Allstate Corp (ALL) 2001 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Allstate Insurance Company first quarter conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, you will be invited to participate in the question and answer session. At that time, if you have a question, you'll need to press the 1 followed by the 4 on your telephone. As a reminder, this conference is being recorded today, Thursday, April 19, 2001. I would now like to turn the conference over to Mr. Bob Block, Vice President, Investor Relations, for Allstate Insurance Company. Please go ahead, Sir.

Thank-you, Ken, and good morning everyone. Welcome to our first quarter earnings conference call. I expect this call to last about an hour with the majority of that time used for your questions, and as a courtesy to all those of people who have questions, please keep to one questions and a followup if you will. If you have more, you can always return to the queue. This allows us the opportunity to hear from as many of you as possible within the allotted time today. We issued our press release earlier this morning. Hopefully, you've had a chance to read it. If you need a copy of the release, it is available on our web site. Also over the course of the next few weeks, we'll be posting our investor supplement for the first quarter on our web site. Before we begin, I have to read the following statement. The following discussion may contain forward-looking statements regarding Allstate and its operations. Allstate's actual results may differ materially from those projected in the forward-looking statements. For information on important factors that could cause such differences, please see the "Forward-Looking Statements and Risk Factors Affecting Allstate" section in Allstate's Annual Report to the SEC on Form 10-K for 2000. This call is being is recorded, and the recording is the property of Allstate. It is not for reproduction or rebroadcast by any other party without the prior consent of Allstate. A replay will be available following the conclusion of this call. Your participation in the call will constitute consent to the recording, publication, webcast, broadcast, and use of your name, voice, and comments by Allstate. If you do not agree with these terms, please disconnect now. Now, let's begin with the review of the numbers, first looking at the results in total and then providing a more detailed explanation of the trends by segment. Today, we reported an increase in our operating earnings per share of 26.7%, 76 cents per share versus 60 cents in the first quarter of 2000. There were minimal restructuring charges in both quarters. This increase was driven by our property-liability segment, and the beneficial effects of our

ongoing share repurchase program. During the quarter, the company repurchased approximately 5.7 million shares of its stock at a cost of 221 million. This brings the total repurchases under the current authorization to 1.56 billion. There were several external forces affecting our business during the first quarter such as a very shaky equities market, declining interest rates, inflationary pressures on our loss cost, relatively [like a] catastrophe experience and a more severe winter than we have experienced in the past few years. Yet despite the vagaries of the weather, the challenges of the economy, the stock market, and the competitive forces in the market place, we maintained our focus on the execution of our strategies and posted earnings per share that exceeded expectations. Now, let's discuss the trends in detail, starting with the profit liability segment. Beginning with the top-line, the total net written premium increased 1.2% over prior year and with a sequential improvement of over 3 percentage points from the growth rate experienced in the fourth quarter 2000. Excluding Encompass where we have been taking pricing and underwriting actions to improve the profitability of that business, the total growth rate was even better at 1.5% over first quarter of 2000. The acceleration in growth resulted from increased rate actions, favorable unit growth in our core lines of business, and a diminished negative impact from the repositioning of non-standard auto. I'll go into the details by line in a minute. From an underwriting profit prospected, we posted a 98% combined ratio in the quarter of 1.7 points better than the first quarter of 2000. Catastrophe losses in the quarter were unusually light [_______________] only 82 million or 1.5% earned premium. So the combined ratio excluding the catastrophe losses was 96.5 or 3.8 points worse than last year. But as several insurance

companies have already indicated, the winter was a relatively harsh one and did adversely impact our results as well in this quarter. We have estimated that the adverse weather impact was worth 1.5 to 2 points on the combined ratio or about half of the deterioration, but this is the nature of our business, and weather can disturb the trends from time to time. Now moving to the discussion of the trends by line, standard/preferred auto net written premium increased 3.7%, 4.9% excluding Encompass. This was the best quarterly growth rate in a number of years and reflects the positive effects of rate actions and the implementation of strategic risk management as both average premium and unit growth contributed favorably to this result. New business production increased 13% during the quarter. Our retention ratio also increased by half a point to 90.4%. During the quarter we filed four and received approval on six rate actions affecting the Allstate book, averaging 3% on an annualized basis, and we have already received approval for additional rates in 7 states, averaging 3.3% on an annualized basis to be effective the second quarter. So overall policies in force increased 2.6% accelerating from trends established last year. These results are very encouraging, and we hope to build on this momentum. Our frequency trends in standard/preferred auto adversely affected by winter weather. Bodily injury frequency increased 1.4%, and property damage frequency increased 1.6%, a switch from the trends experienced for most of last year. However, as we moved through the quarter, the trends did moderate, indicating that weather was the primary culprit. Overall, the total [auto paid] severities behaved nicely during the quarter. Bodily injury calendar year's [paid] severity increased only 2.3% while property damage [paid]

