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The Allstate (ALL)
Q3 2011 Earnings Call
November 01, 2011 9:00 am ET
Judith Pepple Greffin - Chief Investment Officer of Allstate Insurance Company and Executive Vice President of Allstate Insurance Company
Robert Block - VP IR
Previous Statements by ALL
» The Allstate's CEO Discusses Q2 2011 Results - Earnings Call Transcript
» The Allstate's CEO Discusses Q1 2011 Results - Earnings Call Transcript
» The Allstate's CEO Discusses Q4 2010 Results - Earnings Call Transcript
Matthew E. Winter - Chief Executive Officer of Allstate Financial, President of Allstate Financial and Executive Vice President of Allstate Insurance Company
Mark LaNeve - Chief Marketing Officer of Allstate Insurance Company and Executive Vice President of 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 G. Heimermann - JP Morgan Chase & Co, Research Division
Michael Nannizzi - Goldman Sachs Group Inc., Research Division
Jay Gelb - Barclays Capital, Research Division
Ian Gutterman - Adage Capital Management, L.P.
Alison Jacobowitz - BofA Merrill Lynch, Research Division
Robert Glasspiegel - Langen McAlenney
Brian Meredith - UBS Investment Bank, Research Division
Vinay Misquith - Evercore Partners Inc., Research Division
Michael Zaremski - Crédit Suisse AG, Research Division
Keith F. Walsh - Citigroup Inc, Research Division
Good day, ladies and gentlemen, and welcome to the Allstate Corporation Third Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Robert Block, Senior Vice President, Investor Relations. Sir, you may begin.
Thanks, Matt. Good morning, everyone, and thank you for joining us today for Allstate's third quarter earnings conference call. Tom Wilson, Don Civgin and I will make some brief remarks to provide more color on our results for the quarter. We'll then hold a question-and-answer session, and we ask that you limit yourself to one question and one follow-up so that we can hear from as many folks as time permits.
Joining us for the Q&A session are Judy Greffin, our Chief Investment Officer; Mark LaNeve, Senior Executive Vice President, Agency Operations and Chief Marketing Officer; Sam Pilch, our Controller; and Matt Winter, Senior Executive Vice, Insurance operations and President and Chief Executive Officer of Allstate Financial.
Late yesterday afternoon, we issued our press release and investor supplement as well as filed our 10-Q for the third quarter 2011. We also posted a slide presentation, which will be used in conjunction with the prepared remarks. All of these materials are available on our website.
Our discussion today may contain forward-looking statements regarding Allstate's operations. Actual results may differ materially from those statements. Please refer to our 10-K for 2010, our 10-Q for the third quarter and our press release for information on potential risks. The discussion may also contain some non-GAAP measures for which there are reconciliations in our press release and on our website. After our call concludes, Christine Ieuter and I will be available for any follow-up questions you may have. Let's begin with Tom Wilson. Tom?
Thomas J. Wilson
Good morning. I'd like to begin our conversation by reviewing our strategy in operating commitments for 2011. Then I'll compare this to our third quarter results and discuss our 2012 priorities. Bob and Don then will go through the underlying drivers of our results.
If you begin on Slide 2, we're in the business of selling protection products to consumers based on their preference for price, service and delivery channel. It's a long-term strategy designed to evolve with the changing marketplace. Our Board and management are fully aligned behind this strategy in goal of generating an operating return on equity of 13% by 2014. To do that, we're focused on 3 near-term priorities. First, we must maintain margins in the auto insurance business at industry leading levels. Secondly, we must improve returns in homeowners and Allstate Financial. Thirdly, we must aggressively manage our capital. On a longer-term basis, we're repositioning our products and distribution platforms to meet the changing needs of customers. So near and long-term, of course, we continually manage our most powerful asset, that's the Allstate brand, and it gives us unparalleled access in opportunity within our core businesses and to each of the company' core constituencies.
So let me review our progress in the third quarter on Slide 3. We strengthened the breadth of the Allstate brand standard auto insurance profitability by improving combined ratios in New York and Florida. Both of those states continue to have loss ratios that are higher than the countrywide average, though the result have improved significantly relative to 2010, reducing the pressure on countrywide results. The rest of the country continues to have strong results. The overall combined ratio for Allstate brand standard auto insurance is 94.2 for the quarter and 95.8 for the first 9 months of the year. The Allstate brand homeowners combined ratio was 131.9 for the quarter, of which 55.8 was due to catastrophe losses. To improve returns, we continued to increase prices and downsize this business with the average premiums are up 5% and then there's a 4% reduction in items in force versus a year ago. The underlying combined ratio was 72.3 for the 9 months, which is a 0.9 improvement from the prior year for the quarter. It was 1.7 points better than the prior year.
Overall, the property liability underlying combined ratio was 88.9 for the first 9 months, which is at the favorable end of our committed range of 88 to 91 for the year. Allstate Financial had a solid quarter with operating income of $134 million, a 24% increase from the third quarter of 2010. The returns from Allstate Financial were improved over the prior year as a result of higher investment income and lower crediting rates.
The fixed deferred annuity business declined by $4 billion in contactable balances since the year end of 2010 as surrenders continue to outpace these sales. Proactive management investment, portfolio gave us 3 great results. We maintained yields. We realized substantial capital gains, and we increased the absolute level of unrealized gains in the portfolio from the end of last year. Our capital management program includes an active outsourcing program for products such as homeowners and annuity. In the homeowners business, we've reduced our items in force by $1.2 million or 15% over the last 4 years, in part by offering coverage from other carriers. Today, we broke our homeowner premiums in many markets, the vast majority of which is Florida and other hurricane exposed areas. And as you know, of course, we are a substantial user of reassurance, which enables us to shift risk to third parties and recover most of the cost through higher prices from customers. Allstate Financial uses similar strategies. Of course, we sold the variable annuity business in 2006, but the Allstate agency distribution channel sold $736 million of nonproprietary variable annuities in the first 9 months of the year. Earlier this year, we instituted a similar strategy for fixed annuities to fixed annuity deposits declined $439 million so far this year. So the Allstate agency distribution channel expenses were reduced by increased fees in this arrangement.