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Welcome to Allstate's First Quarter Earnings Investor Call. [Operator Instructions]

As a reminder, please be aware this call is being recorded. And now I'd like to introduce your host for today's call, Allister Gobin, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone. Welcome to Allstate's First Quarter 2026 Earnings Call. Yesterday, following close of the market, we issued our news release and investor supplement and posted related materials on our website at allstateinvestors.com. Today, our management team will discuss how Allstate is creating shareholder value. Then we'll 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 investor supplement. We will also make forward-looking statements about Allstate's operations. Actual results may differ materially from those statements, so please refer to our 2025 10-K and other public filings for more information on potential risks. Let's start with 3 of our recent advertisements and then Tom will begin.

[Presentation]

Good morning. Thank you for investing in Allstate. I hope you enjoyed the 3 ads which show how we're using marketing to accelerate growth. The first was our Mayhem ad, which is known to all of you. The second reinforces a simple message, check Allstate first. And the third, which debuted this week is our newest campaign, if it's important to you, it's important to Allstate, which demonstrates our commitment and our care for customers and the breadth of our offering. These same themes apply to investors. You can avoid Mayhem by investing in Allstate, which has a proven ability to generate consistent results. If you should call Allstate first, if you're investing in protection companies, we are affordable, particularly at this PE ratio. If it's important to shareholders, it's important to Allstate.

We're going to touch on these same themes this morning. So let's review first quarter results starting on Slide 2. Allstate had excellent operating results in the first quarter. As you know, our strategy has 2 components that are shown on the left, increased personal property-liability market share and expand protection provided to customers. On the right, our performance highlights for the first quarter. An important part of today's conversation is that Allstate competes using a broad set of tools, not just lowering price. This enables us to maintain attractive margins while accelerating growth. We also broadened protection offerings for customers, investment income increased and shareholders higher dividends and accelerated share repurchases.

The financial results are shown on Slide 3. Total revenues increased to $16.9 billion, up 3% for the first quarter of 2025. Investment income increased nearly 10% to $938 million. The Property-Liability recorded combined ratio was 82% and the underlying combined ratio was 80.3%, a 2.8 point improvement from the prior year. Total policies in force increased by 2.5% and Property-Liability policies in force increased by 2.3%. Net income was $2.4 billion and adjusted net income was $2.8 billion or $10.65 per diluted share. Net income return on equity was 48.4% over the last 12 months.

Slide 4 provides a construct to answer the question, how will you generate attractive returns by growing if that includes more affordable price. The answer is that while prices are extremely important, transformative growth has created a broad set of competitive levers to enable us to grow, as you can see on the left. More affordable prices are supported by lower expenses and effective claims processes. We also use sophisticated analytics, new products, expanded benefits and bundled offerings to better serve customers. Compelling marketing and broad distribution increased new business, which fuels growth.

This flywheel results in market share increases. Some examples are shown on the right. Affordable prices and lower expenses are enhanced with sophisticated pricing plans and better customer experiences. New products and benefits create value for customers. The Allstate brand affordable, simple and connected products for both auto and home insurance are now available in 45 and 36 states, respectively. The Custom360 auto and homeowners insurance products for independent agents are now available in 40 states.

We also routinely expand or improve benefits. For example, we recently added free identity protection, so customers think beyond price, and we execute this strategy of broadening protection. Allstate agents bundle auto and homeowners insurance at high rates, making it easier for customers and lowering acquisition cost per policy. Marketing acquisition economics have improved this year. We distribute to Allstate agents, independent agents, company call centers and over the web, which provides the right level of service for customers at the best value.

In the first quarter, all distribution channels had increases in the new business and the total was a record which increased growth. Mario will now cover how this translates into market share growth while earning attractive returns. Jesse will then review more specifics on the Property-Liability business, and John is going to cover protection services investments and capital.

Thanks, Tom. Let's start with the market share growth on Slide 5. Starting on the left, Allstate increased auto insurance market share in 29 states in 2025 that comprised 57% of countrywide premiums. Looking down below in the 29 states where share increased policies in force increased by 4.3% over the prior year and outpaced vehicle registration growth in those states. That means we increased our share of insurable vehicles in those states, which we view as a better indicator of sustainable share growth than the traditional premium-based market share metric.

In the remainder of the country, policies in force decreased by 0.5% versus an increase in vehicle registration of 0.6%. The decline is heavily impacted by 2 large states where we have intentionally been reducing share because of profitability challenges. If you look at which companies this growth comes from by dividing the market into the top 5 market share leaders and the rest of the market, slightly more comes from the medium-sized and smaller carriers. The broad set of competitive tools that Tom referenced also drives growth in homeowners insurance.

Homeowners insurance market share grew at 83% of the U.S. market. This was in 41 states, which had policy in force growth of 4.1% in 2025 over the prior year. We have a broad competitive advantage over the companies we compete with in the homeowners insurance market as demonstrated by our ability to profitably gain share.

Moving to Slide 6. Allstate's business model enables us to consistently generate strong returns. On the chart, the blue bars represent the auto insurance underlying combined ratio, which averaged 94 -- 95% and 94% over the last 5 and 10 years, consistent with our mid-90s target. There was obviously an increase in the combined ratio in 2022 post-pandemic, which required significant price increases as shown by the light blue line in the middle of this chart. Since then, we have returned to levels at or below our mid-90s target with more modest price increases needed to generate and sustain attractive returns.

In the first quarter of 2026, rate changes were implemented in 39 states, which included a mix of both rate increases and decreases. These changes had a net overall neutral implemented rate impact across the book. Improving affordability will increase policy in force growth and raise shareholder value as long as the combined ratio continues to perform at or better than target levels.

Let me note that these are underlying combined ratios that were reported for these years. And as Jesse will cover in a few minutes, favorable subsequent reserve development shows that results for several of these years are actually better than what is shown on the chart.

Moving to Slide 7. You can see a similar story in the homeowners insurance business, which also generates strong returns. Homeowners insurance over the last 5 and 10 years had a reported combined ratio of 93.5 and 92, respectively. And has generated underwriting income of $3.9 billion and $7.9 billion in those same periods. In the first quarter, the combined ratio was 83.5 and average premiums increased 5.7% compared to the prior year quarter, keeping pace with loss costs.

As you saw this quarter, we also posted the disclosure related to the placement of our comprehensive nationwide reinsurance program, which enhances the risk and return profile in the homeowners business by reducing capital requirements associated with catastrophe loss tail risk and dampening earnings volatility. The homeowners insurance business remains a competitive advantage and growth opportunity for Allstate.

Now let me turn it over to Jesse.

All right. Thanks, Mario. Let's look at the Property-Liability results in total on Slide 8. Auto insurance policy growth of 2.6% and homeowners insurance policy growth of 2.5% and drove an increase of 2.3% in total policies in force and written premiums. Earned premiums increased by 5.5%. The Property-Liability combined ratio was 82.0 as both auto and homeowners insurance profitability was better than our targeted levels. This result was due to strong underlying performance as well as lower catastrophes and favorable prior year reserve releases. Excluding the benefit of reserve changes and lower catastrophes, the auto insurance underlying combined ratio was 89.5, which is 1.7 points better than prior year. Property-Liability underwriting income was $2.7 billion in the first quarter.

Now turning to Slide 9. As Mario referenced in his comments, auto insurance profitability improved faster than original estimates in 2023 and 2024. The top of the stack bar is the underlying combined ratio as originally reported. The green bars represent the impact of subsequent prior year reserve reestimates. The light blue bars represent the adjusted underlying combined ratio, including the subsequent changes in our estimates of loss costs.

As you can see, prior year losses developed more favorably than originally estimated. Reserving is an iterative process with strong governance and oversight. We use consistent practices, multiple analytical methods and include external reviews by independent actuaries to ensure reserve adequacy. As more claims settle, however, estimates each year are revised to reflect actual loss experience. In recent quarters, actual loss experience has outperformed initial expectations. This results in the release of reserves from prior years. The auto combined ratio in 2023 is now estimated at 95.4, and 2024 is estimated at 90.0. Auto insurance profitability improved faster than originally estimated.

Slide 10 highlights how we expect to continually improve our strong performance and enhance competitive position. Transformative Growth built a comprehensive competitive model. This included new software and adapted legacy systems to build a connected technology ecosystem. The system enables the use of artificial intelligence to improve customer experience and lower costs. We're leveraging this technology platform in building Allstate's Large Language Intelligent Ecosystem, which we call ALLIE, to harness the power of Agentic AI. With that, I'll turn it over to John.

Thanks, Jesse. Good morning, everyone. Moving to Slide 11, the Protection Services business grew to grow -- continue to grow profitably. This segment is comprised of 5 businesses shown on the left. Protection Plans, Dealer Services, Roadside, Arity and Identity Protection. The largest business in this segment is Allstate Protection Plans, which grew revenue 13.5% versus the prior year quarter.

This business provides protection for mobile phones, consumer electronics, major appliances and furniture. Protection Plans generated $41 million in adjusted net income for the first quarter, down slightly due to higher claims costs. Arity is our mobile intelligence business. The higher loss this quarter reflects restructuring charge related to a reduced employee count. In total, Protection Service businesses increased revenue 7.2% from the first quarter of 2025 and generated $47 million in adjusted net income.

Let's turn to Slide 12 to discuss the investment portfolio. Investment income of $938 million increased $84 million or 9.8% compared to the prior year quarter. As shown on the chart on the left, net investment income has grown as the portfolio grew. Since the first quarter of 2024, portfolio book value has increased 24% or approximately $17 billion. The increase reflects higher average investment balances from a 15% increase in earned premiums strong underwriting income and improved fixed income yields. The table on the right side highlights the strength and consistencies of returns across asset classes. Over the last 12 months, the portfolio generated a 4.2% return.

Fixed income results over the last 5 years are top quartile. Returns in our performance-based portfolio have been below longer-term historic averages over the last 1 and 3 years at 7.6% and 5.9%, respectively, but remain above industry benchmarks. These results underscore the effectiveness of our active investment management approach. As a result, we increased the capital allocated to the investment portfolio in the first quarter, some of which is carried at the holding company.

Let's move to Slide 13 to show that proactive capital management creates shareholder value. Allstate deploys capital in multiple ways, which are shown on the left axis, organic growth, enhancing existing businesses, growth acquisitions and cash providing to shareholders. Using capital for organic growth leverages Allstate's capabilities and market presence with well-understood and attractive risk and return opportunities. This is why we're focusing on increasing market share in the Property-Liability business. In addition, increasing market share should raise valuation multiples. Over the last 3 years, $3 billion of economic capital was utilized to support premium growth.

As we just discussed, Allstate also deploys capital to support the investment portfolio to generate attractive risk-adjusted returns. Capital is also used to strengthen existing businesses, such as the investments we made in our technology ecosystem or enhancing our independent agent business through the acquisition of National General. SquareTrade was a growth acquisition that leveraged the Allstate brand and capabilities. It also expanded protection offerings to execute the second part of our strategy and brought strong retail distribution partnerships. Since it was acquired, revenues have increased eightfold and the business generated $175 million of adjusted net income over the last 12 months.

Allstate also has a long track record of returning capital to shareholders. In the first quarter, $881 million was returned to shareholders, through repurchases and dividends. We completed the former $1.5 billion share repurchase program and launched a new $4 billion share repurchase program, accelerating the pace of repurchases. $3.6 billion remains on the current share repurchase authorization, which represents approximately 40% of holding company assets as of March 31 and 7% of outstanding shares.

It's an interesting observation, if you bought all of Allstate 10 years ago, you would have received 99% of the purchase price back in cash and would have a company that generated $12 billion in net income over the last 12 months.

Wrapping up on Slide 14. In summary, Allstate's broad set of competitive levers delivered strong results in the first quarter. Now let's move to questions.

Certainly. And our first question for today comes from the line of Mike Zaremski from BMO.

This is Jack on for Mike. Just first one on the pricing outlook. Given how strong reported loss ratios are across your portfolio. I'm wondering how you're thinking about the opportunity to lean in more aggressively on pricing this year? And does that calculus differ materially across auto, homeowners and bundled customers?

I would go back to the slide we talked about in terms of growing. We have a wide range of ways in which we grow. Price is certainly important, but it's not the only one. And I know this is a question for many of you. So let me maybe let's spend a minute to -- because it's what you described, we do it obviously by product. We do it by state. We do it by coverage. It's highly complicated. If we think bundled customers, lower acquisition costs we give them a discount if they bundle. So yes, we do all that.

But let me go up. So price is obviously important, and it's a key driver of profitability. As a result, we've built this system of, call it, operational levers, organizational accountability and sophisticated analytics. And our goal, of course, is to earn attractive margins and grow. And there's always a plan on prices that looks forward 6 to 12 months. We're going to have to talk about what that plan is here because it's competitive, and it changes all the time. And -- but it's based on what operational levers we think we can pull. So Jesse will describe the system for you and give you a couple of examples of how it works.

But the conclusion, however, is that the system works. It works for auto and it works for homeowners, and you can see that on Slide 6 and 7. our auto combined ratio was 94 to 95 over the last 5 and 10 years. Homeowners insurance ratio of 92 to 93.5 over the last 5 and 10 years. So the system itself works while price is important in just one component. Jesse, why don't you talk about how it works here and then give a couple of examples.

Got it. So we think about the system like a cube that has 3 elements. And Tom alluded to the 3 elements. You have operational levers, you have advanced analytics and then organizational roles and responsibilities. And it's a bit like a Rubik's cube where it gives us multiple ways to both identify and address profit and growth opportunities that we have.

What I'll do quickly is go through each component, and I'll give a couple of examples of what's going on, a couple of state examples of how the system works. So if you start with the operational lever element of our cube, we kind of covered this on Slide 4, Tom went through it. You have new products, broad distribution marketing. Effectively, we employ these operational levers at the state individual market and product level. It's very granular.

If I move to the advanced analytics element, we have a highly sophisticated rating plans that have billions of price points per state. We analyze data by submarket within each state and by product, by coverage by risk segment. And we link that between the signals that we're seeing in current claims trends to price at a very granular level. So we're bringing, again, this interconnected system together. We have marketing analytics that are terrific, they enable us to price lead purchases in real time, determine effectiveness of programs by media channel and message. And then the claims team is using a massive amount of data to assess the effectiveness of controlling severity and executing the claims function.

Centralized. We have a centralized reserving team, of course, and we've talked about that. That's separate from our actuarial pricing team that gives us another set of eyes on loss costs and loss cost trends. The point of all this is that we have a lot of people looking at profitability and growth from a number of different perspectives through the advanced analytic lens.

The final element, as Tom mentioned, was organizational roles and accountability. We have a matrix organization structure that enables us to bring all of our expertise to bear to decide how to pull various levers in the system. That includes price changes in total or by territory or by coverage or customer risk segment and includes adjusting underwriting guidelines. Another dimension to that would be marketing investment. We can look at the price number of sales leads to purchase by market and then determine distribution priorities alongside those other decisions. So it's a system that's working together again like a Rubik's cube to drive profitable growth.

The team in this -- the overall team, as we look at it, includes state managers that are responsible for profitability by product line, territory and coverage. We have a Chief Actuary who have oversees analytics, pricing trends across the country and by state and has a research and development function. We have go-to-market teams that are out there each day, bringing all of their expertise and all of this expertise together to manage growth and profitability by local market. And then we have distribution leads for Allstate agents, independent agents in our direct operations who can assess and evaluate performance on a real-time basis. They can expand or shrink distribution and set priorities and compensation to make sure, again, that we're optimizing across the system.

So the 3 elements work together in a continuous planning cycle is the way that I think of it. We create a forward-looking plan that looks at expected rate changes for the next 6 to 12 months by state by line, by company, as Tom referenced. It factors in things like likely regulatory timing and what the response will be, and we build up a countrywide matrix then of underlying profitability and growth so we can evaluate the forward-looking trajectory. It aligns the execution of all of the operational levers with the goal of earning attractive returns and growing in 2027 and 2028. So to make what this -- what turning the dimensions of this Rubik's Cube look like come live with it, I thought I would talk about a couple of examples.

So in states where we have share that we would say is below our national average, and our underlying combined ratio is better than target, say we're running at 88 underlying combined ratio. State managers will identify an opportunity to lower rates with an eye towards staying within those targeted ranges in coming quarters and in coming years. It's a forward-looking view so that we change rates in a sustainable way. They then work within the system that I referenced to utilize the broad set of tools that we discussed in our prepared remarks, to drive profitable growth by market. So that's optimizing distribution. It's working with the marketing team to make sure that where we have opportunity to grow, we're leaning into that.

On the other hand, so the other state example would be a state where our underlying combined ratio is above target or on a trajectory to go above our target. And we began taking modest rate increases to get ahead of the trend. And if needed, we'll restrict new business through underwriting guidelines and other operational levers again that we have to make sure that we manage profitability in that state. In states where we don't have ASC. Now we do have ASC in 40 plus states at this point. We'll limit new business until that product is available because we want the most contemporary and most accurately priced product in market. So we'll wait, make sure that ASC gets approved and then relook at growth on a forward-looking basis. So we get the best product in market and again, look across the system to make sure that we're appropriately adjusting for a state that is not meeting our targeted returns.

To make the couple of examples come alive, I thought I would just end with the system at work. You saw in the supplement that we changed auto rates in 39 locations and that netted to effectively no change in rate. If you scale that back, there were 23 states where we lowered rates. There were 16 states where we increased rates. And because of our rating sophistication and segmentation, 10 of those states, we did both. So we had an increase and a decrease. So this is more than just a high-level analysis, it shows the depth and the breadth of what we're doing to pull the operational levers and all the levers within the Rubik's Cube to optimize and deliver profitable growth.

That's helpful perspective. Maybe just a follow-up on California, where they recently come out with some reforms to the intervener process. I guess wondering just does Allstate do that change along with other recent reforms there is potentially a game changer longer term, especially on the homeowner side, where I think historically, you've been reluctant to grow market share?

We believe that California still has a significant number of changes to make before the homeowners market will be both accurately priced with decent availability for our consumers.

And our next question comes from the line of Josh Shanker from Bank of America.

So in the first quarter, you had about $840 million of net favorable prior year development in the auto line. Obviously, I would imagine the majority of that comes from last year, which tells me you made a lot more money in auto last year than the combined ratio indicates. But it also arguably suggests that year-over-year, the margins are deteriorating. I mean they will. They're incredible right now. They have to deteriorate at some point.

I'm wondering if you can talk about the trajectory of what you think is happening right now to help us better understand that?

Josh, if you go to Slide 9. You can see how we spread that. So actually, most of the change as it relates to the combined ratio came in 2023 and 2024, very little in 2025. And that's in part because '25 hasn't completely developed. Like we make these changes. We obviously do an estimate. We start settling claims. As we settle claims, we figure out what we're having to pay people figure out how severe they are, and then we adjust our estimates. So we obviously overshot the mark in 2023 and 2024. We have not concluded that for 2025, where we think our reserves are properly stated. I'd also point out, we really didn't overshoot the mark much in 2023. So it happened to be those really concentrated in those 2 years.

Going forward, we feel good about profitability. We've been able to earn better than industry average combined ratios in auto insurance for a long time, and we expect to continue to do that. Will it -- will we still be at 89? I think when you look at the math on it, to the extent we can drive growth and give up some margin that works to improve the shareholders' valuation multiples. That said, like we're okay on what we have right now. Like we think we're competitive in the market, but we think we can grow faster.

Obviously, 2023 was a very strange year. But is there something in your process that says that you want to be more conservative on the most recent accident years that the confidence interval on your reserving is more conservative for the most recent year and that programmatically. If you're doing things correctly, you would have this type of reserve release action going forward in '27 as we look back to '25?

No, we apply the same statistical standards to every year. I would say one of the things we're hopeful about is with advanced computing power that we can increasingly get more specific on what's in the reserves. Of course, the reserves are like you have a bunch of losses in a year. And then you have to -- you say, well, how much do we pay out? And then you're kind of doing it on the residual value basis. What we paid out determines what we have left for all the claims that we still have yet to settle.

We think with advanced analytics, we may be able to get another angle on just looking at all the individual cases, which is really complicated. You got 900-page medical files. You get like lots of stuff to try and figure out what that claim will settle at. But -- so it's the same process, same standards, and I would say, always getting better as we go forward. Of course, what you never really know is what's going to happen with legal trends or anything else.

Our next question comes from the line of Alex Scott from Barclays.

First one, I wanted to ask you about just prioritization of the holdco cash, which has grown to a pretty significant amount at this point. How would you think about prioritizing that? Are there different verticals within services that you'd look to expand or other things beyond obviously, the larger buyback that you've been doing?

That's an important question, Alex. Let me try to build up a little -- start a little bit above where John went and then talk about some specifics underneath that. John, feel free to jump in here.

So the first thing I can, capital, you got to get a great return on what you got. And we had a 44% adjusted net income return on capital. So all of our capital, there's no hiving stuff off, no separate closed books or anything like that. We've got a 44%. That's a good thing.

And when you look at the S&P 500, it's probably half of that. I don't know what it is this quarter, but typically, it's in the low 20s. And so we feel good about that return. Particularly when you're buying it at this kind of PE.

Then you say, okay, well, what else can we do? And John went through the order, organic growth, you're just leveraging your existing capabilities, great scale to it, just pump more volume through the system. Obviously, that's something we're focused on. But you got to make money at. You don't want to end up losing money or give yourself a short-term sugar high of growth and a long-term hangover called low profitability. So we manage that, as Jesse talked about, very aggressive in the Property-Liability business.

We also think there's plenty of ways we can expand and leverage our existing capabilities. Whether that's John talked about expanding our Property-Liability businesses or our investment using our investment capabilities, which we put a little more money into earlier this year because we think we're good at it, and the results show we're good at it, and we thought we saw some opportunities in the marketplace. And from an enterprise risk and return perspective, we had room to do that. So we look at it in total, we manage capital.

And then there's a variety of other ways we can do it. In general, we look at it and say, we have to be a better owner of a business. Like why would our ownership make this business better. And that's where you look to grow stuff when you look at -- when we bought SquareTrade, putting our brand on it and that kind of retail distribution. We really ran the table on that business and feel really good about it. Those don't come along that often. But you're always looking for ways in which you can enhance your capabilities.

John, anything you would add to that?

I think you covered most of it, Tom. Yes, maybe just a couple of things to point out that it really is a system decision. We're looking both outside of the firm and opportunities, but then also in the firm, what's the best trade-off of how that mix comes together.

I would point out that sometimes it's harder to see some of the investments that we're making such in technology or even in the investment portfolio, those can be fairly consumptive in terms of capital. It might be more difficult for you to actually see that versus a transaction? And then I guess I'd end up on the fact that I know some of you picked up on it, and it's in the queue, but we actually accelerated our share repurchase program throughout the quarter. And that wasn't just a onetime thing. We continue to accelerate it. So one way to look at repurchases is what the quantum is, but also the pace matters, too.

Got it. All very helpful. Second question, I actually want to circle back on artificial intelligence, specifically. And I know you guys have had a strategy over time to improve the expense ratio, so you could get even more competitive in the market and spur some growth. Could you talk about how AI expands on that, what you're planning to do? And sort of how you see yourself positioned relative to some of your peers, one of which I think has begun to roll it out more aggressively and reduce their workforce more.

Let me start with the competitive position and then come back up to how we're doing it. I'll focus on both expenses, aka, generative and effectiveness called the Agentic AI. I think it's really hard to tell where everybody is. Everybody is out doing something. We don't talk about everything we're doing because we don't want everybody to know what we're doing, and we'll let them see in the marketplace. But -- so I think it's hard. So what I can say is that the -- from our standpoint, our capabilities continue to grow exponentially. The opportunities we see continue to get bigger. And we're figuring out how to address and deal with some of the implementation and deployment issues because it's not simple. I can't tell you that it's all in market today. Its stuff is complicated. But if you can pull it off, it works really well.

The easiest way thing to do is generative AI, which is, I think last time I called it the you might remember Keds sneakers. It's -- they run faster, jump higher strategy. It's good. It cuts out expenses, you can cut out call center people. All, that's good. We're working on that. We do a bunch of it does millions of e-mails for us. People don't want to spend time doing it. It's all really good. I think the real benefit from this will come from a Agentic AI, where agents are talking to agents and making decisions in subsecond real-time response rate that people then can't compete with you. We're building that. It's really complicated building an ecosystem. You got to get the right governance around it, you got to make sure you set up whatever metrics you've give it, it will go get. So you have to make sure measurement science is really important. So we're working hard on that. We're excited about it. We think it offers potential to really build off of what we did in Transformative Growth.

We don't have the issue that some companies do. I don't know what our competitors' issues are, but I know other companies when I'm out talking to them, have some issues in accessing legacy technology. We don't have that for many of our systems. We do for some, but not many of them, which gives us an ability to accelerate the Agentic or ALLIE work.

And our next question comes from the line of Yaron Kinar from Mizuho.

My first question is on the homeowners book. Why was the expense ratio up year-over-year? And would you still expect improvement for the full year.

We reallocate expenses from time to time. There's slightly higher commissions related with bundling on that. So while it looks expensive, it's good lifetime value. So let me put it that way because we had the same question. like wait a minute, like where this point go? And so it relates to how we're driving value. And we try to do it, so it's accurately reflects what each product gets and not just spread those costs by commission.

But we love the homeowners business. We think it's great. We think it's an underappreciated growth asset, not just given the market share numbers that Mario talked about. But if you just think about severe weather, and you're looking for trends, people are going to need more insurance for their homes, the worse the weather it gets. And so -- and we're really good at that business a lot. So we like that business. I think it has great potential.

And just to clarify here. So the reallocation of expenses, is that something that's going to flow through throughout the year? Or do you still expect to see year-over-year improvement?

We don't do forecast of expenses. But to the extent, we're spending the money to increase bundling, we like that, yes. And so it would be higher, but we're still earning a great return. So I wouldn't -- homeowners is a little less price sensitive than auto insurance would be the other point I would just add to you as you're thinking this one through.

Right. And then my second question, I realize it may still be relatively early, but so we've had the closure in the Strait of Hormuz for 2 months now. Do you expect gasoline prices and supply chain disruptions related to the closure to impact frequency and/or severity in both auto and home?

We don't know would be the answer. When you look at -- but I can give you some facts around it. About 1/3 of driving is discretionary. About 1/3 is for like going to work and about 1/3 is for like doing stuff, you got to go to the grocery store or stuff like that. So you're basically talking about 1/3 of things people can decide they want to go on a shorter vacation or whatever. That obviously takes some time to factor in. If gas prices are $5 to $6, people don't go as far. Maybe they share their car on riding to work. maybe they don't go to the grocery store as often. And so there's various things that higher gas prices do result in fewer miles driven, which then lowers frequency.

But it's not a straight line. Like you can't just say Strait of Hormuz is here. Gas prices are -- it's $110 a barrel for oil. Therefore, we're going to have a 0.5 point change in frequency. You just don't know. And there's a million different variables to that. What we do know is we pay attention to frequency. We keep track of frequency, we do our claims. We do claim counts impact our reserving and we get claim counts every day. So to the extent they're changing, we're always looking at it. But then you have to decide how long will it be there. And even when you have higher prices, you might get a temporary drip down, drop down and then it goes back up. And then we track 50 million cars every day, every 15 seconds. So we know who's driving when.

That's on the frequency side. And what about the severity side?

Severity, again, in general, higher petroleum prices roll through everything from plastic parts on cars to shingles. And so it has an upward impact on it. What happens to our cost, we don't see anything right now in severity, increasing severity of parts and stuff like that. And then it's a competitive market, so you just see what happens. So we're not concerned about the price of oil and its impact right now on our profitability.

