstate agent. Last year, new business was 9.7 million items. Seventy-six percent higher than 2019, significant contributions from each channel. Policies in force have increased from thirty to set from the two thirty-seven point three million despite the negative impact of those pandemic price increases.

Transformative growth has positioned us for personal profit liability, market share growth, you'll hear more about from Mario. So now let me move on to Mario on property liability.

Thanks, Tom. Let's turn to slide five. At the top of the table, you can see fourth quarter property liability underwriting income of $1.8 billion improved by $507 million compared to the prior year. Auto insurance generated $603 million of underwriting income, an improvement of $510 million compared to the prior year quarter and reflecting the successful execution of the profit improvement plan.

Homeowners insurance underwriting income was also strong at $1.1 billion. This was $99 million lower than the prior year quarter due to increased catastrophe losses. The bottom half of the table, you see the strong margins delivered during the quarter. With the total property liability recorded combined ratio of 86.9 reflecting a 2.6 point improvement compared to the prior year.

Auto and homeowner combined ratios in the quarter were both better than the targets for those businesses of mid-nineties for auto and low nineties for homeowners. Now we'll expand on the auto insurance margins on slide six. We you can see how successful execution of the auto profit improvement plan has restored profitability back to target levels. The fourth quarter auto insurance recorded combined ratio of 93.5 was 5.4 points below prior year quarter as average earned premium outpaced loss cost.

As a reminder, we regularly review claims severity expectations throughout the year. If the expected severity for the current year changes, we record the year to date impact in the current quarter even though a portion of that impact is attributable to previous quarters. For 2022 through 2024, the bars in the graph 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. The table at the bottom of the graph shows actual reported combined ratios.

In the fourth quarter of 2024, the full year claims severity estimate went down there was a benefit from prior quarters included in the fourth quarter's reported results. This benefit was worth 1.5 points in the fourth quarter with the adjusted quarterly combined ratio of 95 shown in the furthest bar to the right. Let's turn to slide seven where you can see that homeowners insurance produced attractive returns and group policies in force in 2024. With an industry leading product, advanced pricing, underwriting, and analytics, broad distribution capabilities, and a comprehensive reinsurance program we will continue to win the homeowner's business.

On the left, you can see some of the key factors that contributed to strong results. Including increased written premium of 15.3% in the fourth quarter compared to prior year. Reflecting higher average gross written premium per policy and policy enforced growth of 2.4%. For the full year 2024, the homeowners insurance business recorded a combined ratio of 90.1 in line with our low nineties target, while generating total underwriting profit of $1.3 billion.

So the combined ratio for 2024 improved by 16.7 points primarily driven by lower catastrophe losses and strong underlying loss performance. The chart on the right shows Allstate's strong track record of profitability in homeowners insurance. Allstate produced a recorded combined ratio of 92 over the past ten years which compares favorably to the industry which experienced an underwriting loss a combined ratio of 103 over that same time period. Now let's go to a homeowner pertinent topic on slide eight.

And discuss the California wildfires. So Allstate responded quickly empathetically to help customers and communities after the tragic wildfires in Southern California. Deployed mobile claim centers and over nine hundred team members to assist customers. Helping our customers recover from the fires, is our principal priority.

The financial impact of the wildfires reflects the comprehensive risk and return approach we've taken to managing the homeowners insurance business. Allstate made the decision to reduce California exposure beginning in 2007. Our homeowners market share has been reduced by over fifty percent since that time, as you can see on the chart on the left. While it is early and we have not been able to adjust many claims, current gross losses are estimated at $2 billion which includes loss adjustment expenses, and an estimated California fair plan assessment. Reinsurance recoveries of $900 million net of reinstatement premiums would reduce the net loss to $1.1 billion which will be reflected in first quarter 2025 earnings.

Each additional $100 million in gross losses above our current estimate would result in $10 million of net losses since we are above the reinsurance attachment point of $1 billion. We will continue to monitor the development of this event and provide any updates with our January catastrophe release which we'll make on February twentieth. Looking forward, let's discuss policy and force trends in the property liability business on slide nine. The chart to the left shows the composition of property liabilities thirty-seven point five million policies in force.

Auto is the largest at twenty-four point nine million. Homeowners represents approximately twenty percent of policies enforced. As you can see on the right side of the page, auto insurance policies in force declined by 1.4%. A decline in customer retention particularly in states with large recent rate increases more than offset a nearly thirty percent increase in new business applications in the quarter.

Auto policies enforced did increase in thirty-one states representing approximately sixty percent of countrywide written premium on a year over year basis.

In the middle column on the right, you can see that homeowners insurance policy is enforced increased by one hundred and seventy-three thousand or 2.4% driven by strong retention and a 20.5% increase in new business. We view homeowners as a growth opportunity across all distribution channels. Our objective in 2025 is to grow property liability policy and continuing strong new business sales. We are proactively contacting customers to lower the cost of protection to increase retention.

