Good afternoon, everyone. I'm Jay Gelb from Barclays. I cover the insurance stocks. We're very pleased to have with us Tom Wilson, who's Chairman, President, Chief Executive Officer of Allstate. Allstate's one of the largest insurers of vehicles, homes, and personal devices in the U.S., and also has a presence in life insurance and employee benefits. With that, I'm pleased to turn it over to Tom for his opening remarks.
Thank you, Jay. Well, thank you for investing your time to learn more about why Allstate's an attractive investment. Joining me today is John Griek, who leads our investor relations team, at least for the next week. He's recently been promoted. All right. Before we begin, we'll find the slide.
Sure.
Okay, here we go. Before we begin, this statement says I'll be making forward-looking statements and references to non-GAAP measures today, and they must be considered in the context of all the information we give you. This presentation, and more specific information, of course, is on our website at allstateinvestors.com. Anybody here listen to David Brancaccio? He's an NPR guy. He does this marketplace thing, and he starts with his show is, "Let's Do the Numbers." He does it at the end of the market day. Before we get into strategy, I thought we'd start with let's do the numbers to show you why you should be interested in Allstate's plan to create shareholder value. This is an attractive time to begin investing in Allstate. Of course, there are many ways to value a company, but let's discuss two.
First, the current price relative to the overall market. Allstate stock price is currently $105 a share. It's way up from a low of $77 in the fourth quarter of last year. Of course, all of us got crushed at the end of last year, and it's rallied since then. If you look over a longer period of time, you can see this shows since the beginning of 2018, the market's appreciated by 11%, whereas Allstate's essentially flat despite increasing growth and profitability. In addition, over that period of time, we've repurchased over 7% of our outstanding shares, which on an apples-to-apples basis would increase stock price by about $7 a share. Of course, this could reflect a sector rotation, right? Let's look inside insurance. Allstate's valuation is also attractive from a peer standpoint. Allstate trades at a 20% discount.
This regression line shows return on equity versus book value multiples. Trading on the line would increase the share price by $28 a share. This is an attractive time to invest and join The Allstate ownership team. Now let's talk about our strategy to create more shareholder value. Allstate's purpose is to protect people from life's uncertainties, and our strategy has two components to it, increase personal property/liability market share and expand protection businesses. Starting with the upper oval, this is personal property/liability market provides consumers protection, insuring automobiles, cars, homes, motorcycles, boats, and personal liability. We use differentiated products, sophisticated pricing, claims expertise, telematics, and are building an integrated digital enterprise to lower costs. We're also diversifying our business by expanding our protection offerings, highlighted in the bottom oval.
This includes a wide range of attractive businesses from Allstate Life, workplace benefits, protection plans, shared economy insurance, and identity protection. We leverage The Allstate brand, our customer base, investment expertise, distribution, claims capabilities, talent, and capital to drive growth in these businesses. For example, we're rebranding SquareTrade and InfoArmor products to use The Allstate name in the U.S., which then raises consumer consideration and close rates. Our auto claims capabilities are helping us significantly grow in the shared economy commercial insurance space with a major transportation network company. Collectively, these protection businesses have tremendous value that can be overlooked by investors who only look at the property/liability businesses. This strategy creates shareholder value through customer satisfaction, unit growth, attractive returns on capital. It also ensures we have sustainable profitability and a diversified business platform.
Our strategy is working. We continue to generate attractive returns on capital with adjusted net income return on equity of 13.5% over the 12-month period that ended at the end of June, as you can see from the top left box. The run-off annuity segment, however, masks the strong returns from the property/liability business since its returns are below our cost of capital. As you can see from the table, the annuity businesses earn a 1.6% return on equity, which reduced corporate returns by 3.7 points for the latest 12-month period. When you exclude the impact of annuities, Allstate adjusted net income return on equity is 17.2%. The components of this return are shown on the right. Allstate Protection generates high returns in the mid to high teens, depending on the state and the brand. Allstate Life has low teens returns.
