Thank you
for standing by, and welcome to the Allstate First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mark Noble, Head of Investor Relations. Please go ahead, sir.
Thank you, Jonathan. Good morning. Welcome to Allstate's Q1 2021 earnings conference call. After the prepared remarks, we will have a question and answer session. Yesterday, following the close of the market, we issued our news release, investor supplement and posted related materials on our website at allstateinvestors.com.
Our management team is here to provide perspective on these results. As noted on the first slide of the presentation, our discussion will contain non GAAP measures, for which there are reconciliations in the news release and investor supplement and forward looking statements about Allstate's operations. Allstate's results may differ materially from these statements, Call. Please refer to our 10 ks for 2020 and other public documents for information on potential risks. And now I'll turn it over to Tom.
Thanks, Mark. Good morning, everybody. We appreciate you making the time to follow-up on Allstate and see how we're doing. Let's start on Slide 2. On the left, our strategy has 2 components, which is to increase personal property liability market share and then secondly to expand protection services, which are shown in those two locals.
And we made substantial progress in executing that this quarter. Many of those things that we'll talk about on the right hand side were really a year or plus in the making, but you see it all coming together this quarter. So we closed on the acquisition of National General in January, enhancing our competitive position in the independent agent distribution. We executed agreements to sell Allstate Life Insurance Company and Allstate Life Insurance Company in New York, 2 separate deals there. And that will redeploy capital out of to lower growth and return businesses and reduces our exposure to interest rate risk.
We also made continued progress on getting higher growth in our personal property liability business moving into Phase 3 of transformative growth. Total revenues increased by 26.2% in the quarter, which is a stunning number. Policies in force increased by 20.6% And of course, that's driven in large part by the National General acquisition. And we'll talk a little bit more about that in the call. A long term approach that creating shareholder value in both investing and using reinsurance also benefited results this quarter.
We had substantial increase in performance based income and Reinsurance Recoveries. Allstate Protection Plans continues its rapid growth. We launched Home Depot earlier this quarter. We had strong operating results with adjusted net income of $1,900,000,000 or $6.11 a share, and that generated a return on equity over the last 12 months of 23.2%. And then shareholders also benefited with 7 $55,000,000 of dividends and share repurchases.
Let's turn to Slide 3 and go through the Q1 financial results. Our revenues of $12,500,000,000 in the quarter increased 26.2% to the prior year quarter and that reflects both the National of general acquisition, higher investment income and realized capital gains. Property liability premiums earned and policies in force increased by 11 point 4 percent 12.1 percent respectively. Our performance based income was $378,000,000 versus a loss in the first quarter of 2020. We did have a net loss of $1,400,000,000 that was recorded in the quarter, which there was a $4,000,000,000 loss and the disposition from those announced sales of the 2 life insurance companies, and that was not fully offset by the strong operating performance.
The strong operating performance charter did create that adjusted net income of $1,900,000,000 as you can see from the table on the bottom. And that's 55.7 percent higher than the prior year quarter as reduced auto claim frequency and higher net investment income more than offset increased catastrophe losses. Let's go to Slide 4, digging a little on National General, which is an excellent growth platform for us. Now we acquired the business for $4,000,000,000 in January, and that's to grow market share within the independent agent channel. National General has appointments with over 42,000 independent agents.
That expands Our product portfolio as well includes non standard auto insurance, where we had a very small presence, lender placed homeowners insurance, accident health insurance and 2 digital marketing platforms. National General's agency facing technology is Effective, efficient and scalable. So we're a better owner for National General since it improves the independent agent business, it lowers cost and it will generate incremental growth from here. We've become a top 5 independent agent carrier and then the combination of Allstate's standard auto on homeowners insurance expertise with National General's expertise and non standard auto insurance will give us a really broad portfolio of products to provide to independent agents. Significant expense reductions are expected by consolidating Allstate's 2 independent agent businesses onto National General's technology and operating platform.
And the cost to acquire these in force policies, which which is about one point of overall market share at the net acquisition price is comparable to doing this organically. Now we have 3 measures of success for this acquisition, as you can see in the bottom of the table, accretion to earnings, achieve expense synergies and Grow IH channel policies in force. We're only a quarter into it, but we had a really strong start on these goals. Glen and the team, We've been working on this really since the 6 months we started the deal, in July, 6 months before we bought it. So we came into this quarter, 1st quarter with a head of steam.
And the Allstate Protection segment added $1,300,000,000 in net written premiums, $138,000,000 in underwriting income this quarter. Allstate Health and Benefits increased adjusted net income by $35,000,000 We are integrating Encompass onto the National General platform and are on pace to achieve our expense synergies. We also expect to grow policies in force by broadening that product portfolio in
the IAA channel. And of
course, that represents about a third of the total personal lines market. The IA channel policies in force are approximately 6 times larger after this transaction, as we add standard auto and homeowner insurance products in National General's offering later this year, that will drive even more growth. Let me now turn it over to Mario to go through the Q1 results in more detail.
