Good day, ladies and gentlemen, and welcome to the Allstate Third Quarter 2017 Earnings Conference Call. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Mr. John Griek, Head of Investor Relations. Please go ahead.

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 me, 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, 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 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, and it 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 the…

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…

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 traded by leveraging the SquareTrade's 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 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 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…

Certainly. Our first question comes from the line of Jay Gelb from Barclays. Your question, please.

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. So 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, use of data and analytics, better lead generation, and more sophisticated segmentation. The third is to get that distribution more engaged and investing in their businesses. And that's through some redesigns and enhanced compensation and recognition programs, the 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, better underwriting to improve their close rates. And fifth is to drive more quotes to them, so with better marketing and more segmented marketing. So on the new business side, it's pretty basic, more points of presence, capable of quoting more and closing at higher close rates. On the retention side, there's basically three components: Better onboarding, so that first experience with Allstate after they make the purchase decision is a positive one, better advices service throughout the course of their relationship and that means things like annual reviews of their coverage, it means appropriate amounts of touch points with the customer to ensure that they're happy with their service. And finally, on retention, less rate shop, more stable rate environment, so less triggers for shopping. So we think 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, that's why you're seeing the increased retention and new business rates. And 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 (27:03) 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 or so 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 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 positions 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 MPS 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 – the PIP 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 gotten on the 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 what your thoughts are going into next year?

Jay, obviously our risk management programs that we've put in place over the last decade has served us well, and we still made $300-plus million for underwriting income in homeowners this quarter despite the high cats. 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.

Thank you.

Thank you. Our next question comes from the line of Paul Newsome from Sandler O'Neill, your question please. Jon Paul Newsome - Sandler O'Neill & Partners LP: Good morning. I have a somewhat related question on the growth potential. Assuming that your growth efforts work, and the reason I think not, 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... Jon Paul Newsome - Sandler O'Neill & Partners LP: 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. Jon Paul Newsome - Sandler O'Neill & Partners LP: Great. Thank you. I guess, my second question relates to the SquareTrade. Any update on moving some of that business from your partner's books to Allstate's favor?

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 beginning next year. Jon Paul Newsome - Sandler O'Neill & Partners LP: Great. Congratulations on the quarter.

Thank you.

Thank you. Our next question comes from the line of Sarah DeWitt from JPMorgan. Your question please.

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 cat four hurricanes and all the associated issues that we've had this year is that our product design and our risk management, our PML 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, of course, will continue to analyze it, and to ensure that we understand the dynamics in severe weather, and the cats, and 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 that 90% of our new business in that product and about a third of our total book, and we're very pleased with the performance of that during these weather events, not only the cats, but the additional weather events that we've had this year. So for Allstate right now, it's pretty much steady as she goes, and 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 do think about it is really 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 look at, think about the annuity line of business, consider that performance-based asset class continuing to moderate down toward a 10% to 12% level. So the levels we have experienced in the last two quarters has been higher than we would expect. The quarter also annuities benefited from favorable lower contract benefits, 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. And in terms of the 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 us in the life business earnings come back down as mortality reverts back to an expected level. The life business and the benefits business, we ran 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.

Great. Thank you.

Thank you. Our next question comes from the line of Amit Kumar from Buckingham Research. Your question please.

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. So 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 are 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 had – we attributed it to miles driven, which was a product of the unemployment rate as well as lower gas prices. We have weathered that influence – and you have where you are in your own cycle as for 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 swing in frequency.

Got it. Thanks for the answers.

Thank you. Our next question comes from the line of Robert Glasspiegel from Janney. Your question, please.

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 $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 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; goes three, five years some of these programs. So any change in pricing in any given year gets muted in terms of its impact in our reported financials.

Okay. And if I could squeeze one more in, these were great results and frequencies for the industry, sounds like it's a little bit better than industry. In retrospect, did you over sedate the patient in your auto strategy and maybe should have grown a little bit faster or you're comfortable with where your sort of top-line is?

Bob, I'm really pleased with the results. I think our team executed it extremely well with great precision. I do remember, I think in our call in the first quarter of 2015, you thought we were growing too fast as we were seeking to slow the process. We always seek to please, just give us some time to get back to growth mode.

Guilty as charged. Thanks.

Thank you. Our next question comes from the line of Brian Meredith from UBS. Your question please.

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-cat 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.

Got you. And then another quick question for you, Tom and Steve. So your stock's trading at a real healthy price-to-book multiple right now, rightfully so given your terrific results. I guess, from a capital management perspective, when it gets to these levels, is there any kind of thought between sending capital back to shareholders via a special dividend instead of share buyback?

