Allstate Corp (The) (ALL) — Q1 2026 Earnings Call Transcript

Good morning, everyone. Welcome to Allstate's First Quarter 2026 Earnings Call. Yesterday, following the close of the market, we issued our news release and investor supplement and posted related materials on our website at allstateinvestors.com. Today, our management team will discuss how Allstate is creating shareholder value. Then we'll open up the line for your questions. As noted on the first slide of the presentation, our discussion will include non-GAAP measures for which reconciliations are provided in the news release and investor supplement. We will also make forward-looking statements about Allstate's operations. Actual results may differ materially from those statements, so please refer to our 2025 10-K and other public filings for more information on potential risks. Let's start with three of our recent advertisements and then Tom will begin.

The ad reinforces a simple message: check Allstate first. And the third, which debuted this week, is our newest campaign, "If it's important to you, it's important to Allstate," which demonstrates our commitment to caring for customers and the breadth of our offering. These same themes apply to investors. You can avoid Mayhem by investing in Allstate, which has a proven ability to generate consistent results. If you should call Allstate first, if you're investing in protection companies, we are affordable, particularly at this P/E ratio. If it's important to shareholders, it's important to Allstate. We're going to touch on these same themes this morning. So let's review first-quarter results starting on Slide 2. I'll say we had excellent operating results in the first quarter. As you know, our strategy has two components that are shown on the left: increase personal property-liability market share and expand protection provided to customers. On the right, our performance highlights for the first quarter. An important part of today's conversation is that Allstate competes using a broad set of tools, not just lowering price. This enables us to maintain attractive margins while accelerating growth. We also broadened protection offerings for customers, investment income increased, and shareholders received higher dividends and accelerated share repurchases. The financial results are shown on Slide 3. Total revenues increased to $16.9 billion, up 3% for the first quarter of 2025. Investment income increased nearly 10% to $938 million. The property-liability recorded combined ratio was 82% and the underlying combined ratio is 80.3%, a 2.8 point improvement from the prior year. Total policies in force increased by 2.5% and property-liability policies in force increased by 2.3%. Net income was $2.4 billion, and adjusted net income was $2.8 billion or $10.65 per diluted share. Net income return on equity was 48.4% over the last 12 months. Slide 4 provides a construct to answer the question, how are you going to generate attractive returns by growing if that includes more affordable price. The answer is that while prices are extremely important, transformative growth has created a broad set of competitive levers to enable us to grow, as you can see on the left. More affordable prices are supported by lower expenses and effective claims processes. We also use sophisticated analytics, new products, expanded benefits and bundled offerings to better serve customers. Compelling marketing and broad distribution increase new business, which fuels growth. This flywheel results in market share increases. Some examples are shown on the right. Affordable prices and lower expenses are enhanced with sophisticated pricing plans and better customer experiences. New products and benefits create value for customers. The Allstate brand—affordable, simple and connected products for both auto and home insurance—are now available in 45 and 36 states, respectively. Custom 360 auto and homeowners insurance products for independent agents are now available in 40 states. We also routinely expand or improve benefits. For example, we recently added free identity protection, so customers think beyond price, and we execute the strategy of broadening protection. Allstate agents bundle auto and homeowners insurance at high rates, making it easier for customers and lowering acquisition costs per policy. Marketing acquisition economics have improved this year. We distribute through Allstate agents, independent agents, company call centers and over the web, which provides the right level of service for customers at the best value. In the first quarter, all distribution channels had increases in new business and the total was a record which increased growth. Mario will now cover how this translates into market share growth while earning attractive returns.