Thanks, Tom, and good morning, everybody. Let's go to Slide 5 and delve a little deeper into property liability growth. Property liability policies in force grew by 12 0.1% compared to the prior year quarter. National General, which includes Encompass, contributed growth of 3,900,000 policies. The Allstate brand grew policies by 0.5% due to growth in homeowners and other personal lines, as you can see by the table on the left.
Allstate brand auto insurance was flat to the prior year as increased new business was offset by lower retention. The chart on the lower right shows a breakdown of personal auto new issued applications compared to the prior year, which increased 64% in total, primarily due to the incremental 526,000 applications generated by National General. The middle section of the chart shows Allstate brand impacts by channel, which in total generated a 5.4% increase in new business growth compared to the prior year. Modest increases from existing agents and a large increase in direct channel sales more than offset the volume that would normally have been generated by newly appointed agents as we pilot new agent models with higher growth and lower costs. As a result, property liability net written premium grew 13.7% in the Q1 compared to prior year, Conference, driven by a 12.9% increase in auto insurance and a 20.3% increase in homeowners insurance.
The auto insurance net written premium increase was driven by a 14.1% increase in policies in force due to National General and increased new business app new issued applications across all brands. These favorable impacts were partially offset by lower average auto insurance premiums from approved rate decreases and lower retention, partially driven by the impact of special payment plans that were implemented during the pandemic. If you flip to Slide 6, you see property liability margins remain strong. The recorded combined ratio of 83.3 percent improved 1.5 points compared to the prior year quarter, primarily from a lower underlying loss ratio,
Conference Call, driven by
reduced auto frequency and continued cost savings. The auto insurance recorded combined ratio of 80.5 was 8.8 points below the prior year, primarily due to lower accident frequency in the quarter. Allstate brand auto property damage gross frequency remained below prior year levels in 47 of 51 geographies, which includes the District of Columbia. The chart on the lower left shows the impact of the pandemic on Allstate brand auto property damage gross frequency. As you can see, the onset of the pandemic and efforts to slow the spread of the virus had a large impact on frequency beginning at the end of the Q1 of last year and then extending into the 2nd quarter when auto frequency was at its lows.
This timeframe coincided with Allstate's has trended below pre pandemic levels by approximately 28%, as you can see by the 3rd and 4th quarter variances to 2019. And Q1 2021 frequency showed a comparable decline relative to 2019. As you can see from the chart on the bottom right, we continue to make progress in reducing our cost structure, enabling us to improve the competitive position of auto insurance, while maintaining strong returns. The property liability expense ratio improved 2.5 points in the Q1 of 2021 compared to the prior year due to the absence of coronavirus related expenses incurred in 2020, Call, such as the shelter in place payback, as well as continued cost reductions. This was partially offset by a significant increase in advertising investment.
Call. The expense ratio excluding coronavirus related expenses, restructuring charges and the amortization of Purchased intangibles associated with the acquisition of National General was 22.8, an improvement of 0.5 points compared to the prior year quarter. In connection with the anticipated benefits associated with the future work environment, We expect to incur approximately $110,000,000 in restructuring costs during 2021, with $33,000,000 recognized in the first quarter primarily related to real estate exit costs. These restructuring costs and their future benefits are incremental to the $290,000,000 of aggregate restructuring costs related to transformative growth, which we announced in the Q3 of 2020, and of which we've recognized $256,000,000 to date, including $17,000,000 this quarter. Let's move to Slide 7 to discuss our progress on building transformative growth business models.
So transformative growth is a multiyear initiative to build a low cost digital insurer with broad distribution. This will be accomplished by expanding customer access, improving customer value, increasing marketing sophistication and investment, and Building New Technology Ecosystems. A longitudinal plan segments transformative growth into 5 phases, starting with the conceptual design and ending with the retirement of the old business model. We've completed Phase 1 and much of Phase 2. In Phase 2, the auto insurance competitive position has been improved, leading to higher close rates.
This was supported by cost reductions. Call. Direct capabilities have been expanded and sales volumes are increasing. New branding has been launched and marketing investment has been increased. This, combined with industry leading telematics capabilities, will increase growth.
We believe Allstate is among the leaders in telematics and is the largest pay per mile provider through Milewise, which offers lower costs for customers who drive less. We've also expanded independent agent distribution through the National General acquisition. Looking forward, we are now into Phase 3 and building the new operating model. We will support the transition of Allstate agents to higher growth and lower cost models. New agent models are also being tested to serve customers who want a local agent.
Improving customer acquisition costs The new customer experience and product management technology ecosystems also get deployed in this phase. Now let's go to Slide 8, which highlights investment performance for the Q1. Net investment income totaled 7 of $8,000,000 in the quarter, which was $462,000,000 above the prior year quarter, driven by higher performance based income as shown in the chart on the left. Performance based income totaled $378,000,000 in the Q1 as shown in gray, reflecting broad based valuation increases in private equity investments and sales of underlying real estate investments. Market based income shown in blue was $6,000,000 below the prior year quarter.
