Thank you for standing by, and welcome to the Allstate Second Quarter 2022 Earnings Conference Call. [Operator Instructions]. And now I'd like to introduce your host for today's program, Mark Nogal, Head of Investor Relations. Please go ahead, sir.

Thank you, Jonathan. Good morning. Welcome to Allstate's Second Quarter 2022 Earnings Conference Call. After prepared remarks, we will have a question-and-answer session. Yesterday, following the close of the market, we issued our news release and investor supplement, filed our 10-Q and posted today's presentation on our website at allstateinvestors.com. Our management team is here to provide perspective on these results. As noted on the first slide of the presentation, our discussion will contain non-GAAP measures, for which there are reconciliations in the news release and investor supplement and forward-looking statements about Allstate's operations. Allstate's results may differ materially from these statements, so please refer to our 10-K for 2021 and other public documents for information on potential risks. Additionally, we will be hosting our next special topic investor call on September 1, focusing on Allstate's investment strategy. Now I'll turn it over to Tom.

Well, good morning. Thank you for investing your time with Allstate today. Let's start on Slide 2. So Allstate's strategy to increase shareholder value has 2 components: increase personal property-liability market share and expand Protection services, which are shown in the 2 ovals on the left. We're building a low-cost digital insurer with broad distribution we transformed the growth. We're also diversifying our business by expanding protection offers and by leveraging the Allstate brand, customer base capabilities and expanding distribution. On the panel on the right, in the second quarter, we made progress executing this strategy, while we continue to implement a comprehensive strategy to improve profitability. That includes broadly raising auto and home insurance rates. In the second half of 2022, we plan to file for rate increases in excess of the increases implemented in the first half of this year, which were 6.1% of Allstate brand countrywide premiums. We're also reducing expenses on advertising and growth investments. Underwriting guidelines have been and will be changed to reduce new business volume, where we're not earning adequate returns. And we're also executing claims operating actions to manage loss cost in a high inflationary environment. These actions will likely have a negative impact on policy growth. And now while the current environment requires a huge focus on margin improvement, we continue to advance our transformative growth strategy where profitability -- when profitability levels are acceptable we'll have a business model to capture market share. The Protection Services businesses are generating profitable growth, although earnings declined slightly this quarter as we invest in that growth. Given the negative impact of inflation on the auto insurance business, as you know, beginning late last year, we reduced the bond portfolio duration to lower exposure to higher interest rates, which helped mitigate the reduction in…

Thank you, Tom. Let's start by reviewing underwriting profitability on Slide 4. 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 5 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 2 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…

Thanks, Glenn. As Tom mentioned, while we are improving profitability, we also continue to invest in the core components of the transformative growth strategy to increase market share in the personal property-liability business. Slide 10 is the flywheel of growth that we have discussed on earlier calls. Transformative growth is a multiyear initiative designed to increase personal property-liability market share by building a low-cost digital insurer with broad distribution. I won't get into all the pieces today, but I want to highlight 2 specific items: first, we remain committed to achieving our adjusted expense ratio goal of 23 by year-end 2024, which represents a 6-point improvement compared to year-end 2018; secondly, in the quarter, we launched beta versions of a new fully digital auto insurance product and sales experience made possible with new technology for relationship initiation and product delivery. Building these foundational elements will enable us to scale growth when adequate insurance pricing is a tank. At the same time, the Protection Services businesses, in the lower strategic oval, are growing and increasing shareholder value, as shown on Slide 11. Revenues, excluding the impact of net gains and losses on investments and derivatives, increased 8.3% to $629 million in the quarter, primarily driven by Allstate Protection Plans. Adjusted net income of $43 million for the second quarter of 2022 decreased $13 million compared to the prior year quarter as ongoing investments and growth are being made to position these businesses for future success. Policies in force did decrease by 1.6%, reflecting expiring Protection Plan warranties and lower retail sales compared to the favorable environment in the prior year quarter. Moving to Slide 12. Allstate Health and Benefits is also growing. It is also growing an attractive set of businesses that protect millions of policyholders. The acquisition of National General…

[Operator Instructions]. And our first question comes from the line of Greg Peters from Raymond James.

I would like to go back to Slide 8 for my first question. And I guess the 2 areas that caught my attention as you were running through them, Glenn, were the future loss costs arrow and the rate and other actions. And then in the box, you say you're pursuing larger rate increases in the second half of 2022 relative to the first half. So maybe you can give us some additional detail around what you guys are thinking on those 2 areas in that chart?

