Earnings Call Transcript
ALLSTATE CORP (ALL)
Earnings Call Transcript - ALL Q2 2023
Operator, Operator
Good day, and thank you for standing by. Welcome to Allstate’s Second Quarter Investor Call. At this time, all participants are in a listen-only mode. After the prepared remarks, there will be a question-and-answer session. Please limit your enquiry to one question and one follow-up. As a reminder, please be aware that today’s call is being recorded. And now, I’d like to introduce your host for today’s program, Brent Vandermause, Head of Investor Relations. Please go ahead, sir.
Brent Vandermause, Head of Investor Relations
Thank you, Jonathan. Good morning. Welcome to Allstate’s second quarter 2023 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 related material on our website at allstateinvestors.com. Our management team is here to provide perspective on these results. As noted on the first slide of the presentation, our discussion will contain non-GAAP measures for which there are reconciliations in the news release and investor supplement, and forward-looking statements about Allstate’s operations. Allstate’s results may differ materially from these statements, so please refer to our 10-K for 2022 and other public documents for information on potential risks. And now, I’ll turn it over to Tom.
Tom Wilson, CEO
Good morning. We appreciate you investing your time in Allstate. Let's start with an overview of results and then Mario and Jesse will walk through operating results and the actions being taken to increase shareholder value. Let's begin on Slide 2. Allstate's strategy has two components: increase personal profit liability market share, and expand protection services, which are shown in the chart on the left. On the right-hand side, you can see a summary of results for the second quarter. Progress is being made on the comprehensive plan to improve auto insurance profitability, which includes raising rates, reducing expenses, limiting growth and enhancing claim processes. While auto insurance margins are not at target levels, the proportion of premium associated with states operating and that underlying underwriting profit has gone from just under 30% in 2022 to 50% for the first half of this year. Mario will discuss the actions being taken to continue this trend and importantly, improved results in New York, New Jersey and California. Severe weather in the quarter contributed to a net loss of $1.4 billion, with 42 catastrophe events impacting 160,000 customers and resulting in $2.7 billion of catastrophe losses and a property liability underwriting loss of $2.1 billion. Strong fixed income results from higher bond yields generated $610 million of investment income and Protection Services and Health and Benefits generated $98 million of profits in the quarter. The transformative growth plan to become the lowest-cost protection provider is making continued progress. This helps current results with lower costs and positions Allstate for sustainable growth when auto margins return to acceptable levels. Affordable, simple and connected property liability products with sophisticated telematics pricing and differentiated direct-to-consumer capabilities are being introduced under the Allstate brand through a new technology platform. National General was growing, which will also increase market share. Specialty auto expertise, along with leveraging Allstate's strength in preferred auto and homeowners insurance products, are expected to drive sustainable growth. Allstate Protection Plans is expanding its embedded protection through new products and retail relationships as well as in international markets. Allstate has a strong capital position with $16.9 billion of statutory surplus and holding company assets, as Jesse will discuss later. And as you know, we have a long history of providing cash returns to shareholders through dividends and share repurchases. Over the last 12 months, we've repurchased 3.9% of outstanding shares for $1.3 billion. We suspended this repurchase program in July, as we had a net loss for the six months of the year. Improving profitability, increasing property liability organic growth, and broadening protection offered to customers through an extensive distribution platform will increase shareholder value. Let's review financial results on Slide 3. Revenues of $14 billion in the second quarter increased 14.4% above the prior year quarter of $1.8 billion. The increase was driven by higher average premiums in auto and homeowners insurance from rates taken in 2022 and 2023, resulting in property-liability earned premium growth of 9.6%. Net investment income of $610 million reflects the impact of higher fixed income yields and extended duration, which will substantially increase income. This growth more than offset a decline from performance-based investments in the quarter. The net loss of $1.4 billion and an adjusted net loss of $1.2 billion reflects a profit liability underwriting loss of $2.1 billion due to the $2.7 billion in catastrophe losses and increased auto insurance loss costs. In auto insurance, higher insurance costs and lower expenses were largely offset by higher catastrophe losses and increased claim frequency and severity. The underlying auto insurance combined ratio did improve slightly for the first six months of 2023 compared to the year-end 2022. Auto insurance had an underwriting loss of $678 million. In homeowners insurance, catastrophe losses were substantially over the 15-year average, resulting in a combined ratio of 145, generating an underwriting loss of $1.3 billion. The underlying combined ratio on homeowners improved 1.9 points to 67.6% as higher average premiums more than offset increased severity. Adjusted net income of $98 million from protection services and health and benefits when combined with the $610 million of investment income offset a portion of the underwriting loss. The target for enterprise adjusted net income return on equity remains at 14% to 17%. I'll now turn it over to Mario to discuss profit liability results.
