Allstate Corporation (The) (ALL)

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The Allstate Corporation (ALL)

Q3 2009 Earnings Call Transcript

November 5, 2009 9:00 am ET

Executives

Robert Block – VP, IR

Tom Wilson – Chairman, President and CEO

Don Civgin – SVP and CFO, Allstate Insurance Company

Judy Greffin – SVP and Chief Investment Officer, Allstate Insurance Company

George Ruebenson – President, Allstate Protection, Allstate Insurance Company

Matt Winter – President and CEO, Allstate Financial

Analysts

Jay Gelb – Barclays

Matthew Heimermann – JP Morgan

Cliff Gallant – KBW

Dan Johnson – Citadel

Paul Newsome – Sandler O'Neill

Ian Gutterman – Adage Capital

Bob Glasspiegel – Langen McAlenney

Vinay Misquith – Credit Suisse

Meyer Shields – Stifel Nicolaus

Brian Meredith – UBS

John Hall – Wells Fargo Securities

Presentation

Operator

Good day ladies and gentlemen and welcome to the Allstate Corporation third quarter 2009 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions). As a reminder this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Robert Block, Vice President, Investor Relations. Mr. Block, you may begin.

Robert Block

Thanks, Matt. Good morning, everyone and thanks for joining us today for Allstate's Third Quarter Earnings Conference Call. As is our custom, Tom Wilson, Don Civgin, and I will provide some commentary on results for the quarter, followed by a question-and-answer session.

Joining us for the Q&A are Judy Greffin, our Chief Investment Officer, Sam Pilch, our Controller, George Ruebenson, President of Allstate Protection and Matt Winter, President of Allstate Financial. During that session we will ask you please limit yourself to one question and one follow-up so that we can hear from as many people as possible during our time together.

Last night we issued our press release, the majority of our investor supplement and our 10Q for the third quarter. We also posted a slide presentation that will be used in conjunction with our prepared remarks. All of these documents can be found on our Web site. On slide#1 will you find our Safe Harbor statements. This discussion may contain forward-looking statements regarding Allstate's operations, actual results may differ materially so please refer to our Form 10K for 2008, our third quarter 10Q and our most recent press release for information on potential risks.

We will also discuss some non-GAAP measures which the reconciliations in our press release and on our Web site. This call is being recorded and a replay will be available following the call. As always, Christine Yeider and I will be available to answer any further questions you may have once the call is complete.

Now I'll turn the call over to Tom Wilson.

Tom Wilson

Good morning. Thank you for your interest in Allstate. I'll make some brief comments on our overall results. Bob will then cover Allstate Protection and Allstate Financial. Don will cover our investment results and financial position.

Let's begin with the third quarter. If you reflect on our three priorities, which are shown on slide #2 you'll see that we made progress on all of those. First, keeping Allstate financially strong in what has been a volatile economic environment. We continue to perform very well on this objective.

We generated 538 million in operating income and 221 million in net income in the third quarter. Book value per share grew by 15.9% from the second quarter to 32.29%, which is a result of solid operating results, our proactive focus on risk mitigation, return optimization and improving financial markets.

Our capital position remains strong on both a statutory and GAAP capital basis. Our auto business continues to perform very well. Margins remain strong and the new business momentum and improvements in retention are beginning to build a foundation for sustainable growth.

We do remain vigilant in our efforts to improve profitability in the homeowners’ line, gaining needed rate increases, while maintaining a prudent risk appetite. Our overall recorded combined ratio was 94.7, the underlying combined ratio was 88 which was within the range of expectations we set earlier in the year.

Allstate Financial has made progress on its efforts to improve returns and is 80% of the way home to completing the focus to win efforts. Investment valuations improved dramatically as we maintained our exposure to corporate credit and that paid off big time in the quarter. We also invested in another $4.6 billion of excess liquidity.

On the risk mitigation front we continue to lower our exposure to real estate and have begun to slightly reduce our exposure in municipal debt. We've also maintained our program to protect our economic position, if interest rates rise.

So we’re laying the foundation for sustainable growth through our work on improving customer loyalty and reinvesting protection retirement for the consumer. Our measure of customer loyalty improved for the third consecutive quarter which is making inroads on our deficit to the industry.

Both our auto and homeowners retention ratios increased from the prior quarter. And that's a result of a number of reinvention efforts including things like Next Gen claims, which improve customer satisfaction on property and we've calibrated, of course, remember our 401K match on customer loyalty rather than profits.

Our reinvention efforts to provide choice for customers, things like Your Choice Auto, Allstate blue, combined with more targeted marketing and improved sales processes at our agencies and direct operations contributed to a 12% increase in auto new business over the prior year quarter. This is the third quarter in a row of increased new business, which when you combine it with a higher customer retention will drive market share growth.

On the leadership front we had several significant changes. Matt Winter joins us as CEO of Allstate Financial. The breadth of his experience, his track record of success and his passion for reinventing financial services for middle income customers will enable to us build on the success of our focus to win initiatives.

Mark LaNeve joins us as Chief Marketing Officer. His success in repositioning brands such as Cadillac, his general management experience in making brands live at the local level as well as the national level will help drive our efforts to reinvent protection retirement. This also frees up Joan Walker to build on the success in improving our reputation and to make reinvention of self-sustaining.

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