Mario Rizzo
President-Property Liability at Allstate
Thanks, Tom. I'll start by covering slide four. On the top left of the table, you can see Property-Liability earned premiums of $13.3 billion increased 11.9% in the second quarter, driven by higher average premiums. The underwriting loss of $145 million improved by $1.9 billion compared to the prior year quarter due to improved underlying margins and lower catastrophes.
The expense ratio of 21.3 was 0.8 points higher than prior year due to increased advertising as we continue to accelerate growth investments in rate adequate states and risk segments. The adjusted expense ratio, which excludes advertising costs and other non-core expenses was down 1.6 points in the quarter.
The chart on the right depicts components of the 101.1 combined ratio. Catastrophe losses of $2.1 billion were 6.7 points favorable to the prior year quarter. The underlying combined ratio of 85.3 improved by 7.6 points compared to the prior year quarter with the improvement driven by higher average earned premium and moderating loss cost trends.
Prior year reserve re-estimates, excluding catastrophes, had only a minor impact on current quarter results as favorable development in personal auto and homeowners insurance offset increases in personal umbrella liabilities and commercial auto reserves related to the transportation network contracts we began exiting in late 2022.
Turning to slide five. You can see that we continue to successfully execute our profit improvement plan. The second quarter recorded auto insurance combined ratio of 95.9 improved by 12.4 points compared to the prior year quarter. The bars in the chart show consistent improvement in the quarter underlying combined ratio.
I will note that we have adjusted 2022 and 2023 reported quarterly figures to reflect the updated average severity estimates as of the end of each of those years to remove the volatility related to intra-year severity adjustments. You can see that the Auto business has seen six sequential quarters of underlying combined ratio improvement with an underlying combined ratio of 93.5 in the second quarter of 2024.
The dark blue line in the chart shows how rate increases throughout 2022 and 2023 pushed average premiums above underlying losses and expenses represented by the light blue line starting in the second half of 2023.
As average premium increases have outpaced loss and expense profitability has improved. Relative to the prior year quarter, average underlying loss and expense was 5.5% higher, as you can see in the second row of the table. This reflects higher current year incurred severity estimates primarily driven by bodily injury coverage, offset by lower accident frequency as well as higher advertising investments.
Physical damage severity increases continue to moderate, while bodily injury continues to trend above inflation. Our claims team is focused on operational actions to mitigate the impact of inflationary trends, including identifying injuries earlier in the claims process to improve overall cycle time and focus on fast and fair resolution.
Let's review Homeowners insurance on slide six which had improved underlying performance. Allstate is an industry leader in Homeowners insurance, generating low 90s combined ratios over the last 10 years, as you can see in the chart on the right. This performance compares favorably to the industry, which experienced an underwriting loss and a 103 combined ratio over that same time period.
Moving to the table on the left. Allstate Protection homeowners written premium increased by 13.7% compared to prior year, reflecting both higher average gross written premium per policy and policy in force growth of 2.2%.
The second quarter combined ration of 111.5% resulted in $375 million of underwriting losses compared to the $1.3 billion loss in the prior year. The underlying combined ratio of 63.5 improved by 4.1 points due to higher average premium and lower non-catastrophe claim frequency, which more than offset modest increases in non-catastrophe severity. For the first six months of 2024, Homeowners insurance generated an underwriting profit of $189 million.
Moving to Slide seven. Let's discuss Transformative Growth our multiyear strategy to create a low-cost digital insurer with broad distribution. The 5 components of Transformative Growth are shown in the blue panels on the left side of the page, and we continue to make good progress on all of them. On the right-hand side, we show the tangible outcomes and proof points that we're delivering through this transformation, which improve the customer experience and support our objective to profitably grow market share over time.
Two examples of those tangible outcomes that I'd highlight are the new affordable, simple and connected auto insurance product that was built on our new technology platform is now available in 19 states. And that in the second quarter, we increased our advertising investment by approximately $300 million to support growth efforts in states with attractive returns.
Moving to Slide eight. We'll double-click on the multichannel distribution strategy, which enables us to serve customers based on their personal preferences. Our exclusive agents are available for local customers seeking personalized advice to fulfill broad insurance needs. Agency productivity has increased and bundling rates at point of sale are at all-time highs. Enhancements to direct capabilities and increased advertising attract more self-directed customers with new business production in the direct channel in the second quarter, nearly double that of prior year.
The National General acquisition significantly expanded the independent agent channel. If you look at the distribution of new business we write, shown in the pie charts on the bottom of slide, you can see the power of expanded customer access. The combination of broader distribution capabilities, increased advertising greater pricing sophistication and product expansion has resulted in a 90% increase in new business applications since 2020 with a much more balanced split across distribution channels.
Now let's turn to Slide nine to delve deeper into how the National General acquisition has allowed us to better serve customers who prefer to engage with independent agents. The $4 billion acquisition included a number of businesses, including personal auto insurance, group health, individual accident and health, and digital marketing platforms. Prior to the acquisition, we offered insurance in the independent agent channel through both the Allstate and Encompass brands, with the Encompass brand solely dedicated to selling through IAs. With the acquisition of National General, we now go to market in the independent agency channel, primarily through the National General brand.
Through the ownership of National General since January of 2021, we have significantly increased the number of customers we protect through independent agents, having added almost 1.7 million policies in force reflecting a compound annual growth rate of 8% in policies over the past four years and bringing premiums written to over $5.1 billion for the first six months of this year. Underwriting margins remain attractive and National General is now one of the largest independent agent personal lines insurers with expansion into lower risk customer segments supporting additional growth going forward in the IA channel.
Slide 10 reviews property liability policies in force for all brands. Given the successful execution of the Auto Insurance profit improvement plan, investments in growth will made in Allstate that offer attractive return opportunities. These higher growth investments led to a 17% increase in Personal Auto new business applications in the second quarter, as you can see at the top of the chart on the left.
The green bars show the components of that growth in new policy sales. The first two bars reflect the drivers of the 23% increase in new business volume in the Allstate brand. Higher productivity per exclusive agents drove a 9% new business increase compared to prior year and advertising investments and enhancements to direct operations resulted in a 92% increase in the direct channel compared to the prior year.
The last two green bars reflect national general growth in both the non-standard auto business and higher sales volume from the Custom360 middle market offering that we continue to roll out. On the right, you can see that total protection auto policies enforced decreased by 1.6% compared to prior year as the Allstate brand decrease was partially offset by growth at National General.
Allstate brand auto policies in force decreased by 4.5% compared to prior year as policies lost from customer defections more than offset the increase in new policy sales. Allstate brand auto retention of 85.7 did improve by 0.2 points compared to prior year as the negative impact of large rate increases in 2022 and 2023 continues to moderate.
National General growth of 548,000 policies in force offset almost 60% of the Allstate brand decrease. While margin improvement actions have negatively impacted policy growth, the were necessary to mitigate loss cost trends during a period of rapid loss cost inflation.
And now I'll turn it over to Jesse.