Let me make a comment on the valuations first, and Steve can talk about how we think about capital and deploying it in our existing businesses for new opportunities, and then a return to shareholders. As it relates to the current valuation, I would point out that there are some companies that look like us that have substantially higher book value multiples. Like I wouldn't mind three times, and it's also true when you look at the broader market.

As you know, and we talked about previously, we look at the capital we generate, and we look at how much we need to invest in the business to grow it, which we've talked about a fair amount in this call. Then we look at opportunities we have in terms of growing it not only organically, but inorganically. SquareTrade is an example of that. Then we look, we have to pay our dividends, obviously. We think it's an important part. What's left? We look and say, what do we do with that? And generally, we don't want to hold it for a long period of time, it depresses our returns. So we give it back to shareholders or we find a use to put back in the business.

And we've not found special dividends to be an attractive way to do that; we tend buy shares back. As the world changed and for some reason whether it was tax policy or something else that led us to do it another way, it is our objective to give it to shareholders in the way that best meets their needs.

Great. Thanks for the answers.

Thank you. Our next question comes from the line of Meyer Shields from KBW. Your question please. Meyer Shields - Keefe, Bruyette & Woods, Inc.: Yeah, thanks. Good morning. Tom, I'm trying to clarify my understanding of the strategy in terms of the speed of incorporating things like benign frequency into pricing. Is there any imperative to do that maybe more frequently with smaller moves because you also talk about pricing stability?

Meyer, we're always looking at pricing at an extremely granular level, and Matt can give some points. But I would say we think of our business like a machine, and it operates at an extremely granular and proactive way on both frequency and severity. Matt can talk about what they've been doing in frequency specifically, but.

Yeah. Thanks for the question. Look, it's always our objective to keep pace with changes in frequency and severity and overall loss costs in a way that maintains our margins and is as least disruptive to our customers as possible. When you have a large spike in either frequency or severity, our belief is, we have to maintain margins and get back to rate adequacy as quickly as possible. And so we will take larger rate amounts as necessarily and as justified when we happen to maintain those margins. We're right now in a much different rate environment than we were in 2014 and 2015. It appears that we're able to take what I would call maintenance rates, inflationary – normal inflationary damage cost and severity increase rate adjustments, and that tends to be smaller, less disruptive, and does less damage to our retentions. And that is our objective whenever we can. Meyer Shields - Keefe, Bruyette & Woods, Inc.: Okay. Thanks a lot. Thank you. The second question, also Tom, in your prepared comments you talked about the main competitors to Allstate being State Farm, Nationwide, Farmers, is that true both on the business that you win, and the business that goes to competitors?

I'm sorry; I missed the last point here, Meyer. Meyer Shields - Keefe, Bruyette & Woods, Inc.: When you talk about the most significant competitors to the Allstate brand and the exclusive agency distribution channel, are those the companies that both provide your wins and take some business from Allstate? Or is the mix of those two categories different?

Yes. Good, good, really good question. So when we look at the Foursquare (50:40) , we look at people's market share in that segment relative to their overall market share in whole industry. And so in that more or less branded local advice State Farm, Farmers, Nationwide, and Allstate, we have a higher index market share than we – our overall market share. And that is also true with respect to who we get business from and who we lose business to in that segment. And Matt's team tracks that, we track it by state, by risk class. We look at our quote rates by competitor, we look at close rates by competitor and yet in fact, State Farm as you would expect in that lower left, is the other large significantly branded business, not that Nationwide and Farmers are not but they're the biggest obviously in that sector. And their results do impact what happens to us. If you look at their results, not they need to, they've been losing money in auto. And so we think we're well positioned to grow in that business. It doesn't mean that GEICO and Progressive in their repeat study isn't trying to get the same customers. I'm not trying to imply like they're just buying those customers on the street corner. But the customer value, the advertising tends to drive increased allocation in those specific segments. But we compete with Progressive, GEICO for those customers as well. So I don't want to act like we're the only people, but we just over index a little bit in that segment. And that's why we believe we have an ability to grow in that segment, it's not just GEICO and Progressive, we have to be, but it's Farmers, Nationwide, Progressive and the hundreds of other small regional carriers that are out there we can get. Meyer Shields - Keefe, Bruyette & Woods, Inc.: That's very helpful. Thank you so much.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Tom Wilson for any closing comments.

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, disciplined, make sure we create economic value for our shareholders. So thank you all for participating, and we'll talk to you next quarter.

Thank you, ladies and gentlemen, for participation in today's conference. This does conclude the program. You may now disconnect. Good day.