Allstate Corporation (The)

Good day and thank you for standing by. Welcome to Allstate's second quarter investor call. At this time, all participants are in listen-only mode. After the prepared remarks, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. To remove yourself from the queue, simply press star 1-1 again. Please limit your inquiry to one question and one follow-up. As a reminder, please be aware that today's call is being recorded. And now I'd like to introduce your host for today's program, Brent Vandermas, Head of Investor Relations. Please go ahead, Sarah.

Thank you, Jonathan. Good morning. Welcome to Allstate's second quarter 2023 earnings conference call. After prepared remarks, we will have a question and answer session. Yesterday, following the close of market, we issued our news release, investor supplement, filed our 10-Q, and posted related material 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 operations. Allstate's results may differ materially from these statements, so please refer to our 10-K for 2022 and other public documents for information on potential risks. And now, I'll turn it over to Tom.

Good morning. We appreciate you investing your time in Allstate. Let's start with an overview of results, and then Mario and Jess will walk through operating results and the actions being taken to increase shareholder value. Let's begin on slide two. Allstate's strategy has two components, increase personal property liability market share and expand protection services, which are shown in the two ovals on the left. On the right-hand side, you can see a summary of results for the second quarter. Progress is being made on the comprehensive plan to improve auto insurance profitability, which includes raising rates, reducing expenses, limiting growth, and enhancing claim processes. While auto insurance margins are not at target levels, the proportion of premium associated with states operating and underwriting profit has gone from just under 30% in 2022 to 50% for the first half of this year. Mario will discuss the actions being taken to continue this trend and, importantly, improve results in New York, New Jersey, and California. Severe weather in the quarter contributed to a net loss of $1.4 billion. Forty-two catastrophe events impacted 160,000 customers and resulted in $2.7 billion in catastrophe losses and a property liability underwriting loss of $2.1 billion. Strong fixed income results from higher bond yields generated $610 million of investment income, and protection services and health and benefits generated $98 million of profits in the quarter. The transformative growth plan to become the lowest cost protection provider is making continued progress. This both helps current results with lower costs and positions all saved for sustainable growth when auto margins return to acceptable levels. Affordable, simple, and connected property liability products where sophisticated telematics pricing and differentiated direct-to-consumer capabilities are being introduced under the Allstate brand through a new technology platform. National General is growing, which will also increase market share. Specialty auto expertise, along with leveraging Allstate's strength in preferred auto and homeowners insurance products, are expected to drive sustainable growth. Allstate protection plans is expanding its embedded protection through new products and retail relationships and in international markets. Allstate has a strong capital position with $16.9 billion of statutory surplus and holding company assets, as Jess will discuss later. And as you know, we have a long history of providing cash returns to shareholders through dividends and share repurchases. Over the last 12 months, we've repurchased 3.9% of outstanding shares for $1.3 billion. We suspended this repurchase program in July as we had a net loss for the six months of the year. Improving profitability, increasing property liability organic growth, and broadening protection offered to customers through an extensive distribution platform will increase shareholder value. Let's review financial results on slide three. Revenues of $14 billion in the second quarter increased 14.4% above the prior year quarter, or $1.8 billion. The increase was driven by higher average premiums in auto and homeowners insurance from rates taken in 2022 and 2023, resulting in property liability earned premium growth of 9.6%. Net investment income of $610 million reflects the impact of higher fixed income yields and extended durations. which will substantially increase income. This growth more than offset a decline from performance-based investments in the quarter. The net loss of $1.4 billion and an adjusted net loss of $1.2 billion reflects a property liability underwriting loss of $2.1 billion due to the $2.7 billion in catastrophe losses and increased auto insurance loss costs. In auto insurance, Higher insurance premiums and lower expenses were largely offset by higher catastrophe losses and increased claim frequency and severity. The underlying auto insurance combined ratio did improve slightly for the first six months of 2023 compared to the year end of 2022. Auto insurance had an underwriting loss of $678 million. In homeowners insurance, catastrophe losses were substantially over the 15-year period. average, resulting in a combined ratio of 145, generating an underwriting loss of $1.3 billion. The underlying combined ratio on homeowners improved 1.9 points to 67.6. Its higher average premiums more than offset increased severity. Adjusted net income of $98 million from protection services and health and benefits, when combined with the $610 million of investment income, offset a portion of the underwriting loss. The target for enterprise adjusted net income return on equity remains at 14% to 17%. I'll now turn it over to Mario to discuss property liability results.