Thanks everyone for being here. Thanks especially to Tom and Steve for participating in our conference. I'm Michael Nannetti, I'm the Property and Casualty Insurance Analyst here at Goldman Sachs. As I mentioned, we're pleased to have Allstate here continuing a recent tradition of participating in our conference. I want to mention, Allstate is the second largest writer of personal lines in the U.S., and the largest publicly traded personal lines insurer with a market cap of about $29 billion. After several years of PIF declines in both auto and home insurance, Allstate saw PIF growth resume in both lines over the past year, and has done so while achieving and maintaining above its target profitability on an underlying basis. I should note, next year, Tom will reach an important milestone as he completes his 20th anniversary with Allstate in a variety of roles.
Tom was appointed CEO in 2007, just shortly before the financial crisis. Certainly, not the textbook start that one might want. Clearly, we've seen a variety of environments over that period of time, starting with, again, the financial crisis. From the start, Tom has molded the company and helped mold the company into what it is today through M&A, product development, and all the while showing a commitment to driving both shareholder returns and shareholder value. With that, I'll turn it over to Tom.
Thank you, Mike. Good morning, everybody. Thanks for spending time with us today. Our goal is to help you understand how we create shareholder value. I'll use seven slides to set the context, and then Mike and I will have a conversation, take your questions. Also available for your questions are Steven Shebik, our Chief Financial Officer, and Pat Macellaro, who's our Head of Investor Relations. Before we begin, this is our health warning. It says I'm going to make some projections, some conversations that maybe are not related to GAAP. We have a very extensive financial disclosure on our website which you can get to through allstateinvestors.com, help you assess the risks and benefits of investing in us. Allstate is a unique and attractive investment opportunity through three very strong property liability brands with different value propositions. We serve 16 million households.
We also serve many small businesses and have strong investment capabilities. There are five key components to our investor value proposition. First, our strategy differentiates us from our competitors. We have segmented the consumer market into four different value propositions and have unique offerings for each of those so that we compete on value as well as price. We use analytics-based decision making to improve effectiveness and efficiency. From a technology perspective, we're moving from a strategy that was supported by technology to a technology-driven strategy. In the last six quarters, we've been growing total policies in force, as Mike mentioned, by leveraging those value propositions, completing the repositioning of our home insurance business, and expanding our product and geographic footprint. We generate attractive returns from auto and home insurance and then many other related businesses, and through investing our $81 billion portfolio.
A common theme is we are proactive in managing risk and returns for shareholders. The outcome of those efforts is a higher stock price and a history of good cash returns for shareholders. Our strategy is to segment the consumer insurance market and provide unique value propositions to each segment using analytics to improve effectiveness and efficiency and leveraging technology for competitive advantage. Personalized insurance customers fall into four distinct segments. We've talked to many of you about this. It is based on their desire for advice and assistance and their interest in differentiated products versus simply price. We are the only company with a presence in each of those segments. Our approach is to position each of our underwriting brands, which are Allstate, Esurance, and Encompass, with segment-specific value propositions and product offerings.
We compete directly with competitors for share or premiums or profits in each of those segments. This approach gives us the flexibility to align our brands with the needs and preferences of each customer. Customers in the lower left-hand segment prefer to have one insurance relationship for all of 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 proprietary products, 32,000 highly engaged Allstate exclusive agencies, financial specialists, and licensed sales producers that are in virtually every local community in the United States. This is our largest and most profitable segment. We compete aggressively with State Farm, Nationwide, and Farmers. To further strengthen our competitive position in this segment, we are changing our processes, technology, products, and rewards to position Allstate agencies as trusted advisors.
In the lower right segment, we are expanding Esurance's product portfolio as it underwrites homeowners, motorcycle, and renters risk for customers, which will lower its acquisition costs. We compete with USAA, GEICO, and Progressive Direct in this segment, the latter two of which do not underwrite homeowners insurance. Our goal across all of those is to deliver the best value through lower costs by using superior analytics and advanced technology. Our analytical capabilities have already made us industry leaders in pricing, risk management, and claims. We will continue to leverage and advance these capabilities across our strategy from marketing all the way through the hiring of people. Many companies also use technologies to support their strategies. In addition, we are beginning to use technology to create strategies. That is based on things like telematics and what we call integrated digital enterprise.
