Executive Vice President and Chief Financial Officer at Allstate
Thanks, Tom. Let's move to slide five to review Property-Liability margin results in the third quarter. The recorded combined ratio of 105.3 increased 13.7 points compared to the prior year quarter. This was primarily driven by increased underlying losses as well as higher catastrophe losses and non catastrophe prior year reserve reestimates. The chart at the bottom of the slide quantifies the impact of each component in the third quarter compared to the prior year quarter. As you can see, the personal auto underlying loss ratio drove most of the increase due to higher auto accident frequency and the inflationary impacts on auto severity. Higher catastrophe losses shown in the middle of the chart had a negative 1.4 point impact on the combined ratio as favorable reserve reestimates recorded in 2020 from wildfire subrogation settlements positively impacted the prior year quarter.
Gross catastrophe losses were higher but were reduced by nearly $1 billion of net reinsurance recoveries following Hurricane Ida, demonstrating the benefits of our long-term approach to risk and return management of the homeowners insurance business and our comprehensive reinsurance program. Noncatastrophe prior year reserve strengthening of $162 million in the quarter drove an adverse impact of 0.8 points primarily from increases in auto and commercial lines. This also included $111 million of strengthening in the quarter related to asbestos, environmental and other reserves in the runoff Property-Liability segment following our annual comprehensive reserve review. This was partially offset by a lower expense ratio when excluding the impact of amortization of purchased intangibles primarily due to lower restructuring and related charges compared to the prior year quarter.
Moving to slide six. Let's go a bit deeper on auto insurance profitability. Allstate brand auto insurance underlying combined ratio finished at 97.5 for the quarter and 89.7 over the first nine months of 2021. The increase to the prior year quarter reflects higher loss cost due to higher accident frequency, increased severity and competitive pricing enhancements implemented in late 2020 and earlier this year. While claim frequency increased relative to prior year, we continue to experience favorable trends relative to prepandemic levels. Allstate brand auto property damage frequency increased 16.6% compared to 2020 but decreased 16.8% relative to 2019. The chart on the lower left compares the underlying combined ratio for the third quarter of 2019 to this quarter to remove some of the short-term pandemic volatility.
The underlying combined ratio was 93.1 in 2019, which generates an attractive return on capital. Favorable auto frequency in the third quarter of 2021 lowered the combined ratio by 6.4 points compared to 2019. Increased auto claim severity, however, increased the combined ratio by 12 points versus two years ago, as you can see from the red bar. The cost reductions implemented as part of Transformative Growth reduced expenses by 1.3 points, which favorably impacted 2021 results. As Tom mentioned, early in the pandemic, the severity increases were driven by higher average losses due to a reduction in low severity claims. This year, the increase reflects the impact of supply chain disruptions in the auto markets, which has increased used car prices and enabled original equipment manufacturers to significantly increase part prices.
The chart on the lower right shows used car values began increasing above the CPI in late 2020, which accelerated in 2021, resulting in an increase of 44% since the beginning of 2019. Similarly, OEM parts have also increased in 2021, roughly twice as much as core CPI. This has resulted in higher severities for both total loss vehicles and repairable vehicles. Since these increases were accelerating throughout the second and third quarters of the year, we increased expected loss costs for the first two quarters of 2021, and this prior quarter strengthening shows up in the combined ratio for the third quarter. Increases in report year severities for auto insurance claims during the first two quarters of 2021 increased the third quarter combined ratio by 2.6 points, as you can see by the green bar on the lower left.
So let's flip to slide seven, which lays out the steps we're taking to improve auto profitability. As you can see from the chart on the top, Allstate has maintained industry-leading auto insurance margins over a long period of time, with a combined ratio operating range in the mid-90s, exhibiting strong execution and operational expertise. To maintain industry-leading results, we are increasing rates, improving claims effectiveness and continuing the lower costs. After lowering prices in early 2021 to reflect in part Allstate's lower expense ratio, we have proactively been responding with increases in the third quarter, with actions continuing into the fourth quarter and into 2022. The chart on the right provides selected rate increases already implemented in the third and fourth quarter as well as publicly filed rates that have yet to be implemented in the fourth quarter.
