The Allstate Corporation 2026 Q2 Earnings Call

Please go ahead, sir. Good morning, everyone.

Welcome to Allstate's second quarter 2026 earnings call. Yesterday, following the close of the market, we issued our news release and investor supplement and posted materials on our website at allstateinvestors.com. Today, our management team will discuss how Allstate is creating shareholder value. We will open up the line for your questions. As noted on the first slide of the presentation, our discussion will include non-GAAP measures for which reconciliations are provided in the news release and the investor supplement. We will make forward-looking statements about Allstate's operations. Actual results may differ materially from these statements, please refer to our 2025 10-K and other public filings for more information on potential risks. Now I'll turn it over to Tom.

Good morning. Thank you for investing time at Allstate. Before we begin, I'd like to welcome Chris Lown, who joined Allstate this week as Chief Financial Officer. He's an excellent addition to the Allstate team. You can look forward to hearing from him on the next call. We're choosing not to put him in the middle of heat with two days of work. I'd also like to thank John for doing triple duty, leading investments, strategy, and being interim Chief Financial Officer. Let's begin on slide two. Allstate's strategy is to increase property liability market share and expand the protection we provide to customers by offering affordable, simple, and connected products through an extensive distribution network. Shareholder value is created through operational excellence, which generates attractive returns on capital, sustainable growth through the Property-Liability Transformative Growth Initiative, and expanded protection.

Capital generation, which funds organic growth, enables us to optimize risk-adjusted investment returns, pursue acquisitions, and provide significant cash to shareholders. Let's review second quarter results on slide three. Overall, Allstate increased property liability growth and generated exceptional earnings. Starting with growth, total revenues grew to $18.6 billion, up 11.8% from the second quarter of 2025. Net premiums written increased 2.6%, which was supported by continued growth in auto and homeowners insurance and a 9.9% increase in issued applications. Total policies in force increased 3.8% to 215.9 million. That reflects 2.6% growth in property liability and 4.1% growth in Protection Services. Net investment income increased 33.8% to $1 billion, reflects lengthening of the duration last year, a larger portfolio, and increased performance-based income. The increase in public equity investments last year also generated significant capital gains, which raised net income.

The property-liability combined ratio was 4.5 points improved and went to 86.6, while the underlying combined ratio was 79.4, in line with the prior year quarter. Net income was $3.2 billion, and adjusted net income was $2.3 billion, or $8.99 a share. For the first half of the year, adjusted net income was $5.1 billion, or $19.65 per share. Adjusted net income return on equity is 44.2% over the last 12 months. Slide four provides a construct for our detailed discussion results. This year's growth and earnings are the result of operational excellence. Auto and homeowners insurance combined ratios are significantly better than the industry, which reflects precise pricing, expense control, and claims expertise. These capabilities also enable us to rapidly adapt to changes in external environment and competition. Our investment expertise generates first and second quartile results. All of this requires a highly sophisticated technology and analytics platform.

Value is also created through sustainable growth. The Transformative Growth Initiative is resulting in market share growth in auto and homeowners insurance. Broadening protection leverages our customer base, brand, distribution, and capabilities, so we protect consumers' electronics, appliances, furniture, Roadside services, car warranties, and identities. Next up is deployment of ALLIE, Allstate's Large Language Intelligent Ecosystem. Allstate also generates significant capital, which funds a wide range of value creation opportunities. Over the last decade, we've increased organic growth, generated attractive returns from investments, acquired SquareTrade and National General, and provided significant cash to shareholders through dividends and repurchases. In that time, we've repurchased 39% of outstanding shares. The total cash return to shareholders through dividends and share repurchases over this 10-year period was equal to Allstate's 2015 market capitalization.

Allstate's annual free cash flow relative to market capitalization is far in excess of the S&P 500 and virtually all subsectors of the market. Let's turn to slide five, which provides an overview of how these outcomes are powered by sophisticated technology and analytics. We have a technology-driven strategy, not a strategy supported by technology. The difference may sound subtle, but in execution, it's significant. A technology-driven strategy looks to technology first to determine how it can be leveraged to improve customer value and generate attractive returns. A strategy supported by technology starts with the go-to-market strategy and then says, how do we develop technology to implement that? In our case, this means advanced analytics are embedded into operations across the enterprise. That includes pricing, customer sales and support, claims, investments, and capital management.