Completing the rollout of affordable simple, and connected auto and homeowners products will also enable growth. In addition to improving the customer experience, these products contain our most sophisticated rating plans and telematics offerings. Which will deliver profitable growth and position us to compete effectively in a market where more carriers are looking to grow. We will also continue to invest in marketing and leverage broad distribution to grow property liability market share.

To provide transparency to investors on our progress on growth, monthly disclosure of policies in force will be provided beginning with our next monthly release in a couple of weeks. Now I'll turn it over to Jess.

Alright. Thank you, Mario. Slide ten provides insights on performance and asset allocation. By taking a proactive approach to portfolio management, Allstate optimizes return for you to the risk across the enterprise.

This disciplined approach includes comprehensive monitoring of economic conditions, market opportunities, interest rates, and credit spreads. The chart on the left shows a quarterly trend of net investment income our fixed income earned yield. Market based income of $727 million, which is shown in blue, was $123 million above the prior year quarter, reflecting a higher fixed income yield and increased assets under management. Fixed income yields shown below the chart has steadily increased as we repositioned into higher yielding longer duration assets.

Increasing forty basis points from point zero percent to 4.4% over the past year. Performance based income of $167 million shown in black was $107 million above the prior year quarter where reflecting higher private equity and real estate investment results. We've mentioned previously, our performance based portfolio is intended to provide long term value creation and volatility on these assets from quarter to quarter is expected. Pie chart on the right shows our asset allocation as of year end 2024. As you can see, our portfolio is largely comprised of high quality, liquid, interest bearing assets.

Public equity holdings were increased by $2.4 billion in the fourth quarter and now comprised $3.3 billion or approximately 5% of the total portfolio. Fixed income duration was 5.3 years, which is in line with prior year quarter and up from 4.8 years at the end of last year. Let's turn to slide eleven and discuss protection plans business which is a key component of protection services and advance our strategy to expand protection while generating profitable growth.

Protection plans offers protection that prepares or replaces a wide range of consumer products, including electronics, computers and tablets, TVs, mobile phones, major appliances, and furniture that are either damaged or broken. The products are distributed through strong retail relationships. Revenues of $528 million in the fourth quarter grew 20.3% prior year, driven by both domestic and international expansion. Profitable growth resulted in adjusted net income for the quarter of $37 million, which is consistent with the prior year quarter, and an increase for the full year of $40 million to $157 million reflecting the benefit of higher revenues and claims cost improvements.

The business has profitably grown to approximately 160 million policies adding 60 million since 2019 through broad distribution and protection offerings as well as geographic expansion. Additionally, revenue has increased to nearly $2 billion in 2024, reflecting 23.9% in annual compounded growth since 2019 while generating more than three quarters of a billion dollars in adjusted net income 2019 to 2024 as growth offsets expansion investments. We continue to invest in this driving business as evidenced by the recent acquisition of Kingfisher, which enhances our mobile phone protection capabilities.

I would like to transition slide twelve into discuss how the sale of the employer voluntary benefits and group health businesses create shareholder value. As a reminder, the decision to pursue the sale of health and benefit was based on the assumption that these businesses would have greater strategic value to other companies and selling them would maximize shareholder value. The transactions we've announced support this assumption. In August, we agreed to sell the employer voluntary benefits business to Stancorp Financial for $2 billion.

We expect to close that in the first half of 2025. Last week, we marked another major milestone with our agreement to sell the group health business to Nationwide for $1.25 billion which we expect to close sometime in 2025. Both of these transactions are economically and financially attractive for our shareholders, The combined proceeds of these sales are $3.25 billion with an expected book gain of approximately $1 billion. Using trailing twelve months adjusted net income, the combined estimated impact of the transactions on adjusted net income return on equity then a decrease of about 180 basis points due to lower income and higher equity resulting from the gains on sale.

As a reminder, the Group Health business is part of National General, which we acquired in January of 2021 for $4 billion. The proceeds from this divestiture combined with about a billion dollars in dividends that we received from National General statutory legal entities represents a return of more than half of the original purchase price while the sides with the National General Property Liability business approximately doubled. Touching briefly on the results of health and benefits for the quarter. Premium and contract charges for the segment increased 3.2% or $15 million compared to the prior year quarter, Individual and group health business saw strong growth with premiums and contract charges up 8% and 9.8% respectively.

This growth was partially offset by a modest decrease in employer voluntary benefits. Adjusted net income for the segment of $35 million in the third quarter was $25 million lower than the prior year quarter as increased benefit utilization across all three businesses impacted profitability. Underwriting and rate actions are being taken to quickly address benefit ratio trends and restore margins to historical levels. Options for the individual health business, which has adjusted an income of $30 million for 2024, are being evaluated and the business will either be retained or combined with another company.

