Good morning, everyone. Day two, Raymond James 43rd Annual Institutional Investors Conference. We're in person, which is nice. I'm Greg Peters. I'm the insurance analyst here, and I'm honored to welcome back The Allstate Corporation to the conference. It's kind of scary. I joined Raymond James on the first tour duty in 1999. Allstate started coming to our conference in March of 2001, and they've been a participant in every conference since then, and the couple of virtual ones in the last couple of years. Indeed, they've been a great supporter of the conference and they've got a good story to tell right now. For management, Mark and Brent, from Investor Relations, and they're very important even though they're not going to be talking much, because if you have questions, you want to reach out to them, and they're very much accessible.
Mario Rizzo, who's the Chief Financial Officer. I'm going to turn it over to you, Mark.
All right. Thanks, Greg, and good morning, everybody. Great turnout this morning, and really appreciate you all taking the time to invest and learn more about Allstate's strategy and why Allstate's an attractive investment. Appreciate everybody coming out this morning. We're going to start on slide one, which is a reminder that I'll be using forward-looking statements and references to non-GAAP measures, and those must be considered in the context of all the information we provide, including information on potential risks that are included in our 10-K for 2021, and other public documents. This presentation and more specific information is available on our website at allstateinvestors.com. Let's jump right into the presentation. This slide depicts Allstate's strategy and recent highlights on how Allstate is increasing shareholder value through innovation, operational execution, and sustainable value creation.
Allstate's strategy has two components, increasing personal property liability market share, and expanding protection solutions, which are shown by the two ovals on the left-hand side of this slide. This strategy increases shareholder value, and we've made excellent progress so far, as shown by the full year 2021 highlights in the right-hand panel. Property liability market share increased by approximately one percentage point through the acquisition of National General. We expanded protection services primarily through growth at Allstate Protection Plans by broadening product offerings, partnerships, and availability. Revenues increased 20.7% relative to prior year, reflecting market share growth due to the National General acquisition, growth in homeowners' premiums, and higher net investment income. We generated adjusted net income of $4 billion or $13.48 per share and a 16.9% Return on Equity.
Shareholders benefited from our performance as we returned $4.1 billion of cash to shareholders, reduced common shares outstanding by 7.8%, and increased the common dividend by 50%. We continue to execute on our Transformative Growth initiative to build a low-cost digital-first insurer with broad distribution. We also divested the lower growth in return life and annuities businesses for $4.4 billion, which freed up $1.7 billion of capital, and we continue to expand our broad set of protection services businesses. Moving on to slide three, let's discuss some of the environmental factors impacting auto insurance profitability and the actions we're taking to achieve our target mid-90s combined ratio in this line of business. The pandemic has created a volatile operating environment for the auto insurance industry, requiring rapid adaptation. Stay-at-home orders resulted in reduced accident frequency that led to strong profitability in 2020 and the first half of 2021.
Loss costs rapidly began to increase in the second half of 2021, driven by inflationary pressure on loss severity. Loss costs increased due to higher used car prices, which impact the cost to replace vehicles that are total losses and the cost to fix a car that has repairable damage. The cost of settling bodily injury claims also increased because of more severe accidents, higher medical cost, and increased attorney representation of claimants. Starting with the chart on the bottom left, we generated auto insurance underwriting income of $1.7 billion during the first half of 2021, but a loss of $459 million in the second half of the year. In response to rising loss costs, we have a comprehensive and aggressive plan to increase returns back to our target levels. This includes price increases, managing loss costs, and reducing expenses.
The chart on the bottom right shows the annualized implemented rate impact in the Allstate brand auto insurance business over the past three years. In the fourth quarter of 2021, we implemented Allstate brand auto rate increases with an annualized impact of $702 million or 2.9%, which exceeds the aggregate amount of rate taken in all of 2019. Rate actions are continuing into 2022, and we are committed to providing implemented auto rates each month to support your assessment of these trends. In January 2022, rates were implemented in five locations, averaging 7.7%. With a total Allstate brand impact of 0.6%, bringing the total rate taken over the past four months to 3.5%. It's important to remember that auto insurance rate increases are applied as six-month policies renew, with annualized written premium impact fully recognized after 12 months, which I'll show in further detail on the next slide.
