Allstate Corporation (The)

Good day, ladies and gentlemen, and welcome to the Allstate 4th Quarter 2018 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. If anyone should require assistance during the program, please press star and then zero on your touchtone telephone. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. John Greek, Head of Investor Relations. Please go ahead, sir.

Well, thank you, Jonathan. Good morning and welcome everyone to Allstate's fourth quarter 2018 earnings conference call. After prepared remarks, we will have a question and answer session. Yesterday, following the close of the market, we issued our news release, investor supplement, and posted today's presentation on our website at allstateinvestors.com. Our management team is here to provide perspective on these results. As noted on the first slide of the presentation, our discussion will contain non-GAAP measures for which there are reconciliations in the news release and investor supplement and forward-looking statements about Allstate's operations. Allstate's results may differ materially from these statements, so please refer to our 10-K for 2017 and other public documents for information on potential risks. We are expanding the quarterly earnings call to not only review quarterly operating results, but to highlight other value creation initiatives. Today, we will do a deeper dive on our success in using telematics in auto insurance. And now I'll turn it over to Tom.

Well, good morning. Thank you for joining us. Stay current on Allstate. Let's begin on slide two. Allstate will continue to deliver strong operating results while building the future. We achieved all of our five 2018 operating priorities and we generated excellent returns. The property liability underlying combined ratio of 85.8 for 2018 was better than the range we established with you at the beginning of the year. For 2019, the property liability business is expected to have an annual underlying combined ratio between 86 and 88. So if you move to the table at the bottom, revenues excluding realized capital gains and losses with $10.4 billion for the quarter and $40.7 billion for the year, driven by increased insurance premiums in the Allstate and insurance brands. Adjusted net income was $430 million, which was $1.24 per diluted share in the fourth quarter. For the full year, adjusted net income of $2.9 billion was 15.6% higher than 2017, which reflected strong insurance margins. Net income return on equity was 10.5%, and adjusted net income return on equity was 14.8%. If you could turn to slide three, we delivered on all five 2018 operating priorities. The first three, better serve our customers, achieve target economic returns on capital, and grow the customer base, are all intertwined, but it does ensure we have profitable long-term growth. Customers were better served as the net promoter score improved across all of our major businesses. Higher customer retention across the three underwriting brands was a key driver of growth last year. Returns remained excellent. Popular liability policies increased by 784,000 in 2018, which was a 2.3% increase for the Allstate brand and a 10% growth at All-E Assurance. When you combine that with the significant growth at Square Trade, Policies in force surpassed $113 million in 2018. The $81 billion investment portfolio generated $3.2 billion in net investment income in 2018, which results in slightly higher yields on the market-based portfolio and good performance-based results, which was compared to a very strong 2017. The total portfolio return was 0.8% in 2018, reflecting the stable contribution from net investment income It was offset by lower fixed income and equity values, particularly at the end of the year. We also made progress in building long-term growth platforms in 2018. I'll discuss telematics next, and Mario will discuss square trades performance. We also accelerated our expansion into personal identity protection with the acquisition of InfoArmor in October. These operating priorities will remain unchanged for 2019. Before we discuss telematics, let me set the context within our overall strategy. So, Allstate's strategy is to grow by protecting people from life's uncertainties. We start with the upper oval. The personal property liability market has four consumer segments and provides protection by insuring automobiles, homes, boats, and personal liability. We use differentiated products, sophisticated analytics, telematics, and are building an integrated digital enterprise to grow market share in this protection space. Our strategy also protects people from a range of other insurgencies, which are shown in the bottom oval. We leverage our brands, our customer base, investment expertise, distribution, and capital. It began in 1957 with life insurance. In 1999, we acquired Allstate Benefits, which provides protection products such as life and disability insurance to employees at the worksite. That business is now four times its size from when we bought it, and it's with 4.3 million policies enforced and adjusted net income of $119 million in 2018. We purchased Square Trade in 2017, began offering insurance to Transportation Network Company last year as well, and recently closed the acquisition of InfoArmour. This strategy creates shareholder value through customer satisfaction, unit growth, attractive returns on capital. It also ensures we have a sustainable profitability and a diversified business platform. If you