The operator introduces the Allstate Fourth Quarter Earnings Conference Call and reminds participants that the call is being recorded. Brent Vandermause, Head of Investor Relations, then introduces the management team and mentions that the discussion will contain non-GAAP measures and forward-looking statements. Tom Wilson, the CEO, discusses Allstate's strategy to increase shareholder value through increasing market share and expanding protection for customers. Mario and Jess will then go through the operating performance, followed by a question-and-answer session.

The fourth quarter highlights for the company include a net income of $1.5 billion, reflecting improved auto insurance profitability and mild weather conditions. The company is focused on increasing shareholder value by improving auto insurance profitability and increasing policies in-force across all businesses. They are also implementing transformative growth initiatives and expanding protection offerings. Revenues for the quarter were $14.8 billion, a 8.7% increase, and annual revenues were $57 billion, up 11.1% from the previous year. Net investment income also saw an 8.4% increase.

The fourth quarter earnings were strong, resulting in positive net income for the year. The four-part auto insurance profit improvement plan was successfully executed, resulting in a 6.7% point improvement in the combined ratio in 2023. Rate increases were implemented for the Allstate brand and National General, and further increases will be pursued in certain states to improve margins and keep up with loss costs. Expense reductions have helped offset inflation in loss costs, and further cost reductions will improve efficiencies and competitive pricing. Advertising investment will increase this year due to the significant improvement in auto margins. Underwriting actions have been taken to restrict new business in areas where target returns were not being met, but these restrictions will be lifted as rate adequacy is achieved. Claim practices are being enhanced to deliver better customer value in a high inflation and litigious environment. This has allowed for an increase in new business and growth in policies in-force and sales where acceptable margins have been restored. Mario will now discuss Property-Liability.

In the fourth quarter, Property-Liability earned premium increased by 10.7% due to higher average premiums from rate increases. Underwriting income also improved significantly compared to the prior year quarter, driven by increased premiums earned, improved underlying loss experience, lower catastrophe losses, and operating efficiencies. The combined ratio improved by 19.6 points, with lower catastrophe losses and favorable prior year reserve re-estimates. However, the full year combined ratio was impacted by elevated catastrophe losses. On slide six, Allstate's auto insurance profit trends will be reviewed.

The fourth quarter of 2023 saw a significant improvement in the auto insurance combined ratio, with a decrease in underlying combined ratios throughout the year. This was due to the implementation of a profit improvement plan and reassessment of claim severity expectations. While loss cost trends remain high, there has been a moderation in the rate of increase, particularly in physical damage coverages. The Allstate brand's weighted-average major coverage severity expectations also improved from 11% to 8-9% by the end of the year. Slide seven illustrates the impact of profit improvement actions across the country.

Allstate's brand rate increases have been over 33% in the last eight quarters, with larger increases in states with elevated loss trends. These states make up a significant portion of Allstate's total written premiums. The majority of states have an underlying combined ratio below 100, indicating improved profitability. However, this has had a negative impact on policies in-force, with a decrease of 2.9% in total Protection Auto policies. This is mainly due to a decline in new business volumes and lower retention. National General saw an increase in policies in-force, driven by non-standard auto insurance and new product launches. Total personal auto new issued applications decreased by 6% in 2023, with a 20% decline in new auto issued applications for the Allstate brand due to targeted profitability actions.

The first two red bars on the graph show a decrease in new business volume in certain states and channels due to reduced marketing investment. However, Allstate agents were able to increase production by 6% through higher productivity. The acquisition of National General also helped Allstate grow in the independent agent channel. Homeowners' insurance results were impacted by catastrophe losses in the first three quarters, but net written premium increased by 13.3%. National General saw a 19.6% increase in net written premium due to policy in-force growth and higher average premiums. Allstate brand also saw an increase in net written premiums and agents continue to bundle auto and homeowners' insurance at high rates.

In the fourth quarter, catastrophe losses were low due to mild weather and favorable development from prior events, resulting in a combined ratio of 62 and $1.2 billion of underwriting income. However, for the full year, higher catastrophe losses led to an increase in the combined ratio compared to the previous year. This was driven by higher average premiums from rate increases, offset by higher claims severity. The company remains confident in their ability to generate attractive returns in the homeowners line of business and is focused on improving their cost structure to maintain a competitive price position.

