Allstate Corporation (The)

Ladies and gentlemen, thank you for standing by and welcome to the Allstate 4th Quarter 2020 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'd like to ask you to limit yourselves to one question and one follow-up if necessary. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mark Nokel. Please go ahead, sir.

Thank you, Jonathan. Good morning, everyone, and welcome to Allstate's fourth quarter 2020 earnings conference call. After prepared remarks, we'll 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. 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 the 10-K for 2019 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. Amidst the pandemic, Allstate delivered really attractive returns while building higher growth business models in 2020. Exceptional progress was made building higher growth business models to execute our strategy of increasing market share and personal property liabilities. and expanding protection offered to customers. And as you know, one of our key focuses this year was transitioning the personal property liability business to higher growth. We took decisive action, and despite the operational complexity of these actions, maintained Allstate brand property liability policies in force. We'll take you through a reconciliation of the various components of this, and you'll see the path to growth. We made excellent progress in expanding protection offered to customers with total policies and force increasing by 20.5% to nearly 176 million. We took advantage of the decline in auto accident frequency and our cost reductions to improve our competitive price position in auto insurance while maintaining attractive returns. The acquisition of National General is expected to increase auto insurance market share by one percentage point in 2021. and provides another platform for growth as we expand its product breadth. These changes position Allstate for sustainable long-term growth. At the same time, Allstate generated strong profitability and returns in 2020. Net income was $2.6 billion in the fourth quarter, and adjusted net income was $1.8 billion, or $5.87 per dilute share. This was driven by lower frequency of auto accidents, continued strong profitability of homeowners insurance, and higher performance-based investment income. Net income was $5.5 billion, and adjusted net income was $4.6 billion for the year. This represents a 19.8% return on equity, far in excess of most insurance companies. Our strategy to increase market share and personal property liability, why expanding protection services to customers will increase shareholder value. Higher property liability growth with attractive returns Rampantly growing protection services expand our total addressable market. And this growth, combined with our proactive capital deployment strategy, supports returns and equity above the insurance industry and are comparable to the S&P 500. Slide three is there a touch base on our strategy operator priority, so we're not going to spend time on that. So let's move to slide four and discuss this strategy as it relates to the property liability business. A transformer growth has become more than a plan. It's about creating a business model, capabilities, and culture that continually transform to deliver market share growth. This is done by focusing on the customer, expanding access, and improving value. Expanding access includes all the ways customers choose to interact, exclusive agents, directly through call centers or the web, and independent agents. The largest part of this change was transitioning our exclusive agent and direct businesses to operate under the Allstate brand. This gave us the ability to lower costs, leverage scale, and increase advertising. This transaction is successfully being implemented, and we achieved key milestones in 2020. We were pleased with new business growth from existing Allseed agents, who remain key to serving our customers and growing. Property liability business from existing agents met our goals, except for the pandemic slowdown in March and April, where, of course, nobody was buying anything, as we shifted commission to new sales from Retentions. We're testing new agent models with less real estate and more efficient service enabled by technology with the goal of having strong local personal relationships with customers. These models will also create learnings to enable existing agents to achieve higher growth. As a result of that, we did stop appointing new Allstate agents in early 2020, while a higher growth and lower cost model is being developed. This had a negative impact on points of presence and new business sales. At the same time, we increased direct sales. The net was that overall policies and force remained the same through the transition, despite a drop in retention, which was concurrent with the ending of special payment plans related to the pandemic. Glenn will take you through that reconciliation in a couple of minutes. The acquisition of National General in January also improves growth prospects. And as you know, this is essentially a reverse merger. The National General team is joining all states. They're consolidating our independent agent businesses, Encompass and AIA, into their operational technology platform. Then we're going to be able to broaden National General's product portfolio using Allstate's standard auto and homeowners insurance capabilities, which will create growth through independent agents. We also made great progress on improving customer value last year. From a customer value standpoint, we've maintained attractive margins through cost reductions while investing in growth. This includes improving the competitive price position of auto insurance through targeted rate reductions and a direct pricing discount. And while most of these changes are due to the lower frequency of auto accidents, we are also reducing costs to ensure we continue to generate attractive margins. We're also expanding our industry-leading telematics offerings drive-wise and mile-wise to further improve our value proposition and improving pricing and sophistication. We're the only company, that major company, selling mile-wise, which is very attractive to customers today because they're not driving as much. Our goal is not just to execute a plan, but to continually generate transformational growth. We have the brand, market position, resources, capabilities, and strategy to deliver this for shareholders. An extensive all-state agent platform delivers more value per dollar to customers than competitors. A direct business utilizing the Allstate brand, competitive prices, broad product offerings, and our insurance expertise. An independent agent business with national distribution and strong position in both auto and homeowner's insurance. And protection services with innovative business models and expanding total addressable markets. We're well on our way to achieving this goal after putting the foundational elements into place last year. Let's move to slide four to discuss Allstate's Excellent financial performance in 2020. Revenues of $12 billion in the fourth quarter increased 4.8% to the prior year quarter, with total revenues for the year reaching $44.8 billion, which is primarily driven by higher premiums earned, which is partially offset then by lowered net investment income. Net income was $2.6 billion for the fourth quarter and $5.5 billion for the full year of 2020. Adjusted net income was $1.8 billion or $5.87 per diluted share in the fourth quarter. For the full year, adjusted net income increased to $4.6 billion or $14.73 per diluted share. We had strong profitability in both auto and homeowners insurance. Adjusted net income return on equity is 19.8% over the last four months, exceeding our range of 14% to 17%, which is near the top of the insurance industry. Now I'll turn it over to Glenn to discuss the transition of the property liability businesses to higher growth.