Allstate Corporation (The) (ALL)

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The Allstate (ALL)

Q4 2010 Earnings Call

February 10, 2011 9:00 am ET

Executives

Joseph Lacher - President of Allstate Protection - Allstate Insurance Company

Thomas Wilson - Chairman, Chief Executive Officer, President, Member of Equity Award Committee, Chairman of The Allstate Insurance Company, Chief Executive Officer of The Allstate Insurance Company and President of The Allstate insurance Company

Robert Block - VP IR

Matthew Winter - Chief Executive Officer of Allstate Financial and President of Allstate Financial

Judith Greffin - Chief Investment Officer of Allstate Insurance Company and Senior Vice President of Allstate Insurance Company

Don Civgin - Chief Financial Officer, Senior Vice President, Chief Financial Officer of Allstate Insurance Company and Senior Vice President of Allstate Insurance Company

Analysts

Jay Gelb - Barclays Capital

Vinay Misquith - Crédit Suisse AG

Keith Walsh - Citigroup Inc

Michael Nannizzi - Oppenheimer

Brian Meredith - UBS Investment Bank

Meyer Shields - Stifel, Nicolaus & Co., Inc.

Matthew Heimermann - JP Morgan Chase & Co

Alison Jacobowitz - BofA Merrill Lynch

Robert Glasspiegel - Janney Montgomery Scott LLC

Joshua Shanker - Deutsche Bank AG

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Allstate Corporation Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Mr. Robert Block, Vice President, Investor Relations. Sir, you may begin.

Robert Block

Thanks, Matt, and good morning, everyone. Thank you for joining us today for Allstate's Fourth Quarter 2010 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 2010. 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 for the question-and-answer session following our prepared remarks.

Yesterday, we issued our press release and our investor supplement for the fourth quarter. We also posted a slide presentation that will be used this morning. 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 2009, our 10-Q for the third quarter of 2010 and our most recent press release for information on potential risks. We expect to file our 10-K for 2010 by March 1.

Also, this discussion may 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 Ieuter and I will be available to answer any follow-up questions that you may have once this call is completed.

Now, let's begin with Tom Wilson. Tom?

Thomas Wilson

Good morning. We appreciate your continuing interest in Allstate. I'll provide an overview of our results for the fourth quarter and the year, Bob will then cover the business unit results, and Don will cover investments and our financial position.

Overall, we made continued progress in our business strategies in 2010 to position the company for long-term growth and raise returns on capital. Let's start by reviewing the numbers on Slide 2, and then I'll provide some context on underlying strategies and drivers behind these results.

At the top, revenues were flat for the quarter and down 1.9% from the prior year as actions to restore auto margins in several large states negatively impacted growth. We generated $296 million of net income for the quarter and $928 million for the full year. Operating income fell for both periods, reflecting higher catastrophe losses, lower net investment income and increased frequency of auto claims that's particularly true in New York and Florida. Book value per share increased 14.5% to 35.32 as compared to fourth quarter of 2009 number.

If you go to Slide 3, in Allstate Protection, we recorded an underlying combined ratio of 89.6 for the year, which was within our outlook range of 88 to 90. We did begin to see some signs of success in our efforts to grow our Auto business with increases as we move throughout the year and higher new business in most states. This resulted from our new Mayhem campaign and improvements in agency effectiveness.

We were not successful in raising customer renewal rates, so that the new business success did not result in overall growth this quarter. The actions we took in three large states to improve Auto profit margins negatively impacted the good work our agencies are doing in raising their service levels. Our Direct business, which largely appeals to the, self-directed, price-sensitive customers was up 19.8% for the year to $745 million.

Overall, Standard Auto policies in force were down 1.5% from the year ago and then essentially flat to the third quarter of 2010. We continue fixing Homeowners profitability with the average written premium for the quarter of 7% from the prior year. Catastrophe losses up, particularly a hailstorm in Arizona, however, offset these gains.

In Allstate Financial, we successfully completed the Focus to Win downsizing, exited the bank and broker-dealer distribution channels and began shifting our focus to underwritten products from our traditional focus, which was more on investment spread-based products. We also just announced our intention to wind down the Allstate Bank, which means we expect to no longer be a thrift holding company for regulatory purposes.

Operating earnings increased for the quarter to $104 million and finished the year with positive net income. We continue to improve the growth trajectory of Allstate Benefits formerly known as the Allstate Workplace Division. It's been very successful in expanding in both the small and large employer markets.

In investments, our strategies were well timed and executed and generally ahead of the market. We stayed long corporate credit and held onto the structured securities that we felt were undervalued by the market. We continue to mitigate risk by reducing our exposure in the muni bond and commercial real estate portfolios

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