Earnings Call Transcript
ALLSTATE CORP (ALL)
Earnings Call Transcript - ALL Q1 2021
Operator, Operator
Thank you for joining us. Welcome to the Allstate First Quarter 2021 Earnings Conference Call. Currently, all participants are in listen-only mode. Following the presentation, we will have a question-and-answer session. This program is being recorded. Now, I would like to introduce your host for today's program, Mark Nogal, Head of Investor Relations. Please proceed, Sir.
Mark Nogal, Head of Investor Relations
Thank you, Jonathan. Good morning. Welcome to Allstate’s first quarter 2021 earnings conference call. After prepared remarks, we'll have a question-and-answer session. Yesterday, following the close of the market, we issued our news release, investor supplement and posted related materials on our website at allstateinvestors.com. Our management team is here to provide perspective on these results. 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 2020 and other public documents for information on potential risks. And now I'll turn it over to Tom.
Tom Wilson, CEO
Thanks, Mark. Good morning everybody. We appreciate you making the time to follow-up on Allstate to see how we're doing. Let's start on Slide 2. On the left, our strategy has two components, which is to increase personal property liability market share, and then secondly, to expand protection services, which are shown in those two logos. We made substantial progress in executing that this quarter. Many of those things that we'll talk about on the right-hand side, were really a year plus in the making, but you see it all coming together this quarter. So, we closed on the acquisition of National General in January, enhancing our competitive position in the independent agent distribution. We executed agreements to sell Allstate Life Insurance Company and Allstate Life Insurance Company at New York, two separate deals there, and that will redeploy capital out of the lower growth and return businesses and reduce our exposure to interest rate risk. We also made continued progress in getting higher growth in our personal property liability business, moving into Phase 3 of Transformative Growth. Total revenues increased by 26.2% in the quarter, which is an outstanding number. Policies in force increased by 20.6%. Of course, that's driven in large part by the National General acquisition. We'll talk a little bit more about that in the call. A long-term approach to creating shareholder value in both investing and using reinsurance also benefited results this quarter. We saw a substantial increase in performance-based income and reinsurance recoveries. Allstate Protection Plans continues its rapid growth. We launched Home Depot earlier this quarter. We had strong operating results with adjusted net income of $1.9 billion or $6.11 a share and it generated a return on equity over the last 12 months of 23.2%. Shareholders also benefited with $765 million in dividends and share repurchases. Let’s turn to Slide 3 and go through the first quarter financial results. Our revenues of $12.5 billion in the quarter increased 26.2% compared to the prior year quarter. This reflects both the National General acquisition, higher investment income, and realized capital gains. Property-liability premiums earned and policies in force increased by 11.4% and 12.1% respectively. Our performance-based income was $378 million versus a loss in the first quarter of 2020. We recorded a net loss of $1.4 billion this quarter, which included a $4 billion loss on the dispositions of those announced sales of the two life insurance companies. This was not fully offset by the strong operating performance. However, the strong operating performance did create an adjusted net income of about $1.9 billion, which is 55.7% higher than the prior year quarter as reduced auto claim frequency and higher net investment income more than offset increased catastrophe losses. Let's go to Slide 4 and take a closer look at National General, which is an excellent growth platform for us. We acquired the business for $4 billion in January to grow market share within the independent agent channel. National General has appointments with over 42,000 independent agents. That expands our product portfolio, including non-standard auto insurance, where we had a very small presence, lender-placed homeowners insurance, accident and health insurance and two digital marketing platforms. National General’s agency-facing technology is effective, efficient, and scalable. We believe we're a better owner for National General since it improves the independent agent business, lowers costs, and will generate incremental growth from here. It will become a top five independent agent carrier. The combination of Allstate's standard auto and homeowners insurance expertise with National General's expertise in non-standard auto insurance will give us a really broad portfolio of products to offer to independent agents. Significant expense reductions are expected by consolidating Allstate’s independent agent businesses onto National General's technology and operating platform. The cost to acquire these in-force policies, which represent about one point of our market share at the net acquisition price, is comparable to acquiring them organically. Now we have three measures of success through these acquisitions: accretion to earnings, achieving expense synergies, and growing independent agent channel policies in force. We’re only a quarter into it, but we had a really strong start on these goals. We put Glenn and the team, who have been working on this really since the six months we started the deal in July—six months before we bought it—so we came into this first quarter with a head of steam. The Allstate protection segment added $1.3 billion in net written premiums, and $138 million in underwriting income this quarter. Allstate Health and Benefits increased adjusted net income by $35 million. We are integrating Encompass onto the National General platform and are on pace to achieve our expense synergies. We also expect to grow policies in force by broadening that product portfolio in the independent agent channel. This channel represents about a third of the total personal lines market. The independent agent channel policies in force are approximately six times larger after this transaction, as we add standard auto and homeowners insurance products into National General’s offering later this year, which will drive even more growth. Let me now turn it over to Mario to go through the first quarter results in more detail.