And our next question comes from the line of Paul Newsome from Piper Sandler.

Maybe a revisit to the competitive environment a little bit. And talking about some of the states that have been not as attractive. Any thoughts about those states turning or some of the other states that were in between turning to a more positive environment? Or is there any color you could give, I think, would be helpful and interesting.

Paul, it's really a question about the regulatory and operating environment, I think, rather than competitive is the way I'm hearing the question, but let me make sure I got it right before I answer.

Well, I guess it's either one, right? If it's regulatory, then that's the thing to focus on. If it's competitive, then that's another thing. But I guess investors to hear more of the competitive piece than the regulatory piece of...

Yes, I'll go to both of them. Let's start with regulatory. Obviously, there were 3 large states we called out last year that we struggled to find a way in which we could earn an adequate return for our shareholders, give customers a good price and grow. And so we didn't. And some of those are getting better. I'm really excited about what might happen in New York with Governor Hochul doing. It will be a blow for freedom for insurance consumers to take the cost out of unnecessary, what I call, fender bender litigation, that could be a huge benefit because New Yorkers pay a lot for insurance because there's a lot of these benefits being [ served ] out.

Certainly, when people get hurt, their car gets wrecked, their bodies get bent up and stuff, they should be totally in favor of that. And that's what we do, that's what we'd like to do. Sometimes, the system gets a little out of whack. It needs to be course corrected. So we're thrilled about what they're planning to do or hoping to do in New York.

And if that happens, that would open a giant growth market for us. We have a big share in New York, particularly in the 7 boroughs. We've been really strong there for a long time. We have a great agency force. It's got tight media markets. So our direct operations work really well there. We have good independent agent relationships. That would be a great place for us to grow,and we hope that they can do that because it will be good for our customers and consumers in general.

The -- if I just go up to the competitive environment, it continues to be highly competitive in auto insurance, as Mario talked about. The top 5 continue to battle it out. You see some of the -- they're not small, but they're not in the top 5. Some of the independent agent carriers have had volumes go down, particularly a couple of big independent agent commercially focused companies have lost some share there. So we feel good about our competition in auto insurance against the top 5. Where we're really starting to pick up some momentum against competition is in the homeowners business. Mario talked about that 81% of the country.

And some of those top 5 either don't really sell their own product and have underwriting margin to work on in that space or haven't had as good a result as they would like. And so they're being less aggressive in that space. So we think there's great potential to grow in the homeowners business given that competitive set. Anything Mario or anybody would add to that?

No, I think you nailed it, Tom. The only thing I'd say is when you look at -- it's a highly competitive market, as Tom said, when you look at our results, we continue to generate new business at historically high levels. It's across distribution channels. We're leveraging all the capabilities Tom talked about early on, and we're competing effectively both in the auto and the homeowner space. And we like our chances to be able to continue to do that going forward.

That's great. As a second question, maybe turning to the Home business. I cover a lot of companies that are talking about the business moving the margin to more excess and surplus lines for home insurance. Any thoughts about that trend, if you think it's just kind of a temporary thing or it's a part of what matters for you? I would Imagine, given your middle of the road new product for home insurance. It's not a huge piece, but just curious.

Not a huge piece of excess and surplus lines for us or for...

Yes. I would imagine it's pretty small for you folks.

Yes. We have an excess and surplus lines business it's North Light. It's grown reasonably well. Just to help educate everybody else who's not -- is indeed, Paul -- excess and surplus lines are where there's not enough availability in a market and the customer goes out to like 2 or 3 companies can't get an offer. And so then somebody can offer them an excess and surplus lines company, which is, I'm going to call it lightly regulated as it relates to price as opposed to tightly regulated in homeowners.

We have that -- we have a company that does that. We prefer to do it in the regular lines. And if we can't sell it in the regular lines, we don't necessarily use our excess and surplus lines if it -- because we don't -- it's because we don't like the market. Like occasionally, there might -- we might use excess and surplus lines for a really well-priced risk. But in general, if we don't like the state for homeowners, we probably don't like it for excess and surplus lines either.

We do want it so that we can be available for customers that have it. And then on top of that, we're probably the biggest broker of homeowners insurance in the country because we serve our Allstate agent customers well. When we can't offer a product in Florida or California or something like that, we have arrangements with other companies that we can sell their product for it. And that's a kind of number with a B on it in terms of how much product we sell there right.

And our next question comes from the line of Tracy Benguigui from Wolfe Research.

You started earnings call by giving a demo on your ad campaign. How should we think about ad spend budget this year versus last? And any expense ratio impacts and PIF growth prospects as a result?

We're obviously -- it's a highly competitive market. We've dialed up advertising significantly over the last 4 years. We dialed that up with increased sophistication. So there's upper and lower funnel, upper funnel being the stuff you saw lower funnel being very specific. We've find [ Chris ] is shopping for insurance, and we like give her an ad at the moment on her addressable TV or on the web or something like that. So there's upper and lower funnel. We've increased our lower funnel advertising this year, which is better. It's easier to do metrics on it, to be honest like run ad on the Super Bowl, who's watching it? Did they buy anything from it, was not as easy to find out whether that's economic as -- so we've shifted more to a lower funnel.

But we spend relative to where our economics are. We have economic measures. But we don't spend all the way up like -- recently, we were looking at should we spend more. And sometimes, you just want to make sure the system works really hard. So you don't want to advertising to be the only thing you do to drive growth because you end up in a system [ period ] where we spend more, progressive spends more. So leads go up in costs, so we spend more. So they spend more. So you have to be careful that you don't feed a beast, you don't want to feed. So we're highly precise, I guess, I would say, and disciplined about it. That said, when we think we can advertise and if we think we could spend more money and grow more and get a great combined ratio, we will. And right now, we like our economics. Our economics are better this year than they were last year. Some of that is just getting better at executing. Isn't that the market has really changed some. We've just gotten better at our close rates.

Excellent. Shifting gears, can we talk about asset allocation. You doubled your equity holdings since September. So it's about 12% of your total portfolio. What is that relative to your equities asset allocation target?

I'll let John answer that. Since that's also part of what he does besides our Chief Financial Officer. We try to make sure everybody know at least 2.5 jobs. And -- but I would just say which he probably wouldn't want too, we're really good investments. We manage it around. We're proactive. We think about it from an enterprise standpoint. You can see the numbers on the charts. And so we have good confidence that we can generate good returns on capital, and you see it flow through our P&L, particularly this quarter.

Yes. Thanks for the question, Tracy. The way I think about it, as I take a step back and really go back to the presentation, think about how we think about capital allocation in general, we have a lot of different things we can do. We think about the overall enterprise context as we do it. And we also think about what's going on in the market environment at any part in time. You've seen us in our portfolio, change our allocation probably more than most of our peers, whether that's equity or whether that's fixed income, changing our exposure to rate via duration and the rest.

Because we're active, I don't know that I could point you to a specific asset allocation target. There's a range that's defined by past behaviors that probably gives you a pretty good idea of what we're likely to operate within. When we do put more money to work, particularly in equities, we try and take a mid- to longer-range view on it. We are economic investors, we're not just trying to manage to a yield target at any point in time. We think by delivering economic value that does accrue to increased net investment income over time. And it's a more cerebral way of going about it. But we're not necessarily trying to measure that quarter-by-quarter, and we're taking a longer look. The amount that we put to work recently has that in mind.

If you look back, say, 6 months ago, the environment was a little less certain. We had a number of things going on. We have a little bit more clarity and felt good about putting money to work. And we'll see how it turns out in the coming quarters and years.

Okay. So it sounds like your approach is more dynamic than static. So could we foreseeably see that percentage growing if you like, that asset?

I would say that it's dynamic, but it's well governed. And you could probably gauge most of the range of our future activities by the way that we've conducted ourselves in the past.

Yes. So we're not likely to have an 80% equity allocation.

And our next question comes from the line of Pablo Singzon from JPMorgan.

Just one for me. I wanted to shift to AI again, but this time as it relates to your distribution strategy and how you reach customers. I presume it helps direct distribution, but how do you think it affects your agents, whether captive or independent? There's an argument that it makes them productive, but do you think AI ultimately shifts the business away from them?

Sorry, what makes the agents more productive at?

Just the use of AI. Yes, that's sort of like the argument...

I missed the 2 probably most talked about letters in these days. So AI can help them in a whole bunch of ways. First, it can help us have a better product. and better pricing and deliver better service for people. That's in general, just it will help us be a better company. Secondly, as it relates to their specific work, we think it will remove a lot of service work out of agents' offices. So things they had to do before they won't have to do anymore. So we're actively working to get that work out of their offices. Secondly, it will help them be smarter and on behalf of agents who provide more advice and do less individual work.

Let's say we were going to do an insurance review for you. An agent might have to go pull your records, see what you've got, see how old your kids are figure out with both advanced computing, what you want to call it, machine-based learning, AI, whatever, we can help them do their work ahead of time, so they're really delivering the work, and it's like they have an analyst working for them to help them.

The other thing that AI can do is really in the moment. And so we have in market today, something called customer engagement sidekick that helps you really do a better job of engaging with customers. Because you might have -- if you're doing 50 calls a day or something like that, it's always good to have somebody, "Hey, this is what I'm kind of hearing, maybe you should go here. Here's the tonality we're talking about." So we think it will help them do a much better job for those people who want somebody in between them.

Their AI can also just sell directly. And we're live in the market doing that right now on a particular product. It's more of a learning, but it's doing it in 3 states. It's closing policies. And so we're just seeing what we learn from that. So it all -- you just have to be there to meet the customers. And so I think that will help those agents who have good relationship with people improve their relationships. It will help other agents build more relationships. And then those people who just don't feel like dealing with it and would just soon deal with the computer, we'll be there for them too.

Is that last question? Okay. So thank you all for -- we obviously had a great quarter. We had strong earnings increased growth with Transformative Growth. We think it's showing up. We went through the market share gains. So we look forward to your engagement with Allstate, and we'll keep working on creating more shareholder value. Thank you.

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

Welcome to the Raymond James Institutional Investors Conference. I guess this is the 47th Annual Conference. So it's going to be a great year. I'm Greg Peters, I'm the insurance analyst for Raymond James. And it is an honor to welcome back Allstate to our conference. They've been a consistent participant in our conference for many years now, and we certainly appreciate and value their participation.

From the management team of Allstate today, we have a good group. We have Julianna Paterra, who is Senior Manager of Investor Relations. She's in the background. We have Hannah Kafaza, who also runs Financial Communications. She's in the back there. We have Allister, who is our Head of Investor Relations here. And last but not least, we have Jesse Merten, who's our President of Property-Liability.

So what I'm going to do is turn the mic over to Jesse for some opening remarks. We're going to do a Q&A. If I could just ask everyone to say the question loudly so we can repeat it for the audience because this is being webcast. We appreciate it. And Jesse, why don't I turn it over to you?

Good morning. Thank you, everyone, for having me back to the Raymond James Conference. It's always good to be here to kick things off for the year. So we're going to start off this morning with an overview of Allstate's strategy and 2025 results to help you see why Allstate is an attractive investment and to set a good foundation for the Q&A time that we set aside following my prepared remarks.

So I'll start with -- okay, it does work, the standard disclosures that we give. I want to remind you that I'll be using forward-looking statements and references to non-GAAP measures, evaluate my remarks in the context of the information that we provided, including information on potential risks in our recently issued 10-K for 2025 and other public documents. This presentation and more specific information can be found at our website, which is allstateinvestors.com.

All right, here we go. I want to start with Allstate's strategy. We have 2 components to our strategy: increasing personal property liability market share; and expanding the protection that we provide customers. In the intersection of these two components, you can see where we leverage Allstate's brand customer base and capabilities to create value in all of our businesses.

On the right hand of the slide, we highlight Allstate's 2025 performance and strategic priorities. Financial results were excellent in 2025. Allstate's improving auto and homeowners insurance affordability for millions of customers. We continue to execute transformative growth, which has expanded our distribution capabilities, lowered costs, built new technology and introduce affordable, simple and connected products to millions of customers. Our industry-leading homeowners business is growing and remains a competitive advantage for Allstate.

So now let's take a closer look at 2025 results. Total revenue increased to $67.7 billion, which was a 5.6% increase over the prior year. Net investment income increased to $3.4 billion, up 11.5%, which reflected higher yields and growth in the overall size of our portfolio. Total policies in force reached 210.9 million, with property liability policies increasing to 38.3 million policies. Net income applicable to common shareholders was $10.2 billion, and adjusted net income totaled $9.3 billion or $34.83 per share. Return on equity increased to 42.3%. Strong results position us very well to execute against our strategic priorities in the coming year.

Affordability is top of mind for many of our customers and Allstate is focused on improving affordability for customers to accelerate property liability growth. In 2025, Allstate reduced premium for 7.8 million customers through our SAVE program. And SAVE, for those of you who don't follow us closely, it stands for Show Allstate Customers Value Everyday. The program uses enhanced renewal reviews to adjust coverages, identify available discounts and ensure customers are matched with the most cost-effective protection. These targeted adjustments reduced premium by an average of 17% for customers who participated in 2025. New products are also enhancing affordability. I'll talk more about this on the next slide.

For affordable, simple and connected, or ASC, auto and homeowners products continue to expand as we roll out new states and add new products to the ASC portfolio. In 2025, auto insurance rates for ASC were reduced in 32 states with an average decrease of 9%. Direct purchase options have expanded as well. We give customers access to lower-priced channels with streamlined experience that's powered by new technology as part of our transformative growth initiative.

Operational excellence also supports affordability while maintaining margins. We're lowering costs so that we can lower the prices that customers pay for protection. Transformative growth includes a focus on lowering operating expenses, and we've seen the results in recent years as our adjusted expense ratio has declined. And we're not done. We continue to find ways to reduce costs across the enterprise. Improving claims processes also enables us to offer lower prices, and we're building on strong momentum in that area into going to do even more in 2026.

Finally, regulatory changes in legislative reform also contribute to improving affordability. We've seen that impact here in Florida, and we're encouraged by actions that are being taken in other states to address the underlying drivers of costs that make up a significant portion of the premiums that customers pay for insurance.

Switching gears from affordability. Let's spend a few minutes on the progress that we're making on transformative growth, which is a critical component of our strategy. In the top left, you can see what we've done to offer more competitive prices. This builds on the topic that I just talked about, affordability and has been a focus since the beginning of transformative growth. We reduced the adjusted expense ratio by 6.6 points since 2018, which allows us to offer lower auto and homeowners insurance prices while maintaining attractive margins.

We also increased the sophistication and precision of pricing models, enabling more accurate pricing. Those models continue to be refined and adjusted to reflect changes in the operating environment. Allstate has the broadest distribution in the industry. Customers can shop for Allstate coverage through Allstate agents, independent agents and directly by phone or via the web. We acquired National General in 2021 to strengthen independent agent channel capabilities and expand our nonstandard auto insurance offerings.

We have dramatically increased direct sales using the Allstate brand and improved Allstate agent productivity. We enhanced the product portfolio by introducing the affordable, simple and connected auto insurance product in 44 states, and our new homeowners product is in 35 states. In the independent agent channel, our Custom 360 auto and homeowners insurance products are available in 38 states. These products are built with sophisticated rating plans that create value for customers by improving affordability and broadening our risk appetite to expand availability.

Sophisticated marketing has enhanced our acquisition capabilities and economics. The money we're spending is working harder for us to drive new business across distribution channels. At the bottom of the slide, you can see the results. Personal Lines new business increased from $5.5 million in 2019 to $11.6 million in 2025, more than doubling. New business is now balanced between Allstate agents, independent agents and the direct channel. Total personal lines policies in force increased from 33.5 million to 38.1 million with more balanced distribution across channels. These proof points demonstrate the transformative growth is working.

Transformative growth is delivering property liability policy in force growth, as you can see from the map on the left-hand side of this slide. In 38 states, which are represented in dark blue, Allstate is growing policies. The table on the right shows personal lines policies in force as of January 31. Total personal line policies in force increased 2.3% over the prior year. Auto insurance policies in force grew 2.6% and homeowners policies in force increased 2.5% over prior year.

This is a slide we used to go a little bit deeper and give some context on that growth. It shows both the pace and the breadth of the growth that we've seen across the states. Auto insurance growth accelerated and broadened geographically in 2025. These graphs show the distribution of policies by state and percentage of premium written. So for example, on the right-hand side of the chart, you can see that at the end of 2025, less than 30% of premiums were in states that were not growing.

Staying on that chart and moving to the second blue bar from the right, 14 states were growing policies in force by 4% to 10% and represented more than 30% of premiums. When you compare the left graph for 2024 to the right graph for 2025, it shows a reduction in the red bars, higher blue bars that are for growth, and a shift to the right towards higher growth. We now have 20 states growing policies by at least 4% and we're growing in 38 states that represent more than 70% of countrywide premium.

Before I wrap up and go to questions, I want to spend a little bit of time on our homeowners business, which continues to grow and generate industry-leading returns. Premiums earned have increased each year since 2021 and policies in force have also grown steadily, supported by expanded distribution and new products in this product line. We target a low 90s recorded combined ratio for homeowners and an underlying combined ratio in the low 60s.

The underlying combined ratio for 2025 was 57.9, which demonstrates the effectiveness of our differentiated model with advanced risk selection, new products, pricing sophistication and efficient claims handling. The recorded combined ratio was 84.4, which is well below the industry average. And Allstate's average combined ratio for the last 10 years in this line was 92.0, so right on target. And the business remains a competitive advantage and growth opportunity for Allstate.

So to summarize, Allstate increases shareholder value through generating attractive returns, improving affordability for our customers, executing transformative growth to drive policy growth, expanding our industry-leading homeowners insurance business, proactively managing our investment portfolio and strategically utilizing capital. Allstate is positioned to continue delivering sustainable growth and attractive returns for shareholders into the future.

And with that as my foundational remarks, maybe we'll open it up for questions, Greg. Let's just stay on the good hands for questions. We'll stay on the good hand for questions.

[indiscernible]

So for those that aren't in the room, the question is on competitiveness or competitive environment more broadly.

I mean, certainly, the environment has gotten more competitive. And I think everyone is looking to lower rates in 1 way or another, Greg. We started last year with our SAVE program, which again saved millions of customers more than 5%. And we're continuing to do that into 2026. Obviously, you're seeing that with other carriers as well as we all have record profits, and we are able to then reinvest those into affordability initiatives. I think it's also important when you think about competitive environment and rates to think about what the underlying drivers of our ability to lower those rates are, which is the underlying costs have to be going down.

And there's a lot of drivers of cost, but we're focused on the affordability equation effectively getting us back to making sure that we manage the cost that it takes to make things right for our customers. But in general, I think you find that it's a competitive environment, more so than it's been in recent years. Although I often will tell people, it's not like this is a new situation, personal lines, auto and home insurance. It's always been periods of competition, competitors come, competitors go.

And what I'm most grateful for is that Allstate, through transformative growth, is positioned completely differently to compete. So broadest distribution, EA, IA and direct with the broadest spectrum of products. So we go all the way from high-risk drivers to standard and preferred, and having that risk spectrum available to us with broad distribution, I think, will help us compete in the coming years.

[indiscernible]

The question, again, is how do we think about cutting costs? Is it taking out real dollar costs? Is it lowering limits? So I would separate -- there's really 2 things in what you just asked about, and we're doing both, right? So one is, taking hard dollar cost out of the system. So the number I quoted on an adjusted expense ratio going back to 2018, that's real dollars out of the system. And we continue to look for real hard dollars to take out. Think operating cost and expense. A bigger component almost certainly is what we do to do well in claims and reduce loss cost, right?

So we have an outstanding claims organization, that's always looking to get even better on quality so that we pay what we owe. We have to pay what we owe, not a dollar more, right, but we can manage costs. And those costs then go through rate. The better we are in claims, the less that we have to charge customers because we're a cost-plus business, right?

What we're doing when we talk about the SAVE program and actually saving people premium dollars, that gets to your question about coverage. We are going through, and we're taking a look at coverages and making sure the coverages are tailored to what that customer needs. And if it's limits, if it's deductibles, those are all levers that someone can work with the customer on to help save them premium dollars because they may have limits that they either don't need or can't afford at this point in time, and we can help adjust those things.

We also will adjust deductibles, and we've recently launched a test of a deductible payment plan. So what we do for our customers is, go to them and say, you can increase your deductible. If you do get into an accident, we have a program where we'll effectively let you pay us that deductible back over a period of time. So that gives them a lower premium, but gives them the stability from a cash flow perspective to feel like they can manage that higher deductible. And those are all ways that we're working to save people premium dollars.

[indiscernible]

Can I offer examples of AI is lowering cost than what we expected to accomplish, correct? So we're looking at AI in a couple of ways. It's the things that you can do today that will lower cost, but you're making investments. So I would say in '25 and '26, we're probably investing and then looking for offsets to that investment in just routine operational savings, whether it's using generative AI to automate processes. We have a lot of manual processes, as you might expect, that we can use generative AI to automate across service, across claims.

The other thing that we're doing is, we're taking an ecosystem approach to AI and the way that we implement it, and we're looking across the business, and we've picked some focus areas, but the ecosystem approach effectively says, use AI so that the AI can agentically work with other pockets of the company. So we're not just saying, what are the use cases in claims? We're saying, what are use cases in claims? What are use cases in customer acquisition? And we're building AI tools around that, that will talk to one another.

So the more that we know about a customer from an acquisition perspective or from a service perspective, we can also leverage on it from a claims perspective to make sure that we're giving people personalized experiences from beginning to end that are tailored to their needs. That will ultimately drive cost down. But more importantly, I think it's going to be an outstanding customer experience that becomes a differentiator.

So we're looking at it from both lenses of what's the longer-term use cases for AI that just make it fantastic for customers versus what can we do right now to drive down real dollar costs out of the system, and we're trying to do both.

[indiscernible]

So Mitch asked about capital allocation with our recent share repurchases. Well, first, I guess I would say a couple of things. I'm not in the same position I was a year ago to answer that question because I'm running the business, and not the CFO anymore. But I do know a little bit about the way that we're thinking about it. So I would say that it's evidence of what we've talked about for a long time on capital allocation. When we have capital to give back, we engage with the Board and we initiated share repurchase programs like we just did. I don't think that changes the order of operations in a sense. So we want to make sure that we have all the capital that we need to grow organically, which is one of my responsibilities now.

So we go ahead and we do that. We scan the environment for inorganic opportunity. And then to the extent we have excess capital to deploy back, we give it back to the shareholders through a dividend increase, in this case, and repurchases, and we'll continue to go through and apply that logic as we move through this repurchase and generate capital and do all those good things. So it's a strategic approach that will continue to apply going forward.

[indiscernible]

So in summary, the question is AI impact on distribution of our personal lines products.

I guess I would start with a comment that you made, which is I'm grateful that we have the broadest distribution in the industry because whatever that disruption looks like, I think we're well positioned to lean into it, right? So we've really been building out direct capabilities, so that we can learn to interact with AI agents, right? And I think effectively, that's what a direct channel is going to need to do is be well positioned to interact with AI agents that are helping individual shop for insurance. We have that.

I also continue to believe that some people are still going to want to work with an agent. They're going to want advice. We've done a fair amount of consumer research. It's not that, that can't shift over time. And again, we'll have the direct channel to the extent people want to go with the agenetic agents. But I do believe people are going to want to work with agents, and we have the Allstate agents who are helping look into the future of what it looks like to compete differently and really focus on what customers are willing to pay for in a relationship with an agent and help them do more of that and take out the work that is not differentiating, right?

I don't think people are willing to pay for some of the routine things that AI can do or other tools that we have can do. And so we're helping our Allstate agents look into that future and help to move them there so they can spend more of their time doing what I believe customers are willing to pay for out of an agent. We also have the independent agent channel. They're going to shift differently, right? We have less ability to influence, but we'll make tools and products available to the IAs as well over time that will help them meet that value because I think they have the same proposition in some ways that Allstate agents do, which is personal relationships, advice and assistance.

And I just believe people, particularly with complex needs, are going to want that, Greg. The ones with less complex needs perhaps less, and we'll be positioned to do that through really good direct capabilities, whether it's phone, whether it's web, whether it's both of those things with -- back to the other AI question with really personalized experiences and really personalized solutions for that individual, which I think will become differentiating over time.

[indiscernible]

So the question is, what's the regulatory impact of AI adoption across distribution and the running of the business? It's significant because we're regulated separately in 50 separate states. And so if you look even at -- when I mentioned how quickly we're rolling out ASC, we've been working on rolling out our ASC product for a number of years, and that's because we have to get it approved in 50 individual states and they go through it at a very granular level. To the extent that you're implementing AI tools, it's the same. You have to go state by state. They have different laws on the books. They have different tolerance for the use of technology tools, and you have to go through and work together with regulators on rating plans, on underwriting decision-making. All of that has to be done through the lens of a regulatory overlay.

And the same is true for the distribution of the product, the same is true for the settlement of claim. Like you have to make sure you're partnering with state regulators on what we're doing so that they agree that it's good and what's right for customers, but it means that you're running effectively 50 slightly different businesses across the country that are all tailored to the operating environment in a specific state.

Other questions? You're right. This thing is a bit on, I am afraid. So I don't know how much time we have. It's flashing. It's 6-something. Okay. Well, that's good to know. Not that I wouldn't love to stand up here for more than 7 minutes. Is it because it's early or we're not exciting enough. Well, all right, I'll take it.

[indiscernible]

Not nationally. Certainly, on a state basis, we're hearing a little bit more. And I think that gets back to the regulatory environment that we deal with. We're regulated by 50 states. We have states we're hearing affordability is clearly top of mind. In some ways, it's in a constructive way because there's a lot that states can do to help, right? Because a huge driver of affordability is the underlying cost environment and a lot of that is not just coming from the cost of, say, fix a vehicle or a home. It's underinsured and uninsured motorists, which many times can be controlled through laws in a given state in its bodily injury claims and litigation.

In states like Florida, can take action that actually drives those down and results in meaningful premium reduction for the individuals in the states. So we are hearing more affordability focus, and we're getting out there to tell the story which is, we can work together to really help on that if the regulators and the legislators in their respective states take action to control some of the underlying costs because all we're doing is taking those costs and passing them along with a little bit of margin to our customers. But that's mostly state by state.

So you drive down on [indiscernible]

So again, not to lose the people online. So it's about tort reform and is there anything we can do? So I agree you see a lot of ads, but we've seen real results in Florida. Rates have come down across the state because of tort reform, anyone who lives here will tell you, meaningful reduction. We've seen it in our book. We've taken rates down. So can anything be done? I think absolutely, things can be done. Is it going to mean that the signs go away completely? No.

But there's things that we can do to take the most sort of egregious components out of the system. And when it does, it comes through back to customers very, very clearly. We see it. Other companies see it. It's very clear. And there's other states that are following in Florida's footsteps where they're taking action, and we see almost immediate results in our underlying loss data. So I think there certainly is more to do and there's a lot of states that need to tackle it, but things can be done legislatively to reduce some of the litigation pressure and the cost that's in the system.

[indiscernible]

So autonomous driving, opportunity or a threat? Well, first, we view it. It's something we watch very carefully. I actually remember when I started at Allstate, which has been over 14 years ago, we were talking about autonomous driving and doing some scenario mapping. Our conclusion at the time was it was going to take longer than people thought. And it's generally borne out to be true since we're still here talking about it 14 years later.

In general, I think it's something that we have to watch as a personal lines auto insurer and what it looks like over time. It could reduce the total premium to the industry, right, because premiums could go down, as accidents go down. Do I see it going to zero? I do not. That's a personal opinion. But I think it's something that we'll watch the trend on longer term. It provides opportunity because someone needs to ensure the vehicles still, trees still fall on cars, whether they're autonomously driven or not. You have to protect against that.