Thanks, Tom. Let's start with the market share growth on Slide 5. Starting on the left, Allstate increased auto insurance market share in 29 states in 2025 that comprise 57% of countrywide premiums. Looking down below in the 29 states where share increased, policies in force increased by 4.3% over the prior year and outpaced vehicle registration growth in those states. That means we increased our share of insurable vehicles in those states, which we view as a better indicator of sustainable share growth than the traditional premium-based market share metric. In the remainder of the country, policies in force decreased by 0.5% versus an increase in vehicle registration of 0.6%. The decline is heavily impacted by two large states where we have intentionally been reducing share because of profitability challenges. If you look at which companies this growth comes from by dividing the market into the top five market share leaders and the rest of the market, slightly more comes from the medium-sized and smaller carriers. The broad set of competitive tools that Tom referenced also drives growth in homeowners insurance. Homeowners insurance market share grew to 8.3% of the U.S. market. This was in 41 states, which had policies in force growth of 4.1% in 2025 over the prior year. We have a broad competitive advantage over the companies we compete with in the homeowners insurance market as demonstrated by our ability to profitably gain share. Moving to Slide 6. Allstate's business model enables us to consistently generate strong returns. On the chart, the blue bars represent the auto insurance underlying combined ratio, which averaged 94–95% and 94% over the last five and ten years, consistent with our mid-90s target. There was obviously an increase in the combined ratio in 2022 post-pandemic, which required significant price increases as shown by the light blue line in the middle of this chart. Since then, we have returned to levels at or below our mid-90s target with more modest price increases needed to generate and sustain attractive returns. In the first quarter of 2026, rate changes were implemented in 39 states, which included a mix of both rate increases and decreases. These changes had a net overall neutral implemented rate impact across the book. Improving affordability will increase policies-in-force growth and raise shareholder value as long as the combined ratio continues to perform at or better than target levels. Let me note that these are underlying combined ratios that were reported for these years. And as Jesse will cover in a few minutes, favorable subsequent reserve development shows that results for several of these years are actually better than what is shown on the chart. Moving to Slide 7. You can see a similar story in the homeowners insurance business, which also generates strong returns. Homeowners insurance over the last five and ten years had a recorded combined ratio of 93.5 and 92, respectively, and has generated underwriting income of $3.9 billion and $7.9 billion in those same periods. In the first quarter, the combined ratio was 83.5 and average premiums increased 5.7% compared to the prior year quarter, keeping pace with loss costs. As you saw this quarter, we also posted the disclosure related to the placement of our comprehensive nationwide reinsurance program, which enhances the risk-and-return profile in the homeowners business by reducing capital requirements associated with catastrophe loss tail risk and dampening earnings volatility. The homeowners insurance business remains a competitive advantage and growth opportunity for Allstate. Now let me turn it over to Jesse.

All right. Thanks, Mario. Let's look at the property-liability results in total on Slide 8. Auto insurance policy growth of 2.6% and homeowners insurance policy growth of 2.5% drove an increase of 2.3% in total policies in force and written premiums. Earned premiums increased by 5.5%. The property-liability combined ratio was 82.0 as both auto and homeowners insurance profitability was better than our targeted levels. This result was due to strong underlying performance as well as lower catastrophes and favorable prior-year reserve releases. Excluding the benefit of reserve changes and lower catastrophes, the auto insurance underlying combined ratio was 89.5, which is 1.7 points better than prior year. Property-liability underwriting income was $2.7 billion in the first quarter. Now turning to Slide 9. As Mario referenced in his comments, auto insurance profitability improved faster than original estimates in 2023 and 2024. The top of the stacked bar is the underlying combined ratio as originally reported. The green bars represent the impact of subsequent prior-year reserve adjustments. The light bars represent the adjusted underlying combined ratio, including the subsequent changes in our estimates of loss costs. As you can see, prior-year losses developed more favorably than originally estimated. Reserving is an iterative process with strong governance and oversight. We use consistent practices, multiple analytical methods and include external reviews by independent actuaries to ensure reserve adequacy. As more claims settle, however, estimates each year are revised to reflect actual loss experience. In recent quarters, actual loss experience has outperformed initial expectations. This results in the release of reserves from prior years. The auto combined ratio in 2023 is now estimated at 95.4, and 2024 is estimated at 90.0. Auto insurance profitability improved faster than originally estimated. Slide 10 highlights how we expect to continually improve our strong performance and enhance competitive position. Transformative growth builds a comprehensive competitive model. This included new software and adapted legacy systems to build a connected technology ecosystem. The system enables the use of artificial intelligence to improve customer experience and lower costs. We're leveraging this technology platform in building Allstate's Large Language Intelligent Ecosystem, which we call ALLIE, to harness the power of generative AI. With that, I'll turn it over to John.

