Allstate Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 1, 2025
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Operator

Good day and thank you for standing by. Welcome to Allstate's First Quarter Earnings Investor Call. At this time, all participants are in a listen only mode. After prepared remarks, there will be a question and answer session. To ask a question during this session, you'll need to press star one, one on your telephone.

Operator

Please limit your inquiry to one question and one follow-up. As a reminder, please be aware that this call is being recorded. And now I'd like to introduce your host for today's program, Alastair Gobin, Head of Investor Relations. Please go ahead, sir.

Allister Gobin
Allister Gobin
Head of Investor Realtions at The Allstate Corporation

Good morning, everyone. Welcome to Allstate's first quarter twenty twenty five earnings call. Yesterday, following close of the market, we issued our news release and investor supplement, filed our 10 Q, and posted related materials 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 have a question and answer session.

Allister Gobin
Allister Gobin
Head of Investor Realtions at The Allstate Corporation

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 ks for 2024 and other public documents for information on potential risks. And now I'll turn it over to Tom.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Good morning. Thank you for investing your time with Allstate.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

I'm going to start with an overview of results and then the progress we're making on transformative growth. Mario will then cover property liability results. John will go through investments and Jessica can talk about protection services. Then we'll, as Alistair said, have any deal with any questions that you have. So let's start on slide two, which has Allstate strategy and first quarter results.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Allstate strategy, of course, has two components, increased personal property liability market share and expand protection provided to customers, which are shown in these two ovals on the left. On the right hand side, you can see Allstate's strong performance in the first quarter. Revenues were $16,500,000,000 in the first quarter, up 7.8% compared to the first quarter of twenty twenty four. Allstate generated net income of $566,000,000 in the quarter and adjusted net income of $949,000,000 which is $3.53 per diluted share. Adjusted net income return on equity was 23.7% over the last twelve months.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So we work on shareholder value with a balanced set of priorities. First, generating attractive returns on capital, which you can see from this year this quarter's results. Growing policies enforced in the Property Liability and Protection Services businesses will both generate increased earnings and should improve Allstate's valuation multiples. A diversified investment portfolio generates attractive returns on capital, which John will cover. Proactive enterprise risk and return management is also important and that includes whether that's utilization of reinsurance, our capital transactions or cash returns to shareholders.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Mario will discuss the benefits of our approach to reinsurance when we go through property liability. Justice team closed the sale of employee voluntary benefits business for $2,000,000,000 on April 1, so that's not in the results of that or not in this quarter, but it's because it happened shortly thereafter, we want to make sure we call it out for you. And that's the first of two large sales from that business segment. As you know, we increased the quarterly dividend to $1 a share and instituted $1,000,000,000 share repurchase program. Slide three is an update on the execution of transformative growth strategy in the property liability business.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So there are five integrated components to this strategy to increase market share, one of which is to improve customers' value and one of the key parts of it is lowering costs. And you can see on the left hand side, the adjusted expense ratio, which excludes advertising costs, has improved by six point seven percent six point seven points, eliminating outsourcing digitizing work, using less real estate and aligning our distribution expenses with customer value. And those lower costs enable us to offer more competitive prices without impacting margins. Substantial progress has also been made on other components, several of which are listed on the right. New Allstate branded affordable, simple and connected auto insurance are now available in 36 states, and we have the companion homeowners product is now available in six states.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Differentiated custom three sixty middle market standard and preferred auto for independent agents is now in 31 states. One of the most significant changes is the expansion of customer access to improve growth, which resulted in increased new business from all channels this quarter versus the first quarter of twenty twenty four. This effort has three components, improve Allstate agent productivity, expand our direct sales and then increase independent agent distribution, all of which have been successful. Allstate agent productivity has increased, enhancements to direct capabilities are lower pricing and increased advertising are attracting more self directed customers. The National General acquisition significantly expanded our presence and capabilities in the independent agent channel.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So this quarter, personalized new business was 2,800,000 items, a 27% increase over the prior year. The SAVE program, which stands for Show Allstate Customers Value Every Day, following our acronyms, It's being embraced by employees and agents with a goal of improving 25,000,000 interactions this year, which builds on last year's success, was over 20,000,000. Our objective is to increase customer retention, an important driver of growth. The combination of strong new business levels and an improvement of retention is a path to market share growth. We're beginning to see signs of growth.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So property liability policies in force on a year over year business have stopped declining. And of course, that was due to the significant auto price increases and the economic decision to reduce new business in 2022 and 2023. Sequential growth over the end of twenty twenty four was half point. So Allstate remains focused on increasing market share and property liability and expanding protection provided to customers. Now let me turn it over to Mario.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Thanks, Tom. Let's take a look at first quarter property liability underwriting results on slide four. As you can see from the table on the left, the property liability business generated $360,000,000 of underwriting income this quarter. The combined ratio of 97.4% was 4.4 points above the prior year quarter, primarily due to $3,300,000,000 in gross catastrophe losses during the quarter, which was significantly higher than the first quarter of last year. This was partially offset by recoveries from a comprehensive reinsurance program, higher average earned premiums, favorable non catastrophe prior year reserve re estimates and favorable underlying loss trends.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

The auto combined ratio was 91.3% in the quarter as average earned premium increases outpaced losses, driven by favorable physical damage loss cost trends. The underlying homeowners combined ratio, which excludes the impact of catastrophes and prior year reserve estimates, remained in our targeted low 60s range. While there may be fluctuations in catastrophe losses, the homeowners business consistently generates profits with a ten year recorded combined ratio of 91.5. Now let's move to slide five to discuss first quarter catastrophe results in more detail. Our claims team worked tirelessly to support over 70,000 customers as they recovered from the devastating California wildfires and a series of severe weather events that impacted multiple regions across the country in the first quarter.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

