The Allstate Corporation (ALL) Earnings Call Transcript & Summary

Welcome, everyone. I'm Tracy Benguigui, Insurance Analyst at Barclays, and I'm pleased to host a fireside chat with Tom Wilson, CEO of Allstate. We have a lot to cover, so I think I'll just turn it over really quickly with Tom. I think he has a few slides to go over.

Well, good morning. We're going to use a few slides just to set some context for you. Challenge, I'll get rid of that. First, let's start on Slide 2. Here we go. All right. This is our surgeon general warning, I'll also be doing forward-looking statements. You need to consider them in context of all the stuff we give you, whether it's the 10-K, the 10-Q, look at our investor website before you make your decisions. And this will be available on our website. Slide 3 shows our strategy, which is the 2 ovals on the left. We have 2 components to it, all customer focused. First is the increased personal property-liability market share through our transformative growth plan. At the same time, we're expanding our protection solutions. The bullets on the right-hand side of this slide show how we're doing on this in 2022. We're executing a plan to improve auto profitability, which has been impacted by the dramatic cost to increase to repair cars and also increase bodily injury costs. We're going to improve profitability by raising auto insurance rates, implementing underwriting restrictions in underperforming markets, continue to introduce expenses and modifying our claim practices to deal with a high inflationary environment. And I'll give you some more detail on another slide. At the same time, we continue to advance our transformative growth plan. Protection services businesses are generating good profitable growth. And beginning late last year, we also reduced the duration of our bond portfolio to lower the exposure to higher interest rates given the negative impact that inflation was having on auto insurance, but we were in the category of catch us once, shame on you; catch us twice, shame on us. So we reduced the duration to cut that portfolio in half. We've avoided about $1.3 billion of losses in the value of the bond portfolio by doing that. At the same time, our capital position is strong, enabling us to maintain high cash returns to shareholders, whether that's through dividends or share repurchases, and we've reduced the outstanding shares by 4.6% just in the first half of this year. Let's move to Slide 4 and begin to discuss auto insurance profitability. I'm sure Tracy will have some questions about this. Our goal is to achieve a mid-90s combined ratio. In the chart on the left, you can see that we have a long history of doing this. So we had an average combined ratio of 95.5 for the 5-year period before the pandemic. That's 2015 to 2019. And our performance is amongst the best in the industry. We've been favorable to the industry by 6.5 points on our combined ratio over that time frame. Now the pandemic, of course, created all kinds of volatility for that business. Stay-at-home orders in -- early on in the pandemic reduced accident frequency so that we had way improved profitability in 2020 despite the fact that we gave our shareholders -- our customers over $1 billion back, which we did not need to do. It was not [ contractually ] required. We led the industry on that by being customer focused. And then you can see in the charts, in first half of 2021, we still had good results. And then as fiscal monetary policy started to drive inflation, particularly used car prices up 60%, that compared to 2018, that increases the cost to both replace and repair cars. And that was higher than embedded in our prices. And then the cost of settling bodily injury claims also went up, and that's escalated, first, more severe accidents. People are driving faster, higher medical costs and then increased attorney representation due to more claimants. As a result, our loss cost has begun to increase rapidly in the second half of 2021 and then into 2022. And that led to 105 combined ratio through the first 6 months of 2022, obviously, far above where we have been historically. So outlined on the right is our comprehensive plan to get back to where we are -- want to be, which is in the mid-90s. There's 4 areas: raising rates, implementing stricter underwriting guidelines, continuing to focus on reducing expenses and then modifying our claim practices to deal with the high inflationary environment. Starting with rates. Since the beginning of the fourth quarter of 2021, we've implemented rate increases of 10% in the Allstate brand with 7.1% through the first 7 months of 2022. We're implementing more restrictive underwriting actions on our new business in locations or risk segments where we cannot achieve adequate prices, so places like California. We're also reducing operating expenses as part of our transformative growth plan, and we will reduce advertising in 2022 as well. Claim practices have been modified to deal with a high inflationary environment. That means getting there early, leveraging analytics, using your scale, redesigning your processes. So for example, we have strategic partnerships with budget part suppliers where we buy at discounts, repair facilities. We use predictive