Earnings Call Transcript
ALLSTATE CORP (ALL)
Earnings Call Transcript - ALL Q1 2022
Operator, Operator
Good morning, everyone. Thank you for joining us for the Allstate First Quarter 2022 Earnings Conference Call. I will now turn the call over to Mr. Mark Nogal.
Mark Nogal, Speaker
Thank you, Kirby. Good morning, and welcome to Allstate's First Quarter 2022 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 and investor supplement, filed our 10-Q, and posted today's presentation, along with our reinsurance update 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 operations. Allstate's results could differ materially from these statements, so please refer to our 10-K for 2021 and other public documents for information on potential risks. Before I hand it off to Tom, I want to share that we will be hosting our second special topic investor call on June 16, focusing on the value of homeowners. We look forward to the additional engagement later this quarter, and we'll share further information soon. And now I'll turn it over to Tom.
Thomas Wilson, CEO
Well, good morning, and thank you for investing your time in Allstate today. Now let's start on Slide 2. Allstate's strategy to deliver transformative growth and higher valuation has two components: increase personal profit liability market share and expand protection services, which are shown in the two ovals on the left. We're building a low-cost digital insurer with broad distribution to achieve transformative growth. We're also diversifying our business by expanding protection offerings as shown at the bottom. In the first quarter, we made progress in three key areas to execute this strategy. We're six months into a multifaceted plan to address the negative impact of inflation, which is largely affecting auto insurance. This begins with aggressively raising prices. We're doing this surgically and raising prices more for new or shorter-tenured customers with less profitability and less for longer-tenured, profitable customers. Progress was also made in executing programs to reduce expenses and manage loss costs. We also shifted our asset allocations by reducing the interest rate exposure of our bond portfolio in the fourth quarter of last year, which lowered the overall enterprise impact of higher inflation by $800 million. Secondly, we continue to make progress on transformative growth by expanding customer access, increasing pricing sophistication, and building new technology ecosystems. Protection services also continue its profitable growth trajectory with revenue growth of almost 14% above the prior year. Moving to Slide 3, let's discuss first quarter performance in more detail. Property liability premiums earned increased 6.1% due to higher average premiums and a 2.1% growth in policies in force. Net investment income of $594 million was 16.1% below the prior year quarter, reflecting lower fixed income reinvestment rates, the impact of reducing the bond portfolio duration, and strong performance-based portfolio income that was in comparison to an exceptional prior year quarter. Net income of $630 million in the first quarter compares to a $1.4 billion loss in the prior year, which included losses related to the disposition of the life and annuity businesses. Adjusted net income of $726 million or $2.58 per diluted share declined compared to the nearly $1.9 billion generated in the prior year quarter due to lower underwriting income. You'll remember, last year's first quarter reflected low auto accident frequency because of the pandemic and inflation, and loss costs had not yet been realized. We provided over $1 billion in cash returns to shareholders in the quarter and reduced outstanding shares by 8.1% over the last 12 months. Moving to Slide 4. You can see how income from homeowners insurance, investments, protection services, and health and benefits mitigated the negative impact inflation had on auto insurance. Insurance underwriting margins provided $267 million of after-tax adjusted net income or $0.95 a share. Auto insurance generated a slight underwriting loss with a recorded combined ratio of B. Our industry-leading homeowners insurance business generated underwriting income that contributed $335 million of adjusted net income or $1.19 per share. And although performance-based investment income declined from record highs in 2021, results were still strong in the first quarter, with property liability net investment income contributing $1.56 per share. Protection services and health and benefits income more than offset the losses in auto insurance. Now let me turn it over to Glenn to discuss the property liability results in more detail.