Greg, this is Tom. I'll do a bit of overviewing. Glenn, you can jump right in. First, Greg, as you know, we don't give perspective -- earnings estimates in order to give perspective line-by-line. We would expect future loss costs to go up, like we don't -- and we're booking to have them go up in the future. And we also, as we mentioned, expect to take increase in rates. With that, Glenn, do you want to provide some more perspective on both the trends you're seeing historically in loss cost and then what you're -- where we're thinking about -- how you're thinking about rate increases.

Sure. Greg, on the loss cost piece of it, I know there's been some opinion out there that maybe the worst is behind us and the inflation will slow or just listening to other calls out there. We're not sure of that, and we certainly want to have the rate outpace the loss trends. One thing I'll say is when you look at our frequency trend, I think this is a unique time in history where typically frequency is harder to predict than severity. And I think the opposite is true right now. Our frequency has been really, really steady. You look at it from the low points of the pandemic up to where it is now, it is just steadily crept back up but has leveled out in that creep, and we have good data and expectation that it remains below the pre-pandemic levels, but continues to rise slightly as it has. And on the other side, severity, it's a big wild card out there, I think, in all industries right now as to how long and how severe inflation runs with the actions of the Fed and anything else out there, we're taking the conservative viewpoint that we need a lot more rate in order to offset that. So I mentioned in the prepared remarks, a couple of places where we're having trouble on it, and we're working through it. But broadly, I will tell you, it's gone very well in that the regulators we work with, good relationships across the country, and we're getting some meaningful rates going through the pipeline right now, and they understand. I mean the math is on our side, and we need to get those rates in to offset those future rate trends because as the slide depicts, if you froze time and loss costs didn't move, we would earn our way right to the mid-90s combined ratio over the coming quarters, but that isn't the case. We need additional rate to offset those loss trends.

Got it. You slipped in the reference to Slide 7 in your answer, Glenn, which was going to be my other area of focus, which is you talk about reducing new business in states without appropriate rates. In the slide, I think you -- well, you do call out California, New York, are there other states where you're having some problems getting the rate approved that you need? Or are just those the 2 principal states?

Greg, I'll let Glenn give you the specifics there. But it isn't just to like negotiate. And I'm reading into your statement. I know you're not really saying that, but it's also to just maintain our loss cost. Like we just -- even if we get a rate increase, there may be certain cells or certain segments of the state that are less -- where we have less profitability than we want. So it's also about managing profitability. Glenn, why don't you give some specifics on that?

Yes. And I'll just build on that because it's exactly right. It really is -- it's segments within states, it's markets within states, and it's even channels. I mean look at the fact that right now, National General is performing quite well, both from a growth and a profit standpoint. And so we can position based on where we can be profitable, whether it's channel, market, segment of risk, and that's kind of how we're thinking about new business. We -- to put it very simply, we don't want to write new business that we're not profitable on. And it's not as simple as looking at, you can see in our disclosures, the number of states where we're above 100 or above 96. And because it's -- that's the rearview mirror. The prospective view is where we've already gotten rates. And in some of the states that we feel good about the price we're putting on for new business and we'll grow in those. To answer your specific question, New Jersey would be another place that we're working hard on and need to get more rate. But the vast majority of states across the country, we've been working through, and we're in good shape in.

And our next question comes from the line of Andrew Kligerman from Credit Suisse.

Jonathan, we didn't hear him. I don't know if you did or I don't know, Andrew, if you're on mute or not, but we didn't hear him.

You couldn't hear him?

Now we can hear you. Now we can't.

Jonathan, I think we move to the next question. We can' hear...

Andrew, maybe you want to question to Mark, and he can ask it for you, if you want. But let's move on.

Our next question comes from the line of David Motemaden from Evercore ISI.

I guess I'm just looking through what rates you're submitting, and that slowed down. And I'm specifically talking about auto insurance rate increase filings. It looks like the amount of the rate increase that you guys submitted during the second quarter slowed materially versus the first quarter. I'm just wondering why that was?

David, I'll make a comment and then Glenn can -- if there's anything you want to add, you might jump in. First, we are fully committed to increasing rates necessary to get our combined ratio down to the target levels that Glenn talked about, that obviously bounces around by quarter. And what you saw is what we got implemented in the second quarter, in the early part of your question, you said submitting as in forward-looking, that's not what we're submitting. What you saw in that release is just what got implemented. We're obviously in conversations with regulators when you have these kind of increases continuously. So there are some states where Glenn's team chooses to go down and meet with the regulators, explain the numbers and then submit it and so we feel good about where we're headed there. Glenn, anything you want to add to that?