In addition to rate increases, we're executing claims operating actions to manage loss costs, including strategic partnerships with parts suppliers and repair facilities to mitigate the cost of repair, and advanced claims analytics and predictive modeling to optimize repair versus total loss decisions, and the likelihood of injury and attorney representation for a claim. We're also reducing operating expenses as part of our Transformative Growth strategy, which will also benefit margins going forward. If we flip to slide four, this slide addresses the question of when auto margins will return to target levels, given the lag between implementing price increases and earning premiums, and the potential for loss costs to continue to rise. The timing of when operational actions restore auto profitability is largely dependent on the relative growth of premiums compared to the future trajectory of loss costs.
Average premiums increase through rate increases, but there's a lag between implementing the rate increase and average earned premium increasing because we earn the higher rate over a six-month policy term. As a result, it takes six months before all policies are renewed at the higher or new policies sold at the higher price. On the cost side, severity increases impact losses immediately as they are realized, and their future path will be heavily dependent on macroeconomic factors. Frequency levels are likely to continue increasing towards pre-pandemic levels, although a portion of the frequency benefit may persist due to shifts in time-of-day miles driven. In addition to these dynamics, cost reductions will provide a partial offset to the loss cost pressure as they're realized. The chart on the bottom of the slide shows our historical loss trend compared to our earned premium trend.
When the blue line is above the red line, the combined ratio is under 100. Historically, there is a gap between these two lines, given the mid-'90s combined ratio target. During the pandemic, margins expanded with the lack of driving due to shelter-in-place orders, and in the second half of 2021, they contracted, given the inflationary pressures on severity. The dashed lines on the right side of the chart provide an illustrative view showing that over time, we expect these lines to return to their historical relationships, given our rate actions. The extent by which the combination of these factors deviates from our expectations, which are embedded in our rate filings, may delay or accelerate the timing to achieve our mid-'90s targeted auto insurance combined ratio.
The darker dashed red line shows a scenario in which average underlying loss and expense, while still continuing to increase, begins to flatten out, consistent with the pace of historical loss cost increases. In this illustrative scenario, margins are compressed for a period of time until rates drive increases in average earned premium and restore target margins. The lighter dashed red line shows a scenario in which average losses and expenses continue to increase at an accelerated pace. In this scenario, we would pursue higher rate increases over an extended period of time to restore margins. However, it would likely take longer to reach targeted margin levels. Of course, these illustrative examples are simplified to convey this concept and ignore real-world complexity like seasonality, expenses, and changes in underlying assumptions. Given the volatility, we won't provide an exact date for when the auto combined ratio will achieve our targets.
However, we are very confident in our ability to manage margins over time and have a proven track record of dealing with margin challenges and restoring target levels of profitability. Here's a general rule of thumb that may help you in doing your projections. To the extent that written premium growth exceeds loss cost increases by 1% for the year, the improvement on the combined ratio is approximately 0.4 points in year one, with an additional 0.5 points in the next full year. This simplified example demonstrates the lagging impact from written premium to average earned premium and assumes 100% of the rate applied affects each policy without modification to deductibles or limits or other things that might impact average premium. Those will influence both premium and loss trends.
It also shows that increasing premium by a full point above the loss trend results in less than a full point improvement in the combined ratio due to factors such as variable premium-related expenses like commissions and premium taxes. Now let's turn to slide five and discuss our expectations and commitment to further improve our cost structure through Transformative Growth. The chart on the bottom of the slide shows the new non-GAAP measure we've introduced, referred to as the adjusted expense ratio. This starts with our underwriting expense ratio, excluding things like restructuring, coronavirus-related expenses, amortization and impairment of purchased intangibles, and investments in advertising. It then also adds in our claim expense ratio, excluding costs associated with settling catastrophe claims, because catastrophe-related costs tend to bounce around quarter-to-quarter. We believe this measure provides the best insight into the underlying expense trends within our property liability business.