Glenn Shapiro, CRO
Thanks, Tom. Starting on Page 5, we'll talk about profitability in Allstate Brand auto insurance. We target mid-90s combined ratio in auto insurance. And as you can see from the chart on the left, we have a long history of meeting or exceeding that target, supported by our pricing sophistication, underwriting expertise, claims expertise, and expense management. And of course, when you look at 2020 in that chart, it's an outlier in terms of the view because we had much better than target results due to the early pandemic impacts. The chart on the right breaks down the five most recent quarters, highlighting the significant increase in combined ratio that occurred in 2021, as we transitioned from those favorable pandemic impacts to the high inflation environment that we're in today. In late 2020 and early 2021, as Tom just mentioned, while we were running a combined ratio around 80 and benefiting from frequency and the improved cost structure changes we've made, we took price decreases. And then, as inflation spiked in Q2 and Q3 of last year, we shifted towards rate increases, which ramped up significantly in the last six months. The recorded and underlying combined ratios improved sequentially in the first quarter of '22, though inflationary trends continue to pressure margins with increasing severity. And frequency is obviously higher year-over-year from that low point, but it's been very stable in maintaining lower level frequency compared to pre-pandemic levels. We'll go deeper into severity and pricing for auto insurance in the next few pages. So let's move to Slide 6 and talk about Allstate auto physical damage claims severity in more detail. The story of higher severity has continued into 2022, and it's across the country, as you can see from the map on the left. Allstate Brand reported year 2022 incurred severity for property damage increased about 11% compared to reported year '21. Now recall that we shifted to reporting year incurred severity to give you a better view directly into what's recorded in our financials. It's really important to note that when you look at paid severities, it's typically shared as a comparison to the prior year quarter or year-to-date or some prior period, whereas our new disclosure is an estimate of the full change in the fully developed report year severities year-over-year. So the 11% in this case is the expected severity in '22 over all of 2021, inclusive of the inflation seen in quarters 2 through 4. On the chart on the right, you can see that Allstate has a higher distribution of total loss claims involving newer vehicles compared to the industry. And while those vehicles come with higher premiums, they also can adversely impact total loss severity when vehicle values rise. We're adjusting pricing and using our strong claim capabilities to mitigate rising costs, and that includes leveraging our scale, operating processes, experienced claim professionals, technology, and broad repair relationships that we have, along with our investments in data and analytics to help contain costs for customers. Moving to Slide 7. Let's talk about bodily injury severity increases because they've also contributed to auto insurance costs and price increases. Like property damage, casualty loss trends have been elevated for the past few years and continued into '22. However, the bodily injury pressure isn't quite as widespread. Allstate Brand reported year '22 incurred severity for bodily injury increased about 8% compared to reported year '21. Higher-speed accidents and less congested roads are leading to harder impact crashes and more severe injuries, and an evolving legal environment is also a factor in casualty costs. If you look at the chart on the left, you'll see that claims resulting in a nondrivable vehicle, which would mean a harder hit, and claims resulting in bodily injury claims with a major injury designation have increased compared to pre-pandemic levels. This is driving a shift to more complex and costly treatments and contributing to higher medical consumption. In terms of the legal environment, trial attorney advertising for claimants has doubled over the past decade and exceeds $1 billion annually now. This results in higher attorney representation rates, and ultimately, higher costs for consumers. The chart on the right shows the severity variance to prior years trending higher in some of our more populous states like Texas, Florida, Georgia, New York, and California. Texas actually accounted for about 80% of the prior report year strengthening within bodily injury in the first quarter. Here again, our scale, our investments in technology and in data and analytics, and our claim expertise are helping us resolve claims fairly, accurately, and efficiently. Moving to Slide 8, let's talk about another key component to our multifaceted plan to deal with inflation, and that's raising auto insurance prices. The table on the left provides a view into 2021 in the first quarter of '22 rate actions in Allstate Brand Auto. We implemented rate decreases as we talked about earlier, in early '21 to reflect our continued lower frequency and expense reductions. In the second quarter, as inflation picked up, we pulled back on any reductions and began increasing rates by the third quarter. Those rate actions accelerated in the fourth quarter and further accelerated in the first quarter this year. In the first quarter of '22, we implemented rates in 28 states with an average increase of 9.3% and a weighted Allstate Brand Auto premium impact of 3.6%. When you combine that with the fourth quarter actions, we've increased weighted rates by 6.5% over the last six months, which equates to a gross annualized written premium impact of $1.6 billion within the Allstate brand. About 95% of our premiums in the U.S. are coming from six-month term policies. So the rates will improve margins, but there's a lag between when the rates are implemented and they're ultimately earned. That illustration assumes only 85% of the annualized premium will be earned to account for things like retention and the fact that customers modify their policy terms when faced with a price increase, such as changing deductibles or limits. As you can see, looking at Q1 2022, the rate increases we've taken didn't have a whole lot of impact yet, but you can see it coming in the coming