Over 250 highly sophisticated analytical models are used to make and support decision-making using over 40 petabytes of data and 1.5 billion CPU compute hours. A few examples of what this enables us to do, generate over 100 million quotes, purchase 50 million leads, often with sub-second response times, and manage hundreds of millions of customer interactions. This platform is enabling us to build ALLIE, which will leverage agentic AI to improve customer value, lower costs, and increase growth. The architecture has eight integrated components that will enable agent-to-agent processing. For example, one component will handle all customer interactions. Each component is comprised of multiple agentic agents, which are built to be reused across the enterprise. The orchestration layer that we built between the underlying systems for Transformative Growth is helping us accelerate the build and deployment of ALLIE.

Transformative Growth also included a number of organizational and process changes related to technology which are enabling ALLIE. We still have more capabilities to build, particularly in reimagining customer value and business processes, we're enhancing our internal talent and expanding external relationships. ALLIE is another important step in executing a technology-driven strategy. Jess will now discuss property liability results.

All right. Thank you, Tom. Good morning, everyone. Let's start on slide six with how Allstate's operational excellence consistently results in superior performance. This slide shows 10 years of combined ratios in both auto and homeowners insurance as compared to the industry, as well as the results for our property liability business. Starting with auto insurance on the left, over the last 10 years, Allstate's auto insurance business achieved target margins with a combined ratio of 95.2, while the industry did not make an underwriting profit. The same story exists in homeowners insurance, but Allstate's outperformance is greater at 10 points. There are obviously swings in individual products by year, but the third chart shows that in total, Allstate has generated significant underwriting margins over the last decade from our property liability business. To achieve these strong results, Allstate relies on pricing sophistication, disciplined underwriting, and a world-class claims team.

We manage volatility through risk selection and a robust reinsurance program as part of our strategic risk and return management framework. Moving on to slide seven, the property liability business increased growth in the second quarter while generating attractive returns. Starting with the table on the left, net premiums earned increased 4% to $14.9 billion, driven by premium growth in both auto and homeowners insurance. The property liability combined ratio improved 4.5 points to 86.6. Auto insurance generated an 83.3 combined ratio, improving 2.7 points from the prior year. Homeowners insurance generated a 94.6 combined ratio, improving 7.4 points. The property liability underlying combined ratio remains strong at 79.4. The business generated $2 billion of underwriting income, an increase of nearly 57% from the prior year.

The chart on the right walks through the 4.5 point property liability combined ratio improvement from 91.1 in the second quarter of 2025 to 86.6 this quarter. The underlying loss ratio improved 1.1 points, and lower catastrophe losses compared to the prior year contributed 2.4 points. Prior year reserve re-estimates contributed two points of the improvement. These drivers were offset by a one-point increase in the expense ratio, about half of which is higher advertising, with most of the remainder coming from non-recurring legal expenses. Overall, strong property liability performance drove another quarter of excellent returns and a combined ratio of 86.6. Moving now to slide eight. Operational excellence also enables rapid adaptation to changing conditions. As most of you know, following the pandemic, supply chain constraints led to a nearly 60% increase in used car prices.

We also experienced increases in parts costs, longer repair times, and more severe accidents increased bodily injury severity. As a result, auto insurance returns deteriorated, necessitating price increases and restrictions on new business. The recent reserve changes highlight how quickly we were able to adapt. Auto claim reserve releases have totaled $1.5 billion this year. Approximately half of the bodily injury changes relate to 2023 and 2024. The recorded and underlying combined ratios for each year are shown on the top two rows of this chart. The bottom rows adjust for the impact of claim reserve releases on each year and shows what the combined ratio would have been with these changes. As you can see in 2023, the underlying combined ratio for auto insurance would have been 95.2, a 7.2-point improvement from 2022, which shows our rapid adaptation.