Allstate Corp (ALL) 2003 Q3 法說會逐字稿

Good day, ladies and gentlemen, welcome to the The Allstate Corporation Third Quarter 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 follow at that time.

If anyone should require assistance during the conference, please press star then "0" on your touchtone phone.

As a reminder, this conference call is being recorded.

I would now like to introduce the conference - I would like to turn the conference over to your host, Mr. Robert Block, Vice-President Of Investor Relations.

Mr. Block, you may begin.

Thanks, Joan.

Good morning and welcome, everyone, to our third quarter 2003 earnings conference call.

I believe there's another call following shortly after ours so we will complete this call in about one hour.

As always, Phil, Larry and I will be taking your inquiries after this call concludes.

Ed Liddy and Dan Hale are here and will be participating with me on the call.

Ed will give his thoughts on the quarter in our strategic direction.

I will provide some brief color on the trends. followed by Dan who will discuss the reserve actions we took in the quarter as well as some other topics.

We issued our press release shortly after the market closed last night along with the majority of our investor supplement.

And if you need a copy of the release or the supplement, they are available on our Web site under investor relations.

Now it's time for the legal disclaimer.

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 10-Q for the second quarter 2003 in our notice of annual meeting and proxy statement dated March 28, 2003, and in today's press release.

In this call, we will discuss some non-GAAP measures.

You will find reconciliations of those measures to GAAP measures in the press release and in the investor supplement on the investor relations portion of our Web site, www.allstate.com under the quarterly investor information link.

This call is being recorded.

Your participation in the call will constitute consent of the recording publication Web cast broadcast and use of your name, voice and comments by Allstate.

If you do not agree with these terms, disconnect now.

A replay will be available following the conclusion of this call.

All of our remarks are current only as of the date and time of this call.

Now let's begin.

Ed, you have the floor.

Well, good morning from Chicago, where today it is very hard to be a Cubs fan.

I only wish their performance of the last few games could have been on a par with ours over the last six or seven quarters.

And this was another excellent quarter for us, one in which we continue to successfully execute our strategy of getting better and bigger in our Property/Casualty business and broader in financial services.

A few things I would like you to note about the quarter.

First, our profitability was very strong.

Net income of 97 cents per share was up a 177%, versus the third quarter of last year.

That reflects very good operating results and capital gains this year versus capital losses last year.

Our operating profitability continued to accelerate, as our strategic risk management efforts produced very positive results.

Catastrophes for the quarter which included hurricane Isabel, as well as several large wind and hail storms in July, were above our expected third quarter range and almost four times last year's third quarter.

In fact, this was the highest third quarter cat level we have had since 1992's hurricane Andrew.

Yet through the dedicated efforts of our agencies and claims personnel we are working hard to execute on our good hands promise to our customers in their time of need.

We continue to experience good frequency trends in standard auto and homeowners.

That coupled with consistent auto severity results, and improving severity trends in home owners, allowed us to take favorable reserve actions during the quarter.

So despite the catastrophes experienced during the quarter, our core protection business had a combined ratio of 88.3, a 7.1% improvement -- point improvement -- versus last year's third quarter and a 7.9 point improvement on a sequential basis.

Our independent agency business Encompass, which we acquired from C&A at the end of 1999 came within a whisker of achieving an underwriting profit this quarter.

In fact, Encompass would have been profitable at more normal catastrophe levels.

That's a $26 million improvement over last year's third quarter and an improvement of approximately six points in the combined ratio.

The Encompass business is on pace to generate an underwriting profit in the third -- fourth quarter -- as we expected.

We are encouraged by the pace of the improvement.

We believe it is sustainable and we will explore opportunities for profitable growth in the future in this channel.

Despite an increase in ad spend, our expense ratio is below the third quarter of last year and Allstate financial profitability improved in the quarter compared to both last year's DAC writeoff depressed third and this year's second quarter.

Our profitability was excellent.

Second, as projected, our growth momentum continues.

Policies in force in our protection business grew at an improving rate on a sequential basis.

Standard auto PITH improved almost one point versus the second quarter, which was up four tenths of a point from the first quarter.

Homeowners PIF improved 1.3%, versus the second quarter, which was up six tenths from the first quarter.

These favorable results more than offset the continued decline in nonstandard auto PIF and total Allstate brand policies in force increased sequentially.

We expect our PIF growth to continue in future quarters as we increase our ad spend and offer very competitive prices in most markets, where SRM continues to provide a strategic advantage.

Most of our new business PIF growth is in the more attractive higher lifetime value tiers, where we achieve better margins, better retention, and better cross sell opportunities.

Allstate brand new businsess premium in the quarter accelerated dramatically for both standard auto and homeowners.

Compared to 2002 year end, our standard auto retention rate is up one full point.

Nonstandard is up over two points and Homeowners is flat.

In terms of premium and deposits, Allstate Financial enjoyed its best quarter in history.

Also, Premiums sold by Allstate agencies improved 13 percent in the quarter versus the third quarter of 2002and are up 6% year-to-date in a very difficult environment and off of a very high base.

What is most encouraging, we were able to write this record amount of business without sacrificing new business profit margins.

Third, we continue to seek and receive rate increases as needed.

We have successfully resolved our Texas Homeowners situation and our new California auto rating plan is producing outstanding results.

Fourth, our cash flow continues to be very strong, helping to mitigate the impact of declining yields.

Fifth, we've seen an increase in asbestos activity largely as a result of increased publicity and awareness of coverage litigation and bankruptcy items, as well as discussions regarding a possible federal legislative solution.

We increased our asbestos reserves by $442 million, pre-tax,

substantially improving our three-year average survival ratio to over 23 years from 12 and a half years.

Dan will talk a little bit more about this in just a minute.

And finally, our previous guidance for full year 2003 operating EPS was 3.50 to 3.65.

Excluding restructuring charges and at expected CAT levels,we are increasing that guidance to 3.65 to 3.80 per share, still excluding restructuring charges and at expected CAT levels.

This would be a record level of operating EPS, represents a 25 to 30% increase over 2002.

And it means that since 1993, basically since we have been a publicly owned company, our compound annual growth rate in operating earnings per share would be over 11%.

Our businesses are performing very well and we are very confident about the future.

Robert?

Thanks, Ed.

We reported net income for the third quarter of $691 million.

A $443 million increase from the second quarter -- from the second quarter of 2003.

After tax realized gains amounted to $62 million for this quarter, versus realized capital losses of $266 million last year.

This accounts for $328 million of net income swing between quarters.

