Good day, ladies and gentlemen, welcome to the acquisition conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will be given at that time. If anyone should require assistance during the conference, please press star then 0. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Robert Block. Sir, you may begin.
Thank you. Thanks for joining us today. About an hour ago, we issued a press release announcing Allstate's intention to acquire Esurance and Answer Financial from White Mountains. With me today is Tom Wilson, who will make a few comments on the transaction. Also with us are Don Civgin, Mario Rizzo, and Joe Lacher, who will be available to answer questions. We also posted a slide presentation for use in today's discussion that can be found on our website. Before I turn it over to Tom, I'd like to remind you that this discussion may contain forward-looking statements regarding Allstate's operations and actual results may differ materially. Please refer to our Form 10-K for 2010, our Form 10-Q for first quarter 2011, and the press release for information on potential risks. A webcast replay of this call will be available following its conclusion.
Christine Yiter and I will be available to answer questions after the call concludes. I'll turn it over to Tom.
Good morning. Thanks for joining us on short notice. We've provided the slides, I'll begin on slide two. Today, Allstate is announcing our intention to acquire Esurance and Answer Financial from White Mountains. The purchase price is about $1 billion. There are two key reasons we've entered into this agreement. First, the transaction furthers our strategy of utilizing different value propositions for distinct customer segments. Secondly, it's economically attractive. We will improve the marketing effectiveness of the Esurance operations, there are great benefits from utilizing Allstate's pricing and claims expertise. We expect the acquisition to be non-dilutive to earnings in the second full year of ownership. The acquisition's terms are shown on slide three. Allstate is acquiring Esurance and Answer Financial from White Mountains for a price of $700 million above tangible book value.
The net purchase price, after adjusting for capital we will not need to hold, will be about $1 billion. The price represents about 2.5 times multiple of tangible book value at the end of the second quarter of 2011. The transaction will be funded by Allstate out of deployable capital at the holding company level. Consequently, we expect to continue utilizing their brands and to run the businesses as independent operations. The management team is led by Gary Tolman, who's been with the company for 10 years. They're very excited about leveraging Allstate's resources to take their businesses to the next level, and have signed employment agreements. We expect to close the transaction in the fall.
We're acquiring two businesses which are related in their focus on the customer, as you can see on slide four. If you start in that left-hand column, one has Esurance at the top. Esurance targets customers who are self-directed and comfortable making their insurance decisions without personal advice, but want a branded experience. They reach customers primarily through advertising. They primarily provide auto insurance using online and call center distribution to service these customers. Esurance has over 500,000 policies in force, and written premium in 2010 was about $839 million. Answer Financial also targets self-directed customers. In their case, however, they provide customers a choice between about 20 different insurance carriers. Customer acquisition there is primarily through lead referrals. For example, Esurance will provide leads to Answer Financial. That referral revenue helps lower Esurance's acquisition costs.
Let's take a closer look at Esurance, which is a leading online insurer, as you can see on slide five. Esurance targets technologically savvy customers that are self-directed through both mass media advertising and online search programs. They're very good at using data. They continually modify, adapt, and optimize these marketing efforts. They built a very strong brand, particularly in the online space. Over the last five years, they've spent over $450 million building this presence. The chart shows their share of the insurance market when it's defined by only the distribution method. Most self-directed customers utilize the direct channels. You can see that their market share offers opportunities for growth. I'd like to take a few minutes and look at the segmentation of the insurance market with an additional level of sophistication.
What it will do is provide a clearer view of where Esurance competes and how this fits into Allstate's strategy. I'm going to take a minute, though, and go through these axes and explain them before we jump into where the companies are. The horizontal axis distinguishes between the level and type of advice a customer wants in the insurance experience. The vertical axis distinguishes customers between those who want a choice amongst insurance carriers and are brand neutral, and those who are brand sensitive. Let me start with that horizontal axis. On the far left are consumers who prefer the help and advice of a local agency. They're personal touch loyalists. At the other end, the right-hand side of that horizontal spectrum, are consumers who are comfortable researching and making their own decisions. They're self-directed. That vertical scale relates to brand affinity.