turn to slide five, this quarter, as John said, we want to highlight the value created from the use of telematics and auto insurance. So we've been investing in telematics for almost a decade to increase auto insurance pricing sophistication, to improve the customer value proposition, and leverage our capabilities and data to create a new source of growth and profits. So let's start with what we do now. We began to use telematics and auto insurance in 2010 and now have a suite of products in the market. DriveWise and DriveSense are telematics-based offerings from Allstate and eSurance and represent the bulk of our proprietary connections. These products either use a customer's mobile phone or an OBD port device, which goes up underneath the dashboard to establish a connection with a car. We launched MileWise in 2016, and two states expanded to four more states last year, which allows customers to pay for insurance by the mile. StreetWise is offered through our online insurance aggregator, Answer Financial, in conjunction with Arity, to enable other insurance companies to benefit from telematics-based insights. Arity is a telematics service provider to all states and is separate from the auto insurance companies. Moving to slide six, auto insurance pricing will eventually be significantly influenced by telematics information because it's just better than existing approaches. From a pricing standpoint, if you look at the top of that chart, auto insurance policies today are priced by who you are, such as age or gender, and where you live, which is a proxy for where you drive. For example, if your car is registered in Montana, there's a low likelihood you'll be commuting from New Jersey to New York. So telematics, though, enables pricing to be based on how you actually drive, and telematics is also based on exactly where, when, and how much you drive. So that leads to increased pricing accuracy, lower subsidization between risks, and creates a highly personalized risk-based price. Telematics will be required to effectively price auto insurance. Allstate is also using telematics to improve the customer experience by staying connected with customers. We provide customers with rewards for safe driving, safe driving tips that can lower their premiums, decode the maintenance light needed in your car, you know, when you have that light comes on, says maintenance needed. If you have one of our OBD-IV devices in your car, we can tell you specifically what's wrong, how serious it is, what is your cost of repair, and enable you to link to a repair facility. So given these benefits, we believe telematics will be integrated into auto insurance insurers' business models in the future. As a result, we created area outside of the insurance companies to create more value for shareholders. So we turn to slide seven. In 2015, we defined a strategic platform to help us design Allstate's business model. You can see that in our 2015 annual report. We lay that out. A strategic platform is a system of capabilities, assets, information, and shared intelligence. These platforms are tended to be broad and flexible and create multiple uses for a wide range of customers and partners. So in our definition, we would consider Apple, Facebook, and Amazon's marketplace to be examples of platform businesses. Companies that control strategic platforms generate high economic returns. These returns reflect the benefits of reduced friction and cost between participants and the ability to improve returns through increased knowledge and analytics. Platforms are also rapidly scalable. The transportation system can benefit from such a platform. So a telematics platform enables companies to increase their speed to market in a connected car world. If you want to price auto insurance with telematics, you need data, which is enabled by a platform. As more companies in industry use Arity, the breadth and depth of data and shared intelligence will grow. More data on the platform allows companies to refine and customize their specific business models to their specific needs. So, for example, ride-sharing companies can use the Arity platform to enable them to select safer drivers or better manager operations. It also lowers the cost of collecting information. So just like with credit scoring data, it's inefficient to have many companies collecting the same information. We decided to build Arity as a telematics platform to capture a portion of these additional economic benefits. It has little downside to us since we need to build these services for ourselves because we're so far ahead of most of the industry. Today, Arity has 12.5 million active connections, of which more than 1.5 million are through the all-state entities. They analyze over 300 trips per second and create a proprietary driving score that can be used by insurers or shared mobility companies. Arity's scale continues to grow, and it's now adding 10 billion miles of driving data per month. Arity generates substantial advantages for all state's insurance operations today, and we're actively working with other insurers to help them utilize telematics and auto insurance. We'll keep their information confidential, but all parties benefit from the network effects of a consistent and large data set. As Arity grows, it will also provide us with new sources of revenue from the transformation of the personal transportation system. Let me now turn it over to Mario, who will discuss our quarterly and annual results in more detail.