The Allstate Corporation - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered strong underlying profitability despite unprecedented catastrophe losses: revenues $16.45B (+7.8% YoY), GAAP EPS $2.11, adjusted EPS $3.53; Property-Liability recorded combined ratio 97.4 (underlying 83.1) as reinsurance recoveries ($1.1B) mitigated $3.3B gross CATs.
• EPS and revenue beat consensus: adjusted EPS $3.53 vs $2.53* and revenue $16.45B vs $16.36B*; target price consensus stood at $236.1* (20 estimates). The beat was driven by attractive auto margins (CR 91.3) and favorable prior-year loss development.
• Capital actions and portfolio focus are catalysts: dividend increased to $1.00 per share and $1.5B buyback program underway; EVB sale closed for $2.0B with ~$625M book gain recorded in Q2 2025; reinsurance single-event limit increased to $9.5B, lowering tail risk and volatility.
• Transformative Growth gaining momentum: auto new applications +31% YoY with expanding distribution; homeowners PIF +2.5% YoY; management reiterated confidence in market share growth and balanced risk/return approach.

What Went Well and What Went Wrong

What Went Well

• Auto insurance margins strengthened: auto recorded combined ratio 91.3 (down 4.7 pts YoY) on favorable physical damage trends and $238M favorable PY reserve reestimates; underwriting income rose to $816M (+133% YoY).
• Investment income and portfolio positioning: net investment income $854M (+$90M YoY), with market-based income +14.9% due to higher yields and asset balances.
• Management confidence and growth execution: “Allstate’s strategy, operational excellence and risk management practices generated strong first quarter results, despite unprecedented severe weather” — Tom Wilson; “We continue to proactively manage capital… $1.5 billion share repurchase program and quarterly dividend increase to $1.00” — CFO Jess Merten.

What Went Wrong

• Catastrophe losses were exceptional: gross CATs $3.3B (mostly California wildfires and March wind) leading to homeowners underwriting loss of ($451M) and recorded combined ratio 112.3.
• Health and Benefits pressure: adjusted net income fell to $30M (−46% YoY) due to increased benefit utilization; EVB segment sold, Group Health held for sale.
• Retention remains a watch item: auto PIF declined slightly (−0.4% YoY) despite higher new applications; management is targeting retention via the SAVE program and customer affordability/experience initiatives.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to Allstate's First Quarter Earnings Investor Call. At this time, all participants are in a listen-only mode. After prepared remarks, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one-one on your telephone. Please limit your inquiry to one question and one follow-up. As a reminder, please be aware that this call is being recorded. Now, I'd like to introduce your host for today's program, Allister Gobin, Head of Investor Relations. Please go ahead, sir.

Allister Gobin (Head of Investor Relations)

Good morning, everyone. Welcome to Allstate's First Quarter 2025 Earnings Call. Yesterday, following close of the market, we issued our news release and investor supplement, filed our 10-Q, and posted related materials on our website at allstateinvestors.com. Today, our management team will share perspective on our strategy and how Allstate is creating shareholder value. We will have a question-and-answer session. As noted on the first slide of the presentation, our discussion will contain non-GAAP measures for which there are reconciliations in the news release and investor supplement, and forward-looking statements about Allstate's operations. Allstate's results may differ materially from these statements, so please refer to our 10-K for 2024 and other public documents for information on potential risks. I will turn it over to Tom.

Tom Wilson (CEO and President)

Good morning. Thank you for investing your time with Allstate. I'm going to start with an overview of results and then the progress we're making on transformative growth. Mario will then cover property liability results. John will go through investments, and Jesse is going to talk about protection services. As Allister said, we will deal with any questions that you have. Let's start on slide two, which has Allstate's strategy and first quarter results. Allstate's strategy, of course, has two components: increase personal property liability market share and expand protection provided to customers, which are shown in these two ovals on the left. On the right-hand side, you can see Allstate's strong performance in the first quarter. Revenues were $16.5 billion in the first quarter, up 7.8% compared to the first quarter of 2024.

Allstate generated net income of $566 million in the quarter and adjusted net income of $949 million, which is $3.53 per diluted share. Adjusted net income return on equity was 23.7% over the last 12 months. We work on shareholder value with a balanced set of priorities, first generating attractive returns on capital, which you can see from this quarter's results. Growing policies in force in the property liability and protection services businesses will both generate increased earnings and should improve Allstate's valuation multiples. A diversified investment portfolio generates attractive returns on capital, which John will cover. Proactive enterprise risk and return management is also important, and that includes whether that's utilization of reinsurance, our capital transactions, or cash returns to shareholders. Mario will discuss the benefits of our approach to reinsurance when we go through property liability.

Justice Team closed the sale of the employee voluntary benefits business for $2 billion on April 1st. That's not in the results of that are not in this quarter, but it's because it happened shortly thereafter. We want to make sure we call it out for you. That's the first of two large sales from that business segment. As you know, we increased supported dividend to a dollar a share and instituted a $1.5 billion share repurchase program. Slide three is an update on the execution of transformative growth strategy in the property liability business. There are five integrated components to this strategy to increase market share, one of which is to improve customer value, and one of the key parts of that is lowering costs.

You can see on the left-hand side, the adjusted expense ratio, which excludes advertising costs, has improved by 6.7%, 6.7 points, really, by eliminating and outsourcing digitizing work, using less real estate, and aligning our distribution expenses with customer value. Those lower costs enable us to offer more competitive prices without impacting margins. Substantial progress has also been made on other components, several of which are listed on the right. New Allstate-branded Affordable, Simple, and Connected auto insurance are now available in 36 states, and we have the companion homeowners product is now available in six states. Differentiated Custom 360, middle market standard, and preferred auto for independent agents is shown is now in 31 states. One of the most significant changes is the expansion of customer access to improve growth, which resulted in increased new business from all channels this quarter versus the first quarter of 2024.