The chart on the left depicts gross catastrophe losses as a percent of earned premium for the last ten years. As you can see, 2025 represents an outlier year that was more than three standard deviations above the mean, driven by the California wildfires represented by the orange bar. We generally do not see wildfire activity in the first quarter of the year. Wind and hail events represented by the dark gray bars were above the five and ten year averages, but there is no clear pattern over the last ten years for these perils. In the table on the right, you can see this quarter's catastrophe loss ratio and number of events by peril compared to five year and ten year averages.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

On the second to the last row of the table, you can see the impact of our approach to risk and return management, which includes a comprehensive reinsurance program that reduces capital requirements by lowering catastrophe loss tail risk and earnings volatility. In the quarter, we had reinsurance recoveries of $1,100,000,000 primarily due to the California wildfires, but recoveries were also generated from aggregate catastrophe losses from events over $50,000,000 that occurred over the past twelve months. As I said earlier, while we expect some quarter to quarter volatility in the homeowners line of business, our industry leading capabilities remain a competitive advantage and we view homeowners insurance as a growth opportunity. Turning to slide six, let's discuss how expanded access under transformative growth is starting to increase growth. In the chart to the left, you can see the composition of property liabilities 37,700,000 policies in force.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Auto insurance in the dark blue makes up two thirds of total policies and ended the quarter with 25,100,000 policies in force, which was down 0.4% compared to last year. Homeowners with 7,500,000 policies is about 20% of the total and continued to grow this quarter, increasing 2.5 versus prior year. Total property liability policies grew by 0.1% in the quarter. As Tom discussed, expanding distribution to include capabilities across the exclusive agent, direct and independent agent channels is a key component of transformative growth. The stacked bars in the chart on the right demonstrate the impact of those expanded capabilities.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Auto new business applications were 31.2% above prior year, with strong growth across all three distribution channels. And while relatively evenly distributed across channels, the direct channel generated the most auto new business volume this past quarter. The increase in new business applications was offset by lower retention, resulting in an overall slight decline in auto policies in force. We continue to focus on improving retention trends by both increasing value and improving interactions with existing customers, which Tom described previously. Homeowners new business also continued to increase, growing by 10% this quarter.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Exclusive agents who produce the highest volume of homeowners business continue to bundle at historically high rates, and we're making strong progress in the direct channel. Transformative growth is building momentum, and we are confident that expanded distribution, differentiated products, and increased customer value will lead to property liability market share growth. Now I'll turn it over to John.

John Dugenske
John Dugenske
President, Investments at The Allstate Corporation

Thanks, Mario. Turning to investments on slide seven, I'll cover how our proactive investment management approach creates value. First,

John Dugenske
John Dugenske
President, Investments at The Allstate Corporation

I'd like

John Dugenske
John Dugenske
President, Investments at The Allstate Corporation

to point out that our portfolio has been designed for resiliency in varying market conditions, and it is built to support enterprise risk and return objectives at all times. As you can see from the pie chart, the portfolio is well diversified, allocated largely to public interest bearing assets, with some allocation to performance based assets, including private equity, private real estate, infrastructure and opportunistic. About 85% of the portfolio is in publicly traded securities, affording us the flexibility to dynamically adjust exposures to manage risk and seize opportunity. We use a proprietary dynamic asset allocation process, which uses an enterprise wide risk and return lens. Additionally, we lever both internal and external asset class experts to deliver performance that exceeds a passive approach and builds resiliency into the strategy.

John Dugenske
John Dugenske
President, Investments at The Allstate Corporation

Our active management has helped us preserve capital in down markets without sacrificing long term gains. On the bottom left of the slide, you'll see proof points of our success in active portfolio management. Let me describe how this has worked by focusing on late twenty twenty one. Auto insurance margins were beginning to decline because of inflation in used car prices parts, and we felt equity valuations were relatively high. As a result, we took down risk in the portfolio by reducing public equity exposure.

John Dugenske
John Dugenske
President, Investments at The Allstate Corporation

Additionally, we mitigated the adverse valuation impacts of rising inflation and rising rates by decreasing the portfolio's fixed income duration. As bond yields rose, we extended our duration, capturing higher market yields for longer and positioning the portfolio to benefit from rate declines. This is a prime example of our enterprise approach to portfolio. The portfolio is well positioned to face market uncertainties with over 81% in income generating assets. On the bottom right, you can see our active allocations, including performance based strategies.

John Dugenske
John Dugenske
President, Investments at The Allstate Corporation

Our team of asset managers has delivered performance consistent with upper quartile managers. Proactive investment management has consistently enhanced shareholder value and we continue to work to deliver similarly strong results moving forward. Now I'll pass it over to Jess.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

Thank you, John. Let's move to slide eight to cover how Protection Services is providing additional growth platforms for Allstate. Allstate embeds protection in the flow of commerce through a range of strategic partnerships that include retailers, auto dealers, mobile phone carriers, benefit brokers, and financial institutions. We deliver protection to customers through product warranties to cover important purchases like automobiles, furniture and consumer electronics. Other examples of the protection we provide include identity protection and recovery services as well as roadside assistance.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

The largest business in this segment is Allstate Protection Plans, which we acquired as SquareTrade in 2017 for $1,400,000,000 This business provides protection against broken or damaged consumer products, including computers, tablets, TVs, mobile phones, major devices

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

and furniture.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

On the right side of the slide, you can see the excellent progress we've made in profitably growing Allstate Protection Plans business. Since the acquisition, our customer base has grown over four times and we now serve 162,000,000 customers in 18 countries. The Allstate brand has helped to secure distribution partnerships with large retailers in North America, providing access to a broader customer base through traditional retail channels and e commerce platforms. Allstate has partnered with five Fortune 40 companies and customers can now purchase protection plans at several major retailers. In the past twelve months, the business has generated $162,000,000 in adjusted net income, which is seven times greater than 2018, which was the year after we acquired the business, in the first year that it was profitable.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

The Protection Services segment allows Allstate to build for the future with a broad protection offering suite that provides a diversified source of profitable growth. Now I want to wrap up on slide nine. Allstate remains focused on creating shareholder value. Strong underwriting capabilities position Allstate for continued success. Transformative growth is positively impacting property liability policies in force, and we remain focused on execution.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

We take a balanced approach to investment risk and return, and we're building for the future with expanded protection offerings. Excellent capital management will continue to create lasting shareholder value. We remain confident in our strategy and ability to deliver value for shareholders and protection to our customers. Our first quarter results were strong, and we're entering the remainder of 2025 with a solid foundation. With that, I'd like to open it up for your questions.