With lower interest rates, Our reinvestment rates remain below the average interest bearing portfolio yield, reducing income. Our 1st quarter GAAP Total portfolio return was minus 0.2%, as you can see on the bottom of the left chart, reflecting lower fixed income valuations. Call. Over the last 12 months, the total return was 8.8%. As discussed previously, our performance based strategy has a longer term investment horizon with higher but more volatile return expectations.
This volatility can be seen by the chart on the lower right. It highlights the 1, 5 10 year performance based internal rates of return. The 1 year trend has been volatile throughout the pandemic, with the 2 most recent quarters significantly higher than the returns experience during the middle of 2020. Conversely, the 5 10 year trends are stable and closer to our expected returns. Call.
Moving to Slide 9, Allstate Protection Plans continues to grow revenue and profit. As you recall, we purchased Allstate Protection Plans for $1,400,000,000 in 2017 to broaden the protection solutions offered to customers. It provides low cost protection with excellent service. Products are primarily sold through U. S.
Retailers and leverage the Allstate brand. Since acquisition, Allstate Protection Plans has experienced rapid top line growth and improved profitability. Revenues have grown at a compound annual rate of 48% over the last 3 years, Conference Call. As you can see on the bottom left and were more than $1,000,000,000 over the latest 12 months. Adjusted net went from a loss of $22,000,000 in 2017 to income of $148,000,000 over the last 12 months.
Additional growth will be achieved by further expanding appliance, furniture and mobile phone protection, expanding the geographic footprint outside the U. S. And creating new innovative services such as 2 day appliance repair. Conference Call. This acquisition has been an incredible success for us.
Now let's move to Slide 10, which highlights Allstate's attractive returns and strong capital position. Allstate continued to generate attractive returns with adjusted net income return on equity of 23.2% for the last 12 months, which was 5.7 points higher than the prior year. Excellent capital management and strong cash flows have enabled Allstate to return cash to shareholders, while simultaneously investing in growth. We provided significant cash Returns to shareholders in the Q1 through a combination of $601,000,000 in share repurchases and $164,000,000 in common stock dividends. The current $3,000,000,000 share repurchase program is expected to be completed by the end of 2021.
Given our growth strategy and sustainable earnings potential, we announced a 50% increase in the quarterly common shareholder dividend to $0.81 Call and Exchange Commission. Please note that we have a reconciliation of our earnings release today to shareholders on April 1. The total cash return provided to shareholders was 7.8% of average market capitalization over the last 12 months. With that context, let's open up the line for questions.
Josh Inc.
From Bank of America. Your question please.
Yes. Thank you very much for taking my question. So It looks like there's very good success in the allstate.comdirect model. Can we talk a little about Whether we've shuttered the purchasing through Esurance and the sort of flows we're seeing on the new policy apps on the
allstate.com side? Glenn, do you want to take that?
Sure. Yes. So we have not completely shuttered Esurance. What we've done is we've redirected our marketing dollars from the Esurance brand to the Allstate brand. In addition to that, we've invested more in the Allstate brand as well.
So but Part of that was being able to move that marketing. So while Esurance has trailed down, we're still taking advantage of the goodwill that we've Paid for over years of that brand and the fact that people recognize it, still find the Esurance out there and they have good products for a portion of our market. So we're still selling some there, but the growth is absolutely being driven by the Allstate brand. As you saw in the supplement that or the Q. We had 33% increase in direct sold business.
So it's really taking off. And we've got More capacity going into that system because a direct system is, I won't say only limited, but a main limiter would be Your capacity, your sales capacity in there. So we're growing the contact center, improving web flows and really growing the Allstate branded direct All Business. And Josh, go ahead.
So As you know, as part of transformative growth, we're also building a new technology ecosystem, a product management system and a Customer Experience System. As that gets rolled out, we will shut down the Esurance system And then we'll stop selling products under the insurance name, but we have some time to do that.
And the 278,000 new policy apps at Allstate Direct, are those apples to apples with the 200 or so that you sold 1 year ago or was that part of a joint direct captive sort of relationship where direct is a lead generator or Are they complete apples to apples, those 2 types of new applications?
Glenn, do you want to take
that? Yes. Sure. Yes, it would be an apples to apples. It's basically just think about customers that come to us by either clicking or calling directly into an 800 number as opposed to the customers that come to us through an agent.
So it would be an Apples to apples comparison.
And can we talk about National General Encompass and Allstate brand through independent agents. Is Encompass going to be called National General, even though the National General and Encompass products are kind of a different target customer? And what would be wrong with calling the product Allstates?