The major differences arose in achieving equity trading gains this year versus losses last year, reflective of the improvement we have seen in the overall market.

Operating income for the third quarter was $638 million or $122 million more than last year, a 23.6% increase.

Our return on equity, whether on a net or operating income basis are improving each quarter.

This is truly an outstanding result and is further evidence that our strategies are working well.

We are in a better position today, both operationally and financially, than we were 12 months ago or even 6 months ago.

In order to effectively analyze the underlying strength of the business, one has to sort through a variety of items.

And that's what I will concentrate on for the next few minutes.

To give you a better sense of the quarter and the trends that are emerging.

Let's start with the operating earnings per diluted share of 91 cents for the third quarter.

This represents an increase of 18 cents from third quarter 2002 and 6 cents sequentially.

In order to get to the underlying earnings power, you need to recognize the impact of four large items.

Relative to last year, higher catastrophe losses caused an unfavorable impact of 26 cents.

Reserve re-estimates for discontinued lines and coverages accounted for another unfavorable impact of 29 cents.

Offsetting these negative items were favorable prior year and current year reserve re-estimates, totaling 27 cents, as well as favorable underlying loss ratio trends worth about 38 cents.

Small improvements in Allstate Financial operating earnings per diluted share and less restructuring charges compared to last year round-out this reconciliation.

Creating the same analysis on a sequential quarter basis, lower catastrophe losses in the third quarter helped earnings per diluted share by 17 cents.

The difference in charges for reserves, reserve re-estimates of discontinued lines and coverages was worth a negative 38 cents, partially offset by favorable reserve re-estimates for both current and prior years of 23 cents.

The rest of the increase from Q2 to Q3 relates to a better a underlying loss ratio result worth about four cents.

The same kind of analysis can be applied to the combined ratio.

The recorded combined for the third quarter 2003 of 95.9% represents a decrease of 2.2 points from last year and 1.2 points sequentially.

When breaking down the prior year comparison, higher catastrophe losses and unfavorable reserve re-estimates for discontinued lines and coverages increased the combined ratio by 9.3 points while favorable reserve re-estimates for current year and prior-year reserves in Allstate protection reduced the combined ratio by about 4.9 points.

The resulting underlying loss ratio improved by 6.6 points driven by rate actions, better frequency trends and modest severity increases.

Now when comparing to the second quarter, you get ultimately to an underwriting loss ratio that is slightly better than the third quarter, than in the third quarter than in the second quarter of 2003.

Now, I rattled off a bunch of numbers.

But what do they really mean?

When all is said and done, the margins are holding up well as we move through the pricing cycle.

Dan will cover the details of our actions related to discontinued lines and coverages, so

I'll focus on Allstate Protection and Allstate financial.

Moving on to a discussion of Allstate protection and trends by line we provide you with most of the numbers, either in the press release or in the investor supplement.

So let me give you some key takeaways from the trends this quarter.

Overall net written premium growth at 5.1% is comparable to that experienced in the first half of the year.

I said during last quarter's call that this particular statistic can fluctuate from one quarter to the next for a variety of reasons.

The more stable statistic earned premium increased 5.5% over the third quarter of 2002 a level consistent with the last several quarters.

In the Allstate brand, new business net written premium for our core lines of standard auto and Homeowners increased dramatically during the third quarter.

These results are widespread as we take advantage of our favorable competitive position in our target market segments, developed over time through the effective implementation of SRM.

The introduction of a new auto class plan in California this past July has contributed as well.

The results from California are very encouraging.

Unit growth continues to accelerate in both standard auto and Homeowners as we expected.

Both the increased new business trend and improved retention are contributing to this result.

We continue to file for and gain approval of indicated rate needs.

For Encompass and Deerbrook we continue to take aggressive rate action in order to improve the underwriting results.

For the Allstate brand, the number and relative size of the rate actions are less than in prior quarters due to our improved margins.

During the quarter we resolved the Texas homeowners rate situation.

This was a unique situation developed over time and the solution was beneficial to all parties involved.

In any case, neither the regulatory nor the competitive environment is creating a barrier to gaining needed rates.

In terms of loss cost trends, both auto and Homeowners frequencies continue to show improvement.

Severity trends remained stable for auto and showed signs of moderating a bit for Homeowners.

It was the continuation of these very positive loss trends that led to the favorable reserve re-estimates for both the current year and prior year reserves.

In setting our current year severity targets, our conservative reserve process tends to ignore favorable trends early in the year while reacting quickly to negative trends. .

If the trends continue, like they have this year, the favorable re-estimates are reflected in the results.

Conclusion.

The strategy of growing the Allstate brand core business utilizing SRM, maintaining pricing discipline, taking advantage of market opportunities where available, and continuing to focus on improving the underwriting results to our advantage appear to be working well.

Allstate Financial had a record quarter for premium and deposits hitting $4 billion for the quarter.

That was a 35% increase over the third quarter of 2002 due to record institutional sales, record strong fixed annuity sales and a rebound from variable annuities and life products.

In fact, variable annuities increased for the second straight quarter and were at their highest level in two years.

Sales through the Allstate agency distribution system continued to increase in the quarter coming in at 13.3% over prior year.

And remember that last year was a record year for this channel.

So the comps are pretty tough.

Operating income for Allstate Financial of $135 million for the third quarter was consistent with last quarter and up over depressed third quarter's 2002 level.

Now I'll turn it over to Dan.

Thanks, Bob.

First I would like to reinforce one of Bob's comments concerning the promising unit growth we're seeing in Allstate brand Standard auto and Homeowners as well as in our record quarterly sales for Allstate Financial.

Bob mentioned our emphasis on maintaining pricing discipline and that's worth reemphasizing.

With SRM, we are able to fine tune rating structures using a range of risk management variables and we simply refuse to take on business anywhere that is not adequately priced.

That same comment applies to Allstate Financial as we've taken aggressive proactive efforts to achieve our new business return objectives with new product innovation, lower interest crediting rates, lower guarantees, reduced commissions to various degrees in our many distribution channels and reduced customer bonuses.

These actions along with the recent rise in medium and long-term interest rates have had a significant favorable impact on the profitability of new business in Allstate Financial.

It is this kind of disciplined effort that will allow us to grow profitably and more consistently over time.

So again, our focus is not on growth.

It's on profitable growth.

Next I would like to provide some additional information about our annual ground up analysis of asbestos exposure which as has been our practice for a number of years was completed in the third quarter.

As Ed (ph)mentioned as a result of this year's in depth analysis, we strengthened our asbestos reserves by $442 million.

That brought our balance as of September 30 to $1.1 billion.

