The operator introduces the Allstate's Third Quarter 2023 Earnings Conference Call, and the host, Brent Vandermause, provides an overview of the call and introduces the management team. The team discusses the company's strategy and highlights the progress made in improving auto insurance profitability and the decision to sell Allstate's Health and Benefits businesses. The presentation also includes non-GAAP measures and forward-looking statements. The team reminds listeners to refer to the 10-K for potential risks.

Allstate has successfully integrated Allstate's voluntary benefits business with National General's group and individual health businesses, creating a well-positioned benefits platform. This has positioned them for additional growth potential by aligning with complementary products, distribution channels, and capabilities. They anticipate completing a transaction in 2024. The company has also made progress in executing growth initiatives for personal profit liability market share and broadening their protection offerings. In the third quarter, revenues increased by 9.8%, driven by higher property liability earned premiums and proactive portfolio actions. Net loss and adjusted net income both improved, but loss cost trends remain elevated and require continued execution of the auto insurance profit improvement plan.

The Allstate brand has implemented rate increases and reduced operating expenses in order to improve auto insurance margins. They have also restricted new business growth in certain areas and are enhancing claim practices. Allstate's business model has historically generated industry-leading margins, and they believe their capabilities will continue to improve margins in the current competitive environment. The industry has been responding to the rise in auto claim severities by increasing prices and lowering expenses.

Allstate, Progressive, and GEICO have all increased their auto insurance prices since 2019, with State Farms experiencing smaller increases but also incurring underwriting losses. Many companies are cutting expenses, including advertising, to reduce competition for new customers. Allstate's policies in force have declined, while Progressive has grown. Allstate's acquisition of National General has helped improve their position in the independent agent channel and has also allowed them to combine their voluntary benefits business with National General's group and individual health businesses. This has created a strong benefits platform with potential for additional value. Allstate Health and Benefits includes three successful businesses in the $1 trillion employer benefits market.

The company has generated $400 million in new sales through its individual health protection products. These products generate both underwriting and fee income. The Health and Benefits businesses have revenues of $2.3 billion and adjusted net income of $240 million. The company has 48,000 relationships with various companies and over $4.3 million policies in force. The company expects the transaction to be completed in 2024 and is focused on improving profitability and strategically allocating capital. They are also implementing a transformative growth initiative to improve customer value and expand customer access. The company is currently in Phase III of building a new model and will soon move to Phase IV of scaling it. Mario will now discuss the Property-Liability results.

The comprehensive auto profit improvement plan has led to a 10% increase in earned premium and a decrease in the underwriting loss. The combined ratio has also improved by 8.2 points despite an increase in the catastrophe loss ratio. However, there was a $166 million unfavorable impact from prior year reserve estimates. The underlying combined ratio has improved by 4.5 points compared to the prior year quarter. Allstate's auto insurance profit trends have also been positive, with a combined ratio of 102.1 in the third quarter, reflecting higher earned premium, lower adverse prior year reserve reestimates, and expense efficiencies. Additionally, there has been a moderation in loss cost trends and a 9% improvement in major coverage severity.

The chart on the left shows a sequential improvement in quarterly underlying combined ratios from 2022 to the current quarter, driven by higher premium and execution of profit improvement plan. The chart on the right shows a higher proportion of the portfolio achieving target levels of profitability. Excluding three large states, the Allstate brand auto insurance underlying combined ratio was 97.2. Allstate brand rate increases have exceeded 26% over the last 7 quarters. New issued applications declined 19.5% compared to the prior year, largely due to actions to reduce growth in unprofitable states. Allstate brand auto policies in force decreased by 6% in the third quarter, partially due to lower retention and elevated loss trends in Texas requiring rate increases of over 50%.

The decline in retention and improvement in profitability have been observed in the National General Auto book. This is due to a decrease in policies in force in four large states, while remaining states also experienced a decline. The underlying combined ratio remains consistent with the prior year periods, with higher loss cost expectations being offset by higher premiums and expense efficiencies. Nonstandard auto insurance is the main contributor to written premium growth, with the new middle-market product also playing a role. Homeowners insurance incurred an underwriting loss in Q3, driven by higher catastrophe losses, but saw an increase in net written premium and policies in force.