Yes. I would just add, it really is about timing and about which states go through. So like if you look at the amount we filed per state, we really haven't backed off at all, David, it is the states that went through in that cycle. It just -- they aren't as large. And so the countrywide impact when you do a medium or smaller state population-wise is lesser than the big states. We have some very large states going through the pipeline right now. And I think you'll see that timing level itself out, and it's why we're able to say to you that we are seeking more rate in the second half of the year than the first half of the year. We have some very large states with meaningful rate increases going through.

Got it. Yes. I was referring to -- I obviously can see the implemented rate. I was referring to submitted, which I guess is something that's -- they're not approved or disapproved yet. It's just more kind of a leading indicator that I track, and it just looked like you guys had slowed a little bit in the second quarter versus the first quarter. But it does sound like that is more timing related as well. Maybe for just another question, I was just looking through the businesses in auto specifically, and I noticed that the Allstate brand combined ratio was 9 points above the NatGen combined ratio for the quarter and has been trending -- it's been higher for the last few quarters. Could you just -- yes, that's kind of counterintuitive to me just given the differences in those books of business. So could you just maybe talk about what's going on between those two?

David, it's an astute question, and let me -- but let me take it up a level and then get Glenn to jump into NatGen versus the Allstate brand. Because many of you have also written and asked about like how do you stand versus competitors and stuff on that? So let me just take it up and deal with that, and then we'll go into the specifics. So like you, we always look at different comparisons, whether it's internal or external, to get a sense for our performance. That said, when it's external, it tends to be more directional versus our variance analysis because of the differences in strategies and particularly it gives you got different strategies, different risk profiles, different state mix. It's better if you look at the long-term results rather than quarterly numbers, particularly when you're using percentage changes on a quarter-by-quarter. That said, the numbers are the numbers, and you need to understand them and evaluate them. First thing I would say is when you look at -- most of you have asked about Progressive, they're a really strong competitors, so we have great respect to them. As it relates to auto insurance over a long period of time, Allstate, Progressive and GEICO have all had attractive returns. And we're all dealing with the impact of what I would say, a wide swings in frequency and severity for auto claims, in particular that's driven by the pandemic and then the related inflationary impacts on tower repairs and prices. They did report, that is Progressive, a better combined ratio than us this quarter as they began raising prices earlier in 2021. But again, we don't know why, like we're not them. But they did have different trends in frequency both last year and this year. So…

Yes, I will. Well, David, you're getting a good detailed answer there from Tom and after me, you like hit the daily double here because it is a really good question and an important one. I want to take you back and kind of look at it over the 18 months that we've owned NatGen and since the closing of that deal, and it's a good time frame to use because 18 months is the time it takes to earn out the full annualized premium changes also. So you go back to first quarter 2021, and this would be true, by the way, not only of comparison of Allstate brand and NatGen but Allstate to other competitors, like Tom was talking about. Allstate was running a combined ratio about 10 points lower. And the reason for that was the frequency was lower, frequency on more nonstandard or near nonstandard business came back much quicker as people needed to use their cars to make a living, and there was just a difference between different books of business. And so as a result, the good news was for the Allstate brand was that is a really low combined ratio. It's around 80. The bad news is in the current state would be to say that, well, when you're running at that level, you need to take rates now. I mean you can't sustain and even in some places, require you to refile your rates, you can't sustain that level that far below target combined ratios. And National General, on the other hand, was still taking a maintenance level of rates up over that period of time. So now flash forward to today, their frequency down while all states is up. And then you've got a higher average earned premium going through. And…

[Operator Instructions]. Our next question comes from the line of Andrew Kligerman from Credit Suisse.

Can you hear me this time?

We can.

I'm sorry about that before. First question is around non-rate actions. Could you give a little color on some of the more material non-rate actions that you could take and the potential magnitude we might be able to see in the back half of the year on loss ratio? How much potential improvement could that offer?

Glenn can give you the items. I think we probably won't be able to give you an attribution on what that will do for this year's combined ratio. Glenn, what do you -- do you want to take that?