Well, let me take the branding question, then Glenn can fill in how we're doing the transition, because it's different for Encompass than it is for the Allstate independent agents. So first from a branding standpoint, We've decided that the Allstate brand and personal property liability will be on business that we control both the sales and the service on it. So that's both the Allstate agents And then direct, whether that's web or call center. For the independent agent business, we've rebranded National General. So it's National journal, an Allstate company.
And we launched it, I think, beginning of January, so that you get the relationship with Allstate, but that everybody understands that it's separate than that which you would get from an Allstate agent. We do not do that with the Allstate brand in the circle of protection. So, for example, we sell under the Allstate name at Walmart, to sell under the Allstate name and Home Depot at Target, which gives us both increased exposure to customers, enables us to further leverage that capability and quite honestly has helped us dramatically expand Allstate protection products because of the power of that brand. So Slightly different strategy from a branding standpoint inside the personal property liability markets and outside, but we try to leverage it everywhere we can, but provide Make sure that, that brand stands for certain things in different areas. Glenn, do you want to talk about your plans to both Integrate Encompass and Allstate Independent Agents into National General and then answer Josh's question on branding at the same time.
Yes. So thanks, Josh, because I think it's an interesting question, because I think if you take from a legacy standpoint National General and what it was best at known for and encompass and what it's best known for. It would be different as we suggested. But as Tom just pointed out, National General and Allstate Company, That's going to be a different story. We're launching middle market products.
So think about basically the Allstate capability in the middle market, auto and home and other personal lines on the National General platform and branded as National General and Allstate Company starting in the second half of this year and then really fast expansion. So it will be to all 50 states within 18 months of the start of that, so before the end of next year. So really National General and Allstate Company is going to be a company that is serving from non standard up through mass affluent and everything in between. It really is another national player in the independent agent space. And we've gotten a phenomenal reaction from independent agents and they are genuinely excited to have another Significant
player and
with the capabilities of Allstate National General combined in that market. And so we're positioned really well to grow We have a lot of greenfield ahead of us in the independent agent space.
And just to be clear, the Encompass name will disappear?
It will be part of National General and Allstate Company, correct.
Yes.
Whether we roll the policies to a new policy or leave the policy outstanding under the Encompass name and basically put National General stuff on top. It will just depend on Call of it. In Encompass, it goes first, and the Allstate independent agent, which is Allstate brand Products sold through independent agents in rural spaces where, it was not economic to have A captive agent, mostly. There's a few places where it didn't work that way, but mostly. That will transition over time as well.
Excellent. Thank you very much.
Thank you. Our next question comes from the line of Jimmy Bhullar from JPMorgan, your question please.
Hi, good morning. So first, I guess for Glenn or Mario, but the question on just auto The auto business. How do you see the interplay between frequency and pricing? And it seems like everybody's had very good margins in personal auto over the last several quarters. At what point do you see sort of pricing catch up to that?
And in that environment, do you think if The market stays competitive. Are you still in a position to grow your PIF count?
Let me provide an overview and then, Glenn, if you want to jump on to this one. So first, I'm going to go up a little bit. First, it's about how do we think about increasing market share and we use 2 words together, profitable growth. We put them together because that's what we want. We do not believe that growth with no profit is Good for shareholders.
So the objective, of course, is maximize shareholder value. Our expected outcomes for our team are that They will balance between growth and profitability. Our strategy, of course, is as Mario talked about, in The first phase second phase of transformative growth is get a more competitive auto insurance product. And we supported that, of course, and we're Being successful by reducing our costs. So the first thing would be, we can control our costs and we can make sure that if we reduce prices to get more competitive, we still maintain our margins.
Obviously, we want to be smarter, whether that be how we price or how we acquire business in our marketing. We're also using telematics. And then as we go forward with transformative growth, it will be by being faster with better technology and having new products affordable, simple and connected that are sold through that broad range of distribution that Glenn was just talking about from direct to Allstate agents. So Glenn, do you want to jump in on the specifics?
Yes. So first, I'll talk about frequency a little bit and then go to competitive position. So from a frequency standpoint, everybody has benefited from some lower frequency, But we've also looked at a deeper level at it than just sort of miles driven and the number of accidents coming out because there are differences by books and you see differences in competitors as to how much tailwind that's providing. So we look at the fact that Commuter driven or take it from rush hour losses are down about 3 points more than overall losses. And we look at rural driving is down about 4 or 5 points less than urban Driving.
And so we look at these at a pretty deep level and we're fortunate to work with Arity and have a lot of Data on this with 10 years plus of telematics that we get pretty granular into how we're looking at it and understanding the frequency picture. So we've got a tailwind with that. So which takes me into competitive position because we've been moving our competitive position pretty aggressively. Like you See a minus 1.5 on average premium and that might feel or seem slight, but There's a lot underneath that. We've moved new business pricing.