Allstate Benefits is in the mid to high teens. We're funding the investments in growth in our service businesses and still earning a high overall return on equity. Beginning in 2020, we will establish long-term return on equity targets, which will replace the annual guidance we currently provide on the property/liability underlying combined ratio. This is a better measure of our performance for five reasons. First, it's of course, a broader, longer-term measure of performance rather than just an annual measure on just one part of our businesses. It'll put a bigger focus on the non-property/liability businesses. It factors in capital management. It's more correlated with stock price, and it really fosters a better comparison with our peers. Let's go back to the top oval line, increasing market share in the personal property/liability business, and discuss three components that will accelerate the transformation of this business.
First, we will continue to innovate dramatically to reinvent the insurance customer value proposition. We were the first to market with features like declining deductibles, Accident Forgiveness, Claim Satisfaction Guarantee, and telematics. We've identified four elements of value based on this brand value work done by Bain & Company that's focusing our efforts to increase customer value. For example, Allstate's known for quality, not simplicity. We're redesigning our products with the goal of simple quality. Secondly, we're going to improve our customer value proposition by lowering costs to improve our relative price position. We're growing today. Policies in force were up 2.4% annually over the last year for a number of reasons. We have a great brand. We got product innovation. We have quality. We have price sophistication. We're able to sell through Allstate agencies and sell directly through Esurance, and we have good claim expertise.
Our relative price position is good versus competitors such as State Farm. Of course, determining competitive position in the auto insurance business is hard. In general, we're not the lowest cost option since some direct carriers have lower prices. Our strategy includes reducing costs to improve our relative price position while earning attractive returns. Thirdly, we're building a go-to-market business model for three brands that will enable these parts of the strategy. We're going to leverage our unique and broad distribution to provide customers the experience they want still, but the product management, the claims, and operating processes that serve customers will use consistent platforms, which is expected to lower costs. We'll also continue building an integrated digital enterprise to serve customers more effectively and efficiently. Allstate has both competitive advantages and disadvantages over both existing players and new entrants.
We have great customer relationships, operational intellectual property, deep talent pool. You also obviously need a clear strategy, and then the ability to change, all of which we have. We also have the advantage of generating attractive returns from our auto and homeowners business. The graph on the bottom left shows the auto insurance combined ratio for the last 10 years in comparison to our three largest competitors and the overall industry. Allstate's auto insurance margins are amongst the best in the industry and substantially better than our largest competitor, State Farm, and similar to GEICO and Progressive. Allstate's lower combined ratio compared to the industry generated $1.3 billion of additional underwriting income in 2018. The same is true for homeowners insurance. The graph on the bottom right shows homeowner insurance results and highlights the significantly higher profitability we generated from this risk.
The results are significantly better than State Farm, public company competitors, and the industry, as you can see from the blue line. This performance generated $750 million more in underwriting income than would've been achieved with the industry average. At Allstate, we define ourselves as a customer-focused data analytics company that protects people. This definition supported our expansion into cell phone device and identity protection and our efforts to build an integrated digital enterprise. We now utilize QuickFoto Claims on most of our drivable auto claims, which enables us to settle claims faster with less expense than competitors. Let me just explain how this works to give you a sense of the impact on the customer experience and cost.
When your car gets in an accident, an insurance adjuster has to look at the car to determine how much it costs to fix it, and make sure it gets fixed at the right price. Alternatively, you could go to one of our 937 drive-thru claim centers where an adjuster would evaluate the change. This resulted in a lot of people driving around in processes that could take a week or more. QuickFoto Claim has a customer taking pictures of the damage and sends them to us. Adjusters spend their time looking at claims, not driving around to body shops. We use fewer adjusters and then no more drive-thru claim centers. Customers get paid in hours, not days. Faster, better, cheaper. We're investing in other integrated digital enterprise efforts throughout the company.
