Allstate Corp (The) (ALL) — Q3 2017 Earnings Call Transcript

Well, thank you, Jonathan. Good morning and welcome, everyone, to Allstate's third quarter 2017 earnings conference call. After prepared remarks by our Chairman and CEO, Tom Wilson; Chief Financial Officer, Steve Shebik; and myself, we will have a question-and-answer session. Also here are Matt Winter, our President; Don Civgin, the President of Emerging Businesses; John Dugenske, our Chief Investment Officer; Mary Jane Fortin, President of Allstate Financial; and Eric Ferren, our Controller and Chief Accounting Officer. Yesterday, following the close of the market, we issued our news release and investor supplement, filed our 10-Q for the third quarter, and posted the results presentation we will use this morning in conjunction with our prepared remarks. These documents are available on our website at allstateinvestors.com. As noted on the first slide, our discussion today will contain forward-looking statements about Allstate's operations. Allstate's results may differ materially from these statements, so please refer to our 10-K for 2016, the slides, and our most recent news release for information on potential risks. Also, this discussion will contain some non-GAAP measures for which there are reconciliations in our news release or our investor supplement. We are recording this call, and the replay will be available following its conclusion. And as always, I will be available to answer any follow-up questions you may have after the call. Now I'll turn it over to Tom.

Well, good morning. Thank you for joining us to stay current on Allstate's operating results. Let's start on slide 2. Overall, we made excellent progress on our 2017 operating priorities. Financially, results were also strong in the quarter. Net income was $637 million or $1.74 per share; operating income was $1.60 per share. Improved profitability in auto insurance reflects the profit improvement actions initiated in 2015 and the decrease in the frequency of auto accidents. Homeowners insurance profitability continues to perform well despite higher catastrophe losses. Investment income increased in both market-based and performance-based portfolios and as a result, Allstate Financial operating income improved to $157 million in the third quarter. Operating income return on equity was 13.9%, which is shown in the bottom right of that slide, a significant improvement over last year. If you turn to slide 3, we continued to deliver on all five operating priorities. The first goal is to better serve our customers and we measure customer satisfaction by a Net Promoter Score, which increased for most of our businesses. We also continue to build an integrated digital enterprise, as evidenced by the expansion of QuickFoto Claim, which reduces auto claim settlement times from days to hours and lowers our expenses. We continued to excel on our priority to achieve target economic returns on shareholder capital. This is demonstrated by a reported combined ratio of 95.2% for the first nine months of the year. And while Allstate Annuities income increased significantly due to investment results, the overall returns, however, are still low. Total policies in force increased to 78 million policies, largely due to SquareTrade and Allstate Benefits growth. Excluding SquareTrade, Property-Liability policies in force did decline, but the Allstate brand auto insurance new issued applications continued to accelerate, and customer retention improved for both the Allstate and Esurance brands. Allstate Benefits continued its 17-year track record of growth with policies in force up 8.1% from the prior year. Market-based portfolio returns reflect stable income and higher valuation benefiting from favorable market conditions. The performance-based portfolio results were strong, reflecting private equity appreciation and sales of underlying investments. We're also investing for long-term growth that includes businesses such as Allstate Benefits, SquareTrade and our connected-car platform at Arity. Slide 4 shows Property-Liability results by customer segment and brands. Let's start with the table at the top. Net written premium was $8.6 billion, a 3.3% increase from the prior year. The recorded combined ratio of 94.7% was 0.8 points better than the third quarter of 2016. Included in these results were $128 million in non-catastrophe prior year reserve releases. The favorable reserve re-estimates reflected $260 million in Allstate Protection releases, partially offset by $88 million in reserve strengthening for discontinued operations related to the annual Asbestos and Environmental Reserve review. When we exclude catastrophes and prior year reserve re-estimates, the underlying combined ratio for the first nine months of 2017 was 85.2%. The full year result is not expected to be better than the favorable end of the annual outlook range of 87% to 89% provided in February. As you know, our strategy is to provide different customer value propositions for each of the four customer segments of the Property-Liability market. This is shown on the table below the graph. The Allstate brand in the lower left competes in the local advice and branded segment, and our most prominent competitors there are State Farm, Nationwide, and Farmers. Obviously, GEICO and Progressive target these customers as well, but they don't offer the same value proposition provided by our 10,400 Allstate agencies. This segment comprises approximately 90% of our total premiums written. Net written premium was 2.5% higher in the third quarter of 2017 compared to the prior year quarter, due to a 3.2% increase in auto insurance. The underlying combined ratio was 84.3%, with a favorable prior year comparison driven by improved loss trends in auto insurance, which had a 91.2% underlying combined ratio, 4.7 points below the prior year quarter. Esurance in the lower right serves customers who prefer a branded product but are comfortable handling their own insurance needs. GEICO and Progressive Direct have a larger share of this segment than their overall market share. The underlying combined ratio for auto insurance continues to improve relative to the prior year and was slightly below 100%. Esurance also now sells homeowners in 31 states, and net written premium for the quarter is up 50% from the prior-year quarter. Growth in homeowners offers a significant opportunity to bundle products, lower average acquisition costs, increase retention, and build a stronger relationship with our customers. Encompass in the upper left competes for customers who want local advice but are less concerned about the brand of insurance they purchase. We're making good progress in improving underlying margins, but the business is getting smaller as we exit unprofitable markets and raise prices. In states where we're rate adequate, we are executing growth plans. Now John will go through Allstate, Esurance, and Encompass results in more detail.