modeling to decide should we repair or replace this car and also to look at the likelihood of severe injury and attorney representation. Slide 5 talks about the question that everybody wants to hear about is okay. We see you ran at 95. We have confidence you can get there. So when? And of course, that's a $100. question. [ So that's 130 to 230 as it go ], but we'll take it. Starting on the left, the first 6 months of the year, the auto insurance report a combined ratio that was 105. That's shown by that first blue bar. To start with a normalized base, and we said, okay, well, we hit some prior year reserve increases in the first half of the year, and we normalize the catastrophe ratio to our historical 5-year average. And that improves the combined ratio by 2.5 points. The second green bar reflects the estimated impact of rate actions already implemented. [indiscernible] remember, we go to the regulator. We get it approved. We implement it. It takes 6 months before all of our customers roll over, and then it takes us another 6 months to fully earn all that money into the P&L. And so this is an additional $1.7 billion through the Allstate and National General brands. And those will be earned by the end of 2023. That said, we expect loss costs to continue to increase from here, which requires us to further increase auto insurance rates. So we're pursuing larger rate increases in the second half of 2020 than we did in the first half. So the number I talked about, we believe, we will exceed that in the second half of the year. On auto profitability, we'll improve then as rates already taken and the future rate increases come in. We're also a couple of years into a cost reduction program, so the benefit of us starting transformative growth a couple of years ago, we're already well on the way of reducing our expenses. So we didn't have to like start anew. It's just accelerating some of it. And then so that will help improve the combined ratio. And then, of course, that's -- the question is how does that relate to what happens to loss costs. But our goal is to be in mid-90s. Let's turn to Slide 6 and discuss our industry-leading position in homeowners, which has generated $1.2 billion annually. I would just adjusted net income over the last 10 years. The graph on the left shows the homeowner insurance combined ratios. Allstate's in blue. The industry is that green dash lines and some individual competitors are put on the slide as well. As you can see, Allstate leads the industry in homeowners just as we do in auto insurance. With climate change, although I would say in home insurance, we're kind of by ourselves, in auto insurance, there are a couple of other people who are quite good at running good, combined ratios there as well. With climate change, it's increasing the severity of weather. This is a growth business, and we're also increasing policies in force. And the components of the way we got here to build this business are shown on the right. It starts with risk selection. So we created a balanced risk portfolio through individual market and risk actions taken over multiple years, including lowering our catastrophe risk exposure by 25% or 2 million policies from 2005 to 2013. We also developed advanced tools to evaluate the risk at the individual level to ensure that we have the right price for the exposure. That includes wind scoring, aerial imagery, evaluating property conditions and all kinds of other sophisticated analytics. Product design is also important to make sure we meet the customers' needs but at the right price, to consider roofs. So a new roof is typically more resilient to damage than an old roof. Not a surprise the shingles are not worn out. And if you think about a house, the thing that's most subject to be damaged is the roof because it's the thing sticking out. And so we age rate roof's pricing with newer roofs paying less than older roofs. Or you can buy down and not have full replacement on your roof as well if you don't want to pay the extra price. Now you can see another element of pricing sophistication. And clearly, this year, when we have -- it's called a property inflation adjustment. It increases the price we get for homeowners insurance as property values go up when it happens. So this year, homeowners average gross premiums are up 13.7% through June compared to the prior year. We also established required capital by geography, reflecting the risk to that area. This leads to a lower combined ratio target for the coastal zones and the more catastrophe prone areas. The system also is designed to meet our customers' needs as we have to serve our customers. So to lower our cost and manage earnings volatility, we're very large and sophisticated user of reinsurance because it has a lower cost of capital for us, and we could spread the risk around the world. We also provide customers with third-party coverage. We're a very large broker of other people's products in places like Florida and other places where we want to serve our customers and sell them auto insurance but we don't necessarily have the capacity or want to sell them a homeowners insurance. Our claims capabilities are really effective and efficient. We leverage technology. We leverage drones. We're all over the