雅虎香港財經 The Allstate Corporation (NYSE:ALL) Q1 2024 Earnings Call Transcript
The Allstate Corporation (NYSE:ALL) Q1 2024 Earnings Call Transcript May 2, 2024
The Allstate Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to Allstate's First Quarter Earnings Investor Call. Currently all participants are in a listen-only mode. After prepared remarks, there will be a question-and-answer session. [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, Brent Vandermause, Head of Investor Relations. Please go ahead, sir.
Brent Vandermause: Thank you, Jonathan. Good morning, and welcome to Allstate's first quarter 2024 earnings conference call. Yesterday, following the close of market, we issued our news release and investor supplement, filed our 10-Q and posted today's presentation, along with our reinsurance update on to our website at allstateinvestors.com. Our management team is here to provide perspective on these results and our strategy. After prepared remarks, 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 2023 and other public documents for information on potential risks.
Before I turn the call over to Tom, I would also like to provide an update on our monthly financial disclosures, since early 2022, implemented rate actions from the prior month have been included in our monthly release and disclosed on our Investor Relations website to provide additional transparency on our proactive response to the rapid rise in loss costs. Going forward, our implemented rate disclosures for auto and homeowners insurance will be disclosed on a quarterly basis instead of monthly within our investor supplement. And now I'll turn the call over to Tom.
Tom Wilson: Good morning. Thank you for investing your time and have interest in explaining why Allstate's such an attractive investment opportunity. I'll begin with an overview of results, and then Mario and Jess are going to walk through the operating performance. And then as Brent mentioned, as we'll have time for Q&A. Let's begin on Slide 2. Allstate strategy has two components, which is shown on the left there, increased personal property-liability market share and expand protection provided to customers. On the right-hand side, you can see the highlights for the quarter. So we generated net income of $1.2 billion in the first quarter. The profit improvement was broad-based. It reflects successful execution of the auto insurance profit improvement plan, attractive homeowners' insurance margins, and they also benefited from lower catastrophe losses in this quarter.
Net investment income was up almost 33%, reflecting the 2022 and 2023 repositioning into longer duration, higher fixed income yields and then yields also went up some. And we had good performance-based valuations this quarter as well. Protection Services also had a good quarter, and that was led by Protection Plans and Roadside Services; if you go down to the bottom, what do we do from here, we have a broad approach to further increase shareholder value. First improving auto profitability in underperforming states will increase returns. Secondly, we're focused on increasing policies in force under the Allstate brand, while continuing to expand National General. Mario is going to talk about that in a few minutes. Allstate's integrated approach to investing has and will continue to create value for shareholders.
Expanding protection services will benefit both our customers and shareholders. And then the sale of the Health and Benefits business to a buyer that can further leverage our success will create more shareholder value. Although I'd point out, it will have a short-term negative impact on return on equity. Let's review the broad-based profit improvement on Slide 3. So revenues were $15.3 billion in the first quarter, reflecting a 10.9% increase in Property-Liability earned premium and that, of course, was primarily due to kick rate increases in both auto and homeowners insurance. Over the last 12 months, property-liability written premiums have increased by almost $5 billion on an annual basis. Net investment income in the quarter was $764 million, or $32.9 for the prior year, and that reflects those higher fixed income yields and the duration extension I just mentioned.
The strong profitability in the quarter generated adjusted net income of $1.4 billion or $5.13 per diluted share. Now let me turn it over to Mario to go through property liability results.
Mario Rizzo: Thanks, Tom. Let's start on Slide 4. Property-Liability earned premium increased 10.9% in the first quarter, driven by higher average premiums. Underwriting income was $89 million, the combined ratio of 93%, which improved by 15.6 points compared to prior year was driven by higher premiums earned, improved underlying loss cost trends, lower catastrophe losses and operating efficiencies. The chart on the right depicts the components of the 93 combined ratio. Lower catastrophe losses of $731 million were 8.8 points favorable to the prior year quarter, reflecting milder winter weather. The underlying combined ratio of 86.9% improved by 6.4 points compared to the prior year quarter. The improvement was driven by higher average premium and moderating loss cost increases.
