Allstate Corporation (The)

Good day and thank you for standing by. Welcome to Allstate's second quarter earnings investor call. At this time, all participants are in listening 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 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. 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'd like to introduce your host for today's program, Alistair Govan, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone. Welcome to Allstate's second quarter 2026 earnings call. Yesterday, following the close of the market, we issued our news release and investor subterfuge. and posted materials on our website at allstateinvestors.com. Today, our management team will discuss how Allstate is creating shareholder value. Then we will open up the line for your questions. As noted on the first slide of the presentation, our discussion will include non-GAAP measures for which reconciliations are provided in the news release and the investor supplement. We will make forward-looking statements about Allstate's operations. Actual results may differ materially from these statements, so please refer to our 2025 10-K and other public filings for more information on potential risks. And now, I'll turn it over to Todd.

Good morning. Thanks for investing time at Allstate. Before we begin, I'd like to welcome Chris Lone, who joined Allstate this week as Chief Financial Officer. He's an excellent addition to the Allstate team. You can look forward to hearing from him on the next call. for choosing not to put in the middle of the heat with like two days' work. I'd also like to thank John for doing triple duty, leading investments, strategy, and being interim chief financial officer. Let's begin on slide two. Allstate's strategy is to increase profitability market share and expand the protection we provide to customers by offering affordable, simple, and connected products through an extensive distribution network. Sharehold of value, is created through operational excellence, which generates attractive returns on capital, sustainable growth through the Profitability Transformative Growth Initiative and expanded protection, capital generation, which funds organic growth, enables us to optimize risk-adjusted investment returns, pursue acquisitions, and provide significant cash to shareholders. Let's review second quarter results on slide three. Overall, increased profitability growth and generated exceptional earnings. Starting with growth, total revenues grew to $18.6 billion, up 11.8% from the second quarter of 2025. Debt premiums written increased 2.6%, which was supported by continued growth in auto and homeless insurance and a 9.9% increase in issued applications. Total policies and force increased 3.8% to $215.9 million. That reflects 2.6% growth in property liability and 4.1% growth in protection services. Net investment income increased 33.8% to $1 billion, reflects lengthening of the duration last year, a larger portfolio, and increased performance-based income. The increase in public equity investments last year also generated significant capital gains, which raised net income. The property liability combined ratio was 4.5 points improved and went to 86.6, while the underlying combined ratio was 79.4, in line with the prior year quarter. Net income was $3.2 billion, and adjusted net income was $2.3 billion, or $8.99 a share. For the first half of the year, adjusted net income was $5.1 billion, or $19.65 per share. Adjusted net income return on equity is 44.2% over the last 12 months. Slide 4 provides the construct for our detailed discussion results. This year's growth in earnings are the result of operational excellence. Auto and homeowners insurance combined ratios are significantly better than the industry, which reflects precise pricing, expense control, and claims expertise. These capabilities also enables to rapidly adapt to changes in external environment and competition. Our investment expertise generates first and second quartile results.

All of this requires a highly sophisticated technology and analytics platform.

Value is also created through sustainable growth. The Transforming Growth Initiative is resulting in market share growth in auto and homeowners insurance. Broadening protection leverages our customer-based brand distribution and capabilities, so we protect consumers' electronics, appliances, furniture, roadside services, car warranties, and amenities. Next up is deployment of ALI, Allstate's Large Language Intelligent Ecosystem. Allstate also generates significant capital, which funds a wide range of value creation opportunities. Over the last decade, we've increased organic growth, generated attractive returns from investments, acquired Square Trade and National General, and provided significant cash to shareholders through dividends and repurchases. In that time, we've repurchased 39% of outstanding shares. The total cash returned to shareholders through dividends and share repurchases over this 10-year period was equal to Allstate's 2015 market capitalization. Allstate's annual free cash flow relative to market capitalization is far in excess of the S&P 500 and virtually all subsectors of the market. Let's turn to slide five, which provides an overview of how these outcomes are powered by sophisticated technology and analytics. So we have a technology-driven strategy, not a strategy supported by technology. The difference may sound subtle, but in execution it's significant. A technology-driven strategy looks at technology first to determine how it can be leveraged to improve customer value and generate attractive returns. A strategy supported by technology starts with a go-to-market strategy and then says, how do we develop technology to implement that? In our case, this means advanced analytics are embedded into operations across the enterprises. That includes pricing, customer sales and support, claims, investments, and capital management. Over 250 highly sophisticated analytical models are used to make and support decision making using over 40 petabytes of data and 1.5 billion CPU compute hours. A few examples of what this enables us to do, generate over 100 million quotes, purchase 50 million leads, often with sub-second response times, and manage hundreds of customer interactions. Now, this platform is enabling us to build ALE, which will leverage agentic AI to improve customer value, lower cost, and increase growth. The architecture has eight integrated components that would enable agent-to-agent processing. For example, one component will handle all customer interactions. Each component is comprised of multiple agentic agents, which are built to be reused across the enterprises. The orchestration layer that we built between the underlying systems for transformative growth is helping us accelerate the build and deployment of Alley. Transformative growth also included a number of organizational and process changes related to technology, which are enabling Alley. Now, we still have more capabilities to build, particularly in reimagining customer value and business processes, and so we're enhancing our internal talent and expanding external relationships. Allie is another important step in executing a technology-driven strategy. Jess will now discuss property liability results.