Mario Rizzo, CFO
Thanks, Tom. And good morning everybody. Let's go to Slide 5 and delve a little deeper into Property Liability growth. Property Liability policies in force grew by 12.1% compared to the prior year quarter. National General, which includes Encompass, contributed growth of 3.9 million policies. The Allstate brand grew policies by 0.5% due to growth in homeowners and other personal lines, as you can see by the table on the left. Allstate brand auto insurance was flat to the prior year, as increased new business was offset by lower retention. The chart on the lower right shows a breakdown of personal auto, with new issued applications compared to the prior year, which increased 64% in total, primarily due to the incremental 526,000 applications generated by National General. The middle section of the chart shows Allstate brand impacts by channel, which in total generated a 5.4% increase in new business growth compared to the prior year. Modest increases from existing agents and a large increase in direct channel sales more than offset the volume that would normally have been generated by newly appointed agents as we pilot new agent models with higher growth and lower costs. As a result, property liability net written premium grew by 13.7% in the first quarter compared to the prior year, driven by a 12.9% increase in auto insurance and a 20.3% increase in homeowners insurance. The auto insurance net written premium increase was driven by a 14.1% increase in policies in force due to National General and increased new business—new issued applications across all brands. These favorable impacts were partially offset by lower average auto insurance premiums from approved rate decreases and lower retention, partially driven by the impact of special payment plans that were implemented during the pandemic. If you flip to Slide 6, you see property-liability margins remain strong. The recorded combined ratio of 83.3 improved by 1.5 points compared to the prior year quarter, primarily from a lower underlying loss ratio driven by reduced auto frequency and continued cost savings. The auto insurance recorded combined ratio of 80.5 was 8.8 points below the prior year, primarily due to lower accident frequency in the quarter. Allstate brand auto property damage gross frequency remained below prior year levels in 47 of 51 geographies, including the District of Columbia. The chart on the lower left shows the impact of the pandemic on Allstate brand auto property damage gross frequency. As you can see, the onset of the pandemic and efforts to slow the spread of the virus had a large impact on frequency beginning at the end of the first quarter of last year and extending into the second quarter when auto frequency was at its lows. This timeframe coincided with Allstate's shelter-in-place payback. Following the second quarter of 2020, property damage frequency has trended below pre-pandemic levels by approximately 28%, as you can see by the third and fourth quarter variances to 2019. The first quarter of 2021 frequency showed a comparable decline relative to 2019. As you can see from the chart on the bottom right, we continue to make progress in reducing our cost structure, enabling us to improve the competitive position of auto insurance while maintaining strong returns. The property liability expense ratio improved by 2.5 points in the first quarter of 2021 compared to the prior year due to the absence of coronavirus-related expenses incurred in 2020, such as the shelter-in-place payback, as well as continued cost reductions. This was partially offset by a significant increase in advertising investment. The expense ratio, excluding coronavirus-related expenses, restructuring charges, and the amortization of purchased intangibles associated with the acquisition of National General was 22.8, an improvement of 0.5 points compared to the prior year quarter. In connection with the anticipated benefits associated with the future work environment, we expect to incur approximately $110 million in restructuring costs during 2021, with $33 million recognized in the first quarter, primarily related to real estate exit costs. These restructuring costs and their future benefits are incremental to the $290 million in aggregate restructuring costs related to transformative growth, which we announced in the third quarter of 2020, and of which we've recognized $256 million to date, including $17 million this quarter. Let’s move to Slide 7 to discuss our progress in building transformative growth business models. Transformative growth is a multi-year initiative to build a low-cost digital insurer with broad distribution. This will be accomplished by expanding customer access, improving customer value, increasing marketing sophistication and investment, and building new technology ecosystems. A longitudinal plan