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Mike Nannizzi - Goldman Sachs

Analysts

Tom Wilson - Chairman and Chief Executive Officer

The Allstate Corporation (ALL) Goldman Sachs Financial Services Conference Call December 10, 2013 8:00 AM ET

Mike Nannizzi - Goldman Sachs

Okay. So we are going to go ahead and get started here. So good morning everyone and thank you for being here. I am Mike Nannizzi and I cover property and casualty insurance here at Goldman Sachs. So on behalf of Goldman, I’d like to welcome you here to our 2013 Financial Services Conference. Over the next few days we are going to have 50 companies presenting and there are over 1,200 clients registered. And so we appreciate your support, we appreciate the support of management teams and Tom and his team here as well as the rest of the groups and yourselves here in attendance who are participating.

And I just want to make a couple of announcements before we get started. Number one, we have an app that’s available, because we are entering the new era of technology, maybe a little late, but here we are with a very nice app, which has the agenda and also has a couple of survey questions and we would encourage you to download the app, because it will give us some nice information on your perspective and we will be sharing the answers to those survey questions to the extent that people are able to do that here by the end of the conference. So that’s something that we hope you will take a look at. And maybe the most important piece of information, it doesn’t seem that way it is right now, but there will be a cocktail hour at the end of the day. So please feel encouraged to stay around. It’s going to get cold outside and we will look forward to seeing you this afternoon.

So with that, I’d like to get started here with our presentation. We have Tom Wilson here from Allstate CEO and Chairman. Allstate is a $25 billion property and casualty company focused on personal lines. It’s the second largest auto writer in the U.S., second largest homeowners’ writer in the U.S. and is in the process of some very exciting innovations and we are very happy to have Tom here with us. So with that, I will take a seat and turn the mic over to Tom.

Tom Wilson - Chairman and Chief Executive Officer

Thank you, Mike. Good morning. Thanks for taking the time to invest and think about Allstate. I am joined by Steve Shebik, our Chief Financial Officer and Mario Rizzo who is our Treasurer. Our goal this morning is to engage in a conversation to help you understand our strategy and our proactive approach to creating shareholder value. So let me start with a statement that says I will be making some forward-looking statements today. Now, we pride ourselves in our transparency and has a tremendous amount of disclosure that’s available in our filings around our website, so you can assess the upside and downside of investing in Allstate.

Allstate does represent an attractive investment opportunity for four reasons. When you invest in Allstate, you own an outstanding personal lines franchise. It has competitively differentiated business strategy that’s focused on four different customer segments. Secondly, we stay focused on our priorities proactively across issues and execute well. Thirdly, we have good underlying returns in our auto and homeowner lines of business. And fourthly, the consistency enables us to generate significant capital, which we then utilized to generate good solid cash returns for shareholders.

So I will go through these slides except the context within the conversation we will have with Mike. Starting with our strategy, this chart should be familiar to some of you. It’s our consumer focused strategy, which is depicted visually on the slide, which breaks down the consumer insurance market into four segments and that’s based on their preferences for the type of interaction they want and their beliefs about insurance companies. So on the left side of the chart our consumers have preferred to get local advice and assistance as it relate to their insurance need. They want someone to help them out. On the right hand side, our customers will be comfortable handling insurance on their own with all those self-serve customers. On the bottom half are those people who value insurance and see a difference between the various brands in the marketplace. On the top half are customers that see little difference between insurance offerings and tend to be very price sensitive. These are the people who just say give me names that I recognize and I will be okay.

The Allstate brand and through over 9,400 local agencies and about 32,000 people locally serves customers that are primarily in the lower left hand quadrant. We estimate that this is about half of the total consumer market and this is a place of historical strength for us, where we compete with state farm, nationwide farmers in a number of regional companies. These customers prefer to have one insurance relationship for all their protection needs and therefore tend to bundle their purchases together. We acquired Esurance in the fourth quarter of 2011. They have a unique value proposition for customers that prefer self service, but still want the value of a branded experience. We used to serve this segment with The Allstate brand before 2011.