And our three-year adjusted survival ratio, that is adjusted to exclude commutations, policy buy backs and settlement agreements, that survival ratio to 23.3 years, up from 12.5 years.

The significantly larger increase in the asbestos reserve this year compared with prior years is a result of more claimants being reported by excess insurance policyholders with existing active claims and new claims being reported in our assumed reinsurance business.

This trend is consistent with the trends of other carriers in the industry and with the substantial reserve increases recorded by a number of direct primary insurers over the past year.

And it is important to remember that increased claim activity down at the primary layer moves up into the excess and reinsurance layers, when and if lower layers of coverage are exhausted and then only after the primary carriers provide the necessary claim information to the excess and reinsurance providers.

We believe this trend and increased claim activity is related not only to increased publicity and awareness of coverages, as well as ongoing litigation and bankruptcy actions, but also to concerns about the potential effect of proposed federal asbestos legislation.

As part of our annual ground up review process, we consider the amount of available coverage, the historical and projected number of claims and claim payments, claim severity by disease type, historical settlement values and applicable legal issues such as coverage defenses, jurisdictions and bankruptcy issues.

Over the past nine months, our number of active direct policyholders increased from 280 to 323.

And our pending claim count increased from 6,900 at year end 2002 to 8,021 as of the end of September.

Non-products claims, which are current base are not a major concern for us because this is principally an issue with direct primary insurance and we have only a small direct primary commercial book.

We did not insure any of the large asbestos manufacturers on a direct basis.

As you can see in our press release on page 17, only $30 million or 3% of our asbestos reserves are for direct primary policyholders.

Most of our asbestos reserves for direct policyholders relate to the 274 direct excess policies.

These excess liability and umbrella policies were written during the period from 1972 to 1985.

They attach above primary and other excess layers and were heavily reinsured.

Year-to-date, we increased reserves for these policies by $121 million, up to a total of $208 million.

Most of the increase was the result of increases in claims from policyholders with existing active claims.

And to give you a better perspective on our direct exposure of the 63 companies profiled by S&P as asbestos related bankruptcies, we did not insure 44 of them.

We settled with 12.

We reserved to our policy limits on three of them.

We reserved to the maximum mutually agreed upon exposure on one.

And we've appropriately reserved for the remaining three.

In fact, taking those three to the reserve limits would represent only about $26 million additionally after taxes.

Our assumed reinsurance book, which was written from the '60s through the mid '80s, represents mostly small shares of excess of loss coverage.

Year-to-date we added $18 million to the reserves for this book, bringing the balance to $191 million.

The increase represented sessions from ceding (ph) companies that also have experienced increased claim activity.

With this third quarter provision our reserve additions for the first nine months of this year totaled $514 million, and $314 million of that increase was for IB&R to provide for unfavorable development of known claims, and reporting of additional claims due to current and new direct to (ph) policyholders and reinsured companies.

IB&R now represents 61 percent of our total asbestos reserve balance.

In addition to asbestos reserve actions taken in the quarter we also increased the allowance for future uncollectable reinsurance by $14 million and other discontinued lines and coverage reserves by $8 million.

Moving now from reserves to a couple of balance sheet ratios, our operating income ROE for the quarter, using a rolling 12 month approach and excluding unrealized capital gains or losses from average equity, that operating income ROE was 16% versus 11.5 last year.

And our net income ROE, again without adjusting for unrealized gains and losses was 12.9% compared with 5.4 last year.

Obviously, both of these ratios continue to reflect our improving profitability.

Our debt to capital ratio was 18.4% at the end of the third quarter, up from 17.9 at the end of June.

The half point increase was entirely the result of adopting Fin 46.

We deconsolidated our $200 million in trust-preferred securities and consolidated two special purpose entities, which housed real state and investments.

Fin 46 was adopted prospectively without restating prior periods.

It reduced operating income one cent per share as trust dividends are now accounted for as interest expense.

We have two additional SPE's, one for collateralized debt obligation and one for collateralized loan obligation.

Pending the outcome of FASB deliberations, these SPE's may be consolidated beginning the first quarter of 2004.

Those consolidations would add another 2.4 points to our leverage ratio.

Our book value for the quarter was $27.45 per share, which was up 12 cents for the second quarter, despite the impact of higher interest rates on unrealized fixed income gains.

Excluding fixed income unrealized gains and losses our book value per share increased 82 cents, or 3.5% this quarter versus the second quarter.

During the quarter, we repurchased another 1.3 million of our shares at an average price of $36.80.

Now through nine months we have acquired 3.3 million shares, at an average price of $34.03.

And finally, before opening up for questions, a couple of comments about our total year guidance.

Although we significantly increased asbestos reserves in the third quarter, we also experienced favorable reserve re-estimates in Allstate protection.

On a run rate basis, excluding cats, our property liability combined ratio for the quarter was about the same as our ex-cat ratio for the second quarter, in the 87, 88 range, which is consistent with our targeted pricing range.

We should also point out that the level of cat activity through nine months was pretty close to a normal level of cat loss for us.

On the other hand so far this year, our expense ratio has not reflected the significant increase in advertising expenditures expected for the balance of the year.

So while we obviously anticipate the strong underwriting performance will continue, assuming our expected level of cat losses and excluding restructuring charges, we now are looking for operating income EPS within a range of 3.65 to 3.80 per share, compared with our previous guidance of 3.50 to 3.65.

With that, Bob, I think it is time to open it up for questions.

OK, Joan.

Could we start the question and answer session?

Thank you.

If you have a question at this time, please press the one key on your touchtone phone.

If your question has been answered, or you wish to remove yourself from the queue, please press the pound key.

Again, if you do have a question, please press the one key at this time.

One moment for questions, please.

Our first question is from Ron Frank of Smith Barney.

Go ahead.

Good morning.

Ed, I can sympathize, being a Mets fan makes a close second.

That is a distant second.

It is sure a distant second today, I'll give you that one.

A couple of questions, one that really relates to Bob's and really Dan's last comment.

If I take your combined ratio, and adjust it for what was a net reserve change, you know, both the discontinued lines and the favorable development of about five points, and pull out CAT's, it looks to me like your combined was in the low 80s, not in the high 80s,and it was indeed a significant second quarter improvement.

My follow-up question relates to that.

If I take the 91 cents you earned in the quarter and add back the net reserve change impact of 30 cents and do nothing else, I come up with about $1.20, and even assuming the same level of CAT's in the fourth quarter, if that underlying loss ratio continues, you will be above your guidance range.

So I guess my question is, where is my math wrong, if it is wrong?