The company is expecting to see growth opportunities as they continue to implement rate increases and decrease expenses. They are offering redesigned, affordable, and connected products in multiple states and plan to expand to more. They are also improving customer access and increasing advertising spend to grow in more states. In addition, the company is deploying new technology to improve the customer experience and reduce costs. The Property-Liability underwriting expense ratio has decreased and the company is focusing on lowering costs to provide more value to customers. The fourth quarter saw a 1.3-point improvement compared to the previous year, with a slight increase in advertising spend being the main driver.

The second green bar in the chart shows a decline in operating costs due to lower employee-related costs and higher premiums. The company is committed to reducing the adjusted expense ratio through innovation and process improvement. The investment results for the quarter were positively affected by the company's proactive approach to duration management, resulting in higher market-based income. The company plans to continue extending duration and reinvesting portfolio cash flows into higher interest rates.

The portfolio returns for the fourth quarter and the year were 4.6% and 6.7%, respectively, due to income earned and higher fixed income valuations. Net investment income was $604 million in the quarter, with market-based income increasing by $140 million compared to the previous year. Performance-based income decreased by $87 million due to lower valuation increases and fewer sales. The Protection Services businesses saw a revenue increase of 11.8%, driven by growth in Allstate Protection Plans. Adjusted net income decreased by $34 million, mainly due to a state income tax examination that increased the effective state tax rate.

The tax change had a positive impact of $6 million on the enterprise and is not expected to significantly affect ongoing operations. The Health and Benefits businesses saw profitable growth, with revenue increasing by $50 million in the fourth quarter of 2023. Allstate announced plans to divest its Health and Benefits business in 2024. Allstate's financial condition and capital position remain strong, with a $1.6 billion increase in statutory surplus and $3.4 billion in assets held at the holding company.

The company's GAAP shareholders' equity increased by $3.2 billion compared to the previous quarter due to a rise in GAAP net income and improved unrealized position on fixed income securities. The company is actively managing capital, implementing a profit improvement plan, and investing in growth opportunities to generate attractive returns for shareholders. During the Q&A session, the company discussed rate adequacy in California, New York, and New Jersey and their objective to meet the protection needs of customers while achieving appropriate levels of returns.

The company had rate pending in three states: California, New Jersey, and New York. In California, they filed for a 35% rate and got approval for 30%, allowing them to write business in the state. In New Jersey, they filed for 29% rate but only received approval for 17%, so they will continue to take restrictive underwriting actions and get smaller in the state. In New York, they received approval for a 14.6% rate but still need more, so they plan on filing for their full rate need soon. The company will continue to monitor loss trends in these states and adjust their actions accordingly.

Tom Wilson and Mario Rizzo discuss the impact of raising prices in three states on PIF and retention. They state that the current competitive environment is still in flux, making it too early to tell the impact on volume in 2024. Their goal is to make good money for shareholders and grow. They mention transformative growth and short-term plans. Mario points to Texas as an example of how taking outsized rates and lapping them can impact retention, with a bounce back seen after lapping the rates in the fourth quarter.

The company's efforts towards transformative growth have resulted in a decrease in expenses despite an increase in policy count. This is due to the implementation of various cost-cutting programs, such as digitization and outsourcing, which have been in the works for several years. As a result, the company expects to see a positive impact on retention and a decrease in headwinds going forward.

The company has been implementing new programs for the past 18 months and will continue to see benefits in 2024. They have also changed their agent commission structure to focus more on new business and less on renewals, in line with their goal of offering lower-priced products. The company prioritizes taking care of customers and building long-term value over short-term financial targets. They have also cut advertising expenses in order to improve profitability.

The speaker discusses how the company has been able to improve their expense ratio and cost structure while also investing in marketing. They have made progress in creating a more efficient distribution system and have seen decreases in distribution costs. They have also reduced operating costs through digital advancements and improving processes. They plan to continue investing in claims and using the efficiencies gained in these areas to fund their marketing investments and accelerate growth.

Tom Wilson, Gregory Peters, and Mario Rizzo discuss the company's growth strategy and the role of National General in that strategy. National General is a core part of the transformative growth plan and has helped improve the company's competitive positioning in the independent agent channel. The company has had success in the channel and sees significant opportunities for growth in both non-standard auto and standard preferred homeowners. This is a key part of the company's overall growth strategy. Yaron Kinar then asks a question about growth.