Now while our market share is lower in this segment, we are growing rapidly with units increasing 32% over the prior year as of the third quarter. The largest companies addressing this segment are GEICO and Progressive Direct. In the upper left are customers that want local advice, but do not see a significant difference between insurance companies. They are served by independent agencies that offer products from multiple companies including our Encompass brand. We have plenty of room to grow our market share in this segment as well. The major competitors here are Liberty, Progressive, Travelers and Hartford. With Answer Financial completing the picture in the upper right, we are the only insurance company that has unique offerings and business models for each segment.

The five 2013 operating priorities to implement this strategy are shown on the left hand side of the slide and we are achieving all of those objectives. After a number of years of adverse impacts related to repositioning our homeowners book of business, we are now seeing positive premium growth from all of our brands. For the nine months ended September 30, The Allstate protection standard auto combined ratio was 96.6, which reflects the benefits of relative benign accident frequency and active management of both pricing and cost control by our personalized organization.

As we mentioned in our third quarter earnings release Esurance and Encompass segments have auto combined ratios that are higher than we would like. So we will again adjust pricing and underwriting to ensure that growth is achieved at acceptable margins. The Allstate protection homeowners recorded combined ratio of the first nine months of 2013 was 82.4 which reflects our continued focus on improving returns and the benefits of good weather. In total on a recorded basis, this business went from an underwriting loss of $1.3 billion in 2011 to a profit of almost $850 million to the third quarter more than a $2 billion swing. These results are on pace to it. So we are on pace to achieve the target of returns we want in this line which we set out to do four years ago.

We continued to reposition our property liability portfolio with a shorter duration to mitigate the impacts of rising interest rates. And while this action generates current capital gains, it does – and lowers our risk profile. It does reduce the portfolio yield and future operating income. That said we believe it is the right risk in return tradeoff as we are making behalf of our shareholders. Annuity returns have improved, but the long-term outlook continues to be challenged by low interest rates. We are also focusing on reducing costs so that we can deliver the best value to customers. This includes simplification and process improvement initiatives as well as cost reductions. This year we made several changes to employee and retiree benefit programs which have had a significant impact on the balance sheet and future costs.

Our financial results as of third quarter ended at September 30 and as of December 31, 2012 are shown on the right hand of this slide. And we are way ahead – we are ahead of last year on revenues and operating income and well on our way to achieving the goal of generating an operating return on equity of 13%. This gives us the flexibility to invest our strategy while providing strong cash returns to shareholders.

A good strategy must be combined with the ability to respond to external events that creates shareholders value. It can be seen from our history over the last decade. There have been four significant external events driving change at all states outside of the segmentation of the consumer market that was just discussed. In 2004 there were four hurricanes in Florida and in 2005 hurricanes Katrina, Rita, Wilma all hit the Gulf Coast assuring in a new era of severe hurricanes. In 2008 increased severe weather extended into tornadoes, hailstorm, straight-line winds and wild fires. In 2008 and 2009 global financial crisis hit the markets and impacted all larger investors and financial services companies like Allstate and this has been followed by a period of historically low interest rates.

For each of these events, we adapted and changed to protect our shareholder value which is seen down on the bottom. First, we protected overall returns by making sure we maintain margins in the auto insurance line. Secondly, we want to improve returns in homeowners by raising average prices from $800 annually to over $1100 annually reducing the size of the business by over 2 million policies, changing our underwriting practices, changed our inspection practices and changing our policies. We exited the variable annuity business in 2006, stopped selling fixed annuities this year and are in the practice of selling Lincoln Benefit Life.

