Q3 2025 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to Allstate's Third Quarter Earnings Investor Call. [Operator Instructions] As a reminder, please be aware that this call is being recorded. And now I'd like to introduce your host for today's program, Allister Gobin, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone. Welcome to Allstate's Third Quarter 2025 Earnings Call. Yesterday, following the close of the market, we issued our news release and investor supplement, filed our 10-Q and posted related materials on our website at allstateinvestors.com. Today, our management team will discuss how Allstate is creating shareholder value.

Then, we will open the line for your questions. As noted on the first slide of the presentation, our discussion will include non-GAAP measures for which the reconciliations are provided in the news release and investor supplement. We will also make forward-looking statements about Allstate's operations. Actual results may differ materially from those statements, so please refer to our 2024 10-K and other public filings for more information on potential risks.

And now I'll turn it over to Tom.

Good morning. Thank you for investing time in Allstate today. Let's start with Slide 2. Allstate's strategy has 2 components, which are shown on the left, increased personal Property-Liability market share and expand protection provided to customers. Our strong operating results in the third quarter are shown on the right.

So revenues increased to $17.3 billion. Policies in force increased to $209.5 million as we broadened our protection offerings and grew the Property-Liability business. Net income was $3.7 billion. Adjusted net income was $3 billion or $11.17 per share, and that resulted from a number of things, strong Property-Liability results, modest catastrophe losses, higher investment income and favorable insurance releases or insurance reserve releases.

The return on equity for the last 12 months was 34.7%. The drivers behind these outstanding results include operational excellence, which is really good at protection. The transformative growth initiative is increasing profitable growth. Enterprise risk and return management for investments creates additional value.

And then all of that just generates substantial capital. So let's cover transformative growth and how that positions us for continued success. Turn to Slide 3. Transformative Growth is the initiative we started about 6 years ago, and it was designed to increase Property-Liability market share. And it has 5 components in 5 phases, and we're now in Phase 4, which is rolling out the new system.

The price protection is obviously critically important to customers, so we reduce costs so that we can provide more value without impacting margins. We've reduced the expense ratio by 6.7 points, but we're not done yet. To increase market share, we also need to expand customer access by broadening distribution beyond Allstate agents. This year, auto insurance new business is evenly split between Allstate agents, independent agents and direct from the company, and all 3 channels have increased, like we didn't get there by making one channel smaller.

Increasing customer value with new affordable and simple connection products has also been a driver of growth. And significant progress has also been improving customer service. So we've improved over 46 million customer interactions this year. And a high priority for us is to further expand the [SAVE] program for auto and home insurance customers, which has helped over 5 million customers reduce their premiums by more than 5%.

These 4 elements require increased sophistication and investment in customer acquisition, and we're really good at that and the new technology ecosystem. The new technology ecosystem enables us -- is going to enable us to use applied artificial intelligence, which is shown on Slide 4. This begins with generative AI, which helps improve the efficiency and effectiveness of operations. I'd like to describe this as the Keds sneakers commercial. If you might remember, it's run faster, jump higher, which is quite a good thing.

As you can see, there are many examples where that's adding value today. It's being used to simplify billing explanations for customers and reducing the number of billing inquiries. In the claims operation, all adjust for e-mails are generated or reviewed by AI. 15% of our coding is done by AI, and it's also being implemented and used in actuarial and financial work to reduce costs and accelerate our go-to-market strategies. The next frontier is at the top of the slide, which is Agentic AI, and that holds even greater promise.

It allows us to reimagine customer value across the entire business model from the offerings, the service, the communications, how we make growth investments and how we settle claims. Now to make that a reality, we're designing and building Allstate's Large Language Intelligent Ecosystem or ALLIE. We wanted to name it and personify because these agents are like employees. They're capable of reasoning and resolving tasks, lower costs and improve the customer experience.

So ALLIE will position us for continued growth in market share and expansion of protection provided to customers. Now Mario will cover third quarter results in more detail.

Thanks, Tom. Let's turn to Slide 5 for an overview of third quarter results. Allstate's strong operating capabilities delivered profitable growth and excellent returns in the quarter and through the first 9 months of 2025. Total year-to-date revenues increased 5.8% from the prior year to $50.3 billion, driven by strong performance across the enterprise, including Property-Liability premiums that were up 6.1% in the third quarter and 7.4% for the first 9 months of the year, reflecting higher average premiums and policy in force growth. Protection Services profitably grew with premiums up 12.7% compared to the third quarter of 2024, driven by protection plans.

Net investment income was $949 million in the third quarter, representing a 21.2% increase over the prior year quarter. Total policies in force grew to $209.5 million, an increase of 3.8% compared to the prior year quarter. In the third quarter, net income was $3.7 billion and through the first 9 months of 2025, net income applicable to common shareholders was $6.4 billion. Adjusted net income was $3 billion or $11.17 per diluted share in the third quarter, reflecting strong Property-Liability, underwriting profit and higher investment income.