The Allstate Brand has seen a 13.2% increase in average gross written premium per policy, driven by rate increases and inflation. The underlying combined ratio has improved, and the company is confident in its ability to generate attractive returns in the homeowners business. Allstate is expanding customer access through various distribution channels, including exclusive agents, independent agents, and direct distribution. The exclusive agent channel represents the majority of the company's U.S. personal lines premium, and agent performance has improved with the introduction of new compensation programs. The acquisition of National General has also positioned Allstate for growth in the independent agent channel.

National General's nonstandard auto presence in 12 states contributed to a 9% increase in policies in force during 2023. The company plans to leverage Allstate's expertise in standard auto and homeowners to further drive profitable growth. The direct channel saw a decline in new business volume due to reduced advertising, but improvements have been made to make it a source of growth in the future. The investment portfolio was repositioned to reflect changes in the economic environment and market conditions, resulting in relatively flat net investment income compared to the previous year. The company also made changes to the duration of the bond portfolio to reflect rising interest rates and increase market-based income. The performance-based portfolio offers diversification and enhances longer-term returns for the company.

The portfolio is mainly focused on private equity and real estate investments, with over 400 holdings. These investments have shown volatility in quarterly returns, but have yielded strong annualized returns over 3 and 5 years. The private equity portion has outperformed public equity benchmarks over 3, 5, and 10 years. The Protection Services businesses saw an increase in revenues, driven by growth in Allstate Protection Plans, but adjusted net income decreased due to higher claims severity and a higher mix of lower-margin business. The Health and Benefits business also saw significant increases in revenues and income after the National General acquisition.

In the third quarter of 2023, Allstate's revenues increased by $17 million due to higher premiums and other revenue in group health, but were partially offset by a decrease in individual health and employer voluntary benefits. Adjusted net income also increased by $6 million due to higher group and individual health revenue and lower operating expenses. Allstate's approach to capital management differs from traditional methods and includes three components: base capital, stress capital, and contingent reserve. Their model is highly sophisticated and takes into account individual risk types, regulatory and rating agency considerations, and simulations to determine the appropriate amount of capital for each component. This is more comprehensive than using the ratio of premiums to surplus, as it includes subsidiaries and over $1.6 billion of statutory capital not included in the denominator.

The framework for assessing catastrophe reinsurance and managing capital is more sophisticated and allows for flexibility in creating value for shareholders. The company is focused on returning auto insurance profitability to targeted levels, divesting their Health and Benefits business, and pursuing transformative growth initiatives. Proactive investment management has increased income and the strategic priorities support value creation for shareholders. The company is currently running 2 separate models for their transformative growth strategy, which aims to increase market share in personal property liability and cater to different customer segments. These efforts have proven to be successful so far.

The company is focused on lowering prices, increasing availability, and raising customer value through a new sales process and expanding their app features. They are also investing in new technology to achieve their objective of lowering overall expenses. The company has proven that they can build the necessary technology to achieve their goals.

The company has successfully launched a new product and is confident in its scalability. They are focused on reducing costs and selling as much as possible to customers through different channels. The pricing slides show that 41% of their auto business is running above 100, and the future depends on the outcome of California, New York, and New Jersey. The company is determined to stop losing money in these states and is taking steps to serve customers more efficiently.

Mario Rizzo, in response to a question about the company's actions to restrict new business volumes, mentioned that they have significant rate filings pending in California, New Jersey, and New York. He stated that if these filings are not resolved in the fourth quarter, the company will take additional action to reduce its size in those states. In terms of reducing claim costs, the company is increasing in-person inspections and this may impact loss LAE. However, the specific impact and the current ratio of in-person to remote assessments is not provided.

The speaker discusses their plan for improving auto profit, which includes taking rate increases, reducing costs, and improving operational processes. They believe that doing more physical inspections and oversight will help identify opportunities to pay what is owed and eliminate any leakage in the system. They are committed to hitting a 23% expense ratio by the end of next year and are prepared to invest in the claims organization to achieve this goal. They also mention that their severity expectations for auto have improved, but their outlook on casualty and injury severity remains unchanged.