This effort has three components: improve Allstate agent productivity, expand our direct sales, and then increase independent agent distribution, all of which have been successful. Allstate agent productivity has increased. Enhancements to direct capabilities are lower pricing, and increased advertising are attracting more self-directed customers. The National General acquisition significantly expanded our presence and capability in the independent agent channel. This quarter, personalized new business was 2.8 million items, a 27% increase over the prior year. The SAVE program, which stands for Show Allstate Customers Value Every Day, following our acronyms, is being embraced by employees and agents with a goal of improving 25 million interactions this year, which builds on last year's success, which was over 20 million. Our objective is to increase customer retention, an important driver of growth.

The combination of strong new business levels and an improvement in retention is a path to market share growth. We're beginning to see signs of growth. Property-liability policies in force on a year-over-year basis have stopped declining. That was due to the significant auto price increases and the economic decision to reduce new business in 2022 and 2023. Sequential growth over the end of 2024 was half a point. Allstate remains focused on increasing market share in property-liability and expanding protection provided to customers. Now, let me turn it over to Mario.

Mario Rizzo (COO)

Thanks, Tom. Let's take a look at first quarter property liability underwriting results on slide four. As you can see from the table on the left, the property liability business generated $360 million of underwriting income this quarter. The combined ratio of 97.4 was 4.4 percentage points above the prior year quarter, primarily due to $3.3 billion in gross catastrophe losses during the quarter, which was significantly higher than the first quarter of last year. This was partially offset by recoveries from a comprehensive reinsurance program, higher average earned premiums, favorable non-catastrophe prior year reserve re-estimates, and favorable underlying loss trends. The auto combined ratio was 91.3 in the quarter, as average earned premium increases outpaced losses driven by favorable physical damage loss cost trends. The underlying homeowners combined ratio, which excludes the impact of catastrophes and prior year reserve re-estimates, remained in our targeted low 60s range.

While there may be fluctuations in catastrophe losses, the homeowners business consistently generates profits with a 10-year recorded combined ratio of 91.5%. Now, let's move to slide five to discuss first quarter catastrophe results in more detail. Our claims team worked tirelessly to support over 70,000 customers as they recovered from the devastating California wildfires and a series of severe weather events that impacted multiple regions across the country in the first quarter. The chart on the left depicts gross catastrophe losses as a percent of earned premium for the last 10 years. As you can see, 2025 represents an outlier year that was more than three standard deviations above the mean, driven by the California wildfires represented by the orange bar. We generally do not see wildfire activity in the first quarter of the year.

Wind and hail events represented by the dark gray bars were above the five and 10-year averages, but there is no clear pattern over the last 10 years for these perils. In the table on the right, you can see this quarter's catastrophe loss ratio and number of events by peril compared to five-year and 10-year averages. On the second to the last row of the table, you can see the impact of our approach to risk and return management, which includes a comprehensive reinsurance program that reduces capital requirements by lowering catastrophe loss tail risk and earnings volatility. In the quarter, we had reinsurance recoveries of $1.1 billion, primarily due to the California wildfires, but recoveries were also generated from aggregate catastrophe losses from events over $50 million that occurred over the past 12 months.

As I said earlier, while we expect some quarter-to-quarter volatility in the homeowners line of business, our industry-leading capabilities remain a competitive advantage, and we view homeowners insurance as a growth opportunity. Turning to slide six, let's discuss how expanded access under Transformative Growth is starting to increase growth. In the chart to the left, you can see the composition of property-liability: 37.7 million policies in force. Auto insurance in the dark blue makes up two-thirds of total policies and ended the quarter with 25.1 million policies in force, which was down 0.4% compared to last year. Homeowners with 7.5 million policies is about 20% of the total and continued to grow this quarter, increasing 2.5% versus prior year. Total property-liability policies grew by 0.1% in the quarter.

As Tom discussed, expanding distribution to include capabilities across the exclusive agent, direct, and independent agent channels is a key component of transformative growth. The stacked bars in the chart on the right demonstrate the impact of those expanded capabilities. Auto new business applications were 31.2% above prior year, with strong growth across all three distribution channels. While relatively evenly distributed across channels, the direct channel generated the most auto new business volume this past quarter. The increase in new business applications was offset by lower retention, resulting in an overall slight decline in auto policies in force. We continue to focus on improving retention trends by both increasing value and improving interactions with existing customers, which Tom described previously. Homeowners new business also continued to increase, growing by 10% this quarter.

Exclusive agents who produce the highest volume of homeowners business continued to bundle at historically high rates and were making strong progress in the direct channel. Transformative growth is building momentum, and we are confident that expanded distribution, differentiated products, and increased customer value will lead to property liability market share growth. I'll turn it over to John.

John Dugenske (Chief Investment Officer and Interim CFO)

Thanks, Mario. During the investments on slide seven, I'll cover how our proactive investment management approach creates value. First, I'd like to point out that our portfolio has been designed for resiliency in varying market conditions, and it is built to support enterprise risk and return objectives at all times. As you can see from the pie chart, the portfolio is well diversified, allocated largely to public interest-bearing assets, with some allocation to performance-based assets, including private equity, private real estate, infrastructure, and opportunistic.