And if it is not wrong, is there any reason besides just conservatism that you are guiding us to that range?

Let me take a crack at it.

Bob or Dan, if you want to add anything, please chime in.

Your calculation on the combined ratio sounds too low for me.

I cannot keep up with all of the ins and outs of your math.

We will be delighted to spend some time with you on it.

Your point about the combined ratio being better than the second quarter this year and better than the third quarter of last year is absolutely correct.

Our business is running very well.

Ron, in terms of conservatism, you can sharpen your pencil a bit.

There are some mathematical edges to it which do not sound quite right to me.

We will help you do that if you like after the call.

In our business, if you get two successive weekends a good snow dump in three or four major cities, it can have a big impact on frequency.

So typically when you just do the straight math analysis, you sometimes lose perspective on what can happen to normal frequencies in the business.

We do not want to be in a position where we give you guidance and we simply can not make it because something that normally happens in the business happens in the business.

You are going to have to take out a piece of paper and a pencil and work to your own estimate.

We are comfortable with the estimate with the range that we have given.

Will do, Ed.

Picking up on your last comment on frequency and assuming I am again overanalyzing but asking just the same, you mentioned favorable frequency trends.

But I notice that BI frequency was up for the first time in over a year and that physical damage frequency showed its lowest rate of improvement in about a year.

And I was wondering if you could put any color around that observation.

You know, it is hard to.

Those are numbers that on a quarterly basis can have hiccups in them.

So It's really hard to draw any conclusions.

I believe the industry is enjoying a secular improvement in frequencies as a result of a lot of things we talked about from time to time, just safer drivers and tougher enforcement of drunk driving laws safer equipment, etc. etc.

But I do think that our strategic risk management process, SRM, is helping us quite a bit.

The fact that our growth and a larger portion of our business is in tiers one and two, IFS tiers one and two, where while you collect a little bit less in premiums, you have a lot fewer in accidents or claims.

I believe that is all clearly working to our advantage.

Bob, I don't know if you want to add anything to it?

Yes.

Ron, if you look at the sequential decreases in property damage frequency, which is the one we look at because BI can bounce around.

In the first couple quarters we had dropped, in standard auto, 8% about in both quarters, a little more in the first, a little less in the second.

And then in the third quarter we dropped to 470.

If you compare to what we did last year.

Last year, the first two quarters, did not have much of a decrease, but the big decreases in frequency started in the third quarter.

So if you take a two-year look on that, it is about 9% for each of the years.

I think it is pretty consistent that we are continuing to see good favorable frequency trends.

Ron, I might just add a comment on your combined ratio observation.

If you look in the press release and the supplement, I think we do adjust for the prior year favorable reserve development and the CAT's.

That gets you down to that 82, 83 range.

That is why Bob was giving you some further breakdowns in his comments that include both prior year favorable development and current year favorable development.

And in my closing comments, I try to give you that same assessment that overall for property liability that it would be in that 87, 88 range.

All right that is helpful.

Bob, I would like to follow up with you.

Sure.

Thanks.

Thank you.

Our next question is from Nancy Benacci from McDonald Investments.

Please go ahead.

Good morning I want to talk a little bit about premium volume growth.

Clearly we saw the positive sequential PIF numbers on standard auto.

If you look at the actual net number in terms of net earned premium has slowed down versus just in comparison to the second quarter versus the third quarter.

I want to make sure I understand what the impact is. you have had better rate increases and you have had better retention and new business coming in.

So am I missing something there?

Clearly I understand that the number to look at is the improvement of the margin.

A little clarity would help.

Nancy, as I've said, the top line, the net written premium number can bounce from quarter to quarter.

And I think It moved down about a percentage point.

If you look at the level of change over the last several quarters, it kind of goes up and down.

But the thing that has been very steady is the earned premium at about 5.5% for about the last five, six, seven quarters.

So the premium volume on the way it is recognized then written premium can vary a little bit, seasonality reasons, processing reasons, a variety of other things that is why we point to the earned premium as the measure to watch.

OK.

But in terms of policy in force growth, too, as you saw that number getting better on a sequential quarter basis for standard auto and I think you indicated that you had those three states were all hitting at this point.

Can you give us a sense of how much that would have accounted for that improvement in the PIF number?

No.

Nancy, where you are going, as the policies in force growth accelerates, you should expect to see the written premium growth number tag along with it in an upward direction.

I think that is what you are trying to -

Right.

No, but actually the question I just asked was more trying to focus back on PIF and thinking about the fact that this quarter you indicated that those California taxes and Florida are all contributing in a positive way.

Just wanted to get a sense of that .9% number.

Is that a big part of the factor?

Yes, clearly that's the way to interpret it.

I don't have that number available to me right here.

They clearly contributed.

Those are three of the five biggest states in the country.

But our growth is pervasive.

We are seeing it in most markets, in most locations.

It is very strong.

Just wanted to switch gears for a second and follow up on a comment you made Ed regarding Encompass. and you are certainly pleased with the improvement in the overall combined ratio there and where it is heading.

Made a comment about potentially expanding in that channel.

Can you go into that a little bit more.

Do you mean just organically or in terms of potential acquisition?

I meant more organically.

I was not trying to signal anything on an acquisition front.

We like the independent agency business.

It is an excellent complement to our Allstate agencies.

There are many locations where independent agencies just have an economic advantage.

We have wanted to get that business profitable before we invested too heavily in making it grow.

We are there now.

We want to put the pedal to the metal in order to realize the benefit of the money that we invested in C&A.

We can do that organically.

Thanks very much.

Thank you.

Our next question is from Ken Zuckerber (ph) of (inaudible) Capital.

Yes, it's ADA (ph) Capital. good morning everyone.

Bob, number one, great supplement.

Two questions.

Dan, could you quantify for us what was the high, low, and middle end of the range when you guys looked at the asbestos reserves strengthening?

And Secondly, maybe a question for Ed.

Ed, there was very large growth in the institutional spread base business this quarter, If my memory is correct, over a billion of sales versus 185 last year.

If you could comment just on what is driving that?

I will do two and then Dan will do one.

Institutional business is an opportunistic business for us.

As you know, It can be very strong in one quarter.

And it is hard to find the next quarter.

We like the institutional business, but we like it on our margins and at our pricing.

All things just kind of came together for a very strong third quarter.

Probably not a rate that we can hit every single quarter, but approaching that business on an opportunistic basis and with good pricing discipline, absolutely the right strategy.

Ken, we don't really do it on a high, low, mid projection basis.