Those states denoted with the caret are top 10 states in terms of written premium as of year-end 2020. In the third quarter, we've received rate approvals for increases in 12 states, primarily in September. We adapted quickly to higher severities in the fourth quarter, with plans to file rates in an additional 20 states. We have already implemented rate increases in eight states during the fourth quarter, with an average increase of 6.7% as of November 1. Looking ahead, we expect to pursue price increases in an additional 12 locations by year-end. We are working closely with state regulators to provide detailed support and decrease the lag time between filing, implementation and premium generation. As we move into next year, it is likely auto insurance prices will continue to be increased to reflect higher severities.
We also continue to leverage advanced claims capabilities and process efficiencies. Cost reductions as part of Transformative Growth will also continue to be implemented. Let's turn to slide eight and discuss our expectations and commitment to further improve our cost structure through Transformative Growth. As you can see by the chart on the bottom of the slide, we've defined a new non-GAAP measure this quarter referred to as the adjusted expense ratio. This starts with our underwriting expense ratio, excluding restructuring, coronavirus-related expenses, amortization and impairment of purchased intangibles and investments in advertising. It then also adds in our claim expense ratio, excluding costs associated with settling catastrophe claims, which tend to be more variable.
We believe this measure provides the best insight into the underlying expense trends within our Property-Liability business. Through innovation and strong execution, we achieved 2.6 points of improvement when comparing 2020 to 2018, with further improvement occurring through the first nine months of 2021. Over time, we expect to drive an additional three points of improvement from current levels, achieving an adjusted expense ratio of approximately 23 by year-end 2024. This represents about a 6-point reduction relative to 2018 or an average of one point per year over six years, enabling an improved price position relative to our competitors while maintaining attractive returns. Future cost reductions center around continued digital enhancements to automate processes, enabling the retirement of legacy technology, operating efficiency gains from combining organization -- combining organizations and transforming the distribution model to higher growth and lower costs.
Transitioning to slide nine, let's go up a level to show how Transformative Growth positions us for long-term success and how the components of Transformative Growth work together to create a flywheel of profitable growth. As you know, Transformative Growth is a multiyear initiative to increase personal Property-Liability market share by building a low-cost digital insurer with broad distribution. This will be accomplished by improving customer value, expanding customer access, increasing sophistication and investment in customer acquisition and deploying a new technology ecosystem. We've made significant progress to date across each component. Starting at the top of the flywheel visual, our commitment to further lower our costs, improves customer value and enables a more competitive price position while maintaining attractive returns.
Enhancing and expanding distribution puts us in a position to take advantage of more affordable pricing. Increasing the analytical sophistication of new customer acquisitions lets consumers know about this better value proposition. New technology platforms, lower costs and enable us to further broaden the solutions offered to property liability customers. This flywheel will enable us to increase market share and create additional shareholder value. Turning to slide 10. Let's look at the changes to the distribution system, which are also underway. As you can see in the chart on the left side of the slide, Property-Liability policies in force grew by 12.5% compared to the prior year quarter. National General, which includes Encompass, contributed growth of four million policies, and Allstate brand Property-Liability policies increased by 231,000 driven by growth across personal lines.
Allstate brand auto policies in force increased slightly compared to the prior year quarter and sequentially for the third consecutive quarter, including growth of 142,000 policies compared to prior year-end, as you can see by the table on the lower left. The chart on the right shows a breakdown of personal auto new issued applications compared to the prior year. [Technical Issues] 38% increase in the direct channel more than offset a slight decline from existing agents and volume that would have normally been generated by newly appointed agents. As you know, we've significantly reduced the number of new Allstate agents being appointed beginning in early 2020 since we are developing a new agent model to drive higher growth at lower cost. The addition of National General also added 502,000 new auto applications in the quarter. Let me now turn it over to Mark to cover the remainder of the slides before we move to Q&A.