About 85% of the portfolio is in publicly traded securities, affording us the flexibility to dynamically adjust exposures to manage risk and seize opportunity. We use a proprietary dynamic asset allocation process, which uses an enterprise-wide risk and return lens. Additionally, we lever both internal and external asset class experts to deliver performance that exceeds a passive approach and builds resiliency into the strategy. Our active management has helped us preserve capital in down markets without sacrificing long-term gains. On the bottom left of the slide, you'll see proof points of our success in active portfolio management. Let me describe how this has worked by focusing on late 2021. Auto insurance margins were beginning to decline because of inflation and used car prices and parts, and we felt equity valuations were relatively high. As a result, we took down risk in the portfolio by reducing public equity exposure.

Additionally, we mitigated the adverse valuation impacts of rising inflation and rising rates by decreasing the portfolio's fixed income duration. As bond yields rose, we extended our duration, capturing higher market yields for longer and positioning the portfolio to benefit from rate declines. This is a prime example of our enterprise approach to portfolio. The portfolio is well-positioned to face market uncertainties with over 81% in income-generating assets. On the bottom right, you can see our active allocations, including performance-based strategies. Our team of asset managers has delivered performance consistent with upper quartile managers. Proactive investment management has consistently enhanced shareholder value, and we continue to work to deliver similarly strong results moving forward. Now, I'll pass it over to Jess.

Jess Merten (CFO and President of Property-Liability)

Thank you, John. Let's move to slide eight to cover how Protection Services is providing additional growth platforms for Allstate. Allstate invests protection in the flow of commerce through a range of strategic partnerships that include retailers, auto dealers, mobile phone carriers, benefit brokers, and financial institutions. We deliver protection to customers through product warranties to cover important purchases like automobiles, furniture, and consumer electronics. Other examples of the protection we provide include identity protection and recovery services, as well as roadside assistance. The largest business in this segment is Allstate Protection Plans, which we acquired as SquareTrade in 2017 for $1.4 billion. This business provides protection against broken or damaged consumer products, including computers, tablets, TVs, mobile phones, major devices, and furniture. On the right side of the slide, you can see the excellent progress we've made in profitably growing Allstate Protection Plans business.

Since the acquisition, our customer base has grown over four times, and we now serve 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's partnered with five Fortune 40 companies, and customers can now purchase Protection Plans at several major retailers. In the past 12 months, the business has generated $162 million in adjusted net income, which is seven times greater than 2018, which was the year after we acquired the business, in the first year that it was profitable. The Protection Services segment allows Allstate to build for the future with a broad protection offering suite that provides a diversified source of profitable growth. Now, I want to wrap up on slide nine. Allstate remains focused on creating shareholder value.

Strong underwriting capabilities position Allstate for continued success. Transformative growth is positively impacting property-liability policies in force, and we remain focused on execution. We take a balanced approach to investment risk and return, and we're building for the future with expanded protection offerings. Excellent capital management will continue to create lasting shareholder value. We remain confident in our strategy and ability to deliver value for shareholders and protection to our customers. Our first quarter results are strong, and we're entering the remainder of 2025 with a solid foundation. With that, I'd like to open it up for your questions.

Operator (participant)

Certainly. As a reminder, ladies and gentlemen, if you have a question, please press star one one on your telephone. Our first question comes from the line of Jimmy Bhullar from JPMorgan. Your question, please.

Jimmy Bhullar (Equity Research Analyst)

Hey, good morning. I had a couple of questions, but maybe first starting with just your views on competition. Personal auto frequency has been pretty favorable for you guys, for many of your peers as well. Are you seeing that result in companies getting a little bit more aggressive on pricing, or do you feel competition's fairly rational overall?

Tom Wilson (CEO and President)

Jimmy, I'll start, and then Mario can jump in. First, you're seeing a reduction in the rate of increases in auto insurance this year versus 2022, 2023, and then it started to come down in 2024, and it's a little bit lower this year, which says that people are operating in basic kind of where they want to be from a profitability standpoint. One of the large competitors is still a little bit lagging, taking larger price increases, but they'll catch up. I think what you can say is the industry is operating in good profitability.

All of those competitors have the objectives of profitable growth, so I don't see us headed into sometimes what you see in the commercial markets, soft markets, where people are chasing volume by lowering rates. I don't see us moving into an aggressive rate reduction, particularly when you look going forward in the possible impact of tariffs. Mario, anything you want to add to that?

Mario Rizzo (COO)

Yeah, Jimmy, I would say that it's really the combination of favorable frequency, which I think we and the industry have experienced, and the moderation of physical damage severity has really, that's been the story. I think that's improved margins broadly. To Tom's point, I think the competition has leaned into growth more heavily, certainly as margins have improved. We still think it's a rational market. We like our capabilities and our ability to lean into what we've been doing with transformative growth to grow going forward. I would still characterize it as a rational market from a pricing perspective.

Tom Wilson (CEO and President)

Jimmy, I would say in that market, we wrote 2.8 million new pieces of business in property-liability last quarter.

Jimmy Bhullar (Equity Research Analyst)

Yep.

Jess Merten (CFO and President of Property-Liability)

That's one quarter.

Jimmy Bhullar (Equity Research Analyst)

On the fifth count, obviously, you're not raising prices to the same extent as you were before, which means that your persistency should remain good or get better. Just with more marketing spending, that should help new business volume, which sort of implies that the sort of turn that you've seen in fifth should sustain. Any reasons to believe that the recent improvement would not continue?

