Thank you. Good morning, everybody. Thank you for investing your time in Allstate. Let me begin with your usual Surgeon General's warning, so we're going to use forward-looking statements. We use non-GAAP measures, so just think of these remarks in the context of all the different stuff we do. We give you 10-Ks. We give you 10-Qs. We give you all kinds of risk factors, so just as we're talking, make sure you have those in your head. I thought what I would do is cover four topics to set the context for our conversation, Rob. First, will property liability margins stay attractive? Two, what's Allstate's strategy to grow the property liability business? Third, how is Allstate addressing artificial intelligence, and how will we create additional shareholder value, so I'm going to kind of go over the treetops on those. We can dig into any of those that you want.
Let's begin by reviewing Allstate's strategy and our recent performance. So we have two parts to our strategy, which is shown on the left: increase personal property liability market share and expand protection offerings to customers. Our results over the last 12 months have been very strong, as you can see that on the right. Property liability premiums increased to $56.8 billion, which is up 8.2% from the prior 12 months. Net investment income was $3.4 billion, an 18% increase. Net income was $8.3 billion, up over 100% from the prior 12 months. Adjusted net income was $7.6 billion, a 72.8% increase from the prior 12 months. Return on equity was 34.7%. Total shareholder return was a little over 15%. Yet Allstate's price-earnings ratio is 7.4, substantially below the overall market or similar risk or investment alternatives. Now, of course, it's impossible to determine.
You could pay lots of money to determine why the price-earnings ratio is where it is. But it could be a concern about returns or growth in auto and home insurance business, which is why I was going to address those two issues. So let's look at historical results to assess the sustainability of attractive returns in the property liability business. So the personal property liability business, it's over $500 billion in premiums for auto, home, and some other property-related stuff with a large number of competitors. So think of it as a big, giant market, lots of people in the market. Industry profitability shows that auto insurance offers attractive returns for companies with scale, but homeowners is more challenging for most companies. Allstate's earned attractive results from both of those products.
The top graph shows auto insurance returns for the last 10 years, ending in 2024, so it doesn't include this year. The green line approximates the combined ratio needed to earn a 15% return on capital, so as you can see, Allstate at 97.1 is below the line as are Progressive and GEICO, while the industry has operated at lower margins for the last decade. Not in these numbers is Allstate's current combined ratio of 86.4 for the nine months of this year, so a low price-earnings ratio may reflect the view that earnings decline from this year's 34.7% return on equity, and that may be true. Historically, however, the thing to think about is Allstate's demonstrated an ability to generate attractive returns from auto insurance no matter what the situation is.
And this includes the pandemic, where we went from making money to losing money, which are better than the industry and in line with the best performers. In homeowners insurance, Allstate also earns attractive returns, while competitors struggle, as shown in the bottom part of the slide. The graph is set up the same. Allstate's combined ratio of 92.3% generates attractive returns, much better than even the large sophisticated customers or companies. Let's go to growth by discussing our transformative growth plan, which is to increase property liability market share. And we initiated that in 2019. At the time, Allstate had 9.3% of the auto insurance market, as shown on the left, which has increased to 10.2%. Progressive and State Farm also increased share, while GEICO and the smaller carriers have lost share.
Allstate's homeowners insurance share was 8%, which has also increased while maintaining attractive returns we saw on the last slide. These gains reflect early results from the transformative growth initiative, so transformative growth is a comprehensive five-component plan to increase market share. Customers are very price-sensitive in our products, so offering a more competitive price will increase growth. As a result, costs were reduced so that prices could be lowered while maintaining attractive returns. Distribution was also expanded. Since 2019, most of our business in that year was sourced through Allstate agents. New products that are affordable, simple, and connected were launched to differentiate customer value, and then if you do that, you got to let people know, and you got to let them know in a sophisticated way, so we increased our investment in sophisticated marketing, which leverages all three of those.
