Allstate Corporation (The)

Thank you for standing by and welcome to the All-State Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Mark Nogle, Head of Investor Relations. Please go ahead, sir.

Thank you, Jonathan. Good morning. Paired remarks will have a question and answer session. Yesterday, following the close of the market, we issued our news release and investor supplement and posted related materials on our website at allstateinvestors.com. Our management team is here to provide perspective on these results. 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 operation. Allstate's results may differ materially from these statements, so please refer to our 10-K for 2020 and other public documents for information on potential risks. And now, I'll turn it over to Tom.

Good morning, and thank you for joining us today. Let's start at slide two. Today, we're going to link operating results to strategy in order to show how we expect to continue to generate shareholder value. So, all-state strategy has two components, increased personal profit liability market share and expand protection solutions, which are shown in the two ovals on the left. The transformative growth plan To increase market share and personal property liability has four components. This strategy will drive market valuation by executing, innovating, and focusing on long-term value creation. So in the first half of the year, we executed well for customers, we executed well financially, and for shareholders, as you can see on the right-hand panel. Property liability market share increased by approximately one percentage point through the acquisition of National General. All state protection plans continue to grow rapidly by broadening the product offering to include appliances and furniture and expanding availability through Home Depot stores. Strong execution generated excellent financial results with revenues increasing 23.8% compared to the prior year, adjusted net income of $3 billion and a return on equity of 23.8% for the last 12 months. Shareholders benefited from a 50% increase in the quarterly common dividend and a reduction in outstanding shares by 2.4% just this year under the current $3 billion share repurchase program. Yesterday, the Board approved the new $5 billion common share repurchase program, which represents approximately 13% of current market capitalization, and we expect to complete that by the end of March of 2023. Let's continue on slide three. In addition to operating execution, we're innovating to create long-term value The transformative growth plan to create a digital insurance company is making good progress. Today, we're going to spend time talking about the distribution component of that plan. Allstate is amongst the leaders in telematics capabilities with DriveWise in the industry's largest paper mile product, MileWise, which offers customers unique value. Arity, our telematics service platform company, recently launched Arity IQ, which when combined with lead cloud and transparent lead platforms will integrate telematics information into pricing at the time of quote rather than at the time after the sale. We enhanced our competitive position in independent agent channel by using national general to consolidate and improve our IA business model. We executed agreements to sell Allstate Life Insurance Company and Allstate Life Insurance Company New York to redeploy capital out of lower growth and return businesses and reduce exposure to interest rates. Increasing market share while maintaining attractive returns and expanding protection solutions through transformation, targeted acquisition, and divestitures will create shareholder value. Slide 4 lays out the Allstate's strong second quarter performance. Revenues of $12.6 billion in the quarter increased 21.6% compared to the prior year. that largely reflects the national general acquisition and higher net investment income. Property liability premiums earned and policies enforced increased by 12.9% and 12.1% respectively. Net investment income of $974 million increased by over three-quarters of a billion dollars compared to the prior year quarter, reflecting $649 million of income from the performance-based portfolio. Net income of $1.6 billion was reported in the second quarter compared to $1.2 billion in the prior year. Adjusted net income was $1.1 billion at $3.79 per diluted share, as you can see from the table on the bottom. That's a 40% increase from the prior year quarter. All states' excellent execution and strong operating results in the quarter contributed to that return on equity, which I just mentioned, of 23.8% over the last 12 months. Let's move to slide five to discuss our progress on building transformative growth business models. So transformative growth, it's a multi-year initiative. And what we're working to do is build a low-cost digital insurer with broad distribution. And that's going to be accomplished through four areas. Expanding customer access, improving customer value, increasing sophistication and investment in customer acquisition, and deploying new technology ecosystems. And transferring, of course, you wouldn't do it all in one day, of course, so it's got five phases. And substantial progress has been made in phases two and three. Phase two successes include improving the competitive price position of auto insurance, protecting margins by reducing costs. New advertising was launched with increased investment. We also are off to an excellent start with National General. And, of course, the phases overlap, so progress is also being made in phase three. So we're transforming the distribution platform, including supporting transition of all state agents to higher growth and lower cost models, which we'll discuss on the next slide. Improving customer acquisition sophistication will lower costs relative to lifetime value. We continue to focus on lowering underwriting claims expenses to deliver lower cost protection to customers. We've designed the new technology architecture. We've coded much of the new applications. The next step for us is to launch an integrated system with one product in one state. Turning to slide six, let's review how we're transforming the Allstate agent, Allstate direct sales, and independent agent distribution platforms to grow market share. The illustrative slides on the right side of the slide provide a view into our growth expectations We're making progress transitioning to a higher growth and lower cost model. This year, we changed agent compensation by increasing their business compensation opportunity and reducing a bonus paid on policy renewals. We expect to continue this shift from renewal compensation to new sales because it aligns with what consumers want. Consumers want assistance with purchasing insurance more than they want routine policy service. To lower costs for agents, we're digitizing processes, redesigning products, increased self-service, and expanding centralized service support. We're also working to reduce agent operating expenses and real estate costs. These changes will improve the customer value proposition with lower costs and easier service. Now, of course, you're not going to do this in one day either, so a multi-year transition program is in place to support existing agents. We've initiated it, and it has different levels of based on agent performance. Given this transition, we reduced new agent appointments last year, which has had a negative impact on new business levels. But as Mario will discuss next, this has been offset by higher productivity from existing agents. At the same time, we have two new agent models in market, which have personal touch but a lower cost structure. All of these changes are supported by more competitive auto insurance pricing and increased marketing spending. which is designed to continue to grow. But as you can see on the right, the net impact of these changes for the Allstate agent channel is to be flat to a slight decline in sales in the short term, but increased growth thereafter. The Allstate direct sales effort leverages the capabilities that we built for the e-surance brand. And we've shifted our advertising focus away from e-surance to be totally focused on the Allstate brand and utilizing the direct channel for Allstate branded sales as well. that pricing is lower than the alternate agent model since it doesn't come with the help of an agent. And as this business grows, we're improving our operational and marketing effectiveness. Direct sales now represent 29% of new auto business sales, and we expect that to continue to grow rapidly, as you can see on the right. Independent agent distribution also represents an attractive growth opportunity. The acquisition of National General enhanced our capabilities in this channel, and it added 4 million policies in force. Additional growth is expected by broadening the product portfolio from high-risk drivers to middle market auto and home insurance through the existing agent relationships. We also expect to increase the number of agents actively engaged in selling national general products. So when you combine this effective and efficient distribution with more competitive auto insurance pricing, enhanced marketing, advanced pricing in telematics, and a digital experience, That's the transformative growth plan that will drive property liability market share growth. So Mario will now discuss the second quarter results in more detail.