Glenn Shapiro
President, Property-Liability at Allstate
Thanks, Tom. Starting on page five, we'll talk about profitability in Allstate brand auto insurance. We targeted mid-90s combined ratio in auto insurance. And as you could see from the chart on the left, we have a long history of meeting or exceeding that target, supported by our pricing sophistication, underwriting, claims expertise, expense management. And of course, when you look at 2020 in that chart, it's an outlier in terms of the view because we had much better than target results due to the early pandemic impacts.
And the chart on the right breaks down the five most recent quarters, highlighting the significant increase in combined ratio that occurred in 2021, as we transitioned from those favorable pandemic impacts to the high inflation environment that we're in today. In late 2020 and early 2021, as Tom just mentioned, while we were running a combined ratio around 80 and benefiting from frequency and the improved cost structure changes we've made, we took price decreases.
And then as inflation spiked in Q2 and Q3 of last year, we shifted towards rate increases, which ramped up significantly in the last six months. The recorded and underlying combined ratios improved sequentially in the first quarter of '22, though inflationary trends continue to pressure margins with increasing severity. And frequency is obviously higher year-over-year from that low point, but it's been very stable in terms of maintaining lower-level frequency compared to pre-pandemic levels. We'll go deeper into severity and pricing for auto insurance in the next few pages.
So let's move to slide six and talk about Allstate auto physical damage claim severity in more detail. The story of higher severity has continued into 2022, and it's across the country, as you can see from the map on the left. Allstate brand report year 2022 incurred severity for property damage increased about 11% compared to report year '21. Now recall that we shifted to report year incurred severity to give you a better view directly into what's recorded in our financials.
And it's really important to note on this that when you look at paid severities, it's typically shared as a comparison to the prior year quarter or year-to-date or some prior period, whereas our new disclosure is an estimate of the full change in the fully developed report year severities year-over-year. So the 11% in this case is the expected severity in '22 over all of 2021, inclusive of the inflation seen in quarters two through 4.
On the chart on the right, you can see that Allstate has a higher distribution of total loss claims involving newer vehicles compared to the industry. And while those vehicles come with higher premiums, they also can adversely impact total loss severity when vehicle values rise. We're adjusting pricing and using our strong claim capabilities to mitigate rising costs, and that includes leveraging our scale, our operating processes, experienced claim professionals, technology, broad repair relationships that we have and our investments in data and analytics to help contain costs for customers.
Moving to slide seven. Let's talk about bodily injury severity increases because they've also contributed to auto insurance cost and price increases. Like property damage, casualty loss trends have been elevated for the past few years and continued into '22. But the bodily injury pressure isn't quite as widespread. Allstate brand report year '22 incurred severity for bodily injury increased about 8% compared to report year '21.
Higher-speed accidents and less congested roads are leading to harder impact crashes and more severe injuries. And an evolving legal environment is also a factor in casualty costs. If you look at the chart on the left, you'll see that claims resulting in a nondrivable vehicle, which would mean kind of a harder hit, and claims resulting in bodily injury claims with a major injury designation have increased compared to pre-pandemic levels.
That's driving a shift to more complex and costly treatments and contributing to higher medical consumption. In terms of the legal environment, trial attorney advertising for claimants has doubled over the past decade and exceeds $1 billion annually now. That results in higher attorney representation rates, and ultimately, higher costs for consumers. The chart on the right shows the severity variance to prior years, trending higher in some of our more populous states like Texas, Florida, Georgia, New York and California.
And Texas actually accounted for about 80% of the prior report year strengthening within bodily injury in the first quarter. Here again, our scale, our investments in technology and in data and analytics and our claim expertise are helping us resolve claims fairly, accurately and efficiently. Moving to slide eight. Let's talk about another key component to our multifaceted plan to deal with inflation, and that's raising auto insurance prices.
