Good day, and thank you for standing by. Welcome to Allstate's Second Quarter Earnings Investor Call. 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, Brent Vandermause, Head of Investor Relations. Please go ahead, sir.

Thank you, Jonathan. Good morning. Welcome to Allstate's second quarter 2024 earnings conference call. Yesterday, following the close of the market, we issued our news release and investor supplement, filed our 10-Q, and posted related material on our website at allstateinvestors.com. Our management team will provide perspective on our strategy and an update on our 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 Allstate's operations. Allstate's results may differ materially from these statements, so please refer to our 10-K for 2023 and other public documents for information on potential risks. As some of you know, this will be my final earnings call as the leader of our Investor Relations team since I will be transitioning to a new role. Investor Relations will be in the capable hands of Alastair Gobin, who will be a great partner for you all. And now, I'll turn it over to Tom.

Well, good morning. Thank you for investing your time at Allstate. I'll provide an overview of results. Mario and Jess will go through operating performance, and then we'll address questions. Let's start on Slide 2. Allstate strategy has two components: increase personal property-liability market share and expand protection provided to customers, which are shown in the two ovals on the left. On the right-hand side, you could see highlights in the second quarter. Net income was $301 million in a quarter with elevated catastrophes. The auto profit improvement plan is being successfully executed. National General continues on a four-year profitable growth trajectory. The Homeowners business had good results with an improved underlying combined ratio and underwriting profit for the first six months of the year. Net investment income was up almost 17% over the prior year quarter as the fixed income portfolio continues to benefit from repositioning into longer duration and higher-yielding assets. Protection Services has had another good quarter led by profitable growth in protection plans. Let's move to Slide 3 and show how that operational execution improved underlying results in the quarter. Revenues increased to $15.7 billion, reflecting higher average property liability earned premiums, which were mostly from rate increases in auto and homeowners insurance, and increased net investment income. Net investment income for the second quarter was $712 million higher than the prior year quarter, reflecting that fixed income duration extension in 2022 and 2023, which also included lowering public equity holdings to take advantage of higher fixed income yields. Adjusted net income was $429 million or $1.61 per diluted share. Now, I'll turn it over to Mario for Property-Liability results.

Thanks, Tom. I'll start by covering Slide 4. On the top left of the table, you can see Property-Liability earned premiums of $13.3 billion increased 11.9% in the second quarter, driven by higher average premiums. The underwriting loss of $145 million improved by $1.9 billion compared to the prior year quarter due to improved underlying margins and lower catastrophes. The expense ratio of 21.3 was 0.8 points higher than the prior year due to increased advertising as we continue to accelerate growth investments in rate adequate states and risk segments. The adjusted expense ratio, which excludes advertising costs and other non-core expenses was down 1.6 points in the quarter. The chart on the right depicts components of the 101.1 combined ratio. Catastrophe losses of $2.1 billion were 6.7 points favorable to the prior year quarter. The underlying combined ratio of 85.3 improved by 7.6 points compared to the prior year quarter, with the improvement driven by higher average earned premium and moderating loss cost trends. Prior year reserve re-estimates, excluding catastrophes, had only a minor impact on current quarter results as favorable development in personal auto and homeowners insurance offset increases in personal umbrella liabilities and commercial auto reserves related to the transportation network contracts we began exiting in late 2022. Turning to Slide 5. You can see that we continue to successfully execute our profit improvement plan. The second quarter recorded auto insurance combined ratio of 95.9, improved by 12.4 points compared to the prior year quarter. The bars in the chart show consistent improvement in the quarter's underlying combined ratio. I will note that we have adjusted 2022 and 2023 reported quarterly figures to reflect the updated average severity estimates as of the end of each of those years to remove the volatility related to intra-year severity adjustments. You can see that the auto business has seen six sequential quarters of underlying combined ratio improvement with an underlying combined ratio of 93.5 in the second quarter of 2024. The dark blue line in the chart shows how rate increases throughout 2022 and 2023 pushed average premiums above underlying losses and expenses represented by the light blue line, starting in the second half of 2023. As average premium increases have outpaced loss and expense, profitability has improved. Relative to the prior year quarter, average underlying loss and expense was 5.5% higher, as you can see in the second row of the table. This reflects higher current year incurred severity estimates primarily driven by bodily injury coverage, offset by lower accident frequency as well as higher advertising investments. Physical damage severity increases continue to moderate, while bodily injury continues to trend above inflation. Our claims team is focused on operational actions to mitigate the impact of inflationary trends, including identifying injuries earlier in the claims process to improve overall cycle time and focus on fast and fair resolution. Let's review Homeowners insurance on Slide 6 which had improved underlying performance. Allstate is an industry leader in Homeowners insurance, generating low 90s combined ratios over the last 10 years, as you can see in the chart on the right. This performance compares favorably to the industry, which experienced an underwriting loss and a 103 combined ratio over that same time period.

