We're pleased to have with us Tom Wilson, who's the Chairman and CEO of Allstate Corporation. Allstate is one of the largest insurers of vehicles and homes in the U.S. The company also has a life insurance and retirement savings business. Tom is going to open with some opening remarks, and then I'll moderate a Q&A session. We're also joined here today by Allstate's Head of Investor Relations, John Grieco. With that, let me turn it over to Tom.
Thank you, Jay. Good morning, everyone. Thank you for choosing to learn more about Allstate and why we're a great investment opportunity. Our goal is to help you understand our strategy, and how we create shareholder value. I'll use a handful of slides, and then Jay will moderate the conversation. Before we begin, this is a statement that says I may be making some forward-looking statements in references to non-GAAP measures today. You can get the presentation slides and a great deal of other information by visiting our IR website, which is at allstateinvestors.com. Allstate has been and is an attractive and unique investment opportunity. We serve more than 16 million households with over 36,000 individuals embedded in virtually every city in America. We have a diversified set of insurance risks and an $80 billion investment portfolio that generates excellent returns for our shareholders.
Our operating priorities for 2016 are shown on the right-hand side there. We use these to direct our business, to be transparent with investors, and to measure our results. This year, we're working on raising the economic returns on auto insurance, which are above the cost of capital now, but they're below the highly attractive industry-leading position we've achieved over the last decade. This has had a negative impact on auto insurance policy growth, but we have many other growth initiatives that are performing. Our strategy in the property casualty business is to segment the consumer insurance market into four distinct quadrants based on their desire for advice and assistance, which is shown on that horizontal axis, and their perception of insurance, which is shown on the vertical axis.
We have unique value propositions for each segment to best meet the needs of each customer group, and we're the only company with a presence in each of these segments. Customers in the lower left-hand segment want local advice and believe you get what you pay for in life, that brands have value. They prefer to have one insurance relationship for all their protection needs, and therefore tend to bundle their purchases. These customers are served by the Allstate brand value proposition, which includes a wide range of products in the 36,000 highly engaged Allstate exclusive agencies, financial specialists, and licensed sales professionals. This is our largest and most profitable segment, and where we compete with State Farm, Nationwide, and Farmers. To further strengthen our competitive position in this segment, we're positioning Allstate agencies as trusted advisors by changing processes, technology, products, and compensation plans.
In the lower right-hand segment, customers prefer to handle their own insurance needs. What they need are technology and tools to help inform their decisions versus getting help from a local agency. We've invested heavily in expanding Esurance, and as a result, have doubled the size of that business since we acquired it five years ago. We compete with GEICO, Progressive Direct, and USAA in this segment. Our strategy for the Encompass brand, which is in the upper left-hand segment there, includes using local advisors and a differentiated product. These customers tend to be highly price sensitive since they believe most insurance companies are the same. We focus on the $35 million mass affluent household market by packaging auto and home insurance into a single policy with one premium, one bill, one deductible, one renewal date, and one advisor.
Answer Financial in the upper right is the largest online agency in the U.S. and serves customers who prefer self-service and are brand neutral. Answer Financial offers comparison quotes for auto insurance and homeowners insurance from approximately 25 insurance companies through its website and over the phone. We do not take underwriting risk in this segment. Across all of these segments, we leverage our capabilities in analytics, claims, and technology. Improving auto profitability to historical levels is well underway and will generate substantial additional shareholder value. Auto insurance profitability declined beginning in early 2015, resulting largely from an increase in frequency of accidents and an increase in the average cost associated with them. We took decisive actions early on to react to the reversal of what is a long-term trend of declining frequency in auto accidents, which is shown in the upper left-hand graph.
We experienced a divergence from declining auto frequency trend, which started in the fourth quarter of 2014 and is now at the highest level since 2003. As a result, we implemented a broad-based four-part auto profit improvement plan that included raising prices, lowering growth through tightened underwriting standards, focusing on claim process excellence, and reduced expense spending. Allstate, Esurance, and Encompass each have their own unique auto profit improvement plans reflecting their situations in their marketplace. Auto price increases approved over the last six quarters total approximately $2 billion across all three underwriting brands. You can see the impact that's having on accelerating average premium growth in the chart on the upper right. We will continue to pursue price increases going forward until returns reach historical levels.