Yes. So I'll give you a few like you've got underwriting actions where we segment the business and we segment our pricing to where, as Tom said earlier, it isn't just about, geez, we're going to not write new business in this market, let's say, it's, well, we're profitable in these segments and not those other ones. So we're going to change the segmentation of our pricing, would be one. Another would be, we changed the down payment on policies and expect that there's a change in the flow of business at times with that. Certainly, the targeting of marketing is a really big one that I think can be underplayed, but we're pretty sophisticated in how we go to market. So when and where are we putting up banner ads when people are searching for auto insurance, which risk categories, which markets? And flat out, we've taken a lot of marketing dollars out right now. We're just reducing the marketing that we're doing: one, it will improve expense; two, it will lower the new business flow and allow us to more quickly get back to profitability; and then the last one I'll say is the sales incentives that are out there with our agents about how we're incentivizing people to grow and in which places. So when you put all of that together and you look at how you're going to market, you're really limiting in some places, the ability to grow your business with your intent of being not growing in nonprofitable segments.

Got it. That's helpful. And I should assume then that, that would be a very material impact on loss ratio as we go into the back half of the year?

I don't think you should assume very material. I mean, the first, it's subject to anybody's -- underwriting actions, Andrew, won't get us to where we need to go. We need to raise prices, cut our expenses. Those are the big drivers. This is helpful. And I'd like to say to our team, look, anybody can give it away, so like there's no sense writing business and knowing you're going to lose money out whatever. So this is more about managing long-term profitability than what it would do for the combined ratio in the second half of the year.

Got it. And then just looking backwards a little bit and a lot of your competitors that their rate increases have been all over the place, and I think you got what about 2.5% across the whole book last quarter. What was the thinking going into that? Why not a lot more rate? Was it precluded by the fact that 20% of the book is in California and New York, and it's a lot more difficult? But maybe just rewinding back a little bit, why not pushing for a lot more rate 4 or 5 months ago?

Well, I address part of that with the comparison of Progressive, but let me just address that first, the philosophical concept. We are raising prices as fast as we can, everywhere we can. So we're up 6.1% in 6 months of this year, which is -- would have been equal to maybe even our highest year in a long period of time. So we're -- and we expect to get at least that much in the second half. So there wasn't any thinking of let's dial down to 2.5%. It's let's get everything we can, everywhere we can. It obviously does depend on -- if you don't get anything in California, as Glenn said, that's 12% of your stuff of your total book, so that you got to pick it up by getting the right price in other places or just getting smaller in those places. So it doesn't impact your profitability as much. As it relates to our competitors, I think, again, everyone's got their own story. We have our own story inside National General is different than the Allstate brand is -- it's related to Progressive. Their frequency was up about 10 -- almost 10 points more than ours in 2021. So you would expect them to raise their prices faster and higher than we did because at the beginning of the year, we were still earning a very attractive combined ratio. So I think everyone has their own story. What I would leave you with is that like we're completely committed to getting a combined ratio consistent with where we've been in the past. We've been able to run our business for a long time in the mid-90s, and even when the industry has been a lot higher than that and we see no change in the competitive situation, the regulatory environment or our capabilities that lead us to conclude that, that's not possible.

And our next question comes from the line of Tracy Benguigui from Barclays.

I want to touch on your higher physical damage loss development, Slide 6. Just wondering, in your transformative growth initiative, I presume you cut clean staff. Do you feel like you're adequate staff in claims where you can close claims in a timely fashion? Maybe you could talk about how you're trying to speed up close rates?

Let me -- Glenn, if you'll talk about what we're doing in claims from an operating standpoint to deal with a higher inflationary environment, leveraging our relationships and getting purchase contracts, and then Mario can talk about the difference between property damage, which is amounts that we have to pay to other people for accidents that our customers help create to how we look at collision. And Tracy, the change in the prior year reserve stuff was really on that first category. And so Mario can talk about how that flows through the system.

So yes. So I'll start with -- let me just emphatically say we are not behind on claims staff, and we are not behind on claims. Our pending looks good. And we're in good shape there. The expenses that we took out of the claims process, the team has done a really terrific job of automating processes, creating good self-service capabilities, using a lot of virtual estimating capability. With the slowdown we talked about in the system is really external, and everybody is dealing with this part of it. And this would be uniform across the industry. So, for example, shop capacity is way down. The staffing level in body shops across the repair industry is down to the point where there's been a 33% decline in the number of hours worked per car per day. So you think about a car sitting in a shop and historically is 4 hours a day, it got work done, now it's 3 hours a day or a little less than 3 hours a day. So it's moved materially on that. Not surprisingly, the converse of that is that the average car time in a shop has doubled, and the average time to get a car into a shop has more than doubled. So you put all of those together and consumers are, frankly, just choosing to hold on to the check and wait to fix their drivable car until a time they think they can get it back in some reasonable time. And so we're seeing a way elongated repair cycle that then you get your supplements later and you just have a different dynamic in the way the financials are coming through. And it's -- like I said in the prepared remarks, we had planned for it being about 40% greater than any point prior, and it turned out to be even higher than that with the way it delayed coming through. So I just didn't want the question to miss the chance to tell you, it is not claim staffing. We've got plenty of staff, and our team does a terrific job on it.

