Allstate Corporation (The)

Ladies and gentlemen, thank you for standing by, and welcome to the Allstate Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. We ask that you please limit yourself to one question and one follow-up. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. Mark Nogle, Head of Investor Relations. Please go ahead, sir.

Thank you, Jonathan. Good morning, and welcome, everyone, to Allstate's fourth quarter 2019 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 and investor supplement and posted today's presentation on our website at allstateinvestors.com. Our management team is here to provide perspective on these results, and further context on our recently announced transformative growth plan. 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 2018 and other public documents for information on potential risks. And now I'll turn it over to Tom.

Well, good morning. Thank you for joining us to stay current on Allstate. Let's begin on slide two with Allstate's strategy. So as you know, our strategy has two components, increase personal profit liability market share and expand into other protection businesses. Starting with the upper oval, we've been a leader in creating differentiated insurance products with features such as declining deductibles and new car replacement. We use sophisticated pricing, have strong claims expertise, and are building an integrated digital enterprise to lower costs. We're also diversifying our businesses by expanding our protection offerings, which are highlighted in the bottom oval. We leverage the Allstate brand, customer base, and capabilities to drive growth in these businesses. So we offer customers a circle of protection that includes Allstate Life, workplace benefits, commercial insurance, roadside services, car warranties, protection plans, and identity protection. These growth platforms have extremely broad distribution. It includes major retailers, insurance brokers, at the work site, auto dealers, manufacturers, telcos, and directly to consumers. On the right hand, you can see that this strategy creates shareholder value to customer satisfaction, unit growth, and attractive returns on capital. It also ensures we have sustainable profitability and a diversified business platform. We move to slide three. Allstate's strategy continues to deliver excellent results in 2019. Revenues were nearly $11.5 billion in the fourth quarter and $44.7 billion for the full year of 2019. Net income was $1.7 billion in the fourth quarter and $4.7 billion in the full year. Adjusted net income was $1.02 billion or $3.13 per diluted share in the fourth quarter. For the full year, adjusted net income rose 11.1% compared to the prior year, to $3.48 billion, or $10.43 per share. It reflects excellent underlying profitability and lower catastrophe losses. Returns were also excellent with an adjusted return on equity of 16.9%. If you turn to slide four, I'll state delivered on all five 2019 operating priorities, which focus on both near-term performance and long-term value creation. The first three priorities, better serve customers, grow our customer base, and achieve target returns on capital. They're all intertwined, and that's just to ensure profitable long-term growth. Customers were better served as the enterprise net promoters were improved at most of our businesses. Total policies enforced reached $145.9 million, which is an increase of 20.7% compared to the prior year. Property liability policies, which, you know, are bigger dollar amounts, increased by $428,000 for the prior year to $33.7 million as all state insurance brands grew 1.3% and 2.3% respectively. All state protection plans, which, of course, was formerly Square Trade, continued its rapid growth through the addition of a major retail partner with items in force reaching $99.6 million. Returns remained excellent, driven primarily by strong property liability results. The underlying combined ratio of 85.0 finished 2019 at the favorable end of our revised full-year guidance of 84.5 to 86.5. And you'll remember as part of our second quarter earnings release last year, we had improved this annual outlook range due to excellent operating results. As you know, Allstate is no longer going to provide underlying combined ratio guidance since return on equity is a better measure of performance, and Mario is going to provide some additional context on this measure. The $88 billion investment portfolio generated $3.2 billion of net investment income in 2019, which reflects higher market-based portfolio yields, which was offset by lower performance-based results. Performance-based results were below expectations for the quarter, but longer-term results have been strong. Total portfolio return was 9.2% in 2019. Shareholder value has also been created by building long-term growth platforms. We announced new features of a transformative growth plan, which we'll discuss next. They already continue to expand capabilities. Allstate Identity Protection is growing and launches new digital footprint offering and Avail, a car-sharing platform, initiated operations. We move to slide five. Let's discuss the Transformative Growth Plan to increase property liability market share. The plan builds on our strengths and reflects current competitive conditions. Allstate has a significant number of competitive strengths, as you know, particularly in property liability. We have the Allstate brand. We have pricing and sophistication, claim expertise, product breadth, and a broad distribution platform. That goes from Allstate agents to e-surance's direct capabilities to Encompass's independent agents. As a result, we're growing, but GEICO and Progressive are growing auto insurance market share faster through massive advertising spending and low-cost structures. Our plan also recognizes that customer needs are changing due to increased connectivity and advanced analytics. Our leading positions in telematics and digital auto collision estimates are two examples of how we're embracing these changes. At the same time, a majority of customers prefer an insurance agent, we hope an all-state insurance agent, when purchasing a policy, but are comfortable with self-service. So we're increasing mobile application capabilities and building low-cost, centralized, integrated service capabilities. We're now accelerating these efforts with a transformative growth plan which has three components. Expand customer access, improving the customer value proposition by lowering expenses and redesigning property liability products, and investing in technology and marketing. Expanded customer access, will be provided by utilizing eSurance's direct capabilities to sell Allstate branded products. eSurance has strong direct capabilities, having more than doubled in size since it was acquired a little over eight years ago. As a result, we can further leverage these capabilities by selling Allstate branded policies directly to consumers. This will require us to reposition the Allstate brand, and the advertising previously deployed for the eSurance brand will be shifted to the Allstate brand, and then the e-surance brand will be phased out in late 2020. Expense reductions will improve affordability while funding investments in technology and marketing. We'll also strengthen the independent agent platform by merging the all-state independent agent offering into Encompass. This is a comprehensive plan that will make us a stronger competitor and lead to increased market share. Now let me turn it over to Mario to go through the property liability and investment results.