Adjusted net income return on equity was 34.7% over the last 12 months. Moving to Slide 6. Let's discuss our objective of consistently delivering attractive risk-adjusted returns for shareholders. As a reminder, we manage profitability by line and by market. In auto insurance, we target a mid-90s reported combined ratio.

Over the last decade, outside of the unprecedented inflationary period, the industry experienced following the COVID-19 pandemic, Allstate has consistently achieved these targeted levels of profitability. We have responded quickly and decisively to periods of increased loss cost inflation, like higher auto accident frequency in 2015 and 2016 and higher post-COVID severity. As a result, the combined ratio has averaged 94.9% over the last 10 years. The homeowners business is a competitive advantage for Allstate.

In homeowners insurance, we target a low 90s reported combined ratio and an underlying combined ratio in the low to mid-60s. We have a differentiated model with advanced risk selection, new products, pricing sophistication and efficient claims handling. While there can be short-term volatility associated with catastrophes, these capabilities have delivered sustained success, as you can see over the last 10 years with a recorded combined ratio of 92.3%. Turning to Slide 7. Let's discuss Protection Services.

The Protection Services business is comprised of 5 businesses: protection plans, auto dealer, roadside assistance, Arity, and identity protection. It has 171 million policies in force, generates $3.3 billion in revenue and had $211 million of income over the last 12 months. Policy growth was 4.4% over the prior year quarter, led by protection plans. Protection plans continues to expand both domestically and internationally, as you can see on the lower right.

Revenues increased by 15% over the prior year quarter with a 10% increase in domestic revenue and a 32% increase in international revenue. The business generated $34 million in adjusted net income this quarter, a decrease of $5 million from the prior year quarter due to increased claims. Year-to-date, however, earnings increased by 8% from 2024. Now I'll turn it over to Jess.

Thank you, Mario. Moving to Slide 8, you can see the impact of transformative growth execution on Property-Liability growth. The map on the left side of the slide shows the 38 states where Allstate is growing policies in force in dark blue. Investments in expanded distribution, pricing sophistication, marketing and technology are generating policy in force growth in the auto and homeowners insurance businesses.

To the right, we provide more detail by brand. We underwrite auto and homeowners insurance business through Allstate agents and direct to consumers using the Allstate brand. For higher-risk direct channel customers, we also use the direct auto brand, which we acquired with National General. We provide those same products in the independent agent channel using the National General brand.

Collectively, these represent what we call our active brands in market. Auto policies in force in active brands increased 2.8% compared to the prior year quarter. National General and Direct Auto continued to grow at 12% and 22.9%, respectively, reflecting our capabilities in the nonstandard auto insurance market in both the direct and independent agent channels. As part of transformative growth, we decided to sunset the Esurance brand and use the Allstate brand in both the exclusive agent and direct channels.

In the independent agent channel, as the new National General Custom360 product is made available, we stopped offering the Encompass policies for new business. While some customers of the inactive brands end up in new business of active brands, growth in the active brand shows the strength of those customer value propositions. Homeowners policies in force in active brands increased 3% compared to the prior year quarter. We continue to see steady growth in policies in force in the Allstate brand as Allstate agents continue to bundle at historically high rates, and we've delivered strong new business growth in the direct channel.

Transformative growth is delivering profitable policy growth. Turning to Slide 9. Customer retention remains a key focus. On the left, you can see auto insurance shopping is at historically high levels. Through the first 9 months of the year, shopping activity across the industry has increased 9.3% compared to the same period in 2024, driven by higher advertising and industry-wide rate increases in 2022 and 2023. In this high shopping environment, Allstate is capturing a higher proportion of shoppers with new business increasing 26.2% for the same period in 2025 compared to 2024. Allstate's market share gains in nonstandard auto insurance, largely through the independent agent and direct channels also has a negative impact on overall retention even though these policies are attractive economically.

To improve retention, we're lowering prices while maintaining attractive margins and reaching out to customers through the SAVE program. In addition, customers are being transitioned to our new auto and home insurance products, which have higher retention levels. Finally, product bundling is increasing, particularly through Allstate agents supporting deeper customer relationships. Increasing retention will be additive to growth created through higher increases in new business.

Now I'll turn it over to John.

Thanks, Jess. Turning to Slide 10. Let's discuss how we proactively manage our investment portfolio to deliver meaningful shareholder value. This chart shows net investment income and portfolio growth over 5 years. Since Q1 2021, the portfolio's book value has increased by 39% or $23 billion.

Since 2021, asset growth in part reflects a large increase in average auto and homeowners insurance. Growth in assets and higher yields have benefited net investment income. Net investment income for the last 12 months equates to $10 per share, up from less than $9 in 2021. Moving to Slide 11. Let's discuss how Allstate takes a proactive approach to managing its investment portfolio within the context of overall enterprise risk and return. The table on the left illustrates how investment decisions consider enterprise factors and market conditions.