All right. Thank you, Tom. Good morning, everyone. Let's start on slide six with how Allstate's operational excellence consistently results in superior performance. This slide shows 10 years of combined ratios in both auto and homeowners insurance as compared to the industry as well as the results for our property liability business. Starting with auto insurance on the left, over the last 10 years, Allstate's auto insurance business achieved target margins with a combined ratio of 95.2, while the industry did not make an underwriting profit. The same story exists in homeowners insurance, but Allstate's outperformance is greater at 10 points. There are obviously swings in individual products by year, but the third chart shows that, in total, Allstate has generated significant underwriting margins over the last decade from our property liability business. To achieve these strong results, Allstate relies on pricing sophistication and a world-class claims team. We manage volatility through risk selection and a robust re-insurance program as part of our strategic risk and return management framework. Moving on to slide seven, the property liability business increased growth in the second quarter while generating attractive returns. Starting with the table on the left, net premiums earned increased 4% to $14.9 billion, driven by premium growth in both auto and homeowners insurance. The property liability combined ratio improved 4.5 points, 86.6. Auto insurance generated an 83.3 combined ratio, improving 2.7 points from the prior year. Homeowner's insurance generated a 94.6 combined ratio, improving 7.4 points. The property liability underlying combined ratio remained strong at 79.4. Business generated $2 billion of underwriting income, an increase of yearly 57% from the prior year. The chart on the right walks through the 4.5-point property liability combined ratio improvement from 91.1 in the second quarter of 25 to 86.6 this quarter. The underlying loss ratio improved 1.1 points, and lower catastrophe losses compared to the prior year contributed 2.4 points. Prior year reserve re-estimates contributed 2 points of the improvement. These drivers were offset by a one-point increase in the expense ratio, about half of which is higher advertising, with most of the remainder coming from non-recurring legal expenses. Overall, strong property liability performance drove another quarter of excellent returns in a combined ratio of 86.6. Moving now to slide eight, operational excellence also enables rapid adaptation to changing conditions. As most of you know, following the pandemic, supply chains and strains led to a nearly 60% increase in used car prices. We also experienced increases in parts costs, longer repair times, and more severe accidents increased bodily injury severity. As a result, auto insurance returns deteriorated, necessitating price increases and restrictions on new business. Recent reserve changes highlight how quickly we were able to adapt. Auto claim reserve releases have totaled $1.5 billion this year. Approximately half of the bottle entry changes relate to 2023 and 2024. The recorded and underlying combined ratios for each year are shown on the top two rows of this chart. The bottom rows adjust for the impact of claim reserve releases on each year and shows what the combined ratio would have been with these changes. As you can see, in 2023, the underlying combined ratio for auto insurance would have been 95.2, a 7.2-point improvement from 2022, which shows our rapid adaptation. We also made changes to reserve re-estimates within a year and did so in the second quarter. The reduction of expected costs for first-quarter claims benefited the second quarter by 2.4 points, resulting in an adjusted underlying combined ratio of 90. The year-to-date underlying combined ratio was 88.5. Let's turn now to slide 9 to discuss how Allstate has improved affordability, which increases growth while maintaining strong margins. The chart shows Allstate's auto premium per policy compared to the adjusted underlying loss and expense per policy. The dark blue line represents annualized average premium. The light blue line represents adjusted underlying loss and expense. The gap between the two results in strong auto insurance margins. On the right side of the chart, annualized premium per policy in the second quarter was $1,486, down slightly from the second quarter of 2025, reflecting strong margins and actions that we've taken to improve affordability for customers. Adjusted underlying loss and expense per policy was $1,337. The bottom of this slide shows the net implemented rate change over time. In the second quarter, rate increases and decreases were implemented in 36 locations with a net impact of zero. Altgate continues to manage auto insurance profitability with discipline and the business is positioned to grow profitably. And now, I'll pass it over to Mario.