quarters, and it really accelerates. We expect to see significant increases in earned premium beginning in the second half, reaching over $1.1 billion by the first quarter of next year based on the implemented rate so far. Keep in mind that additional rates and increases we take through this year will be additive and compound on those prior increases. Given the ongoing inflationary pressure, we have increased the magnitude of rate increases we expect to take in the rest of 2022. We remain very confident in our ability to restore auto profitability to targeted levels, and we'll keep you posted on that in our new monthly disclosures of rate filings. So let's move to Slide 9 and take a look at something that I think is an undervalued strength at Allstate. It's our industry-leading homeowners business. As you know, a significant portion of our customers bundle home and auto, which improves retention and the overall economics of both lines of business. We've differentiated our homeowners product and our homeowners capability really, and that goes to our product, our underwriting, our reinsurance, and our claims ecosystem. It is a unique entire business model and system in the industry. The graph on the left shows the history of Allstate Brand combined ratio in homeowners versus the industry and competitors. We believe that in order to achieve an adequate return on the capital required in this particular line of business, you have to achieve a recorded combined ratio over time at a target of 90% or better. As you can see from the Allstate dots on that chart, we have a long history of doing exactly that. You can also see that some of our large competitors and the industry as a whole consistently generate combined ratios that don't meet what we find as a definition of needed for a return on capital. We've repositioned the homeowners business over a multi-year period by reducing exposure to unprofitable geographies, designing new products, creating highly sophisticated pricing plans, improving home inspection and risk selection processes, and sourcing capital through multi-year reinsurance programs. As a result of all of that, we've consistently generated excellent underwriting results. Since 2017, we've earned $3.3 billion or about $667 million annually in underwriting income with the industry generating an underwriting loss over that same period. Homeowners insurance and Allstate's homeowners insurance is certainly not immune to the rising inflationary environment right now, though. We see that in the form of higher labor costs and higher material costs. However, our products have the sophisticated pricing features needed to respond to those changes in replacement values and help offset the impact. The chart on the right shows key Allstate Brand homeowners insurance operating statistics. You’ll see that our net written premium has grown sharply through 2021 and into 2022, increasing by 17% from the prior year. We grew policies in force by 1.7% in the first quarter. Our Allstate agents continue to be in a really good spot to broaden customer relationships with homeowners, and our average premiums rose 14.3%, mostly driven by increasing property values, as I mentioned earlier. The first quarter combined ratio of 83.3% generated $368 million of underwriting income for the Allstate brand. In short, our property insurance business is a competitive advantage, and we aim to continue to leverage that advantage and grow it. We look forward to sharing additional insights on homeowners with you during our upcoming special topic call on June 16. And with that, I will turn it over to Mario.
Mario Rizzo, CFO
Thanks, Glenn. Let's move to Slide 10, where we'll discuss how we're improving customer value through cost reductions. The chart on the slide shows the adjusted expense ratio, which is a metric we introduced a couple of quarters ago. This starts with our underwriting expense ratio, excluding restructuring, coronavirus-related expenses, amortization and impairment of purchased intangibles and investments in advertising. It then adds in our claims expense ratio, excluding costs associated with settling catastrophe claims because catastrophe-related costs tend to bounce around quarter-to-quarter. We believe this measure provides the best insight into the underlying expense trends within our property-liability business. Through innovation and strong execution, we've achieved more than three points of improvement since 2018. Over time, we expect to drive an additional two points of improvement from rent levels, achieving an adjusted expense ratio of approximately 23 by year-end 2024. This represents approximately a six-point reduction compared to 2018, enabling an improved competitive position relative to our competitors while maintaining attractive returns. While the adjusted expense ratio increased compared to the prior year quarter, primarily due to higher employee-related costs, we remain committed to our three-year reduction goals. Not included in this measure, but in the reported expense ratio was an increase in advertising expenses versus the prior year quarter as we took advantage of a drop in advertising costs and a seasonal increase in direct shopping to increase spending earlier in the year. Advertising will fluctuate throughout the year as we implement auto price increases and could impact near-term growth. Our future cost reduction efforts are focused on digitization, sourcing, operating efficiency, and distribution-related costs. Slide 11 diagrams transformative growth with an increase in market share. This multiyear initiative is designed to increase personal property-liability market share by building a low-cost digital insurer with broad distribution. This will be accomplished by delivering on five key objectives: improving customer value, expanding customer access, increasing sophistication and investment in customer acquisition, deploying new technology ecosystems, and enhancing organizational capabilities. We made significant progress across each objective in 2021 and are continuing the momentum in 2022. While the current auto operating environment required rapid price increases, we are confident this plan will generate long-term growth. Starting at the top of the flywheel, we have reduced expenses to improve customer value with more competitive prices while earning target returns. We are