Mario Rizzo, CFO
Thanks, Tom. Let's turn to Slide 4. We are seeing the impact of our comprehensive auto profit improvement plan in our financial results, starting with the rate increases we have implemented to date. The chart on the left shows Property-Liability earned premium increased 9.6% above the prior year quarter, driven by higher average premiums in auto and homeowners insurance, which were partially offset by a decline in policies in force. Price increases and cost reductions were largely offset by severe weather events and increased accident frequency and claim severity. The underwriting loss of $2.1 billion in the quarter was $1.2 billion worse than the prior year quarter due to the $1.6 billion increase in catastrophe losses. The chart on the right highlights the components of the combined ratio, including 22.6 points from catastrophe losses. Prior year reserve reestimates, excluding catastrophes, had a 1.6 point adverse impact on the combined ratio in the quarter. Of the $182 million of strengthening in the second quarter, $148 million was in National General, primarily driven by personal auto injury coverages in the 2022 accident year. In addition, prior years were strengthened by approximately $31 million for litigation activity in the state of Florida related to tort reform that was passed in March of this year. We've been closely monitoring the increase in filed suits on existing claims, and the charge reflects a combination of higher legal defense costs and a modest loss reserve adjustment. Despite continuing pressure on the loss side, the underlying combined ratio of 92.9 improved modestly by 0.5 points compared to the prior year quarter and 0.4 points sequentially versus the first quarter of 2023. Now, let's move to slide five to discuss Allstate's auto insurance profitability in more detail. The second quarter recorded auto insurance combined ratio of 108.3% was 0.4 points higher than the prior year quarter, reflecting higher catastrophe losses and increased current report year accident frequency and severity, which were largely offset by higher earned premium, expense reductions, and lower adverse non-catastrophe prior year reserve re-estimates. We continue to raise rates, reduce expenses, restrict growth, and enhance claim processes as part of our comprehensive plan to improve auto insurance margins. This slide depicts the impact of our profit improvement actions on underlying auto insurance profitability trends. As a reminder, we continually assess claim severities as the year progresses. Last year, as 2022 developed, we continued to increase report year ultimate severity expectations. The chart on the left shows the quarterly underlying combined ratios from 2022 through the current quarter with 2022 quarters adjusted to account for full year average severity assumptions, which removes the effect that intra-year severity changes had on recorded quarterly results. After adjusting for the timing of higher severity expectations, the quarterly underlying combined ratio trend was essentially flat throughout 2022. As we move into 2023, the underlying combined ratio has improved modestly in each of the first two quarters, reflecting both the impact of our profitability actions and the continued persistently high levels of loss cost inflation. The chart on the right depicts the percent change at annualized average earned premium shown by the blue line and the average underlying loss and expense per policy shown by the light blue bars compared to prior year-end. Rapid increases in claim severity and higher accident frequency since mid-2021, resulted in significant increases in the underlying loss and expense per policy which outpaced the change in average earned premium and drove a higher underlying combined ratio in both 2021 and 2022. As we've implemented rate increases, the annualized earned premium trend line continues to increase and has begun to outpace the still elevated underlying cost per policy in the first two quarters of 2023, resulting in a modest improvement in the underlying combined ratio. Slide six provides an update on the execution of our comprehensive approach to increase returns in auto insurance. There are four areas of focus: raising rates, reducing expenses, implementing underwriting actions, and enhancing claim practices to manage loss costs. Starting with rates, you remember the Allstate brand implemented 16.9% of rate in 2022. In the first six months of 2023, we have implemented an additional 7.5% across the book, including 5.8% in the second quarter. National General implemented rate increases of 10% in 2022, an additional 5.5% through the first six months of 2023. We will continue to pursue rate increases in 2023 to restore auto insurance margins back to the mid-90s target levels. Reducing operating expenses is core to transformative growth, and we also temporarily reduced advertising to reflect the lower appetite for new business. We continue