Thanks, Jess. Turning to slide 10, transformative growth execution that is generating property liability market share growth. Looking first at the left side of the slide, advances in our acquisition sophistication, expanded direct distribution, and productivity of Allstate agents allow us to economically increase Allstate brand advertising. We have strong returns from marketing spend with advertising investments of $1.1 billion in the first half of the year. In the center of the slide, you can see how these investments are translating into new business growth in the Allstate agent and direct channels. In addition, independent agent volumes increase as well. The top chart shows auto insurance new business by channel for the second quarter of 2023 and the most recent quarter. Auto insurance new business increased to 2.3 million items in the quarter versus 1.5 million three years ago, which is balanced between all channels, all state agents, independent agents, and direct sales via phone or web. The bottom chart shows a similar pattern in homeowners insurance, with new business increasing by 46.8% to 411,000 policies, many of which are bundled with auto insurance, particularly in the Allstate agent channel. Overall, new business growth highlights the benefits of having the broadest distribution in the industry and new products with sophisticated pricing and risk segmentation. Growth rates by year are shown on the right side of the slide. Auto insurance policy growth in the second quarter turned positive last year after the pandemic-related growth restrictions and was 2.8% this quarter. In homeowners insurance, growth has been consistently positive and was 2.9% this quarter. The bottom line is that transformative growth is working. Moving to slide 11. Protection Services is an important part of how Allstate expands protection and leverages capabilities to create value in more parts of customers' lives. The segment has 177 million policies in force, contributing $3.4 billion to our top line and generating over $200 million in adjusted net income in the last 12 months. Protection Services extends Allstate's brand customer relationships, distribution network, and technology capabilities into adjacent markets. Allstate protection plans are distributed through over 30 major retailers, such as Walmart, Costco, and Home Depot, as well as a growing presence in international markets. This gives us access to customers at the point of purchase and expands awareness of the Allstate brand. Dealer Services extends our reach in the vehicle purchasing journey through more than 1,100 dealership relationships. Products protect vehicle value and reduce the cost of unexpected repairs. Verity demonstrates how Allstate leverages data and analytics at scale. With over 2 trillion miles of driving data, mobility intelligence capabilities provide a better understanding of how people move, improve risk insights, and generate third-party revenue. Roadside assistance brings the Allstate brand to life through 1.75 million rescues each year, which strengthens customer relationships. An exciting part of transformative growth is that the affordable, simple, and connected auto insurance shopping experiences are increasing bundled roadside sales. Allstate identity protection extends our promise of protection into another area of growing customer need, Identity protection helps 3.4 million customers prevent, detect, and recover from scams and identity-related events. By doing so, we expand Allstate's customer base. Taken together, these businesses reflect a broad strategic opportunity. Customers need protection in more aspects of their lives, and Allstate is uniquely positioned to meet those needs. In summary, protection services expands our addressable market, Ron is our distribution footprint, deepens customer relationships, and creates additional opportunities for growth. And now I'll turn it over to John. Thanks, Mario.

Let's turn to slide 12 to discuss how strong investment performance supports earnings growth and shareholder value. Starting on the left, the portfolio is 80% interest-bearing assets with equity securities and performance-based investments providing growth-oriented exposure. This allocation supports recurring income generation while providing attractive risk-adjusted return on capital. Our investment performance is first and second quartile in benchmark to the market for fixed income, private equity, and real estate. This is due to a terrific team of nearly 300 investment professionals and use of external managers when we don't have the expertise for scale in-house. Turning to the upper right, investment income is a growing contributor to earnings. In 2022, investment income, or since 2022, investment income has increased over 57%, growing from $2.4 billion to nearly $3.8 billion on a trailing 12-month basis as of second quarter of 2026. That has increased the contribution of investment income to roughly $11.5 of adjusted net income for diluted share. Shareholder value is also created by using an enterprise risk and return lens to adjust investment allocations. We actively adjust portfolio positioning as market conditions, investment opportunities, and enterprise priorities evolve, enabling us to grow income, Thank you for joining us today. Benefit of these actions are higher investment income and mark-to-market equity gains in net income. The lower right shows overall returns on a gap-adjusted basis, which were 2.6% in the most recent quarter. Now let's move to slide 13, which highlights how strong capital generation funds diversified value creation. Practical returns on equity have enabled Allstate to generate substantial capital, giving us the flexibility to invest in growth, The top half of the slide shows how we've deployed the capital generated over the last decade. We've nearly doubled property liability premiums, increased investments and completed acquisitions that have strengthened both our distribution capabilities and our protection offerings. At the same time, we've returned significant capital to shareholders through dividends and the repurchase of 39% of outstanding shares. Looking at the right-hand side of the chart, we see that these investments and shareholder returns were supported by attractive returns on equity. Over the past 10 years, Allstate's average return on equity matched the S&P 500 and ranked in the top quartile among peers. The bottom half of the slide highlights our continued commitment returning capital of shareholders. During the quarter, we returned $1.3 billion to shareholders, including a repurchase of $1 billion of common shares. $2.6 billion remained under the $4 billion repurchase authorization announced in February. We are in a strong capital position, with deployable capital at the holding company increasing to $9.5 billion, or approximately $37 for common share outstanding. Strong returns on equity have enabled us to invest in growth, build competitive advantage, and return substantial capital to shareholders. Together, these actions have been a powerful driver of long-term shareholder value. Now I'll wrap up quickly on slide 14, and in closing, Allstate's strategy is delivering strong results and creating shareholder value. Now let's open up the floor

Certainly. And as a reminder, ladies and gentlemen, we ask that you please lend yourself to one question and one follow-up. Our first question comes from the line of Gregory Peters from Raymond James. Your question, please.