In addition to broad price increases, our market operating committees are using their local market knowledge to address specific underperforming segments of the business from state to state, and we have very specific tighter underwriting standards in each state. Our claim organization is also responding to higher frequency and severity. In recognition of a lower growth objective and to accelerate margin improvement, we decreased our spending on advertising, professional services costs, and compensation in 2015, and we continue to closely manage expenses in 2016. In summary, we've reacted quickly, broadly, and precisely to the uptick in the auto combined ratio. We've operated this line of business at higher returns because we provide customers with excellent value and have exceptional national and local operating capabilities.
Over the last five years, Allstate's auto insurance combined ratio is substantially better than the industry and comparable to GEICO and Progressive, as you can see it on this slide. The difference in underwriting between our results and the industry average is approximately $750 million per year. Allstate has the capabilities, will, and track record of managing auto margins and our share of the auto profit pool. Our homeowners business is a competitive advantage and generates a substantial amount of underwriting income. This did not happen by accident. In 2008, we began to reposition the Allstate brand homeowners business to reflect what was beginning to be an increase in severe weather. Over the last eight years, we've executed a multifaceted local market approach with the same analytical rigor and operational focus we have in auto insurance.
We raised prices over 30% to ensure our rates were adequate for the environment we were operating in. We re-underwrote our existing book of business. We established tighter new business standards. We migrated customers to higher deductible levels while reducing the number of homes we insured. We also created a new homeowners product, which is called House and Home, which gives customers a chance to choose between roof coverage levels because roofs are the most expensive thing to repair in a catastrophe. As you can see from the graph on the bottom of the page, the operating range of the Allstate brand homeowners combined ratio has been improved significantly, and we've generated billions of dollars of profits in this line, and it's now a competitive advantage for us. We also take a proactive approach to investing. We balance risk and return and focus on long-term shareholder value creation.
The investment portfolio is managed on a segmented basis, which is represented on this slide. Now you can split the portfolio lots of ways, as you know. In this particular example, we split it by looking at the primary source of return and how actively the assets are traded. You could almost think of it as beta versus alpha. The vertical axis is the spectrum of what primarily drives return, the overall market or the specific asset. The horizontal axis is the spectrum of how much trading is done in the assets. The market-based core approach in the upper left accounts for about 82% of the portfolio. It's a stable, highly liquid, high-quality fixed income portfolio. Holdings in this portfolio are primarily comprised of public and private fixed income assets, commercial mortgages, and passively managed equities.
The three other portfolios, market-based active, performance-based opportunistic, and performance-based long, are more idiosyncratic in terms of their investing returns. Market-based active in the upper right is 11% of the portfolio. Our goal here is to outperform the market through active management by leveraging our capabilities in public markets. In the performance portfolios on the bottom, we focus more on total return. These portfolios typically generate more short-term reported earnings volatility, which often shows up as limited partnership returns. We believe this approach to investing will deliver better risk-adjusted returns for shareholders. Looking towards the future, we believe that the transformation of the personal transportation system offers a substantial business opportunity. This is much more than the autonomous car. While it's based on the same technologies that are leading to autonomous cars, it's a fundamental restructuring of how we move people around the United States.
The personal transportation system is expensive and highly inefficient. The total hardware value is nearly $4 trillion and has direct costs of $2 trillion. Capacity utilization, even at peak hours, is only about a third. If this were a manufacturing plant, you would shut it down immediately and rebuild it. On top of this, over 30,000 people are killed annually in the system. There's a significant opportunity to reduce the cost and improve the effectiveness of this system. This will necessitate shifts in car ownership, technology, infrastructure, including things like gas stations with parking lots, liability laws, and safety regulations. This transformation will be gradual, given dispersed economic ownership of the components of the system. Many constituents will be required to adapt to new business models and technologies.