I also think it's a great opportunity for Allstate to tell our story about the homeowners business and the other businesses that we have, specialty lines. There's a lot of diversification in having a strong home business, having our SPL, which is condo renters, motorcycle, boat. So it's nice to have a diversified portfolio so that we can watch that trend long term. But autonomous, I mean we're seeing it, right? We're seeing the robo taxis. We're seeing more autonomous driving. A lot of that comes with the crash avoidance, which has tended to be good for the industry as you've seen long-term frequency trends. So our job is to watch it carefully, understand it and make sure that we have a business that sort of will sustain whatever happens long term on autonomous.

All right. Well, we're at the top of the hour. So thanks, Jesse.

Thank you.

Good day, and thank you for standing by. Welcome to Allstate's Fourth quarter earnings investor call. [Operator Instructions] 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, Allister Gobin, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone. Welcome to Allstate's Fourth Quarter 2025 Earnings Call. Yesterday, following the close of the market, we issued our news release and investor supplement and posted related 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 there are reconciliations provided in the news release and investor supplement. We will also make forward-looking statements about Allstate's operations. Actual results may differ materially from those statements, so please refer to our 2024 10-K and other public filings for more information on potential risks.

Our 10-K for 2025 will be published later this month. And now I'll turn it over to Tom.

Good morning. Thank you for investing time in Allstate. Today, we're going to cover financial results and how Allstate is successfully addressing insurance affordability. So let's start on Slide 2. Allstate strategy has two components is shown on the left, increased personal profit liability market share and expand protection provided to customers. On the right, our performance highlights. Allstate improved auto and homeowners insurance affordability for millions of customers in 2025. Results benefited from the transformative growth initiatives, which generated strong financial results and increasing growth of the property liability policies in force.

Shareholders will provide $2.2 billion of cash returns last year. The dividend has been increased and a $4 billion share repurchase program will be initiated. Slide 3 is an overview of Allstate's financial results. Total revenues increased to $17.3 billion for the fourth quarter and $67.7 billion for the year. Net income applicable to common shareholders was $3.8 billion for the quarter. and $10.2 billion for the year. Adjusted net income was $3.8 billion or $14.31 per common share for the fourth quarter and $9.3 billion for 2025. $34.83 per share.

The lower table provides a reconciliation of net income for the fourth quarter to the prior year quarter. In 2024, we earned $1.9 billion. The three primary drivers of increased income were better underwriting losses, lower catastrophes and the benefit of reserve releases from prior years and adjustments within 2025. We Net income for the quarter was $3.8 billion. Now let's discuss our success in improving affordability while maintaining margins before going through the details of this performance with Mario, Jess and John.

Slide 4 discusses the levers to improve insurance -- auto insurance affordability at the industry level and then we'll go through Allstate actions. In summary, improving affordability will require a focus on costs and not process. Let's go through the math. The pie chart on the left shows the composition of auto insurance industry costs from 2020 to 2025. Physical damage costs at of repair and replace vehicles and represent the largest share cost at 43%. Injury costs or 34% of premiums and expenses are 23%. Over the last 5 years, industry underwriting income was close to 0, to improve reportability then costs must be lower. Some costs move with inflation, Other cost reductions will require legislation or regulatory changes.

So physical damage costs have increased 47% over the past 5 years. Now a portion of this was because used car prices rose 43% during the pandemic, which drove up the cost to replace and repair vehicles. That inflation has started to reverse, which will improve affordability since insurance is a cost-plus product. The second largest driver of cost is bodily injury claims, which are when our customers get sued by people that are injured in auto accident. These costs have increased 52% over the last 5 years due to more attorney involvement and higher settlements.

Tort reform has reduced litigation in Florida, which has enabled the top five insurance companies in the state to request rate reductions of 5.9% in 2025. Consumers will benefit in states like New York and others work to reduce what I would call fender bender litigation. So you barely touch somebody and they see you and then also work to control exorbitant damage costs. For example, in New York, the average bodily injury Summit is twice that of Florida and the countrywide average. Louisiana and Georgia recently addressed litigation, which we are hopeful will reduce the cost of suits against our customers.

Uninsured and underinsured motors costs have increased 72%, which means responsible drivers are now carrying more of the load. This can be mitigated by enforcement our laws requiring insurance coverage and raising mandatory coverage limits. Changing laws or regulations so that insurance companies lose money at the underwriting level will not create a stable and affordable set of choices for consumers. Allstate is successfully addressing the issue of insurance supportable with customers, as shown on Slide 5. Customer value has been improved by using renewal processes for auto and homeowners insurance to optimize coverages and discounts that show Allstate customers value every day or SAFE program, reduced 7.8 million customers' premiums by 17% on average by adjusting coverage and other changes in 2025.

We continue to roll out the new auto and homeowners affordable simple connected insurance products. Auto insurance rates for the ASC price were reduced in 32 states with an average reduction of 9%. We also expanded direct purchase options, which have lower prices. Jess is going to go through the impact of this on this year's earnings, which was substantial in terms of the top line, but we managed margins well.

Operational excellence also supports affordability while maintaining margins. The transformative growth initiative has lowered expenses. Improving claims processes also enabled us to offer lower prices. So Allstate's strategy is to deliver strong results while successfully adapting to a changing external environment. Mario will now provide an update on the transformative growth initiative to increase property liability market share.

Thanks, Tom. Let's move to Slide 6, which shows how Allstate has benefited from transformative growth. In the top left, you can see the progress made on competitive prices. we reduced the adjusted expense ratio by 6.6 points since 2018, which allows us to offer lower auto and homeowners insurance prices while maintaining margins. We also increased the sophistication and precision of pricing models, enabling more accurate pricing.

Allstate now has the broadest distribution in the industry. Customers can shop for Allstate coverage through Allstate agents, independent agents and directly by phone or via the web. We acquired National General in 2021 to strengthen independent agent channel capabilities and expand nonstandard auto insurance offerings. We increased direct sales using the Allstate brand and improved Allstate agent productivity. We enhanced the product portfolio by introducing the affordable, simple and connected auto insurance product in 43 states and the new homeowners insurance product in 31 states.

We also have ASC renters available in 30 states. In the independent agent channel, Custom 360 auto and homeowners insurance products are available in 36 states. These new products create value for customers by improving affordability, broadening our risk appetite and expanding availability for consumers. Sophisticated marketing has enhanced acquisition capabilities and economics. Marketing investment increased to $2.1 billion in 2025, up from $900 million in 2019 enabling us to effectively reach more consumers with a more competitive price and better customer experience.

At the bottom of the slide, you can see the results. Personal Lines new business increased from $5.5 million in 2019 to $11.6 million in 2025, more than doubling. New business is now also balanced between Allstate agents, independent agents and the direct channel. Total personal lines policies in force increased from $33.5 million to $38.1 million with a more balanced distribution across channels. These proof points demonstrate that transformative growth is working.

Turning to Slide 7. We are now into Phases 4 and 5 of transformative growth, focusing on rolling out new platforms and decommissioning the existing ones. In these phases, we continue to broadly focus on the 5 components of transformative growth shown in the gray boxes in the middle of the page as we scale the new model and retire legacy technology and processes. Now let's turn to Slide 8 to discuss Protection Services. The Protection Services segment is comprised of 5 businesses. protection plans, dealer services, roadside assistance, parity and identity protection, where protection is embedded in other offerings.

In 2025, the Protection Services segment grew policies in force by 3.3% to $172 million, while revenue increased 11.7% to $3.3 billion for the year. Adjusted net income was $218 million in the quarter -- or for the year. Policy growth in this segment was led by protection plans, which continues to expand both domestically and internationally, as you can see on the lower right. Domestic revenue increased 8.1% over the prior year quarter, while international revenue increased 39.7%. The business generated $49 million in adjusted net income in this quarter, up 32.4% from the prior year quarter.

Now I'll turn it over to Jesse to discuss the Property-Liability business.

All right. Thank you, Mario. Starting with Slide 9. The Property-Liability business generated strong results in 2025. The table on the left shows full year 2025 results Premiums earned increased 4.4% in auto insurance and 15% in homeowners insurance with auto policy growth of 2.3% and homeowners growth -- policy growth of 2.5%. At the bottom of the table, you can see that the auto combined ratio improved by 10 points compared to the prior year. This is due to strong underlying performance as well as lower catastrophes and favorable prior year reserve releases. .

Excluding the benefit of reserve changes and lower [indiscernible], the auto insurance combined ratio was about 90 -- the homeowners insurance combined ratio of 84.4% reflects continued strong underlying performance and lower catastrophe losses when compared to last year. For the full year 2025, auto insurance generated $5.7 billion of underwriting income and homeowners insurance generated $2.4 billion. The right side of this slide shows earned premium impacts of actions taken to improve affordability, which are included in our financial results.

The chart shows the cumulative auto insurance earned premium impact from rate decreases and save actions taken through 2025. By the end of the year, the total impact was $810 million or approximately 2% of 2025 auto earned premiums. Improved affordability supports growth. Turning now to Slide 10. Auto claims process improvements are helping to offset increase in loss costs, support increased affordability and contributed to favorable reserve adjustments. On the left side is an overview of improvements that we've made to physical damage claim processes.

These processes are being enhanced by optimizing the method of inspection, focusing on adjusted training and using advanced computing capabilities. On the right, you can see what we're doing to manage injury costs. We redesigned our operating model to accelerate payments to entered parties where appropriate, utilizing new tools and quality assurance processes to enhance claim handling Predictive models are also being used to identify potentially injured parties earlier in the process to resolve claims promptly and control liability.

On Slide 11, you can see that auto insurance growth accelerated and broadened geographically in 2025. These graphs show the distribution of policy growth by state and percentage of premiums written. For example, on the right-hand chart, you can see that at the end of 2025, less than 30% of premium were in states that were not growing. Staying on that chart and moving to the second blue bar from the right, 14 states were growing policies in force by 4% to 10% and represented more than 30% of premiums. Comparing the left graph to 2024, and for 2024 to the right graph for 2025 shows a reduction in red bars, higher blue growth bars and a shift towards the right, which is higher growth.

We now have 20 states growing policies by at least 4% and are growing in 38 states that represent more than 70% of countrywide written premium. Turning to Slide 12. The homeowners insurance business continues to grow and generate industry-leading returns. Premiums earned have increased each year since 2021. Altus in force have also grown steadily supported by expanded distribution and new products. We target a low 90s recorded combined ratio for homeowners and an underlying combined ratio in the low to mid-60s.

The underlying combined ratio for 2025 was 57.9%, which demonstrates the effectiveness of our differentiated model with advanced risk selection, new products, pricing sophistication and efficient claims handling. The recorded combined ratio was 84.4%, which is well below the industry average. Allstate's average combined ratio over the last 10 years was 92.0. This business remains a competitive advantage and growth opportunity for all states. With that, I'll turn it over to John.

Thanks, Jeff. Good morning, everyone. Now let's turn to Slide 13 to discuss the investment portfolio. The portfolio continued to perform well with net investment income rising to $3.4 billion in 2025, more than $350 million higher year-over-year while maintaining strong risk discipline. Over the past 12 months, total portfolio carrying value increased from approximately $73 billion to $83 billion due to operating and investment cash flows. That growth, combined with higher fixed income yields led to a meaningful increase in investment income.

From a return perspective, market-based assets generated a 6.1% total return materially higher than last year. due to increased bond prices from lower interest rates and higher equity returns. Performance-based investments delivered a 5.8% return, down slightly year-over-year, consistent with broader performance in private markets. During the year, we took several delivered actions as private markets adjusted to a tighter capital and liquidity backdrop in 2025. This included selling approximately $270 million of funded interest in the secondary market, accelerating and deepening expectations for financial reporting and moderating new commitments in response to lower industry-wide distributions.

Let's wrap up with Slide 14 for an overview of Allstate's significant cash returns to shareholders. In 2025, Allstate paid over $2.2 billion in common shareholder dividends and share repurchases. The quarterly stock dividend will increase by 8% to $1.08 per share, payable in cash on April 1, 2026, to stockholders of record at the close business on March 2, 2026. Additionally, a $4 billion share repurchase program has been authorized and execution will begin upon completion of the existing $1.5 billion share repurchase program, which will be completed in the first quarter of 2026. In the last 5 years, Allstate has purchased 18% of common shares outstanding. And in the last 10 years, Allstate has purchased 39% of shares outstanding.

Now let's move to questions.

Certainly. And our first question comes from the line of Gregory Peters from Raymond James.

So I'd like to, for the first question, focus on the regulatory and legislative changes slide. And I know there's been some attention in the marketplace to certain states announcing a more proactive approach towards rate relief for their consumers. I also recognize that this is very much a state-by-state process for you guys. So I was wondering if you could provide us some color on how the regulatory environment, how you think it might change for you guys in terms of what regulators might ask you to do over the next 24 months or so in terms of rate relief?

Thanks for the question, Greg. Of course, predicting politics is probably you get a Polymarket to do that. But so first, I would say the numbers we showed are countrywide numbers. So this issue of affordability for consumers is an issue everywhere. So our SAFE program, we were everywhere. We -- every state we go after every customer, they all care about the amount of money and the costs are -- have increased a lot recently. Obviously accelerated by the pandemic and physical damage. But then underneath that for a long time has been the bodily injury costs were -- if you make a mistake, you run into somebody in batching the side of the car, you don't feel like you should be sued for $100,000.

And so I'm hopeful that what this will do is put the attention on that needs to change. Like people don't need to be paying for lawyers and for fender bender lawsuits. And so this is really an issue everywhere in the country. As I mentioned, Florida has done some really good work and it's turned into benefits for customers. So Florida should be acknowledged. Other states are starting to get this. there's been a long-standing discussion between us, regulators and the trial attorney as to what's fair and right, and we obviously think that our customers should pay less for litigation against them. And we'd like to see everybody take this on.

Okay. I guess related to this, I put the slide to Slide 11, where you talked about your in-force growth, as you're dealing with -- I think you said you lowered prices for 7.8 million customers in 2025, and you highlighted where you're growing. We're hearing in the marketplace that certain mutuals and other companies might be getting more aggressive in the marketplace around auto and home. So maybe you could step back and give us some perspective on sort of the competitive landscape as you see it today, both in our and home and across the country?

It does seem to be people looking for what's lurking around the corner. So let me talk about competition. We've always been in a highly competitive market in all of our products. So this is nothing new. Sometimes it changes as you point out, by state, sometimes it changes by company. But the way in which you compete is very broad, you understand is, first, you have to have a product that's differentiated you got to have to have an attractive price. You got to have a great brand, you got to have broad access. And you got advertising is a game of precision, scale these days. and transformative growth that Mario with who addresses all of those, right?

So we've been at this for a while. If you look by product then, and you say, okay, in auto insurance, -- we have 3 really aggressive competitors in the same 3 competitors for a while, Progressive, [indiscernible] and State Farm. Progressive, as you know, well, has been growing rapidly. [indiscernible] lost a couple of points of market share and Safe Farm picked up, but not quite that amount of market share gain. So volume tends to go. They just pointed out, there's a bunch of states where we think we're picking up share. So if you're over 4 points, there's not 4% more cars in the United States in total or in any of the states. So if you're over 4 points, you're picking up market share.

So we -- our transformative growth plan has helped us pick up market share. Homeowners is kind of same but a little different. -- because about half of the business is done by mutual. So as you point out, they have different profit requirements. That said, we've been able to grow that business. It's -- what we think is higher than market share with a fair amount of constraints on catastrophe losses and earn economic risks better than the industry by a large margin. So we feel really good about continuing to compete in auto insurance, continue to compete in home insurance. In fact, we think home insurance has more growth potential, we think we can dial up growth. And so Jeff and Mario may want to comment on these two.

So specialty lines, we also -- we don't talk much about it. and there some specialty lines insurers, which have valuations which seem relatively large compared to us. And yet when I look at our growth, our size, our scale, like where everybody is good in many ways better. And then in our protection plans business, that's also a highly competitive business. So we didn't get Walmart and Home Depot because we're no good. We got it because we compete on the things I was talking about. -- and Mario already talked about international, but maybe you just want to comment on what you're seeing at the ground level in auto and home and then in protection plans.

Yes, sure. So I think, Greg, where I would start is Mario covered transformative growth. And when I think about the competitive environment, I really go back to all of the efforts and investments we've made in transformative growth. So I think focusing on affordability, right? This isn't the first quarter we've been focused on affordability. It's in ASC, affordable, simple and connected. And we've rolled out significant number of states with that new product. We continue to drive down expenses and focus on claims, again, to lower cost, marketing sophistication makes us better able to compete in this environment. And then the broad platform that we have, the broadest platform in the industry, exclusive agents, independent agents and direct business allows us to compete differently in all the different product lines that Tom went through. .

So I feel good about the investment. And I think when you go through the lines, the results show that. So as Tom said, on Slide 11, we showed 6 states growing greater than 10%, 14% from 4% to 10%. So that's 20% -- or sorry, 20 states they are picking up share. We have 38 states growing in total and they make up about 70% of our premium. So in the auto line, we're showing proof that transformative growth works. If I flip to home, homeowners insurance is growing in 36 states. We've got ASC in 31 of those states, and we had some significant launches in the back half of the year, The reason that's important is we can better compete on a direct basis in homeowners when we have the ASG product. We see great traction, and I think we've proven that, that's a product that can be sold on a direct basis when we get ASC into the market.

So we're seeing very good trends in elevated production levels, particularly on the web and the homeowners line. And then as Tom said, it's good to give 1 of our specialty lines renters, some attention. We have, I think Mario mentioned 30 states in ASC the rents line is growing faster than auto and home. So we're picking up share and growing the rents line and we're doing it all at profitable levels. So it continues to run below target profitability. So as I look across those lines and there's other specialty lines we could talk about. But I think we're seeing the results of investing in transformative growth. We're seeing the results of the system working to help position us competitively to your question, to continue to win. So that's kind of my view of the property liability business.

Yes. And Greg, the only thing I'd add on protection plans. We've grown that to be a $2.3 billion business. And we've done it in a variety of ways. First, as Tom mentioned, it is a highly competitive business, both in terms of incumbents and new entrants into the market. But we've been able to leverage the capabilities at Allstate Protection Plans to add new partners, like Tom mentioned, with Home Depot and Walmart and a number of those logos that you saw on the slide that I covered, we've expanded into new categories and to appliances. and furniture. And so we've seen growth there.

And then we've been able to expand geographically. Our business in Europe is expanding rapidly with some very large mobile carriers and consumer electronic carriers as well within Europe and there's opportunity for us in Asia Pacific as well. So the playbook has been to continue to leverage capabilities, enhance our capabilities and use that to expand in a number of different ways in what is a very competitive market, and we've been really successful at doing that.

And our next question comes from the line of Yaron Kinar from Mizuho.

Just to remain the subject of PIF. -- for Autopia, does Slide 11 includes the decreases in the legacy insurance and Encompass policies? And when do you expect that drag to end?

Make sure I get the question. Are you talking about the overall numbers or the active branch numbers that would put?

I guess my question is, is Slide 11 just for active brands? Or does it also include the drag from the other is an Encompass policies?

Yes, Ron, this is Jess. It includes the inactive brands as well. So to the extent we're losing policies, that's reflected in this chart.

Yes. We hold ourselves accountable for total growth. We're not -- I mean, we do show the active brands because people found that interest in active brands up 3.3%. It -- but we should be accountable for our overall growth. .

Okay. And when do you expect that drag from the nonactive brands to attend?

That's not -- I would look at the chart just showed that showed by state. And the -- another question is how do we get some of those red states into the blue states. And we're working on all those. We've had some good movement in one state recently, but we still have a couple of other states that we need to make some change out. So it's less about the brands of shutting down those old brands as really part of TG cutting costs. if we just don't need all the technology, the separate advertising, I would cut all that stuff out, that's how we're getting expenses down.

And we try to roll some of that business into the Allstate brand. So I would really focus on it, Jon, from a state standpoint and say, how do we have those reds all become blue and shift the blue even further to the right. So we're picking up share everywhere.

The other thing that you can watch or on is the rollout of Custom 360, right? So when we roll -- in Custom 360 is in 36 states at the end of the year. And so as you watch us continue to roll that out, that as effectively, that's what replaces the Encompass brand. So that's something you can keep an eye on as well.

And then shifting gears back to the regulatory and legislative changes. I guess 1 question I have, and I don't know if it's something you've discussed with the relevant parties. Is a 2- or even 3-year look back to determine Access profitability too short of a time period?

I think it was by line, right? So homeowners would be a longer period of time because you have cases that go I guess, though my general reaction is I don't know what excess profits mean, right? Like so in the homeowners business, the industry loses money. And so legislatives or regulators want customers to pay less, having the insurance industry is total lose money is not the right way to go. That's the message you're trying to say. Like you can't ask companies think about more of their capital to support lower prices because that's not sustainable because they only have so much capital. .

And then you look at us and you say, well, we do better than the industry in profitability in homeowners. I don't think there's excess, I just think we're better. And so we have better products, better costs, better than -- and so I'm sort of not in the camp of people should be thinking about excess profits. I'm like, let's get cost down totally hear that. And the way to get costs down are to address cost because we're a cost plus industry not to go after what some people might perceive to be excess rents. It's a highly competitive market. We earn every dollar legitimately we make in homeowners because we're good at it. And our customers still get great value.

And our next question comes from the line of Rob Cox from Goldman Sachs.

So first question is just on new business penalty. -- think Allstate's mix of growth here is coming more from new business than on average historically. So I'm curious how the new business penalty has trended relative to your expectations -- and if we should expect margins to potentially normalize quicker than in past cycles because of all the new apps growth?

I'll make a couple of overall comments and then Jeff can jump in here. First, with the increasing pricing sophistication, you have, I would just say, in general, less new business penalty because you can be much more precise about what you charge people. So we're much more sophisticated pricing. That said, you do sometimes when you hit acquisition costs, you got to spend money and advertising to get people and it does cost more money to get a new customer than to keep a customer. And so it does -- there is some penalty there. It depends by the type of business you write.

So a lot of our growth in the last couple of years has been driven by expanding in the higher risk drivers or what's traditionally called no standard. -- business, and that has a smaller new business penalty because it's going to hang around less. So you're looking at it in terms of lifetime value of your cost. That said, we feel very comfortable we can grow with transformative growth, increased market share and still earn our attractive and target margins the system works like the math works to grow and handle whatever the new business penalty is whether that's nonstandard or standard. Jesse, anything you want to add to that?

No. I would just say that it's a state-by-state evaluation that we do are aware of both mix of business. As Tom said, the nonstandard or the high-risk business is priced to make money right away. So we can focus on mix of businesses we look at potential new business penalty -- you also have seen we've lowered ASC rates in 32 states, right? So we're managing overall profitability on a state-by-state basis, considering both target margins and what potential new business penalty we project out. But overall, I would say it's something that we're very focused on, again, at a granular state level. .

That makes sense. And then just a follow-up on specifically independent agent channel. I think -- so the growth in the IA channel new apps accelerated quarter-over-quarter, which is somewhat of a step change from historical seasonality from what we can tell. And you've got a number of factors improving growth, but I was hoping you could just walk through the primary drivers of the improvement in new apps, specifically within the IA channel.

I'll provide some overview, and then Jesse can jump in. First, I would say I wouldn't really look at the news by quarter by channel. I soon to take it up a minute and then Jeff can talk about what's going on in the future. So transformative growth was maintain the productivity of the Allstate agents, and we've done that. We're writing more new business through our outstate agents with fewer of them. So productivity is actually up we have dramatic growth in both direct and independent Asia Marand I were talking about -- I think we're right like 5x in direct what we used to write on it before we get started. So it's a 500% increase. direct -- and those are big numbers. It's not off like growing on policy.

And you can see that in the chart that Valio showed. The independent agent business, we also expanded quite rapidly. In part, there was, of course, because we bought National General because we were in the independent agent business, so we just weren't that good at it. So we bought them, they made us a lot better. We then expanded the nonstandard business by a number of states at that drove some growth. And there's lots of room to grow in the independent agent channel. [indiscernible] as mentioned, at 360. So that's the overview. What would you -- is there something specific that you think you want to talk about relative to the quarter or maybe the prospects for [indiscernible].

I would focus on the prospects. I think Specific to the quarter, we continue to see a really good balance across all distribution channels. So to your point in time, I don't think focusing on 1 quarterly trend is as important as overall production and the balance that we get EAA in direct. A lot of the growth in the independent agent channel has been the higher risk drivers or nonstandard. And we're continuing to focus as we look into 2026 and both rolling out the new Custom 360 product, but we're doing other things to make sure that we engage independent agents in the middle market standard and preferred segment, where we still believe there's a huge opportunity where we can compete with best-in-class products and engage them differently beyond just the high-risk drivers. And so I look at both the strength in production in Q4 is a positive, but I look forward to what we're doing in 2026 to continue to see growth in IA beyond the higher risk drivers segment. .

Maybe -- and this, I think, will tie together with Grace's comments and what Jeff just said and which is competition. But let's go down to a state level. Let's take State A. And Jesse has got a team working on that state A. And let's say that there's nobody that the exclusive agent competition doesn't really have much of a presence there. So we have -- we can hit hard on our exclusive agent presence, expanded and off we go. -- let's say that we want to then compete with [indiscernible] in that market, and we can ramp up our direct stuff. So we have -- and the same thing is true with independent agents. And once we broaden that portfolio to independent agents besides just being nonstandard and having what are more traditional mainstream Custom 360 products. So we have many ways to compete at an individual level with all the different carriers and nobody has all those levers. That doesn't mean we're going to win in every state doesn't mean everybody should go home. But it does mean we feel very comfortable about the balance of ways we have to compete from distribution, sophisticated pricing, really good advertising low expenses. We have plenty of ways we can grow. .

Our next question comes from the line of Bob Huang from Morgan Stanley.

I want to throw a little bit of a curve ball here. Autonomous driving -- it's been an increasingly more topical discussion. Just curious on you're seeing like your view on the pace of the technological development there and then how that could potentially impact personal auto, just from a -- like is it more of a threat? Is it more of an opportunity, how you're thinking about it, how you're positioning it? That's the first question.

So on autonomous driving, I would say it's a curveball we've been watching for about 15 years. And that's a good thing because we've been answered for 15 years. So we've been in telematics. We now have over 2 trillion miles of data you need that kind of data to be able to adjust to what autonomous driving can do and what different cars can do. So autonomous driving is, think of it as almost like safer driving. And so you have fully autonomous might be the safest because we take people completely out of it. But there are steps along the way.

So you're seeing that in declines in frequency -- and so whether that's the little light on the side or your side view mirror or that's the beef thing when you're backing up for the camera, there's lots of things that have impacted frequency. Now what they have also done though is increased severity because replacing other equipment is not cheap.

So as we've been modeling that out for 15 years, we've been watching it. We think there is potential that it will continue to get safer frequency go down. We'll see what happens in severity. I think eventually, we'll figure out how to engineer these cars to not be as expensive as they are today. But in all that case, we feel like there's -- as long as we're ahead in pricing, we're very sophisticated. We're involved in telematics. We're watching the data, and then we'll be fine. In terms of the pace of change, One of the things that's different about this technology change than some other technology changes. So if you go to like the software and AI and stuff like that, that can happen very rapidly. Here, you got $4 trillion in hardware, and you got a turnover there hardware. It doesn't mean the hardware can't be turned over.

It just takes $4 trillion as opposed to unplug this piece of software because I can use AI to program. So the pace of change will come but it's at a curveball pace where you can watch it so you can hit it.