Hey, good morning, everyone. So, I'll focus on slide five and the technology piece for my first question. and I'm sure there's a lot of complexity to what's going on here, but maybe you could step back and give us some perspective on how you're managing the costs and measuring the ROI of all your various initiatives. And with these large language models, I imagine protecting your data assets and your underwriting tools are top of mind. And when we think about this technology investment, are we going to be getting to a point in the future where you're off all the legacy systems?

Brent, let me deal with that first three pieces. We did this slide to just show that artificial intelligence is just another step along the continuum that we've been on for a long time, which is we're a very technology and analytics driven company. and AI will help to further improve what we already know how to do. So there are some companies that are less advanced than that. We don't say we're the most advanced. We just want to know kind of where we are, which is, you know, we're heavily into using technology. The expenses related with that, we look at all kinds of different ways as you would expect, but we're not having any barriers right now to investing money and getting good returns on that. As it relates to the long-term thing, you're always, you know, I kind of cynically say to our team sometimes, you know, what's a legacy system? And it's usually one you just turned on. So you're always adapting technology. You're always doing it. We are moving to what we call the Connected Customer Cloud, which is C3, to put a lot of our systems on the same Thank you very much. and we did that as part of transformative growth. We didn't do it knowing AI was coming. We just thought it made sense, but it's positioned us to do AI well. And as it relates to like token costs, I know a number of companies are talking about token costs. That's not an issue for us.

Just the other piece of it is just protecting the data assets and underwriting tools from the large language models. Do you have any perspective on that?

Yeah, cybersecurity obviously really important and more difficult now than it was two years ago and five years ago. So we spend a tremendous amount of time and effort on cybersecurity. I'm personally concerned about the large language models that now break out on their own and tell other agents how to do it on their own without getting caught. I think that's an issue that the country really needs to deal with. From our standpoint, we're aggressive. We've built up a great team. We know how to use LLMs internally. We don't use public LLMs to do any of our stuff, so we're not worried about our data being exfiltrated or scooped up in the knowledge of, you know, somebody else's LLM so one of our competitors can use it. But you're right to be focused on cybersecurity. Obviously, it's important for our customers to make sure we keep their data safe and secure.

Excellent. And then I just focused on slide six, where you Thank you very much.

Let me go up a little bit and answer growth because I know there will be other people interested in growth as well. First, to have sustainable growth, you really need a multifaceted approach. It's not really just about cutting price because, you know, anybody can give it away. And I sometimes feel like when people are doing analysis of us, they just look at price, they look at combined ratio, and they say, oh, well, you're going to change your price and so your combined ratio is going to go way up. That certainly would be reflective of some people's view given our low P.E. today. We believe we can continue to operate and get rents better than the industry gets, which is why I just showed that slide of how we're better than the industry. We do that because we've got this multifaceted approach to it. And you'll really remember that is what transformative growth is, which Mario talked about. It starts with increasing customer value, which is more affordable prices and new products. And so, and that started, you'll remember, with reducing costs. We made a lot of progress for reducing costs over the last six years, but we have more to do there. The second quarter ratio went up, Jess talked about, about half was advertising, a lot of the rest was a one-time legal accrual, which they tend to be bumpy. It's not systemic. I don't intend to get into why we did the accrual. But it's not systemic. So I'm not concerned about where we are in the second quarter, but we're also not done. And maybe Jess can talk later if somebody has a question about expenses. Jess can talk about what we're doing there. You know, claim effectiveness is also important. Mike Villalba's team has done an excellent job of keeping our claims properly paid. So that's not too little, not too much. So you can see from the reserve changes, our costs have come in a lot lower than we thought they would be. New products we've done well, which is another part of increasing customer value. Broadened access to all distribution channels. Mario talked about that. Increasing sophistication in marketing. We have success there as well, but we're putting a new enterprise customer acquisition system into place, which we think will take us again further towards driving growth without having to just reduce price and take less margins. The new tech ecosystem we talked about. So there's a multifaceted approach to it. At this point, we're earning high returns, and so it pays to drive shareholder value by reducing some of that margin and giving us some growth. But we don't like to have a plan to say, oh, we're at X, and, you know, the right optimal point is to get to 94. We just do it every day. How are we going to grow as fast as we can and make as much money as we can?

Thank you for the information.

Thank you. And our next question comes from the line of Bob Huang from Morgan Stanley. Your question, please.

