Earnings Call Transcript - ALL Q2 2025

Operator, Operator

Thank you for standing by, and welcome to the Allstate's Second Quarter 2025 Earnings Conference Call. As a reminder, today's program 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.

Allister Gobin, Head of Investor Relations

Good morning, everyone. Welcome to Allstate's Second 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 material on our website at allstateinvestors.com. Today, our management team will share perspective on our strategy and how Allstate is creating shareholder value. Then we will open up the line for your questions. As noted on the first slide of the presentation, our discussion will include non-GAAP measures for which there are reconciliations that 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.

Thomas Joseph Wilson, CEO

Good morning. Thank you for investing time in Allstate. We'll start with second quarter results and Allstate's strategy to create shareholder value. Then we'll have time to address your questions. So let's start with Slide 2. So Allstate's strategy has two components that's shown on the left: Increase personal property-liability market share and expand protection provided to customers. On the top right is an overview of second quarter results. Revenues were $16.6 billion in the second quarter, a 5.8% increase compared to the second quarter of 2024. Total policies in force increased by $208 million, a 4.2% increase over the prior year, led by Allstate Protection Plans. Personal property-liability policies in force increased by 0.8 points. Net income was $2.1 billion and adjusted net income was $1.6 billion or $5.94 per diluted share. Adjusted net income return on equity was 28.6% over the trailing 12 months. We create shareholder value by delivering excellent operating results, as you see up top, growing the personal property-liability business through the transformative growth strategy, expanding protection services, and proactively investing our $77 billion portfolio. So let's go through those three points, starting on Slide 3. Transformative Growth has 5 phases, and we're now currently in Phase 4 with progress in each of the five subcomponents. New Allstate branded auto insurance products, which are more affordable, simple, and connected, are being implemented. The new auto insurance product is available in 40 states, and we're rolling out the same type of product for homeowners and we're in 16 states now. New products are also available in the independent agent channel in 34 states, expanding our risk appetite from National General's strong nonstandard auto risk position. Underwriting expenses have been reduced, supporting more competitive pricing while maintaining margins. Increased sophistication of pricing plans and marketing programs have helped increase new business through expanded distribution. Claims processes have been enhanced following the pandemic-related inflation, which is helping us control claims severity. Our new technology systems have been deployed, which position us to leverage advanced computing and large language models. Customer access has also been significantly expanded, as you can see in the middle of the slide. New business has almost doubled over the last five years, reaching 10.8 million policies over the last 12 months. This is the broadest distribution platform in the industry with new business spread almost evenly between Allstate agents, independent agents, and directly through call centers or over the web, as you can see from that first set of pie charts on the left. Total policies in force have increased to $37.7 million, reflecting the highly successful acquisition of National General and rapid growth in direct sales. The Property-Liability business is a terrific business with $56 billion of annual earned premiums and excellent underwriting results. Turning to Slide 4. Protection Services, while smaller, is still a really significant business with 170 million policies in force, $3.2 billion of revenue, and $0.25 billion of income over the last 12 months. It's comprised of five businesses: Protection Plans, Auto Dealer protection options, Roadside Assistance, Arity, and Identity Protection. Revenues were $867 million in the quarter, which generated $60 million of income, most of which is from Protection Plans, which is described in the bottom section of the slide. Protection Plan sells protection for consumer electronics, mobile devices, appliances, and furniture. This protection is basically embedded in the sales processes of a broad group of exceptional distribution partners. Revenues increased by 16.6% over the prior year quarter reflecting rapid growth in appliance protection over the last several years and success in expanding internationally. Adjusted net income was $51 million due to higher revenue, moderating claims, support costs, and operational efficiencies. Each of the Protection Services business has their own success story. Arity, for example, which has 2 trillion miles of driving data, is now expanding its services to insurance companies and making inroads into mobility intelligence. Turning to Slide 5. Shareholder values are also created by proactively managing the $77 billion investment portfolio is really an integrated component of our enterprise risk and return decision-making. Investment income was $754 million in the quarter, representing a total return of 1.4% for the quarter and 5.4% for the last 12 months. This diversified portfolio of fixed income and growth assets leverages top investment talent to deliver top quartile performance as shown in the table on the right. The largest part of the portfolio is in fixed income securities, which provides consistent cash flow and high liquidity. Our strong credit skills and active management generated first and second quartile performance. We reduced the public equity holdings in the second quarter given the increased risk of inflation due to the new trade policies. As the impact of this becomes clear, we'll adjust that position. We also have strong results in the performance-based portfolio of private equity and real estate investments, which is a combination of fund participation, co-investments, and direct transactions. The higher returns on these investments are more than attractive despite the greater variability in reported income. Now I'll pass it over to Mario.