Tom Wilson and Mario Rizzo discuss Allstate's competitive positioning in the insurance market in 2024. They expect competition from other companies such as Progressive and GEICO, but believe they have room to grow and will focus on retention and new business acquisition. As more states become profitable, they anticipate needing to raise rates less.

The speaker discusses their plans for future growth and how they will be influenced by loss trends and competition. They also mention having enough capital to support their growth without needing to take any strategic actions. The holdco cash increased in the quarter, but it is not specified if a dividend was taken out of a specific entity.

In this paragraph, Jesse Merten and Elyse Greenspan discuss the increase in holdco cash in the prior quarter and the reasons behind it. Merten explains that the increase was due to their normal practice of moving capital around to maximize flexibility. They also mention that they moved some capital from statutory legal entities and dividends from non-insurance companies into the holding company. Greenspan then asks about policy growth within Nat Gen and Mario Rizzo responds by saying that most of the growth has been in the non-standard auto space, which has had a lot of disruption competitively. Rizzo also mentions that they have taken a similar approach to profit improvement in Nat Gen as they have in Allstate, with a significant increase in rates over the last two years.

The company has seen significant growth in their non-standard auto market and is comfortable with their margins. They are also rolling out a new product, Customer 360, in the IA channel to write standard preferred auto and homeowners. The product has been well received and is expected to expand into more states. The company is also looking to leverage Allstate's capabilities to expand National General in the middle-market. As for buybacks, the company always ensures they have enough capital to run and grow the business before considering them. They have also set aside more capital for growth due to their transformative growth.

The company will continue to prioritize opportunities for growth and driving shareholder value. They have a strong track record of buying back shares, but will also consider other uses of capital such as investing in their Property-Liability business and Protection Services. They have also derisked their investment portfolio. As for expenses, the company is cutting costs in certain areas, but will not compromise on critical areas such as litigation fees.

The speaker discusses expenses in claims and refutes the claim that lawyers only exist because of poor claim settlements. They take bodily injury claims seriously and try to resolve them quickly and fairly. The increase in lawsuits and litigation is due to more severe accidents and the aggressive marketing tactics of law firms. The use of data and analytics by these firms is questionable.

The company is working to ensure that people receive the right amount of compensation for their claims. They have been settling claims faster in order to prevent people from seeking legal representation. The company is also focused on improving their claims process through investments in people, processes, technology, and analytics. They have experienced turnover in 2022, but it has since subsided.

The company is focused on improving their claims process by investing in training and tools for their claim staff. This includes reducing leakage in the system and paying claims faster. They are also working to reduce their pending inventory on the casualty side to decrease reserve risk. The goal is to be more competitive and drive growth, and they are willing to invest in claims personnel even if it means increasing expenses in the short term.

The speaker responds to a question about pricing adequacy in the homeowners' line and bundling. They mention that the homeowners' business is volatile but they are happy with it and have raised prices. They also mention that they have a good business model to adapt to any potential issues. The speaker then asks Mario to speak about returns in the homeowners' business and the bundling question.

The company has been successful in raising rates and improving their combined ratio, with an average premium increase of 12.5%. They expect to earn more rate in the future and are confident in their capabilities in the homeowners' market. They have a high percentage of bundled customers, which they see as a valuable and profitable segment. The company plans to continue focusing on bundled business in all three channels.

In the paragraph, Tom Wilson talks about the competition between GEICO and Progressive in terms of bundling and how they are targeting good customers. He also mentions that their company expects to make money in homeowners insurance. When asked about the impact of unwinding restrictions and increasing advertising on the combined ratio, Tom Wilson explains that it will increase the types of risks they are willing to write and that their sophisticated pricing approach ensures rate adequacy. However, he also notes that new business tends to have a higher loss ratio due to renewal relativity.

The speaker discusses how the company's combined ratio may be impacted in the future due to changes in underwriting restrictions. They also mention a potential new business penalty but assure that it is factored into their overall management strategy. When asked about frequency and severity, the speaker declines to give a forecast but states that they will continue to price accordingly. The speaker also notes that their other businesses and investment portfolio have also been performing well.

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