We have been building meaningful growth momentum for several years. About a year ago, we crossed into positive total year-over-year policy growth. This growth is diversified geographically amongst brands and consumer segments. The chart in the upper right-hand corner of this slide highlights our Allstate protection growth trends, which are all our property liability policies. The largest driver of this is resurgence in growth in the Allstate brand. You can see policy in force growth trends for both the Allstate brand auto and homeowners in the chart on the bottom right of this page. Both of these lines were negatively impacted by actions we took to improve returns from the homeowners business across the country and specific auto improvement actions we took in New York and Florida. With those initiatives behind us, we have begun to grow again.
Allstate brand auto has been growing year-over-year since the second half of 2013, and while the Allstate brand homeowners business continued its upward trajectory and began to grow compared to the prior year with several months ago. While growth is, of course, obviously very important to the long-term viability of our franchise, we recognize that profitability is extremely important to current shareholder returns. These charts highlight the consistent zone of returns from Allstate brand auto insurance and the significant improvement in Allstate brand homeowners returns. The Allstate brand auto combined ratio is shown in the chart on the upper right-hand side of the slide. As you can see, it's consistently profitable with a combined ratio below 96, reflecting what is really a micro-segmented approach to use all of our countrywide learning to manage the business locally.
Our organizational structure reflects the local nature of the business and is comprehensive, so that as drivers of frequency and severity change, we're adapting our pricing and our processes to maintain returns. For example, frequency, of course, is impacted by miles driven, which reflects both employment rates and gas prices. As frequency increases in a local area, we adjust our pricing by risk class to reflect higher costs. In the chart on the lower right-hand slide, you can see the improvement of our Allstate brand homeowners combined ratio over time, where it used to fluctuate from 100 and on up, depending on the weather, to a place where returns on capital are in the mid-teens. Over the last 3 years, profitability has improved dramatically with a combined ratio largely below 90 as we increased prices, reduced the size of the business, improved underwriting, and launched new products.
The net result is we earned $1.1 billion of underwriting income on this line over the last 12 months as of the end of last quarter. We've repositioned this business to really be a source of profit for us, even in periods with higher relative catastrophe losses. We're beginning to use technology to drive our strategy, particularly in the area of expanding the frequency of interactions with customers by improving connectivity. We're beginning this journey by focusing on the car and how connectivity can improve pricing, enhance the customer experience, and provide us with more data. Understanding a customer's individual driving behavior by gathering data either via an OBD port telematics device or a cell phone app enables us to give them a more accurate price.
More than half of the time, this price is lower, and we're good at pricing analytics, and we must continue to lead in this space. It's also possible to improve the driving experience by using the connections that we have to do to get better pricing. The third element is these connections provide other data which can be utilized to either improve the customer experience, lower costs, or generate additional income. There are many ways that improving connectivity while driving will help customers. Of course, lots of other large insurance companies are focused on this, as well as technology companies who would not be considered our traditional competitors. We have both advantages and challenges in creating shareholder value from these opportunities. We provide insurance over 22 million cars and can provide them with a reason to connect with Allstate, which is better pricing.
Today, we have active connections with hundreds of thousands of customers through the Drivewise and DriveSense products. Our analytical expertise will enable us to further refine pricing and best leverage the data that comes from these connections. That said, this is a new space for us in a rapidly developing market, so we have much learning to do before we can be successful in all three areas. Being proactive is part of Allstate's culture. While we cannot control the external environment such as weather, miles driven, or the investment markets, we can take actions when faced with change. The actions taken to improve catastrophe risk management and increase homeowners' returns have been well documented. You can see that in the catastrophe risk management on the bottom left-hand side.
We've also been proactive in the investment area, given the low interest rate environment, so we shortened the duration of our property liability portfolio because the risk of staying long was not worth the return. As you can see from the middle box on the bottom, the portfolio is substantially shorter today than it was in 2011. We did this despite the negative impact to operating earnings and return on equity because it was just the right long-term decision for shareholders. We exited the variable annuity business and began reducing the fixed annuity business in 2006 and stopped writing new fixed annuity business entirely in 2013. We sold Lincoln Benefit Life last year because we did not have a sustainable competitive advantage, and as a result, it will eventually free up about $1 billion of capital.
We also took advantage of historically low interest rate environments to restructure our balance sheet by reducing the levels of senior debt and increasing the use of hybrid debt and preferred stock, which you can see from the box on the lower right. This gives us more financial flexibility and a lower cost of capital. The consistency of our results enabled us to generate significant capital, which we've utilized to deliver cash returns to shareholders and provide strategic flexibility to grow our business, so like when we bought Esurance. Allstate shareholders have experienced a total return of almost 160% over the past five years. This compares with about 100% for the broad market and our P&C insurance group.
