Morning, everybody. Thanks for joining us today. I'm delighted to have Allstate's Chairman, President, and CEO, Tom Wilson, here to discuss Allstate. Allstate is the largest publicly traded personal lines insurer in the U.S. It's been a great year for auto insurers.
Thank you.
Love to spend some time talking about industry trends, what you are seeing as a company. Maybe before I jump into all my questions, I'll give you an opportunity to make some introductory comments.
Okay. Good morning, everybody. Thank you for investing your time to learn more about why Allstate's an attractive investment. Joining me today is John Grieco, who leads our Investor Relations team. Before we begin, this statement says will be some forward-looking statements today and references to non-GAAP measures. The presentation itself and any additional information you need is on allstateinvestors.com. Let's start with a discussion of Allstate's strategy. We're creating shareholder value two ways. One is a strategy to grow our market share in our personal property liability business, and the other is to expand other protection businesses. The property liability market has four consumer segments, and we serve each of those with a unique and competitively differentiated value proposition. Allstate agencies provide customers with personal guidance, and through 38,000 professionals that are in over 10,000 agencies in virtually every community in America.
Esurance, on the other hand, provides over 1.6 million policies to customers who prefer to purchase their products over the web or through a call center. We use sophisticated analytics to ensure we grow profitably and are at the forefront of using telematics-based offerings. We're building an integrated digital enterprise that uses data analytics, technology, and process redesign, it's an important thing about process redesign, to improve our efficiency and lower costs. For example, we're the leader in using customer-generated photos to settle auto insurance claims. Our strategy also includes expanding other protection businesses by leveraging our brand, our customer base, capabilities, investment expertise, distribution, and capital. That began in 1957 with life insurance. In 1999, we acquired Allstate Benefits, which provides protection products such as life and disability insurance at the workplace.
By leveraging our resources and our brand, this business has had a compound annual growth rate of 7% for 18 straight years, which now has 4.2 million policies in force, and it's over four times the size it was when we bought it. We purchased SquareTrade at the beginning of 2017, and it's growing rapidly. This year, we began offering insurance to transportation network companies such as Uber through Allstate Business Insurance. We recently expanded into personal identity protection through the acquisition of InfoArmor. InfoArmor fits well with our focus on expanding our protection offerings, and its products are distributed through voluntary worksite benefits, which is a low-cost channel. It'll leverage both Allstate Benefits and our brand. This two-part strategy creates shareholder value through customer satisfaction, unit growth, and attractive returns on capital. It also ensures we have sustainable profitability and a diversified business platform.
Allstate's businesses continue to deliver growth and attractive returns to show our strategy is working, and we're on pace to achieve all five of our 2018 operating goals. If you look at the table, revenues increased to $10.5 billion for the third quarter, almost $600 million above their prior year quarter. Net income was $833 million in the third quarter of 2018, and adjusted net income was $1.93 a share, which is a 20.6% increase over the prior year quarter. Net income return on equity was 17.4% and was 15.9% on adjusted net income basis for the last 12 months. If you exclude the one-time benefits from the reduction in U.S. tax rates that we got in the fourth quarter of last year, that 12-month mover net income return on equity is still about 15%.
Making sure our largest businesses generate attractive returns is an important component to shareholder value. Property liability written premiums were $33 billion for the trailing 12 months of 2018, as you can see from the top left graph. They've increased steadily over the last five years, but it lessened about 5% annually, reflecting modest growth in automobiles and a long-term decline in auto accidents. Operational expertise in customer service, pricing, risk selection, claims enables us to adapt to a variety of external environments and make sure we achieve attractive underwriting margins. In the upper right graph, you can see that we responded quickly to an increase in auto accident frequency in 2015 and 2016 to improve underwriting income. Allstate's returns are generally above the industry, as you can see from the bottom graphs. The left graph shows Allstate's auto insurance is shown in blue there.
