The Allstate Corporation (ALL)
Q4 2009 Earnings Call
February 11, 2010 9:00 am ET
Robert Block – Vice President, Investor Relations
Tom Wilson – Chairman, Chief Executive Officer
Don Civgin – Chief Financial Officer
Judy Greffin – Chief Investment Officer
Joe Lacher – President, Allstate Protection
Sam Pilch – Controller
Matt Winter – President, Allstate Financial
Jay Gelb - Barclays Capital
Robert Glasspiegel - Langen McAlenney
Vinay Misquith - Credit Suisse
Daniel Johnson - Citadel Investment Group, LLC
Matthew Heimermann - J.P. Morgan
Joshua Shanker - Deutsche Bank
Paul Newsome - Sandler O'Neill & Partners, LP
Brian Meredith - UBS
Meyer Shields - Stifel Nicolaus & Co., Inc.
Alison Jacobwitz - BofA Merrill Lynch
Previous Statements by ALL
» The Allstate Corporation Q3 2009 Earnings Call Transcript
» The Allstate Corporation Q2 2009 Earnings Call Transcript
» The Allstate Corporation Q1 2009 Earnings Call Transcript
Thanks, Matt, and good morning everyone and thank you for joining us today for Allstate’s fourth quarter 2009 earnings conference call. As always Tom Wilson, Don Civgin and I will make some opening comments providing color on our fourth quarter and yearly results for 2009. Following our comments we will have a question-and-answer session when Judy Greffin, our Chief Investment Officer; Joe Lacher, President of Allstate Protection; Sam Pilch, our Controller; and Matt Winter, President of Allstate Financial, will join us.
During the session we ask that you please limit yourself to one question and a follow up so that we can hear from as many of you as time permits. Last night we issued our press release and the majority of our investor supplement for the fourth quarter. We also posted a Slide presentation that will be used this morning during our presentation. You can locate these documents on our website.
As noted on Slide 1, this discussion may contain forward-looking statements regarding Allstate’s operations and actual results may differ materially, so refer to our Form 10-K for 2008, our 10-Q for the third quarter 2009 and our most recent press release for information on potential risks. We expect to file our 10-K for 2009 by the end of February. Also this discussion will contain some non-GAAP measures for which there are reconciliations in our press release and on our website. This call is being recorded and a replay will be available following the call.
Christine Yeider and I will be available to answer any of your questions that you may have once this call is completed. Now let’s begin with Tom Wilson.
Well, good morning and thanks for your continuing interest in Allstate. I’ll begin with my thoughts on our progress then Bob will go through the business unit results and Don will cover investments and the balance sheet.
We entered 2009 with three priorities; that was to keep Allstate financially strong, to improve customer loyalty and to reinvent protection retirement for consumer. And we made outstanding progress on the first two goals and while we made less progress on reinventing, we did lay out a foundation for growth.
Let me go through each of these priorities in order. First, we did further strengthen Allstate’s financial position. We generated operating income of $592 million for the quarter and almost $1.9 billion for the year, which was 7% higher than the full year of 2008. We had double digit returns on our $100 billion investment portfolio, realized capital losses were reduced to $33 million for the quarter and $583 million for the year. Importantly the pretax net unrealized position improved by $6.5 billion throughout the year. Net income was $518 million in the fourth quarter and $854 million for the year. As a result, book value grew by 31% in 2009.
We also built up a stronger capital base on both the GAAP and statutory basis. And we achieved this through focused operational efforts at Allstate Protection, Allstate Financial and in our investment activity. Allstate Protection achieved its objectives of providing a strong source of operating profit, improving customer loyalty and laying a foundation for growth. The combined ratio was 93.2 for the quarter as excellent operating practices, expense controls and pricing discipline resulted in all major lines generating an underwriting profit in the fourth quarter.
Over the last five years, our personal lines business has generated an underwriting profit in 18 of 20 quarters with an average of 93.9.
As you know we provide annual guidance on a combined ratio. This year was 87 to 89 for 2009, excluding the cash freeze and prior year reserve changes, we ended the year at 88.1, almost exactly in the middle of our expectations.
We expect to capitalize on our positive momentum with continued focus on targeting high lifetime value customers, further improvements in customer loyalty, taking steps to improve homeowner returns, improve sales and service results from our agencies and expansion of our new product development and marketing programs.
Allstate Financial also made substantial progress in the quarter to focus the win plan, to reduce expenses, to lower fixed costs and focus on profitability, has achieved 90% of its original goals and is on schedule. Operating income was $95 million for the quarter and $340 million for the year.
Importantly we also made progress in focusing our strategy in this new investment and economic climate. Allstate Financials’ primary focus will be on providing mortality, morbidity and preservation of income products to customers through Allstate agencies and at worksites. We’re restructuring our sales programs and support, our product offerings and our marketing efforts, to broaden our relationships with the 17 million households that currently do business with Allstate.