Allstate Corporation (The)

standing by and welcome to the Allstate second quarter 2022 earnings conference call. At this time, all participants are in 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 11 on your telephone. As a reminder, today's program may be recorded. And now I'd 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 second quarter 2022 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 and investor supplement, filed our 10Q, and posted today's presentation 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 our reconciliation and reconciliation public documents for information on potential risks. Additionally, we'll be hosting our next special topic investor call on September 1st, focusing on Allstate's investment strategy. Now I'll turn it over to Tom.

Well, good morning. Thank you for investing your time with Allstate today. Let's start on slide two. So Allstate's strategy to increase shareholder value has two components, increase personal and property liability market share and expand protection services, which are shown in the two ovals on the left. We're building a low-cost digital insurer with broad distributions. We're also diversifying our business by expanding protection options by leveraging the Allstate brand, customer base, capabilities, and expanding distribution. On the panel on the right, in the second quarter, we made progress executing this strategy while we continued to implement a comprehensive strategy to improve profitability. That includes broadly raising auto and home insurance rates, In the second half of 2022, we plan to file for rate increases in excess of the increases implemented in the first half of this year, which were 6.1% of Allstate brand countrywide premiums. We're also reducing expenses, advertising, and growth investments. Underwriting guidelines have been and will be changed to reduce new business volume where we're not earning adequate returns. And we're also executing claims operating actions to manage loss costs in a high inflationary environment. These actions will likely have a negative impact on policy growth. And now while the current environment requires a huge focus on margin improvement, we continue to advance our transformative growth strategy where profitability level, and when profitability levels are acceptable, we'll have a business model to capture market share. The protection services businesses are generating profitable growth, although earnings declined slightly this quarter as we invest in that growth. Given the negative impact of inflation on the auto insurance business, as you know, beginning late last year, we reduced the bond portfolio duration to lower exposure to higher interest rates, which helped mitigate the reduction in bond valuations by approximately $1.3 billion in the first half of 2022. Our strong capital position enabled us to maintain high cash returns to shareholders in this environment. Moving to slide three, let's review second quarter performance in more detail. Total revenues decreased 3.4% in the prior year quarter, despite property liability premiums earned increasing 8.6%, which reflected higher average premiums and policy growth. Higher loss costs in the current report year and upward loss reserve development of $411 million in the prior report years resulted in a property liability recorded combined ratio of 107.9 in the second quarter. Net investment income of $562 million was 42% below the prior year quarter since performance-based income was exceptional in the prior year. Net losses on investments and derivatives were $733 million in the quarter There's lower valuations in equity investments and losses on fixed income sales, which were only partially offset by the derivative gains associated with the bond portfolio duration shortening. A combination of these factors led to a net loss of $1.4 billion in the second quarter and an adjusted net loss of $209 million, or 76 cents, per diluted year. The adjusted net income return on equity was 6.9% over the last 12 months, which is obviously unacceptable from our standpoint. It's substantially below the levels we achieved at this time last year, but we remain committed to achieving our long-term returns on equity of between 14 and 17%. Now let me turn it over to Glenn to talk, walk through our property liability results in more detail.