Thanks, Tom. Let's go to slide 5 to cover the results for Allstate brand auto insurance. Starting with the top left graph, the recorded combined ratio for the third quarter was 94.9%, which was 4.1 points better than the prior year quarter, reflecting increased average earned premium, lower frequency, and favorable prior year reserve re-estimates, but was offset by higher catastrophe losses, particularly from Hurricane Harvey. The underlying combined ratio of 91.2% in the third quarter of 2017 improved by 4.7 points compared to the third quarter of 2016, driven by a 6.1-point improvement in the underlying loss ratio. The underlying loss ratio is now performing in line with the levels achieved in early 2014, prior to the rise in auto accident frequency. The chart on the top right shows the results of the broad-based profit improvement plan initiated in 2015. Annualized average premiums, shown by the blue line, increased to $1,015 while underlying loss and expense, shown by the red line, was flat. This resulted in a favorable gap at $89 per policy compared to the mid-teens experienced in the third quarter of 2015. Gross frequency trends for bodily injury and property damage coverages are shown on the bottom chart. Frequency continued to show improvement across both coverages in the third quarter 2017, and favorable trends were geographically widespread. Externally, frequency trends in 2017 have moderated across the industry, and a portion of the frequency decline can also be attributed to the shift to longer tenured and higher quality risks as a result of the profit improvement initiatives. Earlier this year, we instituted a comprehensive program to increase policy growth as Allstate brand auto insurance has returned to historical margins. Slide 6 shows the underlying drivers of policies in force for Allstate-branded auto insurance. As you can see from the graph on the top, the overall policy count has flattened over the last two quarters. The bottom two charts highlight both the renewal ratio and new issued applications for Allstate branded auto insurance. The renewal ratio is a bigger influence on total policies in force than new business, and we remain focused on retention drivers that are within our control. Key retention initiatives include improving customer satisfaction and engagement while maintaining a stable pricing environment. We anticipate that higher customer satisfaction, coupled with more moderate auto insurance pricing, will translate into higher retention. The renewal ratio of 87.7% was an improvement of 0.2 points from the prior year quarter. Growth in new issued applications continues to accelerate and increased 11.5% in the third quarter compared to the prior year quarter. 41 states, including our 10 largest, experienced increases in new issued applications compared to the prior year quarter, with 29 states experiencing double-digit increases. Executing our Trusted Advisor strategy and expanding distribution capacity should also build growth momentum for the remainder of 2017 and throughout 2018. Slide 7 shows similar information for Allstate brand homeowners. The top part of the page provides detail on our profitability results. The homeowners' recorded combined ratio was 81.3% in the third quarter, which generated $319 million in underwriting income as Allstate's effective risk management strategy mitigated significant catastrophes in the third quarter. As a result of the comprehensive reinsurance program we have in Florida, a large portion of the property losses related to Hurricane Irma were ceded and did not impact operating profit. Over the last 12 months, $1 billion of underwriting income has been generated by this product line, net of catastrophes. The bottom half of the page provides detail on policies in force, which declined 1%. The renewal ratio of 87.5% was 0.4 points lower than the prior year quarter. New issued applications growth did accelerate to 5.3% in the quarter as 6 of our 10 largest states experienced increases. As auto insurance retention increases and new business increases, we expect to see a favorable impact on homeowners' policies in force. Slide 8 highlights results for Esurance. Esurance is focused on improving financial results and positioning the business to resume growth in total policies in force. The recorded combined ratio of 104.4% in the third quarter, shown on the left chart, was 5.4 points below the prior year quarter, driven by lower expense ratios in auto and homeowners insurance. The 5.4 point expense ratio decrease reflects reduced homeowners advertising, improved customer service efficiency, and a smaller impact from the amortization of intangible assets. The auto underlying combined ratio was 99.8% in the third quarter, 2.2 points better than the third quarter of 2016, as shown below the graph on the left. Lower expenses, coupled with better frequency and severity trends, contributed to the improvement in underlying margins. Esurance policies in force highlighted on the right chart declined slightly compared to the third quarter of 2016. Policy growth in homeowners is nearly offsetting the decline in auto policies. New issued applications declined as a result of lower advertising while auto retention improved by 2.9 points due to our focus on improving customer service and targeting more standard and preferred risk business. Slide 9 shows similar information for Encompass. Encompass generated $29 million of underwriting income in the third quarter, driven by underlying profitability improvement and lower catastrophes. Shown in the left chart, the recorded combined ratio was 89.2% in the third quarter. The decline in premiums and policies in force in states with inadequate returns has impacted overall top-line trends, and targeted growth plans have been initiated in states that have attractive profitability prospects. And now I'll turn it over to Steve.