severity grew by a modest 2.1%. Bodily injury continues to show relatively favorable trends on a report year basis. However, the results for property damage, as well as the other physical damage coverages were much better than we have experienced in several years. While one quarter does not a trend make, again it is encouraging to see. Shifting to non-standard auto, net written premium fell again as profitability actions undertaken in the last year or so continued to impact this book of business. In the quarter, premium written fell 18.6%, a rate less than the fourth quarter's drop of 22.5%. New business production fell 32% in the quarter. Now we have finally cycled through a full year under the current underwriting guidelines, so future new business comparisons should be better. Retention continued to fall, down over 5 points in the quarter. This trend should last for a few more quarters before it completes a full year's cycle. More importantly, we continue to aggressively seek rate increases. For the first quarter, we received approval for rate increases averaging almost 12% on an annualized basis covering 11 states, plus we have approval for rate increases in an additional 7 states to be effected in the second quarter. We will continue to see rate actions until the profitability of non-standard auto has improved to an acceptable level. Our actions to cure this line continued to show up in our frequency trends. Bodily injury frequency fell another 6.1% during the quarter and property damage followed suit with a decline of 4.7%, and keep in mind that these results occurred during a period of severe winter weather. The top and bottom line results for non-standard auto continue to meet our expectations for improvement based on the aggressive actions we have taken

over the last year. Homeowners net written premium continued to show strong results, increasing 5.6% in the quarter and 7.1% excluding Encompass. While new business production was flat, the retention ratio increased eight-tenths of a point, resulting in an increase in policies in force of 2%. In addition, we have filed and received approval for rate increases averaging 9.4% on an annualized basis in four states during the quarter. We continue to take necessary rates to keep this line in an acceptable level of profitability, a stance have maintained for a number of years, and one that would appear to be contrary to that of our competitors based on published results of industry combined ratios. [Loss trends] and homeowners were adversely impacted by the winter weather as heavy snow storms and subsequent thaws created a losses due to ice [_______________]. Both frequency and severity trends were impacted during the quarter. Net investment income in the quarter increased 9.9% as we experienced continued favorable results from partnership income. The effect of tax rates for investment income was 19.2%, about the same level as in the fourth quarter. While the overall portfolio yield remained slightly higher than prior year, the new purchase yields on fixed income were 60 to 80 basis points lower due to falling interest rates. This trend of falling interest rates could put pressure on investment income growth in the future. Shifting the focus now to Allstate's financial results for the quarter, operating income was flat compared to prior year, and statutory premium and deposits fell by 4.7%. The combination of a lower interest rate environment and a very shaky equities market conspired to negatively impact retail sales. Both variable and fixed annuities were well off the pace established last year, falling 16% and 35% respectively. While the

amount of variable annuities produced through Putnam declined modestly, there was a steeper fallof in VA sales from other financial institutions. The slowdown in retail sales was partially offset by a substantial increase in sales of funding agreements backing European and global medium-term notes, an increase of over 70% to $890 million. The sales of our light products remained flat at $465 million. On a positive note though, surrender activity during the quarter declined appreciably. Mortality and increased expenses effectively offset favorable investment margins, resulting in the flat operating earnings for the quarter. As you may recall, the first quarter of 2000 had favorable mortality experience, particularly in structured settlements. It is this swing that is primarily responsible for the flat income results. The first quarter proved to be quite interesting. The economy and the weather provided additional challenges for the industry. At Allstate, we stayed the course we have laid out over the last two years. By improving our relative competitive position through the implementation of strategic risk management, by improving the profitability trends of non-standard auto and Encompass, by maintaining a focus on controlling loss cost and expenses, and by capitalizing on our multi access model, we produce better than expected results, and hopefully you agree with me. That concludes my formal remarks. Now, let's see what's on you minds. [_______________] you can begin the question and answer session.