We've moved telematics pricing. We've reduced the cost of Our Milewise program that's grown really nicely and all of that is inside of there. So our competitive position on the price changes we've made and that are still going into market have really improved and our close rates are up. We're starting to see Those really positive signs of momentum across multiple states. And then you put on top of that the fact that some of our competitors have already taken price increases, you know some of those out there.
We've heard others say that they're going to start taking bites at the apple in terms of price increases. And you look at our position and obviously we're in a position right now. We continue to invest in growth. We can still put money into marketing. We could still put money into competitive price position because of where we're positioned, which really puts us in a great spot to grow going forward.
And then just any comments on your views on TIFF growth and to the extent you're able to quantify or give a range on how I'm assuming it should trend higher later this year and into next year as you're implementing some of these initiatives in direct and independent agency, but to whatever And you can quantify or give us an idea
what you expect it to be? We obviously we're not we don't give forecast on if growth or frequency or Let me talk about growth a little bit because it is really an important question that many analysts have. Call. And of course, it drives huge value in the market today. And so we would start and say, 1st, actuals matter, and we had a great quarter.
Over 25 percent revenue growth, our PIF growth was in the low teens, and we're headed towards increasing our market share pretty significantly in Personal lines this year, which is consistent with our strategy. I guess, what we set out to do. You'd have some naysayers who say, well, you bought it with the acquisition of National position of National General. And that's, of course, true. But you always have to investigate market share.
In this case, it is real growth. And we look at it and say, if we had taken the net price that we paid for National General and thrown it into marketing or higher commissions ins or some kind of spiff. It likely would have given us less growth than we got and certainly not at the kind of profitability we're getting from it. The same thing, but we did buy
it, but we did the
same thing with Allstate Protection Plans, right? We bought SquareTrade. We repositioned it with our brand, And that acquired growth then turned into an organic growth platform. We expect the same thing to happen with National in general. The difference is we paid a slightly higher premium for SquareTrade than we did for National Dental.
As it relates to the Allstate brand, we have multiple ways to grow, right? We got the Allstate agents and we're making a trend helping them transition to a new model. We have the direct business, which we've launched and is sold, by the way, at a different price than through an agent because we believe Customers should pay for what they get. And if you get an agent and get that help, you should be willing to pay for that. And so overall, we feel like The Allstate brand is positioned for long term growth as well.
And so we feel like we've got an overall plan to move Forward. It's got transformative growth in it. It's got real growth this quarter, and it's got we're building platforms that will continue that growth going forward. Okay. Thank you.
Thank you. Our next question comes from the line of Greg Peters from Raymond James. Your question please.
Good morning.
My first question will be on reinsurance. Tom, I was hoping you could just give us an overview of how reinsurance helped of the company this quarter. And then I know you did file your reinsurance update piece and maybe talk about What's changing going forward? I did note that the costs in the Q1 are about 14% higher versus a year ago. Is that some is that the type of cost or increase we should expect for the full year?
Greg, let me start with the strategic perspective on it, and then we'll work and either Mario or Glenn, if you want to talk about the Q1. So, in I'm going to go back a long way, but In 2,004 and 2,005, we had huge catastrophe losses. We weren't earning any money on the homeowners business. We've made some money 1 year and we would lose money in the next year when you look at it over time. You're like, this is not a really good business.
So we looked at getting out. And we said, you know what, if we were out, we'd want to be in because it does our customers do want it. So maybe it's just this catastrophe The risk that I don't want. So we created a very comprehensive catastrophe reinsurance program to basically divest Certain portions of the risk we took on, and that's evolved over time. We have a very sophisticated multiyear program.
It's got It's by state, it's got different by event, it's got the aggregate in it. And we bear that cost each and every quarter, obviously, that comes through. And then sometimes it pays off. And what you saw this quarter was the aggregate kicked in. And so from losses, some of the losses which were last year, showed up as reducing our TASB losses this quarter, which were up pretty significantly.
And that helps smooth it out. And we've looked at that from what kind of return on capital do we give up to the reinsurers, And we're quite comfortable giving up the return that they get to avoid the volatility that comes from it. And so it's helped us reposition The homeowners business, so that now it's a very consistent source of profitability for us. As I was Same to the prior question. We don't believe in growth with it's like running homeowners above 100 is not a good plan.
And you're destroying value at that point with growth, and we don't believe in that. So we've used reinsurance to help reposition the business. We did a whole bunch of other stuff including change in the product and change in the way we price and how we underwrite it, where how we do our segmentation by down to specific risk codes. So, how we pay for roofs, there's a whole bunch stuff we've changed underneath that over the last decade, but it's a really good business in reinsurance. Using that reinsurance helped us get there.
So what you saw this quarter was a benefit, which is more than was earned in this quarter, but it was paid for in the prior quarter. So If you some people want to exclude it from this year's quarter, totally get that. I'm like, that's fine. But then you should not be counting all the costs and the other time. Mario or Glenn, do you want to talk about the cost of reinsurance in the program going forward?