Thanks, John. Let's go to slide 10, which reflects the detail of SquareTrade. As you know, we acquired SquareTrade in January of this year to expand our product offering and distribution channel, particularly as it relates to cell phones, computers, and televisions. Attractive acquisition economics are predicated on achieving two primary objectives: First, continued growth of the retail business to existing partners and new retail distribution; second, improving margins by leveraging fixed costs and reducing the utilization of third-party underwriting arrangements. The acquisition will create shareholder value by achieving these two goals. Additional value can be generated by leveraging the SquareTrade platform for additional growth, such as expansion in Europe. SquareTrade made good progress on these key performance metrics as shown in the bottom half of the page. Policies in force increased by 2.8 million policies from the second quarter to 34.1 million policies. Over the last 12 months, policies in force grew 32%. The underwriting loss totaled $29 million in the third quarter, reflecting $23 million of amortization of intangible assets related to the acquisition. When you exclude the amortization of purchased intangibles and purchase accounting adjustments, the adjusted operating loss was $2 million for the quarter. Slide 11 highlights our investment results. A lot has gone right for investors in 2017, which when combined with a proactive investment approach resulted in a 12.7% increase in investment income from the prior year quarter. Investment income shown in blue in the top chart has contributed approximately 1% return each quarter with primarily stable earnings from our market-based portfolio, and an increasing contribution from a performance-based portfolio. The GAAP total returns from our diversified $83 billion portfolio have been fairly consistent over the first three quarters of the year with the third quarter contributing 1.5%. Returns have benefited from purposeful asset allocation decisions including our shift to performance-based investments. Variability in our total return generally rises from changes in portfolio value between quarters as reflected by the valuation component shown in grey. Substantially, all asset classes registered positive returns, which reflected in an increase in our fixed income and equity portfolio value. Fixed income valuations increased by merely tighter credit spreads. Equity valuations also increased on prospects of higher global economic growth. The components of net investment income are shown in the lower left graph. The portfolio is largely comprised of market-based investments; the carrying value of the market-based portfolio makes up more than 90% of the total portfolio and approximately 75% of total investment income in the quarter. Net investment income for the third quarter was $843 million, $95 million higher than third quarter of 2016. This increase is driven primarily by performance-based investment income of $227 million, also included a favorable contribution from our market-based portfolios. Performance-based assets have higher long-term returns, which compensated investors for higher variability and lower liquidity. The funding for these investments is from long-dated liabilities in capital, which enables us to stay invested despite short-term valuation volatility. As a result, on a risk-adjusted basis, these assets generate more shareholder value than fixed income investments. Effective in January of 2018, equity securities and cost method limited partnership interests will be measured at fair value, and valuation changes recorded in net income. This accounting change may increase the variability of our performance-based results in 2018 and thereafter. Turning to slide 12, Allstate Financial