We look at all the indications and do the total ground up analysis and come out with a number that tells us.

So there really isn't a range to provide you.

Well, was there a radical change in underlying assumption?

Dan, this year versus last year?

I do recognize a lot of the input factors were different, i.e the up tick in claims and probably severity.

But I'm just trying to understand if this was something that, you know, that you might have had the option to do at a previous point in time.

Dan Hale Again, as we've said, as you look at what is happening and what has happened, in the primary layers.

It takes a while as you know for that to get up to the excess and reinsurance providers.

Once you get the information, maybe six months you see a trend.

You need 12 or 18 perhaps to make sure that that is validated and you provide appropriately as that information becomes available.

So it is basically an increase in activity, claim activity.

And what is provided from seeding (ph) insurers.

That's basically what's happened.

Again we think much of that has to do with what's happened on a legislative front as well.

Thanks for the clarification.

That you can.

Our next question is from David Havens (ph) of UBS.

Please go ahead.

Thanks.

There seems to be some fairly significant tectonic shifts underway in the life insurance (inaudible).

David, David, you're breaking up.

Can you get closer to a phone or speak up?

Yes, is that better?

Much better.

There seemed to be some fairly significant tectonic shifts underway in the life insurance industry.

I was just curious what your view right now is on the potential for M&A activity and what sort of acquisition opportunities you may see.

I agree with your assessment.

There are some very substantial shifts occurring in the life business.

I would say we like where we are in Allstate Financial, a lot.

Remember our strategy is two fold, it's to get better and bigger in our property/casualty, but broader in financial services.

We can do that organically, and I think the second quarter growth is a good example of that.

Having said that, if there was something that if there was an acquisition that helped us achieve our strategic goals in a bigger, better, faster way, we would clearly do that.

You know, there's a lot of stuff out there.

I'm not so sure that much of it is very good stuff.

We are comfortable with where we are organically.

If we can accelerate that by doing something on the acquisition front, we would.

But we are not dying to do it.

OK and just one follow-up on the asbestos.

I guess We are seeing numbers coming out of the Senate deliberations, talking about a $46 billion contribution from the insurance industry.

How does the recent -- how does the asbestos reserve position (ph) that you took sort of fit in within the context of the numbers we are seeing coming out of the Senate?

It's a good question and it's somewhat imponderable.

Let me answer it this way.

I'd say some of the rattling on proposed asbestos legislation is positive.

Over the last couple of days, it's more positive than I think it has been in quite awhile.

I think What Senator Frist has said is let me see if I can get agreement on the dollars.

And then after that I will take care of the myriad of other items, any one of which could kill a bill.

But if I can't get an agreement on the dollars, I know it's a non-starter.

I Think what he is trying to do is to get agreement on the dollars.

Though $45 billion is a nominal amount when you look at it on a discounted basis, it's of course a lot less.

Basically where Frisk has gone is, he's gone back to what the original government proposal was, or Senate proposal was before it was raised significantly.

So there's still a lot of work to be done on that.

There are a lot of complicating factors, medical criteria, a review board, contingent payments, et cetera, as I said any one of which could derail it.

But we like the feel of this thing.

All of a sudden it looks like it has got a greater probability of success.

OK, thanks very much.

Thank you.

Our next question is from Jeff Thompson of KBW, Inc.

Please go ahead.

Thanks.

Just a couple questions.

First on the asbestos charge, you have been adding to asbestos on a quarterly basis, if we look backward.

Is that something we think goes away now that we have a more solid reserve position or can we expect you to keep adding to reserves in subsequent quarters for asbestos?

Jeff, I would like to think that with this provision it will be a while before we have to do anything.

However, we always on a quarterly basis as you've seen in the last couple quarters have to respond to events that transpire.

We would like to think with our IB&R, and trying to take all those events that we are aware of into consideration, that that will not be an issue for awhile.

But again, you can never say never where asbestos is concerned

OK, great.

And then secondly, this might speak to what Ron Frank was trying to get to.

Your $140 million of prior year reserve re-estimates, does that include anything for 2003 a accident year?

No, it does not.

No.

Did you disclose how much that was?

We did not specifically disclose the amount, but we did release some current year reserves as well.

OK.

So is that safe to say, I mean if I do my math, I get to 85% on the loss ratio.

If you're in the high 80s maybe it was another point or two the current year-

Brings you back -- it will get you there, yes.

Close.

And then finally, on your ad campaign, can you just give us an update on sort of how your spending is going to proceed, what your performance targets are and what maybe we can expect over the next year?

Our goal for '04 -- for '03 was to increase our ad spend by between $75 to $125 million.

Not sure we will achieve, particularly not the higher end.

We are working on developing a new more effective, more targeted campaign.

Should have it out no later than early November.

And then we will get the ad spend up to a more appropriate level in the fourth quarter.

And then probably leave it about where it is.

You know for the last couple of years, as we have been working to improve our margins and our pricing, it hasn't made much sense to us to put too much money into advertising.

It certainly does now because We are price competitive in most locations.

And we like our margins an awful lot and making certain that our name is top of mind with shoppers and our current customers, right thing to do.

So I don't know that we will be more towards the bottom end of that 75 to 125 in '03, but we will kick it up again in '04 and see if we can get a greater share of mind in the shopping place.

And is your goal sort of 3% to 5% policy in force growth?

Is that the range?

Yes, we would like to get it to that range.

We're Not sure we'll get there next year.

But If you look at our sequential growth particularly in our bread and butter products of homeowners and standard auto, we are selling good movement towards that range.

Thank you very much.

Next question is from Gail Golightly from Wachovia Securities.

Go ahead.

Thank you.

I wanted to check.

I thought I saw in the press release that you talked about the spread differential relative to the guarantee rate in the life product is 85 and I thought I remembered it was 100 basis points at the second quarter.

If my memory is right, can you help me understand why the 15-point drop?

Yes you are -- I'm not sure the number is exactly correct, but the direction is correct.

Larry, you want to add some color?

Yes Gail, we continue to drop the crediting rate on our in force business and when you drop the crediting rate You get closer to the guarantee rate.

So on average it went down 15 basis points.

I should look at that as a positive rather than --?

Yes, that's exactly right.

We are maintaining our spreads.

That's why you saw the investment margin up in the quarter.

I shouldn't think about that number in the context of getting close to tripping your guarantees?

No.

No.

And what do you see the pricing environment looking like currently in crediting rates?

Are people generally acting rationally about pricing at this stage still?

You know, there may be a little bit more rationality.

It really is kind of all over the lot depending upon what product you are talking about.