And that also required a new technology ecosystem. So significant progress has been made in improving Allstate's go-to-market model. Costs have been reduced by eliminating outsourcing and digitizing work, using less real estate, and aligning distribution expenses with what customers want to pay for. So we reduced the expense ratio by 6.7 points since 2018. Allstate branded products are sold at a lower cost than those sold through agents, so same brand, just the same product, just different price. And it reflects the lower cost of direct. Distribution was expanded by acquiring National General, increasing our presence in the independent agency market. We increased direct sales using the Allstate brand rather than advertising the insurance brand. At the same time, Allstate agent productivity was increased. New products have also then increased growth. National General, we expanded that non-standard auto insurance offering for higher-risk drivers.
New Allstate brand auto and home insurance products are now available in 42 and 24 states, respectively. And just as National General helped expand Allstate's space in the non-standard higher-risk drivers, Allstate's capabilities are being used to expand the standard auto and homeowners insurance offering to independent agents. So we have a new custom 360 product for auto and homeowners insurance, and that's in 34 states. Marketing sophistication and investments have also increased, reaching $2.2 billion in the last 12 months versus $900 million in 2019. So as you can see in the pie charts down on the bottom, Allstate now has a very broad distribution platform. Personalized business is spread almost evenly between Allstate agents, independent agents, and directly through call centers or over the web.
On the bottom right set of pie charts, you can see that this has increased auto insurance new business from 3.6 million items in 2019 to 8.5 million over the last 12 months, which is 2.4 times higher, so this enhanced model is beginning to deliver growth in different states with attractive returns, so the left-hand side is a map which shows 38 states where Allstate grew auto and home insurance policies in force through the third quarter of 2025. The right-hand side shows auto and homeowners growth policies in force for the third quarter of 2024 compared to the prior year, so in the top 15 growth states, auto insurance policies grew 8.8%, home insurance policies grew 11.3%, and the combined auto and home insurance policies grew at 9.5%. In the top 21 growth states, auto insurance policies grew 7.5%, and home insurance policies grew 8.8%.
So these states represent 31% of the countrywide policies in force. Sadly, that's not 100% because when you look at the countrywide numbers, it was more modest with auto insurance growth at 1.3% and homeowners insurance at 2.1%. The difference is because policies in force growth was negatively impacted by declines in California, New York, and New Jersey, where we took action to improve profitability. Those states are now generating underwriting income and present an opportunity for us to grow in those states as well. In addition, shutting down the Esurance and Encompass brands, which was about reducing costs, concentrating marketing dollars, had a negative impact on retention. Some of that, though, is likely captured in the higher new business. Let's move on to artificial intelligence.
So the technology architecture that we put in place for transformative growth really turns out to be a foundation to build Allstate's large language intelligence ecosystem, which we call ALI. But there's really a couple of forms of artificial intelligence. One is generative AI, and it's simplified our billing explanations. It codes software. It improves email communications, and it completes actuarial and financial work. So we're well along the way in using it there. The next frontier really is agentic AI, which will enable us to reimagine customer value. And this is where agents are talking to agents, not Allstate agents, but computer agents. And we're designing an eight-component system to lower costs, improve customer service, broaden relationships, enhance analytics, and improve our claims operations.
So ALI will position us for continued growth in the property liability market share and is going to enable us to expand the protection we provide to customers. In summary then, Allstate increases shareholder value in a number of different ways: generate attractive returns, organic market share growth, broadening our protection services, applying our investment expertise, and strategic capital utilization. So we're positioned to continue to drive sustainable growth and attractive returns for shareholders. With that, let's go wherever you want to go, Rob. Awesome. I don't know. What did I just leave this up? I guess maybe I'll yeah, why not leave it up? You can keep the message up there.
All right. Thanks, Tom, for that overview. Yeah, how about we dive right in?
So we're six years into transformative growth, as you mentioned, growing policies fairly evenly in all three channels, and it's at strong levels. Do you think 2026 sort of solidifies this upward trend in market share, or does competition that you discussed make that a little bit harder?