The combined ratio is consistently below the industry and most of our competitors. The results obviously vary from year to year. As you can see in 2016, when combined ratios increased due to higher frequency of auto accidents in the whole industry, Allstate's results reflect an early and aggressive focus on improving profit margins. While this had a negative expected impact on our policies in force, it did result in higher shareholder value. The graph on the bottom right shows homeowners insurance results and tells really the same story. Not shown on that lower right-hand graph are improvements made to improve margins before 2013 to reflect increased severe weather. That included raising prices to ensure rates were adequate, re-underwriting the existing book, creating a new homeowners product, in particular, changing the way we pay for and adjust roofs, and increasing our reinsurance coverage.
Operational excellence and adaptability has created an attractive return business. Our property liability strategy, though, is not only to earn an attractive return, but to grow market share. When we prioritize returns over growth, when the overall industry level of auto accident frequency went up, we continued to invest in growth initiatives, such as improving customer satisfaction and deploying new digital business practices. That enabled us to quickly pivot from a small decline in policies in force in 2016 and 2017 to increasing units in 2018 for the two largest brands. Allstate brand policies are shown on the left graph. They increased by over 400,000 so far this year, which represents a 1.7% growth rate over the third quarter of 2017.
When you combine that with average premium increases, this increased the Allstate brand auto insurance written premiums by about 5% in the third quarter versus the prior year. Esurance policy, shown on the right, increased by 125,000, which was 7.4% above the third quarter of 2017. That resulted in a 14.6% increase in net written premiums over the prior quarter. Policies in force are growing again due to increased customer retention and higher new business levels. The size and importance of the property and liability business results in some investors overlooking the value created by a number of other protection businesses. These businesses have high attractive economic prospects and are worth billions of dollars, should not be overlooked when making an investment decision.
As I go through these businesses, the math to keep in mind is that each billion dollars of value is worth almost $3 a share, or about 3% in value. Allstate Life provides proprietary life insurance products to Allstate agencies to deepen customer relationships. The business had $278 million of adjusted net income over the last 12 months. Adjusted net income return on equity was 12.4%. Allstate Benefits premiums and contract charges have grown, as I said, over the last 18 years quite aggressively, now exceed $1.1 billion. Adjusted net income was $114 million for the last 12 months, and return on equity was 14.9%. SquareTrade was acquired for $1.4 billion in the beginning of 2017 for its high growth and return prospects.
Policies in force have grown from under $30 million in March 2017 to over $52 million at the end of the third quarter, a 75% increase in 18 months. The business is meeting the three acquisition objectives we set, which is grow the U.S. retail business, improve returns, and expand beyond U.S. retail. We believe the value of that business has increased since it was acquired. We've also been increasing shareholder value by innovating, which can be overlooked with just a sole focus on auto insurance margins. We've been recognized for innovations in our property and liability businesses and the newly created businesses, such as Arity, as you can see from the right-hand panel. The Wall Street Journal on Monday rated us as a top 10 innovative company out of 752 companies that were evaluated.
Fortune named us to their top 50 Change the World companies in each of the last two years using digital technology in various parts of our business. In terms of the innovation, Arity was created by us outside of the insurance companies to be the telematics providers for the Allstate and Esurance brands. Telematics gives those businesses the ability to offer customers a higher and more individualized price, reduces subsidies between risks, and improves the driving experience. We have over 1.3 million connected insurance customers using Drivewise and DriveSense. We're also rolling out Milewise, where a customer can purchase insurance by the mile, which is really beneficial for markets such as New Jersey, where people drive to the train station or the ferry and don't feel like paying for the car when they're not driving it.
We are the only fully integrated telematics provider in the insurance space. Arity then is leveraging those learnings to further expand in telematics. We offer these services to third-party insurers and other connected car businesses. Today, we have over 9.6 million active connections and are collecting over 8 billion mi per month of driving data to improve and expand our service offerings. Arity was recently ranked the second-best telematics service provider by PTOLEMUS and has substantial value despite the fact that it has absence of current profitability. In fact, we lose a lot of money on it. This focus on innovation has led to a new line of business for Allstate Business Insurance. Earlier this year, we competed for and won a significant insurance contract with a large transportation network company. As one way to take advantages of the changes in personal transportation.
