ALLSTATE CORP (ALL) Q2 2026 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to Allstate's Second Quarter Earnings Investor Call. As a reminder, please be aware that this call is being recorded. And now I'd like to introduce your host for today's program, Allister Gobin, Head of Investor Relations. 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. Then 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, so please refer to our 2025 10-K and other public filings for more information on potential risks. And 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 chose not to put him in the middle of the heat with only a couple of days on the job. I'd also like to thank John for doing triple duty, leading investment strategy and being Interim Chief Financial Officer. Let's begin on Slide 2. 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 3. 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, reflecting 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 improved 4.5 points 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 4 provides a construct for our detailed discussion of results. This year's growth in 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 the 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 other items. Next up is deployment of Ally, Allstate's large-language intelligence 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 5, which provides an overview of how these outcomes are powered by sophisticated technology and analytics. So we have a technology-driven strategy, not a strategy supported by technology. Now the difference may sound subtle, but in execution is significant. A technology-driven strategy looks to technology first to determine how it can be leveraged to improve customer value and generate attractive returns. The 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 subsecond response times and manage hundreds of millions of customer interactions. Now this platform is enabling us to build Ally, which will leverage agentic AI to improve customer value, lower cost 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've built between the underlying systems for transformative growth is helping us accelerate the build and deployment of Ally. Transformative growth also included a number of organizational and process changes related to technology, which are enabling Ally. Now we still have more capabilities to build, particularly in reimagining customer value and business processes. And so we're enhancing our internal talent and expanding external relationships. Ally is another important step in executing a technology-driven strategy. Jesse will now discuss Property-Liability results.

All right. Thank you, Tom. Good morning, everyone. Let's start on Slide 6 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 7. 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 remained 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 reestimates contributed 2 points of the improvement. These drivers were offset by a 1-point increase in the expense ratio, about half of which is higher advertising with most of the remainder coming from nonrecurring legal expenses. Overall, strong Property-Liability performance drove another quarter of excellent returns and a combined ratio of 86.6%. Moving now to Slide 8. 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 show 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. We also made changes to reserve reestimates within a year and did so in the second quarter. The reduction of expected costs for first-quarter claims benefited the second quarter by 2.4 points, resulting in an adjusted underlying combined ratio of 90%. The year-to-date underlying combined ratio was 88.5%. Let's turn now to Slide 9 to discuss how Allstate has improved affordability, which increases growth while maintaining strong margins. The chart shows Allstate's auto premium per policy compared to the adjusted underlying loss and expense per policy. The dark blue line represents annualized average premium. The light blue line represents adjusted underlying loss and expense. The gap between the two results in strong auto insurance margins. On the right side of the chart, annualized premium per policy in the second quarter was $1,486, down slightly from the second quarter of 2025, reflecting strong margins and actions that we've taken to improve affordability for customers. Adjusted underlying loss and expense per policy was $1,337. The bottom of the slide shows the net implemented rate change over time. In the second quarter, rate increases and decreases were implemented in 36 locations with a net impact of zero. Allstate continues to manage auto insurance profitability with discipline and the business is positioned to grow profitably. And now I'll pass it over to Mario.

