Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Allstate Corp (ALL, Financial) reported a net income of $301 million for the second quarter, despite elevated catastrophe losses.
- The auto profit improvement plan has been successfully executed, leading to a significant improvement in the auto insurance combined ratio.
- Homeowners insurance showed improved underlying performance with a combined ratio of 111.5, resulting in $375 million of underwriting losses compared to $1.3 billion in the prior year.
- Net investment income increased by almost 17% over the prior year quarter, benefiting from repositioning into longer-duration and higher-yielding assets.
- Protection Services experienced profitable growth, with revenues increasing by 12.7% compared to the prior year quarter.
Negative Points
- The expense ratio increased by 0.8 points compared to the prior year due to higher advertising costs.
- Catastrophe losses of $2.1 billion were still significant, although 6.7 points favorable to the prior year quarter.
- The underlying combined ratio for homeowners insurance, while improved, still resulted in underwriting losses.
- The company is facing challenges in certain states like New York and New Jersey, where significant rate increases have impacted retention.
- The process of divesting the health benefits business has been delayed, impacting the timeline for potential value realization.
Q & A Highlights
Q: Can you provide insights on how the increase in new issued applications will drive increased policies in force in the auto segment?
A: (Thomas Joseph Wilson, CEO) The growth is driven by selling more and retaining more customers. We are seeing benefits from increased advertising and productivity in the Allstate agent channel. Retention has been stable, and we are working on improving customer experience to further enhance retention and growth. (Mario Rizzo, President of Property & Liability) We have been investing more in growth as states reach rate adequacy, leading to increased new business production. About two-thirds of our states are at profit target levels, and we are seeing growth across brands and channels.
Q: What are your expectations for the expense ratio, considering the increased advertising expense in the second quarter?
A: (Thomas Joseph Wilson, CEO) We aim to continually reduce costs to maintain affordability. Advertising is a key investment for growth, and we are confident in our capabilities to use advertising effectively. We will continue to invest in growth while managing expenses to achieve attractive returns.
Q: What are you seeing in terms of competitive trends in the personal auto market, both in terms of pricing and advertising?
A: (Thomas Joseph Wilson, CEO) Advertising is becoming more sophisticated, and we are confident in our capabilities to compete effectively. (Mario Rizzo, President of Property & Liability) Profitability in auto is improving, leading to less rate activity. We are well-positioned to increase growth investments and succeed in a competitive market.
Q: Can you provide an update on the divestiture of the health benefits business?
A: (Jesse Merten, CFO) We are confident in the process and expect to announce transactions this year. We initially preferred a single transaction but decided to explore other buyers to achieve a better outcome for shareholders and the business.
Q: How is the homeowners insurance business performing, and what are your expectations for catastrophe losses this year?
A: (Thomas Joseph Wilson, CEO) We have a strong track record in homeowners insurance, and we are seeing good results this year. While it's difficult to predict individual quarters, we focus on long-term performance and are confident in our business model.
Q: How does your advertising strategy today compare to the last cycle, and how is it evolving with the success of your transformative growth strategy?
A: (Thomas Joseph Wilson, CEO) We have become more sophisticated in our advertising strategy, focusing on both upper and lower funnel activities. We are investing in both direct and agent channels, leveraging our brand and capabilities to drive growth.
Q: Are there any states where you are holding back on advertising spend, and how does that impact your overall strategy?
A: (Mario Rizzo, President of Property & Liability) About two-thirds of our states are at or below our target combined ratio, and we are investing in growth in those states. We are managing our risk appetite and investments in states where we need to achieve rate adequacy, such as New York and New Jersey.
Q: Can you discuss the impact of frequency and severity trends on your auto insurance business?
A: (Mario Rizzo, President of Property & Liability) Favorable frequency trends have continued, offsetting higher severity in bodily injury. We manage the business to achieve mid-90s combined ratios, and we are focused on maintaining profitability despite fluctuations in frequency and severity.
Q: What are your growth expectations for Allstate over the cycle, considering the transformative growth program?
A: (Thomas Joseph Wilson, CEO) We aim for PIF growth and believe there is significant potential for market share gains. While we don't have a specific target, we are confident in our ability to achieve higher growth and improve valuation multiples.
Q: How does your customer appetite differ across channels, and how do you see that impacting your margins?
A: (Mario Rizzo, President of Property & Liability) We have differentiated pricing and underwriting standards across channels and brands. We are positioned to write across all risk segments, including nonstandard auto through National General, and we are confident in our ability to grow profitably across the system.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