Our operational excellence in claims settlements was really a key factor in us winning that bid. Business insurance premiums for the third quarter of 2018 were $50 million higher than the prior year quarter, we're focusing on continuing to expand that business. In October, we purchased InfoArmor for $525 million to expand our presence in personal identity protection products with a proprietary product offering. We expect that business to grow rapidly given our strong position in voluntary benefits and by leveraging the Allstate brand. These highly attractive businesses and a track record of innovation should not really be overlooked when valuing Allstate. To create shareholder value, we have a proactive investment strategy which balances risk and return. The investment portfolio we've managed on a segmented basis, we match near term cash flows with fixed income securities and utilize equity investments for our long-term liabilities.
Over time, we've increased our position of performance-based investments, which are basically idiosyncratic equity investments, to about 10% of the portfolio, as you can see that's on the left, in part to make sure we're funding the long-term liabilities in our payout annuity bucket. We've reduced our risk related to increasing interest rates over the last three years in our long corporate credit. Investment income has delivered a consistent contribution of return of about approximately 4%, as you can see on the right-hand graph. Another important part of value creation is proactively managing our capital. We do that to both reduce earnings volatility, and lower the cost of capital. A comprehensive reinsurance program, and the use of low-yield perpetual preferred shares are examples of how Allstate reduces the volatility and the cost of capital.
Lincoln Benefit Life was sold in 2014 to redeploy capital out of a business with lower returns on capital and to reduce interest rate risk. Alternative sources of insurance capital are expanding pretty rapidly these days, and that will create additional opportunities for us to increase shareholder returns. We also have an excellent track record of returning cash to common shareholders. Hold on, let me go back here. Can you make Here we go. Sorry. We also have an excellent track record of returning cash to common shareholders. Our annual common stock dividend is 2.1%, which was increased by 24% in the first quarter, reflecting the lower tax rate. We've repurchased over $10.8 billion, or 35% of our common stock since 2012, and recently announced a new $3 billion share repurchase program, which compares to a common equity market capitalization of $30 billion.
Allstate currently trades at a valuation discount relative to our peers, despite strong results. As we mentioned, adjusted net income has increased by 47% over the prior year for nine months. Our book value is up 5.6% this year. Shares outstanding are down 2.7%, yet the common stock price has declined by 17.5% since the beginning of the year. Of course, some of that's obviously market related. When you compare Allstate's value to peers using price earning multiples, you can see that we trade at a discount to less profitable or innovative companies. The graph on the bottom left shows Allstate's third quarter earnings price-to-earnings ratio of 9.7, which is below historical levels in the overall industry. The same story is told if you look at a regression analysis of returns and book value multiples shown on the right-hand chart.
This chart has five-year return on equity on the horizontal axis, and price-to-book multiple on the vertical axis. The solid red line is the best fit, which has an R-squared of 0.78. As you can see, Allstate is below the value implied by the line. Bottom line is Allstate represents an attractive investment opportunity. We have a competitively differentiated strategy. Operational excellence generates attractive returns in a number of different external environments. Attractive long-term growth prospects exist in the personal property liability businesses and the broad range of other protection offerings we have. A proactive and balanced investment strategy also creates long-term value. Capital management is a tool that we are good at using, and should offer additional opportunities to create value. The current dividend yield and a $3 billion share repurchase program offer additional value to shareholders. With that, I'm done.
Thank you so much for the overview.
Thank you.
Maybe as we start into the Q&A or into the fireside here, maybe we can start with the auto business, which clearly has been very strong, last couple of years, this year in particular, has really working on all fronts, I would say. Maybe we start off with pricing for the industry. I think when we met earlier this year, you had talked about the pricing advantage that Allstate had in auto, given the industry actions that had to be taken or were still being taken. It seems like that industry pricing has eroded faster than I would have expected maybe at the beginning of the year. Were you surprised by that? Regardless of whether you were surprised or not, how does it position Allstate for the-
Eroded meaning that the level of increases have come down?
