Good afternoon, everyone. Thanks again for joining us. I'm Jay Gelb from Barclays. Our next presentation, we have Tom Wilson, who is the Chairman and CEO of Allstate. Allstate is one of the largest insurers of auto and homes in the U.S., and also has a life insurance and retirement savings business. Allstate has generated much stronger results in recent years and is well on its way to achieving its 13% return on equity goal. With that, it's my pleasure to turn it over to Tom Wilson from Allstate.
Thank you, Jay. Good afternoon. Thanks for coming out to learn more about Allstate. Give you a better understanding of two things. One is our differentiated strategy, and the second is our proactive approach to creating shareholder value so that you can assess making an investment in us. This is, of course, a message from our lawyers, which states that I'll be providing a forward-looking statement that may not be a very precise additional information on Allstate. Steve Shebik, who's our Chief Financial Officer, in the middle of the table, and Bob Block, who's our Senior Vice President of Investor Relations, are here with me to help you understand our value proposition as well. In a nutshell, by investing in Allstate, you get four things, differentiated strategy, strong operating performance, a team that adapts, strong cash flow.
As investors, you might rightly ask, what have you done for us lately? Let's start with 2013 results. We generated solid financial results in the first half of the year, reflecting the successful execution of our strategy. Through June, we've generated over $17 billion in revenues and recorded $1.14 billion in net income. Operating income increased 3% from the first half of 2012, which is 7.4% on a per share basis as we continue to return capital to shareholders through share repurchases. Book value per share was up almost 5% from June of 2012, though it declined slightly from the year-end 2012 due to the impact of rising interest rates on their portfolio valuation. Our 12-month trailing operating return on equity was 12.3%.
We've continued to return capital to shareholders through dividends and share repurchases, $1.7 billion, which is 7.6% of our market cap in the last 12 months. We remain on pace to achieve all of our five operating priorities for 2013. Let me summarize our progress. We're growing premiums. All of our brands are contributing to this result. Auto profitability remains strong with the combined ratio for standard auto improving slightly from the first half of 2012. We continue to improve returns in homeowners. Annuity returns improved slightly but remain under pressure from low interest rates. Our proactive approach in managing investments helped to mitigate somewhat the impact of rising interest rates. Finally, we continue to take action such as changing our benefit programs to reduce our cost structure.
In the first half, our property liability expense ratio did go up, it was primarily due to technology and marketing investments we're making to drive profitable growth. Over time, we expect that ratio to go down. Shareholder returns have been very strong over the last several years as we've successfully executed our strategy while adapting to the external environment with the favorable operating results, they've started to become more obvious. I think what happened was the market didn't immediately recognize those changes, as is often hard to see in the middle of any change, a hard time to see the trends. We're not through, I believe the best is still ahead of us. Let me give you some reasons for investing in Allstate. We have a competitively differentiated strategy focused on the consumer. We have a highly profitable auto business.
We have a homeowners business where the returns are improving. We're beginning to capture the growth potential of our strategy now that we're past the negative impacts of having to improve returns in the homeowners business. Lastly, when you choose to invest in Allstate, you get a team that uses facts to face reality and makes changes the right way. It doesn't always mean it's the fastest way, we believe it's the right way. We proactively have made decisions to adapt and then execute to get good returns for shareholders, whether the issue is severe weather, the economy, Allstate Financial product returns, or the best uses of our capital. Let's take a closer look at each of those. This chart should be very familiar to many of you. We segment the insurance market on consumer preferences for type of interaction and their beliefs about insurance companies.
Our strategy is to offer unique products to the distinct customer segments. That distinguishes us from other personal lines companies who focus on either one customer segment or just different methods of distribution. We believe that a focus on the entire value proposition will lead to longer-term growth and profitability. On the left-hand side are consumers that prefer to get local advice and assistance as it relates to insurance needs. On the right-hand side are customers who feel comfortable dealing with insurance on their own. On the bottom half are those customers who value insurance and see a difference between the various brands in the marketplace. On the top half are customers that see very little difference between insurance offerings other than price. They're really brand neutral.
These are the people who say, "Give me a good price with any insurance company, preferably a name I recognize, and I'll be okay." The Allstate brand is delivered by local agencies who service the lower left-hand quadrant. It makes up about half of the total consumer market, this is a place of our historical strength, and we have in a significant part of our overall franchise. We compete primarily with State Farm, Nationwide, and Farmers, then a number of regional companies in that segment. The customer value proposition is about knowing those customers personally and providing them with a broad range of products. Allstate agencies represent about 92% of our total premium, delivering positive growth in the Allstate brand is critical to delivering overall shareholder value.
The Allstate agency business, though, has not grown in the last 3 years, as we've been working to reduce catastrophe exposure by raising homeowner returns and ensuring that the auto business generates sufficient returns until we got the homeowners business fixed. We're well on our way to accomplishing our objectives in the homeowners business, we've begun to implement growth tactics again in this customer segment. This will be done in 3 ways. First, we'll improve customer loyalty. For every point that retention increases, that's almost a point of unit growth. Strengthening and expanding the Allstate agencies will also support a return to growth. We went through a number of initiatives to strengthen the agency business model that resulted in fewer but larger and more sustainable agencies. We also changed a number of processes, the performance standards, and the compensation.
We decided to make those changes at