Thanks, Jesse. Good morning, everyone. Moving to Slide 11, the Protection Services business continued to grow profitably. This segment is comprised of five businesses shown on the left: protection plans, dealer services, roadside, Arity and identity protection. The largest business in this segment is Allstate Protection Plans, which grew revenue 13.5% versus the prior year quarter. This business provides protection for mobile phones, consumer electronics, major appliances and furniture. Protection plans generated $41 million in adjusted net income for the first quarter, down slightly due to higher claims costs. Arity is a global intelligence business. The higher loss this quarter reflects a restructuring charge related to a reduced employee count. In total, Protection Services businesses increased revenue 7.2% from the first quarter of 2025 and generated $47 million in adjusted net income. Let's turn to Slide 12 to discuss the investment portfolio. Investment income of $938 million increased $84 million or 9.8% compared to the prior year quarter. As shown on the chart on the left, net investment income has grown as the portfolio grew. Since the first quarter of 2024, portfolio book value has increased 24% or approximately $17 billion. The increase reflects higher average investment balances from a 15% increase in earned premiums, strong underwriting income and improved fixed-income yields. The table on the right side highlights the strength and consistency of returns across asset classes. Over the last 12 months, the portfolio generated a 4.2% return. Fixed-income results over the last five years are top quartile. Returns in our performance-based portfolio have been below longer-term historic averages over the last one and three years at 7.6% and 5.9%, respectively, but remain above industry benchmarks. These results underscore the effectiveness of our active investment management approach. As a result, we increased the capital allocated to the investment portfolio in the first quarter, some of which is carried at the holding company. Let's move to Slide 13 to show that proactive capital management creates shareholder value. Allstate deploys capital in multiple ways, which are shown on the left axis: organic growth, enhancing existing businesses, growth acquisitions and cash provided to shareholders. Using capital for organic growth leverages Allstate's capabilities and market presence with well-understood and attractive risk-and-return opportunities. This is why we're focusing on increasing market share in the property-liability business. In addition, increasing market share should raise valuation multiples. Over the last three years, $3 billion of economic capital was utilized to support premium growth. As we just discussed, Allstate also deploys capital to support the investment portfolio to generate attractive risk-adjusted returns. Capital is also used to strengthen existing businesses such as investments we made in our technology ecosystem or enhancing our independent agent business through the acquisition of National General. SquareTrade was a growth acquisition that leveraged the Allstate brand and capabilities. It also expanded protection offerings to execute the second part of our strategy and brought strong retail distribution partnerships. Since it was acquired, revenues have increased eightfold, and the business generated $175 million of adjusted net income over the last 12 months. Allstate also has a long track record of returning capital to shareholders. In the first quarter, $881 million was returned to shareholders in repurchases and dividends. We completed the former $1.5 billion share repurchase program and launched a new $4 billion share repurchase program, accelerating the pace of repurchases. $3.6 billion remains on the current share repurchase authorization, which represents approximately 40% of holding company assets as of March 31 and 7% of outstanding shares. It's an interesting observation: if you bought all of Allstate 10 years ago, you would have received 99% of the purchase price back in cash and would have a company that generated $12 billion in net income over the last 12 months. Wrapping up, in summary, Allstate's broad set of competitive levers delivered strong results in the first quarter. Now let's move to questions.

This is Jack on for Mike. Just first one on the pricing outlook. Given how strong reported loss ratios are across your portfolio, I'm wondering how you're thinking about the opportunity to lean in more aggressively on pricing this year? And does that change differ materially across auto, homeowners and bundled customers?