I think with rates having moved up a little over, let's say where we were when we had this call at the end of the second quarter, I think there's a little bit more rationality in the marketplace.

I suppose, to go back to someone's previous question about shifts in the life marketplace, I guess some people who are dressing things up for sale may be more aggressive on crediting rates and pricing.

So it's all over the lot.

Good.

Thank you.

Thank you.

Our next question is from Jay Gelb (ph) of Prudential equity group.

Go ahead.

Good morning and congratulations on a great quarter.

I had two questions.

First, can you talk about the competitive environment in personal auto?

Including State Farm?

Just want to make sure they are maintaining their discipline.

Also, could you give us an update on the Romero class action case with the agents, and in particular when you think judge Fullen(ph) may decide whether or not to certify the class?

Yes, State Farm is a great competitor.

It is good to have them in the market because they are disciplined and help us take a long-term view.

I think they may still be struggling with something that we and one or two other companies bit off a long time ago, which is a more sophisticated approach to pricing the product.

So the integration strategic risk management - the integration of risk, underwriting pricing and marketing we think is working well for us.

I don't know that State Farm has embarked upon that path yet, but I think their results probably will show some improvement.

Certainly if you remember '01 and '02, I think their insurance loss, their underwriting income loss added up to about $15 billion.

I would assume they are well on the road to recovery from that.

But everything I see in the marketplace suggests that they as well as other competitors are rational.

You know, Jay, on Romero.

There is really not much to say the judge heard a number of motions out of a wide variety issues that he has to deal with back about four to five weeks ago.

It's a complicated situation.

I just have no idea when his decision would come out or what it would be.

We continue, of course, to be very confident in our position.

There was a case very similar to this one that was in federal court down in Illinois.

Southern Illinois.

And it was resolved overwhelmingly in our favor.

We would hope that that would be some indication of where the judge in the Romero case will come out.

I have no way of gauging when or what could happen there.

OK.

Then just to follow up on that tack, can you talk a little bit about how your relations are improving with the agents and getting everyone on the same page for the profitable growth with both the property/casualty and the life component.

Yes, you know, we are feeling very good about our relationships with our agents.

You made reference, when we lowered the commission on homeowners business, we put in place a profitability bonus.

Something in the range of low 80% of our agents are qualifying for that profitability bonus.

What it means is, our success is kind of more joined together than it ever has been.

I think our agents understand the power of trying to attract IFS tiers one, two, and three.

They understand the power of retention.

They understand that the broader that the relationship with the customer, including Allstate Financial, the more the customer is likely to stay with you and the more products the customer is likely to buy.

More and more of our agents continue to get licensed to sell a broader array of financial service products.

So we very much like the trend rate.

Our agents want to grow.

If new auto rating plan in California is any indication, our agents want to grow with great quality.

And they are doing it to a very large extent.

So we are pleased with the relationship.

We think it will do nothing but get better.

That's great.

We'll look forward to continued success.

Thank you.

The next question is from Bill Wilt (ph) with Morgan Stanley.

Go ahead.

Hi, good morning.

I wonder if you could share your view on the relative loss ratio difference between new and renewal business.

I guess industry convention has it that new business usually runs at least a few loss ratio points above renewal.

I didn't know if you subscribed to the same theory.

Yes, Bill, I'll give you a view and Bob or Dan may want to chime in.

Overall your perspective is correct.

The key, of course, is to make that differential as small as possible.

Part of how you make that small, of course, pricing is an important part of it.

But also risk selection.

The more you select people in the higher quality tiers, the more you can expect to have that renewal loss ratio be very modest.

That's exactly what we are seeing.

Bob?

Historically, you're right.

The new to renewal loss ratio relativity, or new loss ratio is always higher than renewal.

You know less about the new business coming in than you do about the renewal that you have.

With the tier pricing structure we have, and the finer you create to carve the tiers up, you get a better opportunity to match the appropriate risk in price.

That's what we are finding in our use of SRM.

So just it's fair to say with the advent of use of credit and other more sophisticated underwriting tools, some of the historical industry conventions might be breaking down some perhaps?

They are changing.

And there are two variables in that.

You know, if you are, your existing business combined ratio goes down, you can have some differential in your new business combined ratio and still have it be a profitable business for you.

It's two moving pieces.

To give you another perspective on that clearly, SRM we were getting 40% of our new business in tiers four and five and about 25-26% in the tiers one and two.

That's pretty well flip flopped after implementing SRM.

So again, we are getting that kind of new business, we are going to have a different overall loss ratio.

OK, very good.

Thank you.

Second quick question for you.

On the regulatory front, I guess this has been asked in earlier quarters, but is there a point at which, you know, there's -- profitability is too good?

I'm thinking specifically on homeowners.

I guess is it a concrete question?

Have you had discussions with various state regulators, setting aside Texas, about the dramatic reversal in homeowners and some of the frequency trends there?

I would say the regulatory environment, it is frequently a challenging one.

We do a good job of it.

But I would say it is neutral to benign right now.

I think many of the states have more substantive issues to deal with than homeowners.

There are still plenty of places around the country where we have rate needs and we want to improve the profitability of our homeowners business.

I very much like where we are which is that we got out in front of it, got the rates that we need.

As other of our competitors were a little bit slower to move, they are making our rates look attractive and perhaps they have a different regulatory conversation than we had.

We like it where we are, particularly in lower interest rate environments, driving the combined ratio down so that we can generate adequate returns.

Regulators in most states understand that.

Bill, one other thing.

When you have, as we have this year through three quarters experienced over $1 billion of catastrophe losses across the very broad spectrum of the U.S., I think the State Departments of insurance recognize the need to price the homeowner product appropriately.

Bill, just to break that down a little bit, to add to it, between Allstate brand and Ivantage, if you look at the homeowners' weighted average rate changes this year, we have been approved in 19 states, Allstate brand.

Close to 2%, one and a half to 2%.

But 40 states in Ivantage where we needed it, 11.7%.

When indications are there, it's still possible to get the rate changes.

Thanks very much for the color.

Sure.

Thank you.

Our next question is from Alain Karaoglan (ph) of Deutsche Banc.

Please go ahead.

Good morning.

Great results.

Congratulations.

A couple of questions on return on equity, the overall organization is having a good [inaudible] FAS, could you give us a sense of where the property/casualty business is versus the life business?

The second question relates to capital management.

You have been very disciplined in the past in terms of buying back shares when opportunities were, when you were growing capital too fast relative to your growth opportunities.

It seems we are back in that stage.

Even though the growth may be there, your ROEs in excess of [inaudible]% and the growth is 5% even if that goes up.

