ALLSTATE CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Transformative Growth: Launched in December 2019, the initiative has five components. Adjusted expense ratio (excluding advertising) improved almost five points since 2019 by reducing costs. New products like affordable simple connected auto insurance (31 states) and new homeowners product (4 states) introduced. Expanded customer access through improving agent productivity, direct sales, and independent agent distribution.
• Property Liability Performance: Fourth quarter property liability underwriting income improved. Auto insurance underwriting income increased significantly. Homeowners insurance had attractive returns with a combined ratio of 90.1 in 2024. Addressed California wildfires impact, with financial impact managed through risk and return approach.
• Asset Allocation and Sales: Proactive portfolio management optimized returns. Net investment income grew. Sale of group health and employee voluntary benefits businesses expected to generate $3.25 billion in proceeds, with combined estimated impact on adjusted net income return on equity a decrease of about 180 basis points.

Segment Performance

• Property Liability: Fourth quarter property liability underwriting income was $1.8 billion, an improvement of $507 million compared to the prior year. Auto insurance generated $603 million of underwriting income, a $510 million improvement. Homeowners insurance underwriting income was $1.1 billion, $99 million lower than the prior year quarter due to catastrophe losses. Total revenues in the fourth quarter were $16.5 billion, up 11.3% compared to the prior year quarter. Full year 2024 revenues were $64.1 billion. Net investment income was up 37.9% in the fourth quarter and almost 25% for the full year.
• Protection Plans: Revenues in the fourth quarter were $528 million, growing 20.3% compared to the prior year. Full year 2024 revenues were nearly $2 billion, with 23.9% annual compounded growth since 2019.
• Health and Benefits: Premium and contract charges for the segment increased 3.2% or $15 million compared to the prior year quarter. Individual and group health business saw strong growth, while employer voluntary benefits had a modest decrease. Adjusted net income for the segment in the third quarter was $35 million, $25 million lower than the prior year quarter.

Guidance

• Monthly disclosure of policies in force to begin soon. Objective to grow property liability policy in force and strong new business sales. Proactively contact customers to lower protection costs and increase retention. Completing rollout of new auto and homeowners products to enable growth. Sale of group health and employee voluntary benefits businesses expected to generate $3.25 billion in proceeds.

Risks

• California Wildfires: Financial impact reflects comprehensive risk management. Estimated gross losses $2 billion, with reinsurance recoveries $900 million. Sensitivity: Every $100 million gross loss increase leads to $10 million net loss increase.
• Competitive Pricing: Uncertainty in competitive positioning, especially in states with prior rate hikes affecting retention.
• Retention Headwinds: Adverse impact from rate hikes in states like New York, California, New Jersey still affecting retention, with work needed to improve affordability and customer satisfaction.

Question and Answer

Q: Rob Cox asked about advertising spend and PIF growth in 2025.

A: Tom Wilson and Mario Rizzo discussed advertising efficiency, plans to grow policies in force by proactively contacting customers and expanding new products.

Q: Gregory Peters inquired about pricing competitiveness and agent compensation for retention.

A: Tom Wilson and Mario Rizzo talked about pricing being complicated, importance of branded agents for retention, and current agent compensation structure focusing on renewal.

Q: Michael Zaremski asked about expense ratio improvements and California growth ambitions.

A: Tom Wilson mentioned continuing to reduce expenses through digitization and marketing effectiveness, and no current growth aspirations in California homeowners insurance.

Q: Christian Getzoff asked about retention numbers and California wildfire loss sensitivity.

A: Tom Wilson and Mario Rizzo discussed monthly disclosure of policies in force for transparency and sensitivity of $10 million net loss per $100 million gross loss increase in California wildfires.

Q: Timmy Peller questioned about auto business growth and capital deployment.

A: Tom Wilson and Jess Merten talked about auto unit growth as a key unlock, capital management including share repurchases and acquisitions like National General and SquareTrade.