I would go back to the slide we talked about in terms of growing. We have a wide range of ways in which we grow. Price is certainly important, but it's not the only one. And I know there's a question for Mario. So let me spend a minute to — because it's what you described — we do it obviously by product. We do it by state. We do it by coverage. It's highly complicated. If we think about bundled customers, lower acquisition costs— we give them a discount if they bundle. So yes, we do all that. But let me go up. So price is obviously important, and it's a key driver of profitability. As a result, we've built a system of operational levers, organizational accountability and sophisticated analytics. And our goal, of course, is to earn attractive margins and grow. And there's always a plan on prices that looks forward six to twelve months. We're going to talk about what that plan is here because it's competitive, and it changes all the time. But it's based on what operational levers we think we can pull. So Jesse will describe the system for you and give you a couple of examples of how it works. The conclusion, however, is that the system works. It works for auto and it works for homeowners, and you can see that on Slide 6 and 7. Our auto combined ratio was 94 to 95 over the last five and ten years. Homeowners insurance ratio of 92 to 93.5 over the last five and ten years. So the system itself works while price is important as just one component. Jesse, why don't you talk about how it works here and then give a couple of examples.

Got it. So we think about the system like a cube that has three elements. And Tom alluded to the three elements: the operational levers, advanced analytics and then organizational roles and responsibilities. It's a bit like a Rubik's cube where it gives us multiple ways to both identify and address profit and growth opportunities. What I'll do quickly is go through each component, and I'll give a couple of examples of what's going on, including a couple of state examples about how the system works. If you start with the operational element of our cube, we covered this on Slide 4—Tom went through it. You have new products, broad distribution and effective marketing. We employ these operational levers at the state, individual market and product level. It's very granular. If I move to the advanced analytics element, we have highly sophisticated rating plans that have billions of price points per state. We analyze data by submarket within each state and by product, by coverage and by risk segment. And we link that between the signals that we're seeing in current claims trends to price at a very granular level. So we're bringing this interconnected system together. These marketing analytics that are terrific enable us to price leads and purchases in real time, determine effectiveness of programs by media channel and message. And then the claims team is using a massive amount of data to assess the effectiveness of controlling severity and executing the claims function. Centralized, we have a centralized reserving team, of course, and we've talked about that. That's separate from our actuarial pricing team that gives us another set of eyes on loss costs and loss cost trends. The point of all this is that we have a lot of people looking at profitability and growth from a number of different perspectives through the advanced analytics lens. The final element, as Tom mentioned, is organizational roles and accountability. We have a matrix organization structure that enables us to bring all of our expertise to bear to decide how to pull various levers in this system. That includes price changes in total or by territory or by coverage, or customer risk segment and includes adjusting underwriting guidelines. Another dimension to that would be marketing investment. We can look at the price, number of sales leads to purchase by market and then determine distribution priorities alongside those other decisions. So the system's working together again like a Rubik's cube to drive profitable growth. The overall team, as we look at it, includes state managers that are responsible for profitability by product line, territory and coverage. We have a chief actuary who oversees analytics and pricing trends across the country and by state and has a research and development function. We have go-to-market teams that are out there each day, bringing all of their expertise together to manage growth and profitability by local market. And then we have distribution leads for Allstate agents, independent agents and our direct operations who can assess and evaluate performance on a real-time basis. They can expand or shrink distribution and set priorities and compensation to make sure, again, that we're optimizing across the system. So the three elements work together in a continuous planning cycle is the way that I think of it. We create a forward-looking plan that looks at expected rate changes for the next six to twelve months by state, by line, by company, as Tom referenced. It factors in things like likely regulatory timing and what the response will be, and we build up a countrywide matrix then of underlying profitability and growth that we can evaluate the forward-looking trajectory. In line with execution of all of the operational levers, the goal is to earn attractive returns and grow in 2027 and 2028. To make what turning the dimensions of this Rubik's cube look like come to life, I thought I would talk about a couple of examples. So in states where we have share that we would say is below our national average, and our underlying combined ratio is better than target — they were running at an 88 underlying combined ratio — state managers will identify an opportunity to lower rates with an eye towards staying within those targeted ranges in coming quarters and in coming years. It's a forward-looking view so that we change rates in a sustainable way. They then work within the system that I referenced to utilize the broad set of tools that we discussed in our prepared remarks to drive profitable growth by market. So that's optimizing distribution and working with the marketing team to make sure that where we have opportunity to grow, we're leaning into that. On the other hand, in a state where our underlying combined ratio is above target or on a trajectory to go above our target, we begin taking modest rate increases to get ahead of the trend. And if needed, we'll restrict new business through underwriting guidelines and other operational levers again that we have to make sure that we manage profitability in that state. In states where we don't have ASC yet—now we do have ASC in 40-plus states at this point—we'll limit new business until that product is available because we want the most contemporary and most accurately priced product in market. So we'll make sure that ASC gets approved and then relook at growth on a forward-looking basis. So we get the best product in market and again, look across the system to make sure that we're appropriately adjusting for a state that is not meeting our targeted returns. To make a couple of examples come alive, you saw in the supplement that we changed auto rates in 39 locations and that netted to effectively no change in rate. If you scale that back, there were 23 states where we lowered rates and 16 states where we increased rates. And because of our rating sophistication and segmentation, in ten of those states we did both—increasing rates for some segments and decreasing for others. So this is more than just a high-level analysis; it shows the depth and the breadth of what we're doing to pull the operational levers and all the levers in the Rubik's cube to optimize and deliver profitable growth.