profitability increased reflecting strong performance-based investment income and favorable mortality. Premiums and contract charges totaled $593 million in the third quarter, an increase of 3.9% compared to the prior year quarter. Operating income of $157 million increased 67% over the prior year quarter as shown on the bottom left graph. Life insurance operating income was $74 million, a $23 million increase compared to the prior year quarter as shown in blue on the bottom of this slide. This is due to favorable mortality experience and higher additional life insurance premiums. Allstate Benefits operating income was $28 million with $3 million above the prior-year quarter. The increase was primarily due to higher premium and contract charges, partially offset by higher contract benefits. Annuities operating income of $55 million in the quarter was an increase of $37 million compared to the prior year quarter, reflecting the continued benefit of our performance-based investment strategy as well as lower contract benefits. Currently, regulatory required capital levels are substantially higher for performance-based assets than for fixed income investments. This suppresses reported returns in capital as it relates to the immediate annuity business. In our view, there needs to be a better alignment of capital requirements with economic outcomes. This will reduce the amount of capital utilized for immediate annuity and raise reported return on capital. Slide 13 provides an overview of our capital strength and financial flexibility. As you see from the box at the top, we have delivered excellent returns, increased book value, and maintained a conservative financial position while increasing shareholder ownership of the company and reducing the number of outstanding shares. Operating income return on equity was 13.9% for the 12 months ended September 30, 2017. Included in this result is a pension settlement loss of $86 million pre-tax, which is recorded in the Corporate segment in the third quarter. We returned $1.24 billion to common shareholders through the first nine months of the year. This includes repurchasing 10 million shares of our common stock or 2.7% of those outstanding at the beginning of the year. We remain on track in executing the $2 billion share repurchase program that was approved in August. Lastly, as we discussed in our second quarter earnings call, we will adopt a new reporting structure in the fourth quarter that will expand our reportable segments from four to seven. The new structure will provide enhanced transparency and allow for an evaluation of our businesses based on like attributes. Allstate Protection will continue to include the traditional Property-Liability businesses that address the four segments of the consumer market; Allstate, Esurance, Encompass, and Answer Financial. A new Service Businesses segment will include operations that have a larger portion of earnings in services but generally have less underwriting risk. This will include SquareTrade, Arity, Allstate Roadside, and Allstate Dealer Services. Allstate Financial will be split into three segments; Allstate Life, Allstate Benefits, and Allstate Annuities, which have different growth and return characteristics. This new segmentation will impact our goodwill impairment testing and the aggregation of Allstate Financial reserves for sufficiency testing. We estimate a goodwill impairment of approximately $125 million will be recognized in the fourth quarter related to the goodwill allocated to the Allstate Annuities reporting unit. The Discontinued Lines and Coverages, and Corporate and Other reporting segments will not be impacted. More information on this is available in our Form 10-Q we filed yesterday. Now I'll ask Jonathan to open the line up for your questions.

