Allstate Earnings Call Nuggets: Ad Spend, Competition
Michael Nannizzi – Goldman Sachs: Just one question on ad spend in Esurance in particular, how are you thinking about advertising there and is the first quarter kind of an indication whether from a dollars perspective or a kind of combined ratio perspective, how you’re thinking about Esurance? Just one follow-up.
Investing Insights: Allstate Earnings Cheat Sheet>>
Thomas J. Wilson – Chairman, President and CEO: This is Tom. Don might want to make a comment about the first quarter seasonality in Esurance, but let me give you some perspective on how we allocate resources. Each brand stands on its own. So, the advertising for the Allstate brand is separate and distinct. We will invest whatever we need to do to keep that brand strong and that business growing. The same is true for Esurance. So, we look at the economics of those in total. We do not put those together and have a total ad spend budget. We do what we think makes sense. Obviously we launched a new program in December of last year with Esurance and along with that we increased our ad spend and that we like what we have there. Don, you might want to talk a little bit about first quarter results on Esurance.
Don Civgin – President, Allstate Financial: First of all, Esurance does have a more seasonal business than Allstate and so their first quarter spend tends to be higher. We spent about $45 million in advertising in the first quarter, and we did that as partially as Tom said, because the launch of the new campaign, the rebranding or Esurance, we wanted to get some weight behind it. I’m happy to say it’s working as well as we expected it to, so we are seeing good response rates, good customer mix changes, conversion ratio is improving as we would have expected. I think as Tom said, we’ll continue to spend money so long as it economic to do so and at the moment it feels like we are spending the right amount, subject to the seasonality of the first quarter.
Michael Nannizzi – Goldman Sachs: Just on Answer Financial, where does that roll into the financials, is that in other or does that roll into a fee line somewhere, just want to get an idea where that was and kind of what the magnitude and year-over-year change there was?
Don Civgin – President, Allstate Financial: The year-over-year change is minimal, because it’s actually very small, but it rolls up into other, so it’s not under Esurance.
Michael Nannizzi – Goldman Sachs: It is in the other line, okay. Great, thank you.
Competitive Environment in Auto
Michael Zaremski – Credit Suisse: Underlying combined ratio in home, high 60s past two quarters, I think that’s relative to your longer-term goal of low 60s, so we’re not that far away. Would you say you’re making progress ahead of plan or has the driver just been more benign catastrophe losses the past two quarters?
Matthew Winter – President, Allstate Auto, Home and Agencies: This is Matt. I’ll try to answer that for you. We had some great product and profit improvement in that line, I’d say about 60% of it was temporary and 40% sustainable, so a large portion was cat and weather ex-cat, but a significant portion was rates, inspections, correct class actions and non-renewal actions and the blocking and tackling that’s been done. So, I think we’re – I won’t say we’re ahead of plan or behind plan, I think we are making significant progress about where we thought we’d be and we feel confident that we’re doing the type of fundamental steps necessary to improve the long-term profitability of the business and we continued a plan that includes a rollout of the new homeowners product House and Home that helps us deal with roof costs specifically. There is some pressure from pricing on roofing. Roof prices fell two years in a row from 2008, but had their first increase of 12% in 2011. So, we know we have to get out in front of that and we are with our new product. So, we feel pretty confident that the fundamentals have helped us dramatically, but there is no denying that fact that first quarter was helped also significant by just the lack of cats and the weather ex-cat.
Michael Zaremski – Credit Suisse: So, 40% was sustainable them. So, should we continue to expect high-single digit rate increases in home going through the back half of the year?
Matthew Winter – President, Allstate Auto, Home and Agencies: I think that’s an acceptable range to think about.
Michael Zaremski – Credit Suisse: Lastly, on auto, could you talk about the competitive environment in auto and could you also comment on the knock-on effect raising home insurance rates is having on the PIF there?
Matthew Winter – President, Allstate Auto, Home and Agencies: Sure. Obviously, there is an impact of taking homeowners rate actions on not only home but also on our auto customers and our PIF. We’re also in places where it’s necessary taking rate actions on the auto side which is compounding that. So, when you combine the two, it’s having what I’d say is a chilling effect on our ability to grow PIF right now, as we have a core focus on the profitability side. We feel like that’s the right balance right now. We believe that growth in the absence of profitability is the wrong strategy and so we’re pretty disciplined right now as far as focusing on getting rate adequate both in homeowners and auto and accepting but not liking the fact that it can impact our ability to grow. The competitive environment is interesting. I think some of the multiline companies are now raising their homeowners rates a little later than I think we did in few early adopters. So, my expectation is that we will no longer be alone in the marketplace taking rate. Now that many of our competitors even though you may think of them as auto-only competitors, they’re offering non-proprietary homeowners’ products in an attempt to bundle. So, even those traditional auto-only companies are getting some of this collateral impact on the raising of homeowners rates, and that’s especially true for that market segment, the personal touch loyalists who prefer to bundle their products and aren’t looking for independent providers of their individual insurance products.
Thomas J. Wilson – Chairman, President and CEO: Let me add to that, I think as you’re thinking about growth, you really should start with looking at the different customers segments, begin the analysis there, then drop into products. So, as Matt just said, the Allstate agencies service, those people want local advices systems, want branded products by bundles, like bundled product, and so when you are looking at the efforts to maintain homeowner returns at the same time, you try to grow your auto business, it obviously compounds that. And of course, we have our issues in New York and Florida. If you look at Esurance on the other hand, that’s the self-serve side of that matrix. You can see that Esurance is growing and competing effectively with Geico and Progressive. Then if you look on the Encompass side that was – we were not growing that business, it has gotten a lot smaller. That was really our issue, we’ve changed leadership. I don’t think we’ve got it all in the right – it’s headed in the right direction, but we don’t have it fixed yet. I think really as we are thinking about growth in the future, it’s helpful to set that in the context the way Matt did who are the customer groups that you are serving and how do you grow within that customer group.
Michael Zaremski – Credit Suisse: Just real quickly, in terms of Matt said taking right actions in auto, there is this chart in the Slide 5, it shows about 4% rate changes, and then how do I reconcile that with – in the supplement Page 18, it shows about 5.5% rate increases in auto?
Matthew Winter – President, Allstate Auto, Home and Agencies: I think, on Slide 5, you are talking about approved rate changes and I think, in the supplement it’s what’s been earned in?
Robert L. Block – VP, IR: No, the difference is the 5.8% – this is Bob that you see in supplement. That’s the average of the rates taken in the state specific. What’s on the chart is the four quarter moving country-wide impact of rates. So, the two different numbers.
Michael Zaremski – Credit Suisse: So would the supplement be kind of a more leading indicator that you are accelerating…?
Robert L. Block – VP, IR: If you took the four quarters of the supplement for the countrywide you’d get to 4%, and add them up, you get close to 4%.