The upper end represents customers who see little difference between insurance companies and are essentially brand neutral. At the other end of the spectrum are consumers that want to buy a brand so they know what to expect with their purchase. They see bigger differences between insurance carriers and put a higher value on protection. As a result, they're more brand sensitive. Obviously, people are all over in this map. This is a good way to kind of break it into four key categories. It can be used to highlight the competitive positioning of the various carriers in the market. If you start in the lower left-hand quadrant, those are the personal touch loyalists who are brand sensitive. This is a group of customers that's well-served by companies like Allstate and State Farm.
If you move over to the right, the competition in that lower right-hand segment really is GEICO, Progressive, Direct Auto Insurance, and Esurance. Those are self-directed customers who still want to buy a brand. If you move to the upper left, independent agents serve the customers who want choice between brands but want the advice of a local agent. Answer Financial serves customers in the upper right. Customers today, they expect to have their individual needs met by the marketplace, and that of course includes their insurance providers. Our strategy at Allstate is to focus on the needs of these different consumer groups and utilize different value propositions for distinct customer segments. Our core market position, of course, is in the lower left, where Allstate agencies serve personal touch loyalists.
The combination of that position with an Esurance, Answer Financial, and Encompass make us the only insurance carrier serving all customer segments with unique value propositions. The acquisition is also attractive from an economic perspective, as shown on slide seven. The association of the Esurance brand with Allstate will enable us to improve customer consideration, raise close rates, and as a result, that will improve the effectiveness of their marketing programs, which when you combine that with their data expertise and ability to manage the way they go to market will generate increased growth. In addition, it will raise the amount of advertising which is economically justified, which should also raise growth. Esurance will be able to offer more products to its customers. Allstate's pricing expertise will help Esurance expand its presence, particularly with the preferred risks that are self-directed.
Our world-class claims technology, processes, and organization will improve service levels and lower costs. As a result, we expect the acquisition to be non-dilutive to earnings in the second full year of ownership. Although the number is small, given the relative size of Esurance in comparison to Allstate's existing businesses. In addition to improving the Esurance business, this acquisition enables us to more tightly focus the Allstate brand value proposition on personal touch loyalists. In summary, if you go to slide eight, the transaction is attractive both strategically and economically. Esurance enables us to pursue growth in the self-directed brand sensitive segment with a unique value proposition. We'll be leveraging a brand that has been built to considerable strength and a strong growth platform. Answer Financial serves the self-directed customers who want a choice of insurance carriers.
Allstate will be the only insurer with unique value propositions for all customer segments. We'll generate meaningful economic benefits by leveraging Allstate's brand, product offering, pricing sophistication, and claims capabilities. We'll now take your questions. As we normally do, if you can limit yourself to one question and one follow-up, we can give everyone a chance to participate. Stephanie, if you could start the Q&A?
Ladies and gentlemen, if you have a question at this time, please press the star then one key on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Keith Walsh from Citi. Your line is open.
Hey, good morning, everybody. First question here, just on ad spend leverage. I appreciate the deal, and it's probably the only area of growth it seems within the market right now. You paid a big price here. If you can just give us an understanding of does the advertising spend at Esurance essentially drop to zero? Is it going to be co-branded with Allstate when we see commercials going forward? Because you guys already have a pretty large ad spend there and as well as on the expense side. Then I've got a follow-up. Thanks.
Keith, it's Tom. Welcome. Good morning. First, on the ad spend dropping to zero at Esurance, no. In fact, that's the way they get their customers. We actually expect to increase the spending related to Esurance given the improvements we'll bring to the economic model, and that's factored into our economic analysis and the financial analysis we talked about. In terms of the branding itself, Mario might want to make a comment about how we're pursuing that.