Let's discuss Transformative Growth, our multiyear strategy to create a low-cost digital insurer with broad distribution. The five components of Transformative Growth are shown in the blue panels on the left side of the page, and we continue to make good progress on all of them. On the right-hand side, we show the tangible outcomes and proof points that we're delivering through this transformation, which improve the customer experience and support our objective to profitably grow market share over time. Two examples of those tangible outcomes that I'd highlight are the new affordable, simple, and connected auto insurance product that was built on our new technology platform is now available in 19 states. Additionally, in the second quarter, we increased our advertising investment by approximately $300 million to support growth efforts in states with attractive returns.

Moving to Slide 8. We'll double-click on the multichannel distribution strategy, which enables us to serve customers based on their personal preferences. Our exclusive agents are available for local customers seeking personalized advice to fulfill broad insurance needs. Agency productivity has increased, and bundling rates at point of sale are at all-time highs. Enhancements to direct capabilities and increased advertising attract more self-directed customers, with new business production in the direct channel in the second quarter nearly doubling that of the prior year. The National General acquisition significantly expanded the independent agent channel. If you look at the distribution of new business we write, shown in the pie charts on the bottom of slide, you can see the power of expanded customer access. The combination of broader distribution capabilities, increased advertising, greater pricing sophistication, and product expansion has resulted in a 90% increase in new business applications since 2020 with a much more balanced split across distribution channels.

Good morning, everyone. For my first question, I'll focus on growth. Tom, I know you've been talking about transformational growth now for several years. And we're seeing this strong increase in new issued applications. So I'm wondering if you might help us understand how you think that new issued application result is going to drive increased policies in force in the auto stats that we see in some of your supplements.

Good morning, Greg. Thank you for both being here and paying attention over the years, appreciate it. Mario talked about the growth by channel. And we highlighted National General this quarter because it's a $10 billion business on an annual basis. We feel like the market is really not looking through that one in terms of growth as much. Transformative growth includes what we're doing in National General, but to your point, it really also includes remaking a lot of the business processes inside the Allstate brand. So let me make a couple of comments about that and give it to Mario to talk about specific things he's doing in various geographies. It's just the most macro view growth driven by two factors, sell more, as you point out and keep more. And so we spent a bunch of time. Mario talked about selling more, and we feel good about the trajectory there. You can see the benefits of the increased advertising and direct volume that Mario talked about, and that also will translate into increased growth in productivity in the Allstate agent channel as we roll it out. So the other question then is, of course, how many do you keep? And retention was up slightly in the quarter versus the prior year quarter. If you kind of look over the last 12 months, it's been reasonably flat in Auto Insurance. I assume you're talking about Auto Insurance, by the way; we can talk about Home as well because I think that's a great opportunity for us. But on Auto Insurance, it's been relatively flat and normally, you would expect as rate increases come down, you would expect retention to increase. It's not clear what that trend will be at this point in time. And the reason I say that is not that I think traditional economics of don't ask me to pay a lot more and more likely to stay breakdown. It's just that the price elasticity curves broke down when we raised prices over the last couple of years. So it's a little hard to tell what the tail on that will be.