We've also been investing in telematics for over nine years and are the only insurance company that's leveraging it both inside the company and building a business to generate additional value by providing these services to other insurance companies. Today, we're analyzing over 14 billion miles of data a month, whereas our competitors appear to be utilizing a fraction of that amount. Now, of course, the amount of data is important, but what's really important is what are your insights from it, and we believe our risk-based scoring capabilities using telematics are industry leading. We're also expanding into other protection products and services by leveraging the Allstate brand through a wide variety of distribution, which will also create shareholder value. These businesses are shown at the top. They are all strong competitors in the market.
We distribute these products through Allstate agencies, workplace benefit brokers, major retailers, car dealers, and directly to major shared economy customers. These businesses have substantially expanded our customer relationships, and we now have 129 million items in force, as you can see from the upper right. Total policies in force have grown at a compound annual rate of 43% over the last three years, mostly reflecting the great growth at SquareTrade. While these businesses represent a large part of our policies, they generate only 11% of total premiums, but at $4.4 billion, are a significant group of businesses. Adjusted net income was $527 million over the last 12 months. I should note that the income up here for the shared economy commercial lines shows up in the personal and property liability results, which is consistent with our segment reporting.
Given the rapid growth of these businesses, we expect the relative contribution to revenue, profit, and shareholder value to increase. These highly attractive businesses and a track record of innovation should not be overlooked when valuing Allstate. To create shareholder value, we also have a proactive investment strategy that balances risk and return. The investment portfolio is managed on a segmented basis, assessing both the primary source of return and how actively the assets are traded. For the payout annuity block, we match near-term cash flows with fixed income securities, and we utilize equity investments to cover the long-term liabilities. Over time, we've increased the position in performance-based investments, which are longer term, to about 10% of the portfolio, as you can see from green on the top, in part to cover these long-term liabilities.
The reason we do it's the best economic approach to asset liability management, because the liabilities under the annuity block is more like a pension fund than a straight-up fixed annuity. It has a very long duration. As a result, you should invest like a pension fund, which means you need to put a lot of money into equities, which we've done. As you know that on a long-term basis, those equities will earn more on a risk-adjusted basis than bonds. We chose that strategy because it's the right economic strategy. It does require us to hold more capital, which is one of the reasons why the returns on equity in this business that we saw on the first slide are so low.
Proactive risk and return positioning of the $86 billion portfolio resulted in a total return of 7% for the last 12 months. A disciplined approach to capital management is also important while growing our business. We have an excellent track record of returning cash to shareholders. The dividend yield has remained steady. We have a history of repurchasing a significant amount of shares. Over the last three years, we've repurchased 14% of our outstanding common stock. We'll continue to reward shareholders for being part of our story by innovating, growing market share, and earning attractive returns. With that, let's open it up for your questions.
Great, Tom.
Okay.
Thank you very much. I'll do a moderated Q&A for most of the remaining portion. Towards the end, if the audience has questions, feel free to let us know. Tom, Allstate's among the largest auto insurers in the U.S. The substantial Allstate brand auto businesses deliver strong profitability, and policies in force are again growing. Could you talk about the prospects for further top-line growth and perhaps margin improvement in the Allstate brand product?
We're just talking about auto insurance?
Correct. Yeah.
The headline would be that you should expect to see us maintain the kind of returns we get today in auto insurance at increased growth. I don't think we need to, and I don't think it's in shareholders' best interest to raise margins from where they are today, because we're so far above our cost of capital, we'll generate more value by growing faster. When you look at our strategy, what I'm explaining is, if you look over the last year, we're up 2.4%. I don't think there's probably 2.4% more cars than homes in the United States. We've picked up share, but it's a little share. We've done that by being very good at pricing sophistication, keeping our costs low, being cheaper than State Farm, having innovative products, having good distribution. That's worked for us, but it's a little bit of share.