Thank-you. Ladies and gentleman, if you wish to register a question for today's question and answer session, you will need to press the 1 followed by the 4 on your telephone. You will hear a three-tone prompt acknowledging your request. If your question has been answered, and you wish to withdraw your polling request, you may do so by pressing the 1 followed by the 3. If you are using a speakerphone, please pick up your handset before entering your request. One moment, Sir, for the first question. Nancy Benacci with McDonald Investments, please go ahead with you question.

Good morning Bob.

Good morning.

Just wanted to go through a couple of quick things. Could you talk a little bit more on the non-standard business and give a sense of what loss ratios were like? If you don't want to give specific numbers, I understand, but just more the trend of what you are seeing in the non-standard side, and then any activity or comment on what's going on in the New Jersey marketplace and your participation there.

Okay. In non-standard, what we are seeing as a result of our actions that we have taken, we have been aggressively taking rates throughout most of last year and continuing this year. As we have reported the frequency trends continue to drop, which is what we would have expected, and the improvements in the profitability of that business are meeting our expectations for getting it to ultimately the 95 to 98% combined ratio level that we try to get all of our lines in terms of profitability. So it is on page [to] achieve our goal of getting to that profitability level. So we are very pleased with the progress we are making. There is still work to do. There are still a few more quarters where the renewal actions [will be] grinding into the numbers, but the results are encouraging. In term of New Jersey, many of you have probably seen the press release that was put out or the news reports that were put out concerning our rate actions in the state. We are taking a very slight overall rate decrease in that state, which is kind of strange for me to say, given my 25 years of history with Allstate and the state of New Jersey, but in truth what has happened is our results have improved dramatically since the institution of [_______________] and some of the actions that we have taken in particular. Our results I believe are materially different from some of competitors as well, and what this rate action has done in the state has allowed us to put in pricing structures similar to what we are doing in the other states using strategic risk management and building a pricing structure with

more tiers and more price points to get a more accurate matching of the risk with rate, and as I said, the overall rate decrease was very, very minimal, so it was essentially a revenue neutral type of change, but it was very important to get a much expanded pricing structure into that state, and we continue to work with the state, making sure that the reforms that have been put in place remain and that we capitalize on those. So at this point, we have watched our experience in New Jersey, and we are pleased with what's happening there. We are pretty vigilant on maintaining the benefit scheme by [_______________], and the rating change was an opportunity to get a much more expanded structure in place to continue the improvements that we have seen.

Great. And then just one followup question on the Allstate financial piece, the decline in the annuity volume on the variable and the fixed. Could you give us a sense of, as we progress through the first quarter, January through March, and then how those numbers were flowing, and more importantly, have you seen anything in April to give you some comfort going forth, or is it more a continuation of the first quarter?

[It has been] in truth, I haven't seen anything in the month of April, and I guess that the trends in the quarter were pretty similar as we move through it. The impact of, the uncertainty in the market hit virtually everyone who sells variable annuity products as consumers' appetite to purchase that particular product, that was put on hold until they got a better sense of where the market was going. The people that already have the variable annuities, the surrender activity was very minimal, and typically what happens is people shift between funds as opposed to surrendering the policy. So until there gets to be some level of consumer confidence in where the market is going, that will have an adverse impact on the sale of variable annuities. In the fixed annuities business, obviously when you are in a position or in an economic position of generally falling interest rates, that doesn't bode well for the sales of fixed annuities because of the consumer expectations [around] crediting rate. So until that environment begins to stabilize, the market for fixed annuities may be tough as well.

Great. Thanks very much.

Sure, Nancy.

Our next question comes from Tom Cholnoky with Goldman Sachs. Please go ahead with your question.

Good morning Bob. Can you just talk a little bit more in any detail on the internet platform or direct area? [We are] going to start getting some sense of what kind of business is going through those channels. And then secondly, just talk a little bit more in detail about the severity trends because clearly, those trends are not exploding, I guess, like some had been worried about.