Let's close on slide thirteen by reviewing Allstate's strategy to create shareholder value. As you can see on this page, we create value by delivering attractive financial returns executing transformative growth to increase property liability market share, expanding protection offerings, completing the sales of employee voluntary benefits and group health businesses. So with that context, I'd like to open up the line for your questions.

Certainly. And our first question for today comes from the line of Rob Cox from Goldman Sachs. Your question, please?

Hi. Good morning. Thanks for taking my question. So first question for you, I had on advertising.

I think you all had previously said that you were pretty comfortable with the 3Q 2024 level of advertising spend. Was hoping you could talk about the decision to ramp it up here in the fourth quarter. And I'm curious, what your measures of ad spend efficiency are telling you in the current environment, and how does that compare to history?

So, Rob, we're comfortable with our advertised spending. We adjusted obviously, by quarter to point out, and it also depends which markets we're after. Sometimes we do some heavy up tests in particular months to see what the sense is. I can assure you we have state of the art analytics on that.

It's everything every kind of lead we bid on leads automatically. We just to make sure we were good last year, we had a number of outside people come in and look at our analytics. And we appear to be at least contemporary, if not industry leading. Now, you know, some of these are people you're buying ads from, they're not gonna come tell you stupid.

But when we look at it in total, we think we're really good at it. And we have all kinds of allowable acquisition cost measures that look at everything from quote to close ratios to lifetime value.

Got it. Thank you. Secondly, I wanted to ask a question on the comment in the press release about expecting growth in total property liability PIF in 2025. You know, we've been thinking that you could certainly grow PIF in both home and auto in 2025. Is there any reason why you would be hesitant to commit to growing in both of the segments, or am I looking too deeply into that statement? Let me make a comment and then turn it over to Mario.

So first, as you know, we don't give forward-looking projections on PIF growth. So what we've said to help bring some clarity to it is we're just gonna give you the numbers every month like we do with cats, and you can decide what you wanna do with that. We're obviously already growing at home, and we have plans we talked a little bit in the press release on where we're growing at auto. But in total, we're not growing in auto.

So Mario is working on that. Mario, you wanna talk about what you got going?

Yeah. Thanks for the question, Rob. Look, I'd say look, the objective of transformative growth is to grow policies in force and gain market share in the property liability business. That's our goal.

That's our objective. Having said that, as Tom mentioned, we're currently growing the homeowners business. We think there's a real opportunity in the market. We're gonna continue to lean in on that one.

A, because we've got really strong capabilities. B, there's disruption in the market that we can take advantage of, and we like the prospects of continuing to grow homeowners. On the auto side, we think despite the fact that policies are declining, we're really well positioned to lean into growth going forward for a variety of reasons. I think the first is, you've seen the new business momentum build over the course of 2024. In part due to your first question, our advertising investment that we've increased throughout the year, but we've also been doing things like unwinding underwriting restrictions and looking to accelerate growth across all distribution channels.

We're gonna continue to fully leverage our broad distribution capabilities alongside that marketing investment continue to roll out new affordable, simple, and connected product. We are currently in thirty-one states. We'll continue to expand that. Over the course of this year.

That has our most sophisticated pricing our most contemporary telematics offerings included in that. We're gonna continue to leverage capabilities on the Allstate side. International General just talked about the growth that we've seen in National General. We're gonna leverage middle market capabilities in Allstate to grow National General in a part of the market that they have less penetration in.

We're also gonna use National General's capabilities in the nonstandard auto space and leverage the Allstate brand to begin to accelerate growth in that space. So we've got a lot of things that we've both been doing and expect to do in 2025 to accelerate growth and, really, that was the genesis of the statement. Oh, yeah. One last point I should have brought up is retention.

Yeah. Everything I talked about was on the new business side. You know, we've seen the adverse impact of retention as we've been having to raise prices over the last couple of years. To improve margins.

The good news is auto margins are back where we would want them to be in the mid-nineties range. The downside of that is, retention. Has taken a hit. Some of that will come back as we are less active in taking prices going forward because of where margin sits.

But additionally, and more importantly, we're gonna proactively lean into reaching out to customers, helping them save money, by making sure they're getting all the appropriate discounts, they've got the right coverage levels that meet their specific needs, and the objective there is to improve affordability, improve customer satisfaction, and retention and that will be added into our growth trends.

Very much for the answers.

Thank you. And our next question comes from the line of Gregory Peters from Raymond James. Your question, please.

Good morning, everyone. So for my first question, feedback on the last answer there, Mario. And you know, you said on slide nine here for the auto policies, you said that you're proactively contacting existing customers. You mentioned that in your answer.