Sure. I can jump in on that, And just to give you a little color, Greg, on the benefits in the quarter. We We've recovered about $955,000,000 in the quarter on a net basis. Part of that was from our per occurrence Nationwide program where we retain the first $500,000,000 of an event and then we have coverage in our current program up to 5 $1,000,000,000 And then as Tom mentioned, we also have an aggregate cover, which is about $1,000,000,000 which spans a 12 month period. We also had recoveries under that.
So combined, it was about $955,000,000 that's net of reinstatement premiums in the quarter. And it was principally on the freeze event in Texas. So the freeze event on a net basis cost us $586,000,000 in the quarter. Once you start peeling back the prior year component of that reinsurance recovery, which was about $150,000,000 you get to a gross loss in Texas north of $1,300,000,000 So we've benefited pretty significantly in the quarter from our reinsurance program. As you mentioned, We posted on our website, we placed most of the nationwide program this quarter And we still have a component of the nationwide program to do and then remember we have a separate Florida program.
The cost Year over year, because we've included National General in this year's program, is going to be slightly higher than it was a year ago when you add up what we were spending on reinsurance and what National General was spending on reinsurance. But in terms of what you saw in the Q1, you got to remember that last year's program that was placed May 1. And what we saw last year was the increase we experienced was mainly in the Florida program and you're seeing that kind of cycle through in the Q1. We will start incurring the cost of this year's program when it incepts, Which is on June 1.
That was a thorough answer. I appreciate it. I'd like to pivot to the expense ratio on Page 6 of your presentation slide deck. You're continuing every quarter to show improvement in almost every quarter and show improvement in your expense ratio. And I guess when we think about Sustainability or more importantly, is this a trend that we should continue to expect forever?
Obviously, I don't think your expense ratio is going to 0, but the improvement is noteworthy. And then just as an aside, I did notice that the expense ratio was up and the Allstate Protection Home Business. So I'm curious if there was something unusual on that.
Call. So overall, Greg, you're right. Our strategy to get more competitive in auto insurance pricing, which was Phase 2 Between those 2, I don't think you could expect it to come down 0.5 point every quarter from now till infinitum. You should know that Our strategy is to both keep reducing costs every place we can so that we can have a more affordable product for our customers and therefore a better price so we get more of them. And then, but not to not invest in growth because of the kind of return on capital we're getting in these Businesses.
We should definitely be seeking more growth. Mario, do you want to talk more about what you this current quarter and what the ins and outs were?
Yes. Thanks, Greg. So I guess, as Tom mentioned, We're going to continue to focus on reducing our cost structure. And like we've said really all along, Our focus on reducing our cost structure is not a margin expansion focus. It's 1 it's a growth focus.
And it's a growth focus because Reducing our costs enables us to invest more in growth. And you saw it this quarter, where we invested more in marketing And the component of our underwriting expense ratio related to marketing actually increased by 9 tenths of a point. Yet it was more than offset by the operating cost reductions that Tom referenced from last year. So the real ins and outs were More investment in advertising more than offset by cost reductions and net net a 0.5 point improvement in kind of the Underlying expense ratio in the quarter and we're going to continue to focus on moving that number down. The other thing I'd mentioned on expenses and it's not obvious in our numbers is part of our Focus on cost reduction has been on getting more efficient in claim handling, and we've improved the efficiency in our loss adjustment expense, which comes through the loss ratio.
But again, we consider it as a core part of our cost reduction efforts Improve the cost structure, create capacity to invest and be able to grow more and continue to deliver Excellent return. So I think what you saw in the quarter was really a kind of proof of how that strategy is playing out. In terms of the Homeowner expense ratio specifically, Greg. I'd have to go back and take a look at what components of it, whether that whether it came through Distribution costs or underwriting costs, whether it was like inspections and so on. So let me take that one offline and I'll get back Yes, on that one.
Got it. Thank you for the answers.
Thank you. Our next question comes from the line of Paul Newsome from Piper Sandler. Your question please.
Good morning. Thanks for the call. Congratulations on the quarter. I I was hoping you could expand a little bit more about what it means to transition the existing career agents to a different model. We get emails from agents all the time.
Usually they're worrying about this or that. Is this a transition that's really towards more of an independent agent type structure with the Is that an agent type structure with the crew agents? Or are we talking something that's completely out of the book or if it's sort of to be determined?
Let me provide a little review and then Glen can tell you some of the specifics of what we're doing. But Paul, first thing I would say is We're not going to do the nationwide deal and turn them all into independent agents. We don't think that makes sense from a customer standpoint. Customers come to us because they love the Allstate brand. We have a really strong brand, long Relationships.
So we're not planning on turning them into something else. And obviously, the fast pace of change has all of us on edge, whether you're a retailer, Anybody, what's going on in the world. And good news for our agents is that still a majority of consumers 1, an insurance professional, help them buy insurance. And our agents are really good at it. That said, People are more comfortable with self-service, simple items and technology enables a computer to do some of the work that used to be handled by people and is still in some cases handover and local offices.