Mario Rizzo, CFO

Thanks, Tom. Let's take a look at second quarter Property-Liability results on Slide 6. The Property-Liability business delivered strong results, generating nearly $1.3 billion of underwriting income this quarter as average premium increases exceeded moderating costs. The combined ratio of 91.1% was a 10-point improvement from the prior year quarter, driven by improved underlying trends and $376 million in favorable prior year non-catastrophe reserve reestimates. Shifting to Auto Insurance on the top right, the combined ratio was 86% in the quarter, a 9.9-point improvement from the second quarter of 2024 due to improved frequency and moderating severity trends. Over the past several quarters, we've seen the favorable impacts of our comprehensive auto insurance profit improvement plan in our financial results. Our auto book of business is now broadly profitable, including in previously profit challenged markets like California, New York, and New Jersey, and we are focused on investing in profitably growing auto market share. Homeowners results are shown in the bottom right graph. Underlying margins remained strong in the homeowners business with an underlying combined ratio of 58.6 but were offset by $1.6 billion in catastrophe losses, leading to a combined ratio of 102 in the quarter. While quarter-to-quarter results can be volatile in the homeowners business due to catastrophe losses, we continue to have strong conviction around our ability to grow homeowners and generate excellent long-term returns on capital as demonstrated by a combined ratio of approximately 92% over the past 10 years. Allstate's homeowner capabilities represent a competitive advantage in the industry. Turning to Slide 7. Let's discuss growth trends in the Property-Liability business. In the chart to the left, you can see the composition of Allstate's 37.9 million Property-Liability policies in force with growth results for the quarter shown at the bottom of the chart. Auto insurance with 25.2 million policies in force, shown in dark blue, accounts for two-thirds of total property liability policies, and year-over- year growth turned positive during the quarter, ending the second quarter at plus 0.5% above prior year. The homeowners business accounts for approximately 20% or 7.6 million property-liability policies and continued to grow in the second quarter, increasing 2.3% relative to the prior year quarter. To the right, we provide more detail for auto and homeowners insurance growth rates by brand. We underwrite auto and homeowners insurance business through Allstate agents and direct-to-consumer 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 the market. Auto policies in force in active brands increased 2.4% compared to the prior year quarter. Allstate brand policies in force were negatively impacted by declines in New York and New Jersey, where we continue to focus on profit improvement as our primary operating objective. Approval of pending requests for our new Affordable, Simple and Connected auto insurance products in these states would open these markets for growth as margins have improved significantly over the course of 2025. Excluding New York and New Jersey, Allstate brand increased over the prior year quarter. National General and Direct Auto continued to grow at 11.3% and 22.8%, respectively, reflecting our strong capabilities in the nonstandard auto insurance market in both the direct and independent agency 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. And as the new National General Custom360 product is rolled out across states, we discontinue offering Encompass policies for new business. The continued decline in policies in force in these two inactive brands has created a drag on auto and homeowners insurance growth rates. In homeowners insurance, 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 delivered strong new business growth in the direct channel. Moving to Slide 8. Let's dive deeper into how expanded distribution generated a 21% increase in personal property-liability new business in the second quarter. Auto insurance new business in the middle of the chart increased by 24.8% over the prior year quarter and was distributed almost evenly across distribution channels. New business was strong across all three channels as Allstate agents were more productive and both the direct and independent agent channels continued to deliver strong new business growth. Homeowners insurance new business growth was driven by the exclusive agent and direct distribution channels. Independent agent production declined as we focused on rate adequacy across a number of states, but we expect to resume homeowners expansion plans in rate adequate markets going forward in this channel. While new business growth is encouraging, retention remains an essential focus to accelerate and sustain growth. We continue to execute our SAVE program to show Allstate customers' value every day. Employees and Allstate agents are working to improve 25 million customer interactions this year, including proactively reaching out to customers to ensure that they have the right protection at the most affordable price. This program is designed to deliver an industry-leading customer experience while enhancing affordability for our customers. We will continue to execute our transformative growth strategy and make investments in expanded distribution, pricing sophistication, marketing, and technology, all focused on delivering sustainable and profitable market share growth. Now I'll turn it over to Jesse.

Jesse Edward Merten, CFO

Thank you, Mario. Let's move to Slide 9 for an overview of how Allstate's capital management strategy creates shareholder value. Strong earnings resulted in an adjusted net income return on equity of 28.6% for the latest 12 months. We completed the divestitures of the Employee Voluntary Benefits business on April 1 and the Group Health business on July 1 for a combined $3.25 billion. That represented a 25 times multiple of the latest 12-month earnings for those businesses. The transactions position the businesses for success and allow us to reallocate capital to Allstate's strategic growth opportunities. We continue to return capital to shareholders through share repurchases and dividends. In the past year, Allstate paid $1.1 billion of common and preferred shareholder dividends. Earlier this year, the quarterly common stock dividend was increased 9% to $1 per share. We've also returned cash to shareholders by repurchasing $445 million of common stock in connection with the $1.5 billion share repurchase authorization we announced in February of this year. Let's wrap up on Slide 10. Allstate delivered excellent financial results in the second quarter. We're serving our growing customer base of 208 million policies in force with broad protection offerings under an exceptional brand with extensive distribution. Transformative growth execution is positioning Allstate for profitable personal property liability growth. Protection Services segment led by Allstate Protection Plans continues to grow rapidly and broaden Allstate's customer base. A proactive approach to managing the investment portfolio is aligned with enterprise risk and return objectives, and sound capital management will continue to deliver value for shareholders. Allstate remains committed to executing our strategy and is well positioned to grow property-liability market share, expand protection for customers, and deliver value for our shareholders. With that, let's open up the line for questions.