The blue boxes indicate favorable conditions and the orange boxes indicate unfavorable. For example, in 2022, the Property-Liability combined ratio was elevated and both macroeconomic and market dynamics were unfavorable. We had adequate capital to handle this, but decided to reduce the capital supporting investment risks. As you can see on the right-hand graph, this was implemented by lowering interest rate risk by reducing duration shown in the green line.

This was a good decision because we then increased duration as rates increased in 2023 and 2024. The combination of these actions protected portfolio values as yields rose and then captured those higher yields to support higher income. We use the same approach to equity holdings, which were reduced in 2023 and 2024, primarily reflecting an outlook for higher inflation. By year-end 2024, when profitability was restored and economic and market dynamics were more favorable, we increased the economic capital allocation to investment risk and have selectively been adding growth exposure back to the portfolio.

Moving to Slide 12. The chart on the left shows the change in GAAP shareholders' equity from year-end 2024 to the end of the third quarter. At the end of 2024, shareholders' equity was $21.4 billion. Strong income, gains on the sale of voluntary benefits and group health businesses and an increase in unrealized net capital gains on investments further strengthened capital. This was partially offset by common share repurchases and dividends to shareholders.

This year, Allstate has returned $1.6 billion to shareholders on a GAAP basis through common shareholder dividends and share repurchases. Overall, GAAP shareholders' equity increased to $27.5 billion as of the third quarter of 2025. Over the last 12 months, adjusted net income return on equity was 34.7%. Increasing Property-Liability market share at target levels will create additional shareholder value. In addition to growth initiatives, Allstate deploys capital through the investment portfolio, which generates attractive returns and provides a diversified source of income.

Allstate has a long history of returning cash to shareholders through both dividends and share repurchases. Over the last 12 months, Allstate has returned $1.8 billion to shareholders, which is 3.5% of the average market value of common equity. Over the last 5 years, $11.5 billion has been returned to shareholders, representing approximately 22% of common outstanding shares. Now let's move to questions.

[Operator Instructions] Our first question comes from the line of Robert Cox from Goldman Sachs.

So just the first question on capital. Obviously, a significant amount of capital generated this quarter, and you all stated in the presentation, you're in a favorable capital position. Can you just talk us through how you're thinking about holding company liquidity and how quickly we could see you guys normalize that level of deployable assets at the holdco?

Sure. Let me start at the top. First, we have a very sophisticated way that we -- we think sophisticated in the way which we manage capital. So it's not as simple as sort of your premium to surplus ratio.

And it served us well for a long period of time. And so we keep doing that. And our assessment will be similar to yours, which is we have plenty of capital today. Let me -- the list of options are pretty straightforward as to what we could do with it.

But let me maybe address your specific question and come up to the more contemporary assessment of what the options are. As it relates to the holding company, we leave -- we put as much money as we can into the holding company because it's flexible. We can put it back into the insurance company if we want, we can use it for share repurchases. We use it to buy a company.

We can use it to do a variety of different things. So we prefer the flexibility to have it up in the holding company as opposed to in the insurance company. So the movements from one to another tend to be really related to where we are with our regulatory approvals on moving it and what the rules are moving it up as opposed to, oh, we took money out of the insurance company because we thought we had enough down there. We've always had enough down there.

We have plenty of capital there, so we're not worried about that. As it relates to the uses of capital, it's the same options that you all know. But if you sort of said, well, where are we today and what would be the best uses for it. Obviously, with the kind of returns we're getting in our business, just growing that business and keeping investing in that business is a great return and a good way to go.

To the extent we can further grow the business, we get the 2 for not only of higher income, but earnings multiple rerate. So that's our key and primary focus. John talked about what we could do in investments and what we do with investments as to how to make extra returns. So that's another option for us.

We obviously could buy other companies which leverage our skills and capabilities, whether that's National General, SquareTrade, which were both terrific transactions. We still have some work to do on identity protection. But I feel confident. We'll see -- we still have work to do to make that one be what it can be, and it will get there.

And then obviously, there's all kinds of things you can do with shareholders. There's dividends or share repurchases. John talked about that, too. We've never held back on that, but we prioritize stuff where is the most return for shareholders.

Okay. Awesome. And then just on pricing, I appreciate that you guys back out the New York, New Jersey growth from your new PIF growth, which is very helpful. But just wondering if you could talk about where pricing was excluding New York and New Jersey and maybe just more broadly, where you think pricing is headed into 2026?

Yes. So Robert, in terms of overall pricing, obviously, you can see how strong the margins are in auto insurance. So the rate need has certainly diminished. And I would say the book is broadly rate adequate at this point.

In the quarter, we did implement some rates in New York and New Jersey that were approved earlier in the year, but implemented in the quarter. So that shows up in what we show you in the supplement, which is not a meaningfully high number. I think it was 0.6 points. So you take those 2 out, and it gives you a real sense for how little rate is needed in the book.

As we look at loss trends, the loss trends in pure premium, look good. Our margins are strong. Frequency is a big contributor to that, and that's a bit of a wildcard. So as we think about 2026, what I'll tell you is we'll respond accordingly to whatever the trends are.