Operator

Certainly. Our first question comes from the line of Jimmy Bhullar from JPMorgan. Your question please.

Jimmy Bhullar
Jimmy Bhullar
Equity Research Analyst at JP Morgan

Hey, good morning. So I had a couple of questions, but maybe first starting with just your views on competition some auto frequency has been pretty favorable for you guys, for many of your peers as well. And are you seeing that result in companies getting a little bit more aggressive on pricing? Or do you feel competition is fairly rational overall?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Jimmy, I'll start and then Mario can jump in. First, you're seeing a reduction in the rate of increases in auto insurance this year versus 'twenty two, 'twenty three, And then it started to come down in '24. And it's a little bit lower this year. So which says that people are operating in basic kind of where they want to be from a profitability standpoint, one of the large competitors is still a little bit lagging, taking larger price increases, but they'll catch up. So I think what you can say is the industry is operating in good profitability.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

All of those competitors have the objectives of profitable growth. So I don't see us headed into sometimes what you see in the commercial market, soft markets where people are chasing volume by lowering rates. So I don't see us moving into an aggressive rate reduction, particularly when you look going forward and the possible impact of tariffs. Art, anything you want to add to that?

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Yes, Jimmy, I would say that it's really the combination of favorable frequency, which I think we and the industry have experienced and the moderation of physical damage severity is really that's been the story. I think that's improved margins broadly. And to Tom's point, I think the competition has leaned into growth more heavily, certainly as margins have improved. We still think it's a rational market. We like our capabilities and our ability to lean into what we've been doing with transformative growth to grow going forward.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

But I would still characterize it as a rational market from a pricing perspective.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And Jimmy, I would say in that market, we wrote 2,800,000 new pieces of business in profit margin. Last quarter. Yep. That's one.

Jimmy Bhullar
Jimmy Bhullar
Equity Research Analyst at JP Morgan

And then

Jimmy Bhullar
Jimmy Bhullar
Equity Research Analyst at JP Morgan

on the PIF count, obviously, you're not raising prices to the same extent as you were before, which means that your persistency should remain good or get better. And then just with more marketing spending, that should help new business volume, which sort of implies that the sort of turn that you've seen in PIF should sustain, but any reasons to believe that that the recent improvement would not continue?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Well, there's two pieces to that. Let me address it, Mara, you can jump in here. First, to grow, you're right, we need to write more new business. And then we also need to keep more existing customers we have persistency or in our vernacular retention. So new business levels were way up at a percentage versus the first quarter of last year, but they're kind of where we were at the end of last year, which says we're able to sustain this kind of new business volume on an ongoing basis because of the breadth of our distribution, our competitive pricing, our advertising, all the things you mentioned.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So we feel good about where we're at in new business. In retention, it lags much as the way it lagged on price going up. So when we were raising rates, we used to remember to show you the chart and said, here's what we did this quarter. But keep in mind, it takes about twelve to eighteen months to really come into the P and L. The same thing happens to customers and because they don't pay it right away.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And even when they do pay it right away, sometimes they don't shift right away. So your retention lags just as it would on the price increase. So our retention is flattened out and maybe Mario wants to talk about that. And our efforts in the SAFE program are to drive it up, besides just not taking more rate. We ought to be giving people more for what

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

they're paying.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Yeah, let me just maybe do a quick double click on retention, because I think the new business volume that we disclosed is pretty self explanatory. On retention, Jimmy, qualitatively, what I would say is it's down year over year, so Q1 to Q1. But as Tom indicated, it's stabilized in the same zone really that it's been over the past couple of quarters in Q1. Some of that is because there's less rate activity in the system.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

But I think our view is while less rate will help, we're not waiting for that to improve retention. The SAVE program is intended to favorably impact customer interactions across at least 25,000,000 customers. One of the components is to improve affordability for customers by proactively engaging with them to make sure that they've got the right coverage, the right discounts, things like deductibles and so on, and they can get the best possible price from us, which we believe will help retention. The other part of it is just to improve the overall customer experience and how they interact with us. So we're leaning into that, as Tom mentioned earlier, both through our employees, our agency owners to really proactively engage with customers, improve the experience, improve affordability.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

And that along with a more stable rate environment, our intent is to have that drive improved retention.

Jimmy Bhullar
Jimmy Bhullar
Equity Research Analyst at JP Morgan

Okay, thank you.

Operator

Thank you. And our next question comes from the line of Rob Cox from Goldman Sachs. Your question, please.