Can you give us an updated perspective on how you think your pricing is on a competitive positioning basis versus your peer group and as you shift gears and proactively contact existing customers, does that mean that there's gonna be some sort of corresponding adjustment in agent compensation that's gonna give more weighting to retention versus just flat out new sales?

Right. Let me the pricing was complicated, so I'm gonna let Mario do that one. But I would make one point on the retention part. I think having branded agents who work exclusively with you is the best channel to be able to do what we're talking about.

So, you know, we've raised some people's prices thirty, forty percent. We had to do it quickly because we're losing money. Now we can go back in and help them get the absolute right coverage. That could be deductibles.

It could be coverage limits. It could be using telematics. It could be paying differently. So there's lots of different ways we can help them do that.

And that would be very difficult to do in through an independent agent channel. It would be harder to do with a direct channel because you don't have the skills and capabilities built in your call centers necessarily do that. Our agents the Allstate agents are used to doing this all the time. They certainly did it when we were raising rates.

But now Mario has a new program going on, which is a safe program to which has specific goals, numbers. We are not planning on changing agent comp. Margaret, do you wanna talk about competitive position in?

Yes. Thanks, Greg. The and competitive position, I'd say a couple of things. First, when you look at the ramp up in new business over the course of the year, and, you know, we made a comment that we're growing in thirty-one states currently.

I think that's indicative of having competitive prices and being able to, you know, fully leverage the marketing investment that we're making. It is a complicated question. It's hard to answer it on a national basis because, obviously, we compete market by market, state by state, and we're constantly looking at our competitive position and making tweaks to, you know, the tiers within our pricing plan to adjust prices when we think it's appropriate to adjust prices. Good news is, you know, we've achieved target margins.

So we're comfortable with where our rate level is currently. And we would expect that we would need to take less price going forward. But when you look at our new business trends, we feel good about competitive prices. We've taken a lot of cost out of the system over the past several years, as Tom mentioned earlier, which is helpful.

We're gonna continue to pull that lever going forward. But we think we're priced competitively and we have the broad distribution capabilities to continue to grow in the auto space. The only other point I'd make on your second question about the proactively contacting customers and agency compensation a meaningful portion of the agent compensation currently relates to renewal. So they've got a strong economic vested interest in retaining as many customers as they possibly can.

And as Tom mentioned, they've been doing that. This is a way through the same program where we're gonna really scale it and do it much more broadly. To help drive retention proactively versus just relying on less instability in the market from rate increases.

Thanks for that information. Tom, in as my follow-up question, Tom, in your opening comments, when you were going through the information on slide two, you emphasized the ROE of 26.8%, which I could believe is one of the best results I've seen from your company in recent history. Can you provide some view of how you are thinking about the ROE going forward and maybe what the board how the board's viewing it. I guess the reason why I'm asking is, you know, you've disposed of some underperforming assets, you know, over the last decade, and it feels like there's just a natural migration that the ROE objectives for the organization can be moving up certainly this result for last year sort of puts an explanation point on that.

Good question, Greg. And with longitudinal perspective on it. So as you remember, I don't remember how many years ago it was. At one time, we put out a target of fourteen to seventeen percent.

But I would say that was a different company and a different time. It was a different company and that we had a life business. It was a different time and that interest rates were a lot lower. People were thinking it was low for bond.

Since then, of course, as you point out, we've made a bunch of changes. We've sold the life business. We bought back a substantial amount of stock, which takes some of our investment earnings down. Our premiums are up substantially.

Not just because we've grown total policies, but also because there's just higher cost per policy which I think the market isn't really affected and that that includes requires more capital. So when you look all through it, we feel really good about where we're at. When we put that fourteen to seventeen percent out there, it was really because investors were not sure given the time and given the nature of the company where our returns would be and would they be acceptable. We never said it was capped.

And so, obviously, now we're doing better than that. I would say the most important thing for us to do now is to increase growth. So increasing returns won't drive that much more shareholder value. What will drive more shareholder value is growth.

And we've obviously growing and are growing a bunch of our other businesses. So whether that's our homeowners business, whether that's for growing premiums, which people kind of get all focused in on auto pay, and AutoPIP is important, and we're gonna grow AutoPIP. But when you look at just growth in premiums, you know, we're up double digit single low low teens percent depending which measure you wanna look at last year. So we feel good about overall growth think and the key to unlocking the value we've already created through growth is to get auto unit growth up.

Got it. Thanks for the answers.

Thank you. And our next question comes from the line of Michael Zaremski from BMO. Your question please.

Hey. Thanks. Good morning. And my first question is on the expense ratio and kudos to to kinda, you know, lowering it over time and and meeting your goal.