Hi, good morning. My first one is around the competition within the broader space. If we look at the broader market, would you kind of give us a color on the competitive environment for auto, personal auto only, the model line business? versus how the bundled home and auto competition is. Which side is more intense when it comes to competition? And is there a divergence between how the growth opportunity would look like going forward for those two specific lines?

I'm going to go up a little bit and then come down. So, first, we think about it as the customer, how do we meet all their needs? So that's auto insurance. It's home insurance. It could be renter's insurance. So if they don't have a home, we'll sell them renter's insurance. It could be their identity because everybody's got an identity. A lot of people have phones and TVs. And so we kind of want to protect whatever it is they have, whichever way they can. We do that mostly under the Allstate brand, as you know, so that brand sells well. And Mario talked about that in terms of our broad distribution as well. So we start there. When you go down below that, then it's okay. On Monoline Auto, I would say all those people who buy just auto insurers from us, there's other stuff I'd like to sell them too. Like it doesn't just have to be auto. But if you're focused on the, what I would call the higher risk, non-standard, non-Robinsons, if that's what you're referring to group, that's pretty competitive. National General really gave us a leg up in our expertise there. And it also gave us a huge leg up in the independent agent channel. In the bundled product, we're obviously quite good there. Mario talked about the cross-line sales from our all-state agents are really at all-time record highs. And so we're feeling good about that whole process. And then we think we can sell even more stuff. Just to talk about what we're doing in individual markets, because I think you're focused really on product, but I'm saying folks and customer, that's important. Product, also important. But there's also, like, what are you doing in the local market in a state? So, Jess, maybe you can give an example of a state where how we're competing differently there than we were in the past.

Absolutely. Thanks, Tom. So, I... It's hard to pick a state. We love all the states equally. We're sitting here in Illinois, and I thought maybe I would pick Illinois because Illinois is an interesting state. So it's in focus because effectively Illinois is a state where we're growing, but we're not growing as much as we think we could, right? So we see opportunity and potential in the state to accelerate growth. So we have go-to-market teams. I think we've talked with all of you about that. We have a go-to-market team that's focused on the state of Illinois, and they optimize across channels to make sure that we're really getting the most production, and as Tom said, meeting the most number of customers where they're at. So we have a strong EA footprint in Illinois, but at the same time, they're focusing on direct in a segmented way. So the go-to-market team is identifying where can we win in the direct channel when we're investing marketing dollars where the returns are strong. At the same time, in the state, We look at the independent agent channel and we're providing, you know, we have underwriting and pricing strategies that help those independent agents win. As Tom mentioned, it's not just that, it's product portfolio. So we have custom 360 products available for independent agents. We have really competitive both auto and home products that they can then bundle, provide that bundled solution to their customers. And we think that affordable protection is differentiating. And because we have that product availability, We're going in and we're engaging and then in some cases re-engaging independent agents so that we get more new business out of that channel. That doesn't mean we're not focused on the exclusive agent channel and accelerating growth there from both retention and new business perspective. So, that can be things like coaching, peer benchmarking, but also providing tools so that they can serve more customers and identify more customer needs. Of course, they have a broad portfolio of solutions available to them. It's not just auto, home, landlords, or renters. As Tom mentioned, this is life and retirement solutions, commercial solutions that exclusive agents can then bring to market. The go-to-market team helps them to identify where those opportunities exist while also looking at footprint and things that we can do to make exclusive agents more productive. The one other thing I would say is we also then take learnings from other states and apply them to a state like Illinois. So we're having great Okay, really appreciate that. So it's much more holistic. That's the right way to think about it, I think. Yes. Thank you.

My second question is really if we think about severity development, right? Inflation is there, but it doesn't feel like it's showing up so problematically if we look at severity over the last call of six months. Just given where the severity development has been so far, given the weather, given everything else, is it sort of fair to say even if pricing were to continue to slow down, there is really not a lot of loss pressure that's pushing the combined ratio higher so far? Is it also safe to say that's going to continue for the rest of the year? Is that kind of a right way to think about where things are going going forward?

Bob, this is Jeff. On severity, I mean, obviously we're not going to give you a forward look on what severity is going to be. We can talk about what's happening. And we try and isolate, rather than isolating severity, we give you pure premium trends. And you saw that the pure premium trend was down for the quarter. So that's like some combination of frequency and severity. I think you have to, as you think about severity and what it's going to look like going forward, certainly there's inflation that will affect certain components of severity, particularly physical damage. Thank you very much. and many more. Thank you very much.

Thank you.

Thank you. And our next question comes from the line of Rob Cox from Goldman Sachs. Your question, please.

Hey, thanks. Good morning. Yeah, for my first question, I just want to ask on... The deployable capital of $9.5 billion at the holding company. Just given that level of capital and even some normalization and underwriting profitability, it seems like you could repurchase shares at the current pace for quite some time. I'm just curious, is it prudent at this point in time to stop accelerating the buyback and hold on to some more cash to give You know, some leeway for potential acquisitions, or how are you all thinking about that?