to have more restrictive underwriting actions on new business in locations and risk segments where we have not yet achieved adequate prices for the risk, but are beginning to selectively remove these restrictions in states and segments that are achieving target margins. To this point, the number of states achieving an underlying combined ratio better than 100 increased from 23 states, which represented just under 30% of Allstate brand auto insurance premium at the end of 2022 and to 36 states, representing approximately 50% of premium at the end of the second quarter. Ensuring that our claim practices are operating effectively and enhancing those practices where necessary is key to delivering customer value, particularly in this high inflation environment. This includes modifying claim processes in both physical damage and injury coverages by doing things like increasing resources, expanding reinspections, and accelerating the settlement of injury claims to mitigate the risk of continued loss development. We are also negotiating improved vendor service and parts agreements to offset some of the inflation associated with repairing vehicles. Slide 7 provides an update on progress in three large states with a disproportionate impact on profitability. The table on the left provides rate increases either implemented so far this year or currently pending with the respective insurance department in California, New York, and New Jersey. Because our current prices are not adequate to cover our costs in these states, we have had to take actions to restrict new business volumes. As a result, new issued applications from the combination of California, New York, and New Jersey declined by approximately 62% compared to the prior year quarter. In California, we implemented a second 6.9% rate increase in April and also filed for a 35% increase in the second quarter that is currently pending with the Department of Insurance. We continue to work closely with the California Department to secure approval of this filing and restore auto rates to an adequate level. In New York, we implemented approximately three points of weighted rate in June, driven by approved increases in two closed companies. We subsequently received approval for a 6.7% increase in the larger open companies, which was implemented in July. We will continue to make further filings in 2023 that will be additive to the rates approved so far this year. In New Jersey, we received approval for a 6.9% rate increase in the first quarter and filed a subsequent 29% increase in the second quarter. As mentioned earlier, we anticipate implementing additional rate increases for the balance of 2023 to counteract persistent loss cost increases.
Jesse Merten, CEO
Thank you, Mario. I'd like to start on Slide 10, which covers results for our Protection Services and Health and Benefits businesses. The chart on the left shows Protection Services where we continue to broaden the protection provided to an increasing number of customers largely through embedded distribution programs. Revenues in these businesses, excluding the impact of net gains and losses on investments and derivatives, increased 9.1% to $686 million in the second quarter compared to the prior year quarter. The increase reflects growth in Allstate Protection Plans and Allstate Dealer Services, partially offset by a decline in parity. By leveraging the Allstate brand, excellent customer service, and expanded products and partnerships with leading retailers, Allstate Protection Plans continues to generate profitable growth, resulting in an 18% increase in the second quarter compared to the prior year quarter. In the table below the chart, you will see that adjusted net income of $41 million in the second quarter decreased $2 million compared to the prior year quarter, primarily due to higher appliance and furniture claims severity and a higher mix of lower-margin business as we invest in growth at Allstate Protection Plans. We'll continue to invest in these businesses, which provide an attractive opportunity to broaden distribution protection offerings that meet customers' needs and create value for shareholders.
Operator, Operator
Certainly, one moment for our first question. Our first question comes from the line of Gregory Peters from Raymond James. Your question, please.
Gregory Peters, Analyst
Well, good morning, everyone. I guess, I'm going to focus on auto insurance profitability for my first question. And obviously, there's a bunch of slides in your presentation, the one where you identified the three states. I guess from a bigger picture perspective, though, do you have updated views on frequency and severity for the second half of this year or for next year versus what you were thinking at the beginning of the year? What I'm ultimately getting at is how much more rate do we need to get that underlying combined ratio number that you use on slide 6 to get it down to the low to mid-90s.