analytics on it. So what that's done is create an industry-leading sustainable position in homeowners. And by the way, we do -- every quarter, we do a special topic on some subjects. So we did auto earlier this year, homeowners this year We just did investments. So if you're interested in more detail on that, you could go to our website through the [ deep desk ]. Let's move to Slide 7 and discuss what we're doing on transformative growth. This is our multiyear initiative to increase personal profit liability market share by building a low-cost digital insurer, and there's 5 components to this effort: one, improving customer value. That means more competitive price, better features, better experience, expanding customer access, increasing sophistication, investment in customer acquisition, deploying new technology ecosystems to make all that work, enhancing our organizational capabilities. So we made significant progress on all of those. And you can see that this creates kind of a flywheel of growth. You start at the top of this graphic there. Lower -- reducing expenses enable us to give a more competitive price relative to our competitors without having to give up margin. A more competitive price, when you combine it with new protection solutions and digital service, will increase customer retention as well and new business close rates. We've seen that in the market with what we've already done and hence, growth. And then if you enhance and expand your distribution, whether that's Allstate agents, our new market sales agents, whether we -- direct, we now sell direct under the Allstate brand, 7% less. So if you make it available to more people, you're going to sell more, so you got to then be sophisticated in your customer acquisitions. Industry spends a lot of money getting customers. We think there is an opportunity to reduce cost to be better at that. The new tech platforms help us do that, and that just gets you in the circle. New tech platform cuts your costs as well. Let me cover investments and protection plans for just -- or protection services in a minute, and then we'll go to your questions. So our -- we have a really strong capital position, good risk diversification on an enterprise basis. We -- given the predictability of our cash flows and we invest a large percentage of our portfolio in fixed income, that gives us the opportunity to invest in performance-based assets like private equity, real estate, agriculture and infrastructure. That generates higher returns because those investments obviously have greater short-term volatility, but we can manage that volatility because of our overall enterprise risk position. Our results are really good when you compare us to external benchmarks, and that reflects the system of people, processes and relationships. So we focus on talent where we believe that proactive management can generate excessive returns. And within the public markets, that's really credit. We're really good at credit research, portfolio management. We also have a strong private equity group. And then to turn that into that talent and to excess returns, you have to have sophisticated processes and analytics. It starts with, of course, fundamental research like you do, but then quantitative tools are really a foundation for us making asset allocation decision. Those are some of the reasons why we lightened up on duration and equities late last year. And we also leverage relationships with other world-class providers, either that's give them the money let them manage it or we do a lot of co-investing through our private equity portfolio. So -- and the results you can see on the right-hand side there, we measure our performance against various benchmarks in fixed income. We're in the first or second quartile, depending on which chunk of fixed income you're looking at. Private equity results are in the second quartile, and that's compared to a fund of funds measure. Real estate, while a smaller portfolio in total, has first quartile returns. And so we have good results overall in investments. Let's move to Slide 9. Property-liability -- these are property-liability businesses. I think they often get overlooked when you're valuing our stock. And we offer our customers -- that's the bottom oval on that strategy where we started, a wide variety of stuff from workplace benefits, telematics, roadside services, car warranties, TVs, cell phones, indemnity protection. These are significant businesses, which have combined revenues of $4.6 billion and over $0.5 billion of EBITDA. Given their growth prospects and competitive positions, we believe these businesses have a value between $30 and $35 per share or about 25% of the share price when they only represent 10% of the revenue. Let's close on Slide 10, when you -- which is why we're an attractive investment opportunity. If you look at the table on this chart, in the 3 columns, you'll see performance metrics for Allstate, P&C peers one column and S&P 500. You can see we outperformed on both cash returns and EPS growth over the last 5 years. Yet the trailing 12-month price-to-earnings ratio is significantly below those broader investments. So despite our success, we believe, Allstate continues to be an attractively priced stack. Okay.