Through innovation and strong execution, we achieved 3.2 points of improvement in our expense ratio when you compare 2021 to 2018. Over time, we expect to drive an additional three points of improvement from current levels, achieving an adjusted expense ratio of approximately 23 by year-end 2024. This represents about a six-point reduction relative to 2018 or an average of one point per year over six years, enabling an improved competitive price position relative to our competitors while maintaining attractive returns. Future cost reductions center around continued digital enablements, operating efficiency gains, and transforming the distribution model to one that is higher growth and lower cost. Let's broaden the conversation on the next slide to discuss how we're simultaneously executing on the key components of Transformative Growth that position the business for profitable market share growth over time.
As you know, Transformative Growth is a multi-year initiative to increase personal property liability market share by building a low-cost digital insurer with broad distribution. This will be accomplished by improving customer value, expanding customer access, increasing the sophistication and investment in customer acquisition, deploying a new technology ecosystem, and enhancing organizational capabilities. We've made significant progress to date across each component of Transformative Growth. Starting at the top of the flywheel, as we just discussed, we are reducing expenses to improve customer value. This enables us to offer lower, more competitive prices while maintaining attractive returns. This should increase close rates and drive better retention over time. With a lower price, we need to increase quotes, which will be accompanied by enhancing and expanding distribution and increasing marketing sophistication and investment. These two items should lead to increased quote volume at lower costs.
New technology platforms are lower cost and enable us to improve service with greater speed to market. This new technology also enables us to create competitively differentiated products that are affordable, simple, and connected, which increases our pricing power and customer retention. This comprehensive approach to growth creates a flywheel effect that leads to sustainable competitive advantage and consistent market share growth. Moving to slide seven, let's spend a few minutes discussing our industry-leading homeowners business. A significant portion of our customers bundle auto and home insurance, which improves retentions and the overall economics of both product lines. Our differentiated homeowners product is unique in the industry, largely due to the integrated ecosystem that combines product, underwriting, reinsurance, and claims expertise.
Since 2017, we've earned $3.3 billion, an average of $667 million annually in underwriting income, with the industry generating nearly an $18 billion underwriting loss from 2017 through 2020, which gives you a sense for how much we outperform the industry by. The graph on the bottom left shows homeowners insurance combined ratios for Allstate, select competitors, and the overall industry since 2011. As you can see, Allstate has consistently outperformed our competitors and the industry. Allstate is well-positioned to maintain our competitive position in this line of business while continuing to grow. Allstate's House & Home product is designed to address severe weather risks, and we have sophisticated pricing features and adaptability to respond to changes in replacement values, which is particularly important during this higher inflationary environment. The chart on the lower right shows Allstate's homeowners insurance net written premium and policies in force over time.
We have grown policies in force steadily, increasing to 1.5% at year-end. Our Allstate agents are well-positioned to continue to broaden customer relationships. Net written premium growth to prior year, represented by the blue line, has grown sharply throughout 2021, reaching a 13.8% variance to prior year in the fourth quarter. The increasing spread between net written premium and policy in force growth is due to increases in average premium per policy, which has steadily increased throughout 2021 in response to rising replacement cost values and to a lesser extent, rate increases. Our product reacts quickly to inflationary forces, which allows us to better match price and risk. On the claims side, we've made investments in technology such as photo, video, and aerial imagery for timely and accurate loss cost management. National General's homeowners book provides additional profitable growth opportunities in the independent agency channel.
We're optimistic about the bundling opportunities in deploying new middle market home products in the National General ecosystem. In the near term, we're focused on improving National General homeowners insurance profitability by leveraging Allstate's expertise and data to refine pricing and underwriting capabilities. The goal is to meet customers' protection needs while optimizing risk and return for shareholders. We underwrite risk directly where we can achieve targeted returns, but we also broker other insurers' property policies to meet our customers' protection needs where we can't achieve an adequate return on capital. This enables us to maintain auto insurance relationships. We also shift an extensive amount of catastrophe risk to reinsurance markets, including utilizing traditional reinsurance and alternative capital, covering both individual large events and annual cumulative cat losses with an annual aggregate cat cover.