That said, it will change because even moderate increases in effectiveness and efficiency have the potential to raise household income by 5% annually. I know of no other economic opportunity to generate this much wealth for Americans. Allstate is leaning into this opportunity by leveraging our customer relationships to build a more strategic platform serving connected car customers. We established a connected car entity, Arity, which is outside of the insurance company, which you can see in the graphic on the lower left of this slide. This provides us with the strategic and operating flexibility to capture additional value from our growing connected customer base. It will also enable other companies, both insurance companies and other businesses, to connect with their customers by using this platform and Arity's capabilities.
Over the last five years, Allstate has been investing in connected car efforts, and we now have 1.1 million Drivewise and DriveSense customer connections. In the insurance business, telematics is a very powerful pricing tool that enables us to give customers more accurate pricing. The use of a recurring connection, which is different than some other models in insurance, also broadens the value customers get from Allstate by providing additional services. For example, we provide customers with tips on how to better protect themselves, change their driving habits, and that leads to lower insurance premiums. We've also expanded the value they get from being with Allstate, such as merchandise discounts on how safely they drive. To summarize, Allstate represents an attractive investment opportunity for a number of reasons. We are focused on improving auto margins and expanding our share of the auto profit pool through focused value propositions.
A one-point increase in auto margins is worth $130 million annually. It's about $0.35 a share. We have the ability to expand our market presence in four personal lines consumer segments. We are proactive, disciplined, and focused on creating economic value for our shareholders. On a longer-term basis, we are leveraging our brand and capabilities and market position by expanding in other personal lines insurance products and Arity. Jay will use his expertise and knowledge of us to talk about how we translate this into a higher stock price.
That's my hope. Thanks, Tom. That was a very helpful overview, and you covered a lot of ground. Let's start with the last topic you touched. You were just mentioning on autonomous vehicles and hopefully favorable changes to the U.S. transportation system. Can you tell us a little bit more about how you ultimately see autonomous vehicles playing out? I mean, this is going to be decades in the making, it seems like. You see the technology industry, the auto industry seems to move forward, then it'll have an incident, it'll pull back. How are you seeing this playing out over time, and what does it mean for the auto insurance industry?
Well, first, I think it's going to change dramatically. If you owned the personal transportation industry, and you were spending all that money, you'd shut it down today. You'd redo it and have everybody go to work a different way. You wouldn't need to drive. You wouldn't have empty cars everywhere. You wouldn't have parking lots everywhere. That'll take time because you have this dispersed economic ownership, and let me give you an example of that. In Chicago, we have bike lanes because we want to be a young city. Kids ride their bikes to work. You door people. You don't see them coming, you open your door. Somebody said, "We should put all the bikes on one street, and that'll be better, which will be a better personal transportation system." That's correct.
They picked one of the particular streets, which works unless you own a parking lot on that street. You fight the law to change it. The point is, when it's dispersed economic ownership, it takes a while. You've got to change the entire system, and that'll take a while. That said, it will change. You will have fewer accidents, less severe accidents, and fewer cars on the road. It's going to take some time to get there. We did some scenario planning analysis, and the most aggressive, what we call the Jetsons. I don't know if you remember the cartoon.
I do
the Jetsons. In that case, what it showed was modest increases in insurance premiums for the next decade, then it falls off after that point. The reason it takes 10 years is because first, the fleet is about 10 or 11 years old, so it takes a while to turn that over. Secondly, about half of your premiums are paid for bodily expenses and bodily injury, so that kind of goes up with inflation medical costs. Third, the cars are getting more expensive. One of the things you see in auto margins today is severity is up because a side view mirror used to cost $150. Now, because it's got a little blinker on it, and it's tied to the rest of the car, it costs like $1,000.
In this transition period, there's plenty of opportunity for insurers to capture additional value if they know how to price and underwrite the business. What we're doing is trying to build this connected relationship, one, so we can do that more effectively because when we know exactly how you drive, we can price more effectively. We think we can gain share just by being better pricers using telematics. Secondly, we start to use our relationship with them to do other things. We think we have a 10-year period where we can broaden our relationship with people, and not only will we sell more people car insurance because we'll have better pricing, we'll also be able to sell them other stuff through Arity.