Tom Wilson, CEO
Greg, this is Tom. Let me start, and then Mario can jump in. First, as it relates to frequency and severity, of course, it's hard to predict what's going to happen in the second half of the year. What we do know is that the severity was increased in the second half of this year from what we thought it would be when we looked at it last year. We're really glad we took the rates that we did, and we've been accelerating rates, as Mario talked about. I think when you look at it, it's really hard to predict, right? What you're really looking at is that slide that Mario showed that had the line with the average premiums going up and then the bar with the severities, and you want that line to be above the bar, of course. What you know going forward is that the line is going to keep going up, right? Like we filed those rates, we've got those rates. We put them in the computer, we're collecting the cash. And so you know that's going to happen. What you don't know is whether severity will go up from the 11% or whether it will be down from the 11%. It's come down this year from last year. We'd like to think that all the work we're doing will have it come down even further. And so that gap will get you back to the mid-90s that we talked about in terms of targeted combined ratio. When that exactly happens, of course, is dependent on what happens to the second bar, which is not known. What we do know is we'll continue to take increased rates and make that line continue to go up. Mario, any specifics you want to add on the three states that you mentioned or?
Mario Rizzo, CFO
I think, Greg, the thing I'd add is less about to Tom's point, what we expect going forward and more about what we're seeing and maybe just give you a little more color underneath the loss cost trend. So as you remember, last quarter, we started giving you pure premium trends as opposed to coverage specific frequency and severity because we just think it's a better way for you to evaluate where overall profitability is going. The point I'd make is if you look on Slide 5, as Tom pointed out, for the first couple of quarters this year, we've seen the average earned premium trend begin to outpace the increases in loss and expense. It's hard to predict what the future will hold, but that's an encouraging development. Underneath that loss trend, if you look at where we're at in the second quarter compared to where we were for the full year last year, the increase in pure premium is about 12.5%, and we told you that severity is up on average across all coverages by about 11%. So what we're seeing still is persistently high severity across coverages with a lesser impact from overall frequency increases. The point being we're going to continue to aggressively implement our profit improvement plan; you've seen what we've done with rates. We've done 7.5 points through the first half of this year in the Allstate brand, 5.5 points on National General. We're going to continue to do that. You see the benefit that the cost reductions is having on the combined ratio while that rate earns in. We've talked a lot about those three states, which make up about one-quarter of our book, California, New York, and New Jersey. We want to keep pushing on continuing to drive rate increases into the book. We've gotten some approvals so far this year, but there's rates pending, pretty significant rates pending in California and New Jersey, and we're prepared to file another rate in New York. So we're going to keep pushing really hard on that. In the meantime, we've scaled way back on new business production in those states. While it's having a reasonably small impact on the loss ratio so far this year, because new business just tends to be a smaller proportion of our overall book, it will continue to have a favorable impact on our loss ratio going forward. Until we get to adequate rates in those three states, we're going to keep restricting the volume of business we're willing to write.
Gregory Peters, Analyst
Okay. Thanks for the color. Maybe just keeping on auto as my follow-up question on NatGen, you spoke about the reserve strengthening in the quarter, and I guess you also mentioned Florida in your comments. Can you give us any perspective on the reserve strengthening that happened inside NatGen? Is it a true-up and that you're comfortable where the trends are with matching reserves at this point in time, or is this going to be another situation where we have a couple of quarters of catch-up that we're having to deal with?
Tom Wilson, CEO
Mario can answer how we feel about the growth and the profitability of the growth in National General. Let me just set the context. First, the acquisition of National General is exceeding our expectations. As you know, we bought the company so that we could consolidate our Encompass business into it that would reduce the cost and create a stronger business that we're serving independent agents. We like what we got there. The consolidation and the cost reductions are exceeding our expectations. That was the basis under which we agreed to where the economics of the acquisition made sense. The upside from there was growing in the IA channel, both through the specialty vehicle product and by building new products for preferred auto and homeowners insurance using Allstate's expertise, both of which are also becoming reality. Mario, do you want to talk about, I guess, both reserves? But I think Greg's underlying question there was like you're growing; is that a good thing?
