The Allstate Corporation (ALL) Earnings Call Transcript & Summary

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.