That's helpful perspective. And maybe just a follow-up on California, where they recently made reforms to the intervenor process. I guess wondering does also do that change along with other recent changes longer term, especially on the homeowner side, where I think historically, you've been reluctant to grow market share?

We believe that California still has a significant number of changes to make for the homeowners market to be accurately priced and to improve availability for our consumers.

So in the first quarter, you had about $840 million of net favorable prior-year development in the auto line. Obviously, I would imagine the majority of that comes from last year, which tells me you made a lot more money in auto last year than the combined ratio indicates. But it also arguably suggests that year-over-year, the margins are deteriorating. I mean they will. They're incredible right now. They have to deteriorate at some point. I'm wondering if you can talk about the trajectory of what you think is happening right now to help us better understand that.

Josh, if you go to Slide 9 you can see how we spread that. So actually, most of the change as it relates to the combined ratio came in 2023 and 2024, very little in 2025, and that's in part because 2025 hasn't completely developed. We make estimates; as we start settling claims, as claims settle we find out what we're having to pay people, figure out how severe they are, and then we adjust our estimates. So we obviously overshot the mark in 2023 and 2024. We have not concluded that for 2025 yet in terms of whether our reserves are properly stated. I'd also point out we really didn't overshoot the mark much in 2023; it was very concentrated in those two years. Going forward, we feel good about profitability. We've been able to earn better-than-industry-average combined ratios in auto insurance for a long time, and we expect to continue to do that. Will we still be at 89? I think when you look at the math on it, to the extent we can drive growth and give up some margin, that can work to improve shareholders' valuation multiples. That said, we're comfortable earning what we have right now. We think we're competitive in the market, but we also think we can grow faster.

Obviously, 2023 was a very strange year. But is there something in your process that says that you want to be more conservative on the most recent accident years so that the confidence interval on your reserving is more conservative for the most recent year programmatically? If you're doing things correctly, you would have this type of reserve release action going forward in '27 as we look back to '25.

No. We apply the same statistical standards to every year. I would say one of the things we're hopeful about is with advanced computing power that we can increasingly get more specific on what's in the reserves. Of course, the reserves are like: you have a bunch of losses in a year, then you have to estimate how much you will pay out, and then what's left is the reserve for outstanding claims. We think with advanced analytics we may be able to get another angle by looking at individual cases, which is really complicated. You get 900-page medical files, a lot of documentation to parse to estimate what a claim will settle at. But it's the same process, same standards, and we are always getting better as we go forward. Of course, you never really know what's going to happen with legal trends or other macro factors.

First one, I wanted to ask you about just prioritization of the holdco cash, which has grown to a pretty significant amount at this point. How would you think about prioritizing that? Are there different verticals within services that you'd look to expand or other things beyond obviously the larger buyback that you've been doing?