Yeah, it's going to be two different customer groups, obviously two different brands now that we're going to be going to market with. We'll certainly have an endorsement of the Esurance brand by Allstate in some shape or form that we'll determine here shortly. Certainly, we're going to go to market with the two different brands, there'll be continued ad spend for personal touch loyalists for Allstate, and Esurance will probably grow their ad spend as we more vigorously pursue customers in the self-directed space with that brand.
Keith, we've done a fair amount of due diligence on this. What happens is when their brand is endorsed by us, the customer consideration goes up, more people call. Because they're affiliated with the strength and history of Allstate brand, more of those people buy when they call. That improves the effectiveness of the acquisition, one of the drivers of the economic attractiveness.
I guess the second question, just on channel conflict. From firsthand, I've seen this back in the internet bubble with Smith Barney, We tried to do an online thing, and It really didn't sit well with our brokers. Just how is this going to impact your Allstate people out in the field when you're taking business out of their hands, is the way they may look at it. Maybe if you could talk to that a little bit.
Let me make a general comment, and Joe can answer some specifics. First, we believe that the right thing to do for customers is give them what they want. If they want to be able to do it over the internet, they should be able to do it over the internet. If they want to do it with personal advice, they should be able to do that. It starts with our strategy is driven by what the customer wants, not what people inside the house want. Secondly, we believe they are two distinct customer segments, and There's not a lot of overlap. While there may appear to be overlap in the market, Clearly customers can move between channels, it's really the customers choose where they want to go, We don't see that much conflict, so to speak.
lastly, Joe is working very hard at continuing to put a significant amount of effort and enhancement in that which we're doing for the Personal Touch loyalists. Joe?
Yeah, Keith, as we think about it, clearly being technologically enabled is something that all customer segments are increasingly looking for. We'll continue to drive that in both environments. Given that there really are customer segmentation differences, we think this actually helps us because it lets us focus both brands on specific customer segments. We can really drive our execution to resonate with each of those customer segments. People will move back and forth from time to time, and that'll always cause somebody a little angst. We believe the added focus we get inside of our exclusive agency channel and the investments we've been making there will enable those agency owners to do a better job serving those customers, and will help them solidify their position. We feel good about that and think this really helps us advance both sets of strategies.
Keith, it's important to remember too, we've been in the direct business already for 10 years and have managed that channel conflict and actually with a different brand. We believe our agents will understand that fully, given that we've already been competing in that business. Now we'll just be doing it with a different value proposition and different brand.
All right, thanks.
Our next question comes from Dan Johnson from Citadel. Your line is open.
Great. Thank you. Good morning. I think most of us know a decent amount about Esurance, but not as much about Answer. Can you tell us a little bit about the distribution model there, where they get their business from? Then I probably will have a follow-up related to your answer.
Yes. I'll start off, Don may want to answer, jump in here a little bit. Dan, they get leads from other people, they then offer those leads choice amongst about 20 insurance carriers. They're in effect a large, direct independent agency. They get some leads from Esurance. When a lead comes into Esurance, they actually have some technology to determine whether that's somebody who would prefer their direct branded experience or whether it's somebody who would be better off having a choice. They'll route them over to Answer Financial even before doing an Esurance quote if they believe that the metrics are, that's the right place to put them. They also get leads from a number of other companies, then work those. Don, anything you want to?
Yeah, I'd just add that, Dan, they've been successful. If you think about their model as a flow model, they've been successful on both ends, both adding leads through different providers as well as adding a fair number of carriers as well. The model is actually fairly robust in the way it flows leads through and monetizes them.
maybe two parts. They're getting leads from what sort of entities?
Let's assume that the easiest one is Esurance, and I think you'll understand the economic linkage between the two. If you go to the esurance website, you might end up with just an Esurance offering. You might end up with an Esurance offering and a couple of other choices, or you may end up at Answer Financial, depending who you are, how you got there, how they run the metrics, which is an advanced level of what I would call search and online marketing capabilities. They also get quotes in leads from other financial services companies that Answer Financial does that they sell. They have about 345,000 or so customers that they service, controlled premium is about $400 million, and the revenue associated with that is a little more than 10%.