Curious. I think in the in the past, Tom, recent past, you said that you have plans to to improve it even further. Maybe I'm maybe that's the expense ratio x add expense. If that's the case, are you able to kind of elaborate on what the building blocks are going forward to to to continue the improvements.

So yeah. So the answer is yes. We always expect to keep reducing expenses, and we think we have an opportunity to even lower them farther from where they are now. We're not done.

I would say, you know, maybe we're sixty percent of the way done. And, you know, and I but I wouldn't, like, take that and multiply that by some percentage change because part of that percentage change just to be completely transparent is because premiums have gone up faster than general inflation. So you kinda can't count can't count that as as much. So we are constantly work I think the where is we're after will be digitization.

Leveraging the new technology platform we built the affordable simple connected is all designed around doing that increasing our marketing effectiveness. So even though we carve marketing out from that number, that doesn't mean, like, we're just gonna spend wild on marketing. It needs to have the same level of precision and to it that everything else does. And we also still need to lower distribution cost.

You know, the distribution costs are still higher than we would like them to be, so we have work to do there as well.

Great. And my final follow-up is just more high level on the devastating tragedy in California. I know it's kinda still a fluid situation, but I think a few of your competitors have, you know, expressed as a vet they might need to retrench even more in California given the payback the potential payback on the losses are going to be many, many, many years. Curious if you think this could cause Allstate to also rethink its ambitions of growing or or just just overall growth in in California might might My My a different direction.

Thanks.

Well, every state's different. We don't have any growth aspirations in homeowners in California at this point. And we haven't since 2007, really. We had a small window in there where we thought we had some arrangements where it would make sense for us to grow, that didn't turn out to be the case.

So we had turned off the spigot for new customers. We didn't go nav for new people, but we just said we're not gonna take add new customers. Starting in 2007. Then in about 2017, eighteen, I'm looking at my here. Yeah.

We said, you know, we think we can take on a few new customers to That didn't turn out to be true, so we stopped that then in 2022. But we've been at this a long time. And so we don't have any growth aspirations in California right now. That said, we're really good at homeowners. We make more than half of the industry's profits.

We've got a good business model. We think it's a great growth opportunity. And it doesn't have to be the way it is in California. So Texas has just as many types and dollar amount of losses as California does, yet the homeowners market works there.

And so we believe that there's a way to make that work. We'd like to work with a state to make it work because people want to insure their homes. They need to ensure their homes. And we just need to make sure it's done on a basis that is fair to consumers, but also gives our shareholders an appropriate return for the risk.

So example, we don't wanna have to do things like in California. Mario talked about the numbers. We have a substantial amount of reinsurance recoveries. We're a cost plus business.

We did not the cost for that reinsurance that we just now got back to with lower losses. Which means that, you know, we need to have a structure. The departments talked about that. They're open to that.

So I would say that these things you know, they happen over a long time, and it takes a while for them to get. So I don't think anything's gonna change in the next you know, it's not like in twelve months. Everybody's gonna be rushing into California to write homeowners. It just doesn't happen that fast.

Thank you.

Thank you. And our next question comes from the line of Christian Getzoff from Wells Fargo. Your question, please.

Hi. Good morning. My first question is on retention. I didn't see any retention numbers in the press release for supplements.

I was wondering if you could provide that. And then you say the majority of the headwinds on retention just from, like, know you guys called out Esurance migration and then the New York, California, New Jersey rate hikes. Are those is the majority of that headwind paid it by now, or do you expect some further headwinds kind of in the first half?

I'll make a couple comments then, Jess. May wanna comment. So at first, we've paid a lot of attention to attention in it. In more granularity than you just even mentioned, whether it's this book of business, this state, his risk cover, his whatever, you know, his price changes.

We're like, we're all over retention. Just made the decision that rather than give you the components which are complicated and we spend a bunch of time helping you spend a bunch of time trying to figure out retention on this much and how much policy too. Just just so why don't I just give you the numbers? I'll just give you the fifth numbers every month.

You'll know what the numbers are. You don't have to get caught up into what's your projections on new business, what's your projection on retention, presurience policy. So the our goal was to increase transparency and give you more information you can use to make your investment in recommendation decisions rather than less into an So that that's what we've set out to do. Maybe Jess or Mario, you guys wanna talk about the retention and how you're feeling about it and other ways to measure it.

Maybe I'll just touch on this round out the disclosure, and then, Mario, you can talk about your thoughts. You know, I think the other thing, you know, to keep in mind is, as Tom mentioned, we gave you component a component. We didn't even give you all of the components. We believe by giving you tip on a monthly basis, you'll have more transparency.