Got it. Really appreciate that. So as long as the curveball you're seeing, hopefully, is a home rent. Maybe a follow-up on that severity points -- Yes, for sure. But maybe on that severity point, right? Like if I look at your slide on essentially like the cost split between physical damage injury and expenses, obviously, bodily injury is about 1/3 of that. If we're believers that autonomous is going to reduce frequency, on the point of severity, shouldn't theoretically we see an improvement in severity. So is it like pretty immediately? Like how do you think about the parts cost versus the bodily injury component of that?

Autonomous cars?

Yes, sir.

Yes. Okay. Yes, I just want to make sure I got the question right. Actually, the severity goes up because you have fewer small vendor vendors -- so you don't back into the pole when you're at the grocery store. And so you don't have 1,000. So that said, if you're going 75 miles an hour, the autonomous safe driving stuff doesn't really help much. So we've actually seen the bodily injury severity go up. It's a little hard to person to do, in fact, it's impossible to do attribution as to whether that's because people were driving faster.

We know that from our telematics data that people are driving faster so there's more severe actions. -- but we can't say how much of the 50-some percent was due to that versus how much is just due to the fact that attorneys are very aggressive in getting to anybody who's been in an accident for anything and saying, I can represent you and give you some money, it doesn't cost you anything. So most people buy that. we have to figure out how we control that cost, but I can't give you an attribution of how much was because of runaway toward cost and how much is just people going faster and driving some more severe accidents.

And our next question comes from the line of Elyse Greenspan from Wells Fargo.

My first question on -- I just wanted to start with capital. You guys announced a new buyback program. that's higher than the last authorization. So just trying to get a sense of is the priority now just to take excess capital and use it for share repurchase? Or are you -- is M&A, I guess, further down the list in terms of capital priorities right now? Just looking to get an update there?

The priority, at least -- sorry, I'm hearing it, the priority, at least would be to maximize the amount of money we create for shareholders from that capital. And first is just organic growth. So we look at capital like first, just start to grow auto home, get the multiple rerate that should drive the stock up just on the multiple rate forget the fact that you're earning more money on capital, and we're getting exceptionally high returns in the business as you could see. Will it always be and a 3 on it, No. But is it still way higher than the S&P 500 to 100%. So we feel very good about the organic growth in that driving business. .

Second, then we say, well, what are the things, where are we a better owner of a business. So when we bought SquareTrade, we were a better owner, and they were better for us when we bought National General, we were a better owner. So -- and that's where we're leveraging our skills, our capabilities. And then we say, okay, well, where are we in a we are long capital now? We think with the $4 billion share repurchase, we're still long capital. We have plenty of capital. We've always had a lot of capital. So -- and we feel like this is a way to give that cash back to shareholders so they can deploy it in a way that gives them the kind of returns we're able to get with somebody else.

If we think we can get higher than that, we will. But we also think the stock is so cheap that it's like a really good deal for those shareholders who want to hang with us. And you can increase your ownership and as John pointed out, we've helped people -- those people will stay with us to increase your ownership dramatically. Since I've been here, I think we've bought back over 80% this year. So we're happy that those people want to sell, then that's fine. Those who believe in the story, we think there's huge shareholder returns coming here.

And then my follow-up question, in auto, right, the average gross premiums written per policy turned negative in the fourth quarter. I know you guys have been being less price, right, but there's still been positive price running through the book, right, if I look at the disclosure in the supplement. So I'm just trying to tie those 2 figures? And then just more color on why that premiums written inflected negatively in the quarter.

It's a complicated piece of analysis to do. because you have both the rates you talked about. You also have the mix, the coverages, the state levels, -- and so if you look at what a nonstandard policy generates versus -- so it's complicated. But I think where you're going is what should you be thinking about in terms of profitability. -- we have the average premiums going down. And I would say, I would go back to the slide that Jeff showed, where we reduced prices this year by over $800 million in this year. We still earn great returns.

So we're focused on giving customers the most affordable price we can and still getting our target margins. We obviously had a combined ratio that was better than our target margin this year. So do I think that the combined ratio will drift up over time? Yes. And that's because we're going to grow faster.

And our next question comes from the line of Joshua Shanker from Bank of America.

Yes. Thank you. Also a super smart the first part of my question, but I wanted to go into the second part. One thought that I had is maybe premium per policy is coming down because of Allstate's flexibility and maybe people are buying down coverage, I want to know if that's true. And if that's true, does that help retention, which has been weak, and it doesn't seem to be necessarily getting better so far. I guess it's a bit complicated. Is there something to that effect going on?

Let me address a couple of points on maybe Jeff from I want to jump here. First, I would just -- and maybe this is defensive, but I wouldn't call a retention week. I would say, compared to some of the other companies and it's better. Other places, it's not as good. I like I'd like to have some other company's retention as well. But we are working our retention. You are correct in that price does impact retention, which is why we went back and did the SAFE program. And we'll do the same program again this year. We're very happy with these results.

We also have an effort coming up, which is to move people from what we would call our classic Allstate brand products, those pre affordable symbol connected and move them into affordable simple connected, which we think will also help us from a lifetime value retention. It might mess up the numbers a little bit because somebody shows up at a different stuff, but we are focused on trying to improve retention to that point. coverage does matter. We want our customers to have the right amount of coverage, not too little, not too much. The SAFE program helps us go back to and say, hey, what's different in your life. -- is your teenager no longer at home?

Do you have a different car, do you want to have a higher deductible. Do you need lower limits because of where you're at now in terms of financial position. So it does make a difference. But we -- so, for example, we have found in the direct channel in one particular state that high net worth people are still buying lower coverage because that's what they want. They can choose -- and we've had good growth in that. So coverage is a good tool, but you want to make sure you're serving the customer as well. anything...

I mean I would double down that the essence of save was to do exactly what you described, right? So it's to look at coverage is, look at available discounts. -- that's going to drive down average premium, but we're adjusting the risk and we're putting the policy terms what -- where it makes sense for our customers. And so a 7.8 million customers save more than 5%. They save on average of 17%, and that's through exactly what you're getting at. I think it's really, again, getting at the essence of what that program was meant to...

If we go back to where we will report on, so we just showed this slide of $800 million of reduction in premium and I know you all know this, but keep in mind that that's different than what we're doing rate increases, and we showed you the rate increases coming through. In this case, your loss costs were down some too. So it's not dollar for dollar that you lose that in bottom line...

So I want to -- you said that retention is good, and maybe it is, but I have a theory that I want to play out here. that we're not going back to the retentions of the pre-pandemic era that shopping behaviors have permanently changed because affordable and connected works so well that people can constantly change their price and change their coverages and that means go into different auto insurers. Are we in a new future where retentions are naturally going to be lower than they've been in the past? .

[indiscernible] is up and not everybody who shops switches, but shopping is up. So I would say, yes, you would expect to see retention. The -- and -- so I think that's true. The question is how many of them do you keep, and that's what happens in the industry. So building an ongoing connection. So the connected part should not be underlooked to save as part of being connected. So if you feel like you have a relationship, you're much less likely to shop. I would point out a couple of other things. One, while shopping is up, our new business is much bigger than that. which shows that our advertising and broad distribution are working in this competitive environment. So even though people have shop more, we got more places they can go. and we're more sophisticated about it. And I would just come back to 1 thing. I said retention wasn't weak. It's not as good as I wanted to be -- and that's a message for our team, less than you.

And our next question comes from the line of Michael Zaremski from BMO. .

I wanted to maybe focus on Slide 10. -- auto claims process improvements, which have clearly been supporting profitability in a big way. Maybe high level, -- you've been working on auto claim process improvements for many years now. Just trying to understand what base banning are we in AI, I'm sure, is helping it. Is it -- will the benefits -- are they -- is also more of a first mover? Or is it proprietary to you all? Are you using third parties and the industry will eventually catch up over time? Just trying to understand where we are on the journey.

So this is jesse. I would I would like the baseball gearings analogy. You have to pause on that 1 and figure out exactly where I would put us middle innings in the journey, certainly not early innings, but not done. I think there's a lot that -- and we have a large best-in-class claims organization that's really focused on the right things, as you could see on the page in the slide deck. That doesn't mean we fully implemented all of the AI-enabled technologies. It doesn't mean that we're not going to continue to focus on quality.

We have great leadership that is going to continue to sort of push along the journey of getting even better and lowering those costs. If I look competitively, you mentioned is that largely outsourced is something that others will catch up on. I don't believe it is. This is proprietary to Allstate. We're not leveraging third-party insights or technology. We obviously bring the outside in and we look at third-party trends to make decisions, but it's not like -- this is something someone else can pick up and buy from another vendor. This is our organization pushing for operational excellence, for claims quality and continuing to sort of focus on how we can be better each and every year. So I would put it middle innings with the later innings, probably being where you really see the benefit of artificial intelligence and the insights and tools that we can use to improve in the claims organization. Is that helpful?

Yes. I guess I'm just -- I guess I asked not trying to put feet because of the underlying loss ratio true-up. I guess some investors are saying it's too good to be true. But clearly, some of it's just -- you guys are doing a better job than others. So...

I think about claims in of -- claims kind of as a river of money. And at the top, you have us and at the bottoming of the customers, and we have to get them the money. So as it goes down the river lots of people dip into the river and like to take money out. So it's -- and it's constantly changing, like the banks are changing. So where the banks are and the rocks it goes over, and so you get a churn who are doing something new. You've got car companies who decide they want to give away the razor and sell the blade and sell their parts a lot higher. So you just -- you're constantly adapting. So I think Jesse is right here. This is like -- this is like the never-ending game, right?

You're doing it -- and the question is, is your team good? Do they have the processes? Do they have the data they have the measurement and the discipline to do what you need to do. And we're good at it. Did we have to get better at it because of what happened in the pandemic Yes. because when prices go up that rapidly, the old way in which you control the river, it has to be different. So I think it's just -- it's an ongoing thing. And so you're buying capabilities at claims as opposed to a specific set of processes.

That's helpful. And my follow-up, I think a slide for the deck talking about kind of what really could spend the needle on affordability. I think as an insurance specialists, we get it -- but I'm just -- the powers that don't always see the forest for the trees in the short run. So just curious, are there other potential legislative changes in certain states that if if things were enacted, and I'm sure you all in APCIAare in discussions with those folks. But if they were enacted, that could -- would change the course of your strategy or not just you all, but the industry in a material way? Or is this more kind of noise that ebbs and flows as now we're in a softer market and things should should ebb as affordability gets better?

Well, affordability is a real issue for every politician these days, whether they're talking about food or insurance we tend not to be on the highest order of what people think about in terms of affordability there. But it is important to them, and it has become more important as costs have gone up. I think the blow for freedom for consumers is to form it's just about time that -- and you're starting to see some states taken on states that I would have said 10 years ago, we're more controlled by the plaintiff bar than they appear to be today. And I gave the example of Florida, great moves. I like what they're doing in Louisiana. George is doing some things. .

Politicians are smart, like they know how to do it. And so if they're looking at the same chart, they're going to say, okay, my voters want cheaper insurance how am I going to get it for them. And they might not think about a 10-year cycle, but they're certainly going to think about a 4- or 5-year cycle. And this is 1 where it can make a difference really fast.

And our next question comes from the line of David Motemaden from Evercore ISI.

Just a question on Slide 11. -- sort of on just New York and New Jersey, where that fits into these different buckets here in terms of how much I think those were a drag. I'm assuming those are still a drag. I'm wondering how much? And then also, I think last quarter, you had mentioned considering opening up underwriting guidelines there further. -- even without getting the new product approved? I'm wondering where you guys are at there.

I'll make an overall comment. Jesse can talk about it's going out in New Jersey, New York, First, we don't identify our problem children or do we do performance from the valuations in public. So we're not going to call out like which states are in which category. And we also don't necessarily want to let our competitors know where we're not growing as well. But -- that said, those are 2 states, which we've talked about before, you're correct that we need to move to more growth. Do you want to talk about what's going on in New Jersey and New York?

Yes. I think the headline in both states is we're making money in those states, which is a good thing, not growing, but we're making money on that as a step 1. We have, as you mentioned, loosened up some of our underwriting restrictions. But the key to getting back to growth in both New York and New Jersey is new product approvals, specifically our affordable, simple and connected product, which will allow us to really open up the best product in market I can give back to growth.

On the plus side, New Jersey, we recently got approval for implementation of the ASC product, ASC Auto product in February. So we're going to be with the new product in market. Now that takes some time, obviously, to get momentum, but that's a very positive sign in the state of New Jersey. New York, we're waiting for approval for the ASC products. So we'll be a little bit slower. We're hopeful that we see that relatively soon. We're actively engaged with the department and answering questions, but that's going to be critical to us getting back to a growth trajectory in the state of New York. So we're working hard with the regulators to get our products approved so we can get the best solutions to customers. And in the meantime, we are back to making profit in those states. So that's kind of where they're at.

So first, thank you for spending time with us. We're going to keep creating value for both our customers and our shareholders. It's a combination of an aggressive growth strategy and great operational execution. So we'll talk to export. .

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

All right. Well, I think we're at time here. So very happy to be joined on stage by Tom Wilson, CEO of Allstate. I think Tom is going to walk us through the company for a little bit, and then we'll have a discussion. So thanks for joining us. Tom?

Thank you. Good morning, everybody. Thank you for investing your time in Allstate. Let me begin with your usual surgeon general warning. So we're going to use forward-looking statements. We use non-GAAP measures. So just think of these remarks in the context of all the different stuff we do. We give you 10-Ks, we give you 10-Qs. We give you all kinds of risk factors. So just as we're talking, make sure you have those in your head.

I thought what I would do is cover 4 topics to set the context for our conversation on. First, will Property-Liability margins stay attractive? Two, what's Allstate's strategy to grow the Property-Liability business? Third, how is Allstate addressing artificial intelligence and how will we create additional shareholder value. So I'm going to kind of go over the 3 tops on those. We can dig into any of those that you want.

Let's begin by reviewing Allstate's strategy and our recent performance. So we have 2 parts of our strategy, which is shown on the left, increase personal Property-Liability market share and expand protection offerings to customers. Our results over the last 12 months have been very strong, as you can see that on the right.

Property-Liability premiums increased to $56.8 billion, which is up 8.2% from the past -- prior 12 months. Net investment income was $3.4 billion, an 18% increase. Net income was $8.3 billion, up over 100% from the prior 12 months. Adjusted net income was $7.6 billion, a 72.8% increase from the prior 12 months. Return on equity was 34.7%. Total shareholder return was a little over 15%, yet Allstate's price earnings ratio is 7.4%, substantially below the overall market or similar risk or investment alternatives.

Now of course, it's impossible to determine, you could pay lots of money to determine why the price earnings ratio is where it is. But it could be a concern about returns or growth in auto and home insurance business, which is why I was going to address those 2 issues.

So let's look at historical results to assess the sustainability of attractive returns in Property-Liability business. So the personal Property-Liability business, it's over $0.5 trillion in premiums for auto home and some other property-related stuff with a large number of competitors. So think of it as a big giant market, lots of people in the market.

Industry profitability shows that auto insurance offers attractive returns for companies with scale, but homeowners is more challenging for most companies. Allstate's earned attractive results from both of those products. The top graph shows auto insurance returns for the last 10 years ending in 2024, so it doesn't include this year. The green line approximates the combined ratio needed to earn a 15% return on capital.

So as you can see, Allstate at 97.1% is below the line as our Progressive and GEICO, while the industry has operated at lower margins for the last decade. Not in these numbers is Allstate's current combined ratio of 86.4% for the 9 months of this year.

So a low price earnings ratio may reflect the view that earnings decline from this year's 34.7% return on equity. And that may be true. Historically, however, the thing to think about is Allstate's demonstrated an ability to generate attractive returns from auto insurance no matter what the situation is. And this includes the pandemic where we went from making money to losing money, which are better than the industry and in line with the best performers.

In homeowners' insurance, Allstate also earns attractive returns, while competitors struggle as shown in the bottom part of the slide. The graph is set up the same. Allstate's combined ratio of 92.3% generates attractive returns, much better than even the large, sophisticated customers, their companies.

Let's go to growth by discussing our transformative growth plan, which is to increase Property-Liability market share, and we initiated that in 2019. At the time, Allstate had 9.3% of the auto insurance market as shown on the left, which has increased to 10.2%. Progressive and State Farm also increased share, while GEICO and the smaller carriers have lost share.

Allstate's homeowners' insurance share was 8%, which has also increased, while maintaining attractive returns we saw on the last slide. These gains reflect early results from the transformative growth initiative.

So transformative growth is a comprehensive 5-component plan to increase market share. Customers are very price sensitive in our products, so offering a more competitive price will increase growth. As a result, costs were reduced so that prices could be lowered, while maintaining attractive returns.

Distribution was also expanded since 2019, most of our business in that year was sourced through Allstate agents. New products that are affordable, simple and connected were launched to differentiate customer value. And then if you do that, you got to let people know and you got to let them know in a sophisticated way. So we increased our investment in sophisticated marketing, which leverages all 3 of those. So -- and that also required a new technology ecosystem.

So significant progress has been made in improving Allstate's go-to-market model. Costs have been reduced by eliminating outsourcing and digitizing work, using less real estate and aligning distribution expenses with what customers want to pay for. So we reduced the expense ratio by 6.7 points since 2018.

Allstate branded products are sold at a lower cost than those sold through agents, so same brand, just the same product, just different price, and it reflects the lower cost of direct. Distribution was expanded by acquiring National General, increasing our presence in the independent agency market. We increased direct sales using the Allstate brand rather than advertising the Esurance brand. At the same time, Allstate agent productivity was increased.

New products have also then increased growth. National General, we expanded that nonstandard auto insurance offering for higher-risk drivers. New Allstate brand auto and home insurance products are now available in 42 and 24 states, respectively.

And just as National General helped expand Allstate's space in the nonstandard higher-risk drivers, Allstate's capabilities are being used to expand the standard auto and homeowners' insurance offering to independent agents. So we have a new Custom360 product for auto and homeowners insurance, and that's in 34 states. Marketing sophistication and investments have also increased, reaching $2.2 billion in the last 12 months versus $900 million in 2019.

So as you can see in the pie charts that on the bottom, Allstate now has a very broad distribution platform. Personal lines business is spread almost evenly between Allstate agents, independent agents and directly through call centers or over the web. On the bottom right set of pie charts, you can see that this has increased auto insurance new business from 3.6 million items in 2019 to 8.5 million over the last 12 months, which is 2.5x -- 2.4x higher.

So this enhanced model is beginning to deliver growth in different states with attractive returns. So the left-hand side is a map of which shows 38 states where auto grew -- Allstate grew auto and home insurance policies in force through the third quarter of 2025. The right-hand slide shows auto and homeowners' growth policies in force for the third quarter of 2024 compared to the prior year.

So in the top 15 growth states, auto insurance policies grew 8.8%, home insurance policies grew 11.3% and the combined auto and home insurance policies grew at 9.5%. In the top 21 growth states, auto insurance policies grew 7.5% and home insurance policies grew 8.8%. So these states represent 31% of the countrywide policies in force. Sadly, those -- that's not 100% because when you look at the countrywide numbers, it was more modest with auto insurance growth at 1.3% and homeowners' insurance at 2.1%.

The difference is because policy in force growth was negatively impacted by declines in California, New York and New Jersey, where we took action to improve profitability. Those states are now generating underwriting income and present an opportunity for us to grow in those states as well.

In addition, shutting down the Esurance and Encompass brands, which is about reducing costs, concentrating marketing dollars had a negative impact on retention. Some of that though is likely captured in the higher new business.

Let's move on to artificial intelligence. So this -- the technology architecture that we put in place for transformative growth really turns out to be a foundation to build Allstate's large language intelligent ecosystem, which we call ALLIE. But there's really a couple of forms of artificial intelligence. One is generative AI, and it simplified our billing explanations. It codes software. It improves e-mail communications, and it completes actuarial and financial work. So we're well along the way in using it there.

The next frontier really is agentic AI, which will enable us to reimagine customer value. And that's -- this is where agents are talking to agents, not Allstate agents, but computer agents. And we're designing an 8-component system to lower cost, improve customer service, broaden relationships, enhance analytics and improve our claims operations. So ALLIE will position us for continued growth in the Property-Liability market share and is going to enable us to expand the protection we provide to customers.

In summary then, Allstate increases shareholder value in a number of different ways, generate attractive returns, organic market share growth, broadening our protection services, applying our investment expertise and strategic capital utilization. So we're positioned to continue to drive sustainable growth and attractive returns for shareholders.

With that, let's go wherever you want to go, Rob?

Awesome. I don't know, what do I -- that I just leave this up. I guess maybe I'll...

Why not leave it up. You can keep -- keep the message up there.

All right. Thanks, Tom, for that overview. Yes, how do we dive right in? So we're 6 years into transformative growth, as you mentioned, growing policies fairly evenly in all 3 channels and it's at strong levels. Do you think 2026 sort of solidifies this upward trend in market share? Or does competition that you discussed make that a little bit harder?

First, I think our policy growth should go up in 2026 from 2025 for a variety of reasons we can dig into. But yes, that will go up. Competition has increased in some places, particularly in auto insurance. It bounces around a little more in homeowner insurance. And it's, I would say, a completely different field in specialty lines, so motorcycles, boats. And I think we have the opportunity to grow a lot faster in that space as well.

Okay. And like on this competition front, I think there's a lot of discussion out there on the battle for market share being pretty intense in auto. Can you give us a sense of how you would benchmark this period relative to other periods from a competition perspective? And how does Allstate's positioning in this market differ from past cycles?

I would say auto insurance has always been pretty competitive for the last decade at least, so that -- if you look at the profitability. So I feel highly confident we can continue to make money and grow in this competitive environment. How is the market different now than it was -- maybe do pre-pandemic. That's -- so it's an easier place to put in my mind where it is.

There are some companies that have further developed their model and are pushing more aggressively to grow in auto insurance now, and that would largely be Progressive and State Farm. GEICO, as you saw, dropped market share. I think what happened with GEICO is they -- and I'm not there, so I can't tell you for sure. But I think what happened was they wrote a bunch of bad business pre-pandemic. They got into the pandemic, and they said, this is not a good plan. And so they shed a whole bunch of business. They're trying to reboot themselves.

But -- we'll see how good and sophisticated the writing plans are to get there. So they've been trying a bunch of different things, trying to get into independent agents for a while, they tried their own agents. So they're clearly feeling some limits on growth by having just one channel.

I think the difference between us now and is part of what we talked about is we have -- any channel you want to be in, we can grow. So independent agents, I think we have great growth opportunity there, particularly in standard auto and homeowners. That's a great homeowners market. They have about half the homeowners business.

And so we should be able to -- as we roll out our Custom360, given our scale in auto and our expertise in home, we should be able to take on the independent agent competitors in that channel. In the direct space, you have really 2 big competitors we compete with, which are Progressive and GEICO. Our capabilities are so much better now than they were pre-pandemic, whether that's how tight our marketing is to our leads to -- leads to our closing. So I'm feeling good about continuing to increase that.

The Allstate agents, we repositioned them since pre-pandemic. So they now -- we used to have 10,000. We now have 6,000, and we're selling more business, which is a good thing because it's lower cost. We have more motivated, more driven agents. And so I'm feeling good about that.

I think there's still more to do in the Allstate agent channel because even with generative AI, we can make them more effective and more -- lower cost. So we still have some work to do there. Our competitors don't seem to be hunting there. I mean the nationwide kind of got out of the captive space. State Farm is the biggest competitor. So on the distribution channel, I feel very well positioned.

From a marketing standpoint, getting rid of the Esurance brand and moving it and starting selling everything under the Allstate brand, but not getting hung up on -- I never really like the word channel conflict. I'm like, it's like what you manage. Like I don't know, it's conflict. And people don't want an agent, they don't have to pay for an agent, and that's the way it works at Allstate.

They want to buy Allstate direct at 7% cheaper than if you buy it through an Allstate agent. For price-sensitive people that enables us to grow. So I feel like in the marketing customer value piece, we're good. The one piece that I'm sure it's on your mind, Rob, which is on growth is retention, which has changed a lot.

Yes. Yes, I want to dive in on retention as well. I mean it seems like with new business growing in all 3 channels pretty strongly, retention sort of becomes the key to growth. And how do you see that trending going forward? And maybe more specifically, do you think the exclusive agent policy base is more defensible in a high shopping environment like we're in today?

The answer to the second question is yes. But let me maybe go way up for a second here on retention. So retention has been coming down for the last 5 years. So retention, of course, is how many customers you have left that you got, and you'd like to have that be higher because you spend a bunch of money getting them. And it's come down.

And it's hard to do attribution on exactly what drove it. But of course, one of the things that when you raise your prices in auto insurance by 35% to 40% over a relatively short period of time, people like, hey, that's expensive. I should look around and see other people. As people shop more, then companies advertise more, including us. So as I said, we're over $2 billion. And so that's kind of self-reinforcing. So higher prices, higher shopping, people get used to shopping, they see more ads.

So what we've seen is that as the price increases moderate or go away, that you get back some of the retention. So the retention goes down when you raise a price, and you don't raise price for a while, it starts to go back up. It's not going back up to where it used to be, but it's going back up. Now that may be because people are just used to shopping more, maybe ease of shopping, but it's going -- so we get some bump in individual states just by not taking a bunch of price increases.

Our growth plans are not based on a dramatic increase in retention to old levels. our growth plans are based on just holding retention where it is today. And we're doing a bunch of things around that because if part of it is permanent, you need to do something else.

And so obviously, the first thing you do is raise value for customers. One of the ways we've been raising value for customers, this year, we had a goal of going out to 10 million customers, reducing their price, and that's the price they pay by more than 5% because when we took the price increases, we did it quickly, and we weren't as sophisticated as we could have been in doing it because we said, okay, here's a deal. We can do it in a less sophisticated way, and we can do it fast and losing money or we can do it in a really sophisticated way and take a longer time.

We chose door one. Now we're going back in and through door 2. And so we won't get to the 10 million this year, particularly in homeowners. It's a little harder to do. But we're -- it's millions of customers, and the number is a lot bigger than 5% that we've been able to save them. That includes things like raising their deductible, changing their limits. There's just a bunch of things we can do to help show more value.

That obviously leads to higher retention because people are happier. And there's a whole bunch of other things we can do, whether that's first-time retention. So your retention -- when somebody renews 7 or 8 times with you, they're pretty much locked in. They kind of -- they've made the choice enough times to say, I kind of like you. So you got to focus on different pieces of it. So it's really about a math of sophistication and operational execution game to drive retention up. And I feel like to the extent those work, that's upside to our growth.

And so how do some of these larger states, I noticed in your presentation, you've got some of these larger states that you talked about, New York, New Jersey, they've seen some pressured growth trends. What's the sort of state of the market in terms of growth and profitability in some of those larger states? And what's the time line for improvements there?

Yes. So let me first -- when we show those, that's not our excuse slide that you don't my dog at the homework because our job is to grow in all those states. So we start there. And we show it only to help you see what we believe to be true, which is transform growth is working in an extremely positive way at the state level.

In those 3 states, California, I think California is pretty much fixed right now from our standpoint from a growth in auto insurance, not true in homeowners. New York and New Jersey are still a little farther back. So our price increases in those states were more towards the end of '24 and in this year. And so you still have that retention decline this year.

That said, we need to figure out how to grow in those states. We're back to being profitable. I think a big challenge there, always strikes me as odd that we would like to roll out our affordable, simple and connected product. It's got higher close rates. It's a better product. It's better -- more sophisticated pricing. It's really a good product. We don't show you attribution on how much that drove growth, but it's good. And we don't have those in New York and New Jersey. For some reason, regulators have this view that they don't want to prove a new product for people. I'm like, well, that's a better product. It seems like kind of what your job is. So we're working on that one.