Operator, Operator

Our first question comes from Jimmy Miller from JPMorgan.

Jamminder Singh Bhullar, Analyst

I had a couple of questions. First, just on PIF growth. Can you talk about the sort of potential tailwinds and headwinds for growth? I would assume that the inactive brands are going to continue to decline, although the impact of that on your overall results should diminish over the next few quarters? And then it seems like at some point, you'll be in a growth mode in New York, New Jersey. Overall, you're not raising prices as much as you were. But just talk about sort of what the headwinds, tailwinds are to growth in personal auto PIF so that one gets a better idea on where it's headed from the level in the last couple of quarters.

Thomas Joseph Wilson, CEO

Jimmy, let me start with the growth one, a little higher level, and then I'll ask Mario to go into Auto. So first, why do you want growth? You want growth because we're earning a 28% return on equity. You can grow, you can deploy capital and then your PE goes up. And then you're like, okay, what kind of growth do you want? In the personal Property-Liability business, we obviously have had huge growth in revenues. That translates not just into higher absolute dollar earnings per share, but it also translates into higher investment income, which you can see because the investment portfolio goes up. And then, of course, you also want PIF growth, as you point out. There is PIF growth in homeowners, which has been terrific, particularly when you take out the inactive brands. Mario, do you want to jump into auto insurance?

Mario Rizzo, CFO

Thanks for the question, Jimmy. To address your comment about the inactive brands, it's accurate. As our business in those brands, which we're not writing any new business for, continues to decline, we expect the rate of that decline to lessen moving forward. You're spot on with that observation. Now, regarding the tailwinds, Tom covered them well when discussing transformative growth. This includes our new product offering with Affordable, Simple, Connected Custom360 in the IA channel, advancements in technology, enhanced and more sophisticated marketing, our extensive distribution capabilities, and improvements in our competitive position. All these factors have created favorable conditions that are driving significant new business, and we will continue to utilize and build on these strengths. Lastly, concerning New York and New Jersey, I'm pleased to share that we are now achieving an underwriting profit in both states. We have collaborated closely with the insurance departments over the years to ensure our rates reach an adequate level, and we believe we have achieved that with the approved rates, including those set to take effect in August. We're optimistic about our position there. The final piece we need is regulatory approval for our new Affordable, Simple, and Connected Auto product in both states. Once we receive that, we anticipate being able to broaden our risk appetite and begin to grow in those markets. We are hopeful that this will materialize in the second half of the year.

Jamminder Singh Bhullar, Analyst

Okay. And then how do you think about the lifetime profitability of the business that you're putting on an independent agency and direct versus the captive business, which obviously wasn't growing in the past, but was highly profitable. So I think last year, there were concerns you weren't growing. Now there are concerns you're making too much money and maybe the profitability of the newer growth isn't as great. But just talk about the margin profile of independent agency and direct that you're writing versus captive agents.

Thomas Joseph Wilson, CEO

Jimmy, I'll start and then Mario might want to jump in as well. So everything we write, we write lifetime value. We have a very sophisticated analytical system, which looks at marketing costs, distribution expenses, lifetime value, not just by channel, but by risk level, by expected retention. So we feel really good about lifetime value. We have a really good clean book.

Operator, Operator

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

Charles Gregory Peters, Analyst

So, I guess, the first question, I'll focus on frequency and technology. Can you talk a little bit about the frequency trends? And one of the things that seems to be popping up more and more is the embedded technology and accident avoidance technology that's specifically going into cars and the longer-term consequences of autonomous driving. And just curious for your updated views on that.

Thomas Joseph Wilson, CEO

Let me begin, and then Mario, you can provide insights on the current results regarding frequency if that makes sense. First, regarding autonomous driving, around 15 years ago, we engaged in scenario planning and assessed its potential impact on auto insurance. The conclusions we reached then remain relevant today. We identified an engineering challenge that needed addressing, alongside an economic challenge. John Dugenske and I recently left Waymo, and I believe the engineering aspect has been resolved, but the economic issue is still a factor. There are about 280 million cars in the United States valued over $4 trillion. To overhaul the system, we need to replace that entire fleet, which will happen gradually. As time goes on, those economic barriers will diminish. Meanwhile, we've observed that frequency is indeed decreasing as the fleet is updated, but the cost of repairs is rising due to more expensive vehicles. For instance, side view mirrors now cost $1,000 compared to $200 previously because of additional features. This trend is expected to continue. This is one reason we're focusing on Arity in telematics. As vehicles become more connected, we anticipate changes in accident frequency and repair costs, as well as overall efficiency improvements in personal transportation systems. Although we don't frequently discuss it as a part of our strategy, we see significant potential in leveraging Arity for this purpose. Mario, would you like to discuss the current frequency since Greg may also be interested in current results?