building simple, affordable, and connected protection solutions that are competitively differentiated. We have enhanced and expanded distribution, including modifying the Allstate agent model to increase growth and decrease distribution costs. We also improved the strength of our direct channel capabilities by leveraging the Allstate brand and significantly expanded in the independent agent channel through National General. Differentiated products and expanded distribution are supported by increased marketing sophistication and investment. New technology ecosystems lower costs, support protection offerings, and improve service and speed to market. This comprehensive approach is like a flywheel that creates sustainable competitive advantage, leading to market share growth. At the bottom of the page, you can see the five cases of transformative growth. We continue to make meaningful progress as we execute on building the new model in Phase III and begin to scale the new model in Phase IV. Moving to Slide 12, you can see how expanding customer access better meets customer demand. Starting on the bar on the lower left, you can see the auto insurance industry written premium distribution by channel in 2020 was roughly one-third exclusive agency, one-third direct, and one-third independent agency. Allstate's pre-transformative growth distribution auto new business as of year-end 2019 is shown in the middle bar and Allstate's first quarter 2022 distribution is shown on the right. As you can see, today, the distribution of new business more closely mirrors the industry due to transformative growth and the acquisition of National General. The National General acquisition significantly increased our presence in the independent agent channel and offers future growth potential by expanding middle-market product offerings. Direct sales capabilities were improved and expanded from the Esurance base, including the use of the Allstate brand with lower pricing in this channel. Allstate agents are and will continue to be the competitive strength as we shift to growth and reduce costs. Today, the source of new business matches customer preferences and drove a 14% increase in new business applications in the first quarter compared to the prior year quarter. Slide 13 shows the profitable growth of protection services. Revenues, which exclude the impact of net gains and losses on investments and derivatives, increased 13.6% to $627 million in the quarter. The increase in revenues was driven by continued growth at Allstate Protection Plans, generating a 19.6% increase in revenues to $329 million compared to the prior year quarter. Policies in force also increased 4.7%, reflecting growth in Allstate Protection Plans and Allstate Identity Protection. Protection Services policies in force of $147 million are approximately four times that of property liability, showing how ubiquitous the Allstate brand is becoming. Adjusted net income of $53 million for the first quarter of 2022 increased $4 million compared to the prior year quarter after generating $179 million of adjusted net income for all of 2021. Moving to Slide 14. Allstate Health and Benefits standing product offering generated growth and income. The acquisition of National General in 2021 added both group and individual health products to our portfolio, as you can see on the left. Revenues of $581 million in the first quarter of 2022 increased 4.9% compared to the prior year quarter, driven by higher premiums and contract charges, along with other revenue, primarily in Group Hub. Adjusted net income of $53 million decreased $12 million from the prior year quarter, driven by increased individual and group health losses. Now let's shift to Slide 15, which highlights our investment performance and the reduction of fixed income duration to reduce enterprise exposure to inflation. Net investment income totaled $594 million in the quarter, which is $114 million below the prior year quarter as shown in the chart on the left. Performance-based income, shown in dark blue, was $72 million below the prior year quarter, but 2021 was an exceptional year for private equity markets and reported income. While results are lower compared to a strong prior year, the performance-based annualized yield of 14% in the first quarter is above long-term average performance. Market-based income, shown in blue, was $31 million below the prior year quarter. As we've discussed, our market-based portfolio yield has declined in the lower interest rate environment over the last few years, with reinvestment rates below our average fixed income portfolio yield. The fixed income yield was further reduced by actions we took in the fourth quarter of 2021 to lower portfolio duration and reduce the negative impact higher inflation and interest rates would have on our fixed income portfolio valuations. The chart on the right illustrates our proactive management of interest rate exposure over the interest rate cycle. After shortening duration late in the fourth quarter of 2021, we further reduced duration by 0.7 years in the first quarter. The increase in interest rates in the quarter decreased our fixed income valuations by $2 billion, resulting in a negative portfolio return of 2.8%. However, our interest rate risk mitigation lowered the negative impact of higher interest rates by approximately $800 million versus our position at the end of the third quarter of last year. The shorter duration portfolio also positions us to reinvest in higher market yields as interest rates continue to rise. Now let's move to Slide 16, which highlights Allstate's strong capital position. Adjusted net income return on equity of 12.8% was below the prior year period due to lower auto insurance underwriting income. Allstate's strong capital position continues to enable significant cash returns to shareholders. We returned $1 billion through a combination of share repurchases and common stock dividends in the first quarter of 2022. Common shares outstanding were reduced by 8.1% over the last 12 months, 16.9% since 2018, and 45% since 2011, reflecting our history of providing strong cash returns to shareholders. As of March 31, 2022, we had $2.5 billion remaining on the current $5 billion share repurchase program, which is expected to be completed by early 2023. With that context, let's open up the line for questions.