So we have to transition their model and go where the customers going. And so that includes maybe we don't have to use as much real estate as we use today. We certainly do not need to do as much Service work in agent offices. So we have a little over 10,000 Allstate agents. There's probably 26000 to 27000 people working in those agents.
Some of those people are doing service work. And we think we can do that either and those people in those offices to doing service work, to doing sales work or if they can transition Those licensed sales professionals have the agents build up staff they can move into that. So last year, one of the things that Glenn and And they did was a raise in new business commissions to incent and give people the opportunity to invest more and sell more things to more people and get more people selling for them. To offset that and continue to Make sure we're meeting our customers' cost needs, we slightly reduced renewal commissions So if you're an agent and you're focused on new sales, that's a good thing. You're excited about it.
You're often ready to go. If you've been focused more on service and not on growth, then you're not going to be as excited about that change because it changes your business model. So we have to help them transition from where they are to the place where the customers want us ago, which is they want help, but they want to do it in a technologically efficient low cost way. And we think that there's a good way to do it. Glenn can I'll give you some examples of what we're doing with our existing agents.
We've already talked about what we're doing direct to share with our customers. And then we're also trying some new models that Clint can talk about that do the same thing, which is use people to help people buy insurance in a local space, but at a lower cost. Glenn, do you want to give them some more specifics on that?
Yes, absolutely. And Paul, Tom hit a lot of the really important points here, but a couple Bear repeating, so I know I'm being repetitive, but it's really important. So it's a hard no on the IA piece. I'll just reiterate, as Tom said, this is we are dedicated to our exclusive agent model completely. And we believe that there is a not only a meaningful place, but a huge place for our exclusive agents to grow in the market because as Tom said, most consumers still want to work with an agent.
So in the presentation materials, it talked about higher growth, lower cost models. So I'll just hit a couple of things. Lower cost, We've been really reticent in the past to allow agents to consolidate locations or to Call. Even go in some cases without real estate or reduce their real estate footprint, we've been very focused on a model that is How many signs do you have up across the countryside? And we're going to really lean in to allowing agents to reduce costs and the way they run their business.
And Tom talked a bit about the service. We started that in 2019 And we built it up a bit and everything, but we really have to get to a centralized and more efficient and effective way of serving customers than separately across 10,000 different locations. And we can take a lot of cost out of the system and reduce the cost for the agents so that they can focus on growth. From a higher growth standpoint, It's about leaning in on the marketing that they do that we can help them do more effectively and efficiently as a large enterprise. The lead management that they do, compensating them more for new business, as Tom mentioned also.
That's the existing agents and how we want to transition that to higher growth, lower cost. The new models, For example, and we have several 100 of these already in place actually. We're learning from our Canadian operation actually. In Canada, we have Allstate agents who operate sort of independently from one another, it's not an agent with multiple staff, they're independent workers and producers. And they work on sort of a balance between being in communities and driving leads themselves and getting leads from the company.
And it's been very successful. We're growing very fast in Canada. So we're leveraging that model and looking at Models with no real estate in local markets that are part of the community and are able to take leads and also generate their own leads in that community and grow. So it's early in the process, but in the second half of the year, we're looking to ramp those up significantly.
I guess relatedly, could you talk a little bit about any early looks on the Pilot programs for new agent recruitment and if there's some different things that will be happening there in the near future?
Glenn, do you want to take that? Hey, Glenn, do you want to take that? Maybe you're on mute.
Call. My apologies, I did go on mute there. Yes, so we're focused on those new models I just mentioned in terms of our recruitment right now. And so we have been I think we have several 100 already and we have a lot more in the pipeline. So We're looking to grow with those new models.
What we're really focused on with the existing agent group, while we're recruiting some into the compensation program that we tab as opposed to what we called enhanced compensation program, which was a higher cost model before. We're recruiting some into that as more of what you'd refer to as a traditional exclusive agent. But the heavier emphasis on our recruiting is on those new models where with our existing agents, we're really focused on investing to get more of those agents growing and wanting to grow. The good news is they are growing right now. They are we have increased new business production with our existing established agents.
So When you see the total that somebody referenced earlier of that it's slightly down on the overall agency force that is driven by So the lack of new appointments, the existing agents' new business is up year over year.
And Glenn, let me just add That last point, Paul, which is that when you see that little red bar on our graph, that was an intentional choice on our part, Not a flaw in the system. So it's not like we decided that, you know what, we were hiring these new agents, we required them to have their own office, we prior to their support staff. To make that work when you have no customers, we're paying 30% upfront commissions, which then stayed high for not at 30%, but stayed higher than customers should have to pay for them for about 5 years. And we said, you know what, this is not the model of the future. We could have kept that going, while we develop These new models, and the system would look like it would have been generating more growth than it is today.