We'd like that share increase to go up, and the way we're adding to that is the part I thought we're going to put extra effort into reinventing our products because when you look at people like Lemonade and CURE and some other people that have some innovative products, there's stuff you can learn from them. We can do more with our products. Secondly, we can just reduce our cost. While our price position is good versus people who are like us, there are other people we should aspire to be as good or better than. We're going to reduce our cost, which will improve our price position, which should drive more growth.
Okay. That actually ties in well to the next question surrounding competitive positioning. Other major auto insurers, including GEICO and Progressive, have been generating faster auto policies in force growth based on, I think, their focus on the direct sales channel rather than exclusive agency, which accounts for majority of Allstate's auto business. Would you expect this market share shift to persist towards direct?
I think they're going to merge together. I don't think customers think necessarily about. They think about what they get. Is there someone there when they call? Is it fast? Is it easy? Some people want somebody locally. We give them somebody locally, but if they want something fast. In terms of cost reduction, we are building a thing called integrated service. We have 40,000 people in local offices around the country who take care of 20 million auto customers and another six and a half other customers. They do that each and every day. Some of that is sales work, some of that is service work. We're building an integrated service operation to pull about 75% of the service work out of those local agencies and put it into centralized things because we can do it cheaper, better, faster.
Eventually, we can get the computer to do it, so we can even do it without people. I think what customers want is they want somebody there locally when they want somebody locally. They want somebody there when they want them right away. What you'll see is a merging. I think the advantage that GEICO and Progressive direct had is they have lower expenses because they don't pay for that local service, and they don't pay for someone to work locally. They advertise to drive it. I think some of their growth has been just driven by massive amounts of advertising. Not necessarily that everybody said, "I don't want to go to a local agency." Something like six out of 10 people still buy from local agencies even when it's falling.
Is that right?
Yeah, it's a large because, think about independent agents, captive agents. You look at the share of GEICO and Progressive and USAA, most of the people go other places. That doesn't mean they always want to go there. What we have to do is be able to give them one experience at the lowest possible price so we compete more effectively.
Right. That makes sense. Okay. With regard to auto insurance pricing, it appears that for the industry overall, the recent trend has been towards slowing price increases in personal auto insurance, and in some cases, large insurers like State Farm have been reducing rates. What's Allstate's ability to still generate growth in the auto insurance business when the rating environment is not as much of a tailwind?
Well, first and foremost, our goal in auto insurance is to make sure we're generating shareholder value, which includes, first and foremost, making money. When you look at that auto insurance line, we've always been able to get a good return on it. I'm so struck by people talking about the cycles in auto insurance. I'm like, I don't know. I look over that 10 years, I don't really see any cycles that are really bad. I see some ups and downs, but it's not like you go from making money to losing money. We earn really good returns in the business, and we should continue to earn good returns. One of the ways you do that, of course, is you raise your price when costs go up.
Auto severities have gone up recently, if you look at our price increases, we've taken a little more price increase than other people have. The percentage is less important than the absolute level. State Farm has taken big decreases in 29 states, or there's like 3% decreases. It's always hard to tell exactly how well you're priced versus other people, but I still think we're highly competitive and cheaper than State Farm.
On an absolute-
Yeah. Even though they go down, it all depends where you start.
Yeah.
If you start at $1,000 and you come down 3% and you're at $900, you're still good, even if you're a competitor of them. I'm less worried about that. I do think that, as you see it moderate, it'll be interesting to see how other people react, where we tend to react sooner. We think that's because we should make money on the stuff, as opposed to lose money and react later.
Right. That makes a lot of sense. Okay. You touched on claims trends. I'd like to focus on that a bit as well.
Yeah.
Allstate's auto insurance profitability has benefited from declining claims frequency, partially offset by increased claims severity, as you just touched on. What factors are driving these trends, and what's your long-term outlook on the direction of both frequency and severity in auto claims?