That means they continue to be benign and book doesn't mean rate, then we won't take rate. But to the extent we see loss costs pick up, we're going to stay out ahead of it and target that mid-90s combined ratio that we've been able to achieve over the last decade.

And our next question comes from the line of Gregory Peters from Raymond James.

So I'm going to start. First of all, in the slide deck on Page 4, you provided an interesting slide regarding your approach to artificial intelligence. I feel like there's probably a lot of information behind that slide. So when we've asked other companies, they've given us some ideas about what their tech budget looks like, how much is going to [maintenance] systems versus new initiatives.

But when I look at this slide here, I guess what I'm particularly interested in is where are you in this life cycle? You introduced ALLIE. I'm just curious what that looks like when you get to a more complete phase. And just additional color on what's going on and what your end goal is with the technology?

Let me start at the end, Greg. it's like a fancy. Let me start with the end and come back into some of your questions, not all of which we have answers to at this point. So to be open and transparent about that. First, I think this technology has the opportunity to help us really reimagine the whole way we go to market and do a terrific job for our customers at a lower price with better service.

And in fact, I believe it can help us add things that we don't currently do because they're too expensive. So not only will it help us reduce costs, I think it will help us improve the value proposition. Now that's easy to say and hard to do. So what we're doing is working with generative AI today to do -- mostly get more effective and more efficient at what we currently do.

So I'll give you an example, not on the list, but when somebody sues our customers, there's a bunch of work they have to do to keep your customers safe and not have to lose a bunch of money and include things like reading a 900-page medical file that used to be done by doctors. Today, that is done by a computer. So it's helping us be better and more effective and both reduce our just administrative cost for doing that, but also then presumably make us smarter and give us better decisions with a human in the loop. The Agentic AI really is a chance to do it completely differently.

So for example, how we communicate to you, what mode of communication we use, what we communicate to you is dependent on who you are and what your relationship with us has been. And that's hard to put all that knowledge in the brain of one individual who's on a phone at that point in time. It's not that hard to put it in the hands of an agent, which can process stuff with advanced computing power very quickly. So we believe there's -- throughout the whole business chain, there's ways in which we can do it.

So we've come up with a plan to try to build ALLIE. It's got -- just like we did transformative growth, it's got components and it's got phases. We're not ready to roll that out to everybody because we're in the, what I would call, design and build phase. But it's our belief that the opportunity is so large that we should move quickly on this as opposed to wait to see if somebody else can develop it first.

As it relates to cost, it's going to cost more, and we're just going to manage our way through it.

I guess related to that, you talked about on retention on Slide 9, personalizing experiences. You also mentioned how your business mix is changing a little bit. How is technology going to help you improve your retention? And when I read this bullet point is of personalizing experiences, to me, that sounds more labor-intensive, not less labor-intensive.

I actually think it's -- to do it well, it will be less labor intensive. So the computer can help you do it. Today, for example, if you get on our website, we have 3 offerings that we give you good, better, best. We could -- it's possible with technology to help figure out exactly what should Greg's offers be.

Today, it's not done that way, but it could be done that way. So I believe there's plenty of opportunity to improve this. Retention, I would say retention, we have just other things we can work on. I mean -- just can give you some sense of what we're doing on retention because that's -- I would say that's not really ALLIE.

ALLIE is really redoing the whole business model. Retention is something we just need to work on each and every day.

Yes, Greg. So it's Jess. We are very focused, as I said in the presentation, on the S.A.V.E program and reaching out in the point of customization to make sure that we're providing customers with the opportunity to tailor their coverage and save money. And as you saw, we've saved more -- a significant number of customers more than 5% and that's going and looking for opportunities for discounts like EasyPay or paid in full, encouraging customers to use telematics and truly tailor their coverage options to best meet their needs.

And so I think technology allows us to do that and to better reach out and identify where customers have needs where opportunities exist for us to save them money, which naturally improves retention. So I think that we're continuing to focus on what we can do to increase value for our customers as it relates to lowering prices and enhancing experiences.

And our next question comes from the line of Andrew Kligerman from TD Cowen.

My first question is around the exclusive agent channel within Allstate brands. And I'm wondering how that has progressed in terms of agent count and retention year-to-date. How has that played out? And how do you see that playing out over the next couple of years?

Andrew, it's a good question. Let me give you an overview of where we've come from or 2, and I'll give Mario an opportunity to talk about where we are going. So when we started Transformative Growth, we had over 10,000 Allstate agents. And today, we have 6,000. We are writing more business today than we were then.

So productivity is way up. And that's not just because we're doing more advertising, they're actually doing a terrific job of leaning into this. And the team we have in place is doing great work. They're also extremely good at bundling auto and home, which builds in sustainability.

So we feel like there was some question from some shareholders and analysts when we got started on TG, what will happen with the Allstate agents. We think the Allstate agent network is stronger today than it was then. And we've added independent agent and direct response and expanded that. So we're feeling good about where we are.

Mario can talk about where we're going.