Tom Wilson (CEO and President)

There are two pieces to that. Let me address it, and Mario can jump in here. First, to grow, you're right. We need to write more new business, and then we also need to keep more of the existing customers we have. Persistency in our vernacular retention. New business levels were way up at a percentage versus the first quarter of last year, but they're kind of where we were at the end of last year, which says we're able to sustain this kind of new business volume on an ongoing basis because of the breadth of our distribution, our competitive pricing, our advertising, all the things you mentioned. We feel good about where we're at in new business. In retention, it lags much as the way it lagged on price going up.

When we were raising rates, we used to remember show you the chart that said, "Oh, here's what we did this quarter," but keep in mind it takes about 12 to 18 months to really come into the P&L. The same thing happens to customers because they do not pay it right away. Even when they do pay it right away, sometimes they do not shift right away. Your retention lags just as it would on the price increase. Our retention is flattened out, and maybe Mario wants to talk about that. Our efforts in the state program are to drive it up besides just not taking more rate. We ought to be giving people more for what they are paying.

Mario Rizzo (COO)

Yeah, let me just maybe do a quick double-click on retention because I think the new business volume that we disclosed is pretty self-explanatory. On retention, Jimmy, qualitatively, what I would say is it's down year over year, so Q1 to Q1. As Tom indicated, it's stabilized in the same zone really that it's been over the past couple of quarters in Q1. Some of that is because there's less rate activity in the system. I think our view is while less rate will help, we're not waiting for that to improve retention. The SAVE program is intended to favorably impact customer interactions across at least 25 million customers.

One of the components is to improve affordability for customers by proactively engaging with them to make sure that they've got the right coverage, the right discounts, things like deductibles and so on, and they can get the best possible price from us, which we believe will help retention. The other part of it is just to improve the overall customer experience and how they interact with us. We are leaning into that, as Tom mentioned earlier, both through our employees, our agency owners, to really proactively engage with customers, improve the experience, improve affordability. That, along with a more stable rate environment, our intent is to have that drive improved retention.

Jimmy Bhullar (Equity Research Analyst)

Okay. Thank you.

Operator (participant)

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

Rob Cox (VP of Equity Research)

Hey, thanks. For my first question, maybe a similar line of questioning, but the new issued applications, as you mentioned, accelerated meaningfully in the quarter. I'm just curious if you think this level of new apps is being flattered by an unusually high amount of shopping, or if you think this level or higher can actually be maintained with further advertising investment and product rollout.

Tom Wilson (CEO and President)

First, as I mentioned, Rob, the new business levels this quarter were similar to what we had towards the end of last year. We are maintaining it, and we're comfortable there. Our appetite depends on what states we're in in advertising. We want to grow as fast as we can. We don't really have any capacity constraints right now in terms of number of agents, number of people in the call centers or on the web, or independent agents. Rolling out affordable, simple, connected products are what really drives most of the growth. We mentioned we're not in all the states yet. As we roll that out in the rest of the auto states and we get homeowners to go with it, it's a much better experience, better product. We think we still have upward potential.

Do I think it's going to be 27%? No, because it wasn't 27% over the fourth quarter. Do I think we have a great distribution system that's scalable 100%?

Rob Cox (VP of Equity Research)

Got it. Thank you. Maybe following up on the auto underlying loss ratio, I was just wondering if there's anything unusual embedded, maybe any tariff impacts or anything like that contemplated in the loss ratio. I noticed it was kind of one of the first quarters in a long time that the underlying loss ratio actually went up in the first quarter versus the fourth quarter.

Tom Wilson (CEO and President)

On auto insurance property, I'll make comments. Mario can jump in here. When you evaluate it at an absolute level, it's outstanding. We are getting really strong returns on capital. We're better than our targets. It's broad-based across the country and by risk level inside the auto book. We're feeling really good about where it is. I think quarterly comparisons are really not that meaningful, to be honest. You got all kinds of things happening. Fourth quarter's got different kind of weather than the first quarter. You have frequency bounces, and then you have, of course, just weather changes, not even inside individual quarters. The type of weather and the type of accidents also changes the mix of your claims, which has some impact on severity. Those can easily move a combined ratio by a point to two points.

I do not get that focused on that. If you want to look at it on a longer basis, first quarter looks great. We are a lot of them where we are at. Mario, what would you add about breadth and depth?

Mario Rizzo (COO)

Yeah. Look, I think when we look at auto profitability, certainly in absolute terms, the combined ratio is performing exceptionally well. When we look at it at a state level with literally a handful of exceptions, we like where our price position is and our rate adequacy and feel really good about profit levels across the vast majority of states that we operate in. The trend on profitability is really unchanged from the last couple of quarters. We continue to earn the rate that we implemented over the last 12 months. When we look at loss cost, the combination of favorable frequency and physical damage severities and loss cost kind of flattening out. You actually saw a drop in pure premium year over year, and that drove a pretty substantial improvement in the underlying combined ratio in auto. We feel good about auto profitability.

That is one of the things that, as margins improved over the course of last year, we opened up markets and we started to expand our risk appetite for new business. We are going to continue to do that because we feel good about where we are positioned from a margin perspective.

Rob Cox (VP of Equity Research)

Great. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Gregory Peters from Raymond James. Your question, please.

Gregory Peters (Managing Director)

Good morning, everyone. I would like to pivot to slide three of your presentation where you highlight the improvement in the adjusted expense ratio since 2018. I'm just trying to understand what your objective will be, say, for the next five years. Do you anticipate bringing this down below 20%? Inside the expense ratio for the first quarter, we did note that it looks like the advertising expense was down sequentially a little bit. I know that's outside of the adjusted expense ratio, but maybe you can tie in with your answer or perspective on advertising expense.