Any idea on the time line?

No. I mean, no -- New York, I mean I love your state, but they're not the fastest in approving insurance stuff.

Let me just go to homeowners for a second because we -- I think it's almost like auto insurance becomes such a magnet because you can compare us to like Progressive and other stuff. And homeowners is also a huge growth opportunity for us. We sat back a little bit on growth in the last couple of years on homeowners because we were fixing the auto insurance profitability thing. And we had enough to do there, and I didn't want to then take on additional risk.

But we're really good at homeowners. The market was really bad in 2024. It got better in terms of availability to customers in '25. That said, everybody is still not making enough money, and we are. And so that's an area where we ought to be able to just continue to expand quite aggressively there.

And then we didn't really talk about in terms of growing policies in force. Our share in motorcycles, boats go on the list of what are called kind of specialty lines is small and -- from our standpoint, and we should be able to dramatically grow this. So we're focused on not just auto, but also home and specialty lines.

And how does auto and home bundling fit into that equation? I think you guys have had some success there. What's been some of the trends with the bundling.

Well, I want to come -- we didn't -- I didn't touch on your -- give you really the question on the Allstate agent other than a yes or no.

So when customers buy more things from you, they stay around longer, your retention is higher, you can spread your acquisition costs over more products. And sometimes they buy more stuff from you because they like you, they were going to retain anyway. But in general, selling people more things really works for the economics.

And our Allstate agents are at record highs in bundling auto and home insurance. As we move into the independent agent channel, our plan is to use that wedge of homeowners and having a really good homeowners' product and not other people not having that to then work into bundling that. So that does work on retention.

I would point out, though, that retention is something you work at, you manage, but it's much more granular in the way you do that than just looking at the total numbers. So for example, one of the reasons, if you look at our retention, it went down is because we're selling a lot more high-risk nonstandard drivers. We tend to have lower retention.

I'd like our retention to be up higher there. It should be able to be higher there, but they're much more price sensitive because they pay a lot more money. So the fact that our retention goes down because we're selling more nonstandard, I'm not feeling badly about that. I'm like good, like to just keep selling more nonstandard because we're trying to grow market share.

And shifting to margins in the auto business, I think you've said broadly rate adequate. Do you think you can grow market share with stable or -- stable price increases? Or does this competition, you think result in more price decreases? I noticed at least one of those large competitors that you discussed is taking sort of bigger price decreases right now.

You talked about -- you must be talking about State Farm. So yes, I think we can keep making money. I mean we've done it over 10 years. It's not that much a different market. Like there seems to be this view that we're all going to like slice our own throats and not make any money.

If you look at Progressive is not in that mode, GEICO is not in that mode, as I talked about, I think GEICO actually got more religion coming through the pandemic. State Farm, they're a smart company. They may be slower to raise prices than other people, and they may run at higher combined ratios than we have, but we've been able to show we can grow and compete well with them. And they haven't changed -- like that's the way they've always been.

So I'm feeling good about it, yes. Will the combined ratio be in the 80s? No. But it doesn't have to be in the 80s, as I pointed out, for us to get a terrific return. So the way we maximize shareholder value is keep making the money, keep maintaining returns and then get growth up because that should not only generate more income, it should generate a higher PE.

And some of the inputs for that margin, the frequency and severity trends, what are you seeing in terms of those trends? And what are the primary upside and downside risks as you see those?

They vary in all the different product lines. So in auto insurance, in a broad brush way, frequency has been coming down for a long time, and it will probably keep coming down. Do we price for keep coming down? No. We price on what we've seen today. So you have a little bit of wind at your back in that in terms of making sure you have attractive margins.

In severity, our severities are up this year, less than inflation in our physical damage. Bodily injury is a little higher than that. And I think those trends will probably continue. Some of that is us getting better and some of that is just moderating cost.

What happens with tariffs, I don't know, like tariffs, maybe they're in the price, maybe they're not in the price, it could increase stuff. But whatever it is, we can adjust. Like it's not going to be so big that we won't be able to adjust.

In homeowners, frequency bounces around a lot. But I think sometimes people look at homeowners and it's -- what's really important is the mix, not overall frequency. So if you have 100 home policies and 10 of them have losses in 1 year and 11 have losses in next year, then it might actually be a good thing because if they're not like fires, then -- and it's like a window or something small happening. So the mix in homeowners insurance.

What I would say is in homeowner insurance is we've got a whole business model that works. That goes from the product we design to the pricing we do, and we're about to roll out a new set of pricing algorithms in homeowners, which we're already ahead of the industry will put us even further ahead of the industry.

For example, about half your losses come from the roof. And so you have to have good roof stuff. We have digital images of every roof in America. We can risk rate them and we can determine how to get the right specific price for that house. We don't have that on all of our policies. When we have it on all our policies, we'll be even more defensible in that margin.

Shifting to expenses. There's been meaningful reduction in the underlying expense ratio, and you talked about Allstate's new technology ecosystem. How should we think about the potential for further expense ratio improvements? And what does this new tech ecosystem allow you to do differently, particularly with artificial intelligence?

So on expenses, we're not done with the transform of growth up. So we're still not at the objectives we set for how much we could reduce costs in the Property-Liability business, and I'm going to call it in the -- let's call it the contemporary model.

So we still have to reduce our distribution costs, and we have some other expenses that we need to reduce, some service-related costs and stuff like that. So we're on that. It will take some time, another couple of years to get that done. But I feel good about that will happen.

When you then look at what can you do with AI, generative AI is already cutting costs for us. It's cheaper to pay a computer to code than it is a person. But I think the real win on that is when we built the technology for transformative growth, Zulfi, who's our Chief Technology Officer, put this architecture in place.

And when you talk to people about artificial intelligence, a lot of people complain about data. That's not our problem. We've got a lot of data. We've been using a lot of data, but the issue is we built what's called an orchestration layer. And that enables you to move from system to system, which you need to do agentic AI. So we've already built an orchestration layer. So that gives us the opportunity to build agentic AI where the computer can be deciding not only what do we pay for a lead and what do we bid on it, which we're already doing in subsecond response time, like that's just machine-based learning.

But it can be talking to the pricing position. It can figure out your competitive price position. It can figure out what's your likely retention. So I think it will make us even more sophisticated, which when you go back to that slide of market share, and you saw in auto and you'll see it in home soon, I think, as well, that the small players just won't be able to hunt, not because they won't be able to buy agentic agents. Somebody is going to create agentic agents just like we're doing, like we're doing one right now called customer engagement. And other people are going to build the same thing. It's not that complicated. But because we'll be able to link it to our data and link it to our systems, I think we'll continue to take share from the subscale players.

I think we got time for one more question. We'll end off on capital position. You highlighted in the 3Q slides, the company is now in a favorable capital position. What's the right balance between share repurchase, organic growth? And is there any appetite for M&A?

So we've always had a lot of capital. There was like one analyst who didn't think we did and some that got like went through the means. We've always had a lot of capital, and we're very sophisticated about it. So we obviously have more now. And when you -- last quarter, you're making $1 billion a month, it adds up pretty quickly.

And so how do we look at that? Well, first, we need to get our growth up. I mean, get organic growth up, use that for organic, whether that's auto insurance, home insurance, specialty lines at the kind of returns I showed, that will not only make us more money, as I said, that should also re-rate the PE because if you look at our PE relative to other people, whether even commercial lines companies who don't really grow that fast it's low, and it would be higher. So that's the first place you want to deploy your capital. That what you already do, that what you do well, that you know you're going to get returns on.

Other than that, it's always kind of just a jump ball for us, and we have done all of them. Since I've been at Allstate, I don't know we bought back, I don't know maybe 7 -- a huge percentage of our shares because if we don't have a use for the money, we buy shares back. If we do have use for the money, then we put it to work.

How might we put it to work? We bought National General. We paid $4.1 billion gross. That nets down to under $3 billion when you look at the stuff we sold off. It had maybe $4 billion of premium when we had it and it's got $11 billion today. I think it has been a home run, just a home run.

Same with SquareTrade when we bought that, it's 10x its size. And it was making no money. We paid $1.4 billion for it. Everybody who was mad at us and not everybody, but a few people. And it will make over $140 million this year and growing like crazy. So tell me you can buy a company at 10 PE.

So not everything we do works out. So I'm not pleased with our growth in the identity protection business. So I'm not telling you like we're perfect and we got it right. So we look at deals and we -- in terms of right now, like I don't really see us needing to buy anybody. Like we bought National General because we weren't any good in the independent agent business. And we need to be good in the independent agent business.

And right now, I think in the Property-Liability business, we're good. We've looked at the protection plans businesses. There was just recently a trade there. And we just don't think that was that good a company. Like if we're a better owner or it can make us better, then we're interested. If we're not a better owner, then we're not interested. And if it doesn't really do much for us, then we don't buy it. So right now, we're just going to grow. If we need to buy back shares because we have excess capital, then we'll do that.

Awesome. Well, thanks for the time.

Thank you, Rob. Appreciate it. Thanks.

Good day, and thank you for standing by. Welcome to Allstate's Third Quarter Earnings Investor Call. [Operator Instructions] 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, Allister Gobin, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone. Welcome to Allstate's Third Quarter 2025 Earnings Call. Yesterday, following the close of the market, we issued our news release and investor supplement, filed our 10-Q and have posted a related materials on our website at allstateinvestors.com. Today, our management team will discuss how Allstate is creating shareholder value. Then we will open the line for your questions.

As noted on the first slide of the presentation, our discussion will include non-GAAP measures for which there are reconciliations are provided in the news release and investor supplement. We will also make forward-looking statements about Allstate's operations. Actual results may differ materially from those statements, so please refer to our 2024 10-K and other public filings for more information on potential risks.

And now I'll turn it over to Tom.

Good morning. Thank you for investing time in Allstate today. Let's start with Slide 2. Allstate's strategy has 2 components, which are shown on the left, increased personal profit liability market share and expand protection provided to customers. Our strong operating results in the third quarter are shown on the right. So revenues increased to $17.3 billion. Policies in force increased to $209.5 million as we broadened our protection offerings and grow the property liability business. Net income was $3.7 billion. Adjusted net income was [indiscernible] or $11.17 per share, and that resulted from a number of [indiscernible] strong profitability results, modest catastrophe losses, higher investment income and favorable insurance basis -- insurance reserve releases.

The return on equity for the last 12 months was 34.7%. The drivers behind these outstanding results include operational excellence, which is really good at protection. The transformative growth initiative is increasing profitable growth, enterprise risk and return management for investments creates additional value and then all of that just generates substantial capital. So let's [indiscernible] transformative growth and how that positions us for continued success to Slide 3.

Transformative growth is the initiative we started about 6 years ago and was designed to increase property liability market share. And it has 5 components and 5 phases and we're now in Phase 4, which is rolling out the new system. The price for protection is obviously critically important to customers, so we reduce costs so we can provide more value without impacting margins. We've reduced the expense ratio by 6.7 points, but we're not done yet. To increase market share, we also need to expand customer access by broadening distribution beyond Allstate agents. This year, auto insurance new business is evenly split between Allstate agents, independent agents and direct from the company, and all 3 channels have increased like we didn't get there by making one channel smaller.

Increasing customer value with new affordable and simple connection products has also been a driver of growth. And significant progress has also been in improving customer service. So we've improved over 46 million customer interactions this year and a high priority for us is to further expand the SAFE program for auto and home insurance customers, which has helped over 5 million customers reduced their premiums by more than 5%. These 4 elements require increased sophistication and investment in customer acquisition, and we're really good at that and the new technology ecosystem.

The new technology ecosystem enables us -- is going to enable us to use applied artificial intelligence, which is shown on Slide 4. This begins with generative AI, which helps improve the efficiency and effectiveness operations. I'd like to describe this as the head sneakers commercial. If you might remember, it's run faster, jump higher. It is quite a good thing. As you can see, there are many examples where that's adding value today. It's being used to simplify billing explanations for customers and reducing the number of billing inquiries we did. And the games operation, all the [indiscernible] e-mails are generated or reviewed by AI. 15% of our coding is done by AI, and it's also being implemented and used in actuarial financial work to reduce costs and accelerate our go-to-market strategies.

The next frontier is at the top of the slide, which is Genetic AI, and that holds even greater promise. It allows us to reimagine customer value across the entire business model. from the offerings, the service, the communications, how we make growth investments and how we settle claims. Now to make that a reality, we're designing and building Allstate's large language intelligent ecosystem or Al. We wanted to name it and personify because these agents are like employees is they're capable of reasoning and resolving test lower costs and improve the customer experience. Sally will position us for continued growth in market share and expansion of protection provided to customers.

Now Mario will cover the third quarter results in more detail.

Thanks, Tom. Let's turn to Slide 5 for an overview of third quarter results. Allstate's strong operating capabilities delivered profitable growth and excellent returns in the quarter and through the first 9 months of 2025. Total year-to-date revenues increased 5.8% from the prior year to $50.3 billion, driven by strong performance across the enterprise including property liability premiums that were up 6.1% in the third quarter and 7.4% for the first 9 months of the year, reflecting higher average premiums and policy in force growth. Protection Services profitably grew with premiums up 12.7% compared to the third quarter of 2024, driven by protection plans. Net investment income was $949 million in the third quarter, representing a 21.2% increase over the prior year quarter. Total policies in force grew to $209.5 million, an increase of 3.8% compared to the prior year quarter.

In the third quarter, net income was $3.7 billion, and through the first 9 months of 2025, net income applicable to common shareholders was $6.4 billion. Adjusted net income was $3 billion or $11.17 per diluted share in the third quarter, reflecting strong property liability underwriting profit and higher investment income. Adjusted net income return on equity was 34.7% over the last 12 months.

Moving to Slide 6. Let's discuss our objective of consistently delivering attractive risk-adjusted returns for shareholders. As a reminder, we manage profitability by line and by market. In auto insurance, we target a mid-90s reported combined ratio. Over the last decade, outside of the unprecedented inflationary period, the industry experienced following the COVID-19 pandemic Allstate has consistently achieved these targeted levels of profitability. We have responded quickly and decisively to periods of increased loss cost inflation like higher auto accident frequency in 2015 and 2016 and higher post-COVID severity. As a result, the combined ratio has averaged 94.9% over the last 10 years. The homeowners business is a competitive advantage for Allstate.

In homeowners insurance, we target a low 90s reported combined ratio and an underlying combined ratio in the low to mid-60s. We have a differentiated model with advanced risk selection, new products, pricing sophistication and efficient claims handling. While there can be short-term volatility associated with catastrophes, these capabilities have delivered sustained success, as you can see over the last 10 years with a recorded combined ratio of 92.3%.

Turning to Slide 7. Let's discuss Protection Services. The protection services business is comprised of 5 businesses: protection plans, auto dealer, roadside assistance, [indiscernible] and Identity Protection. It has 171 million policies in force generates $3.3 billion in revenue and had $211 million of income over the last 12 months. Policy growth was 4.4% over the prior year quarter, led by protection plans. Protection plans continues to expand both domestically and internationally, as you can see on the lower rate. Revenues increased by 15% over the prior year quarter with a 10% increase in domestic revenue and a 32% increase in international revenue. The business generated $34 million in adjusted net income this quarter, a decrease of $5 million from the prior year quarter due to increased claims. Year-to-date, however, earnings increased by 8% from 2024.

Now I'll turn it over to Jesse.

Thank you, Mario. Moving to Slide 8. You can see the impact of transformative growth execution on property liability growth. The map on the left side of the slide shows the 38 states, Allstate is growing [indiscernible] investments in expanded distribution, pricing sophistication, marketing and technology are generating [indiscernible] force growth in the auto and homeowners insurance businesses. To the right, we provide more detail by brand. We underwrite auto and homeowner seals business through Allstate agents and direct to consumers using the Allstate brand.

For higher-risk direct channel customers also use the direct auto brand, which we acquired with National General. We provided those same products in the independent agent channel using the National General brand. Collectively, these represent what we call our active brands in market. Auto policies in force and active brands increased 2.8% compared to the prior year quarter. National General and direct auto continued to grow at 12% and 22.9%, respectively, reflecting our capabilities in the nonstandard auto insurance market in both the direct and independent agent channels.

As part of transformative growth, we decided to sunset the Esurance brand and use the Allstate brand in both the exclusive agent and direct channels. In the independent agent channel, as the new National General Custom 360 product has made available, we stopped offering the Encompass policies for new business. While some customers of the inactive brands end up in new business of active brands, growth in the active brand shows the strength of those customer value propositions.

Homeowner's policies in force and active brands increased 3% compared to the prior year quarter. We continue to see steady growth in policies in force in the Allstate brand as Allstate agents continue to bundle at historically high rates, and we've delivered strong new business growth in the direct channel. Transformative Growth is delivering profitable policy growth.

Turning to Slide 9. Customer retention remains a key focus. On the left, you can see auto insurance shopping is at historically high levels. Through the first 9 months of the year, shopping activity across the industry has increased 9.3% compared to the same period in 2024, driven by higher advertising and industry-wide rate increases in 2022 and 2023. In this high shopping environment, Allstate is capturing a higher proportion of shoppers with new business increasing 26.2% for the same period in 2025 compared to 2024. Allstate's market share gains in nonstandard auto insurance, largely through the independent agent and direct channels also has a negative impact on overall retention, even though these policies are attractive economically.

To improve retention, we're lowering prices while maintaining attractive margins and reaching out to customers through the SAFE program. In addition, customers will be transitioned to our new auto and home insurance products, which have higher retention levels. Finally, product bundling is increasing, particularly through Allstate agents supporting deeper customer relationships. Increasing retention will be additive to growth created through higher increases in new business.

Now I'll turn it over to John.

Thanks, Jesse. Turning to Slide 10. Let's discuss how we proactively manage our investment portfolio to deliver meaningful shareholder value. This chart shows net investment income and portfolio growth over 5 years. Since Q1 2021, the portfolio's book value has increased by 39% from $23 billion. Since 2021, asset growth in part reflects the large increase in average auto and homeowners insurance. Growth in assets and higher yields have benefited that investment income. Net investment income for the last 12 months equates to $10 per share, up from less than $9 in 2021.

Moving to Slide 11. Let's discuss how Allstate takes a proactive approach to managing its investment portfolio within the context of overall enterprise risk and return. The table on the left illustrates how investment decisions consider enterprise factors and market conditions. The blue boxes indicate favorable conditions and orange boxes indicate unfavorable. For example, in 2022, the Property-Liability combined ratio was elevated in both macroeconomic and market dynamics were unfavorable.

We had adequate capital to handle this and decided to reduce the capital supporting investment risks. As you can see on the right-hand graph, this was implemented by lowering interest rate risk by reducing duration shown in the green line. This was a good decision because we then increased duration as rates increased in 2023 and 2024. The combination of these actions protected portfolio values as yields rose and then captured those higher yields to support higher income. We use the same approach to equity holdings, which were reduced in 2023 and 2024, primarily reflecting an outlook for higher inflation. By year-end 2024, when profitability was restored and economic and market dynamics were more favorable, we increased the economic capital allocation to investment risk and have slightly been adding growth exposure back to the portfolio.

Moving to Slide 12. The chart on the left shows the change in GAAP shareholders' equity from year-end 2024 to the end of the third quarter. At the end of 2024, shareholders' equity was $21.4 billion. Strong income, gains on the sale of voluntary benefits and group health businesses and an increase in unrealized net capital gains on investments further strengthened capital. This was partially offset by common share repurchases and dividends to shareholders. This year, Allstate has returned $1.6 billion to shareholders on a GAAP basis through common shareholder dividends and share repurchases. Overall, GAAP shareholders' equity increased to $27.5 billion as of the third quarter of 2025.

Over the last 12 months, adjusted net income return on equity was 34.7%. Increasing property liability market share at target levels will create additional shareholder value. In addition to growth initiatives, Allstate deploys capital through the investment portfolio, which generates attractive returns and provides a diversified source of income. Allstate has a long history of returning cash to shareholders through both dividends and share repurchases. Over the last 12 months, Allstate has returned $1.8 billion to shareholders which is 3.5% of the average market value of common equity. Over the last 5 years, $11.5 billion has been returned to shareholders, representing approximately 22% of common outstanding shares. Now let's move to questions.

[Operator Instructions] Our first question comes from the line of Robert Cox from Goldman Sachs.

So just the first question on capital. Obviously, a significant amount of capital generated this quarter, and you all stated in the presentation, you're in a favorable capital position. Can you just talk us through how you're thinking about holding company liquidity and how quickly we could see you guys normalize that level of deployable assets at the holdco?

Sure. Let me start off the top first. We have a very sophisticated way that we think, sophisticated in a way the way which we manage capital, so it's not as simple as sort of premium to surplus ratio and it served us well for a long period of time. And so we keep doing that and our assessment will be similar to yours, which is we have plenty of capital today. Let me -- the list of options are pretty straightforward as to what we could do with it. But let me maybe address your specific question they come up to the more contemporary assessment of what the options are as it relates to the holding company, we leave -- we put as much money as we can into the holding company because it's flexible. .

We can put it back into the insurance company if we want. We can use it for share repurchases. We use it to buy company. We can use it to do a variety of different things. So we prefer the flexibility to have it up in the holding company as opposed to in the insurance company. So the movements from one to another tend to be really related to where we are with our regulatory approvals on moving it and what the rules are and moving it up as opposed to, oh, we took money out of the insurance company because we thought we had enough down there. We've always had enough down there. We have plenty of capital there, so we're not worried about it. as it relates to the uses of capital, it's the same options that you all know.

But if you sort of said, well, where are we today and what would be the best uses for Obviously, with the kind of returns we're getting in our business, just growing that business and keeping investing in that business is a great return in a good way to go. To the extent we can further grow the business, we get the 2 for not only of higher income but earnings multiple rerate. So that's our key and primary focus. John talked about what we could do in investments and what we do with investments as to how to make extra return. So that's another option for us.

We obviously could buy other companies which leverage our skills and capabilities, whether that's National General SquareTrade, which were both terrific transactions. We still have some work to do on identity protection. But I feel confident. We'll see we have work to do to make that one be what it can be and it will get there. And then obviously, there's all kinds of things you can do with shareholders, there's dividends and share repurchases. John talked about that, too. We never held back on that, but we prioritize stuff where is the most return for shareholders.

Okay. Awesome. And then just on pricing. I appreciate that you guys back out the New York, New Jersey growth from your new PIF growth, which is very helpful. But just wondering if you could talk about where pricing was excluding New York and New Jersey? And maybe just more broadly, where you think pricing is headed into 2026?

Yes. So Robert, in terms of overall pricing, obviously, you can see how strong the margins are in auto insurance. So the rate need has certainly diminished. And I would say the book is broadly rate adequate at this point. In the quarter, we did implement some rates in New York and New Jersey that had approved earlier in the year but implemented in the quarter. So that shows up in what we show you in the supplement which is not a meaningfully high number, that was 0.6 points. So you take those 2 out and it gives you a real sense for how little rate is needed in the book. .

As we look at loss trends, the loss trends in pure premium look good. Our margins are strong. Frequency is a big contributor to that, and that's a bit of a wildcard. So as we think about 2026, what I'll tell you is we'll respond accordingly to whatever the trends are. That means they continue to be benign and the book doesn't need rate, and we won't take rate. But to the extent we see loss costs pick up, we're going to stay out ahead of it and target that mid-90s combined ratio that we've been able to achieve over the last decade.

And our next question comes from the line of Gregory Peters from Raymond James.

Well, good morning, everyone. So I'm going to start. First of all, in the slide deck on Page 4, you provided an interesting slide regarding our approach to artificial intelligence. I feel like there's probably a lot of information behind that slide. So when we've asked other companies, they've given us some ideas about what the tech budget looks like, how much is going to maintenance systems versus new initiatives. But when I look at the slide here, I guess what I'm particularly interested in is where are you in this life cycle? You introduced Ali. I'm just curious what that looks like when you get to a more complete phase and just additional color on what's going on and what your end goal is with the technology.

Let me start at the end [indiscernible], it's like a fancy. Let me start with the end and then come back into some of your questions. Not all of which we have answers to at this point. So be open and transparent by that. First, I think this technology has the opportunity to help us really reimagine the whole way we go to market and do a terrific job for our customers at a lower price with better service. And in fact, I believe it can help us add things that we don't currently do because they're too expensive. So not only will it help us reduce cost, I think it will help us improve the value position. Now that's easy to say and hard to do.

So what we're doing is working with generative AI, say, to do mostly get more effective and more efficient than what we currently do. So I'll give you an example of that on the list. But when somebody sues our customers, there's a bunch of work they have to do to keep our customers safe and not lose a bunch of money and includes things like reading a 900-page medical file that used to be done by doctors today that is done by a computer. So it's helping us be better and more effective and both reduce our just administrative costs for doing that, but also then presumably make us smarter and give us better decisions with humans in the loop.

The Agentic AI really is a chance to do it completely differently. So for example, how we communicate to you what mode of communication we use, what we communicate to you is dependent on who you are. and what your relationship with us has been and it's hard to put all their knowledge in the brain of one individual who's on a phone at that point in time. It's not that hard to put it in the hands of an agent which can process up with advanced computing power very quickly. So we believe there is -- throughout the whole business chain, there's ways in which we can do it. So we've come up with a plan to try to build Ali.

It's got just like we did transformative growth. It's got components in its phases. We're not ready to roll that out to everybody because we're in the, what I would call, design and build space. But it's our belief that the opportunity is so large that we should move quickly on this as opposed to wait to see if somebody else can develop it first. as it relates to cost, it's going to cost more, and we're just going to manage our way through it.

Well, thank you for that answer. I guess related to that, you talked about on retention on Slide 9, personalizing experiences. You also mentioned how your business mix is changing a little bit. how is technology going to help you improve your retention? And when I read this bullet point is personalizing experiences, to me, that sounds more labor intensive, not less labor-intensive?

I actually think it's -- to do it well, it will be less labor intensive -- so the computer can help you do it. Today, for example, if you get on our Webstep, we have 3 offerings that we give you good, better, best, we could -- it's possible with technology to help figure out exactly what should Greg's offers be. Today, it's not done that way, but it could be done that way. So I believe there's plenty of opportunity to improve this. Retention, I would say, retention, we have just other things we can work on. I mean, Jesse can give you some sense of what we're doing on retention because that's -- I would say that's not really Ali. Ali is really redoing the whole business model. Retention is something we just need to work on each and every day.

Yes, Greg. So it's Jesse. We are very focused, as I said in the presentation on SAFE program and reaching out in the point of customization to make sure that we're providing customers with the opportunity to tailor their coverage and save money. And as you saw, we saved more significant number of customers more than 5%, and that's going and looking for opportunities for discounts like Easy Pay or paid in full, encouraging customers to use telematics and truly tailor their coverage options to best meet their needs.

And so I think technology allows us to do that and to better reach out and identify where customers have needs and where opportunities exist for us to save them money, which naturally improves retention. So I think that we're continuing to focus on what we can do to increase value for our customers relates to lowering prices and enhancing experiences.

And our next question comes from the line of Andrew Kligerman from TD Cowen.

My first question is around the exclusive agent channel within all state brands. And I'm wondering how that has progressed in terms of agent count and retention year-to-date. How has that played out? And how do you see that playing out over the next couple of years?

Andrew, it's a good question. Let me give you an overview of where we've come from or 2, and I'll give Mario an opportunity to talk about where we are going. So when we start transforming to growth, we had over 10,000 Allstate agents. And today, we have 6,000. We are writing more business today than we were then. So productivity is way up. And that's not just because we're doing more advertising, you're actually doing a terrific job of leaning into this. And the team we have in place is doing great work.