Expense reduction programs also benefited results more than offsetting higher advertising spend. Prior year reserve reestimates, excluding catastrophes, had only a small impact on results. Favorable development in personal auto and homeowners insurance largely offset increases in personal umbrella liabilities and commercial auto reserves for the transportation network contracts we began exiting in late 2022. Now let's take a closer look at auto insurance profitability on Slide 5. The first quarter recorded auto insurance combined ratio of 96 improved by 8.4 points compared to the prior year quarter, showing that our profit improvement plan is working. The left chart shows quarterly underlying combined ratios. You will remember, we showed this chart last year, which adjusts 2022 and 2023 quarterly reported figures to reflect the updated average severity estimates as of the end of each respective year.
As you can see, the underlying combined ratio improved sequentially in each of the last five quarters to 95.1% in the first quarter of 2024. The chart on the right shows that in the first half of 2023, premium increases in dark blue were being offset by higher underlying losses and expenses. Profits began to improve in the third quarter of 2023 as premiums outpaced loss and expense increases and this continued in this year's first quarter. The slight first quarter drop in underlying loss and expense reflects lower claim frequency that benefited from milder weather and improved operating efficiencies, partially offset by higher severity. Relative to the prior year quarter, average underlying loss and expense in the first quarter of 2024 was 6.7% higher as you can see at the top of the table.
This reflects higher current year incurred severity estimates, primarily driven by bodily injury coverage, which was partially offset by lower accident frequency and the favorable impact on current year severity of favorable prior year reserve development in the Allstate brand. Given the impact that good weather had on frequency in the quarter, favorable frequency may not persist as the year progresses. While auto margins have improved due to our price improvement actions we remain fixed on ensuring that rate levels continue to keep pace with underlying cost trends driving improved profitability in those states not yet achieving target margins. Slide 6 shows how auto profit improvement supports pursuing policy growth. As shown on the left, Allstate brand implemented rate increases exceeding 16% in both 2022 and 2023.
In the first quarter of 2024, we implemented rate increases of 2.4% to keep up with the cost trends and improve margins in states not achieving target margins. The chart on the right depicts the Allstate brand auto proportion of premium in states with an underlying combined ratio of below 96%, shown by the dark blue bars. As more states have achieved target returns, we have started to increase marketing investment, both nationally and in those states. Slide 7 shows that while Allstate brand policies in force decreased compared to prior year, albeit at a slower rate than last quarter, over half that decline was offset by growth at National General. On the left, you can see that total protection auto policies in force decreased by 2% and compared to prior year due to a decline of 5.2% in the Allstate brand, reflecting the continued impact of auto insurance profit improvement actions.
Underneath this decline is the positive impact of higher Allstate agent productivity and direct channel sales. Customer retention in the Allstate brand also continued to improve, and that improvement has a significant impact on growth trends. Allstate brand auto retention of 86% improved by 0.3 points compared to prior year, as the negative impact of large rate increases in 2022 and 2023 begins to moderate. As we discussed last quarter, we received approval for rate increases in the profit challenge states of California, New York and New Jersey, which were affected this quarter. Renewal trends in those states were stable in the first quarter, but the full impact on customer retention has not yet impacted growth. Allstate brand new business also increased 7% versus the prior year, reflecting more advertising and increased Allstate agent productivity and direct sales.
National General was another positive to growth. Policies in force increased by 12.6% over the prior year due to an increase in nonstandard auto insurance and the continued rollout of a new middle market standard and preferred auto insurance product, also known as Custom 360. Slide 8 summarizes homeowners insurance profitability, which generated strong returns in the quarter. Homeowners insurance provides a differentiated customer experience and represents an additional growth opportunity across channels. The chart shows the homeowners combined ratio over time, achieving a 10-year average of approximately 92%. The first quarter combined ratio of 82.1% translated to $564 million of underwriting income and improved 36.9 points compared to prior year, primarily driven by lower catastrophe losses.
The underlying combined ratio of 65.5% also improved by 2.1 points due to higher average premium and lower non-catastrophe claim frequency. Allstate Protection homeowners generated double-digit written premium growth compared to prior year. reflecting higher average gross written premium per policy and policies in force growth of 1.4%. Allstate agents continue to bundle auto and homeowners insurance at historically high levels. and National General's Custom 360 product offers additional growth opportunities in the independent agent channel. Allstate has created an industry-leading business model, and we remain confident in our ability to generate attractive risk-adjusted returns. Moving to Slide 9, let's discuss the property liability growth opportunities.