Yeah, in terms of the internet and the call centers, and actually, I will speak in the terms of multi-access model because that's really what it is. We continue to see as we roll out, and as the model is in place longer in the states that we put it in. We did not roll out in any new states in the first quarter, I'll mention that. We see a lot more consumer activity in terms of getting information, utilizing the [site] in the call centers for transactions and service, in particular markets where we have introduced the [_______________] feature. We have seen a pickup in terms of people getting an idea as they are shopping for the products, and I guess the overall effect of what we are seeing is that there is a combination in the integration of multi-access and the strategic risk management pricing structures, and the ultimate test is what are the trends in the business, and we are seeing, as I reported, a fairly sizeable increase in the new business production, which is fairly widespread in standard preferred auto, and that indicates to me that the activity afforded by multi-access has lifted the activities within the agent's office itself. So that's really the way that we are looking at it right now as opposed to splitting out what's call center, what's internet, what's agent. It's really an integrated model, and that's the way we continue to look at it. In terms of the severity trends, the trend in auto physical damage was encouraging. It was a slowdown relative to what we in the industry have experienced over the last

several quarters. It's too early to tell whether this is a new level that we'll add, or if it will return to the 5-6% range, but the moderation was encouraging, and I guess we'll have to get a few more data points along the way to see if we can kind of rest a little easier with the trends in auto physical damage.

And on the [_______________] BI severity?

The BI is, the calendar year's paid severities that we report tend to bounce around a little bit, but we have experienced fairly good trends on report year basis as I look at things like fast track. We continue to outperform the industry in BI paid severity, so the actions and the processes that we put in place in our claims operation definitely have had a beneficial effect on [our] particular trends on BI and still are contributing to [our] favorable trends relative to the industry. So on a quarter-by-quarter basis, that number can bounce a little bit, but the 2% is in-line with what we would have expected.

Okay, thank-you.

Sure.

Our next question comes from Michael Smith with Bear Stearns. Please go ahead with your question.

Good morning, Bob. Do you have any paid claim statistics?

Paid losses?

Yes.

The paid losses in the quarter were [4 billion 396 million]. There was an increase of about 2.8%.

Have you seen any reduction in the number of agents in the Encompass business?

In the Encompass business? Not really, not appreciably. We still have somewhere in the area of 3500 independent agents. It's down slightly, but nothing appreciable.

When would you expect the premium decline due to a [_______________]?

Rather than try to predict when the turn would occur, it's probably more appropriate to say that we will continue to take actions until that [book of] business gets to our targeted combined ratio level.

Okay, thank-you.

Sure.

Our next question comes from Ira Zuckerman with Nutmeg Securities. Please go ahead with your question.

A couple of things, Bob. Following up on the question on Encompass, how far away are you from getting it to your profitability level? Are we talking about 2 or 3 points, or are we talking 10? And the other question I had is, any reserve actions on the quarter?

In terms of [timing], when we took over that business, we said we wanted to get to combined ratio levels below 100 in relatively short period of time, meaning 2 to 3 years. We're about a year and a half into that time frame, and progress is being made. In terms of reserve actions in the quarter, I guess our total net reserves ended the quarter at $14.9 billion. There was a decline of about 300 million in the quarter primarily driven by a substantial reduction in pending claims in the auto coverages across the board, BI, PD collision comprehensive that was the majority of it. In terms of any unusual reserve actions, there were none in the quarter.

[What I am talking] about basically is any prior year favorable or adverse development?

We had some slightly favorable prior year adjustments in the quarter.

Okay, could you quantify it or?

Rather not.

Our next question comes from Ken Zuckerberg with Wasserstein Perella Securities. Please go ahead with your question.

Hi Ken.

Good morning Bob, how are you doing?

Good.

Just a clarification in response to last question, the answer was slightly favorable reserve development in the quarter?

Yes.

Okay, great. Bob, just on a numbers question, obviously you guys have done a good job with taking rate increases in a number of states. When you mentioned for standard and preferred, I think you mentioned you saw rate increases in 6 states in the first quarter. Would you be able to provide any specificity as to what states those were and the actual increases per state?