First, I think our policy growth should go up in 2026 from 2025 for a variety of reasons we can dig into. But yes, that will go up. Competition is increased in some places, particularly in auto insurance. It bounces around a little more in homeowner insurance. And it's, I would say, a completely different field in specialty lines, so motorcycles, boats. And I think we have the opportunity to grow a lot faster in that space as well.
Okay.
And on this competition front, I think there's a lot of discussion out there on the battle for market share being pretty intense in auto. Can you give us a sense of how you would benchmark this period relative to other periods from a competition perspective? And how does Allstate's positioning in this market differ from past cycles?
I would say auto insurance has always been pretty competitive for the last decade, at least, so that if you look at the profitability. So I feel highly confident we can continue to make money and grow in this competitive environment. How is the market different now than it was? I mean, maybe do pre-pandemic. That's so it's an easier place to put in my mind where it is. There are some companies that have further developed their model and are pushing more aggressively to grow in auto insurance now.
And that would largely be Progressive and State Farm. GEICO, as you saw, dropped market share. I think what happened with GEICO is they, and I'm not there, so I can't tell you for sure. But I think what happened was they wrote a bunch of bad business pre-pandemic. They got into the pandemic, and they said, "Oh, this is not a good plan." And so they shed a whole bunch of business. They're trying to reboot themselves, but we'll see how good and sophisticated their writing plans are to get there. So they've been trying a bunch of different things, trying to get into independent agents. For a while, they tried their own agents. So they're clearly feeling some limits on growth by having just one channel.
I think the difference between us now and part of what we talked about is we have any channel you want to be in, we can grow, so independent agents, I think we have great growth opportunity there, particularly in standard auto and homeowners. That's a great homeowners market. They have about half their homeowners business, and so we should be able to, as we roll out our Custom 360, given our scale in auto and our expertise in home, we should be able to take on the independent agent competitors in that channel. In the direct space, you have really two big competitors we compete with, which are Progressive and GEICO. Our capabilities are so much better now than they were pre-pandemic, whether that's how tight our marketing is to our leads, to our closings, so I'm feeling good about continuing to increase that.
The Allstate agents, we repositioned them since pre-pandemic, so we used to have 10,000. We now have 6,000, and we're selling more business, which is a good thing because it's lower cost. We have more motivated, more driven agents, and so I'm feeling good about that. I think there's still more to do in the Allstate agent channel because even with generative AI, we can make them more effective and more lower cost, so we still have some work to do there. Our competitors don't seem to be hunting there. I mean, the big Nationwide kind of got out of the captive space. State Farm is the biggest competitor there, so on the distribution channel, I feel very well positioned.
From a marketing standpoint, getting rid of the Esurance brand and moving it and starting selling everything under the Allstate brand, but not getting hung up on, I never really liked the word channel conflict. I'm like, "Yeah, it's like what you've managed." I don't know. It's conflict. When people don't want an agent, they don't have to pay for an agent. And that's the way it works at Allstate. If you want to buy Allstate direct, it's 7% cheaper than if you buy it through an Allstate agent. For price-sensitive people, that enables us to grow. So I feel like in the marketing, customer value piece were good. The one piece that I'm sure it's on your mind, Rob, which is on growth, is retention, which has changed a lot.
Yep. Yeah. I want to dive in on retention as well.
I mean, it seems like with new business growing in all three channels pretty strongly, retention sort of becomes the key to growth. And how do you see that trending going forward? And maybe more specifically, do you think the exclusive agent policy base is more defensible in a high-shopping environment like we're in today?
The answer to the second question is yes, but it may go way up for a second here on retention. So retention's been coming down for the last five years. So retention, of course, is how many customers you have left that you got. And you'd like to have that be higher because you spend a bunch of money getting them. And it's come down. And it's hard to do attribution on exactly what drove it.
But of course, one of the things that did it, when you raise your prices in auto insurance by 35%-40% over a relatively short period of time, people are like, "Hey, that's expensive. I should look around and see other people," as people shop more, then companies advertise more, including us, so as I said, we're over $2 billion, and so that's kind of self-reinforcing, so higher prices, higher shopping. People get used to shopping. They see more ads, so what we've seen is that as the price increases moderate or go away, that you get back some of the retention, so the retention goes down when you raise the price, then you don't raise price for a while. It starts to go back up. It's not going back up to where it used to be, but it's going back up.