Mario Rizzo, CFO

Yes. Sure. Thanks, Greg, for the question. So look, I think broadly on frequency, what we and the industry have experienced really over the last, call it, 6 quarters or so, is kind of the continuation of maybe the trend prior to COVID of this downward trend in auto frequency. Obviously, there was a lot of noise during COVID and post-COVID as driving behavior shifted around quite a bit. But we're seeing favorable frequency, and it's driven by the kinds of things Tom talked about from a technology perspective, whether it's blind spot monitoring, lane departure warnings, other advanced safety features that are in vehicles that I think are showing up in improved auto frequency for the industry. The other data point I'd use is as we look at our Arity telematics data over the last year or so, we've seen miles per operator drop around 3% or so, which is likely also contributing to favorability in frequency. But favorable frequency is certainly a component of the loss cost trend that we've seen. And you saw in the supplement, pure premium is down almost 3% year-over-year. That's mainly favorable frequency kind of partially offset with higher severity, particularly in the injury coverages, but favorable frequency trends that have persisted over a long period of time.

Charles Gregory Peters, Analyst

I'm going to pivot for my follow-up question to the reinsurance program. You put up some details on how the reinsurance structure has changed this year. And you didn't really talk about it during your prepared remarks, but probably worth covering. It looks like you have more limit this year versus last year. Maybe you can just walk us through some of the decisions and how the program looks this year versus last year.

Thomas Joseph Wilson, CEO

I'll let Jesse go through that. I would just point out that we look at reinsurance really as a source of capital. And so when Jesse is managing capital, whether that's we use preferred instead of common or we're using debt or any other source of capital, reinsurance is just a way for us to get capital.

Jesse Edward Merten, CFO

Thank you for the question, Greg. I wanted to highlight a couple of points. First, as you mentioned, we provide a comprehensive supplement that everyone can review to understand the program. While I won't go into every detail, we included some scenarios to illustrate how the reinsurance programs work together during a catastrophe. As Tom noted, the reinsurance program we implemented is based on our economic capital framework and our decisions regarding risk and return, enabling us to manage risk both on a per event and aggregate basis. At a high level, our total catastrophe reinsurance limit purchased this year across all programs amounts to just over $11 billion, which is an increase of $2 billion from last year, and we achieved about a 10% risk-adjusted reduction in cost. This outcome is quite positive; we secured more coverage for less on a risk-adjusted basis. We received strong support from both the reinsurance and catastrophe bond markets, which reflects the strength of our program. Our renewal process began right after the L.A. wildfires, even while they were still being addressed, and we continued to have strong backing from traditional reinsurers and our Cat bond partners during this period. We renewed the Florida program and added an aggregate limit for U.S. homeowners, increasing limits by $325 million on an aggregate basis. Overall, we now have $825 million of Cat AG limit in place. Just to clarify, around $58 million has already been utilized for expected recoveries, leaving us with $767 million of remaining aggregate limit in addition to our strong per occurrence limits. This is a high-level overview of the changes we made, and all of these placements are approached with a focus on risk and return, as Tom mentioned, ensuring we are effectively utilizing this alternative capital source to reduce our capital requirements and manage risk.

Operator, Operator

And our next question comes from the line of Rob Cox from Goldman Sachs.

Jack Kendall, Analyst

This is Jack on for Rob. I guess I was looking at the strong exclusive growth that is kind of supporting the Auto PIF growth there. As you look at that strong exclusive agency growth kind of over the past 4 quarters, has that really been driven by either bundling, increased entrepreneurial efforts on the agents? Or are you seeing any shift in customer preferences toward maybe the In Force versus IA or Direct?

Mario Rizzo, CFO

Yes, this is Mario Rizzo. To provide some additional context regarding our transformative growth strategy and the Allstate exclusive agent channel, we have been undergoing a multi-year transformation with our agents aimed at boosting productivity and reducing distribution costs while ensuring that agents deliver the value consumers seek through their relationships with local agents. This strategy has proven successful as we've segmented agents into tiers based on performance and tailored our support accordingly. We have also made changes to the compensation program and provided agents with tools that help them align with customer preferences for agent relationships. As a result, over the past several years, the total number of agents has decreased, but their productivity has reached new heights, with increases of over 20% this quarter alone. Our agents are actively investing in their small businesses, and our initiatives in marketing, new products, and technology enhancements have led to a more productive agency system and higher new business levels. We aim to grow across all channels, recognizing opportunities in both direct and independent agent channels, while also continuing to support the Allstate agency channel as we adapt to customer engagement preferences.