Why such a meager share buy back in the third quarter and what could we expect going forward?

Let me take them in the order in which you asked them, Alain.

Our ROEs are higher in the protection business than they are in Allstate Financial.

All of our businesses, all of our business segments are either at or very close to operating in excess of our cost of capital.

So those of you who are EDA devotees, we have a good simple version of that.

We very much like where we are.

We need to continue to improve returns in Allstate Financial.

Casey Silla (ph) and his group are very disciplined in that area.

Sometimes if you look at the turns in some of the life companies you begin to get at the price issue and whether people are giving away the product as opposed to tyring to have a good disciplined approach to it.

You know, Alain, on the issue of capital, I appreciate the reference.

We have been very disciplined about returning capital when we can't grow our book of business.

I tell you, our growth prospects right now are very, very good.

We will analyze those growth prospects as we put together our '04 plans.

We will look at the changes in federal tax dividend policy and we will make the right judgment about how to do that.

We have currently from our board a $500 million authorization.

We will probably complete that by the end of the year and we will look at it and we will do the right thing.

We have had share repurchases over the last five to six years.

I don't know, totaling $7-8 billion (ph).

We do the right thing in this area.

By the way, congratulations on your Ii (ph) ranking.

Outstanding.

Thank you.

Ed Could you share with us what the cost of capital that you are referring to is?

What we do is look at a longer term through the cycle kind of target, weighted average cost of capital.

About a 10.5% rate.

Obviously in today's market it's less than that with interest rates where they are.

We shoot for the 10.5.

Thank you very much.

Thank you.

Our next question is from Bob Glasspiegel of Langen McAlenney.

Good morning.

I would like to go through your cash flow at BC.

It looks like in the quarter you generated nearly a billion 5 of cash flow, which is 17% of beginning assets.

Is there any sort of seasonality I should dampen my enthusiasm back with?, on a cash flow dynamics playing through?

I'm looking at cost growth in cash flow.

Also it looks like your new money went into taxable bonds or a decent bit of it did.

Given how solid your profitability, why would that be the case?

Robert, good morning.

I would say two things.

I have said this to many of you before.

A well-run property/casualty business in a steady state claims situation is a thing of beauty.

It generates enormous cash flow.

And that's exactly where we are.

We have excellent profitability right now.

Our claims, claim counts, whatever measure you want to use are in great shape.

And therefore, we generate cash flow.

We will continue to generate cash flow.

I don't recognize the exact number that you just put on the table, but the concept is probably the right concept.

Our cash flow right now is very strong.

We are doing two things with it.

We have not changed our asset allocation dramatically.

We have made some changes.

What I would call at the margin.

At the beginning of this year we began putting more money into equities.

Those of you, who followed us for a while, will recall that in, at the end of '97 and '98, '99, we were lightening up on equities.

We were looking at ourselves in the mirror and saying what in the heck are we doing?

That proved to be a very wise decision.

Now as we generate cash flow, we are putting more of an asset allocation into equities and then also into, some into munies reflecting rather attractive pricing relative to taxables.

OK.

If I could just follow up on Alain's question, how much growth do you have to have to not buy back stock?

If I assume 5% written premium growth, the current run rate, you know, I agree with Alain's numbers, you would be generating a lot of surplus capital.

Seems like excess capital.

It seems like you are saying you see the growth going up a lot from there?

Or you see the potential of it - I guess, how much growth in premiums would you have to have to not be able to buy back stock?

You know, you are moving towards the right direction, Bob.

But I would say we like our growth prospects.

They are all the things we said we would do to get the growth engine going, we have done, but we want to do it profitably.

Let's get some acceleration in growth and then we'll come to that issue of, OK, how much more can we get?

What should we do with the (inaudible) policy, what should we do with cash flow policy?

I would just again, as I said to Alain, encourage you to go back and look at our history on dividend increases, which has been substantial and cash repurchases of our shares, which have been substantial.

We know how to do this and we do it well.

I agree, it's just a riddle that we just can't quite unlock on where you are today.

But thanks very much.

Thanks, Bob.

Thank you.

Our next question is from Brian Meredith of Banc of America Securities.

Please go ahead.

Yes.

Thank you, two quick questions here.

One, could you talk about the kind of significant improvement we saw in the homeowners severity in the quarter?

Was that an anomaly?

We saw a big drop, and relating to that, the sustainability of the homeowners loss ratio, what should we look for going forward?

You know, there's a couple things going on in homeowners severity.

One, the drop is very nice to see.

You know, in a hard market sometimes people don't file claims they incur.

They take more of the losses on themselves.

That can distort the traditional relationships between frequencies and severities.

And some of that clearly has been taking place for the entire industry, let's say over the last 12 to 18 months.

But we are also now year-rounding or in some cases two year-rounding, some of those very large severity increases.

It's a small increase off of what a year ago was a larger increase or a larger base.

You really need to look at it over a longer period of time.

Our claims folks are working hard on our homeowners severities.

We would very much like to see that trend continue.

And we have good reason to believe that we can.

On homeowners loss ratios or frequencies, you know, our homeowners business is performing very well right now, Brian, as you know.

As you pointed out, we have it adequately priced.

We intend to maintain it in an adequately priced position, which includes our frequency occurrences and our severity occurrences.

We like it where we are in that business.

As Dan mentioned before, we have not been shy about seeking and getting required rate increases.

We will continue to do that.

But that business, we tend to be the best in class in terms of homeowners combined ratios in the industry.

That's a position we want to maintain.

Great.

Thank you.

Thank you.

Our next question is from Chris Winans of Lehman Brothers.

Go ahead.

Thanks.

I just noticed that Farmers have taken some rate cuts here and there.

And you know, while I'm not assuming that that means that the soft market pricing conditions have suddenly reemerged, I am curious as to how much time do you think you've got here before we are back into a market where the profitability is so attractive, you've got more competition.

And secondly, if you could talk a little bit about just generically, where is the growth coming from?

Is it coming from you know, the big large mutuals?

Is it coming from the regional, smaller regional companies?

Yes.

I'm not aware of farmers taking anything that would be construed as sizable rate increases.

I think it may be stuff around the edges.

I know that they are in hearings with the Texas department.

The only place we've taken rate decreases was in Texas.

That follows in homeowners.

That follows from some very substantial rate increases.

We have what we consider to be a very good settlement.

We rolled back our rates a little under 9%.

Whether anything else is required or not, we won't know until the end of next year.

It will be dependent upon the level of profitability.