Now, that may be because people are just used to shopping more. It may be ease of shopping, but it's going back. So we get some bump in individual states just by not taking a bunch of price increases. Our growth plans are not based on a dramatic increase in retention to old levels. Our growth plans are based on just holding retention where it is today. And we're doing a bunch of things around that because if part of it is permanent, you need to do something else. And so obviously, the first thing you do is raise value for customers. One of the ways we've been raising value for customers this year, we had a goal of going out to 10 million customers, reducing their price, and that's the price they pay, by more than 5%.
Because when we took the price increases, we did it quickly, and we weren't as sophisticated as we could have been in doing it because we said, "Okay, here's a deal. We can do it in a less sophisticated way, and we can do it fast and quit losing money. Or we can do it in a really sophisticated way and take a longer time." We chose door one. Now we're going back in and through door two. And so we won't get to the 10 million this year, particularly in homeowners. That's a little harder to do. But it's millions of customers, and the number's a lot bigger than 5% that we've been able to save them. That includes things like raising the deductible, changing their limits. There's just a bunch of things we can do to help show more value.
That obviously leads to higher retention because people are happier. And there's a whole bunch of other things we can do, whether that's first-time retention. So once somebody renews seven or eight times with you, they're pretty much locked in. They've made the choice enough times to say, "I kind of like you." So you got to focus on different pieces of it. So it's really about a math, a sophistication, and operational execution game to drive retention up. And I feel like to the extent those work, that's upside to our growth.
And so how do some of these larger states noted in your presentation? You've got some of these larger states that you talked about, New York, New Jersey. They've seen some pressured growth trends. What's the sort of state of the market in terms of growth and profitability in some of those larger states?
And what's the timeline for improvements there?
Yeah. So when we show those, that's not our excuse slide, that my dog ate the homework because our job is to grow in all those states. So let me start there. And we show it only to help you see what we believe to be true, which is transformative growth is working in an extremely positive way at the state level. In those three states, California, I think, California's pretty much fixed right now from our standpoint from a growth in auto insurance. Not true in homeowners. New York and New Jersey are still a little farther back. So our price increases in those states were more towards the end of 2024 and in this year. And so you still have that retention decline this year. That said, we need to figure out how to grow in those states.
We're back to being profitable. I think our big challenge there always strikes me as odd that we would like to roll out our affordable, simple, and connected product. It's got higher close rates. It's a better product. It's more sophisticated pricing. It's really a good product. We don't show you attribution on how much that drove growth, but it's good, and we don't have those in New York and New Jersey. For some reason, regulators have this view that they don't want to approve a new product for people. I'm like, "Well, that's a better product. Seems like kind of what your job is," so we're working on that one.
Any idea on the timeline?
No. I mean, no. New York, I mean, I love your state, but they're not the fastest in approving insurance stuff.
Let me just go to homeowners for a second because I think it's almost like auto insurance becomes such a magnet because you can compare us to Progressive and other stuff, and homeowners is also a huge growth opportunity for us. We sat back a little bit on growth in the last couple of years on homeowners because we were fixing the auto insurance profitability thing, and we had enough to do there, and I didn't want to then take on additional risk, but we're really good at homeowners. The market was really bad in 2024. It got better in terms of availability to customers in 2025. That said, everybody's still not making enough money, and we are, and so that's an area where we ought to be able to just continue to expand quite aggressively there.
And then we didn't really talk about in terms of growing policies in force. Our share in motorcycles, boats, go down the list of what are called kind of specialty lines, is small from our standpoint, and we should be able to dramatically grow those. So we're focused on not just auto, but also home and specialty lines.
And how does auto and home bundling fit into that equation? I think you guys have had some success there. What's been some of the trends with the bundling?