That's an important question, Alex. Let me try to build up a little — start a little bit above where John went and then talk about some specifics underneath that. The first thing I can say is you can get a great return on what you've already got. We had a strong adjusted net income return on capital. All of our capital is being employed—there's no separate closed books—so we've got a strong return. When you look at the S&P 500 it's probably materially lower, so we feel good about that return, particularly when you're buying back stock at this kind of P/E. Then you say, okay, well, what else can we do? John went through the order: organic growth—leveraging our existing capabilities and scale to put more volume through the system. Obviously, that's something we're focused on, but you have to make money at it. You don't want to end up losing money or get a short-term sugar high of growth and a long-term hangover called low profitability. So we manage that, as Jesse talked about, very carefully in the property-liability business. We also think there's plenty of ways we can expand and leverage our existing capabilities, whether that's expanding our protection services businesses or our investment capabilities, which we put a little more money into earlier this year because we think we're good at it and the results show we're good at it, and we saw some opportunities in the marketplace. From an enterprise risk-and-return perspective, we had room to do that. So we look at it in total, we manage capital, and then there's a variety of other ways we can do it. In general, we look at whether our ownership would make a business better. That's where you look to grow—why would our ownership make this business better? When we bought SquareTrade, putting our brand on it and leveraging our retail distribution really ran the table on that business. Those opportunities don't come along often, but you're always looking for ways in which you can enhance your capabilities. John, anything you would add to that?

I think you covered most of it, Tom. Maybe just a couple of things to point out that it really is a system decision. We're looking both outside of the firm at opportunities, but then also inside the firm at what's the best trade-off for how that mix comes together. I would point out that sometimes it's harder to see some of the investments we're making such as in technology or even in the investment portfolio—those can be fairly capital consumptive. It might be more difficult for you to actually see that versus a transaction. And then I guess I'd end on the fact that some of you picked up on it and it's in the queue, but we actually accelerated our share repurchase program throughout the quarter. And that wasn't just a onetime thing. We continue to accelerate it. So one way to look at repurchases is what the quantum is, but also the pace matters, too.

Got it. All very helpful. Second question, I actually want to circle back on artificial intelligence specifically. I know you guys have had a strategy over time to improve the expense ratio so you could get even more competitive in the market and spur some growth. Could you talk about how AI expands on that, what you're planning to do, and sort of how you see yourself positioned relative to some of your peers, one of which I think has begun to roll it out more aggressively and reduce their workforce more?

Let me start with competitive position and then come back up to how we're focusing on both expenses—what I call agentic AI. I think it's really hard to tell exactly where everybody is. Everybody is out doing something. We don't talk about everything we're doing because we don't want everyone to know every detail; we'll let competitors see it in the marketplace. From our standpoint, our capabilities continue to grow exponentially. The opportunities we see continue to get bigger. We're figuring out how to address implementation and deployment issues because it's not simple. I can't tell you it's all in market today—stuff is complicated. But if you can pull it off, it works really well. The easiest thing to do is generative AI, which I think is like a performance enhancer: it runs faster, it jumps higher. It's good. It cuts expenses; you can reduce some call center load. We're doing a bunch of that—answering millions of emails, and it's all very good. I think the real benefit will come from agentic AI, where intelligent systems are interacting with agents and customers to make decisions in subsecond real-time responses that people then can't compete with. We're building that. It's really complicated to build an ecosystem. You have to get the right governance around it, and you have to make sure you set up whatever metrics you give it. So measurement science is really important. We're working hard on that. We're excited about it. We think it offers potential to really build off of what we did in transformative growth. We don't have the issue that some companies do with legacy technology access; we have fewer such limitations, which gives us an ability to accelerate the agentic or ALLIE work.

My first question is on the homeowners book. Why was the expense ratio up year-over-year? And would you still expect improvement for the full year?