Rather than getting into this discussion on the individual states because that would require me to put out a list of all the states, I would just rather report on the number and the average size of them. We continue to look at all of our states very closely and as appropriate we take pricing actions.

Okay. I think the number that you provided though was lower single-digit increases on balance for the first quarter.

It was about, averaged 3% on an annualized basis in the first quarter which is when you think about it, quite a bit different than what we were doing in the last few years. We were essentially taking slight rate decreases on average. So, the rate that we are receiving are starting to move upwards.

Great, and Bob, one followup question, different subject. Just with respect to what's going on at Allstate Financial, do the potential pressures on earnings there leave you guys any less comfortable with the current consensus expectations?

Consensus expectations specifically at Allstate Financial?

No, I mean I am trying to ask the hard question in a soft way as to do you still feel as good about Allstate Corporation's earnings per share growth prospects this year notwithstanding potential pressures on the life [_______________] of the company?

That's an interesting way of trying to get around me providing comfort to street estimates which I'm not going to do. It's just something that we just aren't going to go there. In terms of our long-term financial goals, they remain the same, and we try to grow our earnings per share at 10-15% on an annual basis. Some years we make it, some years we don't. Just a comment on the [trend in] Allstate Financial, it really comes down to, from an operating income perspective, it's a swing in the mortality experience while the marketplace interest rates had a rather dramatic effect on the top-line, and if that continues obviously that would create issues for the long-term growth in Allstate Financial's operating income. The real swing in the quarter had to do with mortality.

Bob, thanks very much.

Sure.

Our next question comes from Paul Newsome with Lehman Brothers. Please go ahead with your question.

This is a [great] followup. I'd love to know if you could quantify the mortality swing and talk a little bit about the additional expenses that seem to have kept the [_______________] flat, and then it's a kind of a followup on the life side. My sense is that you got a lot of [product holes] left through your various distribution systems. What's going on to change that on the life side?

In terms of the mortality swing, I think what we said last year was in the range of $7 to $10 million favorable swing caused in structured settlements. There was about an equal swing to the negative side this year, so the mortality, as I have described, is kind of like the [_______________] factor in life. It's a huge number that you're working with and slight deviations off of expectations of mortality can impact the operating income. In terms of expenses, one of the things that we began last year was building out expenses to develop some growth and initiatives for the future, and we are continuing to invest in future growth there. The size of the expense increase is not really that material. In terms of product holes, we have a few, but not that many. We've had a fairly diverse distribution system and a fairly full product line. I think, in terms of some of the products that Tom Wilson has talked about, is a personal pension type product, perhaps a long-term care type product, in terms of what the consumers need, going forward. Those are things that we are looking at, but in terms of the overall product portfolios, it's really in fairly good shape [as well as] how are we going to attack the market.

Thanks.

Sure.

Our next question comes from Ron Frank with Salomon Smith Barney. Please go ahead with your question.

Hi, Bob.

Hi, Ron.

Two items. One, the expense ratio was the best in at least four quarters, and I just noticed that we've been [talking] a lot about severity, the calendar, and apparently from what you said the accident year ratios continue to slip a little, but expenses really did well for you, and I was wondering if you could characterize that a little bit and give us a flavor for how sustainable it might be. And then regarding the 4.9% [quarter] growth on the auto side. We had previously spoken in terms of excluding New Jersey, and I wondered if that was relevant anymore to the comparison or what have you.

In terms of the 4.9% in growth, no. New Jersey is kind of, it really has become a non-factor in terms of moving the trend materially. So the New Jersey results are included in there. In terms of the expense ratio, it was a good quarter. We are, you know, continuing to gain the benefits of our expense reduction initiatives that we successfully executed last year, that fed into the numbers. As we have talked in the past, in terms of what the overall movement and expense ratio is, you know, we have kind of given you the idea that expense ratio for 2001 will probably not appreciably change that much. That being said, we are very, very focused on making sure that we are spending our money in the right places, and we are watching the dollars fairly carefully. So I wouldn't necessarily jump to the first quarter's expense ratio as the new level. It was a good result, and we'll continue to try to achieve similar type results, but I wouldn't necessarily go there as the new level of expense ratio.

Okay. Thanks.

Sure.

Our next question comes from Bob Glasspiegel with Langen McAlenney. Please go ahead with your question.