Well, I didn't touch on your give you really the question on the Allstate agent other than a yes or no. So when customers buy more things from you, they stay around longer. Your retention's higher. You can spread your acquisition costs over more products. And sometimes they buy more stuff from you because they like you. They were going to retain anyway.
But in general, selling people more things really works for the economics. And our Allstate agents are at record highs in bundling auto and home insurance. As we move into the independent agent channel, our plan is to use that wedge of homeowners and having a really good homeowners product and not other people not having that to then work into bundling that. So that does work on retention. I would point out, though, that retention is something you work at, you manage, but it's much more granular the way you do that than just looking at the total numbers. So for example, one of the reasons if you look at our retention, it went down is because we're selling a lot more high-risk non-standard drivers who tend to have lower retention. I'd like our retention to be up higher there.
It should be able to be higher there, but they're much more price-sensitive because they pay a lot more money, so the fact that our retention goes down because we're selling more non-standard, I'm not feeling badly about that. I'm like, "Good. Let's just keep selling more non-standard because we're trying to grow market share.
And shifting to margins in the auto business, I think you've said broadly rate adequate. Do you think you can grow market share with stable price increases, or does this competition, you think, result in more price decreases? I noticed at least one of those large competitors that you discussed is taking sort of bigger price decreases right now.
You must be talking about State Farm, so yeah, I think we can keep making money. I mean, we've done it over 10 years. It's not that much a different market.
There seems to be this view that we're all going to slice our own throats and not make any money. If you look at Progressive's not in that mode, GEICO's not in that mode, as I talked about. I think GEICO actually got more religion coming through the pandemic. State Farm, they're a smart company. They may be slower to raise prices than other people, and they may run at higher combined ratios than we have, but we've been able to show we can grow and compete well with them, and they haven't changed. That's the way they've always been, so I'm feeling good about it. Yeah. Will the combined ratio be in the 80s? No, but it doesn't have to be in the 80s, as I've pointed out, for us to get a terrific return.
So the way we maximize shareholder value is keep making the money, keep maintaining returns, and then get growth up because that should not only generate more income, it should generate a higher PE.
And some of the inputs for that margin, the frequency and severity trends, what are you seeing in terms of those trends, and what are the primary upside and downside risks as you see those?
They vary in all the different product lines. So in auto insurance, in a broad brush way, frequency has been coming down for a long time, and it'll probably keep coming down. Do we price for keep coming down? No. We price on what we've seen today. So you have a little bit of wind at your back in that in terms of making sure you have attractive margins.
In severity, our severities are up this year, less than inflation in our physical damage. Bodily injury is a little higher than that. And I think those trends will probably continue. Some of that is us getting better, and some of that is just moderated costs. What happens with tariffs? I don't know. Tariffs, maybe they're in the price. Maybe they're not in the price. It could increase stuff. But whatever it is, we can adjust. It's not going to be so big that we won't be able to adjust it. In homeowners, frequency bounces around a lot. But I think sometimes people look at homeowners, and what's really important is the mix, not overall frequency. So if you have 100 home policies and 10 of them have losses in one year and 11 have losses the next year, then it might actually be a good thing.
Because if they're not like fires, and it's like a window or something small happening, so the mix in homeowners insurance, what I would say is, in homeowner insurance is we've got a whole business model that works. That goes from the product we design to the pricing we do, and we're about to roll out a new set of pricing algorithms in homeowners, which we're already ahead of the industry. We'll put us even farther ahead of the industry. For example, about half your losses come from the roof, and so you have to have good roof stuff. We have digital images of every roof in America. We can risk rate them, and we can determine how to get the right specific price for that house. We don't have that on all of our policies.
When we have it on all our policies, we'll be even more defensible in that margin.
Shifting to expenses, there's been meaningful reduction in the underlying expense ratio. And you talked about Allstate's new technology ecosystem. How should we think about the potential for further expense ratio improvements, and what does this new tech ecosystem allow you to do differently, particularly with artificial intelligence?