Tom Wilson (CEO and President)

Good morning, Greg. We have not put a target out for expenses, but our goal should always be to lower expenses. That is both as a percentage and on an absolute dollar basis. Some of the decline, of course, is as you raise prices faster than the cost of inflation, then your expense ratio goes down. That is not the way to really get there for your customers. We have made substantial cuts in absolute expenses, and we are going back at it again. Jess is now just starting to lead a new effort to go back. We do not have a goal, but expect it to keep coming down. We think with our new technology platform and the new technologies available out there, there is the opportunity to digitize and eliminate a number of processes that are done by people today, which will be faster, better, and cheaper for customers.

We're back at it again. We're excited about it. We think there's good opportunity there. On advertising, it depends how good we think the opportunities are to grow, where we're trying to get into markets, whether we're launching new products. The fourth quarter was a high watermark for us. We were testing some new stuff. I don't expect it to stay at that fourth quarter level really any time this year that we were really leaning in to see how much we could drive in growth. It's worked for us. What we'll do is, to the extent it's economic, we'll continue to spend. If it's not economic, then we won't. That means both, are you getting a good return? Are people shopping, buying your product at a competitive price? How do you feel about your margins going forward?

We feel really good about our margins going forward in both auto and home. You should expect to see us do more there.

Gregory Peters (Managing Director)

Okay. I guess for my follow-up question, I'll pivot to the slide five, which is the catastrophe loss slide. I thought your chart there on the left is interesting in the context of framing what goes beyond one standard deviation and two standard deviations. Inside that disclosure, a couple of things. First of all, it looks like there could be some material subrogation event for you on the wildfire. I'm just curious how that might change your perspective on whether this is a two-standard deviation or a three-standard deviation event. In your first quarter supplement, you provided a reinsurance update. It looks like you raised some of the limits. Maybe you can talk a little bit about that.

Tom Wilson (CEO and President)

Thank you for liking our slide. We work hard on them. Mario, do you want to take the first part? Jess, do you want to take the reinsurance?

Mario Rizzo (COO)

Yeah. Greg, the first thing I'd say is that, obviously, the chart on page five, those are gross losses, so they're not net of reinsurance. The reinsurance recoveries we did disclose in the first quarter, the $1.1 billion, the bulk of which was California wildfire related, and the net loss does not consider any subrogation recoveries. Having said that, to the extent there are potential subrogation recoveries from at-fault parties, we would certainly want to pursue those. There is that new wildfire fund that was established by the utilities in California. I think it's funded at about $15 billion or so with additional capacity beyond that. To the extent there is subrogation that we can pursue, we would certainly do that. We have not reflected any of that in our numbers.

Ultimately, the dollars we recover, given that we're into the reinsurance layers, will go to reinsurers. It's also our customers' money as well. I think, to the extent it provides relief from a rating perspective, it's the right thing to do for our customers.

Tom Wilson (CEO and President)

Now, on the reinsurance program, just a reminder to everyone, we do post a very robust disclosure on the changes so that you can find out on our investor website. We did place the bulk of the national program this quarter. We have announced that. You can see, and I'm sure this is what you saw, Greg, reinsurance limit purchase was up $1.5 billion. That's about 21% in that. Now, we have single event protection up to $9.5 billion, up from just under $8 billion last year on a per-occurrence basis. We are doing that really to reflect the change in the risk profile, right? We buy reinsurance based on our risk and return framework and our economic capital model. The market in the placement went very well.

We split it evenly between traditional markets and the catastrophe bond or the ILS market and had good support for the program this year. On a risk-adjusted basis, the cost will be down, which I think is a really good outcome. It helps protect us from single event risk like we saw recently. We'll announce the remainder of the program that gets placed in Q2 at the end of next quarter. Just as a reminder, that's the Florida program, and then the National General Lender Place program reinsurance gets done this quarter. All in all, again, we have very detailed disclosure that we put out. In general, we increased the total limit that we bought this year to reflect the expansion of the homeowners' book and the expansion of the risk.

Jess Merten (CFO and President of Property-Liability)

Okay, Greg, let me just add on to it. It is really the homeowners' business is growing. I mean, there is a lot of conversation appropriately on auto insurance growth, and we are, of course, highly focused on that. The home insurance business, just units were up 2.5 points. As far as I know, we are not adding 2.5% to the housing stock in the United States, which means we are picking up units here. It is mid-teens growth in revenue. That is a growth business. I feel like it has been overlooked by some people. We have had some shareholders recently say, "No, that is a story not being told." I am trying to tell the story on their behalf and our behalf. It is a good growth business, which is why we need more reinsurance.

Gregory Peters (Managing Director)

Thanks for the additional detail.

Operator (participant)

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

Bob Jian Huang (Executive Director)

Hey. Yeah. Good morning. Maybe one real quick on how we should think about, essentially, the capital position, right? You bought back about $100 million of stock this quarter. Just given the market volatility, your fairly stable capital position, curious how you should think about capital allocation, but also capital return at this point of the junction, given market has been volatile, your shares have been moving around.

Tom Wilson (CEO and President)

I'll start, and then maybe Jess might jump in. First, we're very comfortable where we're at. We've got plenty of capital. It's in the right places. We're earning good returns. We've got the right risk profile. As John talked about, we look at our capital position relative to the whole enterprise in terms of our investment risk as well as our insurance risk. We're really comfortable with where we're at there. We're also comfortable with our program of how we're deploying it, first into growth, because that generates the kind of ROEs that we talked about earlier in the conversation. Secondly, to the extent we need, we have cash, we can give it to investors, then we do. We have a great track record doing that. We're comfortable with the billion and a half dollar share repurchase program.