Well, let's break it into components. Frequency, I think is near impossible to predict. If you look over a long period of time, it came down. If you look over like 20 years, it came down. Third tail light, three cars per household, two drivers, anti-lock brakes, drunk driving laws. It was coming down, until 2015 and 2016, it went way up. We gave back 13 years of decline in two years. You're like, "Oh, what's that?" Were those permanent or was it just a head fake, right? What we did is we raised our prices because we said, "Don't know where this is going." If this is where it is now, today, of course, it's come back down for the last couple of years.
I don't think that means that it was just a blip, because really it went down for about 10 years. It leveled out for five years. It went way back up. Now it's come back down again. I don't think you can predict frequency. I think you can react to frequency, and I think that's what we do. When frequency changes, we change our price, particularly when it goes up. If you look at severity, I think there is a trend for sure in physical damage of fixing cars, where severity is up. Some of that is because cars are more sophisticated. You got computers in the car that can be rebooted. You got a sensor on your side mirror, when it gets ripped off, somebody's got to pay more for it.
I also think the auto companies have repositioned their locus of profits to move it from selling cars to selling parts. If you look at the price of a Toyota Camry, for example, 2013 to 2018, $23,000 versus $25,000. It went up $2,000 in five years. Not much, that's about 2% a year. If you look at the price of fixing the car, the price is up about 75%, or about eight or nine percent a year. What's happening is they're giving away the razor and charging for the blades. Keep the price of the car down low, sell a bunch of cars, then you need to make enough money to keep everything in place, you charge more for the parts. It's relatively price insensitive because the auto insurers are buying. It's a little bit like health insurance, right?
Like if you're not paying for it. What happens is insurance prices go up. I think that's there to stay. I don't see that going away. I think the auto insurance companies have figured out this is the way they can compete. I don't see that changing. On bodily injury claims, we're having less severity increases than some of our competitors. A lot of that has to do with your individual practices, so I can't speak to them. I just think ours are being well run today.
Okay. Long term, in terms of frequency trends, you mentioned that probably well over a decade ago, there were increased safety features on vehicles that. That's diagonal changes that we're helping to drive down frequency on what seemed like a secular basis. As we get even more increased safety features on vehicles and a little more towards some autonomous functions, could we see a long-term stairstep down in frequency?
Well, yeah. I think the answer is for that component, yes. I'm not sure about the overall industry, and I'm certain I wouldn't price that way. Let me say that component. A 2020 car will be safer than a 2015 car, than a 2010 car. It's likely to get into fewer accidents because of all the stuff on it.
Right.
That said, lots of things drive frequency, right? It's the weather. It's how many miles are driven. If you look at how many miles are driven today, it could go up dramatically if the cost of transportation changes, right? If you look at how many people use ride sharing now versus how many people use cabs, bring the price down, increase availability, lower the price. I think the personal transportation system is going to change dramatically. We have to be positioned in it, but I wouldn't assume that that automatically meant that the frequency for the whole fleet would go down. Might be for certain makes and models, of course, but not every-
Interesting. All right. Well, we'll see how that plays out over time. Let's talk about some of the financial metrics for the company. Along with reporting second quarter results, Allstate increased its full-year 2019 target for underlying P&C profitability, in terms of shifting the combined ratio outlook to 84.5%-86.5% for the underlying. What's your comfort level of achieving or perhaps exceeding that full-year target?
Our comfort level is high in setting the target. We've done this now for 12 or 13 years, and we've never missed it. Came close one year. Got in just under the wire by, I think, a tenth of a point. We'll be in the range, I think. We wouldn't put it out there if we don't know by exceeding, right? A lot of it just depends what happens with frequency, which you cannot predict.
Starting next year in 2020, Allstate said it would establish long-term net return on equity targets that would replace the annual outlook for the underlying P&C combined ratio. You talked a little bit about the factors that drove that. How should investors be thinking about this relative to the net ROE the company is currently generating, which I believe was around 13.5% for the first half of this year, including investment returns?
