Mario Rizzo
President, Property-Liability at Allstate
Thanks, Tom. Before I go into my remarks on the quarter, I want to call out a change we made to our disclosures. You'll notice that we simplified our Protection segment disclosures this quarter, to focus on product and channel instead of brand. For the past several years, we've provided detail on both the Allstate and National General brands separately, to create transparency into National General's performance and allow you to evaluate the acquisition. National General has been a highly successful acquisition, since it is now twice its size, generates excellent returns and gives us strong competitive positions in both independent agent distribution and non-standard auto risk. We're now building on this success by combining operations, such as expanding the sale of non-standard business under the Allstate brand.
As a result, performance should be evaluated for the protection business in total, and by distribution channel versus by brand and that's why we made the change. So in keeping with this approach, my commentary today will be focused on performance on total auto and homeowner lines, and production by distribution channel. With that as background, let's start on Slide four. On the top of the table on the left, you can see Property-Liability premiums of $13.7 billion, increased 11.6% in the third quarter driven by higher average premiums. Underwriting income of $495 million improved by $909 million, compared to the prior year quarter, as improved underlying margins more than offset higher catastrophes.
The expense ratio of 21.5 was 0.3 points higher than prior year, due to increased advertising. As we continue to accelerate growth investments in rate adequate states and risk segments. The chart on the right depicts the components of the 96.4 combined ratio. The loss ratio shown in light blue includes losses of $1.7 billion and was 2.8 points higher than the prior year quarter. The underlying combined ratio of 83.2 in dark blue improved by 8.7 points, compared to the prior year quarter.
The improvement was driven by higher average earned premium, and improved loss cost strengths. Prior year reserve reestimates excluding catastrophes had only a minor impact on current quarter results, as favorable development in personal auto and homeowners insurance, was more than offset by increases in personal umbrella and runoff business, primarily related to asbestos related claims, which was recorded this quarter, as a result of our annual third quarter discontinued lines reserve review.
Now let's dive deeper into auto insurance margins on Slide five, where you can see the success of the auto profit improvement plan. The third quarter recorded auto insurance combined ratio of 94.8 improved by 7.3 points, compared to the prior year quarter as average earned premiums outpaced loss costs. Average underlying loss in expense was 4.8% above prior year quarter, reflecting higher current year incurred severity estimates, primarily driven by bodily injury coverage offset by lower accident frequency, as well as higher advertising investments to drive new business growth.
Physical damage severity increases continue to moderate, while bodily injury severity continues to trend above broader inflation indices. Our claims team continues to focus on operational actions, to mitigate the impact of inflationary trends. As a reminder, we regularly review claim severity expectations throughout the year. If the expected severity for the current year changes, we record the year-to-date impact in the current quarter, even though a portion of that impact is attributable to previous quarters.
For 2022 and 2023, the bars in the graph 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. Similarly, in the third quarter of 2024, the full year claim severity estimate went down, so there was a benefit from prior quarters included in the third quarter's reported results. This benefit was worth 0.8 points in the third quarter, with the adjusted quarterly combined ratio of 95.6 as shown on the far right bar.
Now let's review homeowners insurance on Slide six, which generates attractive returns and growth opportunities. Allstate is an industry leader in homeowners insurance, generating a low 90s combined ratio over the last 10 years. As you can see in the chart on the left, this performance compares favorably to the industry, which experienced an underwriting loss and a combined ratio of 103 over the same time period.
Moving to the table on the right, Allstate Protection homeowners written premium increased by 10.8%, compared to prior year reflecting higher average gross written premium per policy, and policy enforced growth of 2.5%. The third quarter combined ratio of 98.2 resulted in $60 million of underwriting income, compared to a $131 million loss in the prior year quarter. The underlying combined ratio of 62.1 improved by 10.8 points, due to higher average premium and lower non-catastrophe loss costs. For the first nine months of 2024, homeowners insurance generated an underwriting profit of $249 million, despite $1.2 billion of catastrophe losses in in the third quarter.
