The Allstate Corporation (ALL) Earnings

Management highlights

- Strategic Direction & Core Growth Strategy * The company's transformative growth strategy is delivering results, built on a multifaceted approach that combines customer value expansion, cost reduction, broad multi-channel distribution, and technological investment, rather than relying solely on price cuts to drive growth. * Allstate aims to be a full protection provider, meeting customer needs across auto, home, renters, identity, vehicle protection and other lines, leveraging its broad industry-leading distribution footprint to expand its addressable market and deepen customer relationships. - Capital Allocation & Shareholder Returns * Over the past 10 years, Allstate has doubled property-liability premiums, expanded investments, completed accretive acquisitions, and returned substantial capital to shareholders, including repurchasing 39% of outstanding shares. * Allstate's 10-year average return on equity matches the S&P 500 and ranks in the top quartile among peer insurers. * In the reported quarter, Allstate returned $1.3 billion to shareholders, including $1 billion in common share repurchases, with $2.6 billion remaining under the $4 billion repurchase authorization announced in February. Deployable holding company capital stands at $9.5 billion (~$37 per common share), providing significant flexibility for growth investments, acquisitions, and continued shareholder returns. - Technology & Analytics Investment * AI/agentic AI (ALI) is a natural continuation of the company's long-standing technology and analytics-driven strategy. The firm is migrating core systems to the unified Connected Customer Cloud (C3), which has positioned it well to leverage new AI capabilities. * The company does not use public large language models (LLMs) for internal work, preventing data exfiltration of proprietary underwriting tools and customer data. - Operational Progress * New business growth demonstrates the benefits of the company's broad distribution and new products with advanced pricing and risk segmentation. Cross-line bundled sales through Allstate agents are at all-time record highs, with strong growth opportunity in the independent agent channel.

Guidance

- The company does not have a fixed target to move the current below-average auto combined ratio (year-to-date ~88.5%) up to its historical mid-90s cycle target. Management prioritizes balancing sustainable growth and attractive returns on capital, rather than targeting a specific combined ratio level. * Management confirms it will complete the full $4 billion authorized share repurchase program, and has sufficient capital to simultaneously pursue organic growth, strategic acquisitions, and continued shareholder returns. * Management is optimistic that agentic AI will deliver positive cross-functional benefits, including reduced expenses, improved pricing and claims accuracy, and stronger growth, though no specific numerical targets are provided. * Personal auto retention trends are currently stable, with the company's SAVE customer value program delivering measurable retention benefits, and management expects to continue fueling growth in new personal auto applications across all channels, with particular upside in the independent agent middle market. * Management expects homeowners insurance growth can continue at its current strong pace, supported by improved pricing accuracy and catastrophe risk management, with no capital constraints limiting growth.

Segment performance

Protection Services: The segment holds 177 million policies in force, contributed $3.4 billion to total revenue over the last 12 months, and generated over $200 million in adjusted net income over the same trailing 12-month period. Sub-segments include: Protection Plans (distributed via 30+ major retailers and growing international markets), Dealer Services (over 1,100 dealership relationships), Verity (powered by over 2 trillion miles of driving data, generates third-party revenue), Roadside Assistance (1.75 million annual rescues, growing bundled sales with auto insurance), and Allstate Identity Protection (serves 3.4 million customers, expanding the firm's customer base). Core personal lines: Auto insurance policy growth hit 2.8% this quarter (turned positive in Q2 last year after pandemic-era growth restrictions), homeowners insurance policy growth hit 2.9% this quarter, with homeowners new business increasing 46.8% to 411,000 policies (many bundled with auto, particularly through the Allstate agent channel). Investment segment: 80% of the overall investment portfolio consists of interest-bearing assets, with the remainder in growth-oriented equity securities and performance-based investments. Trailing 12-month investment income as of Q2 2026 grew 57% from 2022 levels, rising from $2.4 billion to nearly $3.8 billion, contributing approximately $11.5 of adjusted net income per diluted share. Gap-adjusted overall portfolio return was 2.6% in the most recent quarter.

Risks & headwinds

- Cybersecurity risks have increased with the rise of LLMs, including the risk of unauthorized leakage of proprietary data and customer information to third-party models. The company has addressed this by avoiding public LLMs for internal work and investing heavily in internal cybersecurity protections. * Inflation continues to create uncertainty for auto claims severity, particularly for physical damage (parts and labor) and bodily injury, which could impact future combined ratio performance. - The personal lines market is highly competitive, especially for non-standard monoline auto business, creating pressure on pricing and growth. High customer shopping activity remains an ongoing industry dynamic. * Catastrophe risk is a core consideration for growing homeowners insurance, though management notes the company actively manages this exposure with one of the largest US property catastrophe reinsurance programs.

Analyst Q&A

• Q: How is Allstate managing AI/tech investment costs and ROI, what is the plan for legacy systems, and how is it protecting proprietary data from LLMs? /

  A: AI is a natural step in Allstate's long technology-driven strategy, with no current barriers to investing or achieving strong returns on tech spending. Allstate is migrating core systems to the unified Connected Customer Cloud (C3), a process started before AI gained prominence that has positioned the firm well to leverage new AI capabilities. Token costs for AI are not a material issue for Allstate. To protect data, Allstate does not use public LLMs for internal work, avoiding risk of data exfiltration, and invests heavily in internal cybersecurity capabilities.

• Q: How intense is competition for monoline auto versus bundled home-auto business, and what are the differing growth outlooks for the two segments? /

  A: Non-standard monoline auto is a more competitive segment, and the National General acquisition gave Allstate improved expertise and a stronger foothold in this market and the independent agent channel. Allstate is strongest in bundled home-auto products, where cross-line sales through exclusive agents are at all-time highs, and management sees significant opportunity to continue growing this segment. The company uses state-level go-to-market teams that optimize channel mix, pricing, and product offerings to maximize growth locally, and applies learnings across markets to improve performance.

• Q: With $9.5 billion in deployable holding company capital, how is Allstate balancing share repurchases and potential acquisition activity? /

  A: Allstate is committed to completing the full $4 billion authorized share repurchase program. The company generates substantial free cash flow, and uses a holistic enterprise capital framework that allows it to pursue multiple priorities at once: organic growth, expansion of the investment portfolio, accretive acquisitions, and share repurchases. Past acquisitions like Square Trade (protection plans) and National General have delivered strong above-expected returns, so management will deploy capital for attractive deals that leverage Allstate's existing capabilities when opportunities arise, while repurchasing shares when they represent an attractive use of capital.

• Q: What has driven sustained favorable prior year auto reserve releases, and can this trend continue? /

  A: Reserves are set as accurately as possible each quarter, so management does not assume future releases will continue. The large reserve releases of recent quarters stem from aggressive initial reserving during the volatile post-COVID high-inflation period, and favorable recent trends including easing inflation and tort reform in high-cost markets like Florida. Allstate has a robust reserve setting process validated by external auditors, with a strong claims team that continually updates assessments based on new market data.