Well, in fact, Glenn, you're also doing some stuff and parts buying and other things that mitigate the inflationary aspects, right?

Yes, absolutely. So using our scale as a company, we've doubled down on some of our parts suppliers, and this is both in home and auto, by the way, where we become a large and in some cases, the largest in the industry buyer of certain materials, whether it's parts in auto or roofing and homeowners or flooring, and we get the benefit of those broader relationships and trends. We've also doubled down on our direct repair shop, network in auto, so that we can get our customers access to more shops that can take their car and we have a better one-to-one relationship with that network and are able to control costs in that way.

And Mario, why don't you talk about a reserve release piece?

Yes. So I guess -- just a couple of points I think are worth making before I jump into -- to that. First of all, at the end of any reporting period, we believe, based on our processes that our reserves are adequate. That's certainly the case at the end of the second quarter as we work our way what are very comprehensive and thorough processes to estimate reserves, taking into account all the data and inputs both in terms of internal and external data that we have. So I guess that's the place I'd start. Well, Tracy, your question was on physical damage development specifically, which is different than historically because these tend to be pretty short-tail claims in the past. And as Tom mentioned, they're really -- they show up principally in 2 coverages: collision and property damage. Collision is first-party coverage. There are customers. We're fixing their cars. A claim gets reported, it's open. It may be subject to the same delays that Glenn talked about in terms of body shops, waiting periods, certainly the same inflationary factors. But we have the claim, we pay the claim, we move on. Property damage is a third-party coverage. So just to remind you, it's another carrier's customer. And oftentimes, we get notice of that claim and the payout on that claim are subrogation demands we get from a third-party carrier. And what we've seen is, as Glenn talked about, lack of capacity and auto repair shops, coupled with the inflation factors we've been talking about as well as changes in consumer claiming behavior. A lot of consumers are waiting oftentimes months to get their cars repaired whether that's because they can't get in the queue or they can't get an appointment to get it repaired, but it's just taking longer. And what that -- what all those factors are showing up as is a much longer tail and property damage on those third-party sub road demand from other carriers. And that is the physical damage strengthening that we reported in the quarter, much of that was in PD, and you see that on the chart that we showed on Page 6 of the presentation. In terms of the dollar amounts getting paid after the end of the calendar year are much more significant than we've seen in the past. The thing I'd leave you with is because we have this information on kind of longer tail expectations, we're taking that into account as we establish 2022 severity levels. So we're certainly factoring that into the severity increases that we talked about earlier.

So just a follow-up on that. Your auto underlying loss ratio of 79.6% was up 4.7 points sequentially. So should I think that part of that was raising your loss picks from everything you said, but was there also a component that you trued up your first quarter loss ratio since that will show up as a prior year, it's in the same accident year?

Yes, Tracy. So as you know, when we increased severity, which we did slightly this quarter relative to where we talked about our severity trends last quarter, that gets applied to claim counts for the entire year. So there is a catch-up component that would have been reflected in the first quarter, had we had perfect information in the first quarter.

And would you be able to quantify what that first quarter true-up would have looked like, just so we have a better sense of what's the right starting point when thinking about your loss ratio?

Tracy, I think you should just think about looking at the combined ratio by quarter, it does bounce around. There's seasonality, there's driving in the summer, there's all kinds of stuff. So I would -- I think look at it on a year basis. We did it 1 year -- 1 quarter last year when it was a pretty big number. It's not that big as we're looking at this quarter.

And our next question comes from the line of Paul Newsome from Piper Sandler.

I was wondering thinking about on the home insurance side of the house. Do we see the same sort of regulatory pressure in the home insurance business that we do in the auto because presumably, we have inflationary issues there and presumably, you need to get rate there as well to offset those issues?

Paul, the increase in home insurance, you saw is 15% year-over-year. So we don't -- we're getting the rates we think we need in those areas. The underlying assumption there is we have regulatory pressure in auto insurance. And as Glenn mentioned, we have good relationships with the regulation when the price of picking cars, they got it. So there are a few states. And so we've been waiting to get a rate increase that was agreed to with State of California over a year ago on homeowners, and that has yet to come through. So it tends to be more of a state-specific issue than a broad-based regulatory pushback. Glenn, anything you want to add?