Recall, what we gave you was Allstate brand, gift or Allstate brand retention rather. So it was a piece of the puzzle and we spent a lot of time explaining movements between brands which we wanted to move away from. So I really believe that that what we're giving you now on a monthly basis will be much clearer and actually, you know, reduce a lot of the complication that came from our disclosure. And as Tom said, put you in a better position to understand new business and retention trends and frankly with the total policy in force trend is.

So it was definitely a move to increase transparency by taking away and really completing that move away from brand to line of business and distribution channel.

Yeah. The only thing I'd add on on retention, I think it's important to take a step back and look at what we've really been saying over the last several years, which our principal focus would say, you know, heading into 2024, was to improve auto margins. I think we were pretty clear on that. That was our principal priority.

We had to take prices up a lot to do that over forty percent when you look over the past several years. The good news is, you know, margins are back to where we want them to be and where they need to be. And as from a new business perspective, as best kind of played out, you've seen us kind of lean back into the market and really accelerate new business growth over the course of last year. The downside to that approach and that strategy with retention as you mentioned, which has stabilized in a number of states as we've cycled through what we needed to do to improve profitability.

But as we talked about before, there were a handful states that were a little later to the game in terms of getting margins back to where they needed to be. We talked extensively about California, New York, New Jersey, The good news is we've been making good progress in those three states. We've been making it by implementing some pretty meaningful rate increases. That is having a drag on retention as we cycle our way through that.

We should see that stabilize. I will say though, New York and New Jersey, we still got some work to do. We're our margins are better, but they're not where we'd like them to be. We're gonna continue to pursue rate in those states.

But we, you know, believe we can overcome that. Because we got a lot of growth opportunity in the rest of the country.

Gotcha. Thank you. And going back to the California wild losses, I know you provided a $2 billion gross s You provided some sensitivity, but what are you assuming in terms of the industry losses so we could, like, flex that sensitivity up or down depending on how the losses develop.

Yeah. Look. And the this is Mario. The way I'd answer that question is, obviously, there's a lot of moving parts in in our estimate.

We know our data with a lot of specificity because we have that. We've made assumptions around a fair plan assessment just given the, you know, the the the magnitude of the of the losses we've seen and also when you when you look at the fare plan surplus level as of the end of the third quarter, their reinsurance and their co participation in that, we think it's pretty likely that they're gonna you know, kind of exceed their their surplus levels and there will likely be an assessment. We've got that in there. And we you know, our our our number includes a view of what the industry loss is.

I really don't wanna to kind of disclose what our view on that is, but there's I will say we've made certain assumptions to come up with our number both in terms of ourselves and the fair plan. We'll keep looking at those because it's a pretty fluid process and we'll update it as we get more information. If we need to update.

So here's if you want a sensitivity. For every hundred million, it's ten million bucks. So for every five percent or often total, it costs us ten million dollars. So if we're off by fifty percent, so it's another billion dollars, it costs us a hundred million. Right? So the I don't think you need to worry about sensitivity on the gross loss.

Thank you.

Thank you. And our next question comes from the line of Timmy Peller from JPMorgan. Your question please.

Hey. Good morning. I had a question first on just the auto business. You mentioned PIF turning positive in thirty-one states, I think.

And I'm assuming what's unique about those states is just the fact that you're not raising prices as much. And advertising more. So if that is true, then could you talk about of the remaining that you're not growing in, should that begin, happen throughout the year gradually, or is there more of a cliff event? Some point later in the year?

When you will lap those comps and you're not gonna be raising prices just to sort of be able to assess when those stocks, states will begin to show better growth.

Timmy, I'll let Mario talk about the pace, but I don't think he's gonna give you an answer by quarter. Alright. I got it. It's more complicated though than just those two factors.

Alright? So it's not just, are we not taking price? And how much are we advertising is what's everybody else doing? What kind of coverage are we offering, where are we with our ASC roll out, where are we with our custom three c.

So it's a really complicated machine that Mario's running. And but the goal is sometimes attribution helps explain why you are you're on Sometimes attribution leads to excuses. And we're not interested in excuses. We're interested in results, which grows.

So Mario can talk about how these thinking about that maybe you wanna talk about both the impact of retention and the impact of new business over the course there, but we can't give you, obviously, a per quarter PIP number. Just watch for Jess's monthly number.

Yeah. Timmy, thanks for the question. Look, at lower where I'd say is like, we wanna grow in every state where it makes economic sense for us to grow and where we believe we can grow profitably. That happens to be thirty-one states now.

We think the opportunity is beyond that level. And as Tom mentioned, there's a lot of components that factor into our ability to grow price is part of it, competitive position, and where our price hits relative to competition. The growth investments we're making, our risk appetite, there's a lot of factors that play into that. Retention is a key component of our ability to grow.