Thank you. Can you discuss the shift toward growth in the Allstate brand auto business? And whether the underlying underwriting margin can continue to improve in that scenario?

Good morning, Jay. Matt will cover the growth plans that were initiated earlier this year. As you think about where our situation is, I think it's important to look at the external environment. So in terms of what's happening externally, what happens here underwriting margin, obviously, the external environment is a big component, which our competitors are doing, and our read of the competitive situation is that our competitors are either taking or need to take increased prices higher than ours based on where we're at today, which should put us in a good competitive position. So we think we're well positioned to do that. Matt, you want to talk to what we're doing?

Sure. Good morning, Jay. It's Matt. Thanks for the question. The growth plan is, I'm going to oversimplify it probably, but first understand that it's in two large buckets. Remember, when we reported growth, we're not only talking about new business growth; we're talking about increased retention. As John mentioned in his earlier comments, retention can actually have a greater influence on overall item in force growth than new business. So we have five buckets of growth initiatives under the new business side and three under the retention side. On the new business side, it's pretty basic. We're trying to do five separate things. Number one, increase distribution capacity; that's more exclusive agencies, more licensed sales professionals, especially in underpenetrated areas like the Heartland and parts of the United States where we do not have appropriate level of market share. Number two, we want to make the distribution more productive and efficient. And that's through the use of technology, data and analytics, better lead generation, and more sophisticated segmentation. The third is to get that distribution more engaged in investing in their businesses. And that's through some redesigns and enhanced compensation and recognition programs, as well as additional support and coaching. Four, we want to provide them better priced and higher value products to sell. So that's using more sophisticated pricing techniques and better underwriting to improve their close rates. And fifth, we want to drive more quotes to them, with better marketing and more segmented marketing. On the retention side, there are basically three components: Better onboarding, so that first experience with Allstate after they make the purchase decision is a positive one; better advice service throughout the course of their relationship, and that means things like annual reviews of their coverage and appropriate amounts of touch points with the customer to ensure that they're happy with their service. And finally, on retention, less rate shopping and a more stable rate environment, so fewer triggers for shopping. We believe the combination of all the work we're doing on the new business side and the retention side has started to show up in our numbers, and that's why you're seeing increased retention and new business rates. We expect that to continue as we further execute on the growth plan.

So Matt's comment is appropriate around 90% of the business is of the Allstate's brand. If you look at the pipeline of where the other brands are, the next one up would be Esurance. John, maybe you can make a comment on that, and Encompass is farther behind in the process, so we won't go through any details on that.

Yeah. So on Esurance, I'm actually really proud when you look at the numbers at the underlying combined ratio. The continued improvement over the last couple of years has been strong. In the third quarter, we lowered the underlying combined ratio again by 5.5 points over last year. That's a combination of the underlying loss ratio improvement, and a lot of it is expenses, a little over half is advertising, but the rest of it is throughout the system. The improvement has been good. We're also doing a couple of other things I think that are positioning the company so that we can go back into kind of growth mode. One is we continued to invest in improving our pricing sophistication, which has helped the loss ratio and positioned us better. We're also taking much better care of our customers, whether it's onboarding or the way we interact with them going forward; our Net Promoter Score is improving substantially. You don't see that, but you do see retention going up. And in the investor supplement, you can see a pretty dramatic improvement in retention year-over-year. What we don't like at this point is that the policy count is basically flat. I could argue with a 26% year-to-date decline in advertising, that's not horrible, but the reality is it's our growth vehicle. So I think what we've done now is really position the company to be at a much more profitable, much more attractive level from a profitability point of view. Now we're really expecting to pivot more back to growth. I don't expect us to give up the gains we've achieved in profitability. But I think the work that we've done that's led us to this point will position us well. And I would expect next year we'll begin to grow the business again, maybe not the 20% or 25% like we were three or four years ago, but we're going to get back to growth.

Thanks for those thorough answers. And my only other question was with regard to the outlook for Allstate's reinsurance protection in 2018. Clearly, the company benefited from the smart purchases, substantial reinsurance protection in the wake of Harvey and Irma, and just trying to get a sense of your thoughts going into next year?

Jay, obviously our risk management programs that we've put in place over the last decade have served us well, and we still made $300-plus million for underwriting income in homeowners this quarter despite the high catastrophe losses. The reinsurance really was related to Irma in Florida because we had bought down so low there. I think there are still a lot of alternative capital in the reinsurance market. We don't expect to see prices firm up a lot, but we won't know that until we get to next year.

Good morning. I have a somewhat related question on the growth potential. Assuming that your growth efforts work, how should we think about the tenure impact on the auto and on the home book respectively?

Paul, I just want to make sure I get it right, you mean tenure as in T-E-N-U-R-E or 10-year as in...

As in the aging of the book and how that changes profitability.