Is it the model assumption that, I'm just out on their website, and they've got Travelers and MetLife and The Hartford and Progressive and all these folks, that over time those folks will migrate to the Allstate platform or the Esurance platform?
No, not at all. No. Those are customers, if you go back to that matrix, those are customers who want choice. There are people who, when they think of insurance, think of Allstate or State Farm, and they think of our history and the way we've been in the marketplace, or their family might have bought from us, or they know when you buy from Allstate you get an annual review. They like that, so they come to us, just as people go to different department stores. There are people who want choice. This is just another way to serve that market. We're, in effect, helping Travelers, Progressive, The Hartford, all the companies you just mentioned, service those customers who want choice amongst them. It's run separately. It'll be separately run. We don't take data and move it from one to another.
We seek to protect
Those people who are our partners inside the business. Again, it's all about serving the customers what they want.
Okay. It's like owning a big insurance agency.
That's exactly where I was going to go, Dan. Think of it as an online insurance agency. As a result, it'll function that way. You're very unlikely to see Allstate as a brand on that platform because that doesn't match what the Allstate brand is doing.
Understood. Last related question to this is the references they get. How much of those references actually come from independent agents that you may actually sort of compete with on a day-to-day business basis in the auto insurance business?
I'm not sure what you mean by independent agents.
I'm sorry, not independent agents. Other insurance companies that are feeding references to Answer Financial.
We do not think we'll have a problem continuing to get leads to drive Answer Financial's business, if that's where you're headed.
Yep. That's right.
It's an effective marketplace to allow carriers, the same way they'd work in an independent agency world, to access those customers and needs. We're not anticipating doing anything that would tinker with that.
Great. Very helpful. Thanks for taking the time to explain it.
Our next question comes from Bob Glasspiegel from Janney Montgomery Scott. Your line is open.
Good morning, everyone. Question, was this a competitive auction? Were there any other bidders involved, or it was just between the two of you?
You'd have to talk to White Mountains about that. I can just tell you from our standpoint, we've been working hard with them for many months, to get this over the goal line.
Okay. They're not going to answer the question either. I thought I'd take a shot with you.
A good try then, Bob. By the way, did you change your last name? I wasn't sure.
Yep. No, they did a pretty good job. That's closer than many. Joe, you've been involved in building a direct model in your old shop, at Travelers. I think they lost $160 million in underwriting last year in their sort of second, third year of the build, $50 million of premiums. What was your thought process, or how would you compare and contrast sort of building from scratch versus jump-starting to $1 billion? What are the economics of one versus the other?
Well, certainly, we hope not to lose $100 and some odd million dollars this year when we do this. Building a business from scratch is a hard item. As we look at the guys at Esurance, they did a very good job building this business. They had a lot of hard work to go through, and they actually had, maybe in some ways, an easier time doing it because they started earlier when there was less competition in this space. They drove into the online space when buying leads were cheaper, when a whole bunch of different things made the investment more economical. We're very excited about the opportunity to have that knowledge base behind us, to have that research and development phase already in the bank and have them advance to the point where they already are.
Leveraging our brand and associating that with Esurance, we think, and they think, helps lift them and take them to the next level. Advancing all of that, again, research and development, for both a time and a money perspective, is a real help.
Bob, it's Don. I think the other thing I'd add is, a lot of times this is about people and focus. Gary and his teams at both Esurance and Answer Financial, this is the world they've lived in quite a while, and they've done very well with it, building the platform. What it really allows us to do is let them do what they're good at.
Right.
Allows us to really focus on that which is our bread and butter, which is the personal touch loyalty concept.
Well, I know the team well, and you're surely getting an excellent management team. Are there economies to scale on claims or anything else in the back office?
We factored all that in. Bob, there's a couple of things that we mentioned. One is the advertising effectiveness, which Keith brought up. Second is pricing sophistication, particularly in the preferred segment. Now, they have to do it themselves, because there's all kinds of regulatory restrictions around that. We know the preferred segment well, so we can help them think that through. On the claims side, there's certainly a lot we can do to help them. Whether that's our next-gen claims technology, whether that's some of the processes we use, some of the settlement partners we have in place, we expect there to be significant savings on the claims side. On the scale side, I think they'll start to achieve their own scale as you get to from where they're at today. The thing Joe was mentioning is, think about it this way.
