Allstate Earnings Call Nuggets: Combined Ratio and Core Debt Portfolio

Allstate  (NYSE:ALL) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Combined Ratio

Jay Gelb – Barclays Capital: For the underlying combined ratio of 87.7 in the first quarter, already being below or better than the outlook for the full-year ’13. Is there any reason that you think that that’s not able to continue?

Thomas J. Wilson – Chairman, President and CEO, The Allstate Corporation and Allstate Insurance Company: This is Tom. We still feel comfortable at 88 to 90. It sets a full-year number that’s one quarter, lot of the quarters bounced around just because of weather, but we are still comfortable at 88 to 90.

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Jay Gelb – Barclays Capital: And then turning to the contribution from investment income, on Slide 10 of the presentation, I know there were a couple potential one-time items in there including bond call premiums. It will be helpful from our perspective to get what you view is sort of the run rate of the property-liability and Allstate Financial quarterly investment income?

Thomas J. Wilson – Chairman, President and CEO, The Allstate Corporation and Allstate Insurance Company: Let me make a couple of comments about the run rate then Steve and Judy might want to jump in. First, we prefer not to give sort of line by line projections for the P&L. Although I recognize that this is a more difficult one in this environment to get your arms around, particularly as you look at this quarter. So, as you pointed out we had a couple of things, some of its prepays and – which are a little hard to forecast but we also had some litigation settlements. You might remember about a year and half ago, we made a little bit of press by filing suits against the number of issuers of mortgage backed securities and we started to settle some of those. So those really are truly non-recurring and really reflect just an offset the losses we had in prior years. And then, limited partnership returns bounce around. Steve, or Judy, you might want to talk about limited partnership returns and then what’s happening with the core portfolio…

Judith P. Greffin – EVP and CIO, Allstate Investments, LLC.: So, Jay, we did – as Steve said, we did add the two pages in the sub, and I think that those will be helpful in terms of distinguishing between the core portfolio and the equity portfolio. So you could see on that page what’s happened in both. I think it’s key to see that as we reinvested in the lower rates, done the risk reduction in the property-liability portfolio for interest rates that the core earnings on that portfolio, the core yield has come down and will continue to come down as Steve mentioned the differential between the core portfolio yield and what we’re reinvesting at, it’s about 200 basis points. So that will continue to happen. I think it’s also helpful to look at the upper right hand side of Page 10 of the presentation that Steve just went through, and it goes through the progress that we’ve made in the risk reductions and I think that also helps give you an indication of what we’ve done so far, and as we’ve said, we’re going to continue to sell some longer-dated maturity securities and reinvest in the intermediate portion of the curve.

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Core Debt Portfolio

Michael Zaremski – Credit Suisse: I guess as a follow-up to the last question. So I think I heard Steve mention a 1.3% new money yield on the core debt portfolio in the property-liability portfolio. If I heard that correctly, then what do you guys think about the new money rate for the Allstate Financial core debt portfolio?

Judith P. Greffin – EVP and CIO, Allstate Investments, LLC.: So for Allstate Financial it’s a little bit different because we’re managing to match the liabilities and there we’re in that portfolio with more of a 7- to 10-year proxy. So on the property-liability we gave you a 3- to 5-year proxy and on Allstate Financial 7 to 10.

Michael Zaremski – Credit Suisse: I had a couple questions about the capital backing the life insurance subsidiaries. I noticed the RBC ratio at yearend 2012 was up to the higher 300s from the previous year. And I was curious if we should expect any dividends out from there? And I also noticed in the 10-Q some talk about $500 million advance between the subsidiary and the Holdco…

Thomas J. Wilson – Chairman, President and CEO, The Allstate Corporation and Allstate Insurance Company: First, you will remember, we did put bunch of money into the Life Insurance Company over the last couple of years and the goal is to return some of that money to it. Some of that will come through surplus notes, some of it we’d like to come through dividends and we have to work through some statutory accounting issues to get that done. So, the intercompany loan was really just away for us to get higher returns on $500 million of capital. Was it needed for capital purposes or was it – it was simply away for us to move money into a better returning assets.

Michael Zaremski – Credit Suisse: And would you be able to tell us how much capital is back in the spread based annuities books?

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Thomas J. Wilson – Chairman, President and CEO, The Allstate Corporation and Allstate Insurance Company: There should be some attributed equity in the investor supplement, Mike.

Michael Zaremski – Credit Suisse: And then lastly if I can step one in, lot of just goes around the reinsurance program. It sounds like you guys are expecting a lower reinsurance cost for the year, if I’m correct. Are you basically buying less coverage because there is a lot of exposure or are you taking on more – little more risk?

Samuel H. Pilch Sr. – Group VP and Controller: This is Sam Pilch. In the 10-Q we explained several things that are going on with respect to the placement of our reinsurance and the effect of cost. First thing was the – we did – we no longer needed to place the seventh layer which we did last year. And the reason for that is we will achieve our targeted risk retention goals without that layer. Secondly, the benefit of the bond placement help to reduce the cost. We also are expecting where we are going to place a smaller program in Florida, we will be doing that later in the quarter not to reduce our total cost and then finally the year-over-year pricing on the program has come down. So, those are the four reasons that we cited.

A Closer Look: Allstate Earnings Cheat Sheet>>