segments transformative growth into five phases, starting with the conceptual design and ending with the retirement of the old business model. We've completed Phase 1 and much of Phase 2. In Phase 2, the auto insurance competitive position has been improved, leading to higher close rates. This was supported by cost reductions. Direct capabilities have been expanded and sales volumes are increasing. New branding has been launched and marketing investment has been increased. This combined with industry-leading telematics capabilities will bolster growth. We believe Allstate is among the leaders in telematics and is the largest pay-per-mile provider through Milewise, which offers lower costs for customers who drive less. We've also expanded independent agent distribution through the National General acquisition. Looking forward, we are now into Phase 3 in building the new operating model. We will support the transition of Allstate agents to higher growth and lower-cost models. New agent models are also being tested to serve customers who want a local agent. Improving customer acquisition costs relative to lifetime value will lower costs. Expense reductions will support increased investment in growth and technology. The new customer experience and product management technology ecosystems will also be deployed in this phase. Now let's go to Slide 8, which highlights investment performance for the first quarter. Net investment income totaled $708 million in the quarter, which was $462 million above the prior year quarter driven by a higher performance-based income as shown in the chart on the left. Performance-based income totaled $378 million in the first quarter as shown in gray, reflecting broad-based valuation increases in private equity investments and sales of underlying real estate investments. Market-based income shown in blue was $6 million below the prior year quarter, with lower interest rates, as our reinvestment rates remain below the average interest-bearing portfolio yield, reducing income. Our first quarter GAAP total portfolio return was minus 0.2%, as you can see on the bottom of the left chart, reflecting lower fixed income valuations. Over the last 12 months, the total return was 8.8%. As discussed previously, our performance-based strategy has a longer-term investment horizon with higher but more volatile return expectations. This volatility can be seen in the chart on the lower right. It highlights the one, five, and ten-year performance-based internal rates of return. The one-year trends have been volatile throughout the pandemic, with the two most recent quarters significantly higher than the returns experienced during the middle of 2020. Conversely, the five and ten-year trends are stable and closer to our expected returns. Moving to Slide 9. Allstate Protection Plans continues to grow revenue and profit. As you recall, we purchased Allstate Protection Plans for $1.4 billion in 2017 to broaden the protection solutions offered to customers. It provides low-cost protection with excellent service. Products are primarily sold for U.S. retailers and leverage the Allstate brand. Since the acquisition, Allstate Protection Plans has experienced rapid top-line growth and improved profitability. Revenues have grown at a compound annual rate of 48% over the last three years, as you can see on the bottom left, and we're more than $1 billion over the latest 12 months. Adjusted net income went from a loss of $22 million in 2017 to income of $148 million over the last 12 months. Additional growth will be achieved by further expanding appliance, furniture, and mobile phone protection, expanding the geographic footprint outside the U.S. and creating new innovative services such as two-day appliance repair. This acquisition has been an incredible success for us. Now let's move to Slide 10, which highlights Allstate's attractive returns and strong capital position. Allstate continued to generate attractive returns with adjusted net income return on equity of 23.2% for the last 12 months, which was 5.7 points higher than the prior year. Excellent capital management and strong cash flows have enabled Allstate to return cash to shareholders while simultaneously investing in growth. We provided significant cash returns to shareholders in the first quarter through a combination of $601 million in share repurchases and $164 million in common stock dividends. The current $3 billion share repurchase program is expected to be completed by the end of 2021. Given our growth strategy and sustainable earnings potential, we announced a 50% increase in the quarterly common shareholder dividend to $0.81 paid to shareholders on April 1. The total cash return provided to shareholders was 7.8% of average market capitalization over the last 12 months. With that context, let's open up the line for questions.