Robert Cox
Robert Cox
Vice President - Equity Research at Goldman Sachs

Hey, thanks. For my first question, maybe a similar line of questioning, but the new issued applications, as you mentioned, accelerated meaningfully in the quarter. I'm just curious if you think this level of new apps is being flattered by an unusually high amount of shopping, or if you think this level or higher can actually be maintained with further advertising investment and product rollout.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Well, as I mentioned, Rob, that the new business levels this quarter were similar to what we had towards the end of last year. So we are maintaining it and we're comfortable there. Our appetite depends on what states we're in advertising. So we want to grow as fast as we can. We don't really have any capacity constraints right now in terms of number of agents, number of people in the call centers or on the web or independent agents.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So rolling out affordable, simple, connected products are what really drives most of the growth. We mentioned we're not in all the states yet. So as we roll that out in the rest of the auto states and we get homeowners to go with it, it's a much better experience, better product. So we think we still have upward potential. Do I think it's going to be 27%?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

No, because it wasn't 27% over the fourth quarter. So do I think we have a great distribution system that's scalable 100%.

Robert Cox
Robert Cox
Vice President - Equity Research at Goldman Sachs

Got it. Thank you. And then maybe following up on the auto underlying loss ratio. I was just wondering if there's anything unusual embedded, maybe any tariff impacts or anything like that contemplated in the loss ratio. I noticed it was kind of one of the first quarters in a long time that the underlying loss ratio actually went up in the first quarter versus the fourth quarter.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Me on auto insurance, probably I'll make comments. Mario can jump in here. First, when you evaluate it at the absolute level, it's outstanding. We are getting really strong returns on capital. We're better than our targets.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

It's broad based across the country and by risk level inside the auto book. So we're feeling really good about where it is. I think quarterly comparisons are really not that meaningful, to be honest. You got all kinds of things happening. Fourth quarter has got different kind of weather than the first quarter.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So you have frequency bounces and then you have, of course, just weather changes, not even inside individual quarters. And then the type of weather and the type of accidents also changes the mix of your claims, which has some impact on severity. And those can easily move a combined ratio by a point to two points. So I don't get that focused on that. If you want to look at it on a longer basis, first quarter looks great with a lot of them where we're at.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Mario, what would you add about like breadth and depth?

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Yeah, look, I think when we look at auto profitability, certainly in absolute terms, the combined ratio is performing exceptionally well. And when we look at a state level with literally a handful of exceptions, we like where our price position is and our rate adequacy and feel really good about profit levels across the vast majority of states that we operate in. The trend on profitability is really unchanged from the last couple of quarters. We continue to earn the rate that we implemented over the last twelve months. And then we look at loss cost, the combination of favorable frequency and physical damage to severities and loss cost kind of flattening out.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

You actually saw a drop in pure premium year over year, and that drove a pretty substantial improvement in the underlying combined ratio in auto. But we feel good about auto profitability. And that's one of the things that as margins improved over the course of last year, we opened up markets and we started to expand our risk appetite for new business. And we're going to continue to do that because we feel good about where we're positioned from a margin perspective.

Robert Cox
Robert Cox
Vice President - Equity Research at Goldman Sachs

Great. Thank you.

Operator

Thank you. And our next question comes from the line of Gregory Peters from Raymond James. Your question, please.

C. Gregory Peters
C. Gregory Peters
Managing Director - Insurance at Raymond James

Good morning, everyone. I would like to pivot to Slide three of your presentation, where you highlight the improvement in the adjusted expense ratio since 2018. And I'm just trying to understand what your objective will be, say, for the next five years. Do you anticipate bringing this down below 20%? And inside the expense ratio for the first quarter, we did note that it looks like the advertising expense was down sequentially a little bit.

C. Gregory Peters
C. Gregory Peters
Managing Director - Insurance at Raymond James

So I know that's outside of the adjusted expense ratio, but maybe you can tie in with your answer or perspective on advertising expense.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So, morning, Greg. We haven't put a target out for expenses, but our goal should always be to lower expenses. And that's both as a percentage and in an absolute dollar basis. So some of the decline, of course, as you raise prices faster than the cost of inflation, then your expense ratio goes on. That's not the way to really get there for your customers.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So we've made but we've made substantial cuts in absolute expenses, and we're going back at it again. Jess is now just starting to lead a new effort to go back. And so we don't have a goal, but expect it to keep coming down. We think with our new technology platform and new technologies available out there that there's the opportunity to digitize and eliminate a number of processes that are done by people today, which will be faster, better and cheaper for customers. So we're back at it again.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

We're excited about it. We think there's good opportunity On advertising, it depends how good we think the opportunities are to grow, where we're trying to get into markets, whether we're launching new products. So fourth quarter was a high watermark for us. We were testing some new stuff. I don't expect it to stay at that fourth quarter level really any time this year that we were really leaning to see how much we could drive growth in its workforce.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And what we'll do is to extend its economic, we'll continue to spend. If it's not economic, then we won't. And that means both are you getting a good return, are people shopping, buying your product, you have a competitive price And how do you feel about your margins going forward? We feel really good about our margins going forward in both auto and home. So you should expect to see us do more there.

C. Gregory Peters
C. Gregory Peters
Managing Director - Insurance at Raymond James

Okay. I guess for my follow-up question, I'll pivot to the slide five, which is the catastrophe loss slide. I thought your chart there on the left is interesting, you know, in the context of framing, what goes beyond one standard deviation and two standard deviations. So inside that disclosure, a couple things, you know, first of all, it looks like, you know, there could be some material subrogation event for you on the wildfire. So I'm just curious how that might change your perspective on whether this is a two standard deviation or three standard deviation event.

C. Gregory Peters
C. Gregory Peters
Managing Director - Insurance at Raymond James

And then secondly, in your first quarter supplement, you provided a reinsurance update and it looks like you raised some of the limits, so maybe you can talk a little bit about that.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Well, thank you for liking our slide. We work hard on them.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Marek, do you want

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

to take the first part? And Jess, do you want to take the reinsurance?