Mario Rizzo, CFO
Yes. So, Greg, the place I'd start with National General, you're right. We're growing in National General; that's principally in the specialty vehicle or the non-standard auto part of the business, which that market continues to experience pretty significant disruption. A couple of things I'd say on NatGen. First of all, the underlying combined ratio in the quarter was 96%, and 96% is slightly higher than we want to run it at, but it's pretty close to our target margin. That 96% includes the kind of roll-forward impact of increasing reserves principally in the 2022 accident year and therefore, increasing our loss expectations in the 2023 year. So that's all embedded in the 96%. A couple of things in addition to that that I mentioned. We've talked a lot about the profit improvement plan, and we're implementing that same approach in that same plan in National General across the same levers we're using in the Allstate brand. We've taken 5.5 points of rate this year, 11 points of rate over the last 12 months in NatGen. Given that it's predominantly a non-standard auto book, the book tends to turn over and get repriced pretty rapidly. We're comfortable that the rate we've taken so far this year is working its way into the system. In response to a higher loss trend that we've seen in 2023, we've accelerated our plan to take rate in 2023. So, we're ahead of that 5.5 points is ahead of where we expected to be at this point during the year. We've also restricted underwriting guidelines in a number of states; we're writing more liability-only less full coverage. We're being really selective about what we're writing. The other benefit, as Tom mentioned, part of the rationale around acquiring National General was the opportunity to lower costs and improve the expense ratio, and we're benefiting from that inside that 96% underlying combined ratio. We've seen a pretty significant improvement year-over-year in the underwriting expense ratio as we essentially take advantage of scale through the growth we're getting. So, we're comfortable where we're positioned. We're taking the appropriate actions from a profitability perspective. So, we're comfortable with what we're writing in NatGen right now.
Gregory Peters, Analyst
Got it. Thank you for the detail and your answers.
Operator, Operator
Thank you. And our next question comes from the line of Josh Shanker from Bank of America. Your question please.
Josh Shanker, Analyst
Thank you very much for taking my question. Yes. Tom, there's the amount of rate that you need and the amount that you can get over a certain period of time, but when you look back to the beginning of the year and you had your plan for taking rates and you've learned about some changes in frequency and severity over the past six, seven months. Has that changed the perspective on how much rate you need and want to ask for? Does that change the 2023 plan, or does that mean that the regulators will give you only so much and you have to get that rate in 2024 and beyond?
Tom Wilson, CEO
It's a good question, Josh. I want to clarify that we adapt not every quarter or six months, but on a daily basis. Mario and Guy are continuously evaluating our pricing, and we are maximizing file rates wherever possible. We're encountering less resistance from regulators because the data is straightforward. It's transparent; you pay for the cars, and they see the cash flow. They must pay attention to the existing rules in the rating. Currently, we have challenges in three states, and we are actively working with them to secure the appropriate amounts. Our rate expectations for the year have increased since the beginning and will continue to rise until we reach our target combined ratio. We have discussed the issues we're facing in some of those states. Sometimes, we agree to amounts lower than we actually require because the time value of money makes it beneficial. For example, why settle for 6.9% when we need 35% in California? It's because we can receive 6.9% immediately rather than waiting 18 months for 35%. We have developed sophisticated relationships that allow us to manage this to meet our requirements. We will maintain the rate for auto, which I assume is your focus, Josh. The same principles apply to homeowners, and while our price increases have risen slightly, they aren't as much as initially anticipated. However, they still align with our early expectations. Mario, do you have anything to add?
Mario Rizzo, CFO
Yes. Just a couple of additional data points, Josh. As Tom mentioned, our data is immediately responsive to the data we're seeing. We're constantly updating rate indications and filing for what we need based on what we're actually experiencing versus what we thought we would have needed going into the year. The other point I'd make is, and this is on a couple of the states that we've spotlighted for you. We are evaluating trade-offs and leaning in where we think it just makes sense. For example, in California, we got the 2 6.9% rate, and we turned around and filed for essentially our full indication at 35, knowing that that was likely to require a longer review period. There was a little more risk there, but we thought it was the right thing to do. In New Jersey, we did the same thing. We got the 6.9% rate approved, which is essentially the cap that the state holds you to. But then we opted to utilize an administrative provision and filed for a 29% rate. So again, we're aggressively pushing on the amount of rate we need based on the loss experience where we've got in real time. We're going to keep doing that and keep pushing rate through and working with all the departments and each of the regulators to get those rates approved as quickly as we can to continue to bend the line on that loss trend.