Rob, it's Tom. We committed to do $4 billion. We're going to do $4 billion. John pushed that aggressively last quarter because we have plenty of capital, so we're going to need our commitment to get $4 billion done. When you look above that and you say, okay, well, First, we generate a substantial amount of free cash flow. And you say, how we manage it? You know, we're pretty active in it. Obviously, organic growth, investing and leveraging our capabilities, whether that's things like protection services, or we've had great investment results because we've made some good changes there, or share repurchases. So also not included in the conversation there is, We're very active in sourcing capital. So whether that's using $2 billion of preferred stock to take out common, what we do with reinsurance, and we sold our life business, and we sold our health and benefits businesses because we thought we could deploy the capital to higher returns in other places, even though they're both really good businesses. So we think about it holistically and we use this capital management framework from an enterprise standpoint. So that's the way we think about capital. Obviously, the best opportunity is increased organic growth when you look at our ROEs or our return on required capital, all of which are great. Investments is another place we've done really well. We've done exceptionally well with buying a couple of businesses. So, you know, protection plans, square trades, you know, more than 10 times its size. You know, we paid $1.4 billion for it and made, you know, over $80 million the first six months of this year. National General, we paid $4 billion gross. We sold some businesses, and it's more than double its size. So when we see something that can help drive growth, Then we use shareholders' money to deploy it and leverage those capabilities, which is what you're expected to do. Obviously, share repurchases, John talked a lot about that. We're not afraid of share repurchases. It's better than sitting on it and not getting a good return. So we look at all three of them and just think, like, what's the right thing to do from an enterprise standpoint? And the good news is we generate enough capital that we can do many of these things at the same time.

Yep, a lot of options. And I just wanted to follow up on Allie. You know, it sounds like clearly there's a lot of exciting opportunities. Maybe you could just talk about how you expect the results of Allie to, you know, eventually show up in the income statement, particularly between expense loss ratio and growth over time.

Well, first we haven't Thank you for joining us today. One of the things that agentic AI will help us do is connect the highly sophisticated individual things we do, whether that's buying leads, pricing, which distribution channel a lead should be routed to. It can help us be a lot more effective in growth. So we think it's going to add just a really positive thing for us to do. I can't give you the specific numbers, how much growth it's going to do or how much it's going to do in expenses. But right now, we see lots of opportunity. We're very optimistic about where that will take us.

Thanks, Tom.

Thank you. And our next question comes from the line of Pablo Singson from JP Morgan. Your question, please.

Hi, good morning. I was wondering if you could provide perspective on e-application growth in personal auto. So, last year, apps grew about 25%. So far this year, I think you're tracking to high single digits. So, the question is, where do you think it moves given the current environment, right? Do you think you hold growth at that level or is there a risk of degradation because of just increasing competition?

Hey, Pablo. It's Jess Martin. I think, you know, overall, we believe we can continue to fuel growth in new issued applications across all three channels. You saw we continue to have strength in direct, and that is because we're investing in sophistication, making sure that we get the right leads and the close rates are effective. So, we will continue to invest and refine. We think there's opportunity in direct. As Tom mentioned, we're also working with our exclusivation channel to make sure that they're focused on the highest value work. And we think that's going to result in continued increases in productivity. And they do continue to be more productive than they've been in the past. And the final piece of that of course is to keep the new issued application engine running as the independent agent channel. We've had a lot of success there, but we think there's a lot of opportunity, particularly in the middle market where we're gaining some traction with, as I mentioned, bringing products to market that they can bundle and auto and home together to drive affordability for the customer. But it's a really great solution, and it's some of our best products. So, overall, I feel confident in our ability to continue to drive new business going forward across all three channels.

Thanks, Jess. And I guess for my follow-up, I'm going to flip to the retention side, right? So many in the industry have talked about more customer shopping. And I guess the question is, can you talk about how personal auto retention has been trending for you? And have you seen any retention benefits from your push to provide your current customers greater value? Thank you.

Overall, retention has stabilized for us recently. There are a lot of shoppers, but that's been the case now for some time, right? I don't think it's more than it was, say, a year ago, but they're shopping. And so we have invested, as you mentioned, in programs like SAVE. We think SAVE has had a retention benefit, certainly for the customers that we targeted. And at this point, you know, we're sort of feeling like we've got a stable retention trend. Now, some of that, of course, You have to really look a little bit deeper by segment, you know, by risk segment, by risk type, and what, you know, frankly, by product type to really understand what overall retention is. But when we look at it at that granular level, we feel like retention trends are stable and that save was the right thing to do. It's working. Same is true for the things that we're doing to work with our exclusive agents to invest in relationships, which we think will have retention benefits. So overall, the retention trend feels stable.

Thank you.

Thank you. And our next question comes from the line of Elise Greenspan from Wells Fargo. Your question, please.