The speaker discusses the consistency of the company's performance in the last quarter and the factors behind it, such as medical inflation and increased attorney representation. They mention the use of analytics and AI to identify potential injury claims and improve settlement times. The company is also looking to buy additional aggregate stop-loss reinsurance to protect their capital position, but there are no specific updates on this at the moment.

The company is considering ways to reduce risk and attract new capital, but there are no updates for this quarter. They are also looking into a potential transaction with the benefits business, which could bring in diversification credits. The company's changes to its distribution commission and fee structure may lead to increased bundling rates and overall organic growth, which could benefit the company's expense ratio.

The speaker discusses recent changes made to the exclusive agent distribution system, which have resulted in increased productivity and reduced distribution costs. They also mention the performance of the agency channel, with top agents showing a 15% increase in production. The speaker is encouraged by these results and believes they will be beneficial for future growth. A question is then asked about the historical reserves and loss ratios of Allstate.

The speaker is discussing Allstate's loss ratio and reserves over the past 5 quarters, which were unusually high due to the pandemic. They believe their reserves are accurate and necessary, and attribute the high loss ratio to the acceleration of loss costs during this time period. The speaker also mentions Allstate's shift away from catastrophe-prone areas over the past 20 years.

The speaker discusses the impact of climate change on losses and severity trends for cat-exposed properties. They mention that their company has a strong business model in homeowners insurance, but is experiencing underwriting losses due to catastrophes. They attribute this to the increase in severity of storms and inflationary pressures. They also mention that they manage these factors by state and have raised prices in response.

The decision to sell the Health and Benefits business was not driven by a need to unlock capital or become a leaner organization, but rather to capture the value credit and access complementary distribution and capabilities. The business is successful and generates significant profits, but the company believes it can achieve even more growth by selling it and partnering with other entities.

The company has decided to sell a business because it is the best way to optimize shareholder value, not because of pressure from shareholders or a need for money. The sale will generate additional capital, but the company has not yet decided how to use it. Their current focus is on helping the business be even more successful by letting go of it. The company's capitalization philosophy is to keep capital at the holding company, so there is no immediate need to use the capital at AIC.

The company plans to keep capital at the holding company level and make decisions regarding capital management when necessary. They do not see a need for capital in AIC. The company also mentions extending their asset duration to 4.6 years and ensuring liquidity and flexibility in their portfolio. They believe they have made the right calls in the past and feel comfortable with their current durational mismatch due to their strong liquidity position.

Tom Wilson and Mario Rizzo discuss the differences in matching liabilities for the Property-Liability business compared to the life business. They mention that the liabilities in the Property-Liability business are shorter but naturally recurring, so the duration of the capital is important for liquidity and risk management. The blue line on a slide depicts the duration, which has reverted back to a longer-term average after being at a lower level due to interest rates. David Motemaden asks about the frequency trends in the third quarter, and Mario Rizzo responds that there was a slight increase, but the mix of business is improving.

The speaker discusses the frequency of auto insurance claims, stating that it has returned to pre-pandemic levels but remains lower than in 2019 due to safety features in vehicles and stable driving behavior. They also mention that frequency has a small impact on pure premium, which is up 9.7% year-over-year, while severity is up 9%. The speaker then moves on to discuss Slide 13, which shows the distribution channels of their business and tracks the total addressable market (TAM) by channel.

The speaker discusses how the TAM (total addressable market) has been growing in the exclusive agent channel, but there is competition among all channels for customers. They believe that by reducing costs and providing better value, they can take share away from other channels. They also want to be present in all channels, including the direct channel where they are using technology to improve the customer experience.

The company is constantly looking for ways to improve its services for customers and is focused on growing in the Allstate brand and the independent Asian business. However, the biggest factor in determining growth for next year will be the impact of properly pricing policies in New York, New Jersey, and California. The company manages the business on a local level.

The company is taking a state-by-state and risk segment-by-risk segment approach to improve profitability and plan for future growth. They have identified certain states as needing more rate increases and profitability before they can focus on growth, while other states are already at target levels of profitability and are ready for growth. The company has invested in capabilities and channels to support future growth and is optimistic about future opportunities. The CEO closes by summarizing the company's strategy for increasing shareholder value and achieving long-term sustainable growth.

The paragraph is simply a greeting, saying "good day."

This summary was generated with AI and may contain some inaccuracies.