The table on the left provides a view into 2021 and the first quarter of '22 rate actions in Allstate brand auto. We implemented rate decreases, as we talked about earlier, in early '21 to reflect our continued lower frequency and expense reductions. In the second quarter, as inflation picked up, we pulled back on any reductions and began increasing rates by the third quarter.
And then those rate actions accelerated in the fourth quarter and then further accelerated in the first quarter this year. In the first quarter of '22, we implemented rate in 28 states with an average increase of 9.3% and a weighted Allstate brand auto premium impact of 3.6%. When you combine that with the fourth quarter actions, we've increased weighted rates by 6.5% over the last six months, and that equates to a gross annualized written premium impact of $1.6 billion within the Allstate brand.
About 95% of our premiums in the U.S. are coming from six month term policies. So the rates will improve margins, but there's a lag between when the rates are implemented and they're ultimately earned, which you can see in the chart on the right, which estimates when the rate increases taken in the last six months will be earned into premium. That illustration assumes only 85% of the annualized premium will be earned to account for things like retention and the fact that customers modify their policy terms when faced with a price increase, like changing deductibles or limits.
As you can see, looking at Q1 2022, the rate increases we've taken didn't have a whole lot of impact yet, but you can see it coming in the coming quarters, and it really accelerates. We expect to see significant increases in earned premium beginning in the second half of '22, reaching over $1.1 billion by the first quarter of next year based on the implemented rate so far. And keep in mind that additional rates and increases that we take through this year will be additive and compound on those rate increases.
And given the ongoing inflationary pressure, we have increased the magnitude of rate increases we expect to take in the rest of 2022. We remain very confident in our ability to restore auto profitability to targeted levels, and we'll keep you posted on that in our new monthly disclosures of rate filings. So let's move to slide nine and take a look at something that I think is an undervalued strength at Allstate, and it's our industry-leading homeowners business.
As you know, a significant portion of our customers bundle home and auto, and that improves the retention and overall economics of both lines of business. We've differentiated our homeowners product and our homeowners capability really. And that goes to our product, our underwriting, our reinsurance, our claims ecosystem. It is a unique entire business model and system in the industry.
The graph on the left shows the history of Allstate brand combined ratio in homeowners versus the industry and competitors. And we believe that in order to achieve an adequate return on the capital that's required in this particular line of business, you have to achieve a recorded combined ratio over time at a target of 90% or better. And as you can see from the Allstate dots on that chart, we have a long history of doing exactly that.
You can also see that some of our large competitors and the industry as a whole consistently generate combined ratios that don't meet what we find as a definition of needed for a return on capital. We've repositioned the homeowners business over a multiyear period by reducing exposure to unprofitable geographies, designing new products, creating highly sophisticated pricing plans, improving home inspection and risk selection process and sourcing capital through multiyear reinsurance programs.
As a result of all of that, we've consistently generated excellent underwriting results. Since 2017, we've earned $3.3 billion or about $667 million annually in underwriting income, with the industry generating an underwriting loss over that same period. Homeowners Insurance and Allstate's homeowners insurance are certainly not immune to the rising inflationary environment right now, though.
And we see that in the form of higher labor costs and higher material costs. But our products have the sophisticated pricing features needed to respond to those changes in replacement values and help offset the impact. The chart on the right shows key Allstate brand homeowners insurance operating statistics. And there, you'll see that our net written premium has grown sharply through 2021 and into 2022, increasing 17% from the prior year. We grew policies in force by 1.7% in the first quarter. And our Allstate agents continue to be in a really good spot to broaden customer relationships with homeowners. And our average premiums rose 14.3%, mostly driven by increasing property values, as I mentioned earlier.
The first quarter combined ratio of 83.3% generated $368 million of underwriting income for the Allstate brand. In short, our property insurance business is a competitive advantage, and we aim to continue to leverage that advantage and grow it. And we look forward to sharing additional insights on homeowners with you during our upcoming Special Topic Call on June 16.
And with that, I will turn it over to Mario.