If you had no business and you wanted to spend $450 million building the Esurance brand, you would obviously lose $450 million. You would get some business along the way. They're in a much better place, and they got that revenue stream coming in, which helps fund the advertising, all of which gets put back into your pricing because you're a cost-plus pricer in the insurance business. It's a good way to get started.
Thank you.
Our next question comes from Paul Newsome from Sandler O'Neill. Your line is open.
Good morning, and thank you for the call. Just to be clear, there really aren't any cost cuts or straight merger-related efforts here. This is all basically additive benefits to Esurance due to technology and other types of things that you're adding. Is that correct?
No, that's not exactly correct, Paul. Certainly, we'll be able to lower the cost of Esurance in the claims side. That's a direct. I don't think we're not going to go out and fire a whole bunch of people because they're growing quite rapidly, but we can help them be more effective, which will lower the cost of settlement of claims. Secondly, while underneath the fact that we will probably spend more money in advertising is that the advertising will be more effective. There's a reduction in the cost per policy acquired, if you look at it that way. There are some cost saves that will come in the Allstate Direct business because there's some stuff we will not be doing under the Allstate brand, and that money will be repurposed into one of three buckets.
One will be to continue to grow and maintain the personal touch loyalist business that Joe was talking about. Second, will be to help fund some of the increase in Esurance, and the third is money we can bring to the bottom line. The net of all that is it becomes non-dilutive to earnings in the second year. I would tell you that you're talking about $1 billion of premium relative to $24 billion that goes to the personal touch loyalist. While it's an important measure that we hold ourselves to, it's not a significant financial impact on the company.
Allstate Direct and Esurance are not being merged together. They're still separate, right?
We will change the way we go to market with Allstate Direct. For example, there are certain marketing initiatives we have in Allstate Direct which we will no longer do.
Second question, are there any implications from a capital management perspective that you think to this in terms of buybacks and other efforts?
I don't think it'll impact buybacks immediately, but I would tell you that we believe we can run Esurance and Answer Financial with a bit more capital efficiency due to internal reinsurance. Whether it has any impact on what we decide to do with the overall Allstate capital decisions, we'll have to wait till closing and see where we are.
Thank you very much.
Our next question comes from Matthew Heimermann from JPMorgan. Your line is open.
Hi, good morning, everybody. Wanted to follow up on that last point just with the Allstate Direct business, just because I think that business has grown, I think, over about the same period of time to about the same size as Esurance. I guess given that brand is such an important determinant, can you just help us better understand, will people still be able to buy kind of an Allstate Direct product, or will they just be routed somehow when inquiries come in through an Allstate branded portal, for lack of a better word, to the Esurance product? Just help me better understand how that's going to work.
Yeah, Matt, this is Joe. Let me try to take you a little deeper than maybe you wanted to go, but try to explain what happens. Right now in Allstate, we have one product, one price to deal with all different customer segments. Because we're dealing with those different customer segments, we've got a dual purpose that's working there, and it's not quite as sharp or as focused it needs to be for either group. Most players that are servicing both of those customer segments will have different products and prices so they can tune the economics appropriately to that group. What we wind up doing today is in places where our pricing and our products aren't generating the economic answer we want on the direct side of the house, we shut those down from an underwriting perspective and don't allow sales to occur there. We're constraining that growth.
Even the growth we've got, we're somewhat hindering or pulling back ourselves because of that. What we anticipate happening here is we'll have two different products, two different brands to go to market. We'll do something in the Esurance space, somewhat like a Fairfield and Marriott do with a brand association that we think gives a lift in the Esurance space, but has a clear distinction in the two value propositions that will drive a growth shift towards that Esurance focus, those people who really wanted a self-directed approach. At the same time, we're going to increase our technology-enabled capabilities in the Allstate brand to make sure those folks who do want an agent and want that personal touch also have the ability to get e-commerce service or transaction capability that might have historically been shorthanded as direct, but might not accurately reflect what those customers are looking for.