Operator, Operator
Certainly. Our first question comes from Josh Shanker from Bank of America. Your question, please.
Josh Shanker, Analyst
Yes. Thank you very much for taking my question. So it looks like there's very good success in the allstate.com direct model. Can we talk a little about whether we shuttered the purchasing through Esurance and the sort of flows we're seeing on the new policy applications on the allstate.com site?
Tom Wilson, CEO
Glenn, do you want to take that?
Glenn Shapiro, CRO
We have not completely closed Esurance. Instead, we have shifted our marketing funds from the Esurance brand to the Allstate brand. Additionally, we are investing more in the Allstate brand. This has allowed us to transition our marketing efforts. While Esurance has seen a decline, we still benefit from the positive reputation we've established with that brand. People continue to recognize Esurance and find value in its products for part of our market. We're still making some sales under that brand, but the growth is primarily coming from the Allstate brand. As outlined in the supplement, there has been a 33% increase in direct sold business, which is significantly accelerating, and we're increasing our capacity within that system. The direct system's main limitation is sales capacity, which we're working to expand by growing the contact center and enhancing web flows to boost the Allstate branded direct sold business. As part of our transformative growth, we are also developing a new technology ecosystem, including a product management system and a customer experience system. Once these systems are fully implemented, we will discontinue the Esurance system and stop selling products under the Esurance name, but we have time to execute that transition.
Josh Shanker, Analyst
And the 278,000 new policy applications at Allstate direct, are those apples-to-apples with the 200 or so that you sold one year ago, or was that part of a joint direct captive sort of relationship where we were directly the lead generator, or are they complete apples-to-apples those two types of new applications?
Tom Wilson, CEO
Glenn, do you want to take?
Glenn Shapiro, CRO
Yes. Sure. Yes, it would be an apples-to-apples. It's basically just think about customers that come to us by either clicking or calling directly into an 800 number as opposed to the customers that come to us through an agent. So, it would be an apples-to-apples comparison.
Josh Shanker, Analyst
And can we talk about National General, Encompass and Allstate brand through independent agents? Is Encompass going to be called National General, even though the National General and Encompass products are kind of a different target customer? What would be wrong with calling the product Allstate?
Tom Wilson, CEO
Let me take the branding question, then Glenn can fill in how we're doing the transition, because it's different for Encompass than it is for the Allstate independent agent. First, from a branding standpoint, we've decided that the Allstate brand and personal property liability will be on business that we control both the sales and the service on. That includes both the Allstate agents and then direct, whether that's through a web or call center. For the independent agent business, we've rebranded National General. So it's National General and Allstate company, and we launched it, I think beginning of January. That way everyone understands that it's separate, which you would get from an Allstate agent. We do not do that with the Allstate brand in the circle of protection. For example, we sell under the Allstate name at Walmart, sell under the Allstate name at Home Depot, and at Target, which gives us increased exposure to customers, enabling us to further leverage that capability. Honestly, it's helped us dramatically expand Allstate protection products because of the power of their brand. So slightly different strategy from a branding standpoint inside the personal property liability markets and outside, but we try to leverage it everywhere we can, while ensuring brand integrity. Glenn, do you want to talk about your plans to integrate Encompass and Allstate independent agents into National General and then respond to Josh’s question on branding at the same time?