Yes. The only thing I would add there is it's that base level of premium we're getting that isn't great. It's the inflationary factors that really keeps us going in that space. It's just a different type of products. Home values go up, and replacement costs go up. Cars, other than recent history, tend to not go up. So it's a different type of product in that way. So when you look at an average premium up over 13% year-over-year, it's a mix of rate in that. But to your point, Paul, like we've got to get rate there, it's not as heavy as it is in auto, but we deal with the same regulators. And I always go back to, it's the math. Like we're not making up these rates, and they're not looking to make up a reason not to do the rates in most cases. It's the math. Does the math support a trend that says you need rate? And we've been successful in that space.

No, I was just curious because obviously getting rate in home is different than auto is that inflation factors there and such. I just want to know if the dynamics is -- so really any different in the improvement of the rate there as well. And on the home side, is -- are you implementing some of the same underwriting criteria changes? Or are they materially different than what we've talked about from that volumes changes this quarter on the auto side?

Glenn, do you want to take that?

Yes. No, we're -- I would say it is materially different. We like where we are in homeowners. That's obviously not universal. I mean, there's -- from a risk standpoint, from a catastrophe-prone standpoint, everything, there's obviously a lot of underwriting we do. It's one of the strengths we have. And homeowners is that we know how to underwrite this business to make money over time and protect a good balance set of customers in such a way that, that portfolio works. But we are not in an equal or even that similar position in homeowners as auto right now in spite of the inflation. We're in a very good position to continue to write and grow homeowners.

Jonathan, let's just do 1 last question.

Certainly. And our final question for today comes from the line of Josh Shanker from Bank of America.

When I think of Allstate, I think you guys are second to none understanding the long-term value bundler that the Progressive people call the Robinson. And when anyone says they're going after that Allstate customer, I'm very skeptical at the level of success they'll have. On the other hand, you guys bought NatGen to go into nonstandard in a bigger way. You guys have come back and forth over 20 years in that a number of times. And if you look at Progressive, they're losing their SAMs at this point in time. Whether they're unprofitable or whatnot, that they are going somewhere. And when you talk about having 1,000 basis points of better margin in NatGen and it's growing, how confident are you given that that's not your legacy business that you understand that those aren't Progressive customers that they can't make work coming onto your books?

Let me see if I can deal with that. So I'm going to go up in a minute. So it's really the question of we. And so who is we, Josh? So we as now Allstate and NatGen, as opposed to we was Allstate without experience in nonstandard. So you may remember when we got started on NatGen, I went to Barry Karfunkel and said, hey, Barry, I got this problem, I'm not making any money in the independent agent business, and I'm not really in the nonstandard business. So I either have to get out of the business or try to fix it, I had trouble fixing it. So I've decided I'd like to get out of it, but I'm going to get out of it first by buying you, and then your team can fix our business, and that's exactly what's played out. Peter Randell and that team are really good at nonstandard. They know their business well. They run separately. They have separate pricing, separate claims, they know that business well. And then they took our Encompass business, which was more a standard business, and they're folding that in. And so we think we have a great opportunity to expand in the independent agent channel, not just for the nonstandard piece but in what's affectionately called, I guess, the Robinson is quite progressive because we're really in that segment. And we think there's a great opportunity for us to compete there.

And so I just -- I'll make this the last part of the question. You say who as we, and you're making it seeing that National General is running separately in some ways from Allstate. Of course, you're in charge and the buck stops with you, Tom, how comp are you that you understand the underwriting going on there that you know that what we see right now is results that you're very comfortable and proud of?

Yes. It's not that hard to understand, Josh. It's more difficult to build a set of business processes, policy documents, procedures and relationships with agents to note. So they -- for example, they were on something called the WAR Score where they look at every individual agent and see what kind of business they're getting for them. So it isn't -- like if it's got wheels on it, and it's got losses and that stuff is not that complicated. What's really complicated is building the business model to do it. And we are highly confident that they know what they're doing. All right. First, as we move forward, we clearly, based on your comments and the amount of time, we're focused on auto insurance. We're going to get those margins up. We still got to make sure we make good money in homeowners, expand on our Protection services and at the same time, rebuild its digital insurer called transformer growth of that when we get margins where we are, we can hit the accelerator hard on profitable growth and drive more shareholder value. So thank you all, and we'll talk to you on investments in September.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.