In the investment side, we sold many of our structured securities, reduced the size of our municipal bond portfolio in state law and corporate credit as we are at the beginning of the crisis. In the last 18 months, we have shortened the duration of the property liability portfolio to lock in gains for shareholders from low interest rates. We improved the focus of the Allstate agencies on our core customer group and acquired Esurance to better compete in the self-serve segment. So when you invest in Allstate, you get a team that uses facts to face reality and makes changes the right way. We proactively make decisions to adapt and then we execute to generate good returns for shareholders, whether they issue a severe weather, the economy, the financial markets or best uses of capital.

The chart in the upper right hand corner, this slide shows the growth by brand and our results from quarter to quarter. And you can see the results of our strategy starting to unfold in the growth side. So, a significant improvement into our growth as the Allstate brand standard auto, which grew in the third quarter for the first time at six years. In addition, the rate of decline in our homeowners items has decreased as our actions to improve returns have been reduced. The negative drag on policy growth resulting from margin improvement is starting to be behind us and we are positioned to grow market share at acceptable returns in the lower left hand quadrant. These growth churns did not occur by accident. Three years ago, we set out to increase the consistency and effectiveness of our Allstate agency force knowing that it would be easier do it when we were repositioning the homeowners business and we are in a period of low growth. So we rationalized our footprint, made changes of compensation structure. We implemented a number of changes to support our agency owners as well from technology improvements to more timely a comprehensive education. We now have a more engaged exclusive agency force that is well-capitalized and better equipped to serve our customers. And you can see we are growing our Esurance and Encompass businesses as well.

On a longer term basis, we believe that our approach to being customer focused will work into the telematics space. So this is our offering in the connected customers is another way we differentiate ourselves in the marketplace and position ourselves for future growth. With both the Allstate brand’s Drivewise and Esurance’s DriveSense programs, we offer interactive products that have the potential to change the insurance market. These offerings enable us to give customers a better more accurate price and broaden the services that come from being one of our customers. Now, our customer value proposition in this space is a little different than some of our competitors. So our product establishes the connectivity platform in the car that enables us to increase customer touch points over the course of their relationship with us rather than doing just that add one point in time to get a better price. We are developing a number of other services that will be offered to these platforms such as enabling drivers to become safer drives or monitor team driving.

We have a long history of providing good cash returns to our shareholders. As you can see from the top of this slide, when you combine the actual dividend with the cash available if you choose to maintain your relative ownership position by selling pro rata into the share repurchase program, lot of people don’t think about cash returns this way. But if you think about both the dividend you get and you could maintain your ownership position and the cash returns we have generated by investing in Allstate have been in the 8% to 9% over the last three years. Since our spin-off, we have returned $32 billion in capital to our shareholders.

So if you have a question, have I missed the opportunity to invest in Allstate, because we have had a good run over the last couple of years, we have also provided our price-to-book ratio on the right hand side, on the bottom of this slide. And while this is obviously only one way to value our company, we believe it illustrates the potential upside exists in our stock today as we begin to grow our company. So to summarize we have a competitively differentiated strategy. We execute well and we are beginning to grow after a period where we had to reposition our businesses and we believe in creating shareholder value by balancing risk and return and implementing the right solutions even if they are hard to do. So we are excited about our future, our customers, our agency owners, our employees and our shareholders. So with this context, I will turn it over to Mike. So he can lead a dialogue in as to our future potential for growth.

Question-and-Answer Session

Mike Nannizzi - Goldman Sachs

Great, thank you Tom. So if anyone in the audience has a question you would like to ask just go ahead and raise your hand. I am going to start with you for a little, because I have got a few I would like to ask. I guess, one question, you mentioned the homeowners book and repositioning there, can you talk about how much of a headwind the changes you needed to make in the homeowners book or to the auto book and how much of that has now converted to a tailwind? So kind of evaluating the net impact on the auto book from an active shrinking and de-risking of the homeowners book to maybe now a more open approach to growth opportunities?