Yes.
Yeah.
Yeah.
The auto insurance business has been a really good business for us for at least 12 years. We know how to make money in that business. We know how to adapt and adjust. Sometimes things change, and you have to figure out how to adjust to that. It's no different than any other business. We've been really good at earning a good return there. As we talked about in 2015 and 2016, having to raise prices a lot. We did get out ahead of it. We raised prices earlier than other people did. They raised prices. Some are still kind of there. Some haven't really got their returns where they need to be. Our competitive position is still really strong. If you look at our retention levels, they're up.
A lot of our growth now, 60% of our growth is through customer retention. There's not a new business penalty on that, so it keeps your profitability up. Our new business levels are still really strong. I'm not seeing us in a weaker competitive position. It's almost, though, it's become more a game. There is the absolute level, for sure, but then there's the sophistication that you bring to it, and we're bringing more and more sophistication to it, whether it's just higher ed math or using telematics data to help us price better than them. I'm feeling good about the auto insurance business. The Allstate brand combined ratio with, I think, 92% so far this year, so it's a pretty good return.
Yeah.
An 8-point margin when you get some investment income is a really high return on a business that most people would say you can have less than a third of capital per dollar of premium. You can just do the math. That's a really high return on capital. The challenge for us now is to grow the business. We've got good high returns, now we need to grow the business.
You think you can continue to grow the business or accelerate growth from 2018 levels if the relative positioning pricing wise has maybe come in a little bit?
I think we'll continue to grow both the Allstate brand and Esurance. Esurance is obviously growing faster, off a smaller base, though. The Encompass business is kind of about bottomed out, I think, in terms of growth, so I'd like to see that one grow a little bit more. Yeah, I feel good that we can keep-- I think the level of profitability and returns are really attractive. People get a little wound up on the percent here, percent here, and it's really important, the combined ratio %. When you look at overall returns as a stock investor, the returns in that auto business are fabulous. The challenge is how do you keep growing it while making sure you maintain the returns, or just get acceptable returns.
It's so far above our cost of capital that we generate more value for our shareholders by growing the business than trying to make the combined ratio go down from here.
Okay. I think one of the elements that has helped margins, and certainly in the auto business the last couple of years, has been frequency.
We're now seeing oil prices coming in, full employment. Does that mean that we should expect more miles driven, and does that reflect on frequency?
I think it's impossible to predict frequency. It may not be what you want to hear. When frequency went up in 2015 and 2016, all across the industry, nobody still today really has a good answer as to why it went up. Everybody went from big screen cell phones were introduced, to more miles driven, to lower gas prices, it's probably some of all of that. Of course, it's come way down in both last year and this year. That's benefiting us and benefiting our margins. Really impossible to predict whether frequency will go up or down. What you have to do is just price what you think is happening. Frequency obviously is impacted by other things, but frequency is also impacted. This is where I think a lot of people lose the math.
For every attribution analysis you're trying to do on frequency or severity, there's always a connection to some other measure. For example, if deductibles got raised from $500 to $1,000 because the industry was putting through 6%-9% price increases, and customers are saying, "Well, if that's how much it costs, I'll raise my deductible and save a little money," what happens is your frequency goes down because not as many claims break through the deductible barrier. Well, what that does is that takes away the low volume claims, what happens is you get higher severity because the little ones go away and the big ones are still there. You really have to look at it in total. There are some trends in the collision severity that we're looking hard at, particularly total losses.
We feel like there's some secular things going on with the way cars are built, the amount of sensors in them, which put some pressure on that. The good news is we're paying attention to it, we just change our pricing to reflect the fact that that's not just the head fake of higher deductibles. That's really money you got to get back from your customers so you maintain your price.
I'm curious on the comment on severity versus how the cars are built. Can you maybe elaborate on that a little bit?