Hi, thanks. Good morning. For my first question, I guess I'm looking at slide eight, right? You guys provided, you know, some good disclosure, right, on the adjusted underlying combined ratio, right, going back, I guess, to 2022. You know, year to date, right, you guys are running at around an 88.5. Obviously, well below, right, I think you guys say you target, you know, a mid-90s across the cycle in auto. Obviously, things have been favorable. So, how do you, I guess, think about just, you know, where you are now relative to that, you know, mid-90s target when you think about, right, prices slowing a bit, right? Obviously, you know, frequency and severity will be what they will be. But as you think out, not just this year, but over the next couple of years, how do you think about, you know, a normalization within profitability within the auto book?

My date was really to show how quickly we can move when we need to. So I would really focus on the far left-hand side. So we moved the combined ratio by over seven points in a year in response to a huge increase in cost. And as you know well, because we price on a leg basis, that's no small feat getting that done. So what I would say is that same adaptability applies to the question you're raising. So if you look at Jeff's also showed the rate increases over A number of quarters. And it's been flat for a while. And we're still making really good returns. And we're growing. So we are always looking to grow as fast as we can. And we're looking to earn good, attractive returns and be competitive. And we've been able to do that. Whether that means we have to go up from the far right-hand side up to the mid-'90s, We don't have a goal on that. What we said is in the mid-90s, you're making a really attractive return on required capital. So I think that's the message we believe is we're growing and we're earning really, really attractive returns on capital. So that should be good for shareholders.

Thanks. And then my follow-up question, you know, just within policies in force, right, just trying to get a sense as you guys are looking at Thank you. Thank you.

and it's very balanced. Maybe another way to answer the question is about why do consumers choose these various channels? So if you start with people when they're making a choice on insurance, they're first like, okay, how easy is it? And how comfortable do I feel buying insurance? And then what's the cost, the relative cost? So you've seen a growth in the direct channel, which are people who don't really want that much help buying it. They're really looking to do costs, and it's gotten easier over time. That channel is also growing a lot because there's been so much advertising going through it. So I wouldn't underestimate how much that moves people from one channel to another. In the independent agent channel, those are people who are like, look, I don't really feel like dealing with this myself, don't really trust insurance companies that much, so I want somebody that can move around between those. And you've seen we've grown rapidly there. That's a good value proposition as well, and people are prepared to pay more for that than they do direct. And then in between that is our exclusive agents, which are people who want some help, but they believe in a brand. And they don't feel like they need to go out and shop around and have somebody look at a bunch of different companies. And we've obviously, Jessica talked about what we've done to improve that channel. I would point out we sell in the direct channel the same product we sell to our agents, but it's 7% cheaper in a direct channel because it doesn't come with an agent. Can people get that? Our agents get it? So we think there's – it's really when you look at the customer segments, there's always going to be people in all those segments, and we just want to be available for them all. In each of them, we have work to do to make sure we're as effective and efficient as we can. So you've seen we've made huge progress in our direct channel. You've seen that growing. But I would say we're not done. We're still not industry-leading in terms of our effectiveness and efficiency in direct. In the exclusive agent channel, Jess, maybe you want to talk about the things we're doing there to improve effectiveness and efficiency.

Yeah, absolutely. So, you know, our exclusive agents have been sort of foundational to our strategy for a long time. And so, we're working with them to make them more efficient, more effective, and really put them in a position to deliver what clients value, which we know they can do. So, examples. and we're taking routine service tasks off of their plate. People want those things done, but they don't need that done by their exclusive agent. That isn't value. We want them to do the things that reinforce their value proposition. We're giving them technology tools that serve up opportunities to engage with customers. It's sort of those moments that matter. We're putting them right in front of our agents so that they have an opportunity to shine and allow our customers to see the value that LCA agents provide. across the system though it's more than just that we're improving the quality of leads so that they have better close rates so that there's less duplication which is important to our agents product breadth is another thing that we're really investing in to make sure that they can diversify the sources of revenue in their agencies so that's Going Beyond Auto and Home, which they bundle at very high levels, as Tom mentioned, but also specialty products like renters and landlords and boats and motorcycles, life and retirement and commercials I mentioned before. So we're making sure that our exclusive agents have the full portfolio where they want to meet that broader set of customer needs because we think they're certainly able to do that. The final thing I would say about what we're doing to support agents is really focusing on location flexibility. We're giving them the choice on how to best run their small business, right? So if a physical location is important to their business, then they'll have physical locations. But the flexibility means that in some cases, a shared location or no physical location at all works for an agent. They can still successfully maintain that local presence. So we're trying to introduce tools that help them be effective as well as options that allow them to lower their overall cost so that it can continue to be a really strong and productive channel for all states.

Thank you.

Thank you. And our next question comes from the line of Josh Anker from Bank of America. Your question, please.