Jack Kendall, Analyst

Got it. And then a quick question on the Canadian business. A peer of yours recently announced it was exiting Canada, highlighting some verticalized distribution of top-market shareholders. Could you guys just provide us some insight on the performance of your Canadian business and any updates on kind of your long-term view of that market?

Thomas Joseph Wilson, CEO

We are optimistic about Canada and believe we can succeed there. I can't comment on others' decisions as everyone has their own unique concerns, but we anticipate success in Canada.

Operator, Operator

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

David Kenneth Motemaden, Analyst

The pace of monthly Auto PIF growth, if I just look at the number of units added, that slowed a bit over the course of the second quarter, still positive, but it slowed a bit. I was wondering if you could just discuss some of the moving pieces there, seasonality, anything else that's impacting that? And how we should think about the cadence as we get into the back half of the year?

Thomas Joseph Wilson, CEO

David, we can't provide a monthly number that would give you confidence in making judgments for July, August, or September. Instead, let's focus on transformative growth and whether it’s effective. Mario explained that it has five components, and we're clearly in Phase 4. All our underlying assumptions have proven to be correct, and we are successfully executing them. Simply stating that we are building a new tech ecosystem or enhancing marketing effectiveness doesn't guarantee success. We've successfully demonstrated that we can achieve these goals. We are very confident that our growth trajectory will continue to rise. However, analyzing it on a monthly basis won't provide much insight, as various factors influence the outcomes, including different programs, seasonal changes, and vacations. Sharing that information would only give you anecdotal data, which wouldn't aid in your forecasting.

David Kenneth Motemaden, Analyst

Got it, that’s helpful, I appreciate it. For my follow-up regarding the inactive brands within the Auto business, could you remind me when the process of not writing new business started? I believe inactive brands currently account for just under 5% of the PIF count in Auto. How much longer until we start seeing those headwinds behind us, just to set expectations?

Thomas Joseph Wilson, CEO

I'll let Mario discuss the future. We're not going to make specific forecasts about insurance policies because we want to retain our customers. Occasionally, we provide them with alternatives within our offerings. Reflecting back to when we initiated transformative growth over five years ago, we committed to investing $200 million to $250 million annually in the Esurance brand to attract direct customers. At that time, GEICO's spending was around $750 million to $1 billion. This created an opportunity for us to cultivate a second brand focused on direct sales, starting in 2011. Over time, however, Progressive increased their marketing investments. By 2019, we realized that no matter how much we invested in Esurance, we couldn't match the brand strength of Allstate. As a result, we decided to discontinue the Esurance brand and reallocate those resources to strengthen the Allstate brand. We now offer Allstate branded auto products directly online at a 7% to 8% discount compared to purchasing through an agent, as agent assistance comes with additional costs. Encompass operated differently; our goal was to enhance our platform within the independent agent business. National General had an established platform based on nonstandard insurance and a solid technology base. We approached them with the realization that our own nonstandard efforts weren't as effective. We had to determine our commitment to Encompass and ultimately opted to sell it. The unique aspect of this deal was our intention to acquire them first, then integrate Encompass into their operations to drive further growth. This strategy has proven to be very successful. That summarizes the reasoning behind our decisions. Mario, would you like to elaborate on the recent initiatives underway?

Mario Rizzo, CFO

Yes. I will discuss Esurance and Encompass separately as they represent two different narratives. Over the past couple of years, we have ceased selling new business in Esurance. What you observe as that brand fades is a natural decline in policies, and in several states, as Tom noted, we are proactively offering Esurance customers alternative policies, with varying degrees of success. This trend will continue over time. Regarding Encompass, as we launch the Custom360 product, which is now available in 34 states, we will no longer pursue new business under the Encompass brand. We are also discontinuing the legacy National General middle market brand, focusing solely on Custom360. Thus, once we introduce Custom360 in a state, it essentially becomes a renewal portfolio that will gradually decrease. This is the strategy we are implementing, and as these portfolios shrink, the impact should lessen.

Thomas Joseph Wilson, CEO

Yes. That's a really good point. If you look at the slide on the inactive brands and you look at homeowners, you'll see that impact on National General homeowners is down because specifically what Mario said, which is we've got a much better product with Custom360. We're really good at homeowners. We know we can grow aggressively in that channel, but you see National General is down because we're doing that transition still.

Operator, Operator

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

Jian Huang, Analyst

So maybe the first one on the competitive environment. And this is something we kind of anecdotally addressed. But as you grow in this environment, it feels like more and more competitors are in that, call it, 80s and 90s combined ratio for personal auto. And then everyone is talking about pivoting to growth. Just curious how you think about just new business retention, ad spending efficiency as we head into this environment where more and more folks are ready to fight with you.