Glenn Shapiro, CRO
Yes. Thanks, Josh. Because I think it's an interesting question because if you take from a legacy standpoint in terms of what National General and Encompass are best known for, it would be different as we suggested. But as Tom just pointed out, the new branding will be National General and Allstate company, under which we're launching middle market products. So think about basically the Allstate product capability in the middle market auto and home and other personal lines. This will be on the National General platform and branded as National General and Allstate company starting in the second half of this year and rapidly expanding. We expect that to roll out to all 50 states within 18 months of the start of that, well before the end of next year. National General and Allstate company will form a significant player in the independent agent space. We've received phenomenal responses from independent agents who are genuinely excited to have another significant player, with the capabilities of Allstate and National General combined in that market. Therefore, we're positioned well to grow with a lot of room ahead of us in the independent agent space.
Josh Shanker, Analyst
The Encompass name will disappear?
Tom Wilson, CEO
It will be part of National General and Allstate company, correct. Whether we grow the policies to a new policy or leave the policy outstanding under the Encompass name, and basically put National General's offerings on top of it, would depend on the cost of it. It will go first, and the Allstate independent agent, which is Allstate brand products sold through independent agents in rural spaces where it was not economic to have a captive agent, mostly where it didn't work that way, but that will transition over time as well.
Josh Shanker, Analyst
Excellent. Thank you very much.
Operator, Operator
Thank you. Our next question comes from the line of Jimmy Bhullar from JPMorgan. Your question, please.
Jimmy Bhullar, Analyst
Hi, good morning. So first I guess for Glenn or Mario, but the question on just auto –the auto business. How do you see the interplay between the frequency and pricing? It seems like everybody's had very good margins in personal auto over the last several quarters. At what point do you see pricing catch up to that? In that environment, do you think if the market stays competitive, are you still in a position to grow your discount?
Tom Wilson, CEO
Let me provide an overview and then Glenn, if you want to jump on this one. First, let's go up a little bit. It's about how we think about increasing market share. We will use two words together: profitable growth. We put them together because that's what we want. We do not believe that growth with no profit is good for shareholders. The objective of course is to maximize shareholder value. Our expected outcomes for our team are that they will balance between growth and profitability. Our strategy, as Mario talked about in the first phase and second phase of transforming growth, is to get a more competitive auto insurance product, and we've successful supported that by reducing our costs. So, the first thing would be we can control our costs and make sure that if we reduce prices to get more competitive, we still maintain our margins. Obviously, we want to be smarter in how we price and acquire business in marketing. We're also using telematics. As we move forward with transformative growth, it will be by being faster with better technology and having new products that are affordable, simple, and connected, sold through that broad range of distribution from direct to Allstate agents. So, Glenn, do you want to jump in on the specifics?
Glenn Shapiro, CRO
Yes. So first I'll talk about frequency a little bit and then go to competitive position. From a frequency standpoint, everybody has benefited from lower frequencies. We have also looked at a deeper level at it, not just miles driven and the number of accidents because there are differences by books, and you see differences in competitors as to how much tailwinds that's providing. We see that commuter-driven or rush hour losses are down about three points more than overall losses. Rural driving is down about four or five points less than urban driving. We analyze this at a pretty granular level, and we're fortunate to work with Arity, utilizing over ten years of telematics data to accurately assess frequency. We have a tailwind with that, which takes me into competitive position because we've been moving it aggressively. As you see a minus 1.5 on average premium, that might feel or seem slight, but there's a lot underneath that. We've adjusted pricing for new business, telematics pricing, and reduced costs of our Milewise program, which has grown nicely and is all inside of that. Our competitive position on those price changes has really improved, and our close rates are up. We're beginning to see very positive signs of momentum across multiple states. Furthermore, some competitors have already taken price increases, while others are indicating plans to do so. Looking at our position, we have considerable potential to continue investing in growth and remain competitive in pricing because of where we currently stand. This puts us in a great position to grow going forward.
Jimmy Bhullar, Analyst
And then just any comments on your views on growth? To the extent you're able to quantify or provide a range on how growth may trend higher later this year into next year as you're implementing some of these initiatives in the direct and independent agency space?