We're building Arity with open APIs and stuff like that, so if other people want to port into our system, we can help our customers have access to that, and presumably, we'll be paid something for bundling that together. For example, road charging is an interesting application. Governments get $54 billion a year from gasoline tax and toll charges. Fewer cars, fewer driving means somebody's got to fill that bucket. You can use telematics to turn every road in America into a toll road without having to put booths in and all that, just using cell connections. We think there are lots of other applications for our Arity business, which will generate additional long-term value for shareholders.
In that scenario, Tom, that was based on aggressive technology adoption?
That was the assumption that it would turn over relatively quickly.
Okay.
Yeah.
This doesn't mean the need for auto insurance is going away, though, right? Even in the most aggressive scenario?
No, I think first, people are going to own cars for a long time. They're going to have accidents with them. I do think some of the things will change, though. I think the liability laws will have to change. I think we'll start to split liability from the owner of the car to the driver of the car. Today, your liability goes with your car, so you just don't want to let anybody else drive your car. We could split. I think there'll be changes in there. I'd actually go up a little bit, Jay. Our goal is to protect people from life's uncertainties, because auto insurance is a big 60% of our business today, so we need to keep doing that. There are other things we could protect them for.
For example, we're not really in the electronic device insurance business today. People got all kinds of different devices. If you buy cellphone insurance, you know it's incredibly expensive for not a lot of value. We think we could do something better and different in those spaces. We look at it really, do people have needs to be protected? The answer is yes. One of them will be cars. To the extent we can do other things for which is a home or anything else, we think we can broaden our customer offering.
Let's bring it back to the present.
Sure.
Allstate's target in 2016 is for an underlying property casualty combined ratio between 88% and 90%. The first half it was 88%, tracking better than or at the favorable end of initial guidance. What's your comfort level of achieving or exceeding the target this year?
My comfort level is still high. We'll be in the range. Obviously, it's better to be at the favorable end of the range after six months than at the unfavorable range. You'll remember last year, after three quarters, we were slightly at the unfavorable end of it, and we managed to rally and get it done. We're pretty good at managing the underlying combined ratio, which excludes catastrophes and prior reserve releases for those who are not accounting experts. I feel comfortable we'll get there. We put a range on it. Sometimes people are like, "Geez, you're at 88, are you really going to get to 90?" Frequency and severity can cost you one point relatively easily. We put some range on it. Our idea is to let shareholders and investors know how well do we think we're running the business relative to what we promised to deliver.
I think we will deliver the 88%-90% this year.
Good. In auto insurance, other major writers like GEICO have also seen margin compression as a result of increased frequency, Progressive has largely been able to avoid it. Any thoughts why, in terms of that disparity among the major writers?
Well, as you would expect, I look at our competitors every chance I get, Progressive puts out their numbers monthly. We do watch it. GEICO clearly has seen an uptick over the last couple of years, and they're working hard. I think their average premiums are up about where ours are, 6%-7%, Their growth has come off. Progressive is not, if some of it gets into when you're using percentage changes, it all depends what your starting point is, right? If they raise prices in 2013, They don't raise them in 2015, it looks like they're not raising prices and they don't have a problem, maybe they actually raised them.
I don't see anything fundamentally different in the competitive environment or any of our respective skills and capabilities between those three companies that tells me we won't continue to be most of the share of profit pool. When you look at auto insurance in total, you saw that slide we used, there's an underwriting loss. That is still the case. State Farm had a large loss in the first six months of this year in auto insurance. I don't see that changing that much. Our goal is to get as much of the profit pool as we can and grow as fast as we can. GEICO, Progressive, and Allstate are the big carriers. There are some other carriers that do a nice job, too, That get most of their profit pool. I don't really see any change speaking about it.
What's happened to Progressive in the last three months, only they know.
That makes sense. Should we expect Allstate's auto insurance policies in force to decline until profitability improves?