Elyse Greenspan, Analyst
Hi. Thanks. Good morning. My first question, I wanted to go back to the capital discussion and the decision you guys made to pull the buyback program. Can you just give us a sense of what you're looking for when you return to buybacks? I sense maybe some of this is also dependent going into wind season, right, which could bring additional cat losses to Allstate, and you guys are still working on improving the profitability of your auto business. So what would you need to see to turn back on the buyback at some point next year?
Tom Wilson, CEO
Elyse, let me start macro and then ask Jesse to maybe dig in even a little more. I know you spend a lot of time on capital, so we can help you show you what we believe to be true. First, we have a long history of proactively managing capital, whether that's how we deploy it at the individual risk level or what we do with different investments, as Jesse talked about, whether it's selling businesses like life and annuities or using alternative capital like reinsurance or cat bonds or providing cash to shareholders through dividends and share repurchases. As you point out, if you look at the Q, we bought back about $37 billion of stock since we went public. That's because we have good math, which Jesse will talk about, and we do it proactively. I think suspending the share repurchase was just sound judgment. If you're not making money, don't buy shares back. It's really not a lot more complicated than that. It obviously helps you preserve capital, but just sort of good logic always serves the right kind of capital plan, which is you got to make money to be buying shares back. Jesse, do you want to talk about maybe give at least some more specifics on this whole capital.
Jesse Merten, CFO
Yes. Good morning, Elyse. I think to build on Tom's point, and I think it's easiest to just think about not the specific question, but more how we think about capital management more broadly. So you focus as many others do on RBC. RBC is a great measure for insurance companies; it's common. We look at it as well. We certainly understand why there's a focus at times on RBC. It's a measure that served the industry well in good times and in bad times. But I think as you know, RBC has some limitations. We use it as an input in our capital management process, but not a primary driver. RBC is focused on statutory legal entities, but it doesn't incorporate the risk across the enterprise or correlation in those types of risks. It doesn't include sources of capital outside of regulated entities, like Protection Plans would be an example there. But those aspects are important to our overall capital management framework. Now that capital is all available to us and our comprehensive and more precise capital management framework considers those facets. So — and I think it's important to go back to really how we're managing capital through what we consider to be a very detailed and sophisticated economic capital framework that quantifies enterprise risk and establishes our targets. As we've talked, that includes inputs from regulatory capital models, rating agencies, and then our own risk models to help to quantify stress events, and we built those models really off of the risk models that are used to regulate banks. We feel very good about the output of our overall economic capital model. We use that then to determine a level of base capital that we need to operate our business while continuing to meet customer needs and amounts that are well above triggering any regulatory involvement. So you got base capital. On top of that, we hold stress capital for unexpected outcomes. We have a contingent reserve that we use and included in our target capital range that's really meant to incorporate extreme stress events and things that are beyond the standard probabilities that we apply to our stressed capital calculations. So high catastrophes this quarter used some of the contingent capital reserve, but we continue to hold stress capital above our base capital level, and we remain confident in our capital position and our ability to execute on strategy as we look ahead. I think your question gets to the future. I wanted to build a base for reminding everyone how we think about it. But as we look to the future, it's more than just a question of the buybacks; it's what is the capital perspective look like. We continue to believe we're well capitalized even if it takes longer than we expect to get auto profitability back to targeted levels and even if catastrophes come in at more expected levels. Even at more normal levels of catastrophes for the rest of the year, 2023 will be the highest year for catastrophe losses on a pure dollar basis in about 25 years. So it's a high cap quarter. We continue to feel good about capital; liquidity is not an issue, as we've talked about. We have a strong source of cash through interest payments and maturities that come over the next 12 months, and we have about $5 billion that comes off the portfolio that selling everything in the next 12 months, and we have a highly liquid investment portfolio. We also have a number of capital options that we're continuously evaluating given our proactive approach to capital management, as Tom mentioned. That includes additional reinsurance options that could allow us to lower the volatility of our earnings at an attractive cost of capital, and we continue to look at those things.