Starting on the first row. Improving customer retention remains key to improving our growth trajectory. Auto retention levels have stabilized and sequentially improved over the last two quarters and homeowners retention improved 0.8 points to the prior year quarter. Our agents and employees continue to guide customers through the renewal process by offering coverage options and ways to save through innovative programs and discounts like Drivewise and Milewise telematics offerings. Growth can also be increased by easing new business restrictions. As rate adequacy has been achieved in more states, restrictive underwriting policies have been unwound in states representing more than 75% of Allstate brand auto premium. Increased Allstate brand advertising is also expected to increase growth.
The components of transformative growth are being implemented to create sustainable growth. An improved competitive position will result from further expense reductions. Expanded customer access comes from increased Allstate agent productivity enhanced direct distribution and the expansion of custom 360 to more independent agents. A new Allstate brand, affordable, simple and connected auto insurance product is available in nine states on the direct sales side. Online quote completion time has been reduced by 40% to less than three minutes within the new technology ecosystem. This platform will be expanded to the Allstate agent channel this year into more states and homeowners over the next several years. With these growth levers, Allstate is positioned to generate sustainable, profitable growth.
Now I'll turn it over to Jess to talk about other operating results.
Jess Merten: Thank you, Mario. I'm moving to Slide 10, let's discuss the increase in investment income. Before we dig into specifics, let me reiterate that our active portfolio management includes comprehensive monitoring of economic conditions, market opportunities, interest rates and credit spreads by rating, sector and individual names. We seek to optimize return per unit of risk across the enterprise. This approach to portfolio management continued to benefit results in the quarter. Net investment income shown in the chart on the left totaled $764 million in the quarter, which is $189 million above the first quarter of last year. Market-based income of $626 million shown in blue was $119 million above the prior year quarter as the fixed income portfolio continues to benefit from repositioning into longer duration and higher yielding assets that have sustainably increased income.
Performance-based income of $201 million shown in black was $75 million above the prior year quarter due to higher valuation increases and was above the trend that we have seen in recent quarters but lower than 2022. The performance-based portfolio is constructed to enhance long-term returns and volatility on these assets from quarter-to-quarter as expected. Total portfolio return of 0.5% for the quarter and 4.8% for the last 12 months which is shown in the table below the left chart indicates that a balanced approach to risk and return creates shareholder value. The chart on the right shows changes made to the bond portfolio duration in comparison to interest rates over time. Higher income this quarter reflects increases in duration as inter rates rose in 2022 and 2023.
The table below the chart shows fixed income portfolio earned yield was 4.1% at quarter end, a 0.7 point increase compared to 3.4% for the prior year quarter. Slide 11 breaks down the growth and profit performance of the protection service businesses. Revenues in these businesses increased 12.2% to $753 million in the first quarter compared to the prior year quarter. This result is mainly driven by growth in Allstate Protection Plans, which increased 20.5% compared to the prior year quarter, reflecting expanded product breadth and international growth. In the table on the right, you will see adjusted net income of $54 million in the first quarter increased $20 million compared to the prior year quarter. The increase was primarily attributable to two businesses.
Profitable growth in Allstate Protection plans resulted in adjusted net income of $40 million, representing an increase of $12 million compared to the prior year quarter. Higher revenue and improved claims trends benefited the bottom line. Allstate Roadside had adjusted net income of $11 million, driven by increased pricing, improved provider capacity and lower costs. Shifting to Slide 12, the Health and Benefits business continued to perform well. For the first quarter of 2024, revenues of $635 million increased by $52 million compared to the prior year quarter, driven by premium growth in individual and group health in addition to higher fees and other revenue in those businesses. Adjusted net income of $56 million in the first quarter was consistent with the prior year quarter as individual health fee income growth was offset by lower employer voluntary benefit income.
On Slide 13, we'll wrap up our prepared remarks where we started by reiterating Allstate's strategy and opportunities to increase shareholder value; improving auto insurance profitability, pivoting to growing auto and homeowners' policies in force, proactive risk and return management of the investment portfolio, expanding protection services and completing the sale of health and benefits, which we expect to occur in 2024. With that context, let's open up the line for your questions.
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