Yeah. Cars are a lot more sophisticated today, you've got those little sensors on the side of your rearview mirror, if you're normally going to clip somebody in your blind spot, it beeps and tells you, "Don't do it." All that's good. That leads to lower frequency, which is a good thing. The only thing is those mirrors are a lot more expensive to replace when they get a sensor on it than when it's just a mirror with a piece of glass on it. It might cost $1,000 to replace a mirror instead of $100. As a result of that, what you're seeing is cars are much more expensive to repair. In fact, we've looked at it in the cost. It's always been more expensive to buy a car in pieces than in total.
Which kind of makes sense, right? Because they put it together in a factory, and they get the economies of scale, and if you're to go buy individual piece parts, it costs more. We know that the auto companies make more money on selling the blades than they do the razor itself. That difference has gotten bigger. If you look at the cost to buy a car in pieces today versus the cost to buy a car new, it looks like the locus of profitability has changed. We just need to make sure when we're buying it in pieces, we're focusing on getting sure we get that money back and not just valuing insurance based on the original cost of the car, which is what we do. It's interesting.
I haven't figured out what to do about this yet, but it does call into question as to where the auto companies are making their money. If they're making their money on parts versus whole cars, if you look at long term trends and there's fewer accidents because there's better equipment, self-driving cars, that kind of stuff, but you're not making money on the car and not many parts to sell, it's another interesting thing. That's not our problem, but as an investor, we think about it. As an insurer, we're just worried about getting our money back for fixing the cars.
Got it. One other one on severity. Just two more. First, if I look at body shops, I'm assuming their labor costs are going up now just given full employment, material costs are going up. Does that ultimately get reflected in your- Servicing agreements with the body shops 2019, 2020, is that going to be a pressure point?
Well, it's highly regional. Depends on the market. To the extent it costs more to fix a car, we put that into our prices. To the extent labor costs go up, we will reflect that in our prices. The other thing is you try to bring efficiencies into the system. You don't have to just accept it. Let me give you an example. QuickFoto Claim, we used to have 937 drive-ins. You would drive to our drive-in, we'd have somebody there with a computer, they'd figure out how much it costs to fix your car. Now you send us 6 to 22 pictures. We have no drive-ins left, maybe one or two, but 937 gone. We've lowered our costs, that goes into the claim cost.
At the same time, we've created a thing called Virtual Assist for body shops, where once we adjust the car, then you can't even know everything is broken. They take the fender off, and they find out something else is bent under there. That's called a supplement. What you used to have to do with a supplement is call Allstate. If it was a big dollar amount, we'd send somebody out. You'd have to wait to get there. The car would sit on the rack. You have to go work on another car, something like that. Today, we have this thing called Virtual Assist. You pull out your cell phone, it's like FaceTime. You do this, ties into the claim system. You're talking to somebody at our digital operating center, and they say, "Yeah, it's good for another $100.
Go." Car fixed, get the part, and off you go. You can reduce their cycle time by using our digitalization the way we're doing our claim processes. We're always working to try to find a way to offset any cost increases.
Got it. Finally, on severity, personal injury protection, I think one of your competitors has talked about some prior development around that, especially in Florida.
Yeah. They got whacked for Florida PIP. Florida is one of five states really that have personal injury protection. It's a medical coverage. It's a complicated little battle that goes on between the providers and the plaintiff attorneys and the insurance companies as to what you should pay. I always describe it's like a river of money. You collect all this money from your customers, you're trying to give it to the people at the end. Along the river, people like to dip out and take money out of the river. There's always a fight for that. One of our competitors didn't have the reserves right. Well, let me tell you, in total, our reserves are accurate. We have, I think, almost $19 billion of property liability reserves. To the extent we need to change them, we do change them.
The Florida PIP reserves are less than 2% of that, it's not really a big deal.
Okay. In terms of booking those reserves with or without the retention, you had that booked correctly?
We think all of our reserves are booked correctly, yeah. To an extent, they change. You're talking about a relatively small percentage for us relative to our overall reserves. You can look at our track record. We've been very conservative in the way we do them.