Sure. Thanks for the question, Greg. So maybe the place I'd start like Tom said, retention is obviously critically important to growth, and we're pleased with the fact that retention is stabilizing. But we also recognize there are a handful of states where we have taken some pretty significant rate increases more recently, California, New York, New Jersey. Those are going to continue to have an impact on retention going forward. But absent those three states, we kind of like the trends that are emerging. I want to talk a little bit about new business production and get at your question. So Greg, where I would start would be kind of how did we get here? The reality is, as we've been implementing the auto profit improvement plan over the past couple of years, that's obviously being executed on a state-by-state, market-by-market basis. But as states have gotten to a rate-adequate level, we've begun to lean in and invest more in growth to drive production in those states. That would include things like unwinding underwriting guidelines to restrict business, increasing advertising spend, both nationally and locally. Right now, about two-thirds of our states, the premium volume represented like two-thirds of our states, are what we would consider at profit target levels. And then there's about another 10% or so that are on the path to getting there. Overall, we feel really good about the vast majority of the country in terms of geographically where we're comfortable investing, and you see the momentum that's really been building over the course of the year. Last quarter, production was up about 9% in total. This quarter, it was up 17% as we further ramped up growth investments, and we're going to continue to do that.

I have a follow-up question regarding the expense ratio. You mentioned the increase in advertising expenses in the second quarter contributed 3 points to your property liability combined ratio. Looking ahead, what expectations do you have for the adjusted expense ratio for the remainder of the year and your long-term goals in that regard?

Let me address that by first taking a step back and then narrowing down. Transformative Growth consists of five components that Mario discussed. We've validated the underlying assumptions about whether pursuing each one is beneficial. Currently, not all components are functioning simultaneously, but we're seeing the growth potential we anticipate, which includes increasing our market share. We are confident in our ability to enhance market share in personal property liability. Regarding retention next quarter and new business expectations, we believe these elements will all align positively. Concerning expenses, we recognize the importance of maintaining affordable, simple, and connected protection. Affordability means keeping prices low, which drives us to continue reducing costs. We have several initiatives underway that we've been developing for a couple of years that are beginning to deliver results, but there is still work to be done. Given the digital advancements available to us, we can further decrease costs. Regarding advertising, we highlighted it separately to clarify that we do not wish to send the wrong message about reducing advertising expenditures. We believe that growth adds value for shareholders as long as we achieve attractive returns. We have solid capabilities in this area, and I'm open to discussing it further if anyone is interested. We are confident that we can keep investing in growth, achieve good returns, lower expenses simultaneously, and increase market share, all of which will ultimately enhance our earnings multiple.

Hi. Good morning. I just had a question on what you're seeing in terms of competitive trends in the Personal Auto market, both in terms of pricing and advertising. It seems like margins for most of the companies are getting closer to normal. I'm wondering if that means you're starting to see some of them getting aggressive on price. I know certainly advertising spending has been going up a lot, but what are you seeing out there?

Let me talk about advertising and Mario can jump in on pricing. There's a lot of competitors, but let's focus on the biggest competitors for the time being, as our business are mostly in play here. From an advertising perspective, growth is good for shareholders. It's good because we're earning good returns. Secondly, we're leveraging capabilities over a broader capital base, which drives more shareholder value creation, and then that should lead to a re-rating of the multiple. You have to have a product that's differentiated and appeals to customers to do good advertising. We have that with our new ASC Auto product. The close to quote ratios are higher with the product. You have to have attractive returns, which we've talked about at length. You need a great brand because that increases consideration. You have to have broad access, and this ties together with transformative growth. We advertise; you can go to exclusive agents, you can go on our website, you can go direct. You want to ensure that however they want to come to, we're using advertising dollars effectively. I would say that advertising today, though, is a game of precision, much as Auto Insurance pricing went through this great push on sophistication, those who are good at sophistication win. You can see that when you look at the combined ratios of people like Allstate, Progressive, and Geico; we all have really good combined ratios because we're sophisticated in how we price products. Same thing is true in advertising today. You have to be good at search, and we don't just listen to ourselves. We had external reviews, and we're really good at search. You need to be good at a bidding strategy. How much you're bidding for elite? We're good at bidding for elite. It's not like we're perfect; we still have other stuff we need to do. To figure out how you're using different kinds of messaging for different groups, you can imagine with the refocusing of number of media channels and number of messages you can do now, particularly with AI, the number of segments you have and your pricing sophistication, it gets complicated quickly. We're really good at it. So when we go into this and think about us increasing the advertising versus other people, we believe we're well suited to win in that game.

