The Allstate Q2 2010 Earnings Call Transcript

The Allstate Q2 2010 Earnings Call Transcript
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The Allstate (ALL)

Q2 2010 Earnings Call

August 05, 2010 9:00 am ET

Executives

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

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» The Allstate Corporation Q1 2010 Earnings Call Transcript
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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

Vinay Misquith - Crédit Suisse AG

Michael Nannizzi - Oppenheimer & Co. Inc.

Keith Walsh - Citigroup Inc

Cliff Gallant - Keefe, Bruyette, & Woods, Inc.

Alison Jacobowitz - BofA Merrill Lynch

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

Matthew Heimermann - JP Morgan Chase & Co

Robert Glasspiegel - Janney Montgomery Scott LLC

Presentation

Operator

Good day, ladies and gentlemen, and welcome to The Allstate Corporation Second 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. Mr. Block, you may begin.

Robert Block

Thanks, Matt. Good morning, everyone, and thanks for joining us today for Allstate's Second Quarter Earnings Conference Call. This morning, Tom Wilson, Don Civgin and I will give some commentary in our results, and then we'll open it up for your questions. Assisting us in the Q&A session will be Judy Greffin, our Chief Investment Officer; Joe Lacher, President of Allstate Protection; Sam Pilch, Controller; and Matt Winter, President of Allstate Financial.

During the Q&A session we ask that you limit yourself to a question and a follow-up so that we can hear from as many of you as time allows. After the market closed yesterday, we provided our earnings press release, investor supplement and filed our 10-Q for the second quarter 2010. This morning, we also posted a presentation that we will be using today. All of these documents can be found on our website.

As noted on Slide 1 of 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 second quarter 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 replay will be available shortly following the completion of the call. Christine Ieuter and I will be available to answer any additional questions you may have after this call ends.

Now let's get underway with Tom Wilson. Tom?

Thomas Wilson

Good morning. We appreciate your continuing interest in Allstate. I'll begin with an overview of our results for the quarter. Bob will then discuss the details of the business unit results, and Don will cover our investment performance and balance sheet position. Then we'll get to your questions.

Our results for the second quarter are continuation of the positive momentum we established over the last year and a half despite the ever present volatility of weather in the financial markets. We generated $441 million of operating income or $0.81 per share, a sizable increase over last year's results, reflecting lower catastrophe losses as you can see on Slide 2. You'll remember that last year, we had record second quarter catastrophe losses.

In Allstate Protection, the combined ratio was 96.8, 3.2 points below the second quarter of 2009. The underlying combined ratio of 88.1 remains in line with our annual guidance of 88 to 90. Allstate Financial continue to take positive steps towards its goal of raising returns while repositioning the business.

Operating income was $125 million for the quarter. Investments generated strong returns, reflecting our risk mitigation and return optimization strategies. Net investment income flattened sequentially as portfolio yields stabilized. Valuations improved as declining interest rates more than offset wider credit spreads.

We produced $145 million in net income, a decline from last year's second quarter results due primarily to realized capital losses from our risk mitigation programs, which were more than offset with unrealized gains in the portfolio. We ended the quarter with $400 million net unrealized gain on the investment portfolio versus unrealized losses of $849 million three months ago and a $7.3 billion unrealized loss one year ago.

As a result of all of our efforts this quarter, our book value per share increased 3% from March 2010, almost 8% from the beginning of the year and 19% from Q2 2009. We remained focus on our priorities for 2010, and our operating results show continued progress in executing our strategies.

Our Auto business continues to generate excellent returns. While many of our standard Auto growth initiatives are working, they're not generating enough volume yet to increase overall policies enforced. Our new business trends are improving as we continue to refine our product and price offerings to our targeted customer segments. We feel particularly good about our cross-line sales efforts as Bob will discuss.

Offsetting these positives is a reduction in the size of Encompass and our California Auto business, as well as lower growth in Florida. Homeowners' profitability remains a challenge as catastrophe losses remained above average this quarter, though not as high as last year. We have made progressed and remained focused on improving returns in this line of business. Consequently, we will continue to see price increases, tightened underwriting standards and work to build more sophisticated risk management tools.

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