They're also extremely good at bundling auto and home, which builds in sustainability. So we feel like there were some questions from some shareholders and analysts when we get started on what will happen with the Allstate agents. We think the Allstate agent network is strong today than it was then. And we've added independent agent and direct response and expanded that. So we're feeling good about where we are. Mario can talk about where we're going.

Yes. I think, Andrew, I would plus up what Tom said in terms of the performance of the agency system. When you look at our production and the fact that it's pretty equally distributed across all 3 channels. The agency -- the Allstate agency channel is a core part of that. So this is not about not wanting to grow in that channel. We're very much interested in continuing to grow in the Allstate Agency channel and the productivity of the channel is off the charts and they continue to invest in their businesses.

In terms of where we go from here, number one, it will continue to be a key part of our strategy because we believe there's a significant percentage of people that are going to want to interact with a human on the other side. And in our case, that would be an Allstate exclusive agent. But we're going to ask our agents to continue to adapt going forward just as they've adapted over the last 5 or 6 years as we've implemented transformative growth with a real focus on continuing to build new relationships, which you see through productivity, but also to cultivate those relationships, leveraging the tools that Tom talked about with artificial intelligence and data and analytics to be able to engage with their customers more frequently to deepen relationships and sell a broader array of protection products and services going forward.

So Allstate agent key part of our growth strategy going forward. We will continue to expand their role going forward, and we're bullish on the future.

Got it. And my follow-up goes back to Slide 4. And it's certainly the transformative growth seems pretty awesome and Tom's comment that Ali is an opportunity so large that you don't want to wait to see if someone else can do it. And so my question is around if you could share this because I haven't seen slides like this with a number of your competitors. Where are you versus the competition? Is there any way that you can share a benchmark with us that kind of puts all state in one place and the large bulk of the competition elsewhere?

Nobody knows, really, I can't speak for where they're at here. I'm guessing most people are using generative AI. It's almost -- it's easy to do -- and so I'm sure even if it's not an organized program like Ali is, I'm sure our competitors are using that. I can't speak for what they're doing strategically to try to redo the business model. We've been working on this for a while. We kind of felt like now it's about time to start talking about what we're doing without going into specifics is nobody wants to give somebody else a road map as to how you're going to do it but -- so I'm guessing they're all good. .

We have competition. They're smart people, good companies. I'm sure they're working on it and do it. Everybody has different outcomes. I would say I was with a group of CEOs who were talking about the problems they have with data. In transformative growth the target state architecture that we put in place has a particular way in which we move and use data, and that's really set us up to do this. If you ask me didn't we know exactly that was going to work that way 5 or 6 years ago. No. Did we think it made sense? Yes. This technology follow the rules of logic? Yes. So like we couldn't have predicted that you're going to have a genetic AI, but we're really happy we have what we have.

And our next question comes from the line of Paul Newsome from Piper Sandler.

A couple of big picture questions I was hoping you could address. So the biggest pushback I get for Allstate is concerns from investors that competition is going to lower prices quickly in response to recent profitability and an Allstate is lowering prices and those will squeeze margins such that you're sort of at peak rings. Two-part question, I'll leave it at that. Could you just talk a bit about how you see the market dynamic evolving over time? Some guys have been through a number of years and seen a lot of history. And then relatedly, can you talk about how you sort of really think about the trade-off that you're talking about between pricing and PIF growth and mechanically, how you do it and why we can be confident that it's a good trade-off?

Let me go up for a minute, and then I'll come down your specific question around trade-off between -- maybe I'll start with good growth and economics. Well, first, we make money. So like we want to increase policies in force. We know that, that generates increased returns for shareholders. We know that it could lead to a re-rating of the PE but unless we're making money, we're not doing it, whether that's advertising or anything else. So we treat our shareholders' capital dearly, and we make money on it. Let me go to the overall competitive stuff. And I'll give you some observations just we're one team on the field and in the league, so I can give you some observations in there. And then I'll give you some specifics about our performance so it's already a highly competitive environment.

It's not like it's about to become a highly competitive environment. We're banging it out every day in the marketplace, whether that's competing for leads, getting the right pricing sophistication, doing our claims well, like it's a highly competitive market. And you can -- and my answer to the people who doubt it would be like, well, you can see how we've done in that market for the last decade. Can I predict every play is going to be -- we're not going to give up more than a yard.

No. But in the end, when you look at our combined ratios and the value we've created for shareholders in a bunch of different ways, we've done quite well. And when you look at the specific competitors, Progressive is a really strong competitor in auto. They have great capabilities. I expect on the space in auto. I think State Farm has picked up share in the last couple of years. They use their capital position to do that, which meets their objectives. So I think they achieved what they set out to do. They don't seem to be dialing up advertising as much as progressive, but that's anecdotal.

I don't have a set of effects from some TV watching service to prove that. [indiscernible] lost a couple of points of share because they have written a bunch of business prior to that, which was not profitable. So the decided to not have that business anymore. They turned on the old model, whether that works in the current competitive environment with the current set of defenses out in the field, it's not clear but I'm not saying it's not. It's just they seem to be turning on the model that they've used historically, which did able to pick up share. So I think they're on the field. Others, I think, are struggling to keep up. And so if you look at Allstate's performance, in that environment, and let's just make it contemporary.

Just showed you some numbers. Our new business is up higher than the shopping stuff. So we're able to compete there. and customer acquisition. And that's a highly competitive and sophisticated market like we're already working on some new plays for next year on what we're going to do in the lower funnel stuff. So that's highly competitive. Pricing and auto insurance were good. We continue to roll out new programs. We'll continue to roll out new programs retention, it's kind of flat over the way. It depends which channel and which risk category and set it's kind of flat over the last couple of quarters. We have an opportunity to increase that by competing for customers that are already in-house as opposed to going out and competing to get new customers. So that's a different kind of competition we're kind of competing against ourselves and their expectations.

If you move beyond auto insurance, we have lots of other ways to grow too. If you look at our homeowners insurance business, we believe it's picking up share because we don't think there's more than 3% new homes in the United States when you just look at PIF, and that's just a really strong business. If it was a stand-alone company, and I'm not suggesting it is, by the way, if it was standalone, people would be like racking about that business. Specialty lines, we got one of the best renters products in the market. We have some work to do on auto, on motorcycle and boats and [indiscernible]. That said, our share is below what it should be, so another place to grow.

If you go beyond that, the protection plans, we have a terrific position in embedded insurance in the retail channel in the United States, we're not taking that internationally. We struggled to find a way into the big cell carriers to get into a cell phone insurance. So we've been kind of fighting a way. That said, we're not going to give up. There's a way to find those customers. We haven't figured out how yet, but we're at -- so we have lots of ways to grow. There are some things we have that other people don't have. So if you look at our growth, just talking about growth in nonstandard share, we took the National General capabilities, and we put that into the Allstate Flow of business and you can see that we've picked up real share in the nonstandard auto customers. So we like that. Now what we do is have to flip that and take that same approach and pick up standard customers in the independent agent channel or standard auto and homeowners. We'll have to see whether we get that done, but we have plenty of ways to grow this.

And our next question comes from the line of Elyse Greenspan from Wells Fargo.

My first question is on auto retention. I was hoping to get some more color on how it's trended for just active brands. And we should think about retention in sliding up both for your active brands and just also on an overall basis?

Okay, Elyse. So it's a good way to split the question between active and inactive brands because some of those inactive brands the decline in retention is intentional because we want to move them from those brands to the other brands. Another thing that will impact retention is going forward, and Jesse can talk about some of the specific things we're doing, but we didn't really highlight a lot is I think just talking about moving people from classic to the ASC products would be some additional insight that you haven't given already.

Yes, absolutely. So in addition to what I mentioned earlier, Elyse, we are going through and we give our customers an opportunity to move into the affordable, simple and connected products. as we roll that out by state. You've seen how many states that we've rolled out for the ASC product, and we are able to have our agents and both in the call center and in the exclusive agencies reach out to customers and give them an opportunity to move into our most contemporary product with the most contemporary pricing. And we think that's a real opportunity to improve retention.

It does 2 things. One, it gives them an opportunity to save money it also allows agents to engage differently and add value and deepen the relationship by offering our best products. And so we will continue to implement that and move folks to our best and most contemporary products. in this quarter into the coming year. And we think that will have a real impact on retention.

And then my second question is just on capital. You guys -- I think it's building upon one of the earlier questions, right? There is excess parent you guys, given the strong results this year, right, did start to take dividends out of AIC in the quarter. I guess, given that, I mean, I was a little bit surprised on the buyback perhaps was it higher given that there's more capital at parent so if you could just help me think about just balancing the buyback versus, I guess, now having more excess at parent. And are you guys holding on to capital there for M&A? And if that's part of the answer, where would potential M&A transactions be concentrated?

So the share buyback program as an approved $1.5 billion and had a set time on it and we're just buying it back according to the period of time we had it in the amount. So there's nothing magic. It sounds like we have a good month. We decided we're going to buy more shares back to some of that because we've always had plenty of capital. Like when we put a $1.5 billion share repurchase program, that means we think we have more than $1.5 billion of additional capital.

So we don't set the target based on what we will earn we set the share buyback on what we have, factoring in that, maybe the future won't be as good as you think it is. So we've always felt great about that program. When that program is done, then we'll decide what we do with the next one, and that will be done sometime next year. And so that's still come. In terms of like what we use the money for, it's like organic and we're like on the open field. We find something we like to do. We do -- there is on the open field. We do know that trying to grow our Property-Liability business faster is the cleanest and best shot to improve shareholder value. Other than that, we just -- we make a decision when we get to that point in time. So we don't kind of like sequester it and hold stuff back. It's just it is what it is. And we're -- with this kind of return on equity, there's no harm no fall.

And our next question comes from the line of Vikram Gandhi from HSBC.

My first question is around the auto pit, where it appears that the growth was, to a large extent, driven by nonstandard customers. Just wondered if you had any updated thoughts on how we should be thinking about the longevity and more importantly, the profitability of this expense ratio and loss ratio impact from this cohort?

I don't think I can give you specific attribution to help you do a loss ratio or expense ratio forecast. I think the number just move around too much. What I can say is maybe the underlying question there it's all economic. Like we like the business. It doesn't last as long, but we make good money on it. We make good money on it relative to what it cost us to get it even though it has a shorter life. So we don't have a targeted only get this customer if they last for 7.2 years or something like that. .

We just said, can't we make money on this customer for the period of time they will have us. And so we like what we're doing with its all economic. It does because it has they shop more higher risk customers because they pay more. That's why they shop more is -- it does have a negative impact on retention, but that's not a negative economic impact. that's just a math problem in terms of trying to do the overall retention number.

Okay. That's really helpful. And the second question I had was really a simple one on commercial lines. It's something that we don't talk about quite often. But are we at a definitive inflection point? And can we comfortably say that the adverse prior year development is highly unlikely going forward? In short, have resorted most of the backlog issues?

Well, in commercial lines, in all our reserves actually by category, we think we're adequately reserved when we put the quarter up. Sometimes we get surprised. You're right. In Commercial Lines, we've had some negative surprises over the last couple of years. And we did this quarter. So we feel good about that. But we think we're always appropriately reserved. .

Our next question comes from the line of Bob Jian Huang from Morgan Stanley.

First question is revolving around Slide 11 where you provided some outlook in terms of various key metrics. But curious, is your view on inflation going forward. I think if we had this conversation 6 months ago, inflation and tariffs potentially would have been a larger topic. But just curious how you think about inflation as we go forward? Is it much more under control your view today? Do you think that will become -- evolving to a bigger problem? Just curious your thoughts on that.

Let me make some comments and then toss to John to give you his perspective. So inflation impacts many parts of our business, right? So there's inflation in what it costs to fix and repair car which is -- could be driven by tariffs, could not be driven by tariffs, all depends what happens there. there's inflation in finally injury costs, which is driven more by litigation environments, which if anybody wants to talk about Florida, have we talked about that at some point. .

The -- then there's inflation just in our operating expenses, what costs they have people and stuff. And then there's inflation, which has a large impact on our investment portfolio. So we think about it from an enterprise standpoint. So John can give you an answer as to how we think about inflation, where we are today relative to our risk and return profile.

Yes. Thanks, Bob. Great question. What I would say is let's start with the investment portfolio and the use of it. One of the takeaways from today's presentation is really how it complements the rest of the business and how we can use it as an additional tool to help balance out risk that we might be seeing across the business. And as you've seen, we've done that by adjusting our interest rate exposure, and that allows us to buffer other things that might be taking place, as Tom just mentioned. .

In terms of what's going on with inflation, let's take a market view right now. If you go back coming out of COVID, there was a lot of changes in supply chain, a lot of uncertainty you get into the beginning of this year, there are some changes in policies in Washington and that created a lot of uncertainty. What we've seen play out throughout this year is not that inflation is completely gone, but some of what we would call the left tail risk or the uncertainty associated with that is gone. Therefore, markets have calmed down a little bit.

We think it's a little bit more understood. This can be evidenced somewhat by even the posture of the Fed. The Fed has moved from a tightening cycle to an easing cycle. So they, too, are seeing more of a balance between growth and inflation. And we're acting accordingly. We've -- as you noted in the quarter, looking at the investment portfolio, we've extended duration a little bit. That's a sign that we think maybe some of the big increases in yields are over, and we can capture that additional income for the benefit of shareholders. But when people watch our eye on it, we just don't know for certain. This is a pretty big stone that was thrown in the pod, and you're not quite sure how all the ripples will play out. So we're watching it carefully. We've got a lot of monitors both on the underwriting side and the investment side, and we'll stay tuned.

Let me also jump into bodily injury inflation because I know some of our competitors have talked about changes there. And just let me give an example of talk about Florida. So we really applaud the political leadership in Florida for taking on an important issue that's a difficult issue, which is how do you lower suits against our customers for fender vendor accidents. And their courage is really helping Florida consumers say, billions of dollars a year. And we're happy, of course, because our customers are saving money, like we will charge them less, but we're very happy that the fact that they're having to pay less.

And at a time when voters are clearly voting with their pocket books. This is really a golden opportunity for other states lean in on that. You've seen Georgia recently picked up and joined the parade. So tort reform may seem arcane from an inflation standpoint but it has the potential to really help consumers deal with increased inflation and other stuff. So it's just a terrific way to help customers.

Great. I really appreciate that detailed answer. Staying on Slide 11, which by the way is a wonderful slide. If we think about just interest rate and the duration of your fixed income portfolio, right? It feels like kind of like in your prior remarks, you made a strategic move to increase that duration. As set fund potentially comes down more -- is there a need to move further to the higher duration part of your fixed income portfolio? Or do you feel that your current duration is pretty good? And then regardless of what the interest rate environment goes 5-year duration feels appropriate.

Let me just deal with one word and then let John pick up on that. There's never a need to do anything on one specific piece of the portfolio, this duration equity ownership or anything else but there's opportunity is the way we look at it as to how we scope resize the company. Do you want to talk about how you're looking forward?

Yes. Bob, again, I would look at the kind of the mosaic that you see on the left-hand side of the page. And these are the things that we will consider when that time comes. One of them is market posture, but there are a bunch of other things that we'll consider too in terms of what's ultimately in the best interest of the entire enterprise and our shareholders. I'll also focus a little bit on your word need I think sometimes people think when they think of insurance asset managers and portfolio management, there's a need to kind of chase yield in a portfolio. And we fundamentally look at it differently.

We're really trying to find the best economic overall return for our shareholders. And that doesn't always mean chasing having to maintain a certain book yield level in the portfolio. So we're going to look at all the things that we can do in the portfolio, whether it's public fixed income, private fixed income, public equity, private equity figure out at a point in time in concert with what's going on at the enterprise what's the best combination of actions to take to position the portfolio. And I think you've seen that play out over time as we move things around in response to all these factors.

When you look at competition, I would say we're unique in this way. And so one of the big firms comes in and does here's what everybody else has done. And here's what they've changed. And I think their comment was, if it wasn't for you guys, we wouldn't have to come in every year because no other people don't change that much, doesn't make us always right. It doesn't make us -- we're not a hedge fund or an ad that. We just look at it in total and say, how do you manage risk, you manage it for the whole enterprise.

And our next question comes from the line of David Motemaden from Evercore ISI.

I just had a question just how you guys are thinking about advertising spend. When I look at the efficiency of ad spend in the third quarter, it looks like it went down quite a bit, if I just am looking at new auto apps versus just dollars spent on advertising. So clearly, you guys are gaining your fair share of the shoppers out there, but just wondering how you're thinking about continuing to ramp that, especially as efficiency looks like it's declining a bit.

David, that's probably not the best measure of efficiency, I would say. So let me dissect that a little bit. So you have both upper funnel and lower funnel advertising. Upper funnel is really more as streaming TV, stuff like that where you're getting brand consideration. Our brand consideration is up substantially this year or significant and substantial, but it's -- and we like it. On the lower funnel, our efficiency is actually up this year versus last year. .

Last year in the fourth quarter, in particular, we were a little heavy and our efficiency dropped a little bit, but we're still liking. So I'm not sure exactly the math you're looking at, but we think our economic returns on advertising were terrific. We like them. They're up from last year. And that said, but as I mentioned earlier, this is a game. It's a highly analytical scale game, like you're buying leads in sub-seconds and making decisions, the computer is making a decision to do that. So we feel good about the system we have. That said, it's just like pricing in auto insurance, like every year, there's some new plan you got to do. And so we're working right now [indiscernible] team spent 4 hours yesterday working on a new plan to take it to add some new stuff to take to a new level.

Got it. Okay. Understood. And then just my follow-up. Where are we just in New York and New Jersey on the new product filing and maybe opening that up to new business. I think it's obviously -- you guys are putting through rate increases there implemented in the third quarter. So that's going to continue to work through the book. And I think you guys put through another increase in New Jersey. So you guys are obviously getting hit on that, but -- and I guess you guys are still not in the market for new business.

So I'm wondering, is there a point where you just say, hey, like we're just not going to wait for this new ASC product to get approved and just continue with our existing product and try to open up to new business?

I'll make a general comment and Mario can jump in on the specifics of where spanning right today, I would say we are hopeful that we hope that the regulators see that this is a better product for customers just like Florida took a stand to do something good for customers. We'd like to see New York and New Jersey take a stand for customers by improving it as opposed to thinking they're doing as some sort of favor. Mario?

Yes. So first thing, David, what I'd say is we're making money in both of the states. So we're generating underwriting profits both in New York and New Jersey. So that's a great place to start. And we've already gone beyond the point that you referenced. And we actually are writing some new business, not as much as we were, but we're not completely down in both of those states because we're not waiting for the ASC approval to open back up. We're going to continue to look at our risk appetite with our existing product it makes sense for us to open up underwriting guidelines even further. We'll do that.

Our agents are continuing to invest and their agencies to have capacity. And then we're hopeful that the approval of ASC will just take us to the next level. in terms of our ability to write even more in New York and New Jersey. But we started that process. It's obviously -- those 2 states are still a drag and you saw that on the slide to overall policy counts, but we're profitable, which is a much better position to the end. We are writing some new business, we'll evaluate if we can and should be running more. And then -- as Tom said, we will continue to work with the regulators of KASE approved and then open back up fully.

Thank you for your time this morning. We'll keep working on shareholder value by bringing change and being the best of what we do. We'll talk to you next quarter.

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

Thank you for standing by, and welcome to the Allstate Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Allister Gobin, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone. Welcome to Allstate's Second Quarter 2025 Earnings Call. Yesterday, following close with the market, we issued our news release and investor supplement, filed our 10-Q and posted related material on our website at allstateinvestors.com. Today, our management team will share perspective on our strategy and 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 the reconciliations are provided in the news release and investor supplement.

We will also make forward-looking statements about Allstate's operations. Actual results may differ materially from those statements, so please refer to our 2024 10-K and other public filings for more information on potential risks. And now I'll turn it over to Tom.

Good morning. Thank you for investing time in Allstate. We'll start with second quarter results and Allstate's strategy to create shareholder value. Then we'll have time to address your questions. So let's start with Slide 2. So Allstate's strategy has 2 components that's shown on the left, increased personal profit-liability market share and expand protection to provide to customers. On the top right is an overview of second quarter results. Revenues were $16.6 billion in the second quarter, a 5.8% increase compared to the second quarter of 2024. Total policies in force increased $208 million, it's 4.2% over the prior year and being led by Allstate Protection Plans.

Personal Property-Liability policies in force increased by 0.8 points. Net income was $2.1 billion, and adjusted net income was $1.6 billion or $5.94 per diluted share. Adjusted net income return on equity was 28.6% over the trailing 12 months. And we create shareholder value by delivering excellent operating results, you see up top, growing the personal property-liability business through the transformer growth strategy, expanding protection services and proactively investing our $77 billion portfolio. So let's go through those 3 points, starting on Slide 3.

Transformative growth has 5 phases, and we're now sadly in Phase 4 with progress on each of the 5 subcomponents. New Allstate branded auto insurance products, which are more affordable, simple and connected or being implemented. The new auto insurance product is available in 40 states, and we're rolling out the same type of product for homeowners and we're in 16 states now. New products are also available in the independent agent channel in 34 states, expanding our risk appetite National General strong nonstandard auto risk position. Underwriting expenses have been reduced, supporting more competitive pricing while maintaining margins. Increased sophistication of pricing plans and marketing programs have helped increase new business through expanded distribution. Claims processes have been enhanced following the pandemic-related inflation, which is helping us control claim severity.

And then our new technology systems have been employed, which position us to leverage advanced computing and large language miles. Customer access has also been significantly expanded, as you can see in the middle of the slide. New business is almost double 5 years ago, reaching 10.8 million policies over the last 12 months. This is the broadest distribution platform in the industry with new business spread almost evenly between Allstate agents, independent agents and directly through call centers or over the web. As you can see from the first set of pie charts on the left.

Total policies in force have increased to $37.7 million, reflecting the highly successful acquisition of National General and rapid growth in direct sales. The Property-Liability business is a terrific business with $56 billion of annual earned premiums in excellent underwriting results. Turning to Slide 4. Protection Services, while smaller, is still a really significant business with 170 million policies in force, $3.2 billion of revenue and $0.25 billion of income over the last 12 months. It's comprised of 5 businesses, protection plans, Auto dealer protection options, roadside assistance, arity and identity protection.

Revenues were $867 million in the quarter, which generated $60 million of income, most of which is from protection plans, which is described in the bottom section of the slide. Protection plan sells protection for consumer electronics, mobile devices, appliances and furniture. This protection is basically embedded in the sales processes of a broad group of exceptional distribution partners. Revenues increased by 16.6% over the prior year quarter, reflecting rapid growth in appliance protection over the last several years and success in expanding internationally. Adjusted net income was $51 million due to higher revenue moderating claims and support costs and operational efficiencies. Each of the Protection Services business has their own success story.

Parity, for example, as 2 trillion miles of driving data is now expanding its services to insurance companies and making inroads into mobility intelligence. Turning to Slide 5. Shareholder value is also created by proactively managing the $77 billion investment portfolio is really an integrated component of our enterprise risk return decision-making. Investment income was $754 million in the quarter, representing a total return of 1.4% for the quarter and 5.4% for the last 12 months. This diversified portfolio of fixed income and growth asset leverages top investment talent to deliver top quartile performance as shown in the table on the right.

The largest part of the portfolio is in fixed income securities, which provides consistent cash flow and high liquidity. Our strong credit skills and active management generated first and second quartile performance. We reduced the public equity holdings in the second quarter, given the increased risk of inflation due to the new trade policies and the impact of this becomes clear, we'll adjust that position. We also have strong results in the performance-based portfolio of private equity real estate investments, which is a combination of fund participation co-investments and direct transactions. The higher returns on these investments is more than attractive despite the greater variability in reported income. Now I'll pass it over to Mario.

Thanks, Tom. Let's take a look at second quarter property liability results on Slide 6. The Property Liability business delivered strong results, generating nearly $1.3 billion of underwriting income this quarter as average premium increases exceeded moderating costs. The combined ratio of 91.1% was a 10-point improvement from the prior year quarter, driven by improved underlying trends and $376 million of favorable prior year non-catastrophe reserve reestimates. Shifting to auto insurance on the top right. The combined ratio was 86% in the quarter, a 9.9 point improvement from the second quarter of 2024 due to improved frequency and moderating severity trends.

Over the past several quarters, we've seen the favorable impacts of our comprehensive auto insurance profit improvement plan in our financial results. Our auto book of business is now broadly profitable, including in previously profit challenged markets like California, New York and New Jersey, and we are focused on investing in profitably growing auto market share. Homeowners results are shown in the bottom right graph. Underlying margins remained strong in the homeowners business with an underlying combined ratio of 58.6%, but were offset by $1.6 billion in catastrophe losses, leading to a combined ratio of 102% in the quarter. While quarter-to-quarter results can be volatile in the homeowners business due to catastrophe losses, we continue to have strong conviction around our ability to grow homeowners and generate excellent long-term returns on capital as demonstrated by a combined ratio of approximately 92% over the past 10 years.

Allstate's homeowner capabilities represent a competitive advantage in the industry. Turning to Slide 7. Let's discuss growth trends in the Property-Liability business. In the chart to the left, you can see the composition of Allstate's $37.9 million property liability policies in force with growth results for the quarter, shown at the bottom of the chart. Auto insurance with 25.2 million policies in force shown in dark blue, accounts for 2/3 of total property-liability policies and year-over-year growth turned positive during the quarter ending the second quarter at plus 0.5% above prior year. The homeowners business accounts for approximately 20% or 7.6 million property-liability policies and continued to grow in the second quarter, increasing 2.3% relative to the prior year quarter. To the right, we provide more detail for auto and homeowners insurance growth rates by brand.

We underwrite auto and homeowners insurance business through Allstate agents and direct-to-consumer using the Allstate brand. For higher-risk direct channel customers, we also use the direct auto brand, which we acquired with National General. We provide those same products in the independent agent channel using the National General brand. Collectively, these represent what we call our active brands in market. Auto policies in force and active brands increased 2.4% compared to the prior year quarter. Allstate brand policies in force were negatively impacted by declines in New York and New Jersey, where we continue to focus on profit improvement as our primary operating objective.

Approval of pending requests for our new affordable, simple and connected auto insurance products in these states would open these markets for growth as margins have improved significantly over the course of 2025. Excluding New York and New Jersey, Allstate brand increased over the prior year quarter. National General and direct auto continued to grow at 11.3% and 22.8%, respectively, reflecting our strong capabilities in the nonstandard auto insurance market in both the direct and independent agency channels. As part of transformative growth, we decided to sunset the Esurance brand and use the Allstate brand in both the exclusive agent and direct channels. And as the new National General Custom 360 product is rolled out across states, we discontinued offering Encompass policies for new business.

The continued decline in policies in force in these 2 inactive brands has created a drag on auto and homeowners insurance growth rates. In homeowners insurance, we continue to see steady growth in policies in force in the Allstate brand as Allstate agents continue to bundle at historically high rates, and we deliver strong new business growth in the direct channel. Moving to Slide 8. Let's dive deeper into how expanded distribution generated a 21% increase in personal property liability in new business in the second quarter. Auto insurance new business in the middle of the chart increased by 24.8% over the prior year quarter and was distributed almost evenly across distribution channels.

New business was strong across all 3 channels as Allstate agents were more productive and both the direct and independent agent channels continued to deliver strong new business growth. Homeowners insurance new business growth was driven by the exclusive agent and direct distribution channels. Independent agent production declined as we focused on rate adequacy across a number of states, but we expect to resume homeowners expansion plans in rate adequate markets going forward in this channel.

