Mario Rizzo: Thanks, Greg. This is Mario. I’m going to make some comments off the slide off of Slide 5 that we showed you in the presentation, which really shows the — starts with the average underlying loss and expense trend that we saw in the quarter. That number is about 6.7%. If you take out the expense component, it drops by over a point. So I’d say the loss trend we’re seeing in the protection business in the mid-5s, and that’s made up of both frequency and severity. As we indicated, frequency relative to last year, just given the milder weather was favorable. And then the other component of it is severity. So it’s, I’d say, favorable frequency more than offset by higher severity. But severity is continuing to moderate in terms of the rate of increase that we’re seeing.
Maybe a little bit of color underneath severity broadly because really, there’s two different emerging stories both in physical damage and in injury. And physical damage, we continue to see the benefit of things like lower used car prices. Total loss severity continues to drop. But it continues to cost more to fixed cars, and that’s made up of continually increasing parts prices and labor costs. So we’ve seen increasing severity and physical damage repairable — for repairable vehicles but not at the same rate we have been seeing before. That has moderated. The real ongoing severity pressure is in beyond the injury side, which continues to run at higher than historical levels. That’s driven by a lot of the things we’ve been talking about, medical treatments, medical consumption, inflation.
It’s also being driven by the fact that more of our customers continue to get sued and attorney representation levels continue to increase and that’s putting pressure on severity. It’s also resulting in higher cost for consumers ultimately. The cost to settle injury claims going up at the level that it is translating into higher insurance prices for consumers. I’d point out a state like Florida, where last year, they passed meaningful tort reform, and we’re starting to see some positive impacts of that tort reform, which I think will bode well for consumers going forward. Georgia just — the Georgia legislature just passed some tort reform, which, again, can be a positive for consumers going forward. And obviously, we’re a strong proponent of that kind of reform broadening across more states going forward.
But Greg, to your question, positive frequency in the quarter, hard to quantify with any degree of precision what the weather was worth, but it was favorable, offset with severity levels that are running lower than they have been running, but still at positive levels, which is why we’re going to stay on top of pricing to make sure that our rates fully reflect loss trends and keep pace with loss trends in the states that we’ve reopened for growth and continue to pursue rates in states where we haven’t achieved target profitability yet. And that would be true both in the Allstate brand and National General.
Greg Peters: Thanks for that detail. I guess in conjunction with that answer, you brought up rate. And I know you mentioned that you’re not going to provide us updates on pricing going forward, because you’re rate adequate. I know — if you go back to previous presentations, you’ve called out three states. And even after you reported fourth quarter, you still were I think New Jersey and New York were kind of still in the question mark period. Has there been some updates there in those two states that you want to give us that leads you to believe that they are rate adequate now too as well?
Tom Wilson: I’ll let Mario go into the three states, but I just want to clarify. We decided not to give it to you every month because — we don’t — we think you get to drill, you know what we’re doing, and we don’t need to do it. We didn’t say we’re very adequate so don’t worry about it. We’re always focused on it. We just didn’t think we needed to like burden people sending out every month.
Mario Rizzo: Yes, Greg, it’s Mario. I’ll just give you a little more color on those three states. Remember, last quarter, we told you we had just got an approval in the fourth quarter for auto rate increases in all three of those states. In California — and we’ve implemented those rate increases this past quarter. In California, we feel comfortable of where the rate level is with the increase, and we’ve reopened California for new business. Really no change in New York and New Jersey in terms of our underwriting risk appetite, even with the rate approvals that we got late last year, we still don’t feel like we’re at the appropriate rate level to want to grow in those two states. The only update I’d give you on one of the states is New Jersey recently approved a 13.9% auto rate increase, which was one of the filings we had pending.
That will be effective in the second half of this year. we’re still going to need more rate beyond that before we would look to reopen that market. And in New York, we’re having ongoing conversations around a pending rate that’s with the department, but really nothing new to report at this point. And in those two states, in particular, we have not lifted any of the underwriting restrictions that we have in place.
Greg Peters: Got it. Thank you for the detail.
Operator: Thank you. One moment for our next question. And our next question comes from the line of Bob Jian Huang from Morgan Stanley. Your question please.
Bob Jian Huang: Maybe just going back to the PIF growth and rates. For Slide 6, if we look at the states that are above 96% combined ratio, I know that you talked about New York, New Jersey, California, but are there any other reasonably large states where you continue to need rates? And in those states, are you — like comparing to your peers, is your loss ratio significantly above everyone else? Or in other words, if you were to raise rates in those states, do the customers have anywhere else to go?
Tom Wilson: Well, that’s a complicated question. Let’s see if I can address it. So in Allstate, when you have severities going up the way Mario described it, you’re going to be increasing rates at levels above what is the general inflation rate. So we expect to continue to have to do that. If our customers quick and sued every time they get an access, then maybe it will back off some. But — so we’re always moving rate up. You’re really get into where is your competitive position. And I think it’s difficult right now to determine where one’s competitive position is in any individual state given how rapidly rates are moving and how they’re moving through books of business, given how — and so that said, we’re confident that with transformative growth by reducing our expenses will end up in a lower cost, more competitive position than when we started this four years ago.