Tom Wilson, CEO
We have the capital to execute our strategy, which is, of course, the way we're going to increase shareholder value. One, get profit up. Two, get growth up. Three, broaden the portfolio, which will lead to a higher multiple, and that's what we're trying to drive to.
Elyse Greenspan, Analyst
Thanks for all the color.
Operator, Operator
Thank you, one moment for our next question.
Michael Zaremski, Analyst
I guess, my first is a quick follow-up on the capital discussion. You said bolstering capital. So I just want to clarify, you reiterated the 14% to 17% ROE targets, which I believe you've been talking about since I believe 2019. It seems like there's a disconnect, though, because the shareholders' equity levels excluding OCI are down meaningfully since 2019. There's an element of where — it seems like this is why this company is coming up, investors are expecting that the consensus ROEs look like they're well above the 14% to 17% because people aren't bolstering their capital assumptions, I guess, in their models. So I just want to make sure I'm thinking about this correctly. Is 14% to 17% still the target? And so we directionally should be making sure we don't turn on the buyback until capital levels are bolstered a bit.
Tom Wilson, CEO
So first, the 14% to 17% confirmation was just really our way of saying we don't see anything that diminishes the ultimate earning power of the company. What the equity base is and what the earnings are, of course, but we — so we're really just trying to say we don't see anything that diminishes the earning power of the building company. We never said it was a cap. Our strategy is really to get returns up to where they've been historically, which will increase shareholder value. The big differential we have versus progressive and others is we need higher growth to drive the multiple, and we're going to get that in two ways: increase market share in personal profit liability and transformative growth. Secondly, we think we can both hit at the same time, to be honest, but that's what we're driving to.
Michael Zaremski, Analyst
Okay. That's very helpful. My last question is just thinking through all the actions you're taking in terms of expense ratio, pulling back in certain states. I guess it seems clear that in the near term, we should be thinking about PIF growth remaining under pressure. I'm just curious, too, is that one the right way to think about it? And two, is there — for your capital model, does PIF growth being negative with total revenue growth still being very positive because of pricing power? Does it help that you're shrinking PIF while growing top line because of pricing, or is every dollar of growth still seems the same way within your capital model?
Tom Wilson, CEO
Capital models are really driven on risk, which are tied to premium. So, PIF doesn't really impact it. So which is the right economically, we believe the right way to do it. In terms of growth, we think we can — Mario talked about growth in National General. We talked about growth in 50% of the markets we're working there. When those three states that we need higher prices on get to the right level, we can grow there as we continue to roll out transformative growth. We expect to be in 10 states with our new product this year, which will just be in the states and that we drive a lot of growth. But we're using machine-based learning and some really cool direct stuff. So we think there's plenty of opportunity to grow. We're not concerned about it. The reason we're reducing the growth in those states is because if you’re not making any money, it doesn't make sense to sell it. I don't really understand the logic of we're losing money. Let's go out and spend a bunch of money to get business, and we'll continue to lose money until we can raise the prices later. That just raises your — if you include those losses in your acquisition cost, it's hard to make the lifetime value work. So we chose not to write the business. It's not, as Mario said, it's not really a combined ratio impact. It's just like why do something that's uneconomic.
Operator, Operator
Thank you. One moment for our next question.
Alex Scott, Analyst
Hi. First one I had is on the prior year development. One of the things we noticed from last quarter was just that I think the 2022 accident year actually looked like it developed favorably and 2021 was still a bit unfavorable. I guess I'm just interested; what was the mix of that this quarter? And how do we think about the speed up of reaching settlements to reduce volatility on some of the older claims and the impact that's having? Where are you in the process of doing that? Is there still a good amount of wood to chop there? Have you sort of gone through the 2021 claims to the extent you're going to do it already? Just any color around all that to help us think through what development could look like through the rest of the year?
Jesse Merten, CEO
And I'll take that quickly. I think the first thing I would highlight is that the development this quarter was related to National General, so it's a little bit different than what we went through last year. We don't separately disclose which prior years it's attributable to. But it's safe to say — given the nature of that business, some of the near years, we continually move reserves between years and coverages and prior year reserves to come up with these estimates. It's safe to say that we're really focused on getting some of those older claims settled, getting the reserves right. Again, it's really a story about the National General reserve levels and the movement between prior years and coverage is just normal course this quarter.