Thanks, Jesse. Coming to Slide 10, transformative growth execution that is generating Property-Liability market share growth. Looking first at the left side of the slide, advances in our acquisition sophistication, expanded direct distribution and productivity of Allstate agents allow us to economically increase Allstate brand advertising. We have strong returns from marketing spend with advertising investment of $1.1 billion in the first half of the year. In the center of the slide, you can see how these investments are translating into new business growth in the Allstate agent and direct channels. In addition, independent agent volumes increased as well. The top chart shows auto insurance new business by channel for the second quarter of 2023 and the most recent quarter. Auto insurance new business increased to 2.3 million items in the quarter versus 1.5 million three years ago, which is balanced between all channels: Allstate agents, independent agents and direct sales via phone or web. The bottom chart shows a similar pattern in homeowners insurance with new business increasing by 46.8% to 411,000 policies, many of which are bundled with auto insurance, particularly in the Allstate agent channel. Overall, new business growth highlights the benefits of having the broadest distribution in the industry and new products with sophisticated pricing and risk segmentation. Growth rates by year are shown on the right side of the slide. Auto insurance policy growth in the second quarter turned positive last year after the pandemic-related growth restrictions and was 2.8% this quarter. In homeowners insurance, growth has been consistently positive and was 2.9% this quarter. The bottom line is that transformative growth is working. Moving to Slide 11. Protection Services is an important part of how Allstate expands protection and leverages capabilities to create value in more parts of customers' lives. The segment has 17.7 million policies in force contributing $3.4 billion to our top line and generating over $200 million in adjusted net income in the last 12 months. Protection Services extends Allstate's brand, customer relationships, distribution network and technology capabilities into adjacent markets. Allstate Protection Plans are distributed through over 30 major retailers such as Walmart, Costco and Home Depot, as well as a growing presence in international markets. This gives us access to customers at the point of purchase and expands awareness of the Allstate brand. Dealer Services extends our reach into the vehicle purchase journey through more than 1,100 dealership relationships; products protect vehicle value and reduce the cost of unexpected repairs. Parity demonstrates how Allstate leverages data and analytics at scale. With over 2 trillion miles of driving data, mobility intelligence capabilities provide a better understanding of how people move, improve risk insights and generate third-party revenue. Roadside Assistance brings the Allstate brand to life through 1.75 million rescues each year, which strengthens customer relationships. An exciting part of transformative growth is that the affordable, simple and connected auto insurance shopping experiences are increasing bundled roadside sales. Allstate Identity Protection extends our promise of protection into another area of growing customer need. Identity Protection helps 3.4 million customers prevent, detect and recover from scams and identity-related events. By doing so, we expand Allstate's customer base. Taken together, these businesses reflect a broad strategic opportunity. Customers need protection in more aspects of their lives and Allstate is uniquely positioned to meet those needs. In summary, Protection Services expands our addressable market, broadens our distribution footprint, deepens customer relationships and creates additional opportunities for growth. And now I'll turn it over to John.

Thanks, Mario. Let's turn to Slide 12 to discuss how strong investment performance supports earnings growth and shareholder value. Starting on the left, the portfolio was 80% interest-bearing assets with equity securities and performance-based investments providing growth-oriented exposure. This allocation supports recurring income generation while providing attractive risk-adjusted return on capital. Our investment performance is first- and second-quartile when benchmarked to the market for fixed income, private equity and real estate. This is due to a terrific team of nearly 300 investment professionals and the use of external managers when we don't have the expertise or scale in-house. Turning to the upper right, investment income is a growing contributor to earnings. Since 2022, investment income has increased over 57%, growing from $2.4 billion to nearly $3.8 billion on a trailing 12-month basis as of second quarter 2026. That has increased the contribution of investment income to roughly $11.50 of adjusted net income per diluted share. Shareholder value is also created by using an enterprise risk-and-return lens to adjust investment allocations. We actively adjust portfolio positioning as market conditions, investment opportunities and enterprise priorities evolve, enabling us to grow income, improve portfolio yields and generate attractive long-term investment performance. For example, when Property-Liability margins declined at the beginning of the pandemic and the economic outlook was uncertain, we reduced equity holdings. Last year, with strong results, a strong economy and additional deployable capital, the duration of the bond portfolio was lengthened and public equity holdings were increased by $7.1 billion. Benefits of these actions are higher investment income and mark-to-market equity gains and net income. The lower right shows overall returns on a GAAP adjusted basis, which were 2.6% in the most recent quarter. Now let's move to Slide 13, which highlights how strong capital generation funds diversified value creation. Attractive returns on equity have enabled Allstate to generate substantial capital, giving us the flexibility to invest in growth, strengthen our competitive position and return capital to shareholders. The top half of the slide shows how we've deployed the capital generated over the last decade. We've nearly doubled Property-Liability premiums, increased investments and completed acquisitions that have strengthened both our distribution capabilities and our protection offerings. At the same time, we've returned significant capital to shareholders through dividends and the repurchase of 39% of outstanding shares. Looking at the right-hand side of the chart, we see that these investments and shareholder returns were supported by attractive returns on equity. Over the past two years, Allstate's average return on equity matched the S&P 500 and ranked in the top quartile among peers. The bottom half of the slide highlights our continued commitment to returning capital to shareholders. During the quarter, we returned $1.3 billion to shareholders including a repurchase of $1 billion of common shares; $2.6 billion remain under the $4 billion repurchase authorization announced in February. We are in a strong capital position with deployable capital at the holding company increasing to $9.5 billion or approximately $37 per common share outstanding. Strong returns on equity have enabled us to invest in growth, build competitive advantage and return substantial capital to shareholders. Together, these actions have been a powerful driver of long-term shareholder value. And now I'll wrap up quickly on Slide 14. In closing, Allstate's strategy is delivering strong results and creating shareholder value. Now let's open up the floor to questions and answers. Thank you.