Tom Wilson, CEO
We're not going to give a forecast on growth, frequency, or case tasks; these things you can't predict. Let me talk about growth a little, though, because it's really an important question that many analysts have. It drives substantial value in the market today. We began with our first actuals matter and had a great quarter—over 25% revenue growth, our fifth growth in low teens. We're heading towards increasing market share pretty significantly in personal lines this year, which is consistent with our established strategy. You'll have some naysayers and say that we bought market share with the acquisition of National General. That's true, but we always investigate market share. In this case, it is real growth. If we had taken the net price that we paid for National General and thrown it into marketing or higher commissions, it likely would have generated less growth than we got. The same thing applies to Allstate protection plans, right? We bought SquareTrade, repositioned it with our brands, and that acquired growth transformed into an organic growth platform. We expect the same thing to happen with National General. The distinction is that we paid a slightly higher premium for SquareTrade than for National General. In relation to the Allstate brand, we have multiple ways to grow. We have Allstate agents, and we’re assisting them in transitioning to a new model. We also have the direct business, which we've launched—so it is at a different price than through an agent. Customers should pay for what they receive. If you have an agent assisting you, you should be willing to pay for that. Overall, we feel the Allstate brand is positioned for long-term growth as well. We have an overall plan to move forward, which includes transformative growth, this quarter's real growth, and we're building solid platforms. We'll continue that growth going forward.
Jimmy Bhullar, Analyst
Okay. Thank you.
Operator, Operator
Thank you. Our next question comes from the line of Greg Peters from Raymond James. Your question, please.
Greg Peters, Analyst
Good morning. My first question will be on reinsurance. Tom, I was hoping you could just give us an overview of how reinsurance helped the company this quarter. I noted that the costs in the first quarter were about 14% higher versus a year ago. Is that the type of cost increase we should expect for the full year?
Tom Wilson, CEO
Greg, let me start with this from a strategic perspective, and then either Mario or Glenn, if you want to talk about the first quarter. I'm going to go back a long way. In 2004 and 2005, we faced huge catastrophe losses and weren't earning any money on the homeowner's business. We'd earn money in some years but lose money the next year. Over that time, we realized this wasn't a great business. So we looked at exiting but decided if we were out, we'd want back in because customers do need it. Maybe it's just this catastrophe risk they don't want. We created a comprehensive catastrophe reinsurance program to divest certain portions of the risk we took. That has evolved over time. We have a very sophisticated multi-year program that's state-specific and has various components by event. We bear the associated costs each quarter, which obviously flows through. Sometimes it pays off too. What you saw this quarter was the aggregate kicked in. Some losses from last year appeared, which reduced our catastrophe losses this quarter and helped smooth out cash flows. We’ve analyzed the return on capital versus what we yield to reinsurers, and we’re comfortable giving that up to avoid continued volatility. Using reinsurance has helped stabilize the homeowner business, yielding consistent profitability. In the prior question, we discussed not believing in unprofitable growth; running the homeowner's business above a 100 isn't a good plan. We are using reinsurance to reposition the business. What you saw in this quarter was a benefit that was more than what was earned but paid for in the prior quarter. If you view that, some people may want to exclude it from this year's quarter, which is acceptable. However, they should not count all the costs from previous time either. Mario or Glenn, do you want to talk about the cost of reinsurance and the program moving forward?
Mario Rizzo, CFO
Sure, I can jump in on that, Tom. Just to give you a bit more context, Greg, the benefits in the quarter: we recovered about $955 million this quarter on a net basis. A part of that came from our per occurrence nationwide program, where we retain the first $500 million of an event and then coverage up to $5 billion. We also had recoveries under that. It was primarily related to the freeze event in Texas, contributing a gross loss in Texas north of $1.3 billion. Just to clarify, for the costs, as we have included National General in this year’s program, the increase will be slightly higher compared to a year ago when you add up what we spent on reinsurance, along with what National General was spending. Regarding what you witnessed in the first quarter: last year's program was placed on May 1. The increase we experienced last year was mainly in the Florida program, and you're seeing that cycle through in the first quarter. We will begin incurring this year's program costs when it initiates, which is on June 1.