We're $100 million in, so it's a little early to start talking about what else we're going to do. I don't know, Jess, anything else you want to?

Jess Merten (CFO and President of Property-Liability)

No, I think you hit it, Tom. We've talked about this, Bob. We use a sophisticated economic capital framework to look at our capital position. We're doing that continually and looking at priorities the way that Tom laid out. You saw the announced repurchase, as Tom said, we're $100 million in to $1 billion and five. We've got a little bit of time on that. We'll continue to watch where we sit relative to our target.

Bob Jian Huang (Executive Director)

Okay. No, that's very helpful. You're not front-loading April for buybacks, I guess, is what I'm trying to say, right?

Jess Merten (CFO and President of Property-Liability)

From a pace perspective, we do not put forward guidance out on how we are going to repurchase stock. What we do is we like to have a continual presence in the market with our repurchases, Bob. You can see what we did in Q1 and sort of project out the meeting where we announced it was the end of February, right? We effectively did the $100 million over about a month. We like to have that consistent presence in the market. I would say, on a go-forward basis, we will continue to evaluate and adjust as needed, but that gives you some sense for the pace of what we did in the first quarter.

Bob Jian Huang (Executive Director)

Okay. No, thank you. My second question, just maybe thinking about California, obviously, some competitors are facing more challenges in the homeowner environment. If homeowner competitors were to pull back, does that disrupt their bundling strategy, in your view? Do you think the current environment in California changes the competitive environment there and then, consequently, maybe makes an opening for you? I understand that California previously has been a challenge, but maybe just any color there.

Tom Wilson (CEO and President)

Yes, and partly. How about that? Mario, you fill in here. Yes, it will impact their auto business, if that's what you're referring to. In particular, State Farm is struggling given their losses there. As they have to restrict the amount of business, it will impact their auto business. We know it. We went through it. We went through it in California from 2007, but for a couple of years, right up until this year, which is why our market share is so low. We went through it in Florida when we went from a 13% or 12% share to like 2% in homeowners. We felt it in our auto book. Now, we've recovered, and we have great share in Florida, and we're growing in Florida. They're not down and out.

It will just be a bump that they have to deal with. Yes, it will be something that will change the competitive dynamics. Is it going to change our interest in writing homeowners in California? I doubt it. We'll see what happens in the subsequent reforms. We recovered $1 billion of reinsurance, and we got none of that back in rates. We paid for all of that from our shareholders. Until we get to a place where our costs are actually reflected in what we can charge, we're not going to be interested in selling homeowners at a loss for our shareholders. On the auto business, Mario, maybe you want to talk about the auto business in California.

Mario Rizzo (COO)

Yeah. In terms of auto, we've talked a lot over the past, call it 12 to 18 months, about three states in particular: California, New York, New Jersey, and the profit challenges we had. With California, I think we've largely cycled our way through that. Our California auto insurance is actually generating an underwriting profit. We are open across all channels to write new auto business in California. We got a significant rate approved early last year. We also recently got approval for another 6.9%, which we'll implement in May. Our approach in California has always been to try to stay ahead of loss costs as best we can. The team's doing a really good job of doing that.

We are operating in California just like we are in other states that we are open because we like where we are positioned from a profit standpoint, and we are open for business and looking to grow the auto business in California.

Bob Jian Huang (Executive Director)

Excellent. Really appreciate it. Congrats on the quarter.

Operator (participant)

Thank you. Our next question comes from the line of Elyse Greenspan from Wells Fargo. Your question, please.

Elyse Greenspan (Managing Director)

Hi, thanks. Good morning. My first question is, I guess, on the March policy growth, right? You guys obviously turned the corner with growth in the first quarter. My question's specific to auto. Did you guys observe perhaps any pull forward? Were there perhaps cars being purchased in advance of tariffs? And did that impact any of the numbers in March from a policy growth perspective?

Tom Wilson (CEO and President)

Elyse, I don't think we would be able to tell. Shopping is obviously up in total. It's up in part because what the industry had to do to raise rates to deal with the pandemic-related inflation. It's unclear that it's really moved a lot of people to buy cars. You have seen a slight uptick in used car prices recently. Whether that's in anticipation, who knows?

Elyse Greenspan (Managing Director)

Okay. My follow-up, I guess, is on the tariffs, right? It seems like it'll be about a mid-single-digit increase to severity. As you guys think about that potential increase, and my sense is probably we'll start to see it over the summer. Correct me if I'm wrong. As you guys think about that increase and where your margins are today in your auto book, are you going to either potentially absorb it in your margins, or would you look to take additional price to offset any increase that we potentially see from the tariffs?

Tom Wilson (CEO and President)

We're going to manage through whatever the impacts the tariffs are, just as we did the inflation that came through the pandemic. Our objectives are to give customers a good competitive price, make sure we get a return for our shareholders, and to grow. Those are our objectives. Right now, of course, it's unclear when the actual impact will be, to your point. It takes a while to rattle through new car prices, used car prices, dealers, to people fixing cars, to us replacing cars. In the pandemic, of course, it happened incredibly rapidly. We had a 60% increase in used car prices in about less than two years, I think, minus something like that. We are factoring in the fact that we think there will be increases in costs, but we don't know what those are yet.

It's difficult to say exactly what we would do in prices or even what the percentage is. You quoted about mid-single digits. I think you were like five points. There are industry estimates that are higher than that. The answer is nobody really knows. I'll just describe what we're likely to do. Our costs are likely to be higher. I agree with that. Particularly, auto repair and replacement costs are likely to increase. The cost to repair homes is also likely to increase. Our analysis, which we've done tons of, is that it's probably less. Maybe it's half of what will happen in auto insurance. We're more focused on auto than we are in home. We are hopeful that the trends reduce what I would call the rampant costs of fundamental losses will take hold. That should offset some of the increases.