Alex Scott, Analyst
Got it. Thanks. The second one I had is just a follow-up on — there was a comment earlier related to, I think it was the 35% filing, where it was mentioned that that can take up to 18 months. I mean that one, I think, was filed in late May. So that would suggest, like, all the way towards the end of 2024, if I just take that comment at face value as to when you potentially get the California approval. I'm just trying to weigh thinking through that versus some of the comments that suggested the regulatory environment may be getting a little better. I mean, that seems like a pretty long timeline. Can you help us think through, and maybe I'm just trying to take that a little to cut and dry?
Tom Wilson, CEO
I think I'm probably the one that said 18 months. That was not to imply that we think it's right to wait 18 months or it should take 18 months. We just said sometimes it takes a long time. The California department stayed on all rate increases for a couple of years. They're not in that mode anymore, and we're working actively with them because they know that's not a good place to be; it doesn't create a good market. Just look at the monthly numbers we've put out on rate increases. You can factor that in, and we've given some math on how it rolls into the P&L. That will give you a good look 12 months forward at what that blue line is that Mario talked about and what rate is going up. They will tell you what's going to come in, and you can make your own judgment on what you think severity and frequency will be.
Brent Vandermause, Head of Investor Relations
Hey, Jonathan, we’ll take one more question.
Yaron Kinar, Analyst
Thank you. Good morning. Thanks for first allowing me in here. I want to go back to the capital question and the decision to stop the buybacks, if I may. Tom, I'm certainly — I appreciate the thought that it doesn't really make sense to buy back stock when we're generating a loss. That said, I think we have seen about $2 billion of buybacks since, I think, the second quarter of last year in a loss environment. Everything you're showing on and presenting in the slides would suggest that we are hopefully inflecting in the auto margins. I think even a quarter ago, you were still talking about over $4 billion of holdco liquidity. So I’d just love to better understand what changed or shifted in the thinking here to make you decide to stop here, especially when the stock seems to be attractively valued relative to previous buybacks?
Tom Wilson, CEO
Let me go back to the genesis of the buyback program and then roll it forward. It was a $5 billion program, about $3 billion of which was because we're returning capital that was generated by the sale of the life and annuity businesses. It was really a $2 billion net program. We tended to have that program; that buyback program was usually sized by how much money we made the prior year and we weren't using in growth. So, it was in arrears kind of share repurchase program. That's how we got to $5 billion. We were 90% of the way there on $5 billion; we couldn't complete it, for sure, and we just decided you're losing money, don't buy stock back. Sometimes good capital management is as simple as common sense; it serves the right kind of capital plan. If you're not making money, you're not buying shares back. From our standpoint, it was really no more complicated. Jess and I talked for like five minutes; okay, another quarter of a loss, a lot of catastrophes, almost two standard deviations away. We factored that in when we decided on the $5 billion. We factored that in when we looked at last year, keeping the program going. It was a sensitivity, but it was a sensitivity, not a reality when insurance turned into a reality. Okay, let's just stop buying it back. If we feel like getting back to it, we will. We have a strong track record of buying stock back, but what will drive the value of our stock, and I can close on this, is not share repurchases. We've looked at share repurchases. I said we bought $37 billion back. The return on share repurchases, if you take the price that you bought it at and the price of the stock at any point in time. Of course, it varies like it's cheap now, in my opinion. It would be good to buy back. When you look at it over an extended period of time, it kind of turns into the cost of capital; it makes some sense. Sometimes you get a 20% return because you buy back cheap, and the stock went on to run. Sometimes you buy it, and it stacks up, and you get a lower return. When you look at it over a long period, you don't really create shareholder value by doing share buybacks. If you don't do share buybacks, you destroy shareholder value. That's a bad thing. The way we're going to create shareholder value is get profitability up, execute transformative growth, and broaden our product offerings to people and things like protection plans, which are low capital, high growth, high-return businesses, health and benefits in the same way. That's our plan. We look forward to talking to you next quarter.
Operator, Operator
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.