Glenn Thomas Shapiro
President of Property-Liability of Allstate Insurance Companyslide at Allstate
Thank you, Tom. Let's start by reviewing underwriting profitability on Slide four. The underwriting results reflect the high level of inflation, which is increasing severity leading to an underlying combined ratio of 93.4 for the second quarter and a recorded combined ratio of 107.9, which is shown in the chart on the left. The chart on the right compares last year's recorded combined ratio of 95.7 to this year's second quarter. A higher auto insurance underlying loss ratio drove 8.6 of the 12.2 point increase as claims severity has been increasing faster than earned rate increases. The other large negative impact was from prior year reserve strengthening this quarter, which I'll cover in a few minutes.
The one positive impact on there was the 1.7 points from expense reductions. Let's move to Slide five and talk about profitability and rising loss costs in more detail. As you know, we have a target combined ratio for auto insurance in the mid-90s. And you can see on the chart, which shows the combined ratio by year and then the first two quarters of this year, that we have a long history of meeting or exceeding those targets, which is supported by our pricing sophistication, underwriting, claims expertise and expense management. Now in there, you'll see 2020 was an outlier because we had much better than target results than due to some of the early pandemic frequency impacts.
And as we move from that environment to the high inflationary environment we're in today, incurred claims severities increased the underlying auto combined ratio of 102.1 for the quarter and 100.5 year-to-date. Auto non-catastrophe prior year reserve strengthening in the second quarter totaled $275 million, which is primarily physical damage and injury coverages. The most significant impact, though, on the combined ratio was report year incurred severity for collision, property damage and bodily injury claims, which increased by 16%, 12% and 9%, respectively, over the average of the full year 2021 incurred.
Because the costs were rising rapidly during 2021, the quarter-to-quarter increase comparison is even greater. And frequency also went up about five to seven points, but it's still well below pre-pandemic levels. So let's go to Slide six, and we'll go deeper into the prior year physical damage for reserve development. The chart on the left shows used car values. They began to rise in 2020.
And if you go back looking from the beginning of 2019 to current, used car prices have gone up more than 60% and continue to stay at an elevated level. At the same time, OEM parts and labor rates have increased during the first half of this year, which causes severity increases for coverages like collision and property damage. Now we anticipated that those trends and the delays that are taking cars a long time to be repaired right now would increase the amount of claim payments we made on 2021 losses after the end of the year, even though these are relatively short-duration claims. The chart on the right shows gross paid losses for physical damage coverages for the six months after the end of the calendar year.
Now our expectation for paid losses for 2021 claims from months 13 to 18 was that it would be about $1.25 billion, which you can see from the chart is about 40% above the prior year. You can see that from the dash line on the far right bar compared to the bars to the left of it. But at the end of the second quarter, the actual paid losses were $1.48 billion, which exceeded even our higher estimate by $230 million and is a large driver of the prior year reserve increases. All other non-catastrophe prior year development, primarily from injury, commercial auto and homeowners, totaled $268 million in the quarter. Let's go to Slide seven and discuss how higher auto insurance rates have been and will be implemented to improve profitability.
Since the beginning of the year, we've implemented broad rate increases across the country, as shown on the map, at nine states where we had increases over 10%, and auto rates have been increased in 48 locations, inclusive of Canadian provinces. Those rate increases are expected to increase Allstate brand annualized written premium by 6.1%. Now we have not been able to get adequate rate in New York or any increase in rate in California. New York represents about 9% of our auto premium. And the implemented rate there was, we leveraged the annual flex filings process there. And it gave us less than 5% rate in our current indicated indication there is significantly higher than that to get to an adequate return.
Similarly, in California, which represents about 12% of our auto premium, we recently filed in the second quarter, a 6.9% increase, which again is significantly below the overall rate need there. In states markets, risk segments or channels where we cannot achieve an adequate price for the risk, we're implementing more restrictive underwriting actions and reducing new business as needed until adequate levels of rate are approved. Let's move to Slide eight, and we'll look at how these rate increases are impacting and will impact the combined ratio for auto insurance. What you see here illustrates our path to target profitability, along with the magnitude of actions we've already taken and what's required prospectively.
Starting on the left. Through the first six months of the year, our auto insurance recorded combined ratio is 105, and that's shown in the blue bar. To start with, we normalized that by removing the impact of prior year reserve increases and going to a five-year average on catastrophe losses, that improves the combined ratio by 2.5 points represented by the first green bar. The second green bar reflects the estimated impact of rate actions already implemented when fully earned into premium. So these are already implemented actions that are in market and renewing on policies. They total an additional $1.7 billion of effective premium across Allstate and national general brands. Those will be earned over the coming quarters and fully earned by the end of 2023.
Now of course, loss costs will continue to increase, whether it's inflationary impacts on severity or higher frequency, which would increase the combined ratio from what I just described there. So prospective rate increases must exceed the loss cost increases that come to achieve our target returns. Now everything I just described, combined with our non-rate actions such as reducing new business and expenses, gives us a track where we expect to achieve our target combined ratio in the mid-90s in auto insurance. Now the timing of that will be largely dependent on the relative increases and pace of these increases in premium and loss costs.
So on Page nine, we'll take a look again at our industry-leading homeowners business. As you know, a significant portion of our customers, bundle home and auto insurance, and that improves the retention and the overall economics of both products. We have a differentiated ecosystem in homeowners. That includes a differentiated product, underwriting, reinsurance, claim capabilities, and we discussed a lot of those capabilities in our last special topic call. Our long-term underwriting results show the strength of the system. Our five-year average reported combined ratio is 91.9, as shown in the chart on the left. And that produced $3.3 billion of underwriting profit since 2017, while the industry lost over $20 billion in that same period. Now our second quarter combined ratio and most second quarter combined ratios have historically been higher than full year results, primarily due to catastrophes.
And second quarter this year was at 106.9, which reflected again higher catastrophes and 1.7 points of unfavorable non-catastrophe prior year reserve estimates. Our year-to-date recorded combined ratio for home is 95.8. Now homeowners insurance is certainly not immune to the inflationary environment we're in, and we continue to see increases in labor and material costs. To combat that, our product has sophisticated pricing features that respond to changes in replacement values, and we've taken rate.
If you see on the chart on the right that shows some of the key Allstate brand homeowners operating statistics, we've grown net written premium by 15.2% from the prior year. And that's on a policy base that we grew of 1.2% in the second quarter, where our Allstate agents remain in a really good position to broaden customer relationships. So as you've heard me say several times and certainly in our last special topic call, we're really well positioned at homeowners to not only maintain the competitive advantage we have, but to grow that line of business. And with that, I'd like to turn it over to Mario.