Thank you, Jimmy. I will address the question in a general way, but I want to emphasize that responses will differ by company and region due to the nature of the business and high competition in the market. Overall, as we discussed earlier and as many competitors have noted, profitability in the auto sector is on the rise as loss cost trends have improved. Generally, when this improvement occurs and margins increase, there tends to be less rate activity in the market, which we are currently observing. Companies are generally implementing lower rate increases than they did in the past couple of years. However, this varies by company; some are still catching up while others are ahead. On the whole, we are seeing fewer rate increases, which also varies by region. With that in mind, I would align this with what Tom mentioned about advertising and highlight that when considering our overall positioning and the transformative growth we are pursuing, we feel confident in our ability to enhance growth investments and thrive in a competitive market.

Hi, Jimmy, it's Jess. First, I guess I would start by reminding everyone that we have a third of great businesses. You saw it in the results that I covered. So we're really happy to continue to focus on execution in the operations. It might be helpful if I give you a little bit of a window into the process to help you understand where we're at and where we're going. If you think about our process, we started out with a preference for a single transaction. But we were unwilling to compromise value for that preference, right? So we spent a lot of time with a single transaction buyer that thought they could, in the end, change the terms and/or that we didn't have better options. Ultimately, we decided to work with other buyers, which has created a delay, but we're confident that making that switch will lead to a better outcome for our shareholders and for the businesses. What I would say right now, and I don't want to get into timing of announcements to close, is we are likely to be in a position to announce transactions this year, and you'll get more details about the what and the how when those announcements come. But that's just a little bit of a window into the process and why you still haven't heard anything, if that's helpful.

And do you intend to sell a disposal of the entire unit eventually, even if it goes into pieces? Or are there some pieces you might decide to retain?

We still intend to make the divestiture of the Health and Benefits segment.

Hi. Good morning. Maybe one on homeowners. I think last year, when it comes to cat losses, severe convective storm was a one in 2018 event, if I remember correctly, which obviously was a headwind to your cat numbers. Just given how things are developing so far, curious how it's tracking this year? Is it going to be more of a worse than one in 2018 event? Just pace on what we have in the first half, curious in terms of like how are the weather patterns developing for the Homeowner side.

Bob, it's Tom. Thanks for the question on Homeowners. I would look at Homeowners on a longer-term basis than one year. If you look over the last 11 years, we've made three-quarters of the profit that the whole industry has made because we have a pretty sophisticated business model we've talked about before and would be happy to go into. We're good at homeowners. It's currently turning into a, I guess, what we do domestically, we call the hard market, but a lot of people are bailing on growth in that market because they were either part of the 25% or they were part of the negative amount that led to us every three quarters. That entire profit pool when we have less than 10% of the total business. We think that is a great growth opportunity. As it relates to this year, it's too hard to predict whether it comes or goes. For the first six months, we made money on an underwriting basis. That makes me feel better than last year, where we didn't make money for the whole year. In the prior 10 years, we've made money in each of those 10 years. So I feel good about our business model. As it relates to any individual quarter, the key for us is to be there for our customers. When they have a problem, we want to be there to take care of their claims. They tell their friends. Our Homeowners, as you saw, the unit growth is up. We're doing extremely well in our Allstate agents with bundling customers. So other people are interested in that segment. We feel good about our business. Some of that is the hard market. Some of it's great relationships. Some of it is the product and pricing we have. It all kind of comes together, so we like the business. We think it's got good long-term growth potential. And on a quarterly basis, I wouldn't get too focused on whether it's up or down this second quarter; you can decide it's either higher or lower depending on which period of time you wanted to evaluate it against. So I would just say focus on the long-term results from it. We don't provide many specifics on active litigation. I can't predict what others will decide. Regarding the lawsuit, it pertains to a lender-placed insurance program sold through agents, specifically focused on auto insurance. Our program is transparent, borrowers are treated fairly, and we are confident that we will succeed in this lawsuit without it affecting our ongoing business.

Hi. Good morning. This is Jack on for Mike. Just a follow-up on the advertising spend strategy. I'm curious how your strategy and focus today compare to the last cycle? More specifically, how much of your ad spend has historically been geared toward direct-to-consumer targeted sales versus supporting your agents? And then how is that evolving today given the success of your transformative growth strategy in your lower expense base?