Yes. I think, Andrew, I would plus up what Tom said in terms of the performance of the agency system. When you look at our production and the fact that it's pretty equally distributed across all 3 channels. The agency -- the Allstate agency channel is a core part of that.

So this is not about not wanting to grow in that channel. We're very much interested in continuing to grow in the Allstate agency channel and the productivity of the channel is off the charts, and they continue to invest in their businesses. In terms of where we go from here, number one, it will continue to be a key part of our strategy because we believe there's a significant percentage of people that are going to want to interact with a human on the other side. And in our case, that would be an Allstate exclusive agent.

But we're going to ask our agents to continue to adapt going forward just as they've adapted over the last 5 or 6 years as we've implemented Transformative Growth with a real focus on continuing to build new relationships, which you see through productivity, but also to cultivate those relationships, leveraging the tools that Tom talked about with artificial intelligence and data and analytics to be able to engage with their customers more frequently to deepen relationships and sell a broader array of protection products and services going forward. So Allstate agent is a key part of our growth strategy going forward.

We will continue to expand their role going forward, and we're bullish on the future.

Got it. And my follow-up goes back to Slide 4. And it's certainly the Transformative Growth seems pretty awesome. And Tom's comment that ALLIE is an opportunity so large that you don't want to wait to see if someone else can do it. And so my question is around if you could share this because I haven't seen slides like this with a number of your competitors.

Where are you versus the competition? Is there any way that you can share a benchmark with us that kind of puts Allstate in one place and the large bulk of the competition elsewhere?

Nobody knows, really. I can't speak for where they're at. I'm guessing most people are using generative AI. It's almost -- it's easy to do -- and so I'm sure even if it's not an organized program like ALLIE, I'm sure our competitors are using that.

I can't speak for what they're doing strategically to try to redo the business model. We've been working on this for a while. We kind of felt like now it's about time to start talking about what we're doing without going into specifics because nobody wants to give somebody else a roadmap as to how you're going to do it. But -- so I'm guessing they're all good -- we have good competition.

They're smart people, good companies. I'm sure they're working on it and doing it. Everybody has different outcomes. I would say I was with a group of CEOs who were talking about the problems they have with data.

In Transformative Growth, the target state architecture that we put in place has a particular way in which we move and use data. And that's really set us up to do this. If you ask me, did we know exactly that was going to work that way 5 or 6 years ago? No.

Did we think it made sense? Yes. Does technology follow the rules of logic? Yes.

So like we couldn't have predicted that you're going to have Agentic AI, but we're really happy we have what we have.

And our next question comes from the line of Paul Newsome from Piper Sandler.

A couple of big picture questions I was hoping you could address. So the biggest pushback I get for Allstate is concerns from investors that competition is going to lower prices quickly in response to recent profitability and it all savings lowering prices, and those will squeeze margins such that you're sort of at peak earnings. So 2-part question, and I'll leave it at that. Could you just talk a bit about how you see the market dynamic evolving over time?

You guys have been through a number of years and seen a lot of history. And then relatedly, can you talk about how you sort of really think about the trade-off that you're talking about between pricing and PIF growth and mechanically, how you do it and why we can be confident that it's a good trade-off?

Let me go up for a minute, and then I'll come down your specific question around trade-off between -- maybe I'll start with growth and economics. Well, first, we make money, okay? So like we want to increase policies in force. We know that, that generates increased returns for shareholders.

We know that it could lead to a re-rating of the PE. But unless we're making money, we're not doing it, whether that's advertising or anything else. So we treat our shareholders' capital dearly, and we make money on it. Let me go to the overall competitive stuff, and I'll give you some observations.

Just we're one team on the field and in the league, so I can give you some observations in there. And then I'll give you some specifics about our performance. So it's already a highly competitive environment. It's not like it's about to become a highly competitive environment.

We're banging it out every day in the marketplace, whether that's competing for leads, getting the right pricing sophistication, doing our claims well, like it's a highly competitive market. And you can -- and my answer to the people who doubt it would be like, well, you can see how we've done in that market for the last decade. Can I predict every play is going to be -- we're not going to give up more than yard?

No. But in the end, when you look at our combined ratios and the value we've created for shareholders in a bunch of different ways, we've done quite well. And when you look at the specific competitors, Progressive is a really strong competitor in auto. They have great capabilities.

I expect them to stay strong in auto. I think State Farm has picked up share in the last couple of years in which their capital position to do that, which meets their objectives. So I think they achieved what they set out to do. They don't seem to be dialing up advertising as much as Progressive, but that's anecdotal.

I don't have a set of facts from some TV watching service to prove that. GEICO lost a couple of points of share because they had written a bunch of business prior to that, which was not profitable. So they decided to not have that business anymore. They've turned on the old model.

Whether that works in the current competitive environment with the current set of defenses out in the field, it's not clear. I'm not saying it's not. It's just they seem to be turning on the model that they've used historically, which did enable them to pick up share. So I think they're on the field.

