Q4 2023 Summary
Published Jan 10, 2025, 5:10 PM UTC- Allstate resumed writing business in California across all channels after obtaining approval for a 30% rate increase, which improves profitability and opens growth opportunities in a key market.
- The acquisition of National General has significantly boosted Allstate's presence in the independent agent channel, increasing from over $5 billion in 2021 to over $9 billion currently, enhancing growth prospects in both nonstandard auto and standard preferred homeowners insurance.
- Allstate has ample capital to fund its growth initiatives without needing to divest assets, demonstrating strong financial flexibility to capitalize on market opportunities.
- Potential increase in combined ratio due to higher loss ratios on new business: As Allstate increases the volume of new business, particularly after unwinding underwriting restrictions and increasing advertising, the new policies tend to run at a higher loss ratio compared to renewals, which could impact the overall combined ratio going forward.
- Regulatory challenges in obtaining adequate rate increases in key states: In New Jersey, Allstate received approval for only 17% of the 29% rate increase filed, leading to continued restrictive underwriting and a shrinking presence due to lack of rate adequacy. In New York, they secured a 14.6% rate increase but acknowledge the need for additional rate hikes. These limitations may hinder profitability in these important markets.
- Reduction in share buybacks due to capital allocation for growth: Allstate expects to have less capital available for share repurchases than in the past, as it prioritizes funding growth opportunities and managing increased premiums and risks. This shift may reduce direct returns to shareholders.
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Rate Adequacy in Key States
Q: Is pricing in CA, NY, NJ sufficient for profitability?
A: Allstate obtained significant rate approvals: 30% in California , 17% in New Jersey , and 14.6% in New York. In California, they're comfortable writing new business with the current rates. In New Jersey, they need more rate and will continue restrictive underwriting, planning additional filings. In New York, they've implemented the approved increase but intend to file for more rate soon. -
Growth Plans and Competitive Positioning
Q: How quickly can you pivot to growth in 2024?
A: Allstate plans to grow aggressively where rate adequacy is achieved. They're unwinding underwriting restrictions and investing in marketing in profitable states. Growth will come from both improved retention and new business acquisition, leveraging their broad distribution channels. -
Capital Allocation and Share Buybacks
Q: Do you have sufficient capital to fund growth, or need strategic actions?
A: Allstate has ample capital to support growth without needing strategic actions like divestitures. While growth may reduce excess capital, they have a strong history of returning capital to shareholders when appropriate. -
Expense Reduction and Claims Impact
Q: What expenses are you cutting without affecting claims quality?
A: Allstate focuses on reducing costs through digitalization, outsourcing, and process improvements. They're investing in claims operations, including staffing and training, to handle increased severity and litigation effectively. This ensures they pay what they owe while eliminating leakage. -
Transformative Growth and Expense Management
Q: How will you grow policy count while lowering expenses?
A: Growth will come from increased efficiency in distribution, operations, and claims. They've restructured agent commissions to lower renewal costs but incentivize new business. Digital initiatives reduce expenses, allowing investment in marketing. -
Impact on National General
Q: How does the transformative growth plan affect Nat Gen?
A: National General is integral to transformative growth. Growth has been strong in nonstandard auto, and they're expanding into standard and preferred markets with Custom 360. They've grown their independent agent presence from over $5 billion to over $9 billion since acquiring Nat Gen. -
Homeowners Pricing Adequacy
Q: Is pricing in homeowners adequate, especially for bundlers?
A: They've implemented low-teens average premium increases, about 12.5%. The underlying combined ratio improved by 3 points to 67%. With 80% of homeowners customers bundled, they confidently write bundled business for its substantial lifetime value. -
Policy Growth at National General
Q: What's driving Nat Gen's policy growth?
A: Growth is primarily in nonstandard auto due to market disruptions. Nat Gen has taken 23 points of rate over two years, maintaining profitability. They're also expanding into standard and preferred auto and homeowners with Custom 360. -
Impact of Underwriting and Advertising on Combined Ratio
Q: How will unwinding restrictions and increasing advertising affect combined ratio?
A: Opening underwriting increases new business at adequate rates but may have a higher loss ratio due to new business penalty. Increased marketing supports growth, and the overall combined ratio impact is managed by pricing each risk appropriately. -
Policies in Force Trends
Q: How are PIF trends in states without big rate actions?
A: Retention is improving in states where rate actions have stabilized, such as Texas. As they lap prior rate increases, they've seen a bounce back in retention, contributing to sequential improvements. -
Holdco Cash and Dividends
Q: Did holdco cash increase due to dividends from subsidiaries?
A: Yes, Allstate moved capital from statutory entities and non-insurance subsidiaries to the holding company to maximize flexibility. -
Net Growth in Bundlers Despite Auto Decline
Q: Are you growing bundlers even with declining auto policies?
A: Allstate emphasizes bundling, with agents writing bundled business at an all-time high. Despite potential declines in auto policies due to price increases, the focus on bundling supports overall growth. -
Severity and Frequency Expectations for 2024
Q: Are you anticipating 8-9% severity in 2024?
A: Allstate does not provide forecasts for frequency or severity but ensures they price appropriately for whatever trends emerge.