You saw in Florida, tort reform really helped on the, what I'll just call opportunistic. Somebody gets in a fundamental accident, and they just decide, "I'm going to sue somebody so I can get some money from them because of the way litigation." Georgia just passed some tort reform. We're hopeful that that will work. Obviously, as Greg asked us, we're still taking costs down. We're not sticking where we are. All of that's fixed into the mix of where we are. If we need to raise prices, we will raise prices just like we did in the pandemic because with our margins, we don't have a lot of room to absorb. It's not like we're selling software with 80% margins. We're in a relatively thin margin business. We need to raise our prices.

On the protection services businesses, some costs are likely to go up as well. We factor that into the way we're pricing our product as we go forward. It adjusts and it spreads over time. On a growth standpoint, I think it just is a level playing field. I think the advantages you have today are the advantages you're going to have tomorrow if car prices are X percent higher. I don't really see much difference in that growth side on property liability. On the protection services businesses, to the extent that consumer demand goes down because inflation is up or people start buying fewer TVs or washers or something like that, that could impact our growth a little bit there. We've got great international growth we're doing there. I'm comfortable with our growth numbers in the tariff.

From the investment standpoint, John talked about how balanced our portfolio is, how proactive we are. We factor all of this into the mix side. From an enterprise standpoint, tariffs are manageable for us. They will be manageable for our customers. We'll just do whatever we need to do to make sure we serve both our customers well and keep making money for shareholders.

Elyse Greenspan (Managing Director)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Alex Scott from Barclays. Your question, please.

Alex Scott (Equity Research Analyst)

Hey, good morning. The first one I had is just on retention. See if you could dig a little more into what you're seeing and also the SAVE program. I guess specifically, I guess we don't have the exact numbers necessarily, but we can kind of calculate proxies and so forth. I mean, it looks like it's still about as bad as it's gotten in terms of retention. How much of that is associated with package business, maybe still some shedding of business versus more competition in the auto market in certain states versus running through price in certain states? Can you help me think about how quickly you expect that to come back and what this SAVE initiative will do to help that?

Tom Wilson (CEO and President)

Okay. We could talk about some of the specifics and the various areas. I mean, I know it might be frustrating to you that we don't give you the retention number for the Allstate brand for auto insurance. We did that on purpose because we found that as we delve into the individual pieces, it gets a little confusing, and it's hard to tell the story. The story is, are we growing total PIF? I guess the story. Some of that's new business, which we show you numbers on. Some of that is retention, which you're right. You can back into the total number. The specific percentage, though, bounces around by the type of customers you're writing. We've gotten much more aggressive in the non-standard market.

If you look at our internally, the way we look at that risk class, we're doing much better in that segment than we were a couple of years ago, which is where we think one of our big competitors has had a lot of growth. That comes with lower retention. You're like, "Oh, well, you feel good on new business, not so good on retention." We decided rather than take everybody through the third derivative, we would focus on, are we growing total PIF? Rather than going into the specific numbers. That said, it's a good question because retention is really important, and we're doing a lot of work on it. Mario, do you want to talk about the various programs you have going on retention?

Mario Rizzo (COO)

Yeah. It is a good question because retention is obviously a core way that we're going to grow. You're right. As I said earlier, it remains in the same zone relative to where it's been the last couple of quarters. Maybe the way I would think about it, Alex, is actually kind of flip it. Rather than talk about retention, let's talk about defection, which are the customers that leave us because our actions are really focused on those customers. As you think about what we're doing, the things that cause customers to defect, there are certain triggers. It could be price increase, which obviously we and the industry have had to raise pretty significantly over the last couple of years. Those things trigger shopping. Also poor customer experience or a negative customer experience. Those things matter as well.

With SAVE, we're really going after those triggers. We're looking to improve affordability by making sure, again, customers have the best possible coverage, the best possible price that's based on their personal circumstances to help alleviate that shopping trigger related to the price of insurance. It's also focused on improving our customer interactions broadly to make sure that customers have the best possible and an industry-leading customer experience when they engage with Allstate, again, to reduce the number of defections. Along with that, bundling helps the stickiness of the relationship. Our agents on the Allstate side continue to bundle at historically high levels around 80% for new business. That helps retention because it improves the depth of the relationship.

Finally, the fact that we have had to be less active from a rate perspective creates more stability in the book, which also will help in terms of reducing defections. We are focused principally proactively on those first couple, which is improving the customer experience, improving affordability, continuing to drive bundling at the point of sale, and through cross-sell where we can to help improve the retention trends going forward.

Alex Scott (Equity Research Analyst)

Got it. Okay. That's all really helpful. Next question I had is sort of a follow-up on some of the loss trend comments you made around tariffs. I appreciate there's a ton of uncertainty right now, and there's a wide range of outcomes. When I think about your financial position in terms of just premium to equity leverage, which I know is very crude, not necessarily the way you look at it, but at a high level, you're sort of sitting at a much higher level than you were prior to the 2021 inflationary period. You're still buying back stock. I'm just trying to understand how do you think about your capital capacity to deal with the more adverse outcomes that you described?

Are there sort of offsets or things I'm not thinking about that are more fine-tuned than just looking at that premium to equity now versus then?