One. So I'll focus on Slide 5 and the technology piece for my first question. And I'm sure there's a lot of complexity to what's going on here. But maybe you could step back and give us some perspective on how you're managing the costs and measuring the ROI of all your various initiatives, and with these large language models, I imagine protecting your data assets and your underwriting tools are top of mind. And when we think about this technology investment, are we going to be getting to a point in the future where you're off all the legacy systems?

Greg, let me deal with the first three pieces. We did this slide to just show that artificial intelligence is just another step along the continuum that we've been on for a long time, which is using our very strong technology and analytics across the company. AI will help further improve what we already know how to do. There are some companies that are less advanced than that. We don't say we're the most advanced. We just want to make clear where we are, which is we're heavily into using technology. The expenses related with that, we look at all kinds of different ways as you would expect, but we're not having any barriers right now to investing money and getting good returns on that. As it relates to the long-term thing, you're always — I kind of cynically say to our team, sometimes what's a legacy system? And it's usually one you just turned on. So you're always adapting technology, you're always doing it. We are moving to what we call the connected customer cloud, which is C3, to put a lot of our systems on the same basis, the same platform. But with our orchestration layer, we don't need to get rid of all old technology. The orchestration layer, if you talk to people working on AI, that's one of the most difficult things to put in because it requires you to go in and take your legacy systems and make them accessible via APIs and other actions. And we did that as part of transformative growth; we didn't do it knowing AI was coming. We just thought it made sense, but it's positioned us to do AI well. As it relates to token costs, I know a number of companies are talking about total costs. That's not an issue for us.

On just the other piece of it was just protecting your data assets and underwriting tools from the large language models. Do you have any perspective on that?

Yes. Cybersecurity is obviously really important and more difficult now than it was two years ago and five years ago. So we spent a tremendous amount of time and effort on cybersecurity. I'm personally concerned about large language models that can now break out on their own and tell other agents how to do things without getting caught. I think that's an issue that the country really needs to deal with. From our standpoint, we're aggressive. We've built up a great team. We know how to use LLMs internally. We don't use public LLMs to do any of our core work. So we're not worried about our data being exfiltrated or scooped up in the knowledge of someone else's LLM so a competitor can use it. But you're right to be focused on cybersecurity. It's obviously important for our customers to make sure we keep the data safe and secure.

Excellent. And then just a focus on Slide 6, where you ran through your 10-year record. I'm particularly focused on the auto piece where I think through the six months, you're running substantially below your 10-year average combined ratio. And I'm reconciling Slide 9 where your net rate change was flat — just curious about the competitive environment and when you might start to see that combined ratio drift up more towards the 10-year average?

Let me go up a little bit and answer growth because I know there will be other people interested in growth as well. First, to enhance sustainable growth, you really need a multifaceted approach. It's not really just about cutting price — because anybody can give it away. I sometimes feel like when people are doing analysis of us, they just look at price, they look at combined ratio and they say, 'Oh, well, you're going to change your pricing so your combined ratio is going to go way up.' That certainly would be reflective of some people's view given our low P/E today. We believe we can continue to operate and get returns better than the industry, which is why I showed that slide of how we're better than the industry. We do that because we have a multifaceted approach. And you'll really remember that is what transformative growth is, what Mario talked about. It starts with increasing customer value, which is more affordable prices and new products. That started with reducing cost. We made a lot of progress on reducing costs over the last six years, but we have more to do there. The second quarter ratio move we discussed: about half was advertising; a lot of the rest was a onetime legal accrual, which tend to be bumpy. It's not systemic. I don't intend to get into why we did the accrual, but it's not systemic. So I'm not concerned about where we are in the second quarter, but we're also not done. Maybe Jesse can talk later, if somebody has a question about expenses, about what we're doing there. Claim effectiveness is also important. Mike Viavi's team has done an excellent job of keeping our claims properly paid — not too little, not too much. You can see from the reserve changes our costs have come in lower than we thought they would be. New products we've done well on, which is another part of increasing customer value, and we broadened access across all distribution channels. Mario talked about that, increasing sophistication and marketing. We have success there as well. We're putting a new enterprise customer acquisition system into place, which we think will further drive growth without having to just reduce price and take less margin. The new tech ecosystem we talked about — so there's a multifaceted approach. At this point, we're earning high returns and so it pays to drive shareholder value by reducing some of that margin and giving up some growth. But we don't like to set a target that says, 'Oh, we're at X and the right optimal point is to get to 90.' We just do it every day: how we're going to grow as fast as we can and make as much money as we can.