Thank you, Tom. That was a very good overview. I'm just going to start off with some questions but definitely take questions from the audience. Let's look back in 2015. That would seem to be more on the loss cost trend side of a frequency story. And if I think about loss cost trends now, it's much more multilayer. So how have you changed your playbook?

Well, it's -- some of the things are the same, and some are different. So -- and one of the things that's same is of course, loss costs are up, and it doesn't really matter why they're up. They're just up. What you do about it matters, as you point out. The loss costs are up, so what you have to do is raise prices. And so we've done that. What's different this time is -- in loss costs, before, it was driven by frequency. Some people just started getting more access. And then that went down actually in 2017. We don't believe these loss costs are going down. Like I don't think what you're seeing in used car prices is -- maybe they'll moderate some, but we're not going back to where we were before because it gets embedded in the system. People buy cars. They get loans on cars. Like nobody wants the prices to go down by 40% to get back to where they were. That's not going to happen. So you act differently. And so we have taken larger, more rapid price increases. So that's -- on the bodily injury side, I mentioned a couple of drivers, more severe accidents and just medical inflation. But the thing that's really -- what we see is new is during the pandemic, the trial attorneys [indiscernible] figured out how to use data and analytics and marketing to get more claimants. And so we're seeing more attorney representations. And I think, in part, that was like people weren't driving. They weren't getting in accidents, so they had less cases. So they said, "Hey, we need to find some more new cases." Now they spend $1 billion a year in advertising and -- which is a pretty large category in and of itself. And so we're having to change the way we handle bodily injury claims to counter the fact that the attorneys are taking on more cases. I think another thing that's different is, in 2015, we weren't 2 years into a cost reduction program where we're going to take out a huge amount of cost. So this good news is like we were taking those costs out, so we could have a more competitive price. At this point, we're continuing to take out those costs and to get back to the profitability targets we want. Eventually, we'll have a more competitive price. I think the other thing, Tracy, I would say that's different is in 2015 -- or I would say in this year, everybody is taking very aggressive price increases and the consumers -- I was out with a group of agents a couple of weeks ago. And consumers seem okay with it. Like I'm not saying they're like happy. We're calling them and saying rate's up 15%. But they're like, yes, my house is worth more. My car is worth more. Everything else is going up. Food's up. Gas is up. So they're not shocked. So when you look at our retention levels and its impact on growth, we're outperforming our retention given the size of price increases taken. So I think bottom line, like I'm completely confident we'll get back to the mid-90s. The real trick will be how much does inflation keep going, and used car prices kind of leveled out. That's not true with labor costs and parts cost. The auto manufacturers are still trying to catch up and raise prices on [indiscernible] OEM parts.

Great. And for Allstate, we've seen claims emergence from the notification period. And I'm just wondering if you now consider auto more of a medium tail line from short tail?

No, it's still pretty much short tail. Yes, maybe it's lengthened a little bit. But I mean I think it depends what your spectrum is. Like worker's comp is at 10 years, I don't know, general liability really long. In auto insurance, about 60% of the costs are just physical damaged stuff that gets wrecked, and that's generally solved within 90 to sometimes all the way [indiscernible]. It's a little stretched out in the supply line now, but I wouldn't call it getting to medium. And then on the bodily injury side, about 80% of your costs are paid out in 4 years. So I think it's still short tail. I don't see a big change in sort of how we think about the inflation risk.

I know you were up on the podium. You were saying it's the magic question, when will pricing inflect a loss trend. But any commentary you could give on that because we are seeing loss accumulation in the meantime?

