Allstate Corporation (The)

Good day and thank you for standing by. Welcome to the All-States Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After prepared remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please limit your inquiry to one question and one follow-up. As a reminder, please be aware that this call is being recorded. And now I would like to introduce your host for today's program, Mr. Mark Snogle, Head of Investor Relations. Please go ahead, sir.

Thank you, Jerome. Good morning. Welcome to Allstate's fourth quarter 2021 earnings conference call. After prepared remarks, we will have a question and answer session. Yesterday, following the close of the market, we issued our news release 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 are reconciliations in the news release and 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. Before I hand it off to Tom, I would like to turn to slide two and discuss the expansion of Allstate's investor communications. Beginning this year, Instead of a traditional investor day, we will be conducting a series of 60-minute investor calls to provide deeper insights into significant strategic or operational topics. These calls will be in addition to our quarterly earnings calls. Our first call will focus on the current auto insurance operating environment and will be scheduled to take place in March. Topics on future calls may include homeowners insurance, independent agent channel strategy, expansion of protection services, and investments. In addition to investor calls, we will also begin disclosing the company's auto insurance implemented rate actions from the prior month on our investor relations website to provide additional information on premium growth. Rate disclosures will be posted on the third Thursday of every month, like our monthly catastrophe loss disclosures, though the rate postings will occur regardless of whether there is a catastrophe loss release in the month. I look forward to the additional engagement these changes will bring. And now I'll turn it over to Tom.

Good morning. Thank you for joining us today. Let's start on slide three. As you know, Allstate, we focus on execution and innovation as ways to create shareholder value. And our strategy has two components, increased personal property liability market share, and then expand protection solutions, which are shown on the two ovals on the left. If you start with the upper oval, we've been a leader in product innovation, a multi-channel distribution, and leveraging technology and telematics and claim settlement. So we're now building a low-cost digital insurer with broad distribution through transformative growth. We're also diversifying our businesses by expanding protection options as shown in the bottom oval. We offer customers a wide range of protection through workplace benefits, commercial insurance, roadside services, car warranties, protection plans, and identity protection. Avail is a leading innovator in telematics, and Avail is a startup, which is basically an Airbnb model for PowerShine. We leverage the Allstate brand, customer base, and capabilities to drive growth in those businesses as well. On the right panel, you can see our five annual operating priorities, which focus on both near-term performance and long-term value creation. So let's move to slide four and go through those operating priorities for the fourth quarter and the full year. Revenues of $13 billion in a quarter increased 18.7% compared to the prior year quarter, resulting in over $50 billion in revenue for the full year of 2021. That reflects about a one percentage point increase in auto insurance market share through the national general acquisition, growth in homeowners premiums, And then we also had strong growth at all state protection plans and higher investment income. Property liability premiums increased 17%. Net investment income of $847 million in the fourth quarter of 2021 increased $187 million compared to 2020, which reflects really strong results from the performance-based portfolio. Net income was $790 million in the quarter compared to $2.6 billion in the prior year as lower underwriting income and a loss related to the sale of the life and annuities business is only partially offset by the higher investment income. Adjusted net income, remember that's our measure, it takes out some of the things that we think are not related to the current economics, was 796 million, or 275 for the share, at a kind compared to the 1.6 billion generated in the prior year quarter, reflecting lower underwriting income. You'll remember that 2020, had low auto accident frequency reflecting the impact of the pandemic. 2021 was a year of, it really had two distinct halves as it relates to profitability of auto insurance. In the first half of 2021, auto insurance underwriting income benefited as lower accident frequency offset increased claim severity. As a result, underwriting income for auto insurance totaled over $1.7 billion in the first two quarters. In the second half of the year, auto claim frequencies continued to increase towards pre-pandemic levels, and the cost of repairing cars and settling bodily injury claims accelerated. We began increasing auto insurance rates in the third quarter, and it's accelerated in the fourth quarter. These rate increases, however, are earned as policies renew so that the cost increases resulted in an underwriting loss of slightly over $450 million in the last two quarters. The underlying combined ratio for auto insurance was 92.5 for the full year and 100.2 for the fourth quarter of 2021. And, you know, while that generates good underwriting income for the year and a good economic return, the results of the last two quarters are not acceptable. So we're highly focused on raising returns in auto insurance, as Glenn will discuss in a few minutes. Adjusted net income of $4 billion for the full year was 13.4%. 8 cents per share, which generated return on common shareholders' equity at 16.9%. Let's go to slide five to go through the operating priority results in more detail. To better serve customers, we lowered expenses to improve the competitive price position of auto insurance. The enterprise net promoter score finished slightly below the prior year, but in part that reflects the absence of the beneficial impact in 2020 of the pandemic-related customer accommodations. You'll remember it included a billion dollars of shelter-in-place program payments, expanded coverage, and longer payment terms. This year, we expanded protection offerings in group and health individual products with the acquisition of National General. We significantly grew our customer base in 2021, with total policies and force increasing 9.8% to $190.9 million. Property liability policies, of course, increased by 13.7%. That's due to the acquisition of the National General, expansion of our direct distribution in the Allstate brand, and increased insurance provided through Allstate agents. Protection services policies also continue to grow, increasing 8.9% to $148.4 million. On the third priority, achieve target returns of capital. That was accomplished. We completed the year with adjusted net income of $4 billion and a return on shareholder's equity of 16.9%. Despite the rising loss cost, environmental property liability combined ratio finished 2021 in 95.9%. Protection services continues to grow profitably. It's really driven by Allstate's protection plan. And then that investment income was $3.3 billion in 2021, reflecting proactive portfolio management and exceptional performance-based income. Mario will take you through that later as well. The total return on that portfolio was 4.4%. So sustainable value creation requires not only strong execution on the first four items, but long-term growth platform. In 2021, we sold life in the news business for $4.4 billion. We acquired National General for $4 billion to capture expense savings, leverage an independent agent technology platform, and improve our strategic position in this distribution channel. Significant progress was made on transformer growth to build a low-cost digital insurer with broad distribution. Allstate Protection Plans continues its rapid growth with written premiums of $1.8 billion. That's five times greater than when the company was acquired five years ago. Arity, our telematics company, continues to expand its services and launch highly innovative products. Execution and innovation lead to sustainable value creation. Now, let me turn it over to Glenn to discuss property liability results in more detail.