A question on homeowners underwriting. Where do we stand on that versus your targeted levels, and do you need much more rate to get to your target level now?

In terms of the overall combined ratio for home owners?

Right.

You know, we manage that on a combined ratio at expected catastrophe levels. We've been pretty diligent in taking price, and our results are fairly close to what our goal is. We have increased the level of rates, the average size of the rates been taken, as we are responding to the loss-cost pressures. We continue to increase rate for catastrophe loads and experiences. So we're fairly close to staying in the zone as we look at homeowners. Some obviously when you get blitz in the weather and [_______________] the actual results will deviate materially from that goal, but on an expected basis over the long term, we are not that far off in homeowners.

My followup is, what was the partnership contribution in the quarter?

I think, over prior year, it was around 30 million.

Thank-you.

Our next question comes from Alice Schroeder with Morgan Stanley Dean Witter. Please go ahead with your question.

Hi. Good morning. I just have a few quickies. First on the reserves, I think you said that you slightly benefited from that. Was it more or less than last year's average on a GAAP basis? Second, on premium comparability. First, just a followup on Ron's question on growth ex-New Jersey. Last quarter that had about a half point impact on the standards and preferred growth rate. Are you saying that it had no impact this quarter, or is it just that your strategy in New Jersey is changing now, and you are going to be growing there? And similarly on Encompass, this is your sixth quarter and second quarter on an apples-to-apples basis with them. So at what point do you think, you'll be able to report without excluding Encompass?

Okay. In terms of the impact of prior year reserves, it would be less than first quarter last year. In terms of New Jersey, I don't have the number right in front of me, Alice, but I think, it made a tenth change in the growth rate. It's not as material as it was on the conditions of change there. And I have to ask you to repeat your third. Oh, Encompass? That's, as I said in my previous answer, were in terms of our time frame when we first looked at that, we're about halfway through the game, and we can report our numbers, not excluding Encompass, but we thought that by breaking out that particular comparison provided a bit more visibility on what's going on in the different market segments.

Not a problem [with you] breaking out, just wanted to understand how [far along] you were. And could you just really quickly explain what the funding agreements were that you referred to in the life business?

Those are funding agreements that deal in the medium-term note market, institutional sales, and pensions area. These are, I think, some of the companies that operate in this, AIG is a fairly big producer of medium-term notes, Hancock, and a few others, but we have, over the course of the last maybe year or so, have put a product in the market place that goes after this type of business.

Okay. For the benefit of [us non-life] types, I'll followup later on that one. Thanks.

Okay.

Our next question comes from Alain Karaoglan with Deutsche Banc Alex. Brown. Please go ahead with your question.

Good morning, Bob.

Good morning.

Just a couple of clarification questions. The partnership income, did I hear correct, it was $30 million over last year.

Yes.

First quarter?

Yeah, that's close.

Okay, and unfortunately, I can't read the investment income number on the P&C operations. What was it for the quarter?

Let's see, I believe, it was pre-tax 466 million.

Okay. And the expense ratio, you made some comments with respect that the indication was the expense ratio was going to be not much different, appreciably different from last year. And last year was around 23.9. Is that [correct]?

That's what we've indicated, yes. 00:38;58 ALAIN KARAOGLAN: Okay. And that's it. Thank-you very much.

Our next question comes from Steve Musser with AG Edwards. Please go ahead with your question.

You mentioned that you didn't open any new states on the call center and direct business. Have you entered any new states so far in the second quarter, and what are your plans here for the rest of 01?

Up to date, we have not entered, haven't put the model out in any other states in April, and our plans are as we have said that we are planning on rolling this out on a timely basis to substantially all of the US population. That has not materially changed.

And are you on plan this year, still to do so? Or, in other words, were you planning on not rolling anything out so far here to date?

Yes, we did not expect to roll anything out in the first quarter at all.

Okay. Refresh my memory. How many states are you in now?

I believe 15.

Okay. Thank-you.

Sure.

Ladies and gentlemen, if you have any additional questions at this time, please press the 1 followed by the 4 on your push-button phone. Once again, ladies and gentlemen, if you have any additional questions, please press the 1 followed by the 4 at this time. Michael Paisan with Williams Capital, please go ahead with your question.