We have chosen to go for a share of profit versus share of revenue. I would like this not to be down 1% in the Allstate brand this year. When you raise prices, and you do it early, other companies tend to follow you. What happens is you lose some business early on, and then you get it back. We made the choice to go aggressively and raise prices. We could have saved some buy-in and not raised prices by the $2 billion I talked about. In 2015, it was end of the first or second quarter, Matt and I sat down and said, "You know what?
We don't know how ugly this could get, so let's get ahead of it." If you had thought 2015 was it, that was the 5% increase in frequency that's where you would level out, we wouldn't have been as aggressive. As it turns out, we were right. Because we went into it, assumed it was bigger, and going to go on longer, we were conservative on the profit side. We tend to be conservative on the profit side. I once had a shareholder say to me, "What's your strongest muscle?" I'm like, "I didn't really know that question meant." I'm like, "What do you mean muscle?" They're like, "Sales or is it marketing? Is it claims?" I said, "It's profit. You started messing with our money, and we know how to get it back." Might take us a while.
It depends how long frequency and severity keep going, but we know how to make money in auto and home insurance.
That's clear, Tom. On the Allstate brand auto insurance combined ratio. That was 97% underlying in the first half of this year, 100%, including some elevated catastrophe losses. If a reasonable goal is, say, 95% or better.
Yep
on the Allstate brand auto insurance all-in combined ratio, how long you think it takes to get there, given you've got $2 billion of rates still coming through the system and the other factors?
Well, first I'm going to say, it's the right question, because that's what everybody's asking because depending whether you want to use with cats, without cats, two points, three points, four points in the combined ratio. Remember I said $130 million is every point. Let's assume you pick two points even, three points, you're getting close to somewhere around $1 a share in operating earnings, which is real dough, and will drive share price. We're after it because it's in our shareholders' best interest. Our customers have let us make those kind of returns in the past. We're not up against Fortune 50 companies here. We're providing households across America for less than $1,000 protection on their car. They're willing to let us make the kind of returns we've made. We think we can do that.
The timing really depends what you think is going to happen to frequency and severity. They are not predictable. If you had asked three years ago, the industry, "Do you think frequency levels will go back to where they were 10 years before?" If you'd asked in 2013, "Are they going to be, we're going to reverse this 10-year decline we've had?" People would have said no. Yet here we are. It's a result of a number of things. You do three things with your car. You drive to work, you do errands, and you do leisure driving. It's about a third in each of those. Driving to work, as unemployment rates go down, people drive to work more. As people drive to work more, there's more economic activity, so there's more cars on the road.
You got more cars on the road, they're driving more, so you have more accidents. As unemployment rates go down, people have more money. As gas prices go down, they have more money to be able to go on vacation. It's not a huge thing, like gas prices, vacations, couple thousand miles vacation costs you, maybe you save $200 in gas prices. It's not like that's free suddenly. We have noticed with our Drivewise stuff, people taking more long trips on highways, which then leads to more severe accidents. What we don't know is what's happened with distracted driving to influence that frequency as well. What we do know is it's up, and therefore we have to charge more. We try not to predict it.
As soon as it flattens out, eventually it should flatten out, I don't think it can go to the sky. All of that rate increase we've been taking will fall through to the bottom line, and that combined ratio. It could be sooner or it could be later, it just depends what you think is going to happen to frequency and severity.
There's still plenty of opportunity to take rate in auto.
We have not had much pushback because everybody else has the same issue, right? In the insurance departments with our sophistication, we're able to show them why we need more price. We're not out of the market. When we look at our prices relative to everybody else, our close rates are down a little bit, but we don't feel like we're out of the market so that we're not growing that. We're not growing because we chose not to grow, not because we raised prices so much that and that's the underwriting standard. If you look at our growth, it's impacted by two things. One, how much new business you write, then how many existing customers you keep.
Our new business is way down because we chose to make it down because we didn't want to put more risk on the business if we weren't sure it was profitable.
On a positive note, Allstate's homeowners insurance business has generated attractive margins, but with some slowing growth. Should we expect that trend to continue as well?