Right? So what you saw in total this year was we had really good new business trends, and in the quarter, they kind of peaked in 2024. At almost thirty percent. Yet despite that, our units declined year over year. Because of the drag of retention.

So we're focused through the same program on not just waiting for retention to bounce back because of less rate disruption in the system, gonna proactively do things to work with customers help them save money, improve affordability, and drive retention up. We think doing that well alongside all the other things I mentioned earlier new product rollout, new technology, distribution, and continued investments in marketing and all the things that helped us drive new business volume. That's the key that will drive growth broadly, and that's the plan we're executing on.

And then maybe just following up on capital. Like, the business is obviously profitable now. I think you'll make money even with the California buyers. In one queue, and then you've got the money coming in through the sales of the benefits and the health business.

So how should we think And I'm assuming capital is not a constraint for growth given how much money you're gonna get from the sales, but should we think about capital deployment between growth, m and a, and share buybacks. And is it unreasonable to assume that you wouldn't be in the market buying back stock at some point assuming results come in as expected over the course of the CVA.

Timmy, if we consider proactive capital management to be a significant strength of Allstate. And it's added tremendous amounts of shareholder value. So and you're right. Share repurchase are obviously one of those.

And we've used that extensively. But would encourage you to hold us accountable as you started to mention on really a broader basis. Right? So there's organic growth, there's risk and return on economic capital, there's inorganic growth, and then there's capital structure, which includes the share repurchases.

And so let me just go through each of those. First, organic growth is a twofer. And based on the returns we're getting in our business today? It generates absolute dollar growth in earnings.

Secondly, with that higher growth rate and we should have a higher PE, because if you look at our price earnings ratio versus any other insurer, and you look at our top line growth, the average premium growth is getting discounted, and it's basically all hung on auto unicorns. You can start whether that's right or wrong, but we think that that the unlock of in deploying capital to grow the property liability business both in units and premiums is will drive growth. So we think that's really important. Marketing, we talked a lot about that this morning, so I don't wanna And We don't need to go back through that.

If you look at risk and return on economic capital, we have a really sophisticated way in just talked about this a lot within the last couple of years of how we manage capital, and associate a risk and return on that. That helps us do things like leverage our investment our investments, and that capability generates good returns. And I think it needs to be valued in its own right. It's but for example, the duration calls we made used additional economic capital.

We knew that. We decided on it. It was part of the enterprise decision, and it's clearly generated good returns. Same thing is true with the reinsurance in California.

We look at all those things economically. I think acquisitions also need to be assessed on the actual return on capital. So National in general and Square screen, both both both on the standpoint. When you look at National General, it's more than double its size on apples to apples basis from when we bought three years ago.

SquareTrade is substantially bigger as maybe ten times bigger and making a hundred and fifty million bucks a year when we paid a billion four four nine. Just when you look at what was the net cost of National General and SquareTrade?

Tell me, you take a look at you know, both of them, the net cost is about half of what we paid. So as I mentioned in my prepared remarks, we paid $4 billion for National General. When you add up the recently announced group health transaction, and the dividends we've been able to take out of the statutory entities which are about a billion dollars, we've reduced that purchase price by about $2.25 billion. So to $1.75 or less than half.

The same will be true if you look at SquareTrade in the $1.4 billion acquisition. Since owning it, we've taken about half that back in, dividends based on earnings. While also and this is important, investing in growth, doing acquisitions. So we've gotten about half of it back and still invested.

In growth on SquareTrade.

So and and then, of course, share repurchase is is an also thing, but you have to really look at how you manage your capital. Stack better. So for example, We issued a perpetual preferred stock. I don't remember how many years ago.

We we issued two billion of stock. We bought back two billion in common, swapped fixed equity cost and left all the remaining upside with our common equity. Today. Preferred just has a what's current cost on the preferred?

Oh, we have three different issuances, Tom. So we're our lowest is about 4.75% and then we have a tranche that was more recently issued at 7.375%. So we've got a range, but most of it the largest issuance actually is a 5.1%. Fixed for life.

So, you know, obviously, and it the math is not exactly right because you got gap, capital, and gap. But if you look at our returns, On equity, on just actual market equity, it's substantially above that. So that's a that's a good trade. The we also look obviously, look at dividends and everything else.

Share repurchases, we've done a lot of. And so so just you wanna just go through the numbers of what we've done on share repurchases. We have been a lot of time. So I took a look back and went all the way back to when Allstate went public.

Since going public, we've repurchased about $41.5 billion of our stock, and that represents about 83% of the outstanding shares. If you bring that time frame in a little bit, I have over the last ten years, the number is closer to $17.5 billion. And about half of the outstanding shares over the last ten years. Bringing in again five year period, $7.8 billion of repurchase is about 25% of our outstanding shares and in all cases, at an average cost, it's very attractive.