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Yes. So Greg, the first thing I'd say is obviously the chart on Page five, those are gross losses, so they're not net of reinsurance. And the reinsurance recoveries we did disclose in the first quarter, '1 point '1 billion the bulk of which was California wildfire related, and the net loss does not consider any subrole recoveries. Having said that, to the extent there are potential subrole recoveries from at fault parties, we would certainly want to pursue those. And there is that new wildfire fund that was established by the utilities in California.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

I think it's funded at about $15,000,000,000 or so with additional capacity beyond that. So to the extent there is subrole that we can pursue, we would certainly do that. But we have not reflected any of that in our numbers. And ultimately, the dollars would recover given that we're into the reinsurance layers will go to reinsurers. It's also our customers' money as well.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

And I think to the extent it provides relief from our rating perspective, it's the right thing to do for our customers.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

Now on the reinsurance program, just a reminder to everyone, we do post a very robust disclosure on the changes so that you can find on our investor website. We did place the bulk of the national program this quarter and so we've announced that. You can see and I'm sure this is what you saw Greg, reinsurance limit purchase was up $1,500,000,000 that's about 21% and that now we have single event protection up to $9,500,000,000 up from just under $8,000,000,000 last year on a per occurrence basis.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

And we're

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

doing that really to reflect the change in the risk profile. We buy reinsurance based on our risk and return framework and our economic capital model, And the market in the placement went very well. We split it evenly between traditional markets and the catastrophe bond or the ILS market and had good support for the program this year. On a risk adjusted basis, the cost will be down, which I think is a really good outcome and it helps protect us from single event risk like we saw recently. We'll announce the remainder of the program that gets placed in Q2 at the end of next quarter and that's just as a reminder that's the Florida program and then the National General Lender Place Program reinsurance gets done this quarter.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

So all in all, again, we have very detailed disclosure that we put out, but in general, we increased the total limit that we bought this year to reflect the expansion of the homeowners both on the expansion of risk.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Hey, Greg, let me just add on to it. So it's really the homeowners business is growing. I mean, there's a lot of conversation appropriately on auto insurance growth, we're, of course, highly focused on that. But the home insurance business, it just units for up 2.5 points. As far as I know, we're not adding 2.5% to the housing stock, and I'd say, which means we're picking up unit share.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And then it's mid teens growth in revenue. That's a growth business. And I feel like it's been overlooked by some people. We've had some shareholders recently saying, oh, that's a story not being told. So I'm trying to tell the story on their behalf and our behalf.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

It is a good growth business, which is why we need more reinsurance.

C. Gregory Peters
C. Gregory Peters
Managing Director - Insurance at Raymond James

Thanks for the additional detail.

Operator

Thank you. And our next question comes from the line of Bob Jung Hong from Morgan Stanley. Your question please.

Bob Huang
Bob Huang
Analyst at Morgan Stanley

Yes, good morning. So maybe one real quick on how we should think about essentially the capital position, right? So you bought back about $100,000,000 of stock this quarter. Just given the market volatility, you're fairly stable capital position. Curious

Bob Huang
Bob Huang
Analyst at Morgan Stanley

how you should

Bob Huang
Bob Huang
Analyst at Morgan Stanley

think about capital allocation, but also capital return at this point of the junction given market has been volatile, your shares has been moving around?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

I'll start and maybe Jess, you want to jump in. First, we're very comfortable where we're at. We've got plenty of capital. We've got it's in the right places. We're earning good returns.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

We've got the right risk profile. As John talked about, we look in our capital position relative to the whole enterprise in terms of our investment risk as well as our insurance risk. We're really comfortable with where we're at there. We're also comfortable with our program of how we're deploying it, first into growth and because that generates the kind of ROEs that we talked about earlier in the conversation. Secondly, to the extent we need don't we have cash, we can give it to investors and we do.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And we have a great track record of doing that. We're comfortable with the $1,000,000,000 share repurchase program. We're 100,000,000 in. So it's a little early to start talking about what else we're going to do. Jeff, anything else you want to know?

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

I think you hit

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

it, Tom. We use and we've talked about this Bob. We use a sophisticated economic capital framework to look at our capital position. We're doing that continually and looking at priorities the way that Tom laid out. So you saw the announced repurchases, as Tom said, were $100,000,000 into $1,000,000,000 So we've got a little bit of time on that.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

We'll continue to watch where we sit relative to our target.

Bob Huang
Bob Huang
Analyst at Morgan Stanley

Okay. No, that's very helpful. So it's not you're not front loading April for buybacks, I guess is what I'm trying to say, right?

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

From a pace perspective, we don't put forward guidance out on how we're going to repurchase stock. What we do is we like to have a continual presence in the market with our repurchases, Bob. So you can see what we did in Q1 and sort of project out the meeting where we announced was the February, So we effectively did the $100,000,000 over about a month. And we like to have that consistent presence in the market. So I would say on a go forward basis, we'll continue to evaluate and adjust as needed.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

But that gives you some sense for the pace of what we did in the first quarter.

Bob Huang
Bob Huang
Analyst at Morgan Stanley

Okay. No, thank you. So my second question, just maybe thinking about California. Obviously, some competitors are facing more challenges in the homeowner environment. If if homeowner competitors were to pull back, does that disrupt their bundling strategy in your view?