Yes. Obviously, sooner is better. And we're -- if you looked at our objectives for 2022, it's improved auto profitability, make sure we maintain homeowner profitability. And growth is way down the list. Okay? The third is continue to do transformative growth. Fourth is make sure we get -- we invest and get through the cycle all right and growth is way down. So when we're deciding whether we raise prices, we're raising -- we're not moderating that because we want to keep growing. The interesting thing is, is we've still done pretty well in growth despite that, which just says the environment is a little more volatile.

And I've heard you describe certain states. You're not getting rate adequacy, and you may have to take more bold underwriting actions like a state like California. I'm just wondering how that's feasible. I'm just thinking about Prop 103. And I think you have -- you can't non-renew more than 10% of the business in force in a year. So assuming you're more selective on new writing and you could nonrenew to that 10% limit, would that be enough?

Well, first, let me go up for a second. Our objective is every line, every state pretty much every year has to make -- it's not like it's got to make its number. So we don't believe in cross subsiding from auto to home or California to New York or New York to Florida. So everybody's going to live on their own because we're trying to minimize customer subsidization. People in Florida don't want to pay for people in California. As you rightly point out, California is a hard one. They haven't improved any. I think it's been 29 months. We've had a commercial filing in there for a couple of years. We thought we had a deal on homeowners, and we currently no longer do. So we're in an environment where I think we're assuming that not much is going to change in the near term. And some of this, there's an election coming up and -- but even after elections, like nobody like wakes up the day after election that, "Geez, I need to get the market stabilized again." So I think the California market will get increasingly unstable. That will include actions we take, and we're working on a -- right now, you can do things like down pay requirements. Right now, we're at 50%. And when you raise your down pay requirement, people buy less of it. And we're looking at a whole range of things that are going to fix the profitability in that space. So I think you expect us to get smaller in that space. And that's 12% of our premiums in the auto business. But we're completely comfortable with it like if we don't grow in California, and we can't give our money away.

Let's shift gear to homeowners. Can you discuss the inflation guard piece? I'm just wondering what it was trending like when inflation was more benign and how it is trending now.

Well, it's up like almost 14% this year in that, and that's based on home value. So as home value has been skyrocketing now, I don't think they'll come down a lot. So I don't think we're going to see it back off because, again, it gets -- that inflation gets embedded in the prices. So people get mortgages. People aren't interested in having their home price down like a stock does. So -- but the good news is that it continues to -- we're ahead of it. So had we had that for used car prices in auto insurance, our prices would have gone up automatically. We didn't -- nobody does -- nobody -- it's sort of a onetime thing. No one's ever experienced where homeowner prices continue with that. So we are looking at how do we build those automatic rate mechanisms into auto insurance and what we would do with home insurance. I'm more interested in the home insurance because it's -- it takes -- it's a 12-month policy. It takes longer to get the money. But things like severe weather and stuff, we're looking for ways to build in, in a prospective increase in homeowner prices or trends in severe weather just like it trends the value of the house. So we don't get caught when, "Oh, geez, we just had a hurricane. We could raise price."

Maybe just a quick technical follow-up on that. Is that considered a non-rating variable if you embed that in auto? Think on the homeowner side is.

Would it be a non-rating variable? I mean it's an insured value variable, yes, so it wouldn't be -- I guess, in the regulatory scheme, that wouldn't be considered a rating variable, yes. That said, they would have something to say about it. They regularly say something about them.

How do you envision that would impact bundling and retention on the auto side?

We're doing really well on bundling. And if you look at our homeowners business, it's way up. It's up like, I think, 1.7% relative to auto insurance. Our agents are really focused on bundling. We shifted their compensation to focus on bundling. And then in the -- about that, we just launched in Arizona in the independent agent channel, where we bought National General. Our idea was National General nonstandard carrier who ought to compete head to head with Progressive in the IA channel with traditional standard auto and traditional homeowners. And we're rolling those products out. We just launched Arizona, and we're seeing good uptake there in bundling. So I think you'll see us continue to do more bundling. And if you look at our competitors and how long it is right now, nobody is making as much money as we are, and they're not going to keep giving that way.