Tom Wilson

The changes we had to make in the homeowners business were a bigger headwind I think than the market realized when they looked at our auto business, because people looking at our company tend to look at it by product rather than by customer and we tend to execute by customer, not type. So when you have –we are down 2 million policies in homeowners. Now, we have brokered a lot of that business. So we now broker about $1.3 billion worth of product for other people, because we didn’t want to leave our customers high and dry. But nevertheless, when you call them and say, hey, the good news is they still have a homeowners product out for you, the bad news is it’s not Allstate and the worst news is it’s a lot more expensive than Allstate. People tend to shop around on auto insurance. And so that was a pretty big drag on our business and we go through and we look at it by state, by region and by ZIP code really. And you could see, it was a pretty big headwind, bigger than the market knew. I don’t think it just become a tailwind, but because we are still going – we are down about 3% in homeowners policy this year, but we are close to being done with both increasing price, because all those we didn’t get rid of, we still increase our price.

So when you went from paying $800 to over $1,100, which is 30% plus increase in a relatively short period of time. That also makes people think, jeez, maybe I am not getting a good deal on my auto insurance, so they shop around. So those rate increases are much smaller. So this year we will be about, so far this year I think we are like 4.5% or something on an annualized basis versus 8% to 9%. So that’s the impact, which is rating prices has come down and we are getting smaller with the reduction in the size of our book is getting smaller. So but it’s not yet a tailwind. I believe it will be a tailwind, because the things we started in 2008, other people started pretty much in ‘09 and ‘10. So they are now in the middle of their programs, we are pretty much through ours. And we have rolled out new House & Home product in new business stuff like 50% in their product. And that’s bringing in a lot of new autos with it. So we have a huge sell rate, particularly in that lower left hand quadrant, where when you get the home, you can get the auto. So it’s not yet a competitive advantage, from a growth standpoint. I believe its competitive advantage from an earnings standpoint and we now need to turn it into a competitive advantage from a growth standpoint.

Mike Nannizzi - Goldman Sachs

So you mentioned new business picking up, I mean, when do you expect, so it would seem like you are seeing early signs of that, I mean when do you expect that – we could start to see that manifest more clearly and is there a region where that dynamic is more obvious than others?

Tom Wilson

Yes, well, there is three pieces to growth, right. So there is how many people we keep to our retention rate. There is how many new customers we are getting and how many additional people we already have who we can sell homeowners to. So our retention rates have been flat, but are down historically. We expect those should go up. So that will help us. Our new business is way up and that’s up pretty much around the country. There are still some zones in the country, where we are not there. And then we are starting to do more cross-sell, we call this a PMO optimization. So we have gotten our catastrophe exposure down far enough where we could now go back in and reorient the book and take out some risk we wouldn’t have done before. So the question is when we see homeowners go from red to black in growth, we cut it in half this year. So last year, it was 6% down, this year it’s about 3% down. I would expect it to continue to go from to get smaller. I don’t know that it will get in the black next year, but it should start to drive some auto growth with them.

Mike Nannizzi - Goldman Sachs

Right. And so I mean in terms of if we go back to the auto book, how much of that inflection we have seen in auto, would you attribute to that kind of tailwind to headwind in homeowners and the cross-sell associated with it?

Tom Wilson

Yes, I understand. So there is a couple of things. So first, homeowners, definitely has helped, but perhaps the bigger impact was something we call broaden the target. So when we got into the – after the hurricanes and severe weather started in ‘08 and the financial crisis hit, we took the proactive strategy say but we just got to make sure we make money in auto insurance. So we tightened up our underwriting standards. We tightened up our pricing and so as a result of that you take on less new business because you want to maintain overall profitability for the company. And I was willing to take the hits of growth because of that. In 2010 and ‘11, I felt comfortable enough with where we were on homeowners and what was happening in the financial markets to what we call broaden the targets. So what’s we are starting to see in the homeowners business is the impact of both the homeowners, in the auto businesses the impact of less stride from homeowners but more aggressive growth posture in the auto business.

Mike Nannizzi - Goldman Sachs

I understand, I understand. Thank you.

Tom Wilson

Yes.