Bob Huang
Bob Huang
Analyst at Morgan Stanley

Do you think the current environment in California changes the competitive environment there and then a consequence, maybe makes an opening for you? I understand that California previously has been a challenge, but maybe just any color there.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Yes, and partly. How about that? Marco, you can fill in there. Yes, it will impact their auto business if that's what you referred to. And so, in particular, State Farm is struggling, given their losses there.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And so as they have to restrict the amount of business, it will impact our office. We know it, we went through it and we went through it in California from 02/2007. And but for a couple of years, right up until this year, which is why our market share is so low. We went through it in Florida when we went from a 13% or 12% share to like two in homeowners. And we felt it in our order book.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Now we've recovered and we have great share in Florida and we're growing in Florida. So they're not down and out. It will just be a bump that they have to deal with. So yes, it will be something that will change the competitive dynamics. Is it going to change our interest in writing homeowners in California?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

I doubt it. And we'll see what happens in the subsequent reforms. But we recovered $1,000,000,000 of reinsurance and we got none of that back in rates. We paid for all of that from our shareholders. So until we get to a place where our costs are actually reflected in what we can charge, we're not going to be interested in selling homeowners at a loss for our shareholders.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

On the auto business, Mario, maybe you want to talk about the auto business and health.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Yes. In terms of auto, we've talked a lot over the past, call it, twelve to eighteen months about three states in particular, California, New York, New Jersey and the profit challenges we had. With California, I think we've largely cycled our way through that. California our California auto insurance is actually generating an underwriting profit. We are open across all channels to write new auto business in California.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

We got a significant rate approved early last year. We also recently got approval for another 6.9%, which we'll implement in May. So our approach in California has always been to try to stay ahead of loss costs as best we can, and the team is doing a really good job of doing that. And we're operating in California, just like we are in other states that we're open because we like more position from a profit standpoint, and we're open for business and looking to grow the auto business in California.

Bob Huang
Bob Huang
Analyst at Morgan Stanley

Excellent. Really appreciate it, and congrats on the quarter.

Operator

Thank you. Our next question comes from the line of Elyse Greenspan from Wells Fargo. Your question please.

Elyse Greenspan
Elyse Greenspan
Managing Director at Wells Fargo Securities

Hi, thanks. Good morning. My first question is, I guess on the March policy growth, right, you guys obviously turned the corner with growth the first quarter. My question is specific to auto. Did you guys observe perhaps any pull forward?

Elyse Greenspan
Elyse Greenspan
Managing Director at Wells Fargo Securities

Were there perhaps cars being purchased in advance of tariffs? And did that impact any of the numbers in March from a policy growth perspective?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

I don't think we would be able to tell. So shopping is obviously up in total. It's up in part because what the industry had to do to raise rates to deal with the pandemic related inflation. It's unclear that it's really moved a lot of people to buy cars. You have seen a slight uptick in used car prices recently.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Whether that's in anticipation, who knows?

Elyse Greenspan
Elyse Greenspan
Managing Director at Wells Fargo Securities

Okay. And then my follow-up, I guess, is on the tariffs, It seems like it'll be about a mid single digit increase to severity. As you guys think about that potential increase and my sense is probably we'll start to see it over the summer, correct me if I'm wrong. But as you guys think about that increase and where your margins are today in your auto book, are you going to either absorb it with potentially absorb it in your margins? Or would you look to take additional price to offset any increase that we potentially see from the tariffs?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So we're going to manage through whatever the impacts of tariffs are, just as we did the inflation that came through the pandemic. So our objectives are to give customers a good competitive price, make sure we get a return for our shareholders and to grow. So those are our objectives. Right now, of course, it's unclear when the actual impact will be, to your point. It takes a while to rattle through new car prices, used car prices, dealers, people fixing cars, who are us replacing cars.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

In the pandemic, of course, it happened incredibly rapidly. So we had a 60% increase in used car prices in about less than two years, I think, mine or something like that. And so we are factoring in the fact that we think there will be increases in costs, but we don't know what those are yet. So it's difficult to say exactly what we would do in prices or even what the percentage is. You quoted about mid single digits, I think you were like five points.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

There are industry estimates that are higher than that. And the answer is nobody really knows. So I'll just describe what we're likely to do. So our costs are likely to be higher. I agree with that.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Particularly auto repair and replacement costs are likely to increase. The cost to repair homes is also likely to increase, but our analysis, which we've done tons of, is that it's probably less, maybe it's half of what will happen in auto insurance. So we're feeling we're more focused on auto than we are at home. We are hopeful that the trend to reduce what I would call the rampant costs of offender mender losses will take hold. That should offset some of the increases.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So you saw in Florida, tort reform really helped on the, what I'll just call opportunistic. Somebody gets an offender, vendor accident and they just decide, well, I'm going to sue somebody so I can get some money from because of the way litigation. So George, you just passed some tort reform. So we're hopeful that that will work. Obviously, as Greg asked this, we're still taking costs down.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So we're not sticking where we are and all of that fixed into the mix of where we are. And if we need to raise prices, we will raise prices just like we did in the pandemic because without margins, we don't have a lot of room to absorb. I'd like to say like we're selling software with 80% margins. We're in a relatively thin margin business. So we need to raise our prices.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

On the protection services businesses, some costs are likely to go up as well. But we factored that into the way we're pricing our product as we go forward and then it adjusts and spreads over time. On a growth standpoint, I think it just is a level playing field. Like I think the advantages you have today are the advantages you're going to have tomorrow, car prices are x percent higher. And so I don't really see much difference in the growth side on property liability.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

On the protection services businesses, to the extent that there's consumer demand goes down because inflation is up or people start buying fewer TVs or watches or something like that, that could impact our growth a little bit there. But we've got great international growth we're doing there. So I'm comfortable with our growth numbers in the tariff. From the investment standpoint, John talked about how balanced our portfolio is, how proactive we are. So we factor all of this into the mix side.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

From an enterprise standpoint, tariffs are manageable for us. They will be manageable for our customers and we'll just do whatever we need to do to make sure we serve both our customers well and keep making money for shareholders.

Elyse Greenspan
Elyse Greenspan
Managing Director at Wells Fargo Securities

Thank you.

Operator

Thank you. And our next question comes from the line of Alex Scott from Barclays. Your question, please.

