Allstate Corporation (The) (ALL)

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The Allstate (ALL)

Q4 2011 Earnings Call

February 02, 2012 9:00 am ET

Executives

Robert Block -

Thomas J. 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 E. Winter - Chief Executive Officer of Allstate Financial, President of Allstate Financial and Executive Vice President of Allstate Insurance Company

Mark LaNeve - Director, Chief Marketing Officer of Allstate Insurance Company and Senior Vice President of Allstate Insurance Company

Samuel H. Pilch - Group Vice President and Controller

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

Analysts

Robert Glasspiegel - Langen McAlenney

Dan Johnson - Citadel LLC

Alison Jacobowitz - BofA Merrill Lynch, Research Division

Brian Meredith - UBS Investment Bank, Research Division

Michael Zaremski - Crédit Suisse AG, Research Division

Keith F. Walsh - Citigroup Inc, Research Division

Matthew G. Heimermann - JP Morgan Chase & Co, Research Division

Jay Gelb - Barclays Capital, Research Division

Randy Binner - FBR Capital Markets & Co., Research Division

Adam Klauber - William Blair & Company L.L.C., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Allstate Corporation Fourth 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 of Investor Relations. Mr. Block, you may begin.

Robert Block

Thanks, Matt. Good morning, everyone, and thank you for joining us today for Allstate's Fourth Quarter 2011 Earnings Conference Call. This morning, Tom Wilson, Don Civgin and I will make a few opening remarks providing some context around our results for the fourth quarter and the year. We will follow those remarks with a question-and-answer session. Joining us for the Q&A session will be Judy Greffin, our Chief Investment Officer; Mark LaNeve, Senior Executive Vice President of Agency Operations and Chief Marketing Officer; Sam Pilch, our Controller; and Matt Winter, Senior Executive Vice President, Insurance Operations and President and Chief Executive Officer of Allstate Financial.

Yesterday, following the close of the market, we issued our press release and investor supplement for the fourth quarter 2011. We also posted a slide presentation that will be used this morning. You can find these documents on our website.

As noted on the first slide, this discussion may contain forward-looking statements regarding Allstate's operations. Actual results may differ materially from those statements. So please refer to our form 10-K for 2010, Form 8-K filed June 1, 2011, our 10-Q for the third quarter 2011 and our most recent press release for information on potential risks. We expect to file our 10-K for 2011 by February 29.

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. I will be available to answer any follow-up questions you may have once this call is completed.

Now I'll turn it over to Tom Wilson. Tom?

Thomas J. Wilson

Good morning. I'll begin by reviewing our strategy and operating commitments for 2011, then I'll compare this to our results and then discuss our 2012 priorities. Bob and Don will then go through the underlying driver of our results.

Let's begin on Slide 2. Our strategy is to sell unique protection products to distinct customer segments, based on their preference for price, service and delivery channel. It's a long-term strategy designed to evolve with the changing marketplace and generate an operating return on equity of 13% by 2014. Our 3 near-term priorities for 2011 were: maintaining margins in the auto insurance business at industry-leading levels; secondly, improving returns in homeowners and Allstate Financial; and third, aggressively managing our capital. We're also hard at work on our longer-term initiatives to position our products and distribution platforms to meet the needs of our customers.

The chart on Slide 3 should be familiar to you. It's assigned to insurance market based on customer preferences around interaction and brand preference. Allstate does very well with customers in the lower left corner, who prefer to get more advice and assistance with their insurance needs and value of brand. We identified this group as personal touch loyalists. These customers prefer to buy multiple products such as Allstate Financial or a broad array of property liability protection products. This segment also has really good retention characteristics.

As you know, we acquired Esurance in the fourth quarter to serve customers who prefer to do this themselves, that's on the right side of the diagram. We're repositioning the Allstate brand and leveraging our claim and product expertise to compete directly with GEICO and Progressive Direct. We launched new Esurance advertising late in December, and we're making good progress in supporting this new team.

In the upper left, customers who want advice but are not as concerned about brand are served by Encompass. We acquired this business in 1999 when it had a combined ratio of well over 100, and we successfully improved profitability, which generated an attractive return on the acquisition price. More recently, this business has underperformed from a profit and growth standpoint. So late last year, we changed leadership and expect Encompass's results to improve.

If you turn to our financial results, they're on Page 4. For the year, we had net income of $788 million and $689 million of operating income despite incurring $3.8 billion in catastrophe losses. In the fourth quarter, we generated $724 million in net income, operating increased -- the operating income increased by $479 million to $750 million from the prior year as we experienced less catastrophe losses than in the prior year's quarter.

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