Operator, Operator
The first question comes from Josh Shanker of Bank of America.
Joshua Shanker, Analyst
I guess, the Agency segment, you guys added 159,000 auto policies in the quarter net and lost 5,000 homeowners policies. I don't know if those are encompass policies or if those are net gen policies. But it does seem like you're adding a lot of monoline auto, which is a lower persistency than the overall Allstate book. Given where your pricing is in the net gen book, how comfortable are you with the monoline drivers you're adding right now? And what is the strategy there on April of 2022 versus where it will be in 1.5 years?
Thomas Wilson, CEO
Josh, I'll start, and then Glenn can provide more details. We acquired National General to enter the monoline segment you mentioned. We needed a stronger foothold in the nonstandard business, particularly in terms of product offerings and pricing. We also see significant potential in the independent agent space. Our objective is to combine our strengths in nonstandard insurance with our standard auto and homeowners products, effectively utilizing our distribution channels. You can expect growth not only from introducing new product lines but also from expanding our existing offerings through this distribution network. We need to enhance their homeowners business, as we excel in that area while they have only been average. Some of the reductions in their performance are due to us aligning their profit targets more closely with our standards. Glenn, why don't you elaborate on how that functions?
Glenn Shapiro, CRO
Thanks for the question, Josh. The auto and home segments are definitely different stories, as Tom mentioned. The first quarter is crucial for nonstandard auto, and our National General team effectively targeted areas with good profitability and appropriate pricing for growth. While auto has a shorter lifetime value, this aligns with their business model and they achieve solid returns on those policies. On the homeowners side, National General is shifting its strategy by leveraging Allstate's strengths. They've adjusted pricing and have reduced their presence in homeowners a bit, but this sets up a strategic opportunity. As we integrate our middle-market products using Allstate's data and capabilities into the independent agent channel, marketed under both National General and Allstate branding, we believe there is significant potential for growth in homeowners. However, for now, we're still in correction mode in the homeowners business, though we've had a strong quarter in nonstandard auto.
Joshua Shanker, Analyst
Okay. The only person who asked a question is about Allstate Protection Plans. I want to move to another area that rarely gets questions. Allstate Commercial seems to be operating at about a 120% combined ratio in that business, yet it is growing very quickly. What is happening there? I might be mistaken.
Thomas Wilson, CEO
No. We always appreciate your precision, Josh. First, I am not pleased; none of us are pleased with the results of Allstate Business Insurance. We've done a lot of work to improve profitability in that area. There are really two parts to the business. One is what I would consider traditional commercial insurance, like small contracts that we sell through Allstate agents. The other is the shared economy business, which has been challenging for us in terms of profitability, particularly with home-sharing companies and some transportation network companies in certain states. Last year, we decided not to chase revenue if we didn't believe those states were profitable, which led us to exit several states, especially three significant ones in the transportation network segment due to their lack of profitability. Furthermore, for the home-sharing business, we completely ended that contract. Glenn, do you want to add anything?
Glenn Shapiro, CRO
I would just add that if you look at the premium growth, it primarily stems from two factors. One is that we have increased rates in our traditional small commercial business, which has seen a significant rise in rates while the number of units has remained stable. The second factor is related to the transportation business, where a year ago, there was minimal usage in the transportation networks. Now, there is much higher usage, resulting in increased premiums. As Tom mentioned, we have exited several states and raised rates in those situations. We believe that profitability moving forward will be improved. Thus, the growth isn't just about taking on more business, but rather we are seeing increased revenue.
Operator, Operator
Next question comes from the line of Greg Peters of Raymond James.
Charles Peters, Analyst
I appreciate the new information and your updated investor slide deck, just FYI. So I'm going to focus my one question on Slide 8. I'm just trying to put the pieces together of the information you provided us around pricing. Tom, you mentioned in your opening remarks, surgical pricing, and you talked about how you're differentiating between lower lifetime value customers and longer lifetime values. Glenn, you talked about a lot of rate in the pipeline that's going to affect earned premium going forward. I was trying to reconcile the language difference from your February cat and pricing report to your March cat and pricing report. The difference between the two, just one month later in the March pricing report, you said that effectively lost cost inflations were exceeding your targets, and you were going to have to raise prices even more, just one month later from your February pricing report. I was hoping maybe you could put all those pieces together for us and sort of map out what's going on.