All in, we have a homeowners insurance capability that is differentiated in the market and operates as a strong diversifying book of business while we continue to improve auto margins. Slide eight shows how protection services continue to generate profitable growth. Revenues, which exclude the impact of net gains and losses on investments and derivatives, increased 23.5% to $2.3 billion in 2021. Adjusted net income of $179 million for the full year 2021 represented an increase of $26 million compared to the prior year, driven by growth in Allstate Protection Plans, partially offset by higher costs related to growth investments. By leveraging the Allstate brand, excellent customer service, and expanded product and partnerships with leading U.S. retailers, Allstate Protection Plans' rapid pace of profitable growth continues to exceed expectations.
Revenues finished 2021 at nearly $1.2 billion with a compound annual growth rate of over 40% since the acquisition closed in 2017. Net written premium of $1.8 billion grew 49.1% in 2021 compared to the prior year and represents a six-fold increase since the acquisition. As written premium is earned over policy periods that range from one to five years, it will generate future revenue growth as we earn the roughly $2 billion of unearned premium associated with Allstate Protection Plans on our balance sheet. Adjusted net income of $142 million in 2021 includes continued investments in growth and technology. Additional opportunities remain in this growing market. We are poised for further expansion internationally with a broadened product suite, including appliances and furniture. Let's turn to slide nine to discuss how Allstate's capital strength and cash flow generation enables investments in growth and excellent cash returns to shareholders.
Allstate's diversified portfolio of businesses has a history of generating substantial cash flow from operations. The property liability combined ratio has consistently performed at industry-leading levels. This, along with contributions from our health and benefits business, protection services businesses, and our $64 billion investment portfolio, generates high levels of cash flow. Net cash flow from operating activities is averaging over $5 billion annually over the past five years, as you can see by the chart on the lower left. Substantial and consistent earnings generation has created the capacity to both invest in growth while providing significant cash returns to shareholders. In addition, the divestiture of our life and annuity business increased deployable capital by $1.7 billion in 2021. Organic investments like Arity and the various components of Transformative Growth have largely been funded through cost reductions and realized efficiencies to proactively position the business for future success.
Over the past five years, we've also strategically invested $6.2 billion to acquire capabilities that expand our product offerings to meet customers' evolving protection needs. In the case of National General, the acquisition expanded our market presence in the $125 billion independent agent channel, which will be leveraged by introducing new middle market auto and home products. We also acquired SafeAuto, which is being consolidated into National General, further expanding our direct-to-consumer non-standard auto capabilities. Allstate Protection Plans, which was purchased for $1.4 billion in 2017, has been a tremendous success, as I mentioned earlier. We're also building our telematics business in Arity. We created Arity outside of the insurance operations to provide scaled telematics solutions for Allstate and other companies. Arity has extensive data collection relationships and capabilities across the insurance value chain and continues to expand its potential partners.
Allstate Identity Protection further diversifies Allstate Protection into customers' digital lives. With an enhanced product suite, including customer privacy capabilities, we anticipate continued growth in this nascent growth market. These investments, along with Transformative Growth, create excellent growth platforms in high-returning businesses to fuel further cash flow generation for our shareholders. Let's move to slide 10, which highlights Allstate's significant cash returns to shareholders over time. We returned $4.1 billion in 2021 through a combination of share repurchases and common stock dividends. The common dividend was increased 50% in 2021 compared to 2020, and an additional 5% in 2022 for the dividend payable on April 1st of this year. Common shares outstanding were reduced by 7.8% in 2021 and 23% over the past five years.
In the third quarter of 2021, we completed our previous $3 billion common share repurchase program that commenced in February of 2020 and began to execute on a new $5 billion share repurchase program that was authorized by our board. As of year-end 2021, we had $3.3 billion remaining on that $5 billion share repurchase authorization, and that is expected to be completed by the first quarter of 2023. Let me finish by creating some context with one additional slide, which is slide 11, which shows why Allstate continues to be an attractive investment opportunity. As you just saw, Allstate is investing in sustainable growth while providing significant cash to shareholders. We increased market share and property liability, and we're expanding protection offerings. We have a diversified portfolio of businesses with broad distribution.