So, economically, that's just not the smart thing to do, like we're not using shareholders' money right. And that's where we get into, which the conversation we're talking about, 4, is profitable growth. Got it. You got to hear profitable long term growth. And so you have some bumps, but that's not about a flaw in the system, that's about an intentional choice.
Appreciate. Thank you very much.
Thank you. Our next question comes from the line of David Molchan from Evercore. Your question please.
Hi, good morning. I guess I wanted to just touch on retention. I was surprised it fell
a little bit here again. Also especially given some of the rate actions that you guys have taken,
I guess could you maybe just talk about Call. How much of
an impact the lapsing of any billing leniency may have had on the retention? And what your expectations are for retention going forward? Like should we see a snapback here in the second quarter? Yes. I guess that's just my question on retention.
David, let me provide an overview and Glenn, you can take the impact of The pandemic billing stuff. First, I would say, retention is really hard to do attribution on. People leave for all different reasons, and sometimes it's for price, sometimes it's because they move, sometimes it's they bought a new car. And so it's difficult to get it down to precision to in a point. What you do know is if your net promoter Score is good and you're doing a better job for customers.
They should stay around longer. And if you're competitive in price and you're changing your price not only for New business, which we've done, but also for your existing customers, which we've done. So they have a better price and that should also keep them. But there's lots of different variations. So it's really hard to predict it.
Glenn, do you want to talk about how you're feeling about retention this quarter? And Again, we have a hard time. Nobody really knows how to predict retention.
Yes, absolutely. So retention is a lagging metric, first of all, I'll start there, that wherever or whenever A customer decides to cancel, move, shift, we record it and report it at the point of what would have been the renewal. So there's a bit of a lag to that. So while we stopped the special payment plans During last year, there's still some of that trickling in. So as Tom said, attribution is difficult on this, But there's a portion of it that's related to that.
No question. Secondly, though, it is a highly competitive market right now. Shopping is up, Advertising is up, and there's some impact from that. It's interesting when you look at National General as an example, if you saw in some of our disclosures like National General's new business, it's really eye popping because National General writes a lot more new business to grow because they have a shorter cycle time. As our business shifts and we look at overall protection business and we're writing in more markets and we're writing direct and not just through exclusive agents.
That number will move around a little bit on retention, but our focus is to create a lot of new business. We're going to that is what transformative growth is about. We're going to create a lot of new business so that the undulations of retention Don't mute our overall growth. Got it. Thanks.
That's helpful.
And then maybe just on the new business side, obviously, great growth, especially on the direct side in new apps. I guess I'm wondering maybe if you could just you had kind of mentioned it in your script, but wanted just a bit more details on the Milewise offering and how that did this quarter, How big that is as a percentage of the entire book? And was that really the driver behind the direct growth that we saw in the quarter?
Glenn, you can take where we are with MiOI's number of states and how in the stuff you're down pricing. I would Say though, when you just step all the way back. We're about building a digital insurer, Conference Call. And sometimes that gets lost as to how big and how successful we are at it, given the size and scale of our company in total. And sometimes people look at People who only do that and assume that they're about to take over the market.
And we're happy to compete. We feel like we're really doing well in here. We're early in telematics. We think we're a leader in telematics. And this is an example of a product where We were out early.
We were aggressively advertising it, and it's resonating. Glenn, do you want to talk about how what you've done to help us grow?
Yes, absolutely. And to the question of is it driving the direct growth, I would say, Direct growth is a majority of that is not Milewise. It's an interesting thing to look at. As Tom said, when you look at it inside a company like Allstate, Milewise will look Like Allstate, mile wise will look relatively small. It's up this year, something close to in autos.
Policies, I think are 4 and change times what they were. Autos are 6 and change times what they were a year prior. So significant growth. If this was a standalone startup sitting outside of a large insurance company like Allstate, it is the largest in the industry, Pay by Mile program, and it would look really big and really fast growing and really attractive. Inside of Allstate, It is helping our growth, but it is not driving our growth, is the way I'd say that.
We're looking to expand Over time on Milewise, right now it's available to about 50% of consumers across the country and we have more states lined up for that. It does require the OBD port, which I think everybody knows there are chip shortages out there. We have not run into A problem where we have to slow down on Milewise at this point, but we are actively managing our supply chain on it because it is a popular product and we're managing our state expansion and looking at that so that we don't run into supply chain issues.
Thank you for the questions. I think we're out of time here. It's top of the hour and we try to be respectful of your time. Call. Obviously, we appreciate you coming to spend time with us and hear about us.
We had an excellent quarter. The work and you saw from that first slide, the amount of expertise and effort that went into delivering all that for the quarter wasn't just this quarter, it's What we do over time, but we feel good about where we're at. So we've had great operating results as well. So thank you for your participation, and we'll see you next quarter.