Got it. Maybe we can move on to homeowners a little bit.
Yeah, sure.
Frequency has been up a bit. Some of your peers are talking about just normal volatility. Others are talking about maybe a two-year trend here. What's your view on it? How quickly do you get to reprice that? Maybe a third element there. The one piece I haven't seen, where I was surprised not to see, is severity, just given material costs, labor costs being up. Maybe you can talk about that part of the loss ratio as well.
Okay. There's a lot in there.
Yeah.
Let me maybe start really up top. First, homeowners business is a really attractive business for us. Just this year, 9 months, combined ratio 89% give us an 11-point margin on $5.5 billion, that's $575 million of underwriting income. It's been a really attractive business for us, has for a number of years. It wasn't always. We had to reposition the business, as I talked about, better pricing, better risk selection, change the contract. It's a really attractive business. Frequency was up in the third quarter, particularly for non-cat weather. It bounces around a lot, though. I'm not bothered by it. I still think it's a very attractive business for us. To the extent frequency is up, you do reflect it. In terms of severity, of course, the cost to fix homes and stuff like that, you do see some building costs. You're absolutely right.
You see building cost increases. We have an inflation adjuster in our policy that goes up, a PIA, for those costs of building automatically. To the extent the mix changes, that's probably the bigger driver of severity. A fire loss obviously costs a lot more than somebody driving through your garage door. The change in the mix has a big deal. One of the things that's kept our severity in control is if you think about severe weather and a house, what's exposed, the thing that's most exposed is the roof. That's out there. That's the thing that could hit. We've changed. We have something called House & Home.
We age-rated roofs so that if your roof is 25 years old and you're hoping for the hailstorms to come so it knocks your shingles off, so you can get a new roof for your $1,000 deductible, that's not going to work with House & Home. If it works with House & Home, you've paid us a lot more premium to get a full replacement roof because your roof is so old. We try to manage it by doing both the pricing, keeping track of it, and then getting the contract right.
Okay. I spent some time just talking to Insurtech companies. You clearly are doing a lot in terms of Insurtech and talked about some of the initiatives.
Yeah.
At the same time, there is also constant buzz about maybe disruption, especially in auto and home. Are you seeing that? Are there ways that you can protect yourselves against that? Maybe we can start there.
Well, I think there'd be disruption in every business. I think the best way to be protected from disruption is to disrupt, is the way we've approached it. We think the personal transportation system is going to change dramatically. It's going to take a while. The fleet's 11 years old. We got $4 trillion tied up in cars, so nobody's going to suddenly put $4 trillion worth of autonomous vehicles on the street because nobody's got $4 trillion in one place. What would you do with the other 240 million cars that are out there today? It will happen over time. What we've done on the auto insurance side is build our connected car platform. That's what we're doing with Arity. We think by using telematics, it's every bit as powerful as credit in pricing on our insurance.
That line where you saw our auto insurance combined ratio better than the industry, that's because we're really good at pricing, and we're really good at claims. We're using telematics. We can stay really good at pricing, so even if the overall market goes down, we should capture more. We're also really good at claims. What you're seeing is one of the reasons we got the Uber account, I think, in four states is because we're really good at claims. We know how to settle a claim, how to litigate a claim, how to make sure people get paid the right amount of money, not too much, not too little. We're looking at ways we disrupt. Arity is a way in which we're prepared to sell those services to other people as well.
I'm like, "Look, we can't get 100% of the market." If we can use money off the information we have, the network effect that will come from Arity having now 9.6 million connections out there is such that not only will Allstate and the insurance be better, but we can help other companies be better that participate with us, and they'll pay us to do that. Part of it is disruption, part of it's also going where the market is. That's why we went to SquareTrade. We bought SquareTrade because people love their cell phones more than they love their cars today. We weren't really in that market. Now we're growing that business. The reason we went to identity protection.