Hi guys. Two of my questions have been answered, but I do have one sort of broad-based question, if I may. It seems as if over the past several quarters, Allstate has been able to kind of [buck] some of the trends in terms of where the combined ratio are in [_______________] severity and loss issues, which is obviously is very good. But I was just wondering if the improvement in the retention rates or the renewal ratio actually indicates that the competition is perhaps a little bit more rational today than it was a quarter or two ago, and if you expect that trend to continue.

I would love to say that there has been an improvement in the rationality of the competition. I think the retention ratio reflects a few things. First of all, it's power of the Allstate brand. It's the multi-access service levels that really allow the consumer and the customer to deal with us anyway, anytime, anyhow, which really goes to add improving customer satisfaction, which is a direct contributor to retention. And, I think it's the institution of our strategic risk management pricing structures that allow for more competitive rates for the types of customers that we want. All of that kind of add into incrementally increasing the retention ratio. In terms of the competitive environment, obviously we have moved back to a position where companies are taking rates to cure combined ratio problems, and the competitive atmosphere today feels to me a lot better than where we were 12-18 months ago.

Okay, great. Thanks a lot.

Thanks Mike.

Nancy Benacci, please go ahead with your followup question?

A couple of more followups. At SRM, is it rolled out in all markets at this point or how many states is it in? And, could you give us a sense of where you are going [with that] for the rest of this year?

Well, I don't have a specific number. I believe at the end of the year, we were in about 33 or 34 states. We continue to roll it out. That was for the auto. There is about a smaller number. The numbers are in 10-K, smaller number for homeowners. Our intention is to roll that structure out as quickly as we can across these mini markets where the regulators will allow us to do that because it provides us with a much crisper pricing structure, and it allows us to target segments of the consumers that will be the most attractive to us, and we will discontinue with our plans to get that out in the marketplace wherever we can.

In terms of [though] if you have already been in 34 states for auto, [we have] seen most of the benefit from SRM already, if you look on a quarter-to-quarter basis, that's what I was trying to get at?

That's a great question, and I should have added SRM really is something that goes in phases. It's constantly being developed and refined by our pricing folks. We have actually, depending upon which state, we have SRM1 as the second phase of SRM is the one that's in most of the markets today. Our research team is already working on SRM4. So, it's a type of thing that we are constantly evaluating, researching, refining that whole structure so that there is, you can get an ongoing improvement in competitive position and maintain a competitive advantage in the market over time. I mean, once you put a pricing structure in place, it doesn't take that long for the more astute competitors to essentially eliminate any competitive advantage you get in the market. You may have 12-18 months of advantage. So, as you continually improve that structure, you can kind of stay one step ahead of the competition, and that's really what we are intending to do.

Great. That's very helpful. And, just one last followup. Could you give any sense of whether or not you've had any impact from the April storms that have occurred today?

All I can comment is that yes, we have because we are [in insurance states], but as you know we expect anywhere from 4 to 4.5% [earned] for catastrophes within any particular quarter.

So, nothing unusual at this point that you can comment on?

No.

Okay, great. Thanks very much.

Our next question comes from Thomas Mitchell with Mitchell & Henry. Please go ahead with your question.

I was wondering what impact, if any, you have seen from the power problems in California, either resulting in perhaps less driving activity or alternately perhaps affecting the opportunity to make investments there, including municipal investments? Just a general coverage of that geographical area as it may impact Allstate with this particular problem they have had?

You know Tom, I have not seen or heard of any particular problems we have had in the state in terms of getting customers or consumers driving less. Actually, that would be a benefit to our frequencies.

Right.

But I haven't seen anything that would indicate that there is some change in the marketplace as a result of the power situation there that I can think of.

Thank-you.

Sure.

Well, at this time I'm showing no further questions. Please continue with your presentation or any closing remarks you may have.

Thanks Ken. Well, thanks everybody for joining us. I know this morning has been a fairly busy one for you, and I look forward to taking your calls later. Both Phil Dorn and I will be available after the close of the conference call, and we will be talking to you either today or a quarter from now. Thanks again. Bye-bye.

Ladies and gentlemen, that does conclude your conference for today. You may all disconnect and thank-you for participating.