Jack, I would say that the third component of transformative growth was to increase the sophistication and investment in new customer acquisition. We didn't discuss it much here, but we've gotten much more sophisticated versus the last time we did this. I don't want to conclude we're five miles ahead of everybody else, but we're good. We feel much better about our sophistication. The way we allocate investment is think about it as upper and lower funnel, upper funnel being get the brand out there, do some TV advertisements to ensure people are considering you when they're getting insurance. You'll notice that more advertising on TV. Then there's what we call lower funnel, which is you're on the website, you're looking for a new car, and we pop something into your web browsing that says, 'Hey, what about Allstate?' or we use addressable TV to do it. We were off a little bit for the last couple of years in terms of down in advertising, and we've increased our upper funnel because we want people to remember us. The largest portion of our increase would be in the lower funnel piece. That gets tightly tied to what Mario described, which is really by state, market, and risk class, and it's highly sophisticated in how we do that. Both of those upper and lower funnel work for all of our channels, so agents and direct. Our agents also do some of their lead generation; we need to pull the levers and watch the gauges, making sure we beat our competitive situation.

Hi thanks. Good morning. I was wondering if you could just talk about within the auto underlying loss ratio. Is there any way to size if there was any one-time or unsustainable benefit from frequency in there? One of your peers had called out a 2.5 point benefit from unsustainable factors this quarter. I wonder if you could give us any insight in terms of, if any of the improvement was driven by something unsustainable within the auto business?

No. Let me provide a summary and then Mario can join in. I'm not sure how to define what is sustainable or not in terms of frequency. If it snows at 3 p.m. and the temperature drops quickly, that can lead to accidents. However, if it snows at 2 a.m., the impact is less significant. I’m unclear on how that conclusion was reached, but determining sustainability is difficult. We set our prices based on current conditions. If frequency decreases in a quarter, we won't automatically lower our rates, and similarly, if it increases, we won’t raise rates. Our goal is to achieve a mid-90s combined ratio in auto insurance, and we will continue to pursue that objective.

Sure. Thanks, Jack. I guess the place I'd start is that, as much as we dig into the components of profitability, they all matter but we should lose sight of the fact that the way we manage the auto business is to generate mid-90s combined ratios across the entirety of the system. We use levers like rates, pure premium, frequency, severity, and expenses; they all matter. The unfavorable frequency has continued through the first half of the year, which has been offset by higher severity predominantly in bodily injury, which continues to run above inflation. On the physical damage side, we continue to see some good tailwinds with things like used car prices and stabilizing repair costs. But that's the overall loss trend we're reacting to. The sustainability of frequency is a difficult question to answer. Weather and geography, risk segments all come into play. Frequency has been better than it was a year ago. Mines driven per operators up a little bit but trips are shorter, which could be having an impact on frequency. We have been looking to improve profitability over the last couple of years and not growing; the risk segmentation and the mix of our auto book has shifted to higher lifetime value with lower frequency type business, and that's having an impact too. There's a lot of moving parts in there. We'll manage the system in its entirety to generate mid-90s combined ratio profitability, and we're going to continue to do that despite however frequency bounces around.

Thank you, good morning. I wanted to revisit the topic of growth. Since the announcement of the Transformative Growth program, we've faced challenges related to COVID and its aftermath. However, as we begin to emerge from that transitional phase and the elements of Transformative Growth start to take effect, could you share your thoughts on reasonable growth expectations on a PIF basis for Allstate over the long term? I mention this in light of observing some industry leaders achieving consistent mid-to-high single-digit growth in PIF. Is it possible for us to reach that level?

We haven't given out a target for PIF growth, but it's the right way to think about it. When you're looking at market share, market share is often done in the industry by premiums. Also charge more have fewer customers and presumably could increase your market share on that basis; that's not our goal. Our goal is PIF growth. If you want to assume that the U.S. economy, in terms of the number of cars, houses, and stuff like that, is going to be a low single-digit increase, I don't know. So 1% means there are not going to be many more new cars and houses in the United States. PIF growth has got to be higher than that, and it is higher than that. You can see right now in Homeowners because we're winning in that business. We think there's great growth potential here. If you take 1% for the overall growth in assets in the U.S., you put on top of that what would be modest increases in premiums; you should get revenue growth above 5%. What does that turn into? You can do the math as well as we can, but we think there's great potential here. We don't think they figured out how to turn lead into gold. They're just good at what they do. We think we can be every bit as good in the Allstate brand and growing that business, particularly now that we've improved the direct. You can see that from Mario's charts on how much new business we're writing there.

Great. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.