I think the marketplace and the competitors are more disciplined today than they have been in quite a while.

There's a lot of people still around who remember as the industry began taking rate decreases in '98 and '99 just how painful that was, so I see the industry moving in a direction of rate adequacy.

I think they will be following what we set in motion, a couple of years ago.

I just don't see any tightening in the competitive landscape, much as we saw in '98 and '99.

In terms of where the growth is coming from, it's really hard to get at that right now, information in terms of our growth versus other companies' growth.

It's very hard to get at until you get to the end of the year and the statutory blanks begin to get filed I think our growth is probably coming from everywhere.

When we look at geographically, what states is it coming from, what lines is it coming from, within a state, what particular areas?

It's very pervasive.

We are pleased with it.

When we get a lot of growth in any one location, we get a little nervous and wonder if we have a pricing issue or a risk management issue or an underwriting issue.

We don't see that.

We see the growth really coming from across the country and we are pleased with it.

And I would assume therefore it's coming from a variety of sources.

As I told many of you, it's an interesting industry, there's you know 1200 companies in the United States that sell, property casualty products.

That gives us a lot of opportunity to take share from a lot of little people

When you sign up a new account, you know where they are coming from, right?

Yes, frequently do.

We just tend not to aggregate all that.

You know, within three weeks after the end of a quarter and try to do analysis on it.

We do that later.

OK, thanks.

Thank you.

Our next question is from Adam Klauber of Cockran (ph) Corono (ph).

Please go ahead.

Good morning.

Nonstandard has been improving and the loss ratio really came down nicely this quarter.

Does that signal that you are happy at where this business was at, and the growth will start equalizing?

Or do you think there's still more improvement to come in the nonstandard area?

No, our nonstandard combined ratio, if you make an assessment of how much the expense ratio you should add to the loss ratio, it's probably sub-90.

I mean, we are pretty good at that business.

I would say two things, Adam.

We are approaching an equilibrium point of view.

With some additional revisions to strategic risk management, which we will begin to hit in the fourth quarter of this year and the first quarter of next year, I think you will begin to see that business certainly stabilize and probably begin to trend up.

But I also think the concept or the words are rapidly becoming irrelevant.

You know, nonstandard and standard were appropriate words when there were only two or three buckets that you could put business into.

Now in most places we have, oh, I don't know, 20 to 25 different buckets, different tiers and different ranges within those tiers.

I almost think over time that that's a discussion point which is more reflective of the old way of thinking about the industry as opposed to the new way of thinking about the industry.

Thank you.

Thank you.

We are going to take two more questions.

We allowed this to go on just a little longer because I was too wordy in some of my responses and because there were a number of people on there.

So, we will take, maybe, two more questions and end, because I know some of you want to hook on to another call.

Thank you, our next question is from Matt Tellezola (ph) of Merrill Lynch.

Please go ahead.

Actually Jay Colin.

Most of my questions were answered.

Regarding these batches, are you going to do another ground up study in the third quarter of next year, or does this charge pretty much clear the decks from your standpoint?

We would like to think that B is the case.

We look at it every quarter and we do a grounds up study every year in the third quarter.

That has been our practice for the better part of ten years and we will continue to do that.

We would like to believe that, as Dan said earlier, we have got what we need.

That is great, thanks a lot.

Thank you.

Our next question is from Hue Warrens (ph) of JP Morgan.

Please go ahead.

Good morning.

Just a quick question.

If I look at the break out on the Allstate brand for the domestic operating stats, your new issue applications were up over 50%.

What exactly is counted in that?

I'm trying to put the algebra of growth together.

Your applications are up, your retentions are up, yet your PITHs (ph) are still falling in the standard auto line year-over-year.

Can you explain what the new issued application count actually is and how that growth is tracked?

If you are trying to go through the math, the thing that you are missing is -- it's two different points.

The production that is coming in are what has come in over the last quarter.

The thing you are missing is the availables.

How much is actually available to renew.

And which is built over, off the prior six-month production and retention.

Right, not the 30 days.

It rolls down.

What you will notice, however, is the degree to which it is declining every year is shrinking as we sequentially grow.

That is, PIF tends to be a statistic you ought to watch more on a curve than you do on a year-over-year basis.

But the new issued applications, is that actually bound, accepted, and you receive checks.

Absolutely.

That's what goes into policy.

I didn't know if that was an issued number or a number that was quoted.

Oh, no.

That's PIF.

The break out on the standard side, I mean the 51%, obviously we have to think California would be a big part of that.

Is that a safe assumption?

They are about a third of that increase. but Don't overestimate how pervasive that growth is.

Sure.

No, no, that wouldn't really surprise me.

Bob or Ed, just a very big top line question.

We hear everything coming out of D.C.right you do your ground up survey the numbers that are being thrown out there are far in excess of the limits available for asbestos.

A lot of your claims have been booked to limits on the asbestos side.

If this asbestos legislation goes through, labor accepts it and they come up with these numbers of $45 billion, will that mean that you will have to put money up beyond your limits?

You know, it's a fair question.

There's no answer to it right now because we don't know, there's not enough detail as to within that $45 billion, you know, actually closer to 28 billion on a discounted basis, how would you divvy up that pie?

There's huge debate on how that would happen.

That's why I said before, we are encouraged by the trend line here, but boy, this is a long way from being done.

So it really depends upon what happens.

I think the latest proposal was that you would have an independent person come in and do a grounds up study at every single company.

Since we are the authors of how to do our grounds up study, we think we would fare reasonably well in such an analysis

It just seems odd that the government could actually come back and require people maybe not yourself, but to put up beyond limits which just kind of violates every tenet of insurance.

It's a new world we are in.

We agree 100%.

Thanks for your help.

Great quarter, guys.

Thank you.

Oh, we are going to end.

So I apologize for running over.

I would like to make a couple of closing comments.

I would encourage you all to recognize that our strategy is getting better and bigger in our property/casualty business and broadening our financial services.

It's working really well.

Our returns on capital are improving I think to near best in class levels.

We had excellent underlying profitability in the third quarter that is continuing what we have seen in the past.

Top line growth trends are positive.

With unit growth emerging as a result of our accelerating new business activity and our solid retention ratios.

Pricing discipline in all lines of business is being maintained.

Our loss cost trends remain very manageable for both auto and homeowners .

Allstate financial premium and deposits moving in the right direction.

It's really a very solid story that keeps on getting better.

So we appreciate your support and we look forward to talking to you in February.

Ladies and gentlemen, this concludes the conference.

Thank you for your participation in today's conference.

You may now disconnect and have a great day.

Thank you.