Glenn Shapiro, CRO
Tom, did you want to start on that? Or do you want me to?
Thomas Wilson, CEO
Yes, sorry, I was on mute. It was quite articulate but great. Let me start off and then I'll get Glenn and Mario to give you more specifics. First, increasing price is really important to getting our auto insurance profitability back on track. We've been aggressive but smart about spreading it between newer, less profitable customers and profitable longer-tenured customers. For example, if you have a customer who's been with you for 10 years with a 95% combined ratio, and you have a new customer that's losing you money, you need to raise your rates to cover the higher inflation impacting both customers. If you apply the same rate increase to both, you risk losing the long-tenured profitable customer. Therefore, we’re putting less rate into our older closed books and more into our newer books with shorter-term customers. We believe this approach protects lifetime value and helps with retention, which will be a challenge for all companies in this new environment. The numbers on Slide 8 represent the total across all customers, whether new or old, profitable or unprofitable, to support our goals. Our approach is more strategic than it seems. Additionally, we're focused on improving auto profitability; as noted in Glenn's earlier slide, we know how to make money in auto insurance and we intend to do so sustainably. This involves careful pricing strategies, ensuring our expense reductions are lasting rather than temporary, managing loss costs differently, and continuing to invest in sophistication and new products. We feel confident about this, and hopefully that gives some insight into our outlook changes; it's not just a sudden decision we made in March. Glenn, would you like to discuss how this has unfolded? Mario, if you're ready to address closures, that would also be helpful.
Glenn Shapiro, CRO
Yes. I will start by outlining how things have progressed. We continue to observe inflation, similar to what many others see. Additionally, we are experiencing extended timelines for development, including developments from previous years. Therefore, we are adopting a conservatively cautious perspective and believe we will require higher rates in that area. Regarding precision, I want to expand on what Tom mentioned, as it is a significant point. We utilize high levels of precision, and while some companies may discuss their segmentation more or less, we might not fully convey the depth of our sophisticated segmentation. It’s important to note that this sophistication exists at both the detailed level and the go-to-market level. We maintained our marketing efforts and seized the opportunity to grow in areas where the economics were favorable. This was facilitated by lower marketing costs due to others exiting that space. Many shoppers are active, especially in the first quarter. We executed this with significant precision; our marketing is not just widespread but is strategically focused where we anticipate a favorable lifetime value return based on risk at the state level. It’s an integration of underwriting, marketing, pricing, and distribution that shapes our market approach and guides our growth strategy, which also informs our need for rate adjustments.
Mario Rizzo, CFO
Yes. If I can just add, Greg, this is Mario. First, where I'd start is, the objective of providing that rate information monthly that we started this year was really to create a level of transparency into what we were doing with auto profitability, with rates being such a significant lever, and provide you all with a view of the progress we're making as well as some color around what we're seeing on a forward-looking basis. So that's the objective. The language we used in the most recent disclosure provided, I think, some additional context. In terms of what's happening, we continue to look at loss trends month-in and month-out, both in terms of reserve levels, severe trends, and just overall loss trends. The statement we made in our most recent release was really a reflection of what we were seeing in loss trends in severity development, both in terms of what we saw in last year, and we strengthened reserves by $151 million in auto this quarter, and what we were seeing in terms of the physical damage severity escalation as well as how that translated into current-year severity. So we're taking that data, we're looking at it, we're working with the pricing team, and factoring it into our outlook. The purpose of the disclosure, again, is to tell you what we did, but also provide a little more texture around what we're seeing in the market.
Operator, Operator
Next question comes from the line of Andrew Kligerman of Credit Suisse.
Andrew Kligerman, Analyst
Yes, great answer to the prior question. I guess you didn't mention anything about non-rate actions. Would it be possible to discuss non-rate actions as maybe a percent of the business that you're able to get that on and maybe how much that might be contributing to improved performance?
Thomas Wilson, CEO
Glenn, do you want to take that for both the Allstate Brand and National General?