Thomas Joseph Wilson, CEO

Well, first, let me summarize that we believe we are very well positioned to grow and achieve attractive returns for shareholders based on what we've accomplished with the business. While we do face some tougher competitors, we feel confident in our ability to compete and succeed. The evidence of this comes from our distribution capabilities; we have the broadest distribution options, including direct sales, independent agents, and Allstate agents. As Mario mentioned, we are pleased with the productivity standards in these areas, which we expect will deliver strong results. The reason for this success is that we offer competitive prices and appealing new products. Our partners are not just selling because they like our brand; they are selling because it is beneficial for them. We are enhancing customer value by managing our expenses to provide competitive prices while maintaining our profit margins. We do not believe that simply lowering prices to grow is a sustainable strategy. We have made price adjustments in some states, which Mario might elaborate on, considering the current margins. However, we do not foresee this leading to a situation where we compromise on the quality of our business. Maintaining high standards is essential. Lastly, from an advertising perspective, we have performed well, and this has also contributed to our growth.

Mario Rizzo, CFO

Yes. To conclude the question, as we consider the growth investments we have made and plan to make in the future, our focus is heavily on marketing investment due to its significance. Tom mentioned rate adjustments; now that we have launched the new Affordable, Simple, Connected product and Custom360, we continuously refine prices based on the data we gather, and we have improved pricing in several states for these products. These investments are essential for driving growth, and we are also refining our underwriting guidelines and standards as our profitability has improved. This demonstrates our commitment to investing in the business. We are actively working on retention strategies, including the SAFE program, which underscores how critical retention is. We anticipate that, given our well-priced book and strong margins, there will be less need for rate increases moving forward, which is beneficial. We are proactively engaging with both our employees and Allstate agents to reach out to customers and enhance retention, employing a comprehensive approach to drive growth in the future.

Jian Huang, Analyst

My second question is a bit hypothetical. Earlier this year, about seven states considered increasing speed limits, and New York is among them. You have mentioned achieving profitability in New York State. I'm curious, as we think about raising speed limits on interstate highways from 65 to 70, will that affect your frequency or severity, especially since you've recently achieved profitability in New York? How should we approach this? Does it have any significance? I'm just interested to know.

Thomas Joseph Wilson, CEO

Of course, the first thing we want to do is make sure your customers are safe. If the public sector decides they want to increase the speed limit for whatever reasons, as it is, that's the way it happens. You obviously don't prospectively price and say because the speed limit went from 65 to 70, we're going to raise prices. I'd just say I'm incredibly comfortable with the precision, with the data we have to price accurately for every individual customer. That's where this is really heading, whether that's telematics or other data we have on people. We're well down that path. So whether it's changes in the public sector, autonomous driving, or increased competition, we're getting better all the time.

Operator, Operator

And our next question comes from the line of Mike Zaremski from BMO.

Michael David Zaremski, Analyst

Do you anticipate that the direct-to-consumer strategy in personal lines will become significantly different or larger over time? I'm considering this from a broader perspective. If so, will this result in increased advertising expenses, or will it simply involve a change in the nature of your advertising spending?

Thomas Joseph Wilson, CEO

Good question, Mike. For Direct, its growth will depend on the demand from consumers. We’re equipped to cater to those who prefer to buy Direct from us or online. Additionally, we support customers who choose to purchase through independent agents or through our agents who can provide assistance while still valuing the Allstate brand. This diversified approach is in place to capture growing market demand. Currently, Direct makes up one-third of our new business, but less than one-third of current policies. As we expand our overall market share, we expect this ratio to change positively over time, and I'm feeling optimistic about it. Regarding advertising, I know several people discussed this in their recent reviews, so let’s clarify it, as it's a crucial aspect of our transformative growth strategy. One key factor has been a more sophisticated and increased investment in customer acquisition, particularly in marketing. We’ve enhanced our strategy and boosted our marketing budget. Although there was some confusion regarding the numbers, our marketing expenditure has increased this year. The economics behind this spending is strong and improving compared to last year due to our refined approach and higher brand consideration. However, the effectiveness of marketing isn't solely dependent on this factor. Two other crucial elements of our transformative growth include expanding customer access through distribution and enhancing customer value. We are seeing success in distribution with one-third of our business coming from three different channels. More advertising leads to better targeting, which also benefits our Allstate agent channel. Improving customer value involves cost reductions, some reflected in Esurance and Encompass, along with our new ASC product. Our marketing efforts are yielding positive results across various segments. We are confident that overall growth will align with customer preferences, whether through Allstate agents, independent agents, or Direct purchasing. There remains a substantial portion of the market that we can capture, so I’m not concerned about reaching our limits in any of these areas.

Michael David Zaremski, Analyst

Okay. That's helpful. My follow-up is on home insurance specifically. Based on the data we continue to see, it appears that competitors, particularly independent agency competitors, are trying to catch up to your results and are adjusting their terms and conditions. I'm curious if you believe that the current competitive environment is providing you with favorable conditions, more so than historically, as the industry is shifting, or if that perspective is inaccurate and the strong growth you've experienced over the past year, as well as the acceleration, is attributable to other factors.