Great. On the capital management side, I noticed that your statutory surplus fell like $5 billion in the first half of this year. And on a stack basis, that wouldn't be due to negative marks on your portfolio. At the same time, you have a really healthy dividend capacity, about $5.5 billion coming through February '23 from the opco to the holdco. So how should we think about your RBC targets, how that could trend this year and the minimum amount of holdco cash you'd like to keep as a parent company balance sheet.

So first, we're very well capitalized from all standards, whether that be at the enterprise or at the insurance company level. We have very sophisticated math we use to determine what the right amount of capital is at the insurance company level. So we look at RBC, but it's kind of like a check. We don't actually base the amount of capital based on that. Jesse actually had put that [indiscernible] in place. And so our capital management philosophy is we have only as much money in the insurance companies as you need to and take everything else and put it up at the holding company. Logic is if insurance company needs it, we can always give it back. And if we have it at the corporate level, we got a lot more flexibility, whereas buying shares back, buying somebody else. So we manage it. So we have the capital at the insurance company level as what we think the insurance companies are appropriately capitalized at. The amount at the parent company goes up and down like so it was way up before because we sold the life companies. And as we buy stock back, it goes down. But when we look at using capital, it kind of has a pecking order: first, grow our business organically; 2, if we can leverage our capabilities, resources, buying somebody else, we do that, pay dividends to shareholders and buy stock back. So dividends, we increased our dividend about 50% -- or 50% last year. And the logic was we were buying back so much stock, we were like, geez, those shareholders who don't sell aren't getting as much of the cash return. So we've raised that by 50%. And of course, we still buy back a bunch of stocks.

Okay. So let's just take a pause and see if anyone in the room may have some questions. We have mic runners if anyone wants to raise their hand. I see one over there. If you can just wait for the mic.

Mark leads investor relations. I'd be happy to have him ask a question. It would be an easy one.

[indiscernible] auto price [indiscernible] that has had on you [indiscernible]

Hasn't had much help, and that has flattened out.

Or even gone down maybe.

Yes. I mean it all depends [ on what you look at ], but we see it basically flat. It's like -- maybe it goes from [ 2 14 to 2 18 ] are now measures. But it's not -- it's basically flat to like the last 6 months. That hasn't had really any impact on the P&L because we still got the loss cost, and we haven't got the price yet. So once we get price in, then if it's flat, it should help. Just a couple of numbers. About 40% of our auto collision losses are total losses. So if a car used to cost $16,000 and now it costs $22,000, we're writing a check for $22,000. And when we wrote that in March, then we would write $22,000. So it's still flat. What we are seeing is the prices of replacement parts, whether they be OEM parts or off, I don't know, salvage markets, have continued to go up, even though used car prices have flattened out because it kind of takes a while to get through the system. Somebody in a salvage yard buys the car. They pay $22,000. They got to make more money on the parts or the OEs decide, geez, this is a pretty good gig. We can make good money on our OE parts. They like to -- I call it, they like to give away the razor and sell the blades. And so they -- and then labor costs are up. State Farm just raised their labor rate $6 an hour across the country. We don't do it that way. We do it market by market, customer by -- vendor by vendor but -- so that puts some pressure. So we're not seeing -- I don't think you'll see as big a drive. So when you go up 60% on 40% of your cost, all you can do is try to catch it. I think the current stuff will be a slower growth rate, but I don't see it moderating yet, which is why we're going to take bigger price increase or bigger rate increases in the second half of the year than the first half of the year.