Unidentified Analyst

(Question Inaudible)

Mike Nannizzi - Goldman Sachs

Let me just rephrase it. Okay, actually the mics were behind you if you want to go ahead, just for folks online.

Unidentified Analyst

I just wonder if you could possibly explain a bit more about Drivewise and DriveSense, how they are positioned in the market, what – how they are different from competitor products like Progressive’s products?

Tom Wilson

Okay, let me go way up for a second and I will come right down to sort of what we are doing there. So if you look at automobile technology, your car is basically becoming a cell phone on wheels right. So it has the ability to connect things machine to machine communication going on. And what we are doing is using that and normal telecommunications technology to put something in the ODB port which is the port underneath the car. And it tells us how you drive, how fast you are going, how you brake. It tells us something about your car, it can tell us whether your tires are low, it can tell us what your engine problems are and all the stuff transmits to us all the time.

Unidentified Analyst

(Question Inaudible)

Tom Wilson

Yes it can tell you the location as well. Depending on – it depends what device you put in. Our devices started to have GPA. We are putting in devices with GPS now. Now that everybody uses different kinds of stuff and so you can do this with the ODB port, you can actually do it with the cell phones, because cell phones have gyroscopes, accelerometers and stuff like that. So you can do it with a cell phone. When do with a cell phone, you don’t get information on the car though, so you get only information on how the car itself was moving and it’s not as accurate as when you put in ODB port, because the phone moves around and the technology is not good. So that’s connecting the car. Many people are trying to do that. We are doing it as you pointed out, Progressive is doing it. You don’t see offerings from some other the auto writers, the state farm is trying to do it. Our offering is to stay connected with us. So it does – it has three potential vectors of profits. So if you think about how it has worked for us. So the first it helps us to get a better price for you. We understand – so when we are trying to understand the price insurance of course we are making estimates. Our estimate is based on what we know about you. To the extent we know something about how specific will you drive we can give you a better price. Those – that improvement is significant. It’s a huge improvement in individual pricing. It gives you a big competitive advantage, not to be overlooked. And all products tend to be focused on doing pricing.

Secondly, it can enable you to be connected with the customer. So we are moving our brand offering, if you look at some of our advertising started from just protection and restoration to prevention. So I can tell you that if you didn’t corner as quickly it would be safer all by the way your car, your tires are low in the front. If your tires are low it takes longer to brake, so you probably want to stop by the gas station and put some air in your tires because you will be safer. It can also tell you that your team, so sometimes I will have people say well, I am not interested in you knowing how I drive, because I am a really aggressive driver or I get some investors who are like that. And then I say well you have any kids and they would say yes, so how would you like to know how your kid drives, how would you like to know if your kids are going 80 miles an hour and 40 and I can tell you, I could send you an e-mail that says oh, your car has been going 80 miles an hour. And so you might want to know this.

So you can broaden your services is the second vector of profit potential for customers. We are doing that, the Progressive offering today, I don’t know what the Progressive has in store, but the Progressive operating today a snapshot which is on the pricing thing, take a snapshot, stick to the thing in the ODB port, get the pricing. You are supposed to send that back to them. Our state is in, it’s a more expensive model, because the device base in the current, we pay for the device and we have to pay for the telecommunications cost. So it’s a more expensive model, but we stay connected with our customer and that’s both Drivewise and DriveSense. And then the third element is what you do with all the data. And so nobody has really figured out what to do with all the data yet, but there are companies who are interested, not in specific driver data, but in transportation data. And so we collect – even today, we are collecting billions of miles a year of traffic data and that’s – and we are hardly penetrating the customer base. So the third vector of profitability would be what you do with that additional data.

Unidentified Analyst

(Question Inaudible)

Mike Nannizzi - Goldman Sachs

The question is what’s the difference between Drivewise and DriveSense?

Tom Wilson

Drivewise and DriveSense, in the construct, I just gave you the same. In the second piece of it, which is what services and would you want that customer base at Esurance wants different kinds of services than the services that you would get in an Allstate customer, so just different kind of customer group.