My first one is around the competition within the broader space. If we look at the broader market, would you give us color on the competitive environment for personal auto monoline business versus how the bundled home and auto competition is — which side is more intense when it comes to competition? And is there a divergence between how the growth opportunity would look going forward for those two specific lines?

I am going to step up and then come down. First, we think about it as the customer: how do we meet all their needs. So that's auto insurance, it's home insurance, it could be renters insurance if they don't have a home, it could be identity protection, because everybody's got an identity. A lot of people have phones and TVs and so we want to protect those things. We do that mostly under the Allstate brand, as you know. That brand sells well and Mario talked about that in terms of our broad distribution as well. When you go down below that, it's, okay, on monoline auto — I would say those people who buy just auto insurance for us, there's other stuff we'd like to sell them too; it doesn't just have to be one product. But if you're focused on the higher-risk nonstandard groups, that's pretty competitive. National General really gave us a leg up in our expertise there. And it also gave us a huge leg up in the independent agent channel. In the bundled product, we're obviously quite good there. Mario talked about the cross-line sales from our Allstate agents are at all-time record highs. And so we're feeling good about that whole process. We think we can sell even more. Jesse can talk about what we're doing in individual markets because I think you're focused on product, but I'm saying focus on the customer is important too. There are also things we do in local markets. For example, Illinois is an interesting state. Illinois is a state where we're growing, but we're not growing as much as we think we could, so we see opportunity to accelerate growth. We have go-to-market teams focused on the state, and they optimize across channels to make sure we're getting the most production, meeting customers where they are. We have a strong exclusive agent footprint in Illinois and we're also focusing on direct in a segmented way. The go-to-market team identifies where we can win in the direct channel and we invest marketing dollars where returns are strong. At the same time, in the agent channel, we provide underwriting and pricing strategies that help independent agents win. As Tom mentioned, it's not just that — it's product portfolio. We have Custom 360 products available for independent agents. We have competitive auto and home products they can bundle. We think affordable protection is differentiating and helps us reengage independent agents to get more new business out of that channel. That doesn't mean we're not focused on the exclusive agent channel; we're accelerating growth there from retention and new business. This includes coaching, pure benchmarking, and providing tools so agents can serve more customers and identify more customer needs. They have a broad portfolio: auto, home, landlords, renters, life and retirement, commercial solutions. The go-to-market team helps identify opportunities. We also take learnings from other states and apply them elsewhere. We've had great success in Missouri, Texas and Kansas and we bring those stories to local markets and apply them across distribution channels. It's a balanced way to identify where the best opportunities exist to grow.

Yes, holistic across the business, the distribution channels and product availability. It's a complete system. On the monoline or bundled question, we continue to invest across all channels. Our exclusive agents remain foundational. We work with them to make them more efficient and more effective and put them in a position to deliver the client value we know they can provide. Examples include taking routine service tasks off their plates so agents can focus on high-value work, giving them technology tools that serve up moments that matter and improving the quality of leads so they have better close rates and less duplication. We're investing in product breadth so they can diversify revenue in their agencies beyond auto and home into specialty products like renters and landlords, boats and motorcycles, life and retirement and commercial lines. We're also focusing on location flexibility so agents can choose the best way to run their small business — physical locations, shared locations or no physical location — while still maintaining local presence and growing their business. These are all ways we support agents and drive growth across channels.

Okay. Really appreciate that. So it's much more holistic. That's the right way to think about it. My second question is on severity development. Inflation is there, but it doesn't feel like it's showing up. If we look at severity over the last six months, given where severity development has been so far, is it fair to say even if pricing were to continue to slow down, there is really not a lot of loss pressure pushing the combined ratio higher so far? Is it also safe to say that's likely to continue for the rest of the year?