When you combine actual common dividends with the cash returned via share repurchases, so think of it as if you own the entire company, and you get all the dividends, and you get all the money we use to buy stock back, but you own the entire company at the end of the period, the cash returns generated by investing at Allstate have been in the range of 9% over the last four years. Since our spinoff in 1995, we've returned over $35 billion in capital to shareholders. This year, we increased our common stock dividend by 12% and authorized a $2.5 billion share repurchase program, which was to be completed by August of next year. As of September 30, we have less than $600 million left on that authorization, which equates to being about 75% of the way complete in 40% of the time.
To summarize, Allstate represents an attractive investment opportunity for a number of reasons. Our strategy is different. It provides unique customer value propositions to each customer segment by leveraging analytics and advanced technology. Our growth is diversified across geography, brands, and consumer segments. We consistently produce good underlying returns in our auto and homeowners lines of business. We stay focused on our priorities, proactively address issues, and execute by balancing risk and return. We have a long history of providing solid returns to shareholders. With that context, we'll go wherever you want to go, Mike.
Great. Thanks, Tom. All right. Can everybody hear me all right? Good. I guess just to start out, look at 2014 year-to-date. You're running certainly below your target profitability levels that you established at the beginning of the year. Your PIF growth, as we both mentioned, certainly at one of the better places it's been in a long time. How should we think about where you go from here? Are you more focused on maintaining profitability at a comfortable place or keeping profitability where you are and letting PIF go where it goes?
First, when Mike says below, that means better than.
Yeah.
We always get it. It's the combined ratio is below.
Thank you. Yep.
No, we have that issue all the time in our communications.
Right.
Our target combined ratio this year was, when you exclude catastrophes and prior reserve releases, 87%-89%. Same as it was the year before. We haven't given next year's forecast, but that's a place we like to be. We get good mid-teens, sometimes high teens returns on our business when we're operating in that space. We think we will create more shareholder value by growing at that combined ratio. We're a little bit under. The number moves around a point any given year just by weather, severity trends. We like where we are on profitability. I don't think you'll see as much margin expansion, excluding what happens with the weather. What you should see is our growth continue to pick up.
If you look at the Allstate brand, that went from being a relatively small portion of our growth to a very large portion of our growth. Of course, that's our biggest business, you should expect growth to continue to tick up.
When we think about homeowner versus auto, you've obviously done a lot of fixing on the homeowner side. You feel comfortable, confident with where that book is today. What are the tailwinds to growth in that business? Would you expect the inflection point in homeowner to be more substantial once you reach your run rate than on the auto side? Do you expect them both to continue to grow in tandem?
First, in the Allstate brand.
Allstate brand. Yep.
The Allstate brand, we would expect the auto business to continue to grow at a higher rate, both percentage and absolute units, because there are more units there, obviously, in the auto business. The homeowner business should continue to pick up. It will never get back to where it used to be, when they used to be one of your almost growing for a couple of reasons. One is we have more of a household focus today as opposed to monoline focus, and people have one house and tend to have a couple of cars. You shouldn't expect it to grow at the same rate. Secondly, there's a whole bunch of states where we have profitability where we like it, but there are some states, some big states, where it's okay but not great, and we will not get back into those states in aggressive way.
Like California would be one of those places. We haven't written a new policy, Steve, in California in-
Seven years
Seven years or something. Back in 2005, we used to write well over a million policies a year in the new stuff in homeowners. We probably won't get back there, but it won't be negative anymore either.
Right. Thinking about, obviously, one dynamic that impacts the homeowners' business is reinsurance and what's happening there. As you see the market evolve, do you anticipate a situation where maybe utilizing the right form of reinsurance or maybe an evolved form of reinsurance where you might consider entering some of these markets that at this point are not attractive or not attractive to grow in it?
Yeah. It's a really good question. Let me go up for a second, then I'll come down. Steve, feel free to jump in because you're in the middle of this on alternative capital. The sources of
Capital available to take underwriting risk in property insurance are growing rapidly. Low interest rates, cat bonds, a variety of things. People are saying, "Hey, we want some of that action." There's more new sources available. Steve can talk about some of the things we're seeing. I would say from a shareholder standpoint, the better use of that alternative capital is not necessarily to grow, but to take volatility out of the business. It will help us grow, but we got plenty of capital today. We could grow some if we wanted to. That's not a problem.