Mike Nannizzi - Goldman Sachs

I guess I am picking up on that, just one second chance, and just picking on that, just on Esurance, maybe can you obviously you are making a lot of investments in your telematics offerings. Can you talk about some of the investments you are making in Esurance as far as products, I saw the release recently about homeowners being bound online, geography etcetera, just to give us an idea of kind of how you are thinking about getting that segment to kind of standalone profitability?

Tom Wilson

Okay. Let me go maybe I will go into the action now, so why we bought Esurance and then what we are doing with it.

Mike Nannizzi - Goldman Sachs

Perfect.

Tom Wilson

We brought Esurance, because we were trying to serve that lower right hand quadrant with the Allstate brand and the business we are growing like 20% a year, but we want taking share. So we said we need a better customer offering and we are starting to dilute the Allstate brand, because we are talking about self-serve, at the same time, we are talking about agencies and health. So we said and we bought Esurance, because they had a good brand name in the marketplace and we thought it will be hard to establish a new one given what’s happening with overall advertising in the space today. We thought they had a good technology platform. They were good at direct marketing I understood how to work social media and stuff like that. So they have got some skills and capabilities to us. What we were better at was our name has more trust than others does, which is important. So we endorse the brand, its Esurance and Allstate Company that has raised a level of consideration and trust with customers, raise the close rate, which makes it more economic. So that in and of itself start to drive some growth. Secondly, they were very focused on drivers without prior insurance. And we were very focused on preferred drivers, people who have insurance and so we had better data, better pricing on preferred drivers. So we rolled out our data into their book to go after preferred drivers. That led to those two things and then more advertising dollars led to more growth. The third, another region we bought is we are better at claims than they were network. So we are putting our claim protocols into their processes and lowering their processes.

Now, so that’s the first stage, they have got us to 32% growth. And well, I don’t really like what a combined ratio is. We also measure it on an economic basis. So sort of I think of it EBA kind of measure, lifetime value measure. It’s still economic for us at the rate we are writing it. It could be better and it will be better, but I like what we have got going. Now the next thing we are doing is we are starting to expand into motorcycle renters and homeowners, because many of those customers will buy and will be the only direct company that actually sells homeowners, our own everybody else brokers it like the Esurance used to. So we are expanding those offerings and the homeowners right now is in one state. It’s in Wisconsin. Renters, I think might be in 15 or something like that and the motorcycles are like five or six. So we got a long way to go in terms of being able to further leverage their platform from what we were before.

Mike Nannizzi - Goldman Sachs

Got it. James, in the back I think had a question.

Unidentified Analyst

Thanks. I just have two questions. One, can Allstate benefit from lower property cat reinsurance pricing? So I will ask that.

Tom Wilson

The answer is yes. And so just to show you how we think about reinsurance, in 2005 after – slightly after hurricane Katrina we are going to get out of this business as that business and we split the homeowners business into three chunks, large hurricanes, severe weather like tornadoes, hailstorms and then normal slip fall, kitchen fires that kind of stuff. The third – the first rather was we thought was really hard to price and to get recoup the money in our consumer products. So we basically divested that by using reinsurance. So that’s how we think of reinsurance. The other two we thought we could manage to make money on, so we said we are going to use reinsurance. We can still have the customer just don’t want that risk. So we have done a good job of passing through the cost of that to our customer base and it’s we recover I think over 80% of our reinsurance today through higher rates. So as the price comes down, I think it will do less, there is a little bit of lag impact, it could impact a little bit of bottom line. What it really should do is make us more competitive in the homeowners business, enable us to grow that business at a faster rate. I think reinsurance pricing probably will come down. You are starting to see it become an asset class in some of the institutional investors. And as that money moves in to the space, it tends to bring the returns down. The returns on reinsurance have for us when we look at it on an all-in basis have been kind of like the cost of capital for us. When we look at how much capital we are able to free up and what it cost us out in that basis to do the reinsurance, it kind of looks like cost of capital. So the extent it comes below our cost of capital that would be a good thing for our customers and should give us more growth.

