Allstate Earnings Call Insights: Perspective on Growth and Underlying Combined Ratio Guidance
Perspective on Growth
Jay Gelb – Barclays Capital: First, I want to point out that, I believe it’s the first time that Allstate brand’s premiums were in positive territory on growth for the first time in 11 quarters. So, I want to get your perspective on whether you feel a trend could continue in light of PIF growth still being negative.
Thomas J. Wilson – Chairman, President and CEO: This is Tom. I’ll give you a perspective; then Matt might want to just jump in as well. First, you’re right, premiums have gone up. That is, as we point out, largely result of higher average premiums in the homeowners business. The actions we’ve taken over that period of time that actually began before 11 quarters ago was really to reduce our catastrophe exposure by getting smaller homeowners – you know were down like 1.2 million homeowner policies in the last four years. That has obviously had an impact on our auto business as the actions we took in New York and Florida, which we’re proactive in that, and we went at that one hard, which hit both of our – also hit auto growth. Matt has a number of plans going on to try to term that around and maybe he wants to make a few comments about the strategy to (moving) both – I think which are really after items in (force of) policy as opposed to premiums.
Matthew Winter – President, Allstate Auto, Home and Agencies: Jay, it’s Matt. Thank you for pointing that out first. Look, the way we look at this is, the last several years have been a stabilization year as we – couple of stabilization years, as we wanted to ensure that we were charging in appropriate rate and getting the appropriate returns in the business. We are continuing to focus on topline and if – and we will continue to do that as long as we’re able to do that in an economic manner. We look at a couple of indicators. We look at on the homeowners side, we look at new business, and we look at retention, and as you see in Page 28 of the supp, new business was up 5.8, above prior year, in the fourth quarter, and the trend was extremely positive; we started first quarter minus 11.4, second quarter was minus 5.7, third quarter flattened out, and the fourth quarter we were at positive 5.8. Add to that the retention side of it and as we’ve slowed down the non-renewal actions and as we focused more intensively on the customer experience, we’ve seen the gap to prior year in retention improving each quarter and it improved in the fourth quarter to just minus 0.6. So, on the homeowners side you take that boost in new business, retention getting better, non-renewals actions declining, greater focus on customer experience, the impact of House & Home which we rolled out to 17 states in 2012 and we have another 12 additional states planned for this year and in those states production is up extremely strong. So, we have a good story on the homeowners’ side. Not only does that help homeowners’ revenue (and if), but it helps auto as well due to the bundling. If you look at the same two factors on the auto side and although new business continues to run below prior year, the gap got smaller in the second half of 2012. If you look at the first half versus prior year versus second half versus prior year, it’s dramatically different. First quarter, I think we were down almost 11%; second quarter down 3% and then in third and fourth, it was down 1.3%; so clearly moderating on the new business side. And retention improved. So, as you can see on Page 28 of the supp, the retention trends has been pretty stable at 89 the past three quarters. We got a boost from Florida in the fourth quarter where their retention improved and we’ve stabilized in Florida and New York, as Tom said, so, we think we’re pretty well positioned to change the momentum and change these trend lines. We’ve been moderating a lot in the last quarter and we’re cautiously optimistic.