Yep.
We could handle the volatility, when you look at our stock price, you look at our multiples, you look at high beta stocks and low beta stocks, you look at the penalty associated in the market today with high beta stocks, we think there's more shareholder value to be created by using that alternative capital to lower volatility of earnings than it is to drive the top line. Steve, you might want to talk some about what you're seeing in the market.
The investors in alternative capital have risen fairly considerably over the last 18-24 months, we'll say. You previously have had primarily reinsurance, more traditional reinsurance, move to the capital markets in the last five, six, seven, eight years. Now it's more moving towards pension funds, other investors that have a longer perspective than what we see in the past. Our traditional reinsurance program is a 3-year type duration. If we really want to look at this in terms of taking volatility out, it's kind of a capital play. For capital, we need more than three years. If you look at our catastrophe bonds we issued the last two years, four years and five-year durations. That's good. Still not cycle. We look at something in the 7 to 10-year range in terms of duration, and we want sustainability.
We think some of the new capital coming in the market can give that to us. We're still looking at how you do that in terms of structuring. We've seen some other insurance companies, reinsurance companies, setting up some separate reinsurers. We're actively involved in looking at it. We haven't found the key yet to where we think we can solve the volatility problem through the capital yet, we continue to look at everything available.
I guess the challenge there is just that you're long that risk both reputationally and just you're on the ground servicing that risk, that you want to match it up with alternative capital that is at least as committed, maybe contractually-
Yes
at that point-
Absolutely
To support you. That's something that you're in the process.
That's the duration.
Yeah.
That's exactly right, Mike. Long enough for us to feel comfortable, but also long enough for our shareholders to say, "Give some predictability to earnings.
Yes.
If the homeowners business had the same minimal volatility that auto has, the multiples on our stock would be much higher.
Right. Understood. I guess, sort of shifting to another topic. Over the last several years, there have been a lot of campaigns to kind of de-risk businesses or parts of the company. The investment portfolio, you undertook that starting a few years ago. The homeowners business you mentioned, that's been an area that you dedicate a lot of energy to fixing. The agency network and really kind of looking to optimize that part of the company's profile as well. Two questions. One is, where are you focused now in terms of that sort of fix-it energy? Is there something that you're looking to, is it Encompass or is there something within either the larger home or auto business that you're really allocating attention to fixing?
Second question, just where are we in the independent agency or in the captive agent channel, one to 10 in terms of productivity relative to where you want it to be?
In the Allstate channel.
In the captive channel. Yeah.
Okay. Yeah. Two big questions. If I can deal with the first one. I would say you're right. We used to think of ourselves in being in a fix and run mode. We had to fix the homeowners business.
Yep.
Had a few states in auto we had to fix, we had to run the business. We kept doing things to build long-term value. We bought Esurance even though we only made $735 million that year or something.
Right.
It was really make sure you fix it, run it for the long term. We've now moved to a run and build mode. We're still running our business. We have a relatively low margin business. It's not like a software business where you lose five points of margin and you don't really care that much. We care a lot because it's sort of like everything. We're always going to be in that run mode. We are trying to fix the independent agency channel. The returns are not where they need to be. Esurance is getting returns above our cost of capital, but we can do a little better there. We are working on building. In building, there's obviously growing each of those channels, growing in trying to become a trusted advisor in the Allstate channel. I'll talk about productivity.
That'll lead into the second question. Esurance is of scale to grow with the market. We're investing more than that today because I think we can continue to take share given our value proposition. We're investing more in that. You mentioned de-risk in the investment portfolio. We de-risk one part of it. I think we don't spend a lot of time talking about the investment portfolio, but we've taken the investment portfolio to a more proactive approach, but risk and return-based adjusted. We're not trying to make the most money in any given quarter. I was just saying, if we don't like the return per unit of risk, we do something else. That's why we shorten the duration, that de-risked it. We also, on a broader basis, of the $80 billion, we break it into two chunks.
One is, I'll just call market, and the other is performance-based. Think of beta and alpha, if you want to do it that way. Alpha and beta. The market base has two components. One is large fixed income, some indexed equities, goes with the market. That's usually somewhere in the $60 billion-$65 billion chunk out of the 80. Somewhere between four and eight tends to be in what we would call market base active. As many of the banks and other people have moved out of the fixed income markets to provide liquidity, we've been able to go into bonds we know, willing to hold forever, and clip another 70 to 100 basis points on that market base active stuff. In the performance stuff, that's really idiosyncratic risk, given where we are in the marketplace with interest rates where they are today.
