Mario Rizzo
President, Property-Liability at Allstate
Thanks, Tom, and good morning, everybody. Let's flip to slide four. The chart on the left shows the Property-Liability recorded and underlying combined ratio since 2017. As you can see, Allstate has a long history of generating strong underwriting results though the current operating environment is challenging, with combined ratios over 100 last year and into the first quarter. The underlying combined ratio of 93.3 for the first quarter was slightly below the full year 2022.
The second chart compares the full year 2022 recorded combined ratio for all lines of business to the first quarter of this year, which removes the influence of intra-year severity changes that occurred throughout 2022. The first red bar shows the underlying loss ratio was essentially unchanged as higher premiums were offset by increased loss costs. The second red bar on the left shows most of the increase in the combined ratio was driven by higher catastrophe losses, reflecting the widespread severe weather in the first quarter of this year.
Expenses were lower by 1.9 points of premiums and minimal non-catastrophe prior year reserve reestimates also had a positive impact. Let's move to slide five to review Allstate's auto insurance profitability in more detail. As you can see from the chart on the left, which shows the auto insurance recorded and underlying combined ratios from 2017 through the current quarter, we have a long history of sustained profitability in auto insurance as we successfully leveraged our capabilities and pricing sophistication, underwriting and claims expertise and expense management to generate excellent returns in the auto insurance business.
Since mid-2021, loss costs have increased rapidly, driving combined ratios above our mid-90s target. The profit improvement plan is designed to address these significant loss cost increases, and we're making good progress. The chart on the right compares the recorded combined ratio of 104.4 in the first quarter to full year 2022 results. Starting on the left, higher average earned premiums drove a 5.7 point favorable impact, which is shown in the first green bar.
The first red bar reflects a 6.5 point increase in underlying loss cost due to increased accident frequency and severity for the 2023 report year, with severity currently projected in the 9% to 11% range above the full prior report year. A lower expense ratio reflects expense reductions and higher earned premiums. The remaining difference was due to catastrophes and prior year reserve reestimates. All in, both the recorded and underlying combined ratios of 104.4 and 102.6, respectively, improved in the first quarter of 2023 compared to the full year 2022.
Slide six provides an update on the execution of our comprehensive approach to increase returns in auto insurance. There are four focus areas, raising rates, reducing expenses, implementing underwriting actions and enhancing claim practices to manage loss costs. Starting with rates. Following increases of 16.9% in 2022, the Allstate brand implemented an additional 1.7% of rate increases in the first quarter.
We will continue to pursue rate increases in 2023 to restore auto insurance margins. Reducing operating expenses is core to Transformative Growth. We have also temporarily reduced advertising to reflect a lower appetite for new business. We implemented more restrictive underwriting actions on new business in locations and risk segments, where we have not yet achieved adequate prices for the risk.
As we move through 2023, it is likely that some of these restrictions will be removed where there are profitable growth opportunities. Enhancing claim practices in a high inflation environment is key to delivering customer value. This includes leveraging strategic partnerships and scale with repair facilities and parts suppliers to mitigate the cost of repairing vehicles. In addition, settlement of pending bodily injury claims has been accelerated to avoid continued increases in costs and settlements.
Transitioning to slide seven. Let's discuss progress in three large states with a disproportionate impact on auto profitability. The table depicts Allstate brand auto new business production and rate actions California, New York and New Jersey. As a result of implemented profitability actions, new issued applications from the combination of California, New York and New Jersey declined by 40% compared to the prior year quarter. The decline in these three states meaningfully contributed to the 22% decline countrywide.
The right-hand portion of the table provides rate increases either taken or needed to improve margins. In California, we just received approval for a second 6.9% rate increase implemented in April, which will be effective in June. We continue to work closely with the California Department on the best path forward to getting rates to an adequate level and expect to file for an additional increase in the second quarter, which will reflect the balance of our full rate need.
In New York, we filed for additional rate in the first quarter that is currently pending with the Department of Financial Services. In New Jersey, we attained a 6.9% rate increase in the first quarter and expect to pursue additional filings in the second quarter. As mentioned earlier, we anticipate implementing additional rates across the country into 2023 to counteract persistent loss cost increases. Slide eight dives deeper into how we are improving customer value through expense reductions.