Glenn Shapiro, CRO
Yes. I'll start with National General, where we observed a strong underlying combined ratio in the first quarter. One of the key factors contributing to this stability is their fee structure, which remains consistent over time and aids in forecasting their combined ratio. When I consider non-rate actions across the Allstate portfolio, it ties back to my earlier point. I prefer not to limit the discussion to underwriting, as it may imply a binary decision of whether to write business. Instead, it's about obtaining the appropriate rate for each type of risk, which also encompasses underwriting, marketing, and distribution strategies. We have enhanced our capabilities in how our marketing team, underwriting and product teams, pricing, and distribution work together efficiently to seize growth opportunities. This approach significantly contributes to the long-term economic value we create.
Andrew Kligerman, Analyst
Okay, so there aren't really any significant actions to address. That makes a lot of sense. If I could quickly ask, regarding the buyback of $794 million, that's quite rapid in terms of pace. I thought there was about $3.3 billion remaining, and this suggests you're moving at a faster rate. Is there a possibility you could complete that authorization by the end of this year or exceed your initial plans because it seems quite aggressive, and I'm interested in the rationale behind that?
Thomas Wilson, CEO
Andrew, it's Tom. First, regarding the actions, you will notice that we will change requirements such as down-payments going forward to better manage our business selection. Glenn is correct that we are being very selective about what we choose, but if there are specific policy terms or payment terms we can adjust to benefit us, we will implement those changes. As for the buyback, Mario is committed to finishing it early in the first quarter of next year. Mario, do you have anything to add?
Mario Rizzo, CFO
No, I think that's right, Tom. So I wouldn't read too much into any one quarter. We still have $2.5 billion left to buy. We said we'll complete it by early next year, and that's the point.
Operator, Operator
Next question comes from the line of David Motemaden of Evercore ISI.
David Motemaden, Analyst
I have a question about Slide 8. It mentions that you have a higher proportion of newer, more expensive vehicles. Glenn, you indicated that these vehicles come with higher premiums, which can negatively affect total loss severity when vehicle values increase. Does having a higher mix of expensive vehicles mean you need to increase your rates more than your peers? How should I understand this difference in mix compared to your peers?
Thomas Wilson, CEO
Glenn, do you want to do that?
Glenn Shapiro, CRO
Yes. There are several aspects to consider regarding the auto market and the overall system. With each new model year and as time goes on, we have analyzed our business data, including the safety features in vehicles and accident avoidance technologies. We have identified two key trends: first, we experience a slight improvement in frequency as the years progress, and second, we face challenges with severity since repairs become more costly and vehicles are equipped with more sensors. This trend applies here as well. Our portfolio tends to follow this pattern, offering us a consistent benefit concerning frequency compared to others, while also presenting a challenge in terms of severity. We do charge varying premiums based on the make and model year of vehicles, with higher premiums for newer models. My point in mentioning this is that as we analyze our trends, whether through Fast Track or public disclosures, we notice differences in bodily injury and property damage claims related to third-party vehicles, as well as collision claims involving first-party vehicles. We need to take this data into account when adjusting our premiums to ensure we are applying the correct rates.
Operator, Operator
Next question comes from the line of Meyer Shields of KBW.
Meyer Shields, Analyst
Fantastic. I wanted to dig in a little more into your comments on homeowners and the automatic lift because we've seen a little bit of deterioration in the underlying loss ratio all of last year into the first quarter. Is the automatic, I guess, inflation guard changing? Are there other steps that are necessary in homeowners?
Thomas Wilson, CEO
We are pleased with the current profitability of our homeowners business. While there can be fluctuations due to catastrophes, we experienced fewer this quarter compared to the same quarter last year, and our returns remain strong. The underlying combined ratio, which excludes catastrophes, increased slightly. We are comfortable with this level, partly due to inflation factors that affect what we refer to as Property Insurance Adjustment. This adjustment raises the average premium, and as it accumulates into earned premium similar to auto insurance, it helps offset some of the rising costs. Should it fall short, we have ample opportunity to adjust our pricing. Glenn, do you have anything to add regarding the severity in the combined ratio?
Glenn Shapiro, CRO
Yes. First, I always start with I think we're accountable for the recorded combined ratio because ultimately, if we always had a good underlying but like we hadn't gotten the right reinsurance or we hadn't been in the right locations, and we hadn't done good risk mapping for wildfire or hail, hurricane, or any other exposure and we were constantly running what the industry or key competitors run, I think you would rightfully hold us accountable for that. So I always go back to the recorded combined ratio. Right now, like Tom, I feel really good about where we are. Severity ran hot in the first quarter. It's tough to look at one quarter in homeowners and draw a lot of conclusions because there's a decent amount of volatility between the mix of perils in homeowners. It's not nearly as stable as auto in that way. So we're watching that; that was a high number, but we got an average price increase, average earned premium of 14.3% burning through, which really ticked up in the latter part of the year last year. So that will continue to benefit as that earns through. We're in a really good financial position with homeowners, and I feel good about it.