That's about a $10 billion portfolio in total. We break that into a couple of buckets as well. We focus on both total return and cash generation. You get a little more short-term volatility out of that in the reported earnings. We think it's a better trade for our shareholders because when you look at equity volatility, as most of you know, when you look at it over seven to 10 years, the volatility looks just like owning a bond. If you got that period of time, you might as well own it and get the higher return. We have more in the performance space. We're re-sculpting the risk in investments, not necessarily lowering the risk in investments, I guess I would say. Does that make sense to you?
Yeah, that makes sense. Yeah.
On the productivity of the Allstate agencies, they're having a good year. Business is up. They're writing more new business. When we look at the expansion of that agency force, it's pretty rapid. We're probably up, what do you think we're up in terms of sales producers? Maybe five or six% this year. In terms of people on the street calling, not just agencies.
Yeah.
We're also-
Yeah, probably more than that.
Probably more than that.
Yeah. Probably seven or eight.
7 or 8%. We're expanding the number of people talking to potential customers, which drives growth, and that takes a little while to burn in. Productivity's up, but we've carried that burden of new people. What we're really trying to do is shift them to more trusted advisors to treat them to high value-added work rather than low value-added. You can call anybody and get them to be your human modem. I carry around with our agency owners. Remember those old modems where you used to stick the phone in and it's like it I carry that, and I said to our agency owners, "If this is you're going out of business.
If you're the customer calls you take their information, you punch it in the computer, and you spit back that it's $457 for an auto policy, you will not be needed. What we need to do is to use technology to make them trusted advisors because that's what those customers want. We're trying to shift them to trusted advisors. I think the actual productivity of new business on a long-term basis will probably go down.
Yeah.
The retention levels will go up. That's what we're focused on there.
Yeah, interesting. When we talk about 7%-8% sort of headcount growth in the agency force, going back to periods where you had these sort of investments or periods where you were building, what's the time lag between growing that headcount to seeing that translate into PIF growth and revenue growth?
I can't give you a number people could model on, but I can tell you there's two components to it. One is when you add a new agency or a new location, it tends to have a two to three-year burn-in rate before they really get to be highly productive. The other is when you have an existing agency and they just hire somebody new, they tend to be pretty productive within about 90 days. We've been both expanding the number of agencies and locations because there are some markets where we need better geographical representation. We've also been leaning in getting our existing agencies to add new producers because they become productive faster. If they don't work out, they fire them faster than we do. If 60 days in, somebody can't sell anything, they're gone.
If it's a new agency in 60 days, we're still trying to figure out, they got the offices and marketing right and everything. It tends to be a little faster to do it. We push on both of those.
In terms of these headcount, whether it's adding people or adding agencies, how deliberate are your efforts? Are you in front of the decision to open an agency? Is it the market research and everything that goes into determining where to add and what to add to make sure that you're kind of translating into the expectations you have when you kind of undertake this growth?
From an analytical standpoint, we manage it all locally with a fair amount of analytics in terms of where our relative price position is, where the competitors are, where the other agencies are, what kind of penetration do we have in that marketplace, where are we in the homeowners business. We're highly analytical. There are some places we still need to figure out how to grow in low average premium locations. Because if you're in New Jersey and you're charging $1,000 for 6 months, you'd have to get fewer customers than if you're in Wisconsin, and you're charging $300 for 6 months.
Right.
Those low average premium markets, we still need to come up with a better model as to how to grow there.
Any questions from the audience? I have an awfully bright light, so I'm going to lean left. Got one over here.
Thank you. Can I ask some big picture trends about rate trends? Firstly, what are the broad trends in homeowner and auto rates, and are there particular pockets where competition is getting tougher? As a sort of follow-on question from that, given that both of those are now very profitable, especially homeowner's very nicely profitable, how confident are you that the industry is going to stay disciplined around the current levels of ROE?
First, in auto insurance, if you look over the last decade, we've earned good returns in the auto business, as have GEICO and Progressive. Between the three of us, we're probably more than 100% of the industry's profits.
Profits over, yeah.