Thomas Joseph Wilson, CEO

Let me make three overall comments and then Mario can provide more details. First, we excel in serving homeowners. Second, the competitive landscape has evolved, with others attempting to mimic our strategies. Finally, we are improving continuously, and we anticipate that our competitive edge will remain strong moving forward, despite others adopting tactics we implemented five to seven years ago.

Mario Rizzo, CFO

Yes, Mike, I would add that looking back 12 to 18 months, there was less competition in the homeowner market. Recently, the market has become a bit more competitive. However, the capabilities Tom mentioned are why we stayed committed to the homeowner market and were able to take advantage of the competitive environment. These same capabilities will enable us to continue growing effectively in homeowners. Our new Affordable, Simple, Connected homeowner product, available in 16 states, differentiates our pricing and underwriting capabilities compared to our competitors. This product is more digitally focused and offers an improved customer experience from a sales perspective. We will continue to leverage this going forward. Our distribution capabilities are significant in this space, with Allstate agents bundling at all-time high rates of around 80%. We also saw strong growth in the Direct channel and plan to build on that. We believe there are additional growth opportunities in the independent agent channel with Custom360. We are confident in our homeowner capabilities, having grown this business profitably over the long term, and we will continue to capitalize on those strengths.

Thomas Joseph Wilson, CEO

So if you again go to the PIF numbers because I know you're all focused on PIF, even though growth comes in many forms like protection services, investment income, and everything else. The overall PIF growth in homeowners is 2.3%, over 4% in the Allstate brand, which is what Mario was just talking about. We're getting smaller in National General and Encompass. Quite honestly, I'm fine with that because they weren't in good returns back to the lifetime value conversation. This is about increasing lifetime value, not just one measure called PIF. It's about driving overall shareholder value growth.

Operator, Operator

And our next question comes from the line of Alex Scott from Barclays.

Taylor Alexander Scott, Analyst

I had a follow-up on retention. I just wanted to see if you could shed a little more light on what you're seeing across the channels. I'm just trying to understand, is it the exclusive agent network and retention associated with maybe more people going online there or something? Or is it maybe some churn in the direct-to-consumer and some of the policies you've grown into more recently? Maybe just have a quicker duration to them? I just want to better understand retention and just in light of it being a critical driver of PIF right now.

Mario Rizzo, CFO

Yes. Thanks, Alex. This is Mario. I'll give you a little color on retention. I think the headline on retention for us is really over the last couple of quarters, we've seen retention levels stabilize, but they're still down relative to where they were a year ago. When you look at retention broadly, it's certainly going to vary by risk segment, by customers that shop more frequently and maybe shop direct-to-consumer versus those that use an exclusive agent or an independent agent. But I think the broader issue with retention is the issue of affordability in the industry. As we and the industry had to raise prices to combat what was just historically high levels of inflation, what we've seen is more customers shop and more customers switch and defect from their current insurance carrier. On the one hand, that creates tailwinds from a new business perspective because you got more people out there shopping, but it certainly creates challenges and opportunities, quite honestly, from our perspective to improve retention going forward. As I said earlier, we're not sitting back and waiting for retention to get better. We're doing things proactively around reaching out to customers, making sure that they have all the potential discounts that are available to them that they have the right protection, the right product, the right coverage levels and limits to make sure that we can offer them the most affordable price possible. That's really at the heart of the SAVE program. Just given where our margins are and the profitability of the book broadly, we would anticipate needing less rate going forward, which will help. We're focused on leaning in and doing things proactively to change the trend line on retention. And when we're successful at doing that, I think that will generate sustainable and profitable growth for us.

Taylor Alexander Scott, Analyst

Got it. That's helpful. Second question I had is on California and the homeowners market there. Would just be interested if you could give us an update on how you're thinking about that market and maybe additionally if there's any action that you feel will be necessary as some of those moratoriums kind of sunset and you're able to take action if you need to?

Thomas Joseph Wilson, CEO

Let me address the availability of homeowners insurance, particularly in California. With the increase in severe weather and the majority of Americans' wealth tied to their homes, it's crucial for them to have homeowners insurance, which is why availability has become such a concern. Currently, the system in California is not functional, but it has the potential to work. Texas, despite experiencing the same or even greater catastrophe losses in both types and total amounts, has a viable homeowners market that is well-regarded. California is working towards establishing sustainable insurance, and whether it fully achieves this will depend on their actions and those of other companies. Would you like to discuss California further?

Mario Rizzo, CFO

Yes. The only thing I'd add, Alex, is in California, I think there's a recency here last week, Commissioner Lara and the department announced really the last component of the sustainable insurance strategy, which related to using wildfire models. They had previously come out with how they were thinking about recouping reinsurance costs. We think that's a constructive approach by the department and certainly a step forward relative to where we were before, which was you just couldn't recoup the cost of doing business in homeowners market in California. That's one of the reasons that we stopped writing new business over a long period of time. We're reviewing the details of that release. At some point, we'll make a sustainable insurance strategy filing with the department. Too early to tell you which way we'll fall on that one. For now, it's the status quo. We're not writing new business in California. But we'll take a look at what the details are, and we'll do a filing and then we'll let you know what we decide.