Greg Peters, Analyst
That was a thorough answer. I appreciate it. I'd like to pivot to the expense ratio on Page 6 of the presentation slide deck. You're showing improvement in the expense ratio. Is this a trend that we should continue to expect? Obviously, I don't think your expense ratio is going to zero, but the improvement is noteworthy. There was an increase in the Allstate protection home business expense ratio. I'm curious if something unusual affected that?
Tom Wilson, CEO
Overall, Greg, you are correct. Our strategy to enhance our competitiveness in auto insurance pricing, which was part of our transformative growth phase, involved cutting costs. Last year, we made a significant reduction in force, with around 3,800 positions, and we are beginning to see the benefits of that this year. While our advertising spend has also increased significantly, we aim to find a balance between these two areas. You shouldn't anticipate that the expense ratio will decrease by half a point every quarter indefinitely. Our strategy is centered on consistently lowering costs wherever possible to provide more affordable products and attract customers. At the same time, we need to invest in growth, as the returns we are witnessing in these areas justify further investment.
Mario Rizzo, CFO
Yes, thanks Greg. We’ll keep pressing on reducing our cost structure. Our focus here is not solely margin expansion; it’s a focus on growth. Lowering our costs ultimately enables us to invest more in growth. This quarter, we invested more in marketing: part of our underwriting expense ratio related to marketing increased by nine-tenths of a point. However, this was more than offset by the operating cost reductions Tom referenced from last year. The net result was a half-point improvement in the underlying expense ratio for the quarter. We will keep focusing on reducing that number. Additionally, part of our efforts includes becoming more efficient in claims handling, which improves our loss adjustment expense. We consider this a core part of our cost reduction efforts, building a structure that supports us in investing and achieving growth. What you saw this quarter truly exemplifies our strategy. Regarding the homeowner expense ratio specifically, I’ll need to investigate in detail to pinpoint whether it was related to distribution costs or underwriting costs, such as inspections. Let me take that one offline, and I'll get back to you.
Greg Peters, Analyst
Got it. Thank you for the answers.
Operator, Operator
Thank you. Our next question comes from Paul Newsome from Piper Sandler. Your question, please.
Paul Newsome, Analyst
Good morning. Thanks for the call. Congratulations on the quarter. I was hoping you could elaborate a bit on what it means to transition existing agents to a different model. We receive emails from agents constantly, often worried about these changes. Is this transition toward a more independent agent-type structure, or are we discussing something completely different?
Tom Wilson, CEO
Let me provide a broad overview, then Glenn can fill in the specifics. First, we aren’t transitioning to nationwide and turning our agents into independent agents; we believe that doesn’t make sense from a customer standpoint. Customers come to us because they cherish the Allstate brand and the long-term relationships we've established. That said, people are also more comfortable with self-service, and technology enables people to manage some tasks that used to require direct human involvement or local office support. We must make this transition responding to customer trends. This will require us to adjust our real estate needs and significantly reduce servicework happening in agent offices. We currently have over 10,000 Allstate agents with about 26,000 to 27,000 employees among those agencies. Some work in service roles, and we believe we could move them to centralized locations or have computer systems take over, thereby minimizing staff requirements. We must assist agents in moving from service-oriented work to sales-based work. A year ago, Glenn and his team raised commissions for new business to help drive sales, which incentivized more growth. In turn, we slightly lowered renewal commissions to reflect this shift. If you focus on new sales, that's a positive, while those focused on service may not find it appealing due to changing business models.