We should expect to make money in homeowners. Yeah, we took the homeowners business. Homeowners business used to be a business that made some money some years, then when you had big catastrophes, you said, "Well, it was us, we had big catastrophes." You would either make some money or lose a lot, which is not a good plan. We changed it to be, you always want to make some money. In years with low catastrophes, you make a lot of money. You could see from that slide, we have a combined ratio of below 100 so far this year, even though we've had $1.7 billion of catastrophes. It was in, I think it was like 97 or something, John. Is that right? I'd like it to be in the mid-80s. But I'll take-
Including that.
High nine. Yeah. All in, yeah. I'll take high 90s when you got outpaced that because there'll be other years when we'll be in the low 80s, and maybe even below that we'll make good money. I would like that business to grow more. Our challenge is in the lower left-hand segment where people like to bundle. Whatever you do in one line tends to move into the other line. When you're raising auto insurance prices and people are out shopping, it's not exactly the most opportune time to say, "Hey, I'd like to sell you some homeowners insurance, too." They get linked together. Our strength becomes our growth challenge in that case on homeowners. We should be able to grow that business. Yeah, absolutely.
On the near term topic of catastrophe losses, there was some significant flooding in Louisiana.
Yep.
I know that's probably not as much of a homeowners issue, but certainly could be for comprehensive auto and then Tropical Storm Hermine. What's the expected impact of those events?
Well, first on flood, you're exactly right. Flood impacts cars, we insure cars. If they get flooded, we have to give them a new car or get it fixed. We don't really do flood insurance for homes. That's done by the federal government, we're a write-your-own carrier, we service that on behalf of the government. Government needs to fix that program. They're losing $3 billion to $5 billion a year on it. They got all the wrong underwriting practices. We've been trying to tell them they need to fix it, they're spending your money for people to rebuild their houses in the same place like three or four times. That's why we don't do it. Flood's not really a big deal for us.
The hurricane stuff, we don't have an estimate we've put out yet, but you can look at all the stuff on TV and it's not a devastating event.
That's good to know. All right, last question before we go to the audience response questions. On the topic of capital management, it looks like the pace of Allstate's share buybacks in 2016 is on track to be slower than it was in 2015. Why is that?
Well, you have to think about capital management broader than just the share repurchase number. The share repurchase number is important. Since I've been at the company, I think we've bought back, since I know we're talking to Carrie, I think it's $29 billion worth of stock, which is more than our market cap. That doesn't include many billions of dividends at the same time. I've spent 22 years, but it's still a lot of money. The share repurchases are driven by a number of things. First, how much money do we make, and how much money do we need to grow? Secondly, some of the share repurchases that you're delving off of included like when we sold Lincoln Benefit Life because I wanted to take some interest rate risk off the table.
I just thought, given with low for long, we sold that business and took that capital. That was another $1 billion. We also always look at the capital structure, we put a $1.7 billion of preferred on the balance sheet and bought back a $1.7 billion of common because we thought swapping common for perpetual preferred, which was about a 6% handle on it with no upside, was a good trade for our shareholders. We're always balancing that. The other part is we're looking to see, well, what kind of growth opportunities. You can't share repurchase your way to glory. You should also be finding ways to leverage your skills, your capabilities, and putting capital to work. We look at it that way.
The other part that just I think as long as you're on capital management, I think it's worthwhile talking about is we have, I think, a state-of-the-art capital allocation process by risk, by line, by state, by type of investment, by horizon of investment, where we're taking our capital and allocating it and setting returns inside the business. You see the top-line numbers, what comes out of it. I would just tell you the machine underneath that allocates that between the various risks in the business is highly effective, and I believe really one of the best out there in terms of making sure that we properly invest shareholders' money.
That's helpful, Tom. Thank you. Let's go to the audience response questions. First question is, if as an investor you currently do not own the shares of Allstate or underweight the stock, what would cause you to change your mind? We can start the clock.
Don't pick number 4.
That's valuation. Couple seconds to chime in here. Almost half are saying improvement in the underlying combined ratio and a third saying lower valuation. Like you said, I'm sure Allstate doesn't want a lower valuation there. Is that consistent with your view in terms of underlying combined ratio probably driving it off here?