We reallocate expenses from time to time. There's slightly higher commissions related to bundling on that. So while it looks higher, it's good lifetime value. We try to ensure expense allocation accurately reflects what each product gets and not just spread costs arbitrarily. We love the homeowners business. We think it's a great and underappreciated growth asset, not just given the market share numbers Mario talked about. When you think about severe weather trends, people need more for their homes as weather gets worse, and we're really good at that business. So we like that business and think it has great potential.

And just to clarify here: so the reallocation of expenses, is that something that's going to flow through throughout the year? Or do you still expect to see year-over-year improvement?

We don't forecast expenses in that granular way. But it makes sense we're spending the money to increase bundling, and we like that. So it would be higher, but we're still seeing a great return. Homeowners is a little less price sensitive than auto insurance, which is another point to consider.

All right. And then my second question: I realize it may still be relatively early, but we've had the closure in the Strait of Hormuz for two months now. Do you expect gasoline prices and supply chain disruptions related to the closure to impact frequency and/or severity in both auto and home?

We don't know would be the short answer. I can give you some facts around it. About one-third of driving is discretionary, about one-third is for commuting and about one-third is for errands, grocery runs and other necessary trips. So you're basically talking about one-third of driving that people can cut back on if gasoline prices rise. Higher gas prices do result in fewer miles driven, which can lower frequency, but it's not a straight line. You can't simply say if oil is $110 a barrel then there's a specific change in frequency. There are a million different variables. What we do know is we pay attention to frequency; we track claim counts every day and update our reserving accordingly. If they're changing, we're already looking at it. But then you have to decide how long those changes will persist. Even with higher prices, you might get a temporary drop and then it goes back up. We track tens of millions of cars every day, so we have a lot of data about who is driving when.

That's on the frequency side. And what about the severity side?

Severity, in general, is influenced by higher petroleum prices because they roll through to many parts—from plastic components on cars to construction materials like shingles. That tends to have an upward impact on severity and repair costs. Right now, we are not seeing a material increase in severity attributable to oil prices that concerns our profitability. It's a competitive market, and we'll continue to monitor it.

Good morning. Thanks for the call. Maybe a revisit to the competitive environment a little bit and talking about some of the states that have not been as attractive. Any thoughts about those states turning or some of the other states that were in between turning to a more positive environment? Any color you could give would be helpful and interesting.

Paul, when you ask about regulatory and the operating environment versus competitive, I'll speak to both. Let's start with regulatory. Obviously, there were three large states we called out last year where we struggled to find a way to earn an adequate return for shareholders while giving customers a good price and growing. Some of those are getting better. I'm really hopeful about what might happen in New York with the governor addressing fender-bender litigation and other issues that drive up costs unnecessarily. That could be a huge benefit because New Yorkers pay a lot for insurance due to those dynamics. If regulators make thoughtful reforms, that could open a giant growth market for us. We have a strong presence in New York, particularly in the boroughs, with a strong agency force, tight media markets, effective direct operations and good independent agent relationships. That would be a great place for us, and we hope regulators can make constructive changes because it will be good for customers and consumers in general. On the competitive front, it continues to be highly competitive in auto insurance, as Mario mentioned. The top five continue to battle it out. You see some independent agent carriers losing volume—particularly a couple of large independent-agent-focused companies have lost some share. We feel good about our competition in auto insurance and we're starting to pick up momentum versus competitors. In homeowners, Mario talked about our market position—8.3% of the country. Some of those top-five players either don't have homeowners products to sell aggressively or haven't had as strong underwriting results there, so they're less aggressive. We think there's great potential to grow in homeowners given that competitive set.

No, I think you nailed it, Tom. The only thing I'd add is it's a highly competitive market, as Tom said. When you look at our results, we continue to generate new business at historically high levels across distribution channels. We're leveraging all the capabilities Tom talked about early on, and we're competing effectively in both the auto and homeowners spaces. We like our chances to continue doing that going forward.

That's great. As a second question, maybe turning to the homeowners space. I cover a lot of smaller companies that are talking about a move to excess and surplus lines for homeowners. Any thoughts about that trend? Do you think it's temporary? Or is it part of a longer-term shift that matters? I imagine given your middle-of-the-road approach to homeowners, it's not a huge piece, but curious.