Yeah. Paul, it's Matt. It's a really good question because obviously, one of the impacts of our profit improvement plan that we executed over the last couple of years in response to the initial frequency spike was that we took segmented rates. And in many cases, not only did that drive out the worst-performing segments, but it lowered our overall new business growth and therefore, lowered our new business penalty. It lowered the penalty, but it comes at a huge cost. As we grow, we expect to have that "new business penalty" pick up a little bit; we'll have a lower tenured group coming into the overall book. The difference is though, we are now priced rate adequate in all of the segments. We feel very good that we're appropriately priced, and we're moderating it, and we believe the quality of that new business will be quite high. And so we believe that while there will be a lower tenured group coming in and the associated new business penalty, we think it's very manageable and we think that we're set up perfectly to absorb it and deal with it.

Great. Thank you. I guess, my second question relates to SquareTrade. Any update on moving some of that business from your partner's books to Allstate's books?

Yeah. There were a couple of contracts domestically. The larger of those contracts was transferred to Allstate. So we're taking the underwriting risk that was in the second quarter. I expect the other contract will transfer towards the end of this year or beginning next year.

Hi. Good morning. Wanted to hear your thoughts on the outlook for homeowners insurance pricing following the third quarter catastrophes?

Sarah, are you speaking about ours or the industry in total?

Both. Do you think pricing could go up following all the hurricanes?

Sarah, it's Matt. It's a good question. I think what we discovered over this year with two back-to-back category four hurricanes and all the associated issues we've had this year is that our product design, risk management, our probable maximum loss work, our reinsurance work, our risk concentration work, and our consistent diligence on pricing served us well. So we feel quite good about it. As you saw, we did very well; we had good underwriting income in the quarter despite what was an exceptionally difficult timeframe for homeowners. So we don't feel like we have a need to react to what we've seen. We will continue to analyze it and ensure that we understand the dynamics in severe weather, as well as the cat load as appropriate. But right now, we feel like we're in a very good place. Our House & Home products served us very well; the design worked well. We now have about 90% of our new business in that product and about a third of our total book, and we're very pleased with the performance during these weather events, not only the catastrophes but the additional weather events we've had this year. So for Allstate, right now, it's pretty much steady as she goes, and we will continue to analyze increased amounts of data as it comes in.

Okay, great. Thanks. And then just on Allstate Financial, how should we be thinking about the run rate earnings in that business? The last two quarters have been running over $150 million of operating income, but prior to that, it was only a little over $100 million. So any help you could provide there would be helpful?

Sarah, it is a good question because Allstate Financial did have a quarter, Mary Jane could talk about both the various components for the life insurance and then annuity. I would say the – while the operating income was good in both of those businesses; now we still like to do better in terms of return on the annuities book, so that's still something we have to work on, but we're very pleased; Mary Jane could talk about the actual results we had.

Thank you. From an earnings perspective, let's start with the annuities. In terms of the annuities, what I really think about is that the performance-based investments were very strong in performance in the quarter; they generated about a 15% return. So as we look out, we would expect that asset class to generate returns in more in the 10% to 12% range. So when you think about the annuity line of business, consider that performance-based asset class continuing to moderate down towards the 10% to 12% level. So the levels we have experienced in the last two quarters have been higher than we would expect. The quarter also annuities benefited from favorable lower contract benefits and favorable mortality. That can tend to fluctuate from period to period, but that did impact the quarter by about $10 million on a year-over-year basis. In terms of life insurance, we did experience favorable mortality in the quarter. We have been running better than expected, and this too, mortality can tend to fluctuate from period to period. So you should expect in the life business earnings to come back down as mortality reverts back to an expected level. The life business and the benefits business, we run those to a 10% to 12% return target. So you should expect to see returns in that range as we move forward. And as Tom mentioned on the annuity side of the house, we're continuing to manage that loss for long-term economics, and you will see some variability in the results from period to period as that performance-based asset class can fluctuate from quarter to quarter.

Thanks and good morning. Two questions if I may. The first question relates to the discussion on external factors contributing to frequency improvement. If you go back to slide 5, and look in the trendline, what should we use as a starting point if I was trying to exclude these external factors?

