Allstate Corporation (The) (ALL)

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The Allstate (ALL)

Q1 2011 Earnings Call

April 28, 2011 9:00 am ET

Executives

Robert Block - VP IR

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

Thomas Wilson - Chairman, Chief Executive Officer, President, Chairman of Executive Committee, 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

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

Matthew Winter - Chief Executive Officer of Allstate Financial, President of Allstate Financial and Executive Vice President of Allstate Insurance Company

Joseph Lacher - President of Allstate Protection - Allstate Insurance Company and Executive Vice President of Allstate Insurance Company

Analysts

Harry Fong - Soleil Securities Group, Inc.

Dan Farrell - Sterne Agee & Leach Inc.

Gregory Locraft - Morgan Stanley

Paul Newsome - Sandler O’Neill + Partners, L.P.

Robert Glasspiegel - Janney Montgomery Scott LLC

Michael Nannizzi - Goldman Sachs Group Inc.

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

Brian Meredith - UBS Investment Bank

Alison Jacobowitz - BofA Merrill Lynch

Matthew Heimermann - JP Morgan Chase & Co

Joshua Shanker - Deutsche Bank AG

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Allstate Corporation First Quarter 2011 Earnings Conference Call. [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. Sir, you may begin.

Robert Block

Thanks, Matt. Good morning, everyone. Thanks for joining us today for Allstate's First Quarter 2011 Earnings Call. Following prepared remarks by Tom Wilson, Don Civgin and me, there will be question and answer session. Judy Greffin, our Chief Investment Officer; Joe Lacher, President of Allstate Protection; Sam Pilch, our Controller; and Matt Winter, President and CEO of Allstate Financial, are also with us to answer your questions.

Yesterday, we issued our press release and investor supplement for the first quarter. We also posted a slide presentation that will be used this morning. All of these documents can be found 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 2010, our 10-Q for the first quarter 2011, and our press release for information on potential risks. This discussion may contain some non-GAAP measures, for which, there are reconciliations in our press release and on our website. As always, Christine Ieuter and I will be available following the call to answer any follow-up questions you may have.

Now let's begin with Tom Wilson.

Thomas Wilson

Good morning, I'm glad you could all join us. After my comments, Bob will go through the business results and Don will then cover the investments and the balance sheet. This quarter was a good start to the year. The underlying performance of our business is good, and it was in line with our full year commitments which we talked about last time. We benefited, obviously, from lower catastrophe losses this year in comparison to what were near-record for the first quarter of 2010. We also had strong investment results.

We remain focused on 3 priorities this year: the first is to improve our operating results; secondly, to grow our business profitably; third, to differentiate ourselves from the competition by reinventing our businesses.

The first quarter results reflect our efforts to achieve each of these priorities. From a company perspective, operating income increased 32.5% to $497 million compared to last year's first quarter, which is due to lower catastrophe losses and continued strong profits from auto insurance. Net income rose to $519 million, that's $0.75 per share higher than last year's first quarter, which was due to realized gains versus realized losses last year. Book value per share was 13.2% above a year ago and 3.4% over the last 3 months.

At Allstate Protection, profitability improved, but net premium written declined slightly. The recorded combined ratio was 94.9 compared to 98.9 in Q1 of 2010. Catastrophe losses were $333 million, or 5.2% earned premium, which was in line with the historic average Cat losses for a first quarter. But that result was obviously substantially less than last year, it was about half of what we had in the first quarter of last year. The underlying combined ratio was 89.9, which is up 0.8, or 80 basis points, from the first quarter of last year.

Net written premium declined by 0.7%, as our successful marketing campaigns generated increased new business in auto, but that did not offset the impact of actions taken to improve profitability in a couple of markets. At Allstate Financial, profitability has stabilized, and we're executing on our strategies to improve returns and grow profitably. Our investments results were very good. We continue to actively manage our risk and return. As you know, we've been reducing our municipal debt, but the reductions this quarter were at a lower pace than they have been over the last several years. This quarter, we also reshaped the fixed income portfolio maturity profile to optimize returns and balance the risks associated with the shifts in the yield curve. That's particularly true because of the steepness of the yield curve. We are not extending the interest rate and equity derivatives related to our macro hedge programs given our strong capital position.

We also made progress on our efforts to generate long-term profitable growth by focusing on the customer, sharpening our value proposition and improving margin-forming businesses. We continue to test new products, refine our customer value propositions for Allstate agencies and the direct business and are seeing gradual improvements in returns from the underperforming homeowners and annuity businesses.

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