Excess and surplus lines are a small part of our business. We have an excess and surplus lines capability that has grown reasonably well. To help clarify, excess and surplus lines are used when there's not enough availability in the admitted market and customers must go to carriers that operate with different pricing flexibility. We have that capability, and occasionally we'll use it for well-priced risks. But in general, if we don't like the economics of a state for homeowners we probably won't deploy heavily in excess and surplus either. We prefer to operate in the admitted markets where possible. We also act as a broker when needed: when we can't offer a product in a market like Florida or California, we have arrangements with other companies so our customers can still be served. That channel matters but is secondary to our core admitted business.

You started the earnings call by giving a demo on your ad campaign. How should we think about ad spend budget this year versus last? And any expense ratio impacts and PIF growth prospects as a result?

We're in a highly competitive market. We've dialed up advertising significantly over the last four years and done so with increased sophistication. There's upper-funnel activity—brand awareness like the ads you saw—and lower-funnel activity which is highly targeted and measurable. We've shifted more to lower-funnel advertising this year because it's easier to measure close rates and incremental economics. We spend relative to where our economics indicate we should. We have economic measures for advertising. We don't just increase spend for the sake of spending; we only spend more when the incremental economics work. Right now, our economics are better than last year due to improved close rates and execution, so we are comfortable with our approach. We remain disciplined to avoid fueling a bidding war where competitors simply increase spend and drive lead costs up in a cycle that doesn't improve returns.

Excellent. Shifting gears, can we talk about asset allocation? You doubled your equity holdings since September, so it's about 12% of your total portfolio. What is that relative to your equities asset allocation target?

Thanks for the question, Tracy. The way I think about it is in the context of overall capital allocation. We have many levers and we make active decisions based on market conditions. You've seen us change allocation more than many peers—equity or fixed income, duration and exposure changes—because we're active managers. I wouldn't point to a single static target; there's a range that's defined by past behavior that gives you an idea of where we operate. When we put more money to work, particularly in equities, we take a mid- to longer-term view. We're economic investors, not just yield-chasing at a point in time. We think by delivering economic value that accrues to increasing net investment income over time. The amount we put to work recently reflected a clearer market view; six months ago the environment was less certain. We felt more confident deploying capital and we'll see how it performs over quarters and years.

Okay. So it sounds like your approach is more dynamic than static. So could we foreseeably see that percentage growing if you like that asset?

I would say it's dynamic, but well governed. You could probably gauge most of the range of our future activities by the way we've acted in the past. We're not likely to have an 80% equity allocation, but within a governed range we will make active shifts as opportunities arise.

Just one for me. I wanted to shift to AI again, but this time as it relates to your distribution strategy and how you reach customers. I presume it helps direct distribution, but how do you think it affects your agents, whether captive or independent? There's an argument that it makes them productive, but do you think it pulls people away from them?

AI can help them in a whole bunch of ways. First, it can help us have a better product, better pricing and deliver better service for customers. That's a general benefit: it will help us be a better company. Specifically for agents, we think it will remove a lot of service work out of agents' offices. Tasks they had to perform manually can be automated, freeing agents to provide more advice and higher-value interactions. We can use AI to do insurance reviews ahead of an agent meeting—pulling records, seeing family information, and synthesizing it so the agent has an analyst working for them. We also have in-market tools like a customer engagement sidekick that helps agents with real-time cues on conversations and customer tonality. That helps them be more effective. AI can also sell directly for customers who prefer a digital experience; we're live with a direct-sales experiment in three states that is closing policies and helping us learn. So AI will be a tool to meet customers where they are: it helps agents be more productive, helps agents build stronger relationships and serves customers who prefer direct digital interactions. So thank you all for joining. We obviously had a great quarter. We had strong earnings and increased growth with transformative growth strategies. We think it's showing up: market share gains, improved profitability, better investment results and active capital deployment. We look forward to your continued engagement with Allstate, and we'll be working to create more shareholder value. Thank you.