While new business growth is encouraging, retention remains an essential focus to accelerate and sustain growth. We continue to execute our S.A.V.E. program to show Allstate customers value every day. Employees and Allstate agents are working to improve 25 million customer interactions this year, including proactively reaching out to customers to ensure that they have the right protection at the most affordable price. This program is designed to deliver an industry-leading customer experience, while enhancing affordability for our customers. We will continue to execute our transformative growth strategy and make investments in expanded distribution, pricing sophistication, marketing and technology, all focused on delivering sustainable and profitable market share growth. Now I'll turn it over to Jesse.

Thank you, Mario. Let's move to Slide 9 for an overview of how Allstate's capital management strategy creates shareholder value. Strong earnings resulted in an adjusted net income return on equity of 28.6% for the latest 12 months. We completed the divestitures of the employee voluntary benefits business on April 1 in the Group Health business on July 1 for a combined $3.25 billion. That represented a 25x multiple of the latest 12-month earnings for those businesses. The transactions position the businesses for success and allow us to reallocate capital to Allstate's strategic growth opportunities.

We continue to return capital to shareholders through share repurchases and dividends. In the past year, Allstate paid $1.1 billion of common and preferred shareholder dividends. Further, this year, the quarterly common stock dividend was increased 9% to $1 per share. We've also returned cash to shareholders by repurchasing $445 million of common stock in connection with the $1.5 billion share repurchase authorization we announced in February of this year. Let's wrap up on Slide 10. Allstate delivered excellent financial results in the second quarter. We're serving our growing customer base of 208 million policies in force with broad protection offerings under an exceptional brand with extensive distribution. Transformative growth execution is positioning Allstate for profitable personal property liability growth. Protection Services segment, led by Allstate Protection Plans continues to grow rapidly and broaden Allstate's customer base.

A proactive approach to managing the investment portfolio is aligned with enterprise risk and return objectives, and sound capital management will continue to deliver value for shareholders. Allstate remains committed to executing our strategy and is well positioned to grow property liability market share, expand protection for customers and deliver value for our shareholders. With that, let's open up the line for questions.

[Operator Instructions] Our first question comes from the line of Jimmy Bhullar from JPMorgan.

I had a couple of questions. First, just on PIF growth. Can you talk about the sort of potential tailwinds and headwinds for growth? I would assume that the inactive brands are going to continue to decline, although the impact of that on your overall results should diminish over the next few quarters? And then it seems like at some point, you'll be in a growth mode in New York, New Jersey, overall, you're not raising prices as much as you were. But just talk about sort of what the headwinds, tailwinds are to growth in personal auto pits so that 1 gets a better idea on where it's headed from the level in the last couple of quarters -- a couple of months.

Jimmy, let me start with the growth 1 a little higher level, and then I'll ask Mario to go into auto. So first, why do you want growth because we're in a clear percent return on equity, and they said you can deploy capital and then your PE goes up. And then you're like, okay, what kind of growth do you want? In the personal property liability business, we obviously have had huge growth in revenues, and that translates into not just higher absolute dollar earnings per share but it also translates into higher investment income, which you can see because the investment portfolio goes up. And then, of course, you also want to have PIF growth, as you point out. And there's PIF growth in homeowners, you see has been terrific, particularly when you take out the inactive brands.

And then Mario will talk about what we're doing in auto insurance, but we are completely committed to growth and believe that transformative growth is working today and we'll continue to build momentum there. Then you can go a little broader and say, well, how are we doing on growth in Protection & Services and you can see that's been a terrific growth story as well. So we have a variety of ways that we're focused on continuing to leverage our capital. Mario, you want to jump into auto insurance?

Yes. Thanks for the question, Jimmy. So maybe I'll start with the inactive brand comment you made, which is spot on as the business in those brands because we're not writing any new business in those brands, continues to decline, we would expect the rate of decline to diminish going forward. So I think you're exactly right on that one. Maybe I'll jump to the tailwinds. And I think Tom touched on all when he talked about transformative growth. I think all the components of transformative growth whether it's the new product offering with affordable Simple Connected, Custom 360 in the IA channel, new technology, higher and more sophisticated marketing, our broad distribution capabilities the improvements in competitive position. All the components of transformative growth have created tailwinds for us that are really generating significant amounts of new business, and we're going to continue to leverage and build on those capabilities going forward.

And then I'll end with New York and New Jersey. The punchline in those 2 states is we are now generating an underwriting profit, both in New York and New Jersey. We've been working closely with the 2 insurance departments over the last several years to get our rates to an adequate level, and we feel confident that we're at a point where we are rate adequate given the rates we've received approval for, including upcoming rates in New York that are going to be effective in August. So we feel good about the positioning. The last domino that we need to fall is we've made filings for our new affordable, simple and connected auto product in both of those states. As soon as we get regulatory approval, we think we can broaden our risk aperture a bit in those states and look to lean in and start to grow in those. So we're optimistic that, that will happen here in the second half of the year.

Okay. And then how do you think about the lifetime profitability of the business that you're putting on in independent agency and direct versus the captive business, which obviously wasn't growing in the past but was highly profitable. So I think last year, there are concerns that you weren't growing now, there are concerns you're making too much money and maybe the profitability of the newer growth is in a trade. But just talk about like sort of the margin profile of independent agency and direct that you're writing versus captive reasons.

Jimmy, I'll start, and then Mario might want to jump in as well. So everything we write, we like the right lifetime value. We have a very sophisticated analytical system, which looks at marketing costs, distribution expenses, lifetime value not just by channel, but by risk level, by expected retention. And so we feel really good about lifetime value. We have a really good, clean book.

Our next question comes from the line of Gregory Peters from Raymond James.

So I guess the first question, I'll focus on frequency and technology. Can you talk a little bit about the frequency trends. And one of the things that seems to be popping up more and more is embedded technology and accident avoidance technology that's specifically going into cars, and the longer-term consequences of autonomous driving? And just curious for your updated views on that.

Let me start and then Mario, maybe you can jump into current results on -- makes sense. Greg, so first, on autonomous driving, I think 15 years ago, 14 years ago, we did some scenario planning on autonomous driving and said what impact will it have on auto insurance. And the conclusions we came to then are still pretty much applicable today. It was that there is an engineering issue to be solved, but then there's also an economic issue to be sold. I believe the -- John Dugenske I would just out of Waymo, I believe the engineering problem has been solved. And that the economic issue is still in front of it.

Let's call 280 million cars in the United States that have a value of $1 trillion. And if you want to pick a whole system, you get a turnover that lot whole fleet. It will happen over time. Those economic barriers will come down. But in the meantime, what we've seen is -- what we thought would happen, which is that frequency kind of gradually comes down as the fleet turns over, but the cost of repairing cars goes up as those cars get more expensive when side view mirrors are worth $1,000 now instead of $200 because they got those little flashers on them. So you've seen that play out. We think that will be a continued trend.

That's 1 of the reasons why we are leaning in heavily into Arity and telematics, which is as cars get connected, not only will it change how often they get an accident and how much cost is fixed, but it will help improve the overall efficiency of the personal transportation system. And while we don't talk much about it from a strategy standpoint, we believe that we've got great optionality with Arity to leverage it. Mario, do you want to talk about current frequency because Greg might be also like just current results.

Yes. Sure. Thanks, Greg, for the question. So look, I think broadly on frequency, what we and the industry have experienced really over the last, call it, 6 quarters or so is kind of the continuation of maybe the trend prior to COVID of this downward trend in auto frequency. Obviously, there was a lot of noise during COVID and post COVID as driving behavior shift around quite a bit. But we're seeing favorable frequency and it's driven by the kind of things Tom talked about from a technology perspective, whether it's blind spot monitoring, lane departure warnings, other advanced safety features that are in vehicles that I think are showing up in improved auto frequency for the industry.

The other data point I'd use is as we look at our Arity, Telematics data, over the last year or so. We've seen miles per operator drop around 3% or so, which is likely also contributing to favorability and frequency. But favorable frequency is certainly a component of the loss cost trend that we've seen. And you saw in the supplement pure premium is down almost 3% year-over-year. That's mainly favorable frequency kind of partially offset with higher severity and particularly in the injury coverages, but favorable frequency trends that have persisted over a long period of time.

I'm going to pivot for my follow-up question to the reinsurance program. You put up some details on how the reinsurance structure has challenged this year. And you didn't really talk about it during your prepared remarks, but probably we're covering -- it looks like you have more limit this year versus last year. Maybe you can just walk us through some of the decisions and how the program looks this year versus last year?

I'll let Jesse go through that. I would just point out that this -- we look at reinsurance really is a source of capital. And so when Jesse is managing capital, whether that's we use preferred instead of common or we're using debt or any other source of capital reinsurance is just a way for us to get capital.

Yes. Thanks for the question, Greg. I think -- so a couple of things. One reminder, as you pointed out, we do post a relatively robust supplement that everyone can go through to understand the program. I won't go through each and every detail. What we did add was some scenarios so that you can understand better how the reinsurance programs all work together in the event that there's a catastrophe. As Tom said, though, the reinsurance program and what we ended up placing is always rooted in our economic capital framework and risk and return decision-making that allows us to migrate risk on both a prudent and aggregate basis. So if I take it to the highest level, and again, I won't go through all of the individual components, our total catastrophe reinsurance limit that we purchased this year across all programs was just over $11 billion. That's up $2 billion from last year, and we saw about a 10% risk-adjusted decrease in the cost. So that's a very good outcome. We got more coverage for less on a risk-adjusted basis.

And we had really good support from both the reinsurance and catastrophe bond markets. And that demonstrates really the strength of our program. Our renewal placement process began just after the L.A. wildfires, literally while they were being extinguished, and we still had strong support from, again, both traditional reinsurers and the cat bond partners that we work with to place the program. And so we renewed -- during the most recent period, we did renew the Florida program, and we did add some aggregate limit on U.S. homeowners. And I think you probably saw that we added 325 million of women on an aggregate basis.

So if you think of the overall program, we now have million of cat ag limit that's placed, about $58 million, to be clear, has already been utilized for expected recoveries, but that leaves us with $767 million of remaining aggregate limit on top of are very robust per occurrence. So that's, I think, a high-level summary of what we did, the changes that we made. And really, again, just going back to all of these placements are done through a risk and return lens that we understand, as Tom noted, how are we effectively using this alternative capital source to lower our capital requirements and manage risk.

And our next question comes from the line of Rob Cox from Goldman Sachs.

This is Jack on for Rob. I guess looking at the strong exclusive growth that is kind of supporting the auto PIF growth there. As you look at that strong exclusive agency growth kind of over the past 4 quarters, has that really been driven by either bundling, increased entrepreneurial efforts on the agent store? Are you seeing any shift in customer preferences towards maybe the force versus IA or direct?

Yes, Rob, this is Mario Rizzo. I'll jump in on that question. So just to give you more context, again, with respect to our transformative growth strategy and the Allstate exclusive agent channel. We've been on a multiyear transformation journey with our agents, where we're looking to drive an increased level of productivity in the agency channel and reduce distribution costs and really focus agents on delivering value that consumers want with a relationship with a local agent. And we've been really successful as we've executed on that strategy. We've segmented agents in the different tiers, depending on performance, we provide support. Depending on those tiers, we've made a number of changes to the compensation program over time, and we've been working on delivering tools to our agents that enable them to live into -- so what customers really value, as I said, with an agent relationship.

The net result of that is when you look back over the last several years, we have fewer total agents but our agents are as productive as they've ever been, and you see that once again this quarter with productivity increases up over 20%. And our agents continue to invest in their small businesses. And as we do things like invest more in marketing and roll out new products and deliver new technology, all the things we talked about with transformative growth, it's showing up as more -- a more productive agency system and higher levels of new business. And we're going to continue to leverage those capabilities. Our objective function is to grow across all channels. We think there's certainly more opportunity just given the composition of our book in the direct and the independent agent channels, but that doesn't mean we're going to deemphasize the Allstate Agency channel. We're going to look to continue to grow the way that customers want us to grow in any way that they want to engage with us.

Got it. And then a quick question on the Canadian business. Appears recently announced it was exiting Canada, highlighting some verticalized distribution of the top market shareholders, could you guys just provide us some insight on the performance of your Canadian business? And any updates on kind of your long-term view of that market?

We like Canada. We think we can win there. I can't speak for what people are doing what they're doing. Everyone's got their own idiosyncratic issues, but we expect to win in Canada.

Our next question comes from the line of David Motemaden from Evercore ISI.

The pace of monthly auto PIF growth, if I just look at a number of units added that slowed a bit over the course of the second quarter, still positive, but it slowed a bit. I was wondering if you could just discuss some of the moving pieces there. Seasonality, anything else that's impacting that? And how we should think about the cadence as we get into the back half of the year?

David, I don't think we could -- I know we can't give you an answer on a monthly number that would give you confidence in how to make judgments for July, August, September or kind of stuff. I would go up a level and say, let's just look at transformative growth and is transform working. Mario went through that. It has 5 components to it. We're -5 phases. We're clearly in the middle of Phase I and all the underlying assumptions we thought were true turned out to be true, and we're actually executing on them. Just because you say you're going to build a new tech ecosystem doesn't mean it's going to work? And just could you say you can improve the effectiveness and invest more in marketing, doesn't mean it work.

And we've proven and done all that. So we feel highly confident that the growth trajectory will keep going up. But I think looking at it by month, I don't think it's going to tell you much different things happen, different programs happen. We're rolling out different ups, different states happen, people application. I just -- I would just be giving you anecdotal information, which wouldn't really help you forecast.

Got it. Helpful. I appreciate that. And then just maybe for my follow-up, just on the inactive brands within the auto business, could you just remind me when that process started of not writing new business and that drag, I think inactive brands are a little under 5% of the PIF count now in auto. I guess how's longer until we really start lapping those headwinds just sort of level setting that?

I'll let Mario talk about maybe the future. I mean I don't think we're not going to do forecast by insurance policies and stuff because we've got a customer, we'd like to keep the customer. We sometimes offer alternatives inside the house. But I'll just go back here. When we started transforming growth, it was a little over 5 years ago. One of the things we said was, we're spending $200 million, $250 million a year on the Esurance brand to sell to direct customers. And we said -- and when we started that, GEICO was spending maybe I don't know, maybe it was $750 million, $1 billion. So we had a chance to develop a second brand that would be for a direct. That was 2011. Over time, they progressively kept driving up their spending. And so we get to 2019, and we're like, you know what, like we could keep pouring money at Esurance, so we're never going to have the brand offset hand. So let's get rid of the Esurance brand. Let's take that increment of money that's still behind the Allstate brand, not sell Allstate Brand Direct, which we had not done aggressively at that point.

And let's sell it at a lower price than we sell to Allstate agents. So you can buy Allstate branded, ASC product direct over the web at 7% to 8% cheaper than you would buy to an agent. And that's because when you buy it through a nation, you get to help them an agent. And if you get out, you should be prepared to pay for it. So that was the concept behind what we did. Encompass was slightly different. Encompass was we wanted to have a stronger platform in independent agent business. National General had a platform. It was built on non-standard insurance, but it had a good tech platform and so we went to nonstandard, and we said, look, we're not as successful we want to be in the IA channel. So we have to decide whether we're in or out with Encompass. We've decided to sell Encompass.

There's only 1 difference is we want to buy you first and then we're going to give Encompass to you and you're going to fold it into your business and drive growth. And that has been incredibly successful as well. So those were the -- that was the logic behind it. Mario, do you want to talk about sort of maybe it's like the recent efforts that are going on.

Yes. And maybe I'll break up Esurance and Encompass separately because I think there's 2 different stories there. So we really, over the last couple of years, have stopped selling new business in Esurance, and what you see as that brand runs off is natural attrition and policies but also in a number of states. As Tom mentioned, we're looking to proactively offer Esurance customers a different policy and sometimes that's effective, sometimes it's not, but that's really both contributing to what's happening in Esurance, and that will continue to run off over time.

With Encompass, as we roll out the Custom 360 product, which is now in 34 states, once that product is in market, we shut off the Encompass brand for new business. And we also shut off what I would call the legacy National General middle market brand so -- and only write custom 360. So again, once we're in a state with custom 360, it essentially becomes a renewal book that attrits over time. So that's the approach we're taking. And as those books get smaller, the impact should diminish.

Yes. It's a really good point. If you look at the slide on the inactive brands, and you look at homeowners, you'll see that impact on National General homeowners is down because specifically what Mario said, which is we get a much better product with Custom 360. We're really good at home orders. We know we can grow aggressively in that channel, but you see National General is down because we're doing that transition still.

And our next question comes from the line of Bob Jian Huang from Morgan Stanley.

So maybe the first 1 on competitive environment. And this is something we kind of anecdotally addressed, but as you grow in this environment, it feels like more and more competitors are in that call it, 80s and 90s combined ratio for personal auto and then everyone is talking about pivoting to growth. Just curious how you think about just new business, retention, ad spending efficiency as we head into this environment where more and more folks are ready to fight with you.

Well, first, let me just -- I think the summary would be we think we're extremely well positioned to grow and earn attractive returns for our shareholders, given what we know with the business. So that's -- and obviously, we have some competitors who are tougher competitors than others, but we feel competent to be able to address all of those and win. So we say, "Well, why do you say that?" Well, look at our distribution. We've got the broadest distribution and we can go direct, we can go independent agent and we go to all says. And as Mario talked about, the productivity and performance in those -- we're feeling really good about the ability for those business deliver. Why are they delivering? Well, because we have good prices, and we've got good new products.

So they're not just out selling it because they like us, they're selling it because it makes sense for them. And so we've got -- that's improving customer value, whether that was reducing our expenses to make sure we could have more competitive prices and still maintain margins, as you point out, because we don't believe that just cutting price to grow makes sense. Now we have reduced prices in some states, and maybe Mario want to talk about that, given where margins are but we don't think that's going to take us to a place where we're writing bad business. We have high standards is how we did. The last piece I would leave you with is from an advertising standpoint, we've done quite well on that, and that's also fueling our growth.

Yes. The other thing I'd add, Bob -- well, just to close out the question, Bob, as we think about the growth investments we're making -- have been making and we'll be making going forward, we tend to focus a lot on the marketing investment because it is so important. But Tom mentioned rate adjustments now that we've been in market with the new affordable simple connected product and with Custom 360, we go back and continually refine prices as we get more data, and we've improved pricing in a number of states in those products. Those are investments that help drive growth, we continue to refine underwriting guidelines and standards, as our profitability has improved. And again, those show up as investments in the business.

And then we're doing a number of things on retention. I talked about during the prepared remarks, our S.A.V.E. program and how critically important retention is we would expect, given that the book is well priced and margins are strong, less need for rate going forward, which will certainly help. But we're doing things proactively with both employees and the Allstate agents to proactively reach out to customers and improve retention. So we're really -- it's kind of a surround sound approach to drive growth going forward.

Okay. My second question, it's a little bit more hypothetical. Earlier in the year, there were about 7 states that are considering increasing speed limit and then New York is 1 of those states Obviously, you've talked about achieving profitability in New York State. Just curious about as we think about increasing speed limiting interstate highways from 65 to 70, will that have an impact on your frequency or severity especially given that you just recently achieved profitability in New York. Like how should we think about that? Does that matter at all? Just kind of curious.

Well, of course, the first thing we want to do is make sure your customers are safe. And so if the public sector side, they want to increase the speed limit for whatever reason as it is, that's the way it happens. You obviously don't prospectively price and say, because the speed level went from 65 to 70, we're going to raise prices. I would just say I'm incredibly comfortable with the precision, with the data we have to be able to price accurately for every individual customer. That's where this is really heading, whether that's telematics, other data we have on people. It's really about giving the right price for each individual person.

And we're well down that path. So whether it's -- it changes in the public sector in that, whether it's autonomous driving or whether it's increased competition, we're really good, and it doesn't mean that any of it is going to get easier or we're not going to have these kind of issues. I would just say we're getting better all the time.

And our next question comes from the line of Mike Zaremski from BMO.

A question specifically on the direct-to-consumer strategy in personal lines. Do you expect that engine to be very different or much larger over time? I'm kind of thinking kind of macro level? And if yes, would that lead to a higher advertising expense or meaningfully higher advertising expense? Or just kind of -- I know you guys had explained like there's different funnels and terminology, I don't know as much, but it would be more of a shift in terms of the type of advertising spend.

Good question, Mike. On Direct, it will be as big as many people want to buy from it. So I would say that like that's the way we're positioned. If you want to buy direct from us or over the web, we got it. If you want to buy from an independent agent, who represents multiple companies because you don't really know or trust insurance companies or you want to buy direct from us through our agents because you want help, but you believe in the Allstate brand, we're there in all different ways. You see the -- I think it will grow as part of the book just because when you look at the new business. So it's 1/3 of new business, but it's less than 1/3 of the current policy. So over time, you would expect to see that shift as we grow overall market share. So I'm feeling very good about that.

As it relates to advertising, I know a couple of people brought this up in their write-ups last night. So let me maybe go into advertising for a second because I think it's important. It's 1 of the 5 components of transform growth. So remember, 1 of them was increased sophistication and investment in customer acquisition. That's all about marketing. And we've done. We both increased our sophistication and we've increased our investment. I think there's a little bit of confusion when you looked at the numbers, was it down? Was it up? When you look for the 6 -- first 6 months of this year, we're spending more money in marketing.

And I can tell you that the economics of that spending are really good, and they're better than they were last year because we were more sophisticated and our brand consideration is higher. So we like that part of it. But it doesn't work just -- in your point, it's interesting because it doesn't just work with that. Two other parts of transform growth or expand customer access, that's called distribution and improve customer value. So expand distribution, you see it and what we've got with 1/3 of the business coming through each of those 3 channels. So that's clearly working. So you do more advertising. It gets more directed, that direct advertising also helps in the Allstate Asian channel. And then improve customer value is really about the cost reduction we've taken, some of which show up in the Esurance and Encompass piece, but also what we've done with the new ASC products.

So the marketing pieces working the other piece. And so when you look at the breadth of that we feel highly confident that the overall total will grow and it will grow the way customers want to buy. You want Allstate agent, we got that. We want to go through an -- agent, we're there for you. You want to buy direct. And we'll take as much of the market we can get and we still got about 90% of the market to go capture. So I'm not worried about -- any of those.

That's helpful. My follow-up is on more home insurance specifically. Based on kind of data we continue to see, it looks like competitors, mostly independent agency competitors are trying to play catch up to your results and tweaking their terms and conditions, et cetera. I'm just -- I'm curious, you -- are you -- do you agree that there's just kind of the wins that you're back because of the competitive environment more so than it has been historically as the industry has been pivoting? Or has that state been kind of not true? And the growth -- the healthy growth that you've seen over the last year, acceleration has just kind of been due to other items?

Let me make 3 overall comments that Mario fill in the details. One, we are really, really good at home owners. Two, I think the competitive environment has gotten -- people have gotten in that are trying to follow us. But three, we are getting better every day and we don't expect our competitive advantage to diminish as we go forward, even though other people are doing some of the things that we did 5 or 7 years ago.

Yes, Mike, the only thing I'd add is, I think if you look back 12, 18 months, there were -- there was less competition, I would say, in the homeowner market. I think the market has gotten a bit more competitive recently, but all the capabilities that Tom mentioned are the reason we never backed away from the homeowner market and stayed and we were able to take advantage of the competitive environment. And I think it's those same capabilities that position us to continue to be able to grow in homeowners and grow effectively. And when you look at the things that we're delivering to really build on the strength that we have in homeowners, our new affordable, simple and connected homeowner product, which is in 16 states is another step forward, I think, that differentiates our product pricing and underwriting capabilities relative to our competitors. It's a much more digitally focused product.

our product with a much better customer experience from a sales perspective. We're going to continue to leverage that going forward. And our distribution capabilities play in this space. Our Allstate agents are bundling at rates that are at all-time highs around 80%. And you saw really good growth in the direct channel, and we're going to continue to build on that growth. And we think we have additive growth opportunity in the independent agent channel with Custom 360. So we love our capabilities and homeowners. We've been able to grow that business and grow it profitably over the long term, and we're going to continue to take advantage of those capabilities.

So if you can go to the PIF numbers because I know you're all focused on PIF even though growth comes in many forms called protection services, investment income, everything else. The overall PIF growth in homeowners 2.3%, over 4% in the Allstate brand, which is what Mario was just talking about. We're getting smaller in National General and Encompass, and quite honestly, I'm fine with that because they weren't in good returns back to the lifetime value conversation. This is about increasing lifetime value, not just 1 measure called PIF. It's about driving overall shareholder value growth.

And our next question comes from the line of Alex Scott from Barclays.

I had a follow-up on retention. I just wanted to see if you could shed a little more light on what you're seeing across the channels? Just trying to understand, is it the exclusive agent network and retention associated with maybe more people going online or something? Or is it maybe some churn in the direct-to-consumer and some of the policies you've grown into more recently, maybe just have a quicker duration to them. I just want to better understand retention and just in light of it being a critical driver of PIF right now.

Yes. Thanks, Alex. This is Mario. I'll give you a little color on retention. I think the headline on retention for us is really over the last couple of quarters, we've seen retention levels stabilize, but they're still down relative to where they were a year ago. And I think when you look at retention broadly. It's certainly going to vary by risk segment by customers that shop more frequently and maybe shop direct-to-consumer versus those that use an exclusive agent or an independent agent. But I think the broader issue with retention. It is the issue of affordability in the industry. As we and the industry had to raise prices to combat what was historically high levels of inflation, and I think what we've seen is more customers shop and more customers switch into effect from their current insurance carrier.

And on the one hand, that creates tailwinds from a new business perspective because you've got more people out there shopping, but it certainly creates challenges and opportunities, quite honestly, from our perspective to improve retention going forward. And as I said earlier, we're not sitting back and waiting for retention to get better. We're doing things proactively around reaching out to customers, making sure that they have all the potential discounts that are available to them. But they have the right protection the right product, the right coverage levels and limits and those kinds of things to make sure that we can offer them the most affordable price possible.

That's really at the heart of the S.A.V.E. program. And then I think additive to that, as I mentioned earlier, just given where our margins are and the profitability of the book broadly, we would anticipate just needing less rate in the near term, which certainly causes less disruption in the book. But we're focused on leaning in and doing things proactively to change the trend line on retention. And when we're successful doing that, I think that will generate sustainable and profitable growth for us.

Got it. That's helpful. Second question I had is on California and the homeowners market there. Would just be interested if you could give us an update on how you're thinking about that market and maybe additionally, if there's any action that you feel will be necessary as some of these moratoriums kind of sunset and you're able to take action if you need to?

Let me address homeowners availability, specifically Mario can talk about what we're doing in California. First, with increased severe weather in most of America's net worth tied up in the houses, it's really important that the homeowners insurance, which is why you see availability being such an issue. And it -- California, it doesn't work today, but it could. It works in Texas. Texas has the same number -- actually has more catastrophe losses, both in types and in gross dollars than those California, yet it's got a homeowners market that's pretty function, and we like it and other people like it.

So it can work. You just need a system to that California is on a path to try to create a sustainable insurance. Whether they get all the way there or not will be dependent on what they do and what other companies do. You want to talk about California.

Yes. The only thing I'd add, Alex, is in California, and I think there's a recency here last week, Commissioner Lara and the department announced really the last component of this sustainable insurance strategy, which related to using wildfire models. They had previously come out with how they were thinking about recouping reinsurance costs. We think that's a constructive approach by the department and certainly a step forward relative to where we were before, which was you just couldn't recoup the cost of doing business and homeowners market in California. And that's 1 of the reasons that we stopped writing new business over a long period of time.