Amit, it was just – I think I got it a little light in terms of voice coming through. So let me see, and I'll turn it over to Matt. The reason we talked about the external factors was not because we thought that, that was a primary driver. We do think that our profit improvement actions, which were broad-based and comprehensive drove, it's really about the external environment. A question Jay had raised which is when you're looking forward to growth, you have to look at the external environment. One is the competitors, which you talked about, where are they in pricing. But the other is where you just in general frequency trend. And so general frequency trends are moderating from what we saw in 2015 and 2016 in terms of percentage increases. That gives us more opportunity to grow without the new business penalty that was brought up by Paul. So Matt, maybe you can touch a little more specifically about the execution?

Sure. And let me just point out that, and that's always true with frequency. It's always a product of both internal and external factors. We always talk about the fact that when we had a spike in frequency, we attributed that to miles driven, which was a product of the unemployment rate as well as lower gas prices. We have weathered that influence; you have where you are in your own cycle as far as the tenure of your book, what segments you've been growing in and things like that. So I think the way to think about it is if you're trying to figure out how is Allstate going versus the competitors, look at some of that industry benchmarks; I'd encourage you to look at fast-track. So the last fast-track that came out was the second quarter, 12-month mover. That showed Allstate's year-over-year change in physical damage frequency at about three points lower than the industry. So if you think of the industry as a product of their external and their own internal factors, and you think of us, then we look at that and say, assuming the external factors are a constant, that shows the benefit of the work we're doing on our internal factors such as tenure and quality of the business.

Yes. That's helpful. A quick follow-up to that is, I guess, someone else was also asking this question on pricing. Given your commentary regarding let's call it the excess margin that was earned this year, do you think it gives you additional room to adjust pricing downwards to generate more growth in 2018? Thanks.

Amit, just to make sure we get the words right. We don't view margin as excess or short or anything. We thought we earned a good return on our auto business; we think the work we've done has been accurate and it's fair to our customers as opposed to excess. And but you wouldn't see in our history times when we lowered prices on purpose to reflect short-term swings in frequency.

Good morning, Allstate. Tom, can you either re-give or give what your gross catastrophe losses were, what you ceded to the reinsurers in the quarter?

Gross, we ceded $90 million to our reinsurers in Florida.

In Florida, nothing in Harvey?

Nothing in Harvey. Harvey was right at the cusp. We have a $500 million retention; we had $500 million. There's nothing to cede to them.

So your reinsurers have done pretty well with you and that's why you said you don't think your reinsurance cost will go up that much? Is that a fair characterization?

Hard to tell what happens to the reinsurance market. It would certainly we're one of the largest purchasers, but we're not the biggest driver as you know. And Harvey, there were a lot of commercial losses and a variety of other things going on. At this point in the cycle, it's mostly people trying to use things to talk about what they want to happen as opposed to what will happen. We think our reinsurers in our programs have been well compensated. We think it makes sense for us because we carry less capital because of that. And we have less earnings volatility because of that. And so we like the program we have set up. And just, you know this, I'll just reiterate it, that we have a very staggered and stretched-out reinsurance program; it goes three to five years for some of these programs. So any change in pricing in any given year gets muted in terms of its impact in our reported financials.

Yes. Thanks. A couple of quick ones here for you. First, I'm just curious, Tom and Matt, did the hurricanes have any beneficial effect on kind of your underlying results, underlying combined ratios or frequency ex-cats typically? As you've seen in the past, we're typically there is some decline in frequency during or post a hurricane?

It's a question that we always ask ourselves, we look at all the numbers. I would say, it's really hard to tell. The best way to get around that really is to look at longer than the frequency and severity numbers over longer than a quarter. So that's why we always talk about homeowners and we'll say latest 12 months, because we want you to understand that there are fluctuations. It's really hard to tell what happens with claiming behavior, whether somebody doesn't call us because they think we're too busy. We tend to find people do call when they have a problem, so it doesn't normally show up there, but it's really hard to tell. So let me just close with a couple of comments. First, we're going to stay focused on achieving balanced operating performance and looking at our five operating priorities. We'll stay proactive and disciplined and make sure we create economic value for our shareholders. Thank you all for participating, and we'll talk to you next quarter.