Operator, Operator

And our next question comes from the line of Josh Shanker from Bank of America.

Joshua David Shanker, Analyst

There has been a significant increase in the number of policies in Allstate Roadside Assistance. I'm curious if this could be a solution for persistency if we could cross-sell them with roadside assistance. Are the captive agents selling this more consistently? What’s going on there and what is driving this trend?

Thomas Joseph Wilson, CEO

You're right; the more things you sell people, the more opportunity you have to make them happy. The frequency of use of roadside is greater than the frequency of use of auto insurance, and so it makes people happy. Do you want to talk about what we're doing there?

Unidentified Company Representative, Company Representative

Yes. I think you hit it. We are also bundling roadside with auto policies that our agents sell. That's one of the reasons we are seeing an upsurge in the number of policies that we are selling. So it's a good product bundled with Auto. It has added value for our customers, which is really important.

Joshua David Shanker, Analyst

Can you talk about your success rate on bundling right now broadly with maybe how the business was running five years ago? Is bundling more successful as a strategy right now? Or is it hard to get people to buy multiple items?

Thomas Joseph Wilson, CEO

I would say in total, we're doing much better with bundling at homeowners. We have improved our technology to support this, and we see tremendous opportunities ahead, including renters and other categories where we had previously faced operational and technology barriers. With the new tech system, those challenges have been addressed, allowing us to explore new potential.

Operator, Operator

And our next question comes from the line of Hristian Getsov from Wells Fargo.

Hristian Getsov, Analyst

How do you expect the drag on auto PIF growth from New York and New Jersey to be in the balance of the year? Because even if you reopen for new business in the second half, assuming you get the rate increases you currently have filed, I'm guessing you might see some retention headwinds to kind of offset that? Or are most of the retention issues in the past just given the large rate hikes over the last couple of quarters, and these are a little bit more muted?

Thomas Joseph Wilson, CEO

We're committed to growth in total. It wouldn't really help you much to give you a sort of what we think is going to happen in New York and New Jersey. We just look at the breadth of the new business, look at what we're doing in total, talk about the SAFE program. Our goal is to increase market share in personal property liability. We're already doing it in home. I just point that out, and we think Auto is coming.

Hristian Getsov, Analyst

And then for my follow-up, in respect to tariffs, you've talked about a mid-single-digit impact on loss cost trends previously. Can you provide an update on your expectations given a few more changes in recent weeks? And can you potentially quantify what percent of your premium would be outside of your target profitability if we assume those increased costs materialize today? Because I'm just trying to get a sense of like what percent of your premiums you may receive a little bit more regulatory scrutiny for getting a rate hike just given you're potentially running at a much better profitability versus the mid-90s for Auto?

Thomas Joseph Wilson, CEO

I want to assure you that we will effectively manage any impact from tariffs, and we have already been doing so profitably. This situation is different from the pandemic-related spike where used car prices surged by 60% in 18 months. If tariffs do affect the cost of parts for replacement or repair, which we believe is probable based on current trends, we can handle it. We have already considered this in our business operations today and in our future plans since we don't resolve every claim immediately. It can sometimes take us three to four months to fix certain vehicles, so we are in a strong position.

Operator, Operator

And our final question then for today comes from the line of Jing Li from KBW.

Unidentified Analyst, Analyst

I have a follow-up question on retention regarding the SAFE retention program. Can you provide more details about the impact of these initiatives compared to the natural improvement from smaller rate cuts?

Thomas Joseph Wilson, CEO

The SAFE program is an enterprise-wide effort to improve customer interactions, $25 million in total, $10 million in personal property-liability price-related reductions of more than 5%. Some of the 25% is also obviously property liability. We've already achieved our $25 million goal, but we are slightly behind on the $10 million for that. So we're going to do better than the $25 million, and we still have a goal to get to $10 million.

Unidentified Analyst, Analyst

Got it. My follow-up is on the Affordable, Simple and Connected Auto products. So now that you're available in 40 states and representing a significant expansion for the rollout. Can you provide some more details on the new business conversion rate or retention of these products versus the traditional products?

Thomas Joseph Wilson, CEO

We don't break out retention and new business. I would just say, look, we started with Affordable, Simple, Connected because that's what customers want. We've made great progress on Affordable. This product is much better on Simple. We're able to really clean up the whole acquisition process. I think we still have some room to go on Connected. This is a journey, not an ending. We really like the new product. We like its close rates. We like its profitability. We like customer satisfaction, but we don't break out specifics. Rolling out a new Auto product across this company as fast as we did is a tremendous accomplishment, and we feel really good about the impact that will have on growth. Thank you very much for tuning in. We went a little long, but thank you for investing in Allstate, and we'll talk to you next quarter.

Operator, Operator

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