Bob, this is Jesse. On severity, obviously we're not going to give forward guidance on what severity will be. We can talk about what's happening. We try and isolate trends: you saw the pure premium trend was down for the quarter, which is some combination of frequency and severity. As you think about severity going forward, there's inflation that will affect certain components of severity, particularly physical damage severities, and there's bodily injury severity which continues to be at relatively high levels compared to physical damage severities. The industry is seeing that too. You need to take a forward view on the inflation impact for parts, labor inflation and what bodily injury severity development might look like in the back half of the year to form a view on the overall pure premium trend and what that means to the combined ratio. Right now, though, the key point on the slide was that if you look at average premium and pure premium trend, we have solid margins.

For my first question, I want to ask on the deployable capital of $9.5 billion at the holding company. Given that level of capital and even some normalization in underwriting profitability, it seems like you could repurchase shares at the current pace for quite some time. Is it prudent at this point to stop accelerating the buyback and hold on to more cash to give leeway for potential acquisitions? How are you all thinking about that?

Rob, it's Tom. We committed to do $4 billion. We're going to do $4 billion. John pushed that aggressively last quarter because we have plenty of capital. We're going to meet our commitment to get to $4 billion done. When you look beyond that, first we generate substantial free cash flow and manage it actively — investing in organic growth and leveraging capabilities such as Protection Services, strong investment returns and share repurchases. We're also active in sourcing capital, whether that's using preferred issuance, reinsurance or other actions. We sold our Life business and our Health and Benefits businesses because we thought we could deploy the capital and drive better returns elsewhere, even though they're good businesses. We think about capital holistically and use an enterprise capital management framework. The good news is we generate enough capital that we can pursue multiple opportunities at the same time.

Yes, a lot of options. And then I wanted to follow up on Ally. It sounds like there are a lot of exciting opportunities. Maybe you could talk about how you expect the results of Ally to eventually show up in the income statement, particularly across expense, loss ratio and growth over time?

First, we haven't completely built or deployed it yet, so some of this is forward-looking. I would say positive benefits to all those areas. Ally should help reduce expenses — Jesse already has projects to take work out of agent offices, which will reduce distribution expenses. We think there are other expenses Ally can help reduce. We believe it can help us be more accurate in pricing and claims. One of the things agentic AI will help with is connecting sophisticated individual tasks we do — whether that's buying leads, pricing, or routing leads to the right distribution channel. It can help us be much more effective in growth. So we think Ally will be a positive for growth, expenses and underwriting, but I can't give you specific numbers yet. We're optimistic about the opportunities.

I was wondering if you could provide perspective on new application growth in personal auto. Last year, apps grew about 25% and so far this year you're tracking to high single digits. Where do you think that moves given the current environment? Do you think you hold growth at that level or is there a risk of degradation because of increasing competition?

Pablo, I think overall we believe we can continue to fuel growth in issued applications across all three channels. We continue to have strength in direct because we're investing in sophistication, making sure we get the right leads and that close rates are effective. We'll continue to invest and refine. We see opportunities in direct. As Tom mentioned, we're also working with exclusive agents to focus them on the highest-value work, which will increase productivity. Independent agents continue to be a growth opportunity, particularly in the middle market where we're gaining traction with products they can bundle for affordability. So overall, I feel confident in our ability to continue to drive new business across all three channels.

For my follow-up, on the retention side: many in the industry have talked about more customer shopping. Can you talk about how personal auto retention has been trending for you, and have you seen any retention benefits from your push to provide current customers greater value?

Overall, retention has stabilized for us recently. There are a lot of shoppers but that has been the case for some time; it's not dramatically different than a year ago. We've invested in programs like SAVE, which we think has had a retention benefit for targeted customers. We feel we've got stable retention trends. Of course, you need to look deeper by segment and product type to understand retention fully, but on a granular level we see stability and benefits from SAVE and from things we are doing with our exclusive agents to invest in relationships.

For my first question, looking at Slide 8, you provided disclosure on the adjusted underlying combined ratio going back to 2022; year-to-date you're running around 88.5, which is well below your mid-90s target across the cycle in auto. How do you think about where you are now relative to that mid-90s target when you think out over the next couple of years? With price slowing and frequency and severity dynamics, how do you think about normalization in profitability within the auto book?