The chart on the left shows the property liability underwriting expense ratio over time and highlights drivers of the 2.9 points of improvement in the first quarter compared to the prior year quarter. The first green bar on the left shows the two point improvement impact from advertising spend, which has been reduced given a limited interest in new business at current rate levels. The last two green bars show a decline in operating and distribution costs, mainly driven by lower agent and employee-related costs and the impact of higher premiums.
Shifting to our longer-term target on the right, we remain on pace to reducing the adjusted expense ratio to 23 by year-end 2024 as part of transformative growth. This metric starts with our underwriting expense ratio, excluding restructuring, coronavirus-related expenses, amortization and impairment of purchased intangibles and advertising. It then adds in our claims expense ratio, excluding costs associated with settling catastrophe claims because catastrophe-related costs tend to fluctuate.
Through innovation and strong execution, we've driven significant improvement relative to 2018, with first quarter adjusted expense ratio of 24.9. We expect to drive additional improvement, achieving an adjusted expense ratio of approximately 23 by end of next year, which represents a six-point reduction compared to 2018. The increase in average premiums certainly represents a tailwind. However, our intent in establishing the goal is to become more price competitive.
This requires a sustainable reduction in our cost structure, with future focus on three principal areas, including enhancing digitization and automation capabilities, improving operating efficiency through outsourcing, business model rationalization and centralized support, and enabling higher growth distribution at lower costs through changes in agency compensation structure and new agent models. Now let's move to slide nine to review homeowner insurance results, which incurred an underwriting loss in the quarter despite favorable underlying performance due to elevated catastrophe losses.
We have a superior business model that includes differentiated product, underwriting, reinsurance and a claims ecosystem that is unique in the industry. As you can see by the chart on the left, this approach consistently generates industry-leading underwriting results, despite quarterly or yearly fluctuations in catastrophe losses. The chart on the right shows key Allstate Protection homeowners insurance operating statistics for the first quarter.
Net written premium increased 11.1% from the prior year quarter, predominantly driven by higher average gross written premium per policy in both the Allstate and National General brands and a 1.4% increase in policies in force. The first quarter homeowners combined ratio of 119 increased by 35.1 points compared to the prior year quarter, reflecting higher catastrophe losses, primarily related to five large wind events in March. These accounted for more than 70% of catastrophe losses in the quarter.
The first quarter catastrophe loss ratio was significantly elevated compared to the prior year and 10-year historical average by 36.2 and 30.5 points, respectively. The underlying combined ratio of 67.6 improved 0.4 points compared to the prior year quarter, driven by higher earned premium and a lower expense ratio, partially offset by higher claim severity. Slide 10 provides an update on Transformative Growth. Transformative Growth remains a focus and is being executed in parallel with our profit improvement actions.
We continue to make good progress on this multiyear initiative that spans five main components, improving customer value, expanding customer access, increasing sophistication and investment in customer acquisition, modernizing the technology ecosystem and driving organizational transformation. The bottom half of the slide highlights recent progress by intended outcome. Providing the lowest cost insurance through expense reductions, broad distribution and pricing sophistication is key to growth.
Our Allstate brand relative competitive position has deteriorated recently as rate increases have exceeded some competitors. We expect that those competitors will eventually raise rates, improving our competitive position and growth prospects. Distribution has been expanded by launching middle market and preferred products through independent agents under the National General brand. These products are currently available in approximately 25% of the US market, with a plan to be in nearly every market by the end of next year.
Our new affordable, simple and connected auto product creates a differentiated customer experience, which is expected to become available in approximately one-third of the US through the direct distribution channel by the end of this year, deploying a new technology stack, integrating technology across brands and retiring legacy technology applications provides increased agility and lowers costs. This will be reflected in the sunset of the Esurance and Encompass technology platforms next year. We believe transformative growth will lead to increased market share, and hence, higher company valuation multiples.
And now, I'll turn it over to Jesse to discuss the remainder of our results.