Tom Wilson (CEO and President)

We're in a really strong capital position. Depending which equity you're looking at, if you're looking at statutory capital, you got to add back in what's at the holding company, which just at the end of the first quarter was about $3 billion. There's a lot of capital there. We think we have plenty of money, even if it means really high increases in average premiums because inflation ticks up. We have capital that is positioned so that we can—we went into this with capital thinking we're going to grow market share. We're planning on growing market share. We've got capital to grow market share. We have plenty of capital to do that. If it means that average premiums go up, we've got plenty of capital to do that. We're feeling really good about where our capital position is.

We never really thought we had an issue. A couple of people did, but we're in great shape. I do think that the premium to surplus ratio that you're measuring is too crude a measure. That's not a good way to look at capital. We don't drag you down into the middle of it because we've always had good capital, and it gets very sophisticated. We do have lots of scenarios we run. We run, what if we're in stagflation? What happens with stagflation and market share growth and how are we feeling about overall capital? We're just in a really good place.

Jess Merten (CFO and President of Property-Liability)

The only thing I would add to what Tom said is you'll recall as we went through and talked about capital over the last few years, the way that we construct our economic capital is we have a base capital layer, and then we put stress capital on top of that. The stress is to absorb times like what we're talking about, right? We have stress capital to absorb the volatility that comes with changing market conditions. To the extent where we have a repurchase program in place, that means that we've rebuilt that stress layer from the previous years. As we talked through capital in the last few years, we said there's sort of an order of operations, and you have to get to target. Target means you've rebuilt a stress layer.

As you think about going forward, as Tom said, we're in a very strong capital position, and we've got capital in place to absorb uncertainty and changing market conditions. I think one of the things that did not get as much focus as we came through the pandemic was that higher prices was based on higher loss costs. Higher loss costs led to higher reserves. Higher reserves leads to more investments, and that leads to more investment income, which keeps going on forever. There is a growth aspect to investment income that comes out of this as well, besides just making sure you have good combined ratio.

Alex Scott (Equity Research Analyst)

Yep. All good points. Thank you.

Operator (participant)

Thank you. Our next question comes from Michael Zaremski from BMO. Your question, please.

Michael Zaremski (Senior Equity Research Analyst and Managing Director)

Hey, great. Thanks for fitting me in. First question is a high-level question. Looking at consensus, not saying this is necessarily correct, but expected to earn Allstate as a 23% ROE in the coming years. That's obviously well above Allstate's long-term average and your cost of equity. You've spent significant time and effort building out additional sales channels in recent years. I guess just why not write at a slightly worse combined ratio, trade off some ROE for enable more sustainable organic growth since it seems growth has been all the focus on a go-forward basis?

Tom Wilson (CEO and President)

We think we can do both. When we look at our—if you just go to auto insurance, if you look at our combined ratio relative to the industry, we've always been able to operate at—let's call it five points better than the industry average, which means we've been able to extract economic rents and still be competitive in the marketplace. We haven't grown as fast as one of our competitors have. We'd like to grow that fast. We are working on that. Their model shows that they have about the same level of combined ratio, and they can grow. We are like, "Hey, we should be able to do both." In homeowners, we have an industry-leading position, and we are growing. We think we can do both. I do think that growth is the unlock to—I think you're absolutely right.

Growth is the unlock to the valuation multiples. If you look at our valuation multiples to anybody else in the industry, they're substantially below. We obviously don't like that because we think we got great businesses, and it's all focused on auto insurance as opposed to how you're doing the home insurance and our protection plans. Businesses and services businesses are killing it. The market will tell us when they're ready to pay more, but we're working on it. We'll do one more question.

Operator (participant)

Certainly. Our final question for today comes from the line of Josh Shanker from Bank of America. Your question, please.

Josh Shanker (Managing Director and Insurance Equity Research Analyst)

Thank you for fitting me in. I appreciate it. In terms of the cadence of advertising spend, I noticed you spent less money in the first quarter than you did in the fourth quarter. Historically, looking at when GEICO and Progressive added business, they were more first-half-year-weighted policy-addition businesses. I do not know if something has changed about the industry, but has the ad spend already peaked? You talked in the back half of last year about ad spending for future growth. Can you talk about how that works and whether it is all playing out as the design sets up?

Tom Wilson (CEO and President)

It has not peaked in the first quarter for us. Everybody else will have to decide what they do. I cannot speak to theirs. Josh, I could speculate, but it is just speculation that the direct business—this I know—the direct business does write more new business in the first quarter than other quarters. They are heavier in direct than we are. Certainly, GEICO is all direct other than a small little piece of their agency business to kind of build out. Progressive is a good half direct. We are not quite there. I would guess that their advertising by quarter lines up with where their opportunities are by distribution channel by quarter. That is me outside looking in.

As it relates to us, as long as we're getting a good combined ratio and we're writing new business and our economics on advertising, which are very granular these days, not quite as granular as the billion price points in estate and auto insurance, but pretty darn close. As long as we're driving positive ROE on that advertising stuff, we'll keep doing it. It's not all just average. We do look at the incremental advertising spend as well to make sure we're getting good returns. Our goal is to increase market share and sell more protection to people. There are other places we can grow besides auto insurance too. I think we should be growing faster in renters and some other stuff. It's not going to make a huge deal in terms of actual revenues.

One of the things we're also focused on is we've crossed a couple hundred million in policies in force. That is substantial presence in America. We're focused on not just every other auto policy, but everything else we sell as well. Thank you all for tuning in. We do have the capabilities to brand the distribution, the resources to help us accomplish that strategy, which is grow market share in property liability and expand the protection we offer to everybody else. Thank you for your ongoing engagement. We'll talk to you next quarter.

Operator (participant)

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