Slide 8 was really to show how quickly we can move when we need to. We moved the combined ratio by over seven points in a year in response to a huge increase in cost, and that's not small given we price on a lag basis. That same adaptability applies to the question you're raising. Jesse also showed rate increases over a number of quarters; it's been flat for a while and we're still making really good returns and growing. We are always looking to grow as fast as we can and earn attractive returns and be competitive. We don't have a goal to get to a specific combined ratio like mid-90s; what we said is that mid-90s provides an attractive return on required capital. The message is we're growing and earning really attractive returns on capital, which should be good for shareholders.

As a follow-up, on policies in force: as you look at current growth trends across captive, independent and direct channels, can you give a sense if there are different trends across any of the channels from an overall policy growth perspective?

We break out growth by channel and it's very balanced. Consumers choose channels based on how much help they want and cost. The direct channel has grown because many customers don't want help and cost comparison is easy; advertising has driven that. The independent agent channel grows because customers want someone who can move across companies and they value that; they may pay more than direct. Our exclusive agents are for those who want help and trust a brand. We've made progress in direct but are not done; exclusive agents also have initiatives to improve productivity and retention. All channels matter and we continue to make improvements across all of them.

Our exclusive agents are foundational to our strategy and we're working to make them more efficient and effective so they deliver what clients value. Examples include removing routine service tasks from their plates so they can focus on higher-value work, providing technology tools that surface moments to engage customers, improving the quality of leads to increase close rates and reduce duplication, and expanding product breadth so they can diversify revenue beyond auto and home into specialty products and commercial lines. We're also focusing on location flexibility so agents can choose how best to run their small business — physical, shared or virtual locations — while maintaining local presence. These actions help agents be effective while lowering costs and keeping the channel productive.

Thank you very much. I know that monthly policies-in-force reporting is going away, but as June is the last month we can do it, my back-of-the-envelope calculations look like the homeowners business in terms of policy count is growing faster than it has any time since prior to Hurricane Katrina. You've learned a lot about catastrophe management over the past 20 years, but you're growing really fast in property. Can you continue to grow at this speed without adding material catastrophe load to your business? Can you talk about the capital requirements of growing auto and home at the same pace and your appetite for monoline homeowners?

Josh, thank you. Our growth is good and it was good in June; we like where we're going and we have plenty of room to pick up market share. Regarding homeowners growth, we're strong in that line. Others may catch up, but we're continuing to iterate with new rating plans and sophisticated analytics for individual roofs and many other improvements to grow homeowners. On catastrophe risk, we manage catastrophe risk carefully. We're a large buyer of property catastrophe reinsurance and have a complex program. We don't have restrictions on access to capital to help manage volatility. Sometimes we choose not to use capital because it may not be in shareholders' best interest, but that won't restrict our growth. We're open to monoline homeowners customers — typically homeowners own cars too, so we aim to cross-sell, but we avoid subsidization between products because it can lead to low-return books. We feel good about the ability to grow homeowners across exclusive agents, independent agents with Custom360, and direct channels as we improve our capabilities.

I'm looking at the prior-year reserve reestimates in auto; they've been substantial — 6.6 points this quarter, and sizable releases each of the last four prior quarters. Tom, you talked about claim effectiveness and the technology ecosystem. Can you help unpack what's generating these favorable prior-year reserve reestimates and whether you think that can continue?

I'll start and then John can add. First, every quarter we aim to have reserves as accurate as possible. We don't assume additional releases will occur because we make the best estimate we can. Sometimes the estimates you made earlier prove higher than reality and you get reserve releases. We've had other issues, but the difference is really that inflationary trends have started to come down in certain areas, and in some cases tort reform has helped. For example, changes in states that reduce litigation severity can benefit customers and our estimates. We're hopeful that reforms in some states continue and that will improve costs. John, what would you add?

I'd add a couple of things. Over the last five years we've gone through a pretty volatile inflationary period — supply-chain impacts, used-car price spikes and bodily injury severity trends. It's not uncommon for estimation processes to adjust as new data arrives. We have a consistent process with external auditors that double-check our work. We're continuously responding to trends and new data to make the best estimate. We've felt comfortable adjusting numbers in recent quarters, partially because of our strong claims team and the good work they've done. We feel good about the numbers we have in any quarter, and that's where we are now.

Okay. Thank you for investing your time with us. I would close with this: at this price, you can't get operational excellence, sustainable growth and capital generation anywhere else. Thank you very much. Bye.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.