The Allstate Corporation — 2024 Q1

Jimmy, we do believe that it's time to pivot to growth that we has had restrict growth so we could get profitability up in the auto insurance business. We're not done with it yet, but we feel that the trajectory is good and we get a path forward on that. Mario went through the long list of various ways we can do it. First, of course, you just keep more of your existing customers. And then we have a bunch of other ways that we think we can grow new business.

No, I think that covers it in. The only thing I'd say is in the Allstate brand, obviously, we continue to see the impacts of the profit improvement plan that we've implemented over the last couple of years. But we're starting to see, as Tom mentioned, some positive signs on retention as well as an uptick in production. And first, we need to see sequential growth before we'll get to annual year-over-year growth. And I think it's important to point out in National General. We continue to see really strong growth in that business, along with really strong profitability that we're encouraged by. And we think there's -- most of that growth in National General is coming in the nonstandard auto insurance business, we think there's an additive opportunity that we're going to continue to go after, as I mentioned, with Custom360. So opportunity across all brands and all channels going forward.

Jimmy, this is Jesse. So as it relates to the process, I would say things are progressing as expected on the pursuit of the divestiture. You'll remember we announced the intention to pursue the sale about 6 months ago, almost to the day. And as you might expect, there was robust interest from a large group of quality potential buyers on both strategic and financial. So diligence on a large complex business takes some time in so to selecting the right potential buyers to stay involved in the process. At this point, we're pleased with how the process is progressing, and we're confident that we'll be in a position to select a buyer that sees the same potential in the business that we do and is aligned with our strategic rationale for the sale. So we continue to pursue the divestiture as we said. And obviously, we'll let you all know as soon as we have a definitive agreement in place and offer more details at that time.

Jim, let me make a comment about the capital since it came up -- you mentioned that it came up at a number of the analyst write-ups last night. So first, we're very well capitalized. We've made that point consistently over the last couple of years. Obviously, the divestiture of health and benefits would free up additional capital. We're doing it because we believe it's the right way to harvest value, as Jesse pointed out. We think this is a great business that's shown up in the people who have been interested in buying it, but we also think that somebody else could do more with it than we can do with.it.

I'll let Mario talk about how he's reorganizing the business and really going to market in an integrated fashion to drive growth. As it relates to advertising, we don't like to give those numbers out just because we've got other people out there doing their advertising as well. What I will point out is one of the key components of transformative growth was improving our sophistication of customer acquisition. So no matter what percentage it is we want it to be more effective. But Mario, maybe you should talk about how you're changing your go-to-market.

Yes. Thanks for the question, Andrew. I guess where I start. First, the good news, as we pointed out, in the presentation as more and more states are achieving rate adequacy. And right now, in about 75% of the states we operate in, we've began to unwind underwriting restrictions. And to your point, begin investing in marketing to look to grow.

And we know that it works because we've used it for a long time. So -- and we dismantled some of it about 2 or 3 years ago when we were cutting expenses that didn't want to grow. And now that we're back into growth mode, we're just expanding what we know works.

That's very helpful. And then the second question with regard to National General, just trying to get my arms around, how much growth potential there? How much of the book right now is nonstandard versus the Custom360s. The Custom360 relatively very small. And are those the right agents to generate big time growth on the more traditional or more standard products?

Well, we wouldn't give out that percentage in each, but you're correct. And then it's -- when we bought National General, it was mostly a nonstandard company. And we bought it for the strategic opportunity to leverage our capabilities in, which is called preferred auto and home insurance, and that's turning out to be true. Mario, maybe you want to talk about the success you're having with Custom360.

Yes. So Andrew, I guess the place I'd start is, first of all, we're really happy with the acquisition of National General. As Tom mentioned, we've effectively doubled the size of our independent agent business since we bought it in early 2021. And there's really 3 pieces to the business. There's the nonstandard auto piece, which is the by far the biggest component. And then there's what we call the legacy household business, which is think about our Encompass business that we integrated into it along with the legacy National General Standard Auto, Preferred and home business. And then there's Custom360.

Thanks, Greg. This is Mario. I'm going to make some comments off the slide -- off of Slide 5 that we showed you in the presentation, which really shows the -- starts with the average underlying loss and expense trend that we saw in the quarter. That number is about 6.7%. If you take out the expense component, it drops by over 1 point. So I'd say the loss trend we're seeing in the protection business in the mid-5s, and that's made up of both frequency and severity. As we indicated, frequency relative to last year, just given the milder weather was favorable. And then the other component of it is severity. So it's, I'd say, favorable frequency more than offset by higher severity. But severity is continuing to moderate in terms of the rate of increase that we're seeing.