Others, I think, they are struggling to keep up. So if you look at Allstate's performance, in that environment and let's just make it contemporary. Jeff showed you some numbers. Our new business is up higher than the shopping stuff.

So we're able to compete there in customer acquisition. And that's a highly competitive and sophisticated market. Like we're already working on some new plays for next year on what we're going to do in the lower funnel stuff. So that's highly competitive.

Pricing in auto insurance, we're good. We continue to rollout new programs. We'll continue to rollout new programs. Retention, it's kind of flat over the -- it depends which channel and which risk category and stuff, it's kind of flat over the last couple of quarters.

We have an opportunity to increase that by competing for customers that are already in-house as opposed to going out and competing to get new customers. So that's a different kind of competition. We're kind of competing against ourselves and their expectations. If you move beyond auto insurance, we have lots of other ways to grow, too.

If you look at our homeowners insurance business, we believe it's picking up share because we don't think there's more than 3% new homes in the United States when you just look at PIF. And that's just a really strong business. If it was a stand-alone company, and I'm not suggesting it is, by the way, if it was stand-alone, people would be like rocking about that business. Specialty lines, we got one of the best renters products in the market.

We have some work to do on auto, on motorcycle and boats and stuff like that. That said, our share is below what it should be, so another place to grow. If you go beyond that to protection plans, we have a terrific position in embedded insurance in the retail channel. In the United States, we're not taking that internationally.

We've struggled to find a way into the big cell carriers to get into cell phone insurance. So we've been kind of fighting a way. That said, we're not going to give up. There's a way to find those customers.

We haven't figured out how yet, but we're at it. So we have lots of ways to grow. There are some things we have that other people don't have. So if you look at our growth, just talking about growth in nonstandard share.

We took the National General capabilities, and we put that into the Allstate Floral business. And you can see that we've picked up real share in the nonstandard auto customers. So we like that. Now what we do is have to flip that and take that same approach and pick up standard customers in the independent agent channel for standard auto and homeowners.

We'll have to see whether we get that done, but we have plenty of ways to grow the business.

And our next question comes from the line of Elyse Greenspan from Wells Fargo.

My first question is on auto retention. I was hoping to get some more color on how it's trended for just active brands and when we should think about retention inflecting up both for your active brands and just also on an overall basis?

Okay. Elyse, so -- it's a good way to split the question between active and inactive brands because some of those inactive brands, the decline in retention is intentional because we want to move them from those brands to the other brands. Another thing that will impact retention as we're going forward, and Jess can talk about some of the specific things we're doing, but we didn't really highlight a lot is I think just talking about moving people from classic to the ASC products would be some additional insight that you haven't given already.

Yes, absolutely. So in addition to what I mentioned earlier, Elyse, we are going through and we give our customers an opportunity to move into the affordable, simple and connected product as we roll that out by state. So you've seen how many states that we've rolled out for the ASC product, and we are able to have our agents and both in the call center and in the exclusive agencies reach out to customers and give them an opportunity to move into our most contemporary products with the most contemporary pricing. And we think that's a real opportunity to improve retention.

It does 2 things. One, it gives them an opportunity to save money, but it also allows agents to engage differently and add value and deepen the relationship by offering our best products. And so we will continue to implement that and move folks to our best and most contemporary products in this quarter and into the coming year, and we think that will have a real impact on retention.

And then my second question is just on capital. You guys -- I think it's building upon one of the earlier questions, right, there's excess of parent. You guys, given the strong results this year, right, did start to take dividends out of AIC in the quarter. I guess given that, I mean, I was a little bit surprised the buyback perhaps wasn't higher given that there's more capital at parent.

So if you could just help me think about just balancing the buyback versus, I guess, now having more excess at parent? And are you guys holding on to capital there for M&A? And if that's part of the answer, where would potential M&A transactions be concentrated?

So the share buyback program is -- was an approved $1.5 billion and had a set time on it, and we're just buying it back according to the period of time we had it and the amount. So there's nothing magic. It's not like we have a good month, we decide we're going to buy more shares back or something of that because we've always had plenty of capital. When we put up $1.5 billion share repurchase program, that means we think we have more than $1.5 billion of additional capital.

So we don't set the target based on what we will earn. We set the share buyback on what we have -- factoring in that maybe the future won't be as good as you think it is. So we've always felt great about that program. When that program is done, then we'll decide what we do with the next one, and that will be done sometime next year.

And so that's still come. In terms of like what we use the money for, it's like organic, and we're like on the open field. We find something we like to do, we do it. There is -- on the open field, we do know that trying to grow our Property-Liability business faster is the cleanest and best shot to improve shareholder value.

Other than that, we just -- we make a decision when we get to that point in time. So we don't kind of like sequester it and hold step back. It's just -- it is what it is. And we're -- with this kind of return on equity, there's no harm, no fault.

And our next question comes from the line of Vikram Gandhi from HSBC.