Yeah, it makes sense to me. When you look, we're down $500 million or so in annual operating income as a result of the increased frequency and severity in auto insurance. We need to get that back. If you do a point-to-point and go back to 2014 or something, look what we used to make, what we'd make today, that's real dough. If you look at how many shares are outstanding, there's a lot fewer shares outstanding. The operating leverage is quite high on number two would be my thought. We didn't really talk much about item three. I would just say on Allstate Financial, we've kind of exited that business over time. That business used to be twice its size through a series of things, selling the VA business, shutting down fixed annuities, selling Lincoln Benefits. We now are in really there's five businesses there.
There's our life insurance business, which gets about a 10%-12% return. There's our deferred annuity block, which is shut down, really gets about a 10% return and is running off over time. Our Allstate Benefits business gets a mid-teens return that's growing about 9% a year. We like that business a lot. It's about three times its size since when we bought it. Then there's a couple of blocks of long-term annuities. This will get to the capital allocation stuff. These are structured settlements, 20, 30, 40-year liabilities. In this low for long environment, we have invested in equities for a large portion of that portfolio, not for the next seven years. I always want to have seven years of cash to make sure we get enough cash for those liabilities.
When you look past that seven years, we've put money in equities because the risk of owning equities for seven years is actually about the same as it is in owning bonds. We don't think that's a good trade-off today. We think it's a better trade for our shareholders. What it does is it kills the ROE. If you look at the ROE in that business, it's zero to negative. We're okay with that because we think it's in our shareholders' best economic interest. We're willing to take some shots on ROE if they're manageable, if we think it's in our shareholders' best interests.
That's helpful. Next question please. What's your confidence level in Allstate's ability to achieve a higher return on equity, I'm saying above 12%, over the next several years? It's winding down here, and the results are somewhat evenly split between high and low confidence. In a normalized cat year, it doesn't seem like a 12% return on equity is unreasonable. Is that a fair statement?
No, I think that's a fair statement. Even with today's interest rates, we've moved off of a lot of people are now working on low for long, and they're all nervous about it. We shifted three, four years ago in that different investment to do more idiosyncratic and diversified from just interest rate exposure, which is why we sold Lincoln Benefit. I'm not surprised at people. What I would tell you is we obviously have high confidence. We know how to make money in auto insurance. We've done it for a long time. It's not like we messed up, the market turned on us. We just have to catch it. I'm highly confident we'll drive growth in ROE in the next couple of years.
Great. Last question, please. Next one. What should Allstate pursue more of? Acquisitions, divestitures, a combination of share buybacks and dividends, or none? What is none?
I'd have four.
Four out of-
You want me to do nothing? That's not a good plan. 20% wants us to do nothing. Okay, okay, you got the wrong guy.
Interestingly, 40% of people saying acquisitions, and historically, Allstate has done some bolt-ons.
Yeah, I think the market's turning a little bit there. I think you can see it with some other financial services companies who have been chasing share repurchases with the idea that that was the right way to drive value. I think you can see the market kind of turning, whether we all know some other stories where people have said to them, "Why'd you buy so much stock back?" The management team says, "Well, because that's what you asked me to do." What the people really said was, "That was an idea I gave you, not a request. You get paid to run the company." We think you should do both, right? You should generate good cash for your shareholders. If you don't have a use for the money, you should give it back to your shareholders rather than sit on it.
That said, we have been interested in doing some things in other personal lines areas. I don't really see us doing much in the life space. For example, I mentioned things like electronic device insurance. In the upper left, in the independent agency business, we don't really have a strong enough strategic platform to hunt in that market on a long-term basis. Do I want to pay a bunch of money for it? No, because I think we ought to be able to make stuff. That said, I have to find a way to grow there. In connected car, if we could find ways to build out Arity, and it was affordable, we would do something there. We think about it this way. It's a balance, right? We get paid to manage your money. If we can deploy it well and take risks doing that, we will.
If we can't, we give it back.
That's great. I'm afraid we'll have to end it there. We are going to have a breakout session in the Riverside Suite. Please join me in thanking Tom Wilson from Allstate.