Meyer Shields, Analyst
Okay. That's helpful. Second question on the auto side. I just want to make sure that I'm understanding the commentary on the surgical application of rate increases: should we expect, I guess, suppressed new business as the strategy works its way through to the extent that rate increases are being focused on lower-tenured customers?
Thomas Wilson, CEO
I'll start off and then Glenn, you can jump in. I think a lot of this depends on what happens in the competitive environment. So as other companies are taking rates, it depends on where they're spreading their rates. If you're buying on the renewal book, then that will create more shoppers because those tend to be people who shop less than just putting it all on new business. It depends on how people do it. That said, we feel pretty good about where we track our competitive position, the LTI index with our LTI Index at this point. So we're hopeful that as we move through this, we'll still continue to grow. With transformative growth on top of that, we think that it all still hangs together in terms of increasing market share.
Glenn Shapiro, CRO
I'll just add that if you take the long term and the short term together, as Tom said, our expanded customer access, our work on improving value as we get the three points at cost that Mario mentioned out, and we've got access into all these systems, and we get middle-market products into the independent agent channel, and our exclusive agents are performing, we've got a really good long-term prognosis on that. With your question, you were asking some about the short term. As you think about what we did early this year, we pulled marketing dollars forward, and we've talked about the fact that we pulled them forward. That's not the same as increasing them; it did increase in the quarter, but it's pulling it forward. That means it does have to come out of somewhere too. We decided to do that because there were good economics on the marketing. A number of companies publicly talked about pulling back from marketing, and that left the supply and demand curve of marketing costs reasonable, and there was good economics on it. Plus, a lot of businesses get sold in the first quarter. So we thought with many shoppers in the market with rates out there, this would be a good time to be in the market. That said, inflation is continuing to run and we're taking more rates, and we pulled that money forward from later. So marketing will reduce from this point, and that could have a short-term impact on new business growth. Plus, everybody will have headwinds on retention with the amount of rate that's in the system across the industry.
Thomas Wilson, CEO
Yes, I think when you go back to Glenn's long term. From the bottom, we like prospects for sustainable, profitable growth. I mean, auto insurance, we know how to buy money, and with transformative growth, we really grow that business. You add homeowners on top of that, which is really a growth business. Just like price and value are important to auto insurance customers, it's also important in investing. When you look at the price of Allstate, it's essentially less than your other options. That's why we think transformative growth is going to increase nation multiples.
Operator, Operator
Next question comes from the line of Brian Meredith of UBS.
Brian Meredith, Analyst
A quick question here. On Slide 11 of your supplement, you've got an interesting chart here that looks at auto state profitability. Just my question is, is this based on an earned kind of basis? Or is it on a written basis? And if it's on an earned basis, how would this chart look on a written basis, as far as what states do you think are currently pretty close to rate adequate?
Thomas Wilson, CEO
That's a difficult question. Glenn, would you like to address the forward-looking aspect?
Glenn Shapiro, CRO
Yes, I'll address that. Our combined ratios are based on an earned basis, so you're making a very valid point. While you mentioned the percentage of states that exceed 100, that doesn't directly correlate with our growth strategy. A state might currently exceed that threshold, but we may have just implemented a rate that we believe is necessary for adequacy. The new business we take on will be at a level we deem adequate, and that's where we aim to grow. It does take time to reflect these changes, and you would need to refer back to Page 8 for our estimates. We do not estimate or disclose specific earnings and percentages by state for premiums. Therefore, while that snapshot provides current data, it doesn't capture all the written premiums and increases we have in place.
Thomas Wilson, CEO
Okay. Well, thank you all for engaging with us today. As we go forward, we look forward to in the next month or so talking about homeowners, and then we continue to execute in the meantime our multifaceted plan, both to improve profitability of auto insurance and to achieve transformative growth because that's a key component to sustainable growth, and both of those will improve shareholder value. Thank you for your engagement, and we'll talk to you soon.
Operator, Operator
Thank you so much to our presenters and to everyone who participated. This concludes today's conference call. You may now disconnect. Have a great day.