My first question is around the auto PIF, where it appears that the growth was, to a large extent, driven by nonstandard customers. Just wondered if you had any updated thoughts on how we should be thinking about the longevity and more importantly, the profitability of this cohort, so expense ratio and loss ratio impact from this cohort.

I don't think I can give you specific attribution to help you do a loss ratio or expense ratio forecast. I think the numbers just move around too much. What I can say, which is maybe the underlying question there is it's all economic. Like we like the business.

It doesn't last as long, but we make good money on it. We make good money on it relative to what it costs us to get it even though it has a shorter life. So we don't have a targeted only get this customer if they last for 7.2 years or something like that. We just say, can we make money on this customer for the period of time they will have us.

And so we like what we're doing, it's all economic. It does because it has -- they shop more higher-risk customers because they pay more. That's why they shop more. It does have a negative impact on retention, but that's not a negative economic impact.

That's just a math problem in terms of trying to give the overall retention number.

Okay. That's very helpful. And the second question I had was a really simple one on commercial lines. It's something that we don't talk about quite often. But are we at a definitive inflection point? And can we comfortably say that the adverse prior year development is highly unlikely going forward? In short, have we sorted most of the back book issues?

Well, in commercial lines, in all our reserves actually by category, we think we're adequately reserved when we put the quarter up. Sometimes we get surprised. You're right, in commercial lines, we've had some negative surprises over the last couple of years, and we didn't this quarter. So we feel good about that. But we think we're always appropriately reserved.

Our next question comes from the line of Bob Jian Huang from Morgan Stanley.

First question is revolving around Slide 11, where you provided some outlooks in terms of various key metrics. Curious is your view on inflation going forward. I think if we had this conversation 6 months ago, inflation and tariffs potentially would have been a larger topic. But just curious how you think about inflation as we go forward?

Is it much more under control in your view today? Do you think that will become evolving to a bigger problem? Just curious your thoughts on that.

Let me make some comments and then toss it to John to give you his perspective. So inflation impacts many parts of our business, right? So there's inflation in what it costs to fix and repair a car, which is -- could be driven by tariffs, could not be driven by tariffs, all depends what happens there. There's inflation in bodily injury costs, which is driven more by litigation environments, which if anybody wants to talk about Florida, have we talked about that at some point.

Then there's inflation just in our operating expenses, what it costs to have people and stuff. And then there's inflation, which has a large impact on our investment portfolio. So we think about it from an enterprise standpoint. So John can give you an answer as to how we think about inflation where we are today relative to our risk and return profile.

Yes. Thanks, Bob. Great question. What I would say is let's start with the investment portfolio and the use of it.

One of the takeaways from today's presentation is really how it complements the rest of the business and how we can use it as an additional tool to help balance out risk that we might be seeing across the business. And as you've seen, we've done that by adjusting our interest rate exposure, and that allows us to buffer other things that might be taking place, as Tom just mentioned. In terms of what's going on with inflation, let's take a market view right now. If you go back coming out of COVID, there was a lot of changes in supply chain, a lot of uncertainty.

You get into the beginning of this year, there are some changes in policies in Washington, and that created a lot of uncertainty. What we've seen play out throughout this year is not that inflation has completely gone, but some of what we would call the left tail risk or the uncertainty associated with that has gone. Therefore, markets have calmed down a little bit. We think it's a little bit more understood.

This can be evidenced somewhat by even the posture of the Fed. The Fed has moved from a tightening cycle to an easing cycle. So they too are seeing more of a balance between growth and inflation. And we're acting accordingly.

We've -- as you noted in the quarter, looking at the investment portfolio, we've extended duration a little bit. That's a sign that we think maybe some of the big increases in yields are over and we can capture that additional income for the benefit of shareholders. But we'll keep a watchful eye on it. We just don't know for certain.

This is a pretty big stone that was thrown in the pond, and you're not quite sure how all the ripples will play out. So we're watching it carefully. We've got a lot of monitors, both on the underwriting side and the investment side, and we'll stay tuned.

Let me also jump into bodily injury inflation because I've noticed some of our competitors have talked about changes there. And just let me give an example of talk about Florida. So we really applaud the political leadership in Florida for taking on an important issue. That's a difficult issue, which is how do you lower suits against our customers for fender bender accidents.

And their courage is really helping Florida consumers save billions of dollars a year. And we're happy, of course, because our customers are saving money, like we will charge them less, but we're very happy with the fact that they're having to pay less. And at a time when voters are clearly voting with their pocket books, this is really a golden opportunity for other states to lean in on that. You've seen Georgia recently picked up and join the parade.

So tort reform may seem arcane from an inflation standpoint, but it has the potential to really help consumers deal with increased inflation and other stuff. So it's just a terrific way to help customers.

Great. Really appreciate that detailed answer. Staying on Slide 11, which, by the way, is a wonderful slide. If we think about just interest rate and the duration of your fixed income portfolio, right, it feels like kind of like in your prior remarks, you made a strategic move to increase that duration.