What you'll see is some of that existing Allstate Direct capability will continue to be deployed across the Allstate brand, but focused on those personal touch customers. You'll see a clear self-directed approach in the Esurance component, but because it has a separate product price and platform, it will be unconstrained from what it needs to do to optimize its economics. We think having both unconstrained actually will help them over time accelerate. We'll undoubtedly have some periods right after closing
Where we're transitioning from one to another. That transition period, as you have in any kind of transaction, it takes a little time as you catch your breath to make it happen. Post that, we're excited about the opportunity.
Okay. Just because you're paying approximately $1 billion based on only $700 million of that is for intangibles. Is it fair to say that from your perspective, you think you would have had $700 million of investments to effectively build to roll out separate legal subsidiaries to allow you that pricing flexibility and then do all these other things? I guess I'm just trying to think about how we should think about what the intangible is really ascribed to.
Well, first, we obviously think it's economic. There's a couple of pieces to it. One is you did the intangible, of course, is part of what they've built, whether that's the brand and having to do that, which is your build scenario. That's part of it. Part of the intangible is some portion of the benefits we bring to the table that can drive it. There's a $235 million net operating loss that exists inside the company that we'll be able to monetize.
Okay. The other question I had is just one of the strategic advantages that you and other more traditional carriers potentially brought to the direct channel was homeowners, and the ability because one would presume that over time, right? People, the demographics of the direct customer change and the insurance needs are a bit broader and the like. How should we think about homeowners, even though I recognize it's a bit of a dirty word in some places, fit into the direct strategy now that Esurance is kind of a separate brand?
We see the same kind of things you're seeing from a homeowner's perspective. With two brands and two pricing programs, we'll have the capability to deploy a homeowner's capability in some ways with new legal entities and from scratch. What we're trying to deal with now as we fix our homeowners' profitability issues is do that to a very large existing book of business, which winds up with a different set of regulatory hurdles. If you're starting without an existing customer base, you can move much quicker to where you want to be. We think that will be helpful.
Okay. Thank you for that.
Our next question comes from Michael Nannizzi from Goldman Sachs. Your line is open.
Thank you. Just a couple of questions. On PIF, is it calculated the same way that you calculate it at Allstate, or is this roughly all in about 5% of your PIF, or is it calculated differently?
I think it's calculated accurately enough that it's still about 5%.
Okay. Then what has been the earnings run rate for the combination of Esurance and Answer Financial or maybe just 2010, just to give us an idea of what that looks like?
They make a little bit of money. When you look at sort of net income, operating income, and their combined ratio is above 100. In part, that reflects the aggressive money they spend on growth. If you go back to that conversation about what Joe's prior team is doing, one of the reasons you lose money is because you are investing in advertising things and you don't have the revenue yet. It doesn't mean it's a bad choice. It just means that that's the way the numbers fall out. They have been in that growth mode. We believe that with additional growth that we'll bring to it through increased marketing effectiveness and what we'll do on claims and pricing, that we'll be able to bring that combined ratio below 100 from where it is today.
All right. Then just on the point about pricing sophistication. Is that an area where they are relative to Allstate? Are they more sophisticated than Allstate in some segments? Will you incorporate some of their algorithm into your own primary Allstate pricing?
Sophistication, you can answer the question in a couple of different ways, I'll try to do it in all of them. Some is how granular your pricing is or how effective your models are. Some is what's the quality and source of your data. Esurance has spent a lot of time in the online space with a customer group. They originally targeted youthful males that bought online. I mean, you can get that out of Erin and their advertising. They've got a deep knowledge base in that type of customer. As they move more mainstream and they get up to folks in their 40s and 50s, married, multiple cars, homeowners, that's a different, more preferred customer base, and their data is much thinner in that environment. We know a lot more about those customers and how they behave.