If you're trying to protect people from life's uncertainties, when you look at all the cyber hacks and everything going on today, that is a market that we believe is under-penetrated and will grow. I think one of the ways you do it is, yeah, businesses are always changing, right? We don't want to stop the disruption. We want to lean into it. We've invested a bunch of money in that. That costs us money. We eat that in our expense ratio. It actually ends up the way our stock is valued, being a negative, we think all those businesses are worth a lot of money.
With Arity, can you use the data that you're collecting from third parties to help them? You're monetizing that data. Can you also use it for your own pricing and segmentation?
Arity is a third party that will give Allstate the same stuff it gives everybody else. Allstate is so big and ubiquitous that it has its own data on top of that. Some of that data gets used by Arity to help other people. Some insurers are like, "Why are you going to tell us your secret sauce?" We're not giving you everything. You're going to be better with us by being part of our network than you will be being on your own. If you're a moderate size insurer, and you have data on 100,000 cars, it isn't going to really make that much difference. You start getting data on 9.6 million drivers, it makes a difference in your pricing.
Okay. I know you disclose the prior month's cat losses.
Yes.
Thursday of the next month?
Yes, two weeks from now.
Yeah. Nonetheless, I think I'd be remiss if I didn't ask about the California wildfires and any thoughts about the impact there.
Yeah, you're right. We put our cat numbers out every month because what we found is just like you can't predict frequency, I find a lot of analysts, whether it's buy side or sell side try to predict catastrophes. I'm just telling you can't predict them. I've been in this business 23 years. I see all the numbers every day, and two days before the releases come out, I can't predict it. We got a bunch of people do math around it, so we now give it out every month. We gave numbers out two weeks ago. Michael cost us $136 million, which included all the states, very little in Florida. I know the Florida insurance commissioner came out yesterday or something and said losses are more than people thought. We have so little share in Florida and so much reinsurance, it doesn't matter to us.
We will, on the California wildfires, we put out an announcement out two weeks from now. We'll put it out then. If we have it sooner, we'll figure it out. I was out there last week. The devastation's pretty pervasive. Just whole blocks are gone. The bad news is that's expensive for people. The good news is it's a lot easier to figure it out because you just go to total losses. With a hurricane, you got hanging stuff and mold, and you got to figure out where you put new shingles on. If the house is gone, the house is just gone. You play policy limits, you play alternative living expenses for content. I think we will get a handle on it sooner than we would normally be in this size catastrophe. The good news is we're taking care of our customers.
We're there for them. It's really a horrible thing, but we're prepared for it. We have reinsurance programs in place as well. It's a significant event for us, but it's just another event that comes along our way.
From a company's perspective, is this a one reinsurance event? Is it a multiple reinsurance event?
We haven't decided which that is.
Okay.
I know everyone's in it. It all depends on your insurance contracts, right?
Right.
To get what's mileage on it. We do our reinsurance agreements in a way that optimizes both our recovery and our capital, we're not worried about it.
I want to open it up to the audience. Is there any questions? Alan.
Yeah, Alan. The question was reinsurance policies pricing. I know everyone's always trying to figure out what it's going to mean for the reinsurers. I would just tell you my view, and ultimately we're a customer, I would like this to be the true case. There is so much alternative cap out there, I don't really see it impacting. I think one of the things I just briefly touched on, and I think a lot of people are not focused on this, carriers like us who are big, sophisticated, have a broad base of risk, the opportunities to use alternative capital will extend beyond reinsurance, I believe, over time, traditional reinsurance. What you've seen happen to the reinsurers, right, was all this alternative capital came in, their returns got crushed. They went from mid-teens to maybe eight or nine, maybe 10.
I think as alternative capital comes in, we're positioning ourselves to be able to take advantage of that, capture more of the goodwill that we create through our services, and use low-cost capital, whether that's reinsurance, perpetual preferred, or some other portion of it. We're optimistic that there's going to be plenty of low-cost capital that we can still take advantage of.
Thank you. I think the clock here says two minutes, but I think we're actually out of time.
Okay.
I want to thank you for-
Okay. Thank you.
the insightful comments.
Okay. Thank you.