I think what happened was giving. The history, here's how we got to underlying combined ratio. We used to give quarterly earnings guidance. 13 years ago or something when I became CEO, I decided we ought to stop doing quarterly earnings guidance because it turned from annual earnings guidance to quarterly because as you keep updating it over the course of the year. I just didn't think it was serving us or the investors well. The trade-off then was, well, we'll give you something.
Right
That's predictable and can give you a sense for how the business is running. That was underlying combined ratio, which we've done since then, we've always been inside the range. The problem is it's gotten the whole focus to be really just about auto insurance. When you're talking to investors and you talk about that, and you say the big measure I want to give you for judging me for the whole year is on the underlying combined ratio, that's all people talk about. When you look at that, the underlying combined ratio, about 60-plus% of it is due to just auto insurance. The underlying combined ratio on home insurance doesn't really change that much because you got 30 points of cat there or something, right? That's excluded.
It's really good.
Yeah, it's really good. It keeps it down, right? Then you have the auto insurance. It's really, you end up spending all your time talking about auto frequency and severity, when you really should be talking about how you're growing the business, how you're doing a return on equity, how's your investment portfolio. We just decided that it was driving the conversation down into only focus on auto insurance. As a result of that, people weren't really focusing on the fact that we've built these great businesses, that we're leveraging telematics, that we got growth, and we thought it just dragged us down. We said, you know what? The better measure is we should hold ourselves accountable, and we should hold ourselves accountable to return on equity because that's really what drives the stock price.
Right. Of course. Okay. In one of your earlier slides, you showed the components of that current ROE with the legacy Allstate annuities business being a pretty substantial drag on the overall results. Ex the annuities business, it's almost four points higher, right? It sort of brings up the question, what can Allstate do to run down that legacy annuity business a little faster, or perhaps allocate less capital?
We've been running it down. When we, in 2007, I became CEO, we had $78 billion, John? $78 billion of assets. We're now down to $28 billion. We've been running that down because I don't really like those spread businesses. This spread business is hard to get out of, particularly in a low-for-long environment. What we decided to do about four years ago was, in low for long, you should invest like a pension fund. If we could have our ROE be higher, put in in fixed income, we'd have to put less capital up. Yet sometime in the future, some shareholder would be really unhappy because there'd be a big hole there called fixed. We decided to put the money into equities, invest, put the cap up, which has crushed return.
What we're doing to get the equity down is we're negotiating with the NAIC. I guess negotiating, you don't really negotiate with them, I guess. You ask for them to put their capital standards equal to what it is, because what they're doing right now is they're driving annuity companies to invest in fixed income to keep their returns up, which is exactly what they don't want, right? You wouldn't have your pension fund be invested in 90% fixed income. That's one of the ways we can get equity down is get the government. We'd like to bring alternative capital in, but we've not been able to find somebody that we thought would manage the business in a way that was for returns, but prudent.
There's a lot of people who want to buy annuity blocks, either pay themselves large fees or invest in other stuff they want to invest in, which we don't think is the right thing to do with policy holders who are going to be getting paid for the next 40 years. If we can find alternative capital, get rid of that business in a minute. Right now, it doesn't look like there's a lot of opportunity, but we keep looking at it. The other part is eventually it'll get marked to market with the accounting standard, which are coming on long-dated liability.
What is that?
There will be a large write-off in book value associated with this block because of the way they do the math. Because it's worth less than book value today. We've got $4 billion of equity up in there. It's not a surprise that it's not worth $4 billion. We can't write it off today because the accounting procedures don't let you. In that business, whatever assumptions you set up when you wrote the business, those are the assumptions you get stuck with forever. The new accounting, which has got all the large life annuity companies a little wound up is being mark-to-market.