Alex Scott
Alex Scott
Equity Research Analyst at Barclays

Hey, good morning. First one I had is just on retention, see if you could dig a little more into what you're seeing and also the SAVE program. And I guess specifically, I guess we don't have the exact numbers necessarily, but we can kind of calculate proxies and so forth. Mean, it looks like it's still about as bad as it's got in terms of retention. How much of that is associated with package business, maybe still some shut in a business versus more competition in the auto market in certain states versus running through price in certain states?

Alex Scott
Alex Scott
Equity Research Analyst at Barclays

Can you help me think about how quickly you expect that to come back and what this save initiative will do to help that?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Okay, we hope you talk about some of the specifics in various areas. I mean, know it might be frustrating to you that we don't give you the retention number for the Allstate brand for auto insurance. But we did that on purpose because we found that as we delve into the individual pieces, it gets a little confusing and it's hard to tell the story. The story is, are we growing total BIP? I guess the story.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And some of that's new business, which we show you numbers on, some of that is retention, which you're right, you can back into the total number. The specific percentage though bounces around by risk of by the number of type of customers you're writing. So we've gotten much more aggressive in the non standard market. So if you look at our internally,

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

the way we look

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

at that risk class, we're doing much better in that segment than we were a couple of years ago, which is where we think one of our big competitors has had a lot of growth. Now that comes with lower retention. So like, well, you feel good on new business, not so good on retention. So we decided rather than take everybody through the third derivative, we would focus on are we growing total PIP now. So rather than going into the specific numbers.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

That said, it's a good question because retention is really important. We're doing a lot of work on it. So Mario, do you want to talk about the various programs you have going on retention?

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Yes. So it is a good question because retention is obviously a core way that we're going to grow. And you're right, as I said earlier, it remains in the same zone relative to where it's been the last couple of quarters. Maybe the way I would think about it, Alex, is actually kind of flip it and rather than talk about retention, it's talking about defection. Here's the customers that leave us because our actions are really focused on those customers.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

So as you think about what we're doing, the things that cause customers to defect, there are certain triggers could be price increase, which obviously we and the industry have had to raise pretty significantly over the last couple of years that those things trigger shopping. But also poor customer experience or a negative customer experience, those things matter as well. And with save, we're really going after those triggers. So we're looking to improve affordability by making sure, again, customers have the best possible coverage, the best possible price that's based on their personal circumstances to help alleviate that shopping trigger related to the price of insurance. But it's also focused on improving our customer interactions broadly to make sure that customers have the best possible and an industry leading customer experience when they engage with Allstate, again, to reduce the number of defections.

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

Along with that, bundling helps the stickiness of the relationship. And our agents on the Allstate side continue to bundle at historically high levels around 80% for new business. That helps retention because it improves the depth of the relationship. And then finally, the fact that we've had to be less active from a rate perspective creates more stability in the book, which also will help from in terms

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

of

Mario Rizzo
Mario Rizzo
President-Property Liability-Allstate Insurance Company at The Allstate Corporation

reducing defections. But we're focused principally proactively on those first couple, which is improving the customer experience, improving affordability, continuing to drive bundling at the point of sale and through cross sell where we can to help improve the retention trends going forward.

Alex Scott
Alex Scott
Equity Research Analyst at Barclays

Got it. Okay, that's all really helpful. Next question I had is sort of a follow-up on some of the loss trend comments you made around tariffs and I appreciate there's a ton of uncertainty right now and there's a wide range of outcomes. But when I think about your financial position in terms of just premium to equity leverage, which I know is very crude, not necessarily the way you look at it, but at a high level, you're sort of sitting at a much higher level than you were prior to the 2021 inflationary period. You're still buying back stock.

Alex Scott
Alex Scott
Equity Research Analyst at Barclays

I'm just trying to understand how do you think about your capital capacity to deal with the more adverse outcomes that you described? And are there sort of offsets or things I'm not thinking about that are more fine tuned than just looking at that premium to equity now versus then?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

So we're in a really strong capital position. Depending which equity you're looking at, you're looking at statutory capital, you got to add back in what's at the holding company, which just at the end of the first quarter was about $3,000,000,000 So there's a lot of capital there. We think we have plenty of money, even if it means really high increases in average premiums because inflation takes up. We have capital that is positioned so that we can like, we went into this with capital thinking we're going to grow market share, like we're planning on growing market share. So we've got capital grow market share.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And, and we have plenty of capital to do that. And if it means that average premiums go up, we've got plenty of capital to do that. So we're feeling really good about where our capital position is. And we never really thought we had an issue that a couple of people did, but we're in great shape. And I do think that the premium to surplus ratio that you're measuring is too crude to measure.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Like that's not a good way to look at capital. We don't drag you down into the middle of it because we've always had good capital and it gets very sophisticated. But we do have lots of scenarios we run. So we run, what if we're in stagflation? What happens with stagflation in market share growth and how we're feeling about overall capital?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And we're just in a

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

really good place.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

The only thing I would add to what Tom said is, you'll recall as we went through and talked about capital over the last few years, have a the way that we construct our economic capitals, we have a base capital layer, and then we put stress capital on top of that. So the stress is to absorb times like what we're talking about, right? So we have stress capital to absorb the volatility that comes with changing market conditions. To the extent we have a repurchase program in place, that means that we've rebuilt that stress layer from the previous years.

Jess Merten
Jess Merten
EVP and CFO at The Allstate Corporation

Because as we talked through capital in the last few years, we said there's sort of an order of operations, have to get to target and target means you've rebuilt a stress layer. So as you think about going forward, as Tom said, are in a very strong capital position and we've got capital in place to absorb uncertainty and changing market conditions.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

I think one of the things that didn't get as much focus as we came through the pandemic was that higher prices led to was based on higher loss costs. Higher loss costs led to higher reserves. Higher reserves leads to more investments, and that leads to more investment income, which keeps going on forever. So there is a growth aspect to investment income that comes out of this as well besides just making sure you have good combined ratio.