Glenn Shapiro, CRO
Absolutely. Tom has hit a lot of important points. The bottom line is we firmly stand by our exclusive agent model; we believe there is significant opportunity for growth. While many customers do seek an agent, there's a necessity to modernize to meet changing preferences, especially in self-service. As mentioned, we're focused on allowing agents to optimize their operations—less reliance on physical locations and focusing more on sales processes. We’re initiating new models, where agencies have the freedom to operate independently and generate their own leads, while simultaneously receiving company-generated leads that will contribute to growth.
Paul Newsome, Analyst
Could you provide some early insights on pilot programs for new agent recruitment and any upcoming changes?
Tom Wilson, CEO
Do you want to handle that, Glenn?
Glenn Shapiro, CRO
My apologies, I did go on mute there. So, we're focusing on increasing new models. The response thus far has been positive. We want to grow with these new models, currently having several hundred implemented and many more in the pipeline. Our focus remains on maximizing our agent recruitment; the current initiatives allow us to better equip existing agents for growth through a comprehensive training to adapt to more modern sales techniques. While we're recruiting some under the traditional exclusive agent structure, we're prioritizing these new models, where agents operate more independently with a focus on driving sales.
Paul Newsome, Analyst
Thank you very much.
Operator, Operator
Thank you. Our next question comes from David Motemaden from Evercore. Your question, please.
David Motemaden, Analyst
Hi, good morning. I'd like to touch on retention; I was surprised it fell here again, especially given some of the rate actions taken. Can you discuss the impact of any billing leniency on retention and your expectations for retention going forward?
Tom Wilson, CEO
David, let me provide an overview here, and Glenn can discuss the impact of pandemic billing. Retention attribution is incredibly challenging; customers leave for countless reasons—price, relocations, new cars, etc. It's a complex landscape, making precision difficult. What we’ve done to improve net promoter score and pricing for both new and existing customers should ideally keep them around longer. However, many factors play into this, making projections of retention somewhat perplexing. Glenn, would you like to express your feelings about retention this quarter?
Glenn Shapiro, CRO
Absolutely. Retention is a lagging metric; when a customer decides to cancel, we record and report it at the renewal point. Thus, there is a lag involved. While we ended special payment plans last year, components of that remain. Attribution is truly difficult. Additionally, it's a fiercely competitive market right now—shopping is up, advertising is louder, which has some impacts. Notably, National General's new business growth is tremendous; they write more to grow faster due to shorter cycles. As we shift toward generating more new business, retention’s fluctuations won't impede our overall growth.
David Motemaden, Analyst
Got it. Thanks. That's helpful. Regarding new business, particularly strong growth on the direct side in new applications. Can you discuss Milewise and how it performed this quarter? How significant is it within the total book? Was Milewise a significant driver behind direct growth this quarter?
Mario Rizzo, CFO
Glenn, you can discuss the details regarding Milewise, the states in it, and how you’re approaching that overall. Let me step back and clarify: we’re about building a digital insurer. Sometimes that gets lost in the size and scope of Allstate. Some might see newcomers capture the market, but we compete well and are early in telematics. We consider ourselves a key player in telematics. This is evident through products like Milewise, which have resonated well. Glenn, could you discuss the growth aspect further?
Glenn Shapiro, CRO
Absolutely. Milewise provides potentially lower costs for those who drive less. While it is growing rapidly—up significantly—it's still a smaller piece of the whole. If it were a standalone startup, it would impress. Within the context of Allstate, it helps spur growth, but it isn't the sole driver. Currently, Milewise covers about 50% of consumers nationwide, expanding more states soon. We’re closely monitoring the supply chain, especially with chip shortages, to ensure consistent rollout without hindrance.
Tom Wilson, CEO
Thank you for the questions. We're reaching the end of our time and I want to respect that. We appreciate you joining us to learn about Allstate. We had an exceptional quarter, thanks to the expertise and effort we put in to achieve these results—it's not only about this quarter, but our ongoing endeavor. We feel confident about our current standing with excellent operating results. Thank you for your participation, and we’ll see you next quarter.
Operator, Operator
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.