I know it's early days, but any view on how much of a haircut that $4 billion of equity could have under the new standards?
Well, the new standards are not finalized yet.
Okay.
It's big. We actually say in our 10-K it's material. It's material, but I don't think anyone will care because the market already knows what I showed you on the slide.
Agreed. Okay. From a near-term issue, Hurricane Dorian was, in a lot of cases, a near miss for the mainland U.S. Any initial thoughts on what the impact could be for Allstate from that storm?
Not significant. Right. The industry loss projections are in the $low billions. If you look at our share in those places, it's nothing.
In terms of the affected areas.
Yes.
Okay. You have monthly catastrophe.
Yeah, we have monthly. Every month we put out, it's over $150 million, we pay out.
Okay. Allstate's smaller auto insurance businesses, including Encompass, which focuses on sales through independent agents and Esurance, which is a direct writer. Can you talk about the plans to deliver long-term growth and profitability in those segments?
Yeah, sure. On Encompass independent agency business, about $1 billion on premium, relatively small share. We need to improve our pricing sophistication. We need to lower our costs, and put a new technology in place. We're working on all three of those. I'd like us to accelerate the lower cost one, but we're working through that.
Okay.
Esurance grew units at 8.4% over the last year. Its combined ratio is down at 100%, which is where we'd like it right now, given its rapid growth. We're feeling good about that business. It's more than twice its size from when we bought it, so we're happy with it.
Okay. Seen a lot of ads lately.
Good.
Dennis Quaid, right?
Dennis Quaid, yeah. He's the insurance for the modern world.
A good setup. All right. Before we go to the audience response system, with regard to the homeowners business, that's generated improved growth and favorable underwriting margins over the past several years, even including the impact of catastrophe losses. What's driving those trends, and would you expect it to continue?
I would change one thing. It's been a really profitable business for the last eight years. About 10 years ago, maybe 15 years ago, we decided to reposition the business. We went from 8 million policyholders in six months and went down to 2 million policyholders. We re-underwrote the whole book. We looked at every house. We non-renewed those people we didn't think were good risks. We changed our pricing. We raised our pricing by about 30% over three or four years. We changed the product to change roof, so that we age-rated roofs. We did just about everything to reposition the business. Our goal was really to take a business that had made some money in normal years and lost a bunch in catastrophe years to a business that makes money in all years, and makes a lot of money in low catastrophe years.
We get a high teens return on required capital in that business. We like that business a lot. We've been good at it for eight years. We're much better than everybody else, including some recent entrants to the market.
Absolutely. Okay. Why don't we go to the audience response system? I'm sure you all know the drill by now. We put up a question on the board, and you can feel free to key in. We can start the clock. If you don't happen to own Allstate shares now, what will cause you to change your mind? We've got a couple of factors up here. The feedback from the audience on this in terms of why people may not own Allstate shares, nearly half are saying, interestingly- Full or partial exit from the legacy annuity business. That seems to be top of people's minds.
Yeah. I think, should we get out of the business? I would if I could get out at a decent price. It's not a book value item, per se, it's just economic. I find it interesting, though, that market isn't able to look past it. I think there's an investing opportunity.
Right. Among the other elements you highlighted, you've already got very strong returns in auto, and it's growing. Homeowners is definitely in the right place and growing. Life, benefits, and the other service business.
SquareTrade is growing like a weed. Our identity protection business. Any of those businesses as a standalone business would be worth a lot, even with normal valuation, much less if we spun it as a fintech, they could be worth a lot more. Just in those last two businesses, we probably have $7 a share in them.
I believe that's cost. SquareTrade is more than double its size right now, and InfoArmor, about to take off. I look at those businesses, and I think they're worth a lot more than that. I think there's very little value.
An underappreciated insurtech element in Allstate.
We hope.
Okay. Next question, please. Investors' confidence in the company's ability to achieve a favorable return on equity, which in my view, would be above 13% over the next several years. What's people's confidence level on that? Two-thirds of investors are saying high confidence in a 13% plus ROE over the next few years.