We even go through and look at the returns in all cases over any period, whether it's thirty years, five years, the return is significantly above our cost to cap. So we've had really good returns. And to your point, Tom, you know, buying back 83% since going publish public just shows our commitment to reverse.

Yeah. So, I mean, we've got plenty of things we do. And I would just you know, like, don't like, yes, share repurchases are important. I know it's a number of analysts wrote that up over the evening of, like, when you're gonna be back.

I'm like, you should hold us accountable for manager and capital to drive shareholder value. And if that means growing faster, and using our capital to grow faster, then holds accountable for that. If we if we have extra capital, we don't hold on to it. And we buy back stock because we think, you know, when you look at our our value relative to our growth potential, the size of our business, our our PE.

We still think it's cheap.

Yeah. Still better to get those questions and questions about adequacy of capital, I guess. So

And I thought those those were those were thoughts for sure.

Thank you.

Thank you. And our next question comes from the line of Bob Huang from Morgan Stanley. Your question please.

Yeah. Good morning. I'm gonna stay away from capital. So the first question is on auto.

And I mean, an investor astutely pointed out that on your first quarter 2024 slide, you talked about 64% of your total premiums were profitable. So fast forward today to today, then we're talking about about 60% of that premium is now growing. Is this fair to kind of make some type of causal correlation between the time you achieve profitability and the time that you you start to grow the business? In other words, is it fair to say that six to nine months from now, essentially, California, New York, New Jersey, they're only state you're unable to grow and everything else should be growing and that rather than the 60% of total premium is growing.

Probably call it eighty or ninety percent of it should be. Is that a fair way to think about this?

I think the construct is right. I don't know if I would automatically extrapolate that extrapolate that into the future. I mean, it is true when we were losing money, we shut down advertising, shut down growth, be intentionally, because we said there's really no sense going to get a bunch of new customers we're gonna have to raise their price by fifteen percent relatively quickly, and it maybe then lose them. So what's the point to spend the money to getting a new customer to lose a bunch of money on, and you know you're gonna lose money on.

So that is was true, and that's what we did. We also know that by driving that and going your crush we that it was going to her retention. And so now we're about so there it is a there are, you know, pieces you rolled in. I don't think you could automatically go to say, like, like, do an analysis of two line lines on a graph going up, and they would follow each you know, each sit each state's different, each position's different.

You know, if if if if Mario wish to get adequate prices in New York, tomorrow, we have a great agency plant there. We have we got pretty we got huge share down in the in the New York area. And we could really leverage it to grow fast. When that will happen, who knows?

So I think you should just hold us accountable for growing auto units, and I keep coming back to auto units is the unlocked A lot everything else is growing and it's like, so let's you know, it is it is an important part of our business. But we've got we got higher premiums, the reserve balances are up, the investment balances are up. That's all driving increase you know, protection plans is back in and out of the park. So we got lots of growth.

We are focused on the unlock of auto unit growth.

Got it. No. That's that's helpful. If I can just have a follow-up on that.

I I I don't know if you'll address this, so apologies if you did. The question is really around adverse selection. Right? As we go into 2025. More and more auto carriers are profitable, and more and more auto carriers are talking about growth.

Should we expect your current level of combined ratio to hold for auto as you head into a environment where everyone is looking for growth? Like, how do you feel about the the broader competitive environment as a whole?

Well, you're you're talking well, the auto market has obviously been competitive. And both Progressive, GEICO, State Farm, the big carriers that we compete with all the time have been out in the market and competitive this year. So people are advertising. It's it's last year, 2024. So it's not like it wasn't competitive and it's suddenly turning into competition.

We think we have the capabilities to compete and grow. I would say that's a different market in homeowners where most people are backing out. There is a secular trend there. Where we have an opportunity to grow, and as we look at capital, one of the things we like to do is get a higher valuation on our homeowners growth.

So when you look at our homeowner business and I said, jeez, if you have a business that's growing, you know, revenues in the mid-teens, it's it's picking up, not huge market share, but it's got you real unit growth. It's an industry leading model. It's earned money good money eleven out of twelve years. And and it has high returns on capital you probably wouldn't put it at the kind of PE that we have for our overall enterprise.

And I suspect that if you actually looked at analysts, they might even give it a lower p e than our total. So we need to figure out how to have that fully recognized in our valuation. And it might mean doing something differently in reinsurance and lowering the volatility of that line. But just know that our goal is to increase shareholder value.

Maybe we're close. I think we're in time. Our goal is to increase shareholder value, whether that's buy shares back grow, manage our capital structure differently, figure out how to compete differently, do more advertising. We're all about driving growth for shareholders.

We think we have the tools and capabilities to do that, and we have a track record that shows we know how to get. Got So 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.