Allstate Corporation (The)

Thank you for standing by, and welcome to the Allstate Third 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. I would now like to introduce your host for today's program, Mark Noble, Head of Investor Relations.

Please go ahead, sir. Thank you, Jonathan. Good morning. Welcome to Allstate's third quarter 2021 earnings conference call. After prepared remarks, we'll 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 to 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 the investor supplement and forward-looking statements about Allstate's operations. 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.

Well, good morning, and thank you for investing your time with us today. Let's start on slide two. So this is Allstate's strategy on the left-hand side, which we've talked about before. We have two components, increase personal property liability market share and expand the protection solution. Those are the two ovals you see on the left with the intersection between them. The key third quarter results are highlighted on the right-hand panel. Property liability policies and force increased by 12.5%. All safe protection plans continue to grow rapidly by both broadening its product offering and expanding the network of retail providers. As a result, we now have almost 192 million policies and force across the enterprise. Financially, the results were more mixed. Revenues were up substantially, but net income and adjusted net income declined from the prior year quarter. Underwriting income declined primarily due to higher loss costs in settling auto insurance claims. We've implemented price increases to proactively respond to the sharp rise in loss costs, and transformative growth continues to position us for long-term success, both of which we'll talk about in a couple of minutes. This was partially offset by the benefits from our long-term risk and return programs. that include significant reinsurance recoverables, they were primarily related to Hurricane Ida, and a substantial increase in performance-based investment income. Capital deployment results were excellent, with a billion and a half dollars of cash returned to shareholders in a quarter. We also completed the divestitures of our two largest life and annuity businesses, one in October and then one just earlier this week. So let's go to slide three. Revenues of $12.5 billion in the quarter increased 16.9% compared to the prior year quarter, and that reflects both the higher earned premiums from national general acquisition, Allstate brand, homeowners premium growth, and higher net investment income. Property liability premiums and policies in force increased 13.5% and 12.5% respectively. Net investment income was $764 million, and that's about $300 million compared to the prior year quarter, reflecting strong results from the performance-based portfolio. Net income was $508 million in the quarter, and that's compared to $1.1 billion in the prior quarter, as lower underwriting income was partially offset by the higher investment income. Adjusted net income was $217 million, or 73 cents per diluted share. and it's decreased $683 million compared to the prior year quarter, reflecting the lower underwriting income due to the higher auto and homeowners insurance loss costs. Net income for the first nine months of 2021 was below the prior year, and that's largely due to the loss on the sale of the life annuity business, which we recorded earlier in the year. Adjusted net income was $10.70 per share for the first nine months, and that was above the prior year as higher investment income and lower expenses, more than offset higher loss costs. Let's turn to slide four. What I would do is put the pandemic in a longitudinal perspective, because it's created volatility for our results, and it obviously requires us to adapt quickly, which we do. But before we go through the impact on the third quarter results of the supply chain disruption, let's talk about the initial and subsequent impact of the pandemic. So in 2020, the economic lockdown resulted in fewer miles being driven and promoted and prompted an aggressive economic support response from really governments around the world. The impact on auto insurance was a dramatic drop in the number of accidents. And of course, due to this unprecedented drop in frequency, we proactively provided our customers with some money back, which increased customer retention. Since then, since there was less road congestion and fewer accidents that occurred during commuting hours, the average speed and severity of auto claims increased, offsetting some of the frequency benefits. Nevertheless, underwriting margins improved dramatically, so we introduced a temporary shelter-in-place payback rather than take a permanent rate reduction and took some modest overall reductions in rate levels. This year, as you can see from the right-hand column, the story has been just the opposite as it relates to frequency, with large percentage increases. And while the overall level of accident frequency for the Allstate brand is still below pre-pandemic levels, the national and general non-standard business is back to the levels before the pandemic. Auto severity this year, however, has been dramatically impacted by the supply chain disruption and price increases on used cars, and original equipment parts. And Mario will take you through that in a couple of slides. From our pricing perspective, this results in moving from modest rate reductions to significant increases in auto insurance prices. From a growth standpoint, at the onset of the pandemic, we began to see material increase in the consumer acceptance of telematics. And we've really leaned into that with our MileWise product, which is really the only national product out there to pay per mile. And that's led to substantial increase in that telematics product. Now, the pandemic has also had a significant impact on the investment portfolio, and this is a tale of the beginning and the end as well. So early in the crisis, equity valuations were down, and this had a negative impact on investment results. Then, of course, we had a broad-based, long-term, spread out over a decade, really, investing in these kinds of funds. And so we do it on a long-term basis, whether that's three, five, or 10 years. But so what's happened this year, of course, is we've had the opposite happen, which is with the economic stimulus, we've had equity valuations going up, and our returns have come back strongly. In the market-based portfolio, lower interest rates at the onset of this pandemic did lead to an increase in the unrealized gains in the portfolio. But of course, what that does is reduce future interest rate income, which you see slight decline And many of our other businesses have been impacted, some positively, some negatively. But it's our ability to adapt and seize the opportunities that are presented that create shareholder value. So Mario will now go through the third quarter results in more detail and how transformative growth positions Allstate for continued success.