They know a lot more about how folks behave in a direct and online environment. When you combine pieces of those knowledge base, you get a more effective total outcome.
Got it. Great. Thank you.
Our next question comes from Allison Jacobowitz from Bank of America. Your line is open.
Hi. Thanks. Honestly, most of my questions have been asked and answered by now. As you look at your own, I guess, just more on the modeling of this, as you look out at the comments about it being the dilution shifting in the second full year. Before that, what extent can you put parameters on it? I mean, I know we'll go through the model, go through the numbers later, but how much dilution is expected before you can shift the earnings stream?
Allison, Tom Wilson. We're not giving out guidance on that. I think you could get there by just looking at the size of the business relative to the size of our total operation. You could see that it's not a meaningful impact.
Okay. Thank you.
Our next question comes from Ian Gutterman from Adage Capital. Your line is open.
Hi. I want to go back to the buy versus build discussion. Tom, I understand strategically what you're trying to do. I applaud you for addressing, as you put that to the matrix, addressing this segment. I guess I don't understand why you couldn't have done, call it, say, Good Hands Direct. Something that has a little bit different name from Allstate so it's not confusing to customers. It allows you to have the cachet of the Allstate brand behind it which allows you to have more of a GEICO type of direct offering than Esurance, which I would consider pretty down market. It feels to me like it dilutes your brand and doesn't necessarily give you the customers who, when they grow up and decide they want more advice, will naturally progress to an Allstate channel.
Ian, we could have built it ourselves. We considered that and decided this was a better choice. Let me answer your question in a little bit of a reverse order, though. I want to be clear. We will leverage the Allstate brand. We'll need to leverage the Allstate brand to get the close rates and consideration rates up. It may end up being Esurance from Allstate or something like that. We will bring the halo effect to the position they've already established. We will capture that part of the equation. On the could you build the skills and capabilities? We could. It would take longer. This is a billion-dollar platform that's scalable, that we can ramp up pretty quickly.
There's obviously risk with being yet another brand for that self-directed customer when there's already a fair amount of advertising and competition going on between GEICO, Progressive, Direct, 21st Century Insurance started to dial it up a little bit. Esurance on their own has been over $100 million a year. If you want to wade into that space to create a value proposition that means something different, you could do that. We think this is a great opportunity to take what they've built in the space they've created, put the imprimatur of Allstate on it, and in fact, competitively, what we start to do is attack the market aggressively from two sides. If you think about that chart where we are, we're on the left, GEICO and Progressive are on the right. Now we're attacking it from both sides.
In a certain way, we're thinking we're putting them in the middle because Esurance, while it's a little more down market perhaps than people might think of GEICO, I'm not sure I totally buy that, but I understand your point, is it's certainly more online driven, more technology savvy, so a little more contemporary than that brand. We start to box them in. We think the combination of that, and then while it's a large premium to tangible book value, the skills, capabilities, and ability we bring to improve marketing effectiveness and lower the claims cost are substantial and worth a lot of money.
Ian, it's Mario. The other thing, right out of the box, they're the third most shopped brand in the direct space. It takes a long time to develop that position. Depending on how you define down market, it's really not a down market brand. It's a very clean brand. It has a great image for sophistication, for being high tech. If you consider down market being that they got good price perception, that's actually a good thing in the direct space. GEICO has that, Progressive has that. That's actually a very good thing to build on. What they really lack is top-line awareness. We think we bring a lot to the party with endorsing that, and this advances our efforts in that direct space, we think, dramatically from a time standpoint.
Will there be a way, I understand you're saying you can put an Esurance in Allstate. What about the other way? Will there be a way for a customer who values the Allstate brand but doesn't want to deal with the hassle for some people of going to an agent but would like to do it direct? Will there be something on Allstate that has to say, "If you don't want to use an agent, you can go to our sister company, Esurance?" Some kind of way to letting people know that people who value Allstate can go direct without having to. You know what I'm trying to say?