Let me provide insight into the growth potential of the Property-Liability business starting on Slide seven. In the chart on the left, you see the composition of the Property-Liability book. Homeowners in medium blue represents approximately 20% of policies in force. Homeowners' insurance policies in force increased by 2.5% as retention has improved by close to half a point, compared to last year and new issued applications are close to 20% above prior year. As you can see in the right hand column.
We view homeowners as a growth opportunity. Auto policies in the dark blue account for approximately two-thirds of Property-Liability policies enforced. As you can see on the right side of the page, overall policies enforce declined by 1.5%. This reflects a decline in customer retention to 84.7%, which is 2/10th of a point below the prior year quarter, but much lower than historical levels. We did have a 26% increase in new issued applications, which offset some of the retention losses.
Now let's go through each of these components to give you insight into how to assess growth prospects. Let's start with customer retention on Slide eight. This chart shows Allstate brand auto insurance retention over a 10-year period which is primarily standard auto insurance risks. There is a couple of key points I want to make on this slide. First, raising prices leads to lower retentions as customers shop for other options. Second, the large increases in the last several years have led to a significant decline in retention since 2022, which has negatively impacted policies in force. This has, however, recently leveled off as price increases have moderated.
Let's look at the three periods with the arrows. In 2015 and 2016, we raised auto insurance prices, which you can see from the dotted line because of an increase in the frequency of accidents. The graph shows how this led to lag declines in retention from 88.2 in 2014 to 86.7 in 2017. Over the next three years, price increases were relatively modest and retention recovered reaching 88.3 by 2019.
Now, there are lots of factors impacting retention, such as the amount of new business you write, the risk type of that business, number of bundled policies and specific actions taken in big states like California and Florida, as well as customer satisfaction levels. But the biggest driver is price. Increased advertising and price competition had a modest negative impact over the next several years with retention hovering around 87%. You can see this in the most recent period where retention has declined by 2.7 points over the last 10 quarters, which reflected rate increases of 36% on a cumulative basis.
Looking forward, we expect lower rate increases given the profitability of auto insurance. This year, for example, Allstate brand rates have been increased by 6.3% compared to 9.5% in the first nine months of last year. Lower price increases should translate into higher retention. To help you model this out, every point of retention is worth approximately 350,000 policies enforced each and every year, or 1.4% of the current policy count.
Moving to Slide nine, let's discuss the success we've had in increasing new business levels this year. We continue to invest in transformative growth while we executed the profit improvement plan. These foundational investments enable us to go to market with a multichannel distribution strategy that serves customers based on their personal preferences and has resulted in a 26% increase in new business in the third quarter shown in the far right column at the bottom. While profit actions previously restricted our new business appetite, rate adequacy has now been achieved in the vast majority of states. Third quarter advertising spend was roughly 60% higher than the same quarter in 2021.
In the Allstate agency channel, the compensation structure was also changed to improve growth and agent productivity at lower distribution costs. Allstate Agency new business was up 16% over the prior year quarter with bundling rates at point of sale at all-time highs. The national general acquisition enabled us to grow independent agency new business by 14% over the prior year quarter. In the direct channel, we are back to 2022 levels with fewer underwriting restrictions, increased advertising and the new affordable, simple and connected auto product which is currently available in 25 states.
New business is 56% over prior year and we expect to increase to continue increasing volume in this channel which now represents 31% of total auto new business. This level of new business will drive future growth. Every 5% increase in new issued applications above the current run rate increases policies enforce by approximately 250,000 items or 1% of policies in force.
Looking forward, the property liabilities business is positioned for growth. Margins are attractive, fewer rate increases should improve retention and the components of transformative growth are working, including new products, increased advertising, lower expenses and expanded distribution. This will enable us to achieve our strategic goal of increased Property-Liability market share.
And now, I'll turn it over to Jess.