We're reviewing the details of that release and at some point, will make a sustainable insurance strategy filing with the department. Too early to kind of tell you which way we'll fall on that one. For now, it's the status quo. We're not writing new business in California. But we'll take a look at what the details are and we'll do a filing and then we'll let you know what we decide.

And our next question comes from the line of Josh Shanker from Bank of America.

Sort of off the -- there's a huge surge in the number of policies in Allstate Roadside Assistance. I'm wondering, is that a solution for persistency if you could cross-sell them with the roadside assistance are the captive agents selling that more persistently around what's happening there and why is it happening?

So you're right, the more things you sell people, the more opportunity you have to make them happy. And the frequency of use of roadside is greater than the frequency of use of auto insurance. And so it makes people happy. Soren, do you want to talk about what we're doing that?

Yes. I think you get it, we are also bundling roadside with auto policies that agent sells. So that's 1 of the reasons also we are seeing an upsurge in number of policies that we are selling. So it's a good product bundled with auto, added value for our customers and -- which is really important.

Can you talk about your success rate on bundling right now broadly with maybe how the business is running 5 years ago? Is more successful as a strategy right now? Or is it hard to get people to buy multiple items?.

I would say, in total, Josh, we're -- Mario talked about the bundling at homeowners. Soren just talked about the funding there. We have -- we're doing much better. Our tech stack is much better to enable us to do that. But we think there's tremendous opportunity ahead of us, whether that's our renters, we need to take a run at renters, boats, I could go down the list of other stuff that we have a great potential that previously, we had some operational burners and technology barriers are doing it with the new tech system, those have kind of gone away.

And our next question comes from the line of Hristian Getsov from Wells Fargo.

How do you expect the drag on auto pit growth from New York and New Jersey to be in the balance of the year? Because even if you reopen for new business in the second half, assuming you get the rate increases you currently have filed, I'm guessing you might see some retention headwinds to kind of offset that? Or are most of the retention issues in the past just given the large rate hikes over the last couple of quarters, and these are a little bit more muted?

We're committed to growth in total. We don't -- it wouldn't really help you much to give you sort of what we think is going to happen in New York, New Jersey. We just look at the breadth of the new business, look at what we're doing in total, talk about the S.A.V.E. program. Our goal is to increase market share in personal profitability. We're already doing it in home. I'll just point that out, and we think auto is coming.

And then for my follow-up, in respect to tariffs, you've talked about a mid-single-digit impact to loss cost trends previously. Can you provide an update on your expectations given a few more changes in recent weeks? And can you potentially quantify what percent of your premium would be outside of your target profitability if we assume those increased costs materialize today? Because I'm just trying to get a sense of like what percent of your premiums you may receive a little bit more regulatory scrutiny for getting rate hikes just given you're potentially running at a much better profitability versus the mid-90s for auto?

So I would just answer, we're going to manage through whatever the impact the tariffs are, and we've managed to profitably. We're not -- this is not -- we don't see this the same as the pandemic-related increase where used car prices up 60% in 18 months. If, in fact, tariffs have an impact on the cost to either replace or repair parts, which we think is likely, given all the trends that are going on, it's totally manageable. And we factored it into how we're running the business today. We factored in the prospect and stuff because we don't set a claim today. It takes us sometimes 3, 4 months to get some cars fixed. So we're in good shape.

And our final question then for today comes from the line of Jing from KBW.

I have a follow-up question on retention. So as they implemented the S.A.V.E. retention program. Can you add more details on maybe the impact of these initiate patients versus the natural improvement from smaller rate cuts?

So the S.A.V.E. program is an enterprise-wide effort to improve customer interactions, $25 million in total, $10 million in personal property liability, price-related reductions more than 5%. So it's a highly -- some of the 25 is also obviously profit liability. We've already achieved our $25 million goal, but we are slightly behind on the $10 million for that. So we're going to do better than the $25 million, and we still have a goal to get to that.

Got it. My follow-up is on the affordable sample connected auto products. So now that you're available in 40 states and representing a significant expansion for the rollouts. Can you provide some more details on the new business conversion rate or retention of these products versus the traditional products? Yes.

We don't break out retention in new business. But I would just say, look, it's -- we started with affordable and simple and connecting that's what customers want. We've made great progress on affordable. This product is much better on simple we're able to really clean up the whole acquisition process. I think we still have some room to go on connected and so this is a journey not anything. We really like the new product. We like it's close rates. We like its profitability. We like the customer satisfaction, but we don't break out the specifics.

But rolling out a new auto product across this company and as fast as we did is really a tremendous accomplishment, and we feel really good about the impact that we have on that.

Let me thank you very much for tuning in. We went a little long, but thank you for investing in Allstate, and we'll talk to you next quarter.

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

Welcome, everyone. Thanks for joining. Good morning. Adam Klauber, I run our insurance group here. First, please read our website for disclosures for compliance, blah, blah, blah. Thank you. But we are really lucky to have Allstate.

And this is, I think, the second year Allstate has joined the conference, which we really, really appreciate. And it seems obvious as a local company, we're local. But we've really appreciated that Allstate has made a lot of strides changing the organization over the last 4 or 5 years, which, you're such a big organization, that's not easy. But we think there's much more match with our more growth orientation. So really happy we're here. We have Jess Merten, who is CFO, and he'll tell us a little bit about what Allstate is up to.

All right. Thanks, Adam. So good morning. It's good to be at the William Blair Growth Conference as Adam said, for the second year, so we can talk a little bit about Allstate. I'll start out this morning with an overview of our strategy. So you can see why I think Allstate is an attractive investment. And afterwards, we'll have Q&A and Adam and all of you can ask me whatever questions are on your mind.

So first off, I want to remind you all that -- let me get my clicker here, get the disclosures up. I'm going to be using forward-looking statements and references to non-GAAP measures in my remarks. Please evaluate these remarks in the context of all the information that we provide, including information on potential risks in our recently issued Form 10-K for 2024 and other public documents. The presentation and more specific information is also available on our website at allstateinvestors.com.

All right now for the good stuff. I know some of you follow Allstate closely. And for those of you that aren't as familiar, what we do is simple, Allstate protects people from life's uncertainties. Our strategy has two components: Increasing personal Property-Liability market share while expanding the protection that we provide customers. We use a two-oval picture that you can see on this page to illustrate that strategy. And as you can see on the right side of the slide, Allstate's revenue primarily comes from three sources. The most significant source is Property-Liability earned premiums, and this includes auto insurance, homeowners insurance, renters, umbrella. There's a lot of examples that you're all familiar with. And the Property-Liability business generated $14 billion in earned premium in the first quarter of 2025 and $54 billion for the full year of 2024.

The second source is our Protection Services segment. In these businesses, we deliver protection to customers through product warranties that cover important purchases like appliances, furniture and consumer electronics. Other examples of the solutions that we provide in Protection Services include extended vehicle warranties, identity protection [ and recovery ] services as well as roadside assistance. Protection Services generated $860 million of revenue in the first quarter and $3.2 billion for the first -- for the full year of 2024.

Lastly, Allstate proactively manages a $74 billion investment portfolio, which provides a stable source of revenue. Net investment income was $854 million in the first quarter of 2025. And for the full year of 2024, the portfolio generated net investment income of $3 billion.

Allstate's total revenues were $16.5 billion in the first quarter of 2025, which was up 7.8% to the prior year quarter. And for the full year of 2024, revenues grew 12.3%.

Our 2025 operating priorities are supported by strong 2024 financial results, which are summarized here on the left side of the slide. In 2024, we generated $64.1 billion of revenue and delivered net income of $4.6 billion and $4.9 billion of adjusted net income. Net income return on common equity was 25.8% and net income per common share was $16.99. These results reflect our balanced approach to growth, profitability and proactive capital management.

In 2025, you can see Allstate is focused on creating shareholder value through a balanced set of operating priorities, which include delivering attractive financial returns, growing our customer base by attracting new customers and keeping existing customers, and executing our Transformative Growth initiative, which I'll talk a little bit more about now.

Allstate is executing the Transformative Growth plan to grow Property-Liability market share by making protection more affordable and more accessible to customers. The strategy was announced in late 2019 and has five integrated components. The first component is to improve customer value. We know price matters to customers, so we've lowered our cost structure to improve affordability. Excluding marketing expenses, the expense ratio improved by 6.7 points since 2018, and we remain focused on reducing expenses to lower the cost for our customers. Differentiated affordable, simple and connected or ASC, you may hear us call it, auto insurance products are now available in 36 states, and a new homeowners product is available in 6 states. These new products include our most sophisticated rating plans, design innovations and they're all targeted at delivering the most value to customers at highly competitive prices.

Middle market standard and preferred auto and homeowners products, which we call Custom360 are offered under our National General brand through independent agents. The foundation of these new products is the Allstate ASC product, which allows us to offer these highly competitive products through the independent agent channel.

The SAVE program, which stands for Show Allstate Customer's Value Everyday, is being embraced by employees and agents with a goal of improving 25 million customer interactions this year. As part of this program, we also established a specific goal of reducing insurance premiums for millions of customers by adjusting coverage and making sure they fully utilize available premium discounts. Our objective is to increase retention because keeping the customers we have is an important driver of growth. A combination of strong new business levels and improvement in retention is the path to sustained market share growth for Allstate.

The second component of Transformative Growth is to expand customer access through a broad distribution platform so that we're growing in all channels. We've drastically improved our direct capabilities, and through the acquisition of National General, we have a strong presence in the independent agent space. When combined with our excellent exclusive agent channel, we're positioned to reach customers wherever they choose to purchase their protection products.

The third component is focused on customer acquisition and maximizing the efficiency and effectiveness of our marketing spend. In recent years, we've improved marketing sophistication while maintaining strong brand awareness and consideration.

Next, you'll see we're leaning into a technology-driven strategy, and which is -- instead of just being supported by technology. So technology driven, not just supported by technology. And this is enabling us to deliver new affordable, simple and connected products and experiences to our customers and improving overall operational effectiveness.

The final component that you can see of our Transformative Growth initiative is focused on the team. And we're investing to make sure that we have the right people to execute on this strategy and deliver for our customers. We're embracing new ways of working to redesign business processes and increase efficiency across the business.

These five components work together to drive us towards our strategic objective of profitably growing the Property-Liability market share.

As you can see on the next slide, Transformative Growth is generating strong new business and positioning Allstate well for the future. Starting with the chart on the left, you can see that Allstate has expanded distribution with competitive capabilities across all three channels.

As I touched on previously, this expanded distribution effort has three components: Improving Allstate agent productivity, expanding direct sales and increasing independent agent distribution, all of which have been successful. Allstate agency productivity has increased, enhancements to direct capabilities, lowering prices and increased advertising are attracting more self-directed customers. And the National General acquisition significantly expanded our presence and capabilities in the independent agent channel.

The new issued application pie charts that you see on the slide show two key trends. First, we're acquiring more customers than we were when we started Transformative Growth in 2019. Second, new issued applications are almost evenly split across the three distribution channels. This mix is aligned with broader industry customer shopping behavior where each channel represents about 1/3 of the market.

We're beginning to see signs of growth, and our objective remains the same to increase personal Property-Liability market share. As you can see on the chart on the right, policies in force increased sequentially and were slightly over prior year in the first quarter, and this growth trend continued in April. The recent inflationary cycle required us to take significant price increases, which impacted customer retention. As the impact of those price increases moderates, we're seeing the beginning of growth in policies in force supported by the strong new business trends that I just covered. We'll continue to focus on improving customer retention as an important driver of growth through the SAVE initiative that I discussed earlier.

Shifting gears. Allstate Protection Services segment is comprised of five businesses. We deliver protection to customers through warranties that cover important purchases like automobiles, furniture, consumer electronics. And we also provide products and services that include identity protection and roadside assistance to our customers. So it's a broad range of solutions.

And we embed this protection in the flow of commerce to meet customers where they are, whether that's in a retail store, online or through a mobile phone provider. And that allows customers who may not normally interact with traditional insurance products to engage with the Allstate brand.

The largest business in this segment is Allstate Protection Plans, which was acquired as SquareTrade in 2017 for $1.4 billion. Since the acquisition, our customer base in that business has grown over 4x, and it serves 162 million customers in 18 countries. The Allstate brand has helped to secure distribution partnerships with large retailers in North America, providing access to a broader customer base through traditional retail channels, and e-commerce platforms. Allstate has partnered with five Fortune 40 companies and customers can now purchase protection plans at several major retailers.

The Protection Services segment allows Allstate to build for the future with broad protection offerings that provide a diversified source of profitable growth to the enterprise.

Before we wrap up and move to questions, I want to provide an overview of Allstate's capital management strategy, which creates shareholder value through organic growth, strategic M&A and by returning capital to shareholders through dividends and share repurchases.

We've invested in growing our business through the execution of the Transformative Growth plan to increase personal Property-Liability market share. Allstate Protection Plans has grown to serve 4x the number of policies since acquisition, as I mentioned, while also generating $157 million of adjusted net income in 2024. And the businesses that we own generate attractive returns on capital at target margins as evidenced by the net income ROE that we reported at the end of the first quarter of 21.4%.

Allstate pursues strategic M&A to create long-term value and strengthen our competitive position. For example, our acquisition of SquareTrade in 2017, which again, we now call Allstate Protection Plans, generated significant growth for Protection Services. By leveraging SquareTrade's capabilities with the power of the Allstate brand and our strong financial position, we've been able to partner with major retailers across the globe and profitably grow that business.

We acquired National General for $4 billion in 2021, which improved our position in the independent agent channel, increased our presence and broadened the range of customers who are able to provide protection products.

In April, we completed the $2 billion divestiture of our Employer Voluntary Benefits business. And we also expect to close the sale of our Group Health business for $1.25 billion at the end of this year. As a reminder, that business, the Group Health business, was acquired as part of the National General acquisition in 2021. Both of these divestitures maximize shareholder value while improving the growth opportunities for the respective businesses post divestiture. Overall, the transactions demonstrate our focus on using M&A strategically to grow and create shareholder value.

Lastly, on the slide, as you can see, on the right side, we show that Allstate has a strong history of returning cash to our shareholders. Since going public over 30 years ago, we've repurchased 84% of the shares outstanding. Over the past 10 years, we repurchased 186 million shares of common stock for over $17 billion, which would represent about 45% of the outstanding common stock. In the same time period, we paid out over $7 billion of common stock dividends.

We continue to be committed to returning capital to our shareholders, and we recently initiated a $1.5 billion share repurchase program. I think it's also important to note that Allstate has consistently raised our quarterly dividend in the past 15 years, most recently increasing it by 8.7% to $1 per quarter. And those recent increases come on the heels of a 50% increase that we made to the common dividend in 2021. So Allstate proactively manages capital and we'll continue to create shareholder value.

Let me close with one comment. Allstate has excellent capabilities, a strong brand, broad distribution and available resources to deliver on our strategy to grow Property-Liability market share. I'm confident that executing that strategy will create value for our shareholders.

And now we'll shift over to Adam's questions.

Thank you. I'll kick off. But then if anyone has questions, please feel free to chime in.

As you've been focused on growth, but dialing back a little over a year ago, some of the states were a little late in the industry, not just all states, like California, New York, New Jersey to approve rate increases, so they came later in the cycle. And that's been somewhat of a drag on your growth. Is that drag on growth from those -- generally those states, is that generally ending? Or is there still a bit of a drag to go from those states?

Well, we have challenges in various states. And you mentioned California, New York and New Jersey. A gauge that I typically use on where we're at in a state is whether or not we're open for new business. If we're at target margins, we're typically open for new business. And we have opened up for a new business in auto, not home, but auto insurance in the state of California. So that would mean that we feel good about where the rate levels are for new business in the state of California. It doesn't mean that we don't have more work to do, but we're at -- comfortable with margins there.

That leaves New York and New Jersey, where we continue to work with the DOIs in those respective states to get the rate level where we need to open up for new business. Otherwise, we're generally open across the country, meaning we're reaching target margins and available to meet new customer needs.

Great. Great. One more question then I'll open it up. Again, you've been doing the transformation for 4, 5 -- over 5 years at this point. And you've done a lot of heavy lifting to actually position -- reposition the company. Can you talk about the underpinning -- what did you actually have to do to the core technology stack to get you ready to grow? What were some of the heavy lifting things there?

I think that the foundational work from a technology perspective is done, Adam. That -- as you said, this is a 5-year journey, and we started with the technology. As I said, we want to go to a technology-driven strategy, which means you have to sort of reinvent what that tech stack looks like. And as you know, in insurance, that is not an easy task, right, because there's a lot of legacy systems.

So what we did is we started with that early. And what I'm -- one of the things I'm most proud of is we invested -- we continue to invest in that technology through the cycle, right? So highly inflationary cycle, a lot of rate to take. We didn't stop investing in the technology. So the technology foundation now is there to fuel the growth. We just have to keep making investments, we have to keep putting new products onto the platform. So when you hear the number of states for ASC, the number of states for both ASC, auto and home. We have more states to roll out, and we're doing that as quickly as possible but that's all going onto the new tech. So we're using the new tech platform as we roll out new products. And I think that all is going to help us grow.

It also contributes to, quite frankly, the growth in the direct channel, independent agent like that broad platform because I think, one of the things that's overlooked sometimes about Transformative Growth is the breadth of the platform that we have now. So we went from a primarily exclusive agent-based company to exclusive agents being a really important part, but we have a strong direct capability and independent agents. And that all feeds off of that tech platform.

So really, we just have to keep our -- the pedal down and keep implementing on the tech.

So -- and that's helpful. Just to give people an idea, what were some of the changes you did to or made to your technology, I'd call it, stack, but your core systems to enable growth? Maybe just some examples or how did you change the technology system?

Well, we built from the ground up using new flexible technology solutions, right? So think new policy administration system, a new orchestration layer. Because what we wanted to do is not just build for today but build for the future to enable growth so that we can implement advanced computing technology to make us -- to provide better insights on what's going on with customers.

The whole customer experience is built on -- the affordable, simple and connected product is built on this new tech platform. So what that means is that, A, it's a contemporary experience that everyone expects, whether you're on a mobile device or whether on a website. But also, it's a more data-driven experience for customers, so they have to give us less information because we can pull that data. We can give recommendations to customers based on certain attributes that we know about here's a coverage option that you should consider. And oh, by the way, if you want to understand it better, here, you can click here, and we'll help explain what that coverage option means to you.

So really, it's experience focused, but it's also -- there's a flexibility component when you talk about growth and our ability to grow, being able to react quickly from a rate perspective to market conditions, we changed our -- this is somewhat off your question. We changed our go-to-market approach in sort of the way that we put leadership out in the field for our exclusive agents and we look at markets differently. Those markets give feedback now and the technology enables us to make quick adjustments to the feedback that we're receiving from go-to-market leaders. So it's -- again, it's a technology foundation that we're building the growth engine on top of.

Okay. Any questions from the audience?

Can you give us Allstate's view of the current conditions [indiscernible] of the auto insurance and the property insurance markets?

Sure. So Allstate's view on the auto insurance and homeowners insurance marketplace. Both are competitive -- increasingly competitive as margins have been restored for most companies.

I think that auto and home are a little bit different. I think appetite in the homeowners' space isn't quite the same. I think returns are not quite the same across homeowners. Allstate in a 10-year period has made fantastic returns in homeowners insurance. I think we've run about a 92% combined ratio over a recent 10-year period. So we get really strong returns in home, and we've continued to grow in homeowners through the recent cycle. And we'll continue to do that. We like the market.

I think what you're seeing is that market is getting a little bit more competitive in homeowners than it was a year or 2 ago. But that doesn't -- I don't think that materially impacts our ability to grow in that space. I think Allstate has always been strong. We have a great product. We're innovating. We have availability across the country, that's good. So I feel good about that market.

Back to auto insurance, as I said, it's getting more competitive, but we're also really glad in the face of that competitive environment that we've been investing in the technology, as Adam talked about in lowering our cost structure, so we have the very most competitive rates that we can offer. So it's a more competitive landscape, but we feel good about our ability to compete in that landscape given the work that we did to get here.

I'll jump in. How important today to the growth strategy is the direct channel, and I do follow some of the lead aggregators and seems like your capabilities have come up a fair amount. So maybe you describe, I guess, importance capabilities, what your strategy is in the direct channel?

So at the highest level, it's very important. It's -- as I said, we've built the company for is balance. And so I always start with what's important is how customers want to come to us and how they want to buy our protection products. And so a lot of people want to go direct, and so we should be best-in-class in offering them direct solutions. And I think we've invested in the capability to do that, whether it's leadership, we have new leadership or relatively new leadership in that space, whether it's building out the capabilities within sort of these virtual agencies that exist or the call centers that help customers, but also some people don't want to talk to someone. They want to go fully direct.

And so the affordable, simple and connected product is designed to allow you to do that. So it's really, from my perspective, about making sure that we're doing what customers want, that makes direct very important because the reality is there's a lot of growth in direct. A lot of people want to come to us on a direct basis. And so we have to be there to meet that need. And I think we've invested in the capabilities and we're continuing to because as you said, there's the capabilities within the direct channel, but there's also the marketing sophistication to make sure that you're wisely investing marketing dollars to get those direct leads into your call center on the most kind of efficient and effective basis. And there's a ton of data that we can use to do that.

So I view it as a system. It's a system across all three channels, but there's a system within direct, and we've really been investing in that over the last several years, and I feel good about where our capabilities are at. And certainly, it's an important driver of our growth going forward.

Okay. Okay. And then on that just so people have an idea, what -- roughly what percent of the market shops digitally would you say, for auto insurance?

It's about 1/3. Well, it's more of the shoppers, Adam, if that's what you're getting at. I think more of your regular shoppers tend to be direct. It's not entirely true. But certainly, there's a lot more shoppers that are direct. I don't have the percentage off the top of my head. We like to -- as I said in the prepared remarks, what we like to see is where you we have that new business coming in spread across all of the channels, but direct is where there's a fair number of shoppers at times.

Okay. Okay. And you mentioned the home business that Allstate in a very, very tough line, does make money and actually is their -- your combined ratios are some of the best in the industry, and that's just not an easy task given that -- what are you doing today to actually -- in a continually weather-volatile world to make sure that you'll stay profitable on the home side?

Well, we do a few things. One, we invest in product innovation. So I mentioned we have an affordable, simple and connected homeowners product. So that's the next version of our sort of best-in-class segmentation rating, risk evaluation. We have a really good risk-and-return management team that looks at diversification to make sure that we don't get out of balance from a concentration perspective. So I think we're doing a lot of the things that we've done for a long time in homeowners, but also continuing to innovate and be leading edge so that we can maintain that.

When you think about the volatility in the environment, weather patterns, that's something that we have to continually adjust for, and you do it through rate. We also do some of that through our robust reinsurance program. So Allstate has a very robust prevent reinsurance program that allows us to manage the overall risk of the homeowners block by buying coverage from reinsurers for a significant single event or two events in a year type of situation.

So I think a little bit of it is looking back and saying, what's made us successful over decades in homeowners. You don't want to change that too much. What you want to do is continually strive to be excellent and improve on what we've done, what's gotten us here and acknowledge that in a changing environment, some of that's just going to be -- you're going to have to charge a little bit more rate to cover the fact that there's inflation in some of the underlying components, and there's just more events.

Yes. And this is a very general question, but how do you think about fire risk because that's traditionally been really tough to model. And obviously, the headlines were awful from a little while back from California, but it's not just California, it's Colorado, Nevada, up the West Coast. So how do you think about it? And how are you looking to management over time?

Well, I think that the modeling is getting a lot better. So that is one thing I would say. So our ability as an industry to model wildfire risk is going up. One of the key components, I know we certainly saw this in California, is as insurers, we have to be able to use that modeling to inform rates and charge the appropriate rate to a customer that's at high wildfire risk. And also it lets us go in, in sort of contact those customers or a potential customer and say, "Like, we can't write it for this reason. But if you did these five things, your house might be insurable," right?

But you -- sort of the core of that is a regulatory environment that allows you to use wildfire modeling. And again, that was a challenge that we had in California. It's something that they're talking about doing. But -- so one, I think the modeling is getting better.

I think some of our traditional tactics, we've looked at this as a risk. There's been wildfire risk all along, and we help to manage that. There's things that you can do from an aerial imaging perspective as we think about new homeowners products where you can actually look during the underwriting, and you can use AI technology to say what's going on in this property, is there tree overhang? Are their bushes right up against the side? Like there's a lot that we can do. And so we implement those solutions into our processes just to make sure that we're managing the risk.

I mean at our core, we're there to help people in a time of need. And so you're not going to completely eliminate the risk. We just want to make sure that we appropriately price the risk that exists for any given home in that situation.

So with your scale, the ability to not just taking the models but implement the models and also that you have been traditionally on the leading edge in homeowners, is that ultimately more of an opportunity? Because it's -- wildfire is just tough for the industry and a tough for a lot of competitors, big and small, to get their arms around. So in a way, is that more of an opportunity for you, would you say?

I think Allstate is good at managing homeowners and understanding homeowners risks. So it's not that we want to run out and ensure wildfire zones as a strategy. But certainly, there's areas that -- I mean, as you've noted, there's -- wildfire risk is not just in California, there's a number of places. We want to understand, get paid appropriately to manage the risk and work with customers to mitigate the risk. And I think that continues to be an opportunity for Allstate.

I think there was a question.

Yes. Please, do.

Can you talk about your outlook for rates for [indiscernible]

Portfolio. I mean we don't have -- we haven't taken a view on -- like given a forward view on rates. If you look at our duration, and we tend to be -- we've been around target duration recently. So -- and we continue to reinvest the portfolio. Now you'll see as rates come down to the extent where we have some shorter duration instruments, they're going to roll into lower rates.

What you've seen over the last couple of years, though, is a lot of stability in the portfolio yield because of where rates have been. And we've been able to first shift the portfolio and then now reinvest at relatively good rates, particularly in comparison to 5 years ago.

So the outlook would be -- I don't -- I'm not going to give you a firm outlook on what rates will do. We all can guess on what's exactly going to happen. But I feel good about where our portfolio is positioned to take advantage of changing interest rates.

We have time for one last question, if anyone wants to chime in? Then I'll chime in.

Can you talk about how is the momentum in the traditional Allstate agents, the captives, there's been some changes, and it's been a work in progress for a long time. But I guess, how is the momentum in that channel?

I feel good about the momentum in that channel. They're more efficient than they've been. They're bundling more than they've been in the past. So I think what we have as a group of agents that's fewer, but we have fewer agents that are doing more for customers, and I think that's good. We've been making changes. What we're trying to do is make changes to that distribution channel that helps everyone win long term and also helps make sure that we're matching the cost of distribution to what customers are expecting.

And I think our agents generally are in a good spot. I'm sure if you surveyed the thousands, you'll find some that aren't as happy and some that are, but that's, I think, can always be true. I feel good about sort of the positioning in the future of the Allstate Agency. I mean you heard me, we want balanced distribution, which is all three channels, and that includes a strong exclusive agent channel. So I feel encouraged by it.

As your rates have, I'll say, stabilized the way in the last, say, 6 months, have you seen more growth coming out of that channel, would you say?

Honestly, Adam, Allstate agents are always very good at generating growth. I think that they -- part of the value that an agent brings is explaining premium increases. And so I think what we've seen through the cycle is even when rates were going up, Allstate agents were able to sell new business because they could go and sit with you and say, "Hey, here's what you're seeing from Allstate or here's what you're seeing from a competitor, here's why, and here are some things you can do back to our SAVE program. Here's some things you can do to lower your premium."

So that advice that they provide, I think has allowed them to be consistent through the cycle versus seeing a big spike now that we've lightened up on rates.

Okay, okay. I'd like to thank Jess for joining us.

Thank you.

We'll continue in the Richardson breakout room. Thank you, guys.