The Allstate Corporation (ALL)
Q1 2010 Earnings Call Transcript
April 29, 2010 9:00 am ET
Robert Block – VP, IR
Tom Wilson – Chairman, President and CEO, The Allstate Corporation
Don Civgin – SVP and CFO, Allstate Insurance Company
Joe Lacher – President, Allstate Protection, Allstate Insurance Company
Matt Winter – President and CEO, Allstate Financial
Judy Greffin – SVP and Chief Investment Officer, Allstate Insurance Company
Bob Glasspiegel – Langen McAlenney
– Barclays Capital
– Deutsche Bank
Paul Newsome – Sandler O'Neill & Partners L.P
Dan Johnson – Citadel Investment Group, LLC
Matthew Heimermann – J.P. Morgan
Ian Gutterman – Adage Capital
Vinay Misquith – Credit Suisse
Terry Shu – Pioneer Investment
Brian Meredith – UBS
Previous Statements by ALL
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Good day, ladies and gentlemen, and welcome to The Allstate Corporation first quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (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. Mr. Block, you may begin.
Thanks Matt. Good morning everyone and thank you for joining us for Allstate’s first quarter 2010 earnings conference call. Today, Tom Wilson, Don Civgin, and I will provide some thoughts on our results for the quarter, and then we will open up the call to take your questions. Judy Greffin, Chief Investment Officer; Joe Lacher, President of Allstate Protection; Sam Pilch, Controller; and Matt Winter, President of Allstate Financial, will also participate in the Q&A session with us.
If you limit yourself to one question and one follow-up, we will be able to get to more people during our time together today. Last night, we provided our earnings press release, investor supplement, and filed our 10-Q for the first quarter of 2010. We also provided a presentation that we will be using this morning. All these documents can be found on our Website.
As noted on Slide 1 on the presentation, 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, Form 10-Q for the first quarter 2010 and our most recent press release for information on potential risks. 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 completion of the call.
As always, Christine Ieuter and I are available to answer any further questions you may have once this call is completed. Let’s begin with Tom Wilson.
Thanks for joining us today and your continuing interest in Allstate. I will share my thoughts on the results for the quarter, putting them in context of the programs we put in place over the last couple of years, and looking forward for the priorities we have in place for 2010. And then Bob is going to go through the business unit results and Don will cover investments and our financial position, and then we will get to your questions.
This quarter’s operational financial results were really a combination of the trends in progress we made throughout 2009. We had strong profitability in auto insurance. The homeowners business continued to underperform as we experienced near-record catastrophe losses, Allstate Financial made further progress in reinventing its strategic focus, and our investment results continued to reflect low interest rate, but improving fixed income markets.
The net results were we generated $375 million of operating income and $120 million of net income as you can see on slide 2. The overall combined ratio was 98.9. The underlying combined ratio excludes the catastrophe losses in prior-year reserve re-estimates was 89.1, which is right in the middle of our full-year forecast of 88 to 90.
Investment income was $1.1 billion. That’s 10.7% lower than Q1 2009, which primarily reflects two things; lower short-term interest rates and risk mitigation efforts we have taken to protect the portfolio from large economic losses if interest rates increase. Our turn optimization programs served us well as the unrealized loss on $100 billion investment portfolio decreased from$2.3 billion at year-end 2009 to about $850 million at the end of March 2010. This improvement reflects our decision to stay long in corporate credit and the continued decline in corporate credit spreads.
As a result of all of that, book value per share was up 42% over the last 12 months, an increase of 5% during the first quarter. The operating results underneath these numbers also reflects steady progress on our goal of creating shareholder value by raising returns in homeowners in Allstate Financial and growing our businesses. We are staying focused on improving returns in homeowners through a comprehensive set of profit improvement initiatives. We have tightened our underwriting guidelines, reducing market share on highly volatile areas, restructured reinsurance programs and continually evaluated our claims practices.
We have raised pricing so that average premiums are up 7% this quarter over the first quarter of last year. In addition, this quarter we received approval for price increases in another six states of that average about 7%. The weather however continued to outrun the benefits to these initiatives, so we have more work to do. Our goal is turn the homeowners business into a competitive advantage instead of a burden on returns.
Allstate Financial made progress in raising returns by discontinuing sales of its fixed annuities to financial institutions at the end of the quarter. It is also now about 93% of the way home and is focused to win expense reduction initiative. We will grow our auto business by keeping more of our existing customers and increasing new business. We do well on raising customer loyalty, which increased for the fifth quarter in a row and should drive higher retention rates. Retention was up versus last year’s first quarter, but was flat to the preceding quarter.
New business was up slightly, reflecting declines in Florida and California, and Encompass business also declined due to profitability initiatives. Average premium essentially offset the decline in overall units.
Looking forward, we have to stay focused on increasing items in force to drive long-term growth. Allstate Financial’s Workplace business continues to grow rapidly and is now the second largest domestic insurance provider of voluntary products at the worksite. We are also well along the path of launching several new products this year, both for Allstate Protection and Allstate Financial, which will be supported by new marketing programs.