I'll let Mario go into the 3 states, but I just want to clarify. We decided not to give it to you every month because -- we don't -- we think you get to drill, you know what we're doing, and we don't need to do it. We didn't say we're very adequate so don't worry about it. We're always focused on it. We just didn't think we needed to like burden people sending out every month.

Yes, Greg, it's Mario. I'll just give you a little more color on those 3 states. Remember, last quarter, we told you we had just got an approval in the fourth quarter for auto rate increases in all 3 of those states. In California -- and we implemented those rate increases this past quarter. In California, we feel comfortable of where the rate level is with the increase, and we've reopened California for new business. really no change in New York and New Jersey in terms of our underwriting risk appetite, even with the rate approvals that we got late last year.

Well, that's a complicated question. Let's see if I can address it. So in all states, when you have severities going up the way Mario described it. You're going to be increasing rates at levels above what is the general inflation rate. So we expect to continue to have to do that. If our customers quick and sued every time they get an access, then maybe it will back off some. But -- so we're always moving rate up. You're really get into where is your competitive position.

No. Like if you go back to Page 6 that you mentioned that the top bar on the right, the 26%, the vast majority of that is those 3 states: California, New York and New Jersey. And then the -- both the light blue and the dark blue, when you kind of add those together, and we talked about unwinding underwriting restrictions in about 3/4 of the states. Again, we base those decisions on rate adequacy versus kind of a backward-looking combined ratio.

Let me start, and Mario, you can jump in. First, you're correct in that first quarter is usually a better quarter in combined ratio in auto insurance than like the summer months when everybody is driving. To be able to do attribution of this current quarter versus other quarters and weather and how much -- what the sustainable [indiscernible] is really difficult to get it with any sort of precision. It's not that we don't try and we look at it when we come up with numbers, but they're not numbers that I would say would be for public consumption.

Yes. I think, Elyse, the components you mentioned are the right ones. And while I can't -- I'm not going to give you the guidance on continually improving loss ratio going forward. What we do know are a handful of things. Number one, we took over 16 points of rate last year and another 2.4 points in the first quarter. That's going to continue to earn through the book, and you're going to continue to see average earned premium growth going forward. That's just based on the actions we've taken so far.

It's a normal process, Elyse. We're not going to go through [indiscernible] it. We still think we'll sell it this year. A lot of people are interested in the business, and we're confident we made the right choice.

I'll let Mario jump in, I know you're probably referring to Klauber's numbers. I'll let Mario jump in on state. But let me just mentioned something, I think kind of we talk about, but I'm not sure if it gets as much focus as I think it should, which is homeowners. The homeowners business is a really attractive business for us. We're really good at it. We have an integrated business model that you can see Mario showed the slide where we've earned a 92 combined ratio over a 10-year period. The industry dynamics today. A lot of that business is sold through independent agents, about half of it.

Yes. Thanks for the question, Yaron. Look, where I start is the National General nonstandard auto business is a really well-run business for us. And when we acquired NatGen several years ago, it allowed us to get into a business that Allstate was not in at that time in a particularly meaningful way. And we've been able to grow that pretty aggressively and grow it profitably. Over the last several years. Some of the ways we've been able to expand is we've expanded geographically, so we're in a lot more states with nonstandard auto now than when we bought the business.

We wouldn't break those numbers out for competitive reasons. When it's big enough, so David, you could do math on it. So you could say, okay, here's when the churn is going to come. We would say it. But obviously, there are some markets, we're growing in other markets, we're not growing in. Some of those are markets. Some of those are states. When we get to the point where you can do the math to show when -- I know you -- I totally get where you're going because you want to figure out when the turn is. But we don't like to show what states were growing in at higher rates than others because then they get our competitors interested in going to those states. And we'd rather grow without having them be aware of where we're growing.

Let me go up to transformative growth and get Mario to talk about the specifics of your question. So as part of transformative growth, we said we want to improve customer value. And that meant getting our agents to really focus on there were those things that customers really want them to do for them, which includes helping them buy insurance. It doesn't necessarily include having them there when they have to pay a bill for retention.

Yes. Thanks for the question. So I think the short answer to your question is yes. We -- when you look at overall Allstate brand new business production is up about 6.5%. It was up both in the Allstate exclusive agent channel as well as direct. And then if you kind of carve out California, New York and New Jersey. Because you have to remember, the California rate wasn't effective until February. So we really didn't start opening things back up until the really the latter part of the quarter.

We'll take one more question.

Yes. The first -- the direct customer does have different needs. So they necessarily want to pay for someone to help them buy insurance, which is why we price our direct insurance under the Allstate brand, cheaper than Allstate-branded insurance bought through an agent. Because we're trying to do exactly what our customers want. They also have different ways they want to interact with us. And so we've -- with our new Transformer growth and new tech stack, it's really everything from what's prepopulated into the thing to the offers it presents to the questions you required to.