I understand what you're saying. I would say the following. Another thing that we didn't really talk about, Joe mentioned it a little bit, is their data management. In that self-directed space, data management, how you deal with individual customers based on who they are, where they came from, what other sites they've hit is a skill that they bring to the table, which would be difficult to build. As we use that skill, we'll figure out how we want to deal with those customers in the self-directed space. As it stands today, could we potentially do something like that? I don't know. Maybe. Right now we're thinking the Allstate brand really resonates with personal touch loyalists.
Those are people who want the personal touch, local advice of an agency, want a branded experience, and this will be a branded experience for those people who don't want that. We don't see the need. Might there be somebody in the middle there who would go one way or another? Yeah, people are all over that chart. It's a construct. We'll use the data and the skills we have to figure out specifically what marketing efforts we do. Is that helpful? We can't answer every question today.
No, that's good. That's all I had. Thank you.
Okay. I think our last question is Meyer. Is that right?
Yes. Our final question comes from Meyer Shields from Stifel Nicolaus. Your line is open.
Thanks. Good morning. Thanks for taking my question. If I can approach this from the $1 billion perspective, I understand that there is the loss carryforward and the opportunities for savings, but the other opportunity, I guess, would be to repurchase an awful lot of Allstate shares at something like eight or nine times earnings instead of paying roughly $90, just looking at White Mountains 10-K. I was hoping you could take us through your thought process for why this choice is better for shareholders than just an accelerated buyback.
Meyer, this is Tom Wilson. We obviously have a strong track record of buying stock back. As Don mentioned, this has no impact on our current stock buyback. We look to deploy our capital in a way that generates increased shareholder return. One of the ways you can do that is by reducing the size of the outstanding shares, so they own a larger proportion of the company. That's obviously what we do with a share buyback is you own a larger portion of the company, which you know well. The other way, of course, you can do it is you can grow the size of the company. This is consistent with our strategy to do that. It enables us to grow in a customer segment that we have been growing in but not really taking share away.
While our direct business is $700 million, we haven't been capturing share from other people and competing so effectively that we've been hurting them. I'd like us to compete aggressively in that segment of the market. That will drive growth, that should drive the PE well above book value. As you know, I feel that an insurance company trades below book value is incredibly cheap. One of the ways you get that up is you show higher returns, which we're working on the homeowners business to do. Secondly, is to grow the top line, we believe this will help us grow in that specific segment. It's $1 billion of purchase price, and it's $1 billion of premium, so it isn't going to move the overall numbers so significantly. We believe it's the right way to use this amount of capital.
Okay, I understand. If I can delve in to Allstate Financial, I'm sorry, to Answer Financial, is there any risk of its current insurance company saying, "You know what? We're not really interested in partnering with a company that competes with us in the independent agency space?
Of course, there's obviously risk to that. We believe Answer Financial is good partners with them. They've been through this once before when they were purchased by Esurance. Remember, Answer Financial, a tremendous amount of money was spent trying to back to the build or buy. If you want to look at an example of a build that didn't work particularly well for those people who funded it, the first round anyway, look at Answer Financial. That's where that NOL comes from. They spent a tremendous amount of money trying to build that brand. When it was purchased by Esurance, they had the same conversation. They obviously worked through that. It's different when you're talking about Esurance buying Answer Financial than when you're talking about Allstate buying Answer Financial. I understand that. We've committed to these carriers that we'll keep their data separate.
We're not going to use the pricing information in our other businesses, there's a Chinese wall there. Keep in mind, we're a big provider of growth for them, we think with the plans we have to further grow Esurance, which will generate more referrals for Answer Financial, that there's even more growth opportunities for them. This will be about us helping those 20 insurance carriers who are on the Answer Financial platform grow even faster. There's obviously risk, we feel okay about it in total.
Okay. Thank you very much.
Okay. Thank you all for participating in today's call. We're obviously excited about the opportunities this acquisition offers us to increase shareholder value, and we look forward to updating you on our success in the future. Thank you.
Ladies and gentlemen, that does conclude today's conference. You may all disconnect.