You have done some M&A over the years [indiscernible] business model [indiscernible]

Right now, we're kind of highly focused on getting auto profitability up and getting transformative growth done. That said, sometimes stuff shows up and it's not -- it's maybe not the right time. You still do it. So we bought Esurance in 2011, and I think that year we made $751 million or something like that. It wasn't the most optimal time to buy. Right -- but right now, there's sort of nothing immediately in our scope, but I would tell you, the logic that we've used is if we're a better owner, and there's a couple of reasons for that, then we'll buy the company. So protection products, I think that's one that insures cell phones, TVs, stuff like that and provides product warranties. It gave us a whole new product suite. They had a really good tech platform. They had good relationships with big retailers, but they didn't have Walmart and Home Depot. And we said, if we buy them with their tech stack, their capabilities, our brand name, our financial capability, if we win Walmart and Home Depot, it will be a terrific deal. So we paid $1.4 billion. I know it's worth 2.5 to 3x now 5 years later. It's a great business. National General was a little different then. That was -- we've been trying to grow in the independent agent channel for years. We bought a business from CNA back in 1999. We paid nothing for it, but we didn't really get that much for it, I guess, in the end when they look at it. And we just couldn't seem to get it. And so Barry Karfunkel, who's -- owned National General, I went to him and I said, "Look, I got to decide either -- I'm either in or out on independent agents. And I've tried to run this company like 3 times. We haven't been picking up share, so I've decided to get out. And I think you guys are the right owner of the company because you got a good tech platform. You got a good team. You know how to do this. We can expand. The only difference is we're going to buy you first, and then we're going to give you Encompass and you're going to smash it together with your company. I don't care what you do. You can do whatever you want with it. Just treat it like your wife and [ handle ] all the cost." And we're in the process of doing that. So sometimes, it's because we see they bring us capabilities. Sometimes, there's things we can do for them. So we bought State Auto last year, a small couple of hundred million dollars' worth of premium, and we just rolled the book in with NatGen. Everything else goes away. And we make really good money on it. So I don't see a big need in the Property-Liability business right now. There might be some fill-ins we'd want to do or particularly independent agent stuff. If somebody has trouble in this environment and we can buy it cheap, maybe we would buy it. And the Protection Services business, we're still working on how do we expand the identity protection and how do we leverage the Arity platform. I don't know if -- I don't have somebody in mind that said probably go buy them, would be great. But those are just strategic issues we still have to solve.

So if you guys did not give capital back during COVID [indiscernible] to your customers, where do you think combined ratio would be today? And where do you think retention ratio would be?

I think the combined ratio would be exactly where it is because it was a onetime deal. Like some people took their rates down, but I'll come back to that in a minute. The -- in terms of retention, it might be a little worse, but people have short memories. They forget we gave them money back. So we had good bump in retention. First time, right after we gave them all the money, everyone was really happy. By the time we get a couple of cycles out, people forget it. The one thing that did cost us a little bit in margin now is as part of transformative growth when we're in the pandemic. Combined ratios are really low. We're cutting expenses. We took a couple of billion dollars out of expenses. And so we lowered our prices by about 2% in the early part of 2020 -- no, 2021. And had we not done that, we would have -- we'd be a little higher right now. We're more than caught up and got that back, but that was -- transformative growth was cut expenses first, have lower prices follow. We were on that path. And then in the second quarter of 2021, we're like, oops, not a good time to be lowering prices. So that's when we started raising.

I think we're out of -- okay. Real quick.

Just to -- in California, where would the state filings show that your combined ratios are for auto? Can you share that with us?

We just filed for a 6.9% increase, which is the max you can get without going to a hearing. And we need more than 6.9%. So see -- but -- so I won't give you the specific number, what the filing gives you, but we need more than 6.9%. We're not going to get 6.9%. They've told everybody you can send in whatever you want, but we're not looking at it. So we're not going to wait. And hope's not a strategy. How about that?

Okay. I think we're out of time. Thank you so much, Tom.

Thank you.

I really enjoyed the discussion. Thank you, everyone.