Alex Scott
Alex Scott
Equity Research Analyst at Barclays

All good points. Thank you.

Operator

Thank you. And our next question comes from the line of Mike Zaremski from BMO. Your question, please.

Mike Zaremski
Mike Zaremski
Analyst at BMO Capital Markets

Okay. Great. Thanks for fitting me in. First

Mike Zaremski
Mike Zaremski
Analyst at BMO Capital Markets

question is

Mike Zaremski
Mike Zaremski
Analyst at BMO Capital Markets

a high level question. So, looking at consensus, not saying this is necessarily correct, but, you know, expected to earn Allstate is a 23 ROE in the coming years. That's obviously well above Allstate's long term average and your cost of equity. You spent significant time and effort building out additional sales channels in recent years. So I guess just why not write it a slightly worse combined ratio trade off ROE for enable more sustainable organic growth since it seems growth has been all the focus on go forward basis?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Well, we think we can do both. When we look at our if you just go to auto insurance, if you look at our combined ratio relative to the industry, we've always been able to operate at, call it, five points better than the industry average, And which means we've been able to extract economic rents and still be competitive in the marketplace. We haven't grown as fast as one of our competitors have. We'd like to grow that fast. And so we're working on that.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Their model shows that they have about the same level of combined ratio, and they can grow. So we're like, we should be able to both in homeowners. We have an industry leading position and we are growing. So we think we can do both. And I do think that growth is the I think you're absolutely right.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

Growth is the unlock to the valuation multiples. If you look at our valuation multiples to anybody else in the industry, they're substantially below. We obviously don't like that because we think that we got great businesses and it's all focused on auto insurance as opposed to how you're a home insurance and our protection plans, businesses and services businesses are killing it. But the market will tell us when they're ready to pay more, but we're working on We'll do one more question.

Operator

Certainly. Then our final question for today comes from the line of Josh Shanker from Bank of America. Your question, please.

Joshua Shanker
Joshua Shanker
Analyst at Bank of America

Well, thank you for fitting me in. I appreciate it. In terms of the cadence of advertising spend, I noticed you spent less money in the first quarter, than you did in the fourth quarter. Historically, at when GEICO and Progressive added business, they were more first half year weighted policy addition businesses. I don't know if something has changed about the industry.

Joshua Shanker
Joshua Shanker
Analyst at Bank of America

But has the ad spend already peaked? And you talked in this back half of last year about ad spending for future growth. Can you talk about how that works and whether it's all playing out as the design sets up?

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

It hasn't peaked in the first quarter for us. Everybody else will have to decide what they do. Can't speak to Josh, I could speculate, but it is just speculation that the direct business this I know, the direct business does write more new business in the first quarter than other quarters. And they're heavier indirect than we are. Certainly GEICO is all direct other than a small little piece of their agency business to kind of build out and progress is a good half direct.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And we're not quite there. So I would guess that their advertising by quarter lines up with where their opportunities are by distribution channel. But that's me outside looking in. As it relates to us, as long as we're getting a good combined ratio and we're writing new business in our economics on advertising, are very granular these days, not quite as granular as the billion price points in the state in auto insurance, but pretty darn close. As long as we're driving positive ROE on that advertising stuff, we'll keep doing it.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And it's not all just average, like we do look at the incremental advertising spend as well to make sure we're getting good returns. So our goal is increase market share and sell more protection of people. So there's other places we can grow besides auto insurance too. I think we should be growing faster and renters and some other stuff. Second, make a huge deal in terms of revenues, but one of the things we're also focused on is we've crossed a couple hundred million in policies in force, and that's substantial presence in America.

Tom Wilson
Tom Wilson
Chairman, President & Chief Executive Officer at The Allstate Corporation

And so we're focused on not just every other auto policy, but everything else we sell as well. Thank you all for tuning in. We do have the capabilities of brand, the distribution, the resources to help us accomplish that strategy, which is grow market share and property liability and expand the protection we offer to everybody else. So thank you for your ongoing engagement. We'll talk to you next quarter.

Operator

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

Executives
    • Allister Gobin
      Allister Gobin
      Head of Investor Realtions
    • Tom Wilson
      Tom Wilson
      Chairman, President & Chief Executive Officer
    • Mario Rizzo
      Mario Rizzo
      President-Property Liability-Allstate Insurance Company
    • John Dugenske
      John Dugenske
      President, Investments
    • Jess Merten
      Jess Merten
      EVP and CFO
Analysts
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Key Takeaways

  • Allstate reported Q1 revenue of $16.5 billion (up 7.8% year-over-year), adjusted net income of $949 million ($3.53 per diluted share), and a 23.7% adjusted return on equity over the last twelve months.
  • The Property & Liability combined ratio was 97.4% despite $3.3 billion in gross catastrophe losses, supported by $1.1 billion of reinsurance recoveries; auto underlying losses remained strong at a 91.3% combined ratio, while homeowners’ non-catastrophe loss ratio stayed in the low-60s.
  • Transformative growth initiatives cut the adjusted expense ratio by 6.7 points since 2018 through digitization, real estate reductions and insourcing work, while new Allstate-branded auto is live in 36 states, homeowners in six, and Q1 new business applications climbed 27%.
  • Allstate’s investment portfolio is diversified across 85% public fixed-income and equity and 15% performance-based assets, employing dynamic asset allocation that preserved capital during late-2021 market shifts and now delivers >81% income-generating holdings.
  • The Protection Services segment, anchored by Allstate Protection Plans (formerly SquareTrade), now serves 162 million customers in 18 countries, generated $162 million of adjusted net income last twelve months (seven-fold growth since 2018), and has secured partnerships with five Fortune 40 firms.
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Earnings Conference Call
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