As Fed fund rate potentially comes down more, is there a need to move further to the higher duration part of your fixed income portfolio? Or do you feel that your current duration is pretty good? And then regardless of what the interest rate environment goes, 5-year duration feels appropriate.

Let me just deal with one word and then let John pick up on that. There's never a need to do anything on one specific piece of the portfolio, whether it's duration, equity ownership or anything else. But there's opportunity is the way we look at it as to how we scope risk trust the company. Do you want to talk about how you're looking forward?

Yes. Bob, again, I would look at the kind of the mosaic that you see on the left-hand side of the page. And these are the things that we will consider when that time comes. One of them is market posture, but there are a bunch of other things that we'll consider, too, in terms of what's ultimately in the best interest of the entire enterprise and our shareholders.

I'll also focus a little bit on your word need. I think sometimes people think when they think of insurance asset managers and portfolio management, there's a need to kind of chase yield in a portfolio. And we fundamentally look at it differently. We're really trying to find the best economic overall return for our shareholders.

And that doesn't always mean chasing -- having to maintain a certain book yield level in the portfolio. So we're going to look at all the things that we can do in the portfolio, whether it's public fixed income, private fixed income, public equity, private equity, figure out at a point in time in concert with what's going on at the enterprise, what's the best combination of actions to take to position the portfolio. And I think you've seen that play out over time as we move things around in response to all these factors.

When you look at competition, I would say we're unique in this way. But one of the big firms comes in and does here's what everybody else has done. And here's what they've changed. And I think their comment was, if it wasn't for you guys, we wouldn't have to come in every year because not other people don't change that much.

That doesn't make us always right. It doesn't make us -- we're not a hedge fund or anything like that. We just look at it in total and say, how do you manage risk, you manage it for the whole enterprise.

And our next question comes from the line of David Motemaden from Evercore ISI.

I just had a question just how you guys are thinking about advertising spend. When I look at the efficiency of ad spend in the third quarter, it looks like it went down quite a bit, if I just looking at new auto apps versus just dollars spent on advertising. So clearly, you guys are gaining your fair share of the shoppers out there. But just wondering how you're thinking about continuing to ramp that, especially as efficiency looks like it's declining a bit.

David, that's probably not the best measure of efficiency, I would say. So let me dissect that a little bit. So you have both upper funnel and lower funnel advertising. Upper funnel is really more mass streaming, TV, stuff like that where you're getting brand consideration.

Our brand consideration is up substantially this year or significant and substantial, but it's up, and we like it. On the lower funnel, our efficiency is actually up this year versus last year. Last year, in the fourth quarter, in particular, we were a little heavy and our efficiency dropped a little bit, but we're still liking -- so I'm not sure exactly the math you're looking at, but we think our economic returns on our advertising were terrific. We like them.

They're up from last year. In that sense, but it's -- as I mentioned earlier, this is a game. It's a highly analytical scale game, like you're buying leads in sub-seconds and making decisions, the computer making decisions to do that. So we feel good about the system we have.

That said, it's just like pricing in auto insurance, like every year, there's some new plan you got to do. And so we're working right now, Elizabeth and her team spent 4 hours yesterday working on a new plan to take it -- to add some new stuff to take it to a new level.

Got it. Okay. Understood. And then just my follow-up, where are we just in New York and New Jersey on the new product filing and maybe opening that up to new business?

I think -- it's obviously -- you guys are putting through rate increases there implemented in the third quarter. So that's going to continue to work through the book. And I think you guys put through another increase in New Jersey. So you guys are obviously getting hit on that, but -- and I guess you guys are still not in the market for new business.

So I'm wondering, is there a point where you just say, hey, like we're just not going to wait for this new ASC product to get approved and just continue with our existing product and try to open up to new business?

I'll make a general comment that Mario can jump in on the specifics of where we are standing right today. I would say we are hopeful that we hope that the regulators see that this is a better product for customers. Just like Florida took stand to do something good for customers. We'd like to see New York and New Jersey take a stand for customers by approving it as opposed to thinking they're doing some sort of favor.

Mario?

Yes. So first thing, David, what I'd say is we're making money in both of the states. So we're generating underwriting profits, both in New York and New Jersey. So that's a great place to start.

And we've already gone beyond the point that you referenced. And we actually are writing some new business, not as much as we were, but we're not completely shut down in both of those states because we're not waiting for the ASC approval to open back up. We're going to continue to look at our risk appetite with our existing product. If it makes sense for us to open up underwriting guidelines even further, we'll do that.

Our agents are continuing to invest in their agencies to have capacity. And then we're hopeful that the approval of ASC will just take us to the next level in terms of our ability to write even more in New York and New Jersey. But we've started that process. It's obviously -- those 2 states are still a drag, and you saw that on the slide to overall policy counts, but we're profitable, which is a much better position to be in.

We are writing some new business. We'll evaluate if we can and should be writing more. And then as Tom said, we will continue to work with the regulators to get ASC approved and then open back up fully.

Thank you for your time this morning. We'll keep working on shareholder value by embracing change and being the best of what we do. We'll talk to 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.