Unidentified Analyst

Great, thanks. And secondly, is the cost drag on the telematics initiative significant to your bottom line?

Tom Wilson

Well, I am trying to think of the word significant to the bottom line. So it’s a relative basis. It’s we are putting a lot of money in telematics. We will continue to put more money in telematics and it will go up next year even more and over the next three years it would be a significant amount of money. Relative to the bottom line, we are committed to maintaining the combined ratio we would give to everybody on an annual basis. So this year we said 88 to 90 and we will be below that. So we expect to manage our way through, but its lots of money. And in fact when you look at, I would just say, in general technology, our technology spend has been way up and we will stay up for a number of years as we seek to get these kind of growth opportunities to just simplify the cost structure.

Unidentified Analyst

Is telematics profitable?

Tom Wilson

Well, I guess, I would say in total when you look at the amount of money we are spending on telematics, no. If you look at is telematics profitable on an individual customer basis, yes. So it’s an economic proposition, but when I am funding new rating plans, funding development of devices, starting to fund some marketing, which we will do more of next year relative to 250,000 customers, you can’t really update, you would say no, in total, but I am okay with that. I mean, I think as long as it’s the pricing advantage that it gives you in the marketplace is significant at least what we are doing with it is significant. So that will not only lead to better near-term pricing, it gives you better retention.

Unidentified Analyst

Can you talk about firstly how much discount the customer might get if you are using it? And secondly, what the loss ratio would be for those customers on average compared to yours?

Tom Wilson

The discount we give everybody is at least 10%. It could be up to 30%, which if you took that math and you applied it to the price spread that was brought into the market through the use of credit, it would look just like it. And I would point out that the use of credit really led to a sustained level of profitability in the industry as everybody began to use it as we took subsidies out amongst the entire customer base. So when you look at our price, our profitability in auto insurance has been great for a decade. If you look at GEICO and Progressive those have been really good for a decade not everybody, there are other people who are five or six points higher than us. But a large portion of that was our ability to use credit and get more sophisticated pricing, telematics will help us do that again.

Mike Nannizzi - Goldman Sachs

We are actually going to – we are actually just over here, so we will go one if it’s a quick one, one quick one here and then we are going to be done.

Unidentified Analyst

Yes, I am not sure if it’s quick. But just can you talk about the cat exposures, put some numbers around the reduction that you have done over the last few years. And then you mentioned you were actually going to be adding back some exposure can you talk about where that would be and to what degree?

Tom Wilson

On our website you can get in and look at various scenarios and see what the losses would be, so net of reinsurance. So when you quote like – we always had to go less than 1% chance of $2 billion hit. And we are below that number today, but I would tell you that’s a really rough number, it’s not really like because an event could be more than that and so I hesitate a little bit in giving specific numbers out, so we never said it could happen. Now I just said it was 1% chance and that’s based on somebody’s model not based on what actually happened. That said we are good 10% to 15% below where I think we could be. We are probably not going to go up that much, don’t need to, but we re-scoping it as what has given us the opportunity to look at some markets that previously the entire market that know right and we will go in, it will take some more business. So we are doing that in places like New York and other places where because of the size of the reduction we needed we did it with a relatively broad swath. Now that we are below that we can go in and optimize. And in some cases, we can pick a business that we had had before. So I would say lot of these people if we still kept our auto but we lost our homeowners, we can go back and then pick up the homeowners.

Mike Nannizzi - Goldman Sachs

Great, we are out of time. Thank you, Tom. Thank you, Steve. Really appreciate your time. Have a good rest of the conference.

Tom Wilson - Chairman and Chief Executive Officer

Yes, thank you.

Mike Nannizzi - Goldman Sachs

Thank you so much.

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