Thank you very much for taking my questions. Good morning, everybody. I know that monthly PIF reporting is going away, but as June is basically the last month we can do it, I did some back-of-the-envelope calculations. It looks to me like that the homeowner's business in terms of policy count has grown faster than it has any time since prior to Hurricane Katrina. And I know over the past 20 years, You've learned a lot about catastrophe management, but you're growing really fast in property. Can you continue to grow at this speed without adding material cat load to your business? And can you talk a little bit about the capital requirements of growing auto home at the same pace? And I guess your appetite for monoline homeowners.

Well, Josh, thank you for debunking the conspiracy theory that because we stopped doing monthly things, we had a problem. And our growth is good, and it was good in June, and we like where we're going. So, and it's just, and Mario Bull said, we feel like we have plenty of room to pick up markets here. So, we like what we're doing there. In terms of the growth in homeowners, you know, we're really good at it. and other people will make changes that we've already made to try to catch up to us. And those all make sense to me. But it's not like we're sitting around here saying, oh, geez, we've got everything figured out. Let's not continue to make changes. We have new rating plans coming out. We have new sophisticated analytics we're using with individual roofs. And we've got lots of stuff we're doing to make sure we continue to grow in homeowners. And that starts with getting it priced most accurately for everyone. On top of that, though, your question about catastrophe risk, we manage overall catastrophe risk well. We're probably the biggest, certainly the biggest U.S. buyer of property liability catastrophe insurance. We've got a very complicated program. Chris is going to take that over. We don't have any restrictions on access to capital to help us Manage Volatility. Sometimes we choose not to use that capital because we don't think it's in shareholders' best interest, but that's not going to restrict our growth. And so model line homeowners, and we'll take people in any way we can get them, but usually if you own a home, you've got a car too, so we'd like to get both of those, but we don't restrict people to say, geez, if you won't give us your car, we won't insure your home because we want each product to stand on its own. and we try to avoid subsidization between products because when you do that, you end up, as you would expect, markets like water, it finds the open hole and the open hole tends to be a low return. If you sell a product, be a low return, hoping you're going to get the other one. That's not usually a good plan. And so we feel good about the ability to grow both homeowners in the exclusive agent channel, which Margaret talked about, just talked about custom 360 in the independent agent channel. And you should also, I would notice, as you see on the chart, we've done a lot better in the direct channel. And as we improve our direct capabilities, we think that will continue to grow too.

Thank you for all the answers.

Thank you. And our next question comes from the line of Andrew Glickerman from TD Cowan. Your question, please.

Thank you for taking my question, for winning. I'm looking at the prior year reserve re-estimates in auto, and they've been fantastic. I mean, 6.6 points this quarter. Each of the last four prior quarters, you've had sizable releases. I think, Tom, you talked about claim effectiveness, the technology ecosystem. Maybe you could help us unpack What's generating these very favorable prior year reserve re-estimates and whether you think that can continue?

I'll start and then John can jump in if he wants. First, I would say every quarter we think we've got reserves as accurate as we can get them. So we don't assume there'll be any more coming ever. because we think it's as accurate as it can. Sometimes the estimates you make are higher, and so then you have preserved leases, and that's generally a more favorable place to be relative to you all than in the negative, but we've had the other issues, you know. I think the difference is really that when the inflationary trends have started to come down in certain places, AKA Florida, where they put some tort reform in. We're very hopeful that those kinds of trends will continue. So, you might have noticed that Governor Hochul decided to take on increased costs for consumers on auto insurance because of litigation. We're, you know, they pass some laws that's going to turn into reality before it becomes an issue for a benefit we give to customers. But we're hopeful that those kinds of things that's happening in Georgia and Louisiana. So we're hoping that there's a trend towards tort reform and getting rid of billboard lawyers that will improve our customers' costs. And therefore, the estimates we've made might not be as high as we thought. John, what would you add to that?

I just had a couple things, Tom. You know, I look at the, you know, what we've gone through in the context of a, you know, it was a pretty, if you look back over the last five years, it was a pretty volatile inflationary period. So we're looking at coming out of post-COVID inflation period, used car prices that were Going upwards of 60%. A lot of other things we've talked about, bodily injury and the rest. So it's not uncommon for any estimation processes, as sound as it may be, to potentially just adjust aggressively. What we've seen since then, and, you know, if you look at the process, this is a consistent process. We have multiple auditors on the outside that, you know, double-check our work. We're continually responding to trends and new data as it comes in the marketplace and making the best assessment at the time that we have. We've felt comfortable adjusting numbers in recent quarters, partially because of our strong claims team and the good work that they've done. But we absolutely feel good about the numbers that we have at any quarter, and that's where we are now.

Okay. Thank you for investing your time with us. I would close with, at this price, you can't get operational excellence, sustainable growth, or capital generation anywhere else. Thank you very much. Bye.

Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect.

Good day.