We are building a low-cost digital insurer through Transformative Growth and expanding our total addressable market through innovative business models in the protection services segment. We also have a proactive risk and return management framework. Despite delivering attractive returns, making substantial growth investments while providing exceptional cash returns to shareholders, and divesting the lower growth and return life and annuities businesses, Allstate's valuation is lower than peers and the overall market. Looking to the table on the bottom, in the first three columns, you'll see performance metrics for Allstate, our P&C peers, the S&P Life Index, Financials, and the S&P 500. Allstate outperformed in both cash returns and EPS growth over the past five years, yet the trailing 12-month price to earnings ratio is significantly below these broader indices. To better illustrate this, in the two right columns, you'll see Allstate's price at the P/E multiple of each index.
At the February month-end share price, Allstate is trading at 73% of P&C peers. The price is 92% of the Life Index, which is lower than the P&C P/E ratio, despite completing our sale of the life and annuity businesses in the fourth quarter. The valuation as a percent of Financials and the S&P 500 is even lower than that. Despite our success, Allstate continues to be an attractively priced stock. With that context, let's open it up for questions. Yes.
What do you think the long-term effect of that change in habit in terms of driving will be?
The question was, what do we think the long-term impacts of reduced peak time driving, rush hour driving is going to be? Our view is that phenomenon will likely create a tailwind in auto frequency trends over time, meaning that we'll continue to see industry-wide reductions in auto frequency as you have fewer drivers on the road during peak hours, because that tends to be when the highest volume of accidents occur. Having said that, I think we've observed differences across companies in frequency trends. In things like our book tends to be more urban-focused in larger urban centers. I think those geographic benefits resulted in our frequency trends looking more attractive relative to pre-pandemic levels than many of our competitors.
Even within our book, when you look at risk factors, we have a standard and preferred predominant book in the Allstate brand, and then mainly a non-standard auto book at National General. The frequency trends between those two businesses are very different. National General's frequency looks a lot like it did before the pandemic. The Allstate brand continues to run at favorable levels. I think over time, things like geography and risk composition of the book will influence the degree that frequency tailwind manifests itself. We do believe there is going to be some permanence. It's hard to quantify how much over time as more people work remotely or on a hybrid basis and you have less traffic during peak hours. Yes, sir.
The National General news is interesting. Be interested in your thoughts on managing channel conflict between the independents versus your captives. Then thinking long, long term, is there any opportunity to shift more of your captives towards independents? Kind of like, I think it was Nationwide that made a move like that.
Yeah. We've been in the independent agent channel for a long time. We acquired the CNA personal lines business back in 1999. That was really our first attempt at expansion in a meaningful way in the independent agent channel. Then in rural areas, we have independent agents that sell Allstate-branded products. It's not a new channel for us, and I think from a channel conflict perspective, our view is they're different channels, and the customers that tend to want to interact with an independent agent are customers that value choice of brand. They're more kind of brand agnostic, where a customer that's going to want the Allstate brand is generally going to want to deal with a captive agent because they're more interested in buying an Allstate-branded product than having choice in brand. The same is true in the direct-to-consumer channel.
we've been able to manage any channel conflict across the two for a long period of time, we don't think that's going to be an issue, nor do we have any immediate plans or any plans really in place to move our captives into independent agent channels because we do view those customer value propositions as being different. Customers that value a brand relationship are going to want to deal with a captive agent or buy direct because they're more focused on the Allstate brand, where those that want choice are going to be wanting to go to an independent agent to get a variety of brands offered. Our view when we acquired National General was the independent agent channel represents about a third of the personal lines market, and it's been about a third of the market for an extended period of time.
it was a channel that we knew there was significant opportunity and one that we said strategically we need to be in this channel. Our capabilities with the Encompass brand were limited in terms of the product offering, the geographic spread, the distribution capacity, and the agency-facing technology. What we got with National General was a brand that has top quartile independent agency-facing technology, broad distribution with over 40,000 independent agent relationships, but a fairly narrow product offering with non-standard auto. That's what Allstate brings to the table with that acquisition. Our history, our data, and our experience with standard preferred middle-market products is what we're going to be putting on their platform to really create a national independent agency model that can compete effectively with the large national players across the entirety of the risk spectrum. we're really excited about National General.
I think we're out of time. Again, I thank everybody for your time and hope you have a great day