We feel like that's a sustainable position for us. Trends have been in the below 5% range in terms of average gross premium people are charging. We've been in that zone. It's sort of in the 3%-4% range, depending which customer, which state. That said, that's the macro thing you asked about. If you look underneath that, we're in a new generation of price sophistication. Our current models are, and you'll see some people get 9% or 10%, some people get minus 2%. That overall thing seems pretty easy down below, and it's a lot wider range. That's working well for us. We've tweaked our models to improve retention. If you look at the improved retention in our auto business, we're doing a better job of spreading those rate changes more effectively.
I feel good about auto insurance in general in terms of its profitability. It doesn't mean frequency won't tick up or we won't mess up in some state, or we don't mess up in some channel. As I said, we're always fixing something. Fix never really went away, like we're perfect. In the homeowners business, I like where our profitability is. The industry itself is still not in a great place.
If you look at price increase, our average price increase, just as a percentage over the last five years, everybody else has pretty much caught up with us. What that tells me, without great science behind it, is I think we underwrote our way to better profitability as opposed to just price our way. Those houses that had shingles fallen off or seemed more exposed or brush was really close to them and stuff like that, we no longer have those risks. Steve, we're down how many policies, would you say, since 2004, maybe?
Well, since 2006, 2 million.
$2 million. $2 million risks went off the book. That's why you saw that line went negative. That's why our auto business went negative. I feel comfortable that we have a risk profile of the homeowners business that we're not going to have to take big increases just because the weather gets worse. Now, who knows? Three years. What I do know is the processes around homeowners are now as good as the processes around auto insurance. They didn't used to be five years ago.
We used to be slower. We'd do it annually. Now, we're on top of it. We got all kinds of geocoding and peril by ZIP code and all kinds of stuff. We've gotten much more sophisticated.
Can I ask a follow-up question, please? What is the trend in loss cost inflation, and where are you seeing more pressures on claims inflation?
We've seen pretty much inflation consistent with what the indices would be. If you look at the whole industry for the course of the year, people have been having a few issues in a handful of states in terms of PIP or BI coverages. We haven't seen really that much. We've seen much more of an increase consistent with what you assume from the normal trends in the CPI. Anybody else here? All right, I'll jump in. One area of the business, we talk a lot about auto, we talk a lot about home, within that, Esurance on the auto side as well. Maybe talk a little bit about your other personal lines business. That's a business that, by my math, it's running in the kind of 80s combined, growing nicely, about a $2.5 billion book of business. What sort of capital does that business tie up?
What is that running at from a return perspective?
This is renters insurance.
Yeah
boat insurance, personal umbrella policies. It runs about, I think it's about $90 for six months. Nine months, it's around $90 or so. It goes up and down.
It goes up and down, yeah.
It's a good return business for us. Go back to that customer value proposition. It gives us the ability to meet all of our customers' needs. It also, you're going to see with Esurance, Our net acquisition costs. To the extent you have underwriting profit and you're selling two things to the same person, you have lower expenses. I think there's something that A lot of people look at our expense ratio and they compare it to other expense ratios, but you have to remember, it's a blended number. I think when you look at the expense ratio, a lot of people look at it and say, well, they're making a couple of judgments. Are you efficient? Are you any good at what you do? How will you be competitively?
The issue that most people use with that is it's a percentage of premiums. The way we look at effectiveness and efficiency is dollars per policy. Some of our competitors who have a lower expense ratio actually have higher premiums because they serve riskier customers. You really need to think about, are you good on a dollar per policy basis, because that's what the customer's paying for. The second piece is, are they getting value for what they do? The expense ratio in those parts that have local advice is higher than they would be in the self-serve, obviously, because you're paying for somebody. It's like whether you buy an index fund or a managed fund, right? You're paying for help. We tend to look at our expense ratio by quadrant.
When you look at the expense ratio in the self-serve segment, which is mostly marketing, right? Because you're not doing a lot of service. To the extent you sell, you spend $100 getting somebody to call you, and they buy an auto Esurance policy from you, that costs you $100. They buy an auto policy, a homeowner policy, and something else, your net acquisition costs go down. We use the breadth of that product portfolio to, A, better serve those customer needs in the lower left, and B, to lower our acquisition costs. Now we're just getting started in Esurance, so we're a long way from glory land there. That's the strategy behind other products, Mike.
Got it. Great. I think that takes us to the end of the hour. I want to thank Tom and Steve for their time today, and enjoy the rest of your day.
Thank you.
Enjoy lunch.
Sure. Thank you.
Thanks again.