Yeah. Thank you. I would also say, the thing about that focus on isn't me, really. We have a business model, an operating model that delivered those lines below the industry average environment. It's state-based people, it's processes, it's information, it's rating plans, it's working with regulators. There's a whole set of processes that deliver that. It's not that I sit in my office, and I decide. There are a few times when I have to get engaged, to drive things. 2015 and 2016, we had to really hit the gas ahead of where the system wanted to take it. The system generates it.
Yes. Okay. Next question, please. We can start the clock here. What should Allstate pursue more of? I gave a couple options up here, including acquisitions, divestitures, share buybacks, and dividend increases. The audience, a little bit of a mix here. Between a third and 40% saying both acquisitions or divestitures, and 20% saying buybacks and dividend increases. I'm not really sure what to take away from that. What do you think?
I take away from it that we should do what makes sense for shareholders. We should use the money wisely. If we have a good acquisition that we think we're a better owner.
Right.
That's the way we always look at these things. Are we a better owner than somebody else? We're a better owner, we'll buy it, if we can get it at a good price. On the other hand, there's nothing we have to own. If a business is for sale, I'm happy to sell it. If it's a good business. You should always, if you have money, you should give it to your shareholders. I look at this as really, this is our capital management plan. We want to use your money wisely. If we think we can take a shot and buy something, we'll do that. Doesn't mean we're going to win in every one. Doesn't mean everything we sell is the perfect timing. We've had pretty good luck in our timing, but it doesn't mean we're always that way.
This is really about using it, thinking broadly about how we use shareholders' money.
The company's been obviously very consistent in dividend increases and share buybacks-
Yes.
Returning the vast majority of earnings to shareholders already. Next question, please. All right, this is our last one. This is a little more longer-term perspective on the outlook for autonomous or driverless vehicles on auto insurance. Is it going to be a favorable, unfavorable, or immaterial impact on auto insurance for the long term? The feedback here, the greatest response was a little over half saying autonomous vehicles could be an unfavorable impact for auto insurers, meaning that driverless vehicles would reduce demand for personal auto insurance over the long term. What do you think about that, Tom?
I think the way the question's worded, I get the answer. I might ask the question slightly differently. I would say, what do you think is going to happen with the transformation of personal transportation? Is that an opportunity or a risk for Allstate? It's both an opportunity and a risk. Obviously, with autonomous vehicles, there'll be fewer crashes. Fewer crashes mean less accidents. Less accidents mean less need for protection. That said, we believe that we're going to move to a shared economy on personal transportation. We got $4 trillion tied up in hardware, $2 trillion a year in running that hardware, called cars and trucks. 3% capacity utilization. Peak hours, 33% peak utilization. If it was a manufacturing plant, you'd shut it down. We know a 20% savings is worth $3,000 per household per year. What that means, when you get there, you share cars.
We think people are going to share a lot more cars. They're not going to be 1.9 cars per household anymore. Doesn't need to be. What happens when you share cars is everything changes. We think there's a way to play. That's Arity is about telematics. Milewise is about giving people the opportunity to buy just when they're sharing, as opposed to having to buy it for 6 months. We're working on an Airbnb for cars. We have a variety of things we're doing. We think it's a great opportunity. In the near term, I think what people haven't seen is as we go to autonomous vehicles, cars get more expensive. Even though they get into fewer accidents, as I was saying earlier, the cost goes up. Your average auto insurance premium is actually going up.
We looked at this 7 or 8 years ago, did some projections. We update them every couple of years. I would have thought that the increase in auto insurance prices would have been less than they have been over the last 5 years. In part because the severity of fixing cars. You have to look at the whole equation.
Right.
I think it's like the world changes. If you're smart, you can make money when the world changes.
That's great. Please join me in thanking Tom Wilson.