So on expenses, we're not done with the transformative growth stuff. So we're still not at the objectives we set for how much we could reduce costs in the property liability business. And I'm going to call it in the it's called the contemporary model. So we still have to reduce our distribution costs some. And we have some other expenses that we need to reduce, some service-related costs and stuff like that. So we're on that.
It'll take some time, another couple of years, to get that done, but I feel good about that'll happen. When you then look at what can you do with AI, Generative AI is already cutting costs for us. It's cheaper to pay a computer to code than it is a person, but I think the real win on that is when we built the technology for transformative growth. Zulfi, who's our Chief Technology Officer, put this architecture in place, and when you talk to people about artificial intelligence, a lot of people complain about data. That's not our problem. We've got a lot of data. We've been using a lot of data, but the issue is we built what's called an orchestration layer, and that enables you to move from system to system, which you need to do agentic AI, so we've already built an orchestration layer.
So that gives us the opportunity to build agentic AI where the computer can be deciding not only what do we pay for a lead and what do we bid on it, which we're already doing in sub-second response time. That's just machine-based learning. But it can be talking to the pricing position. It can figure out your competitive price position. It can figure out what your likely retention. So I think it'll make us even more sophisticated, which when you go back to that slide of market share and you saw in auto and you'll see it in home soon, I think, as well, that the small players just won't be able to hunt. Not because they won't be able to buy agentic AI agents. Somebody's going to create agentic AI agents just like we're doing. Like we're doing one right now called customer engagement.
Other people are going to build the same thing. It's not that complicated. Because we'll be able to link it to our data and link it to our systems, I think we'll continue to take share from the subscale players.
I think we got time for one more question. We'll end off on capital position. You highlighted in the 3Q slides the company is now in a favorable capital position. What's the right balance between share repurchase, organic growth, and is there any appetite for M&A?
We've always had a lot of capital. There was one analyst who didn't think we did, and somehow that guy went through the memes. We've always had a lot of capital. We're very sophisticated about it. We obviously have more now. When you're at last quarter, you're making $1 billion a month. It adds up pretty quickly.
And so how do we look at that? Well, first, we need to get our growth up. I mean, get organic growth up. Use that for organic, whether that's auto insurance, home insurance, specialty lines. At the kind of returns I showed, that will not only make us more money. As I said, that should also re-rate the PE. Because if you look at our PE relative to other people, whether even commercial lines companies who don't really grow that fast, it's low. And it would be higher. So that's the first place you want to deploy your capital. That's what you already do, that's what you do well, that you know you're going to get returns on. Other than that, it's always kind of just a jump ball for us. And we have done all of them. Since I've been at Allstate, I don't know.
We've bought back, I don't know, maybe a huge percentage of our shares. Because if we don't have a use for the money, we buy shares back. If we do have use for the money, then we put it to work. How might we put it to work? We bought National General. We paid $4.1 billion gross. That nets down to under $3 billion when you look at the stuff we sold off. It had maybe $4 billion of premium when we had it, and it's got $11 billion today. That thing's been a home run, just a home run. Same with Square Trade when we bought that. It's 10 times its size, and it was making no money. We paid $1 billion for it. Everybody was mad at us, and not everybody, but a few people, and it'll make over $140 million this year and growing like crazy.
So, tell me, you can buy a company at 10 PE. So, not everything we do works out. So, I'm not pleased with our growth in the identity protection business. So, I'm not telling you we're perfect and we got it right. So, we look at deals. And, in terms of right now, I don't really see us needing to buy anybody. We bought National General because we weren't any good in the independent agent business. And we need to be good in the independent agent business. And right now, I think in the property liability business, we're good. We've looked at the protection plans businesses. There was just recently a trade there. And we just don't think that was that good a company. If we're a better owner or it can make us better, then we're interested. If we're not a better owner, then we're not interested.
And if it doesn't really do much for us, then we don't buy it. So right now, we're just going to grow. If we need to buy back shares because we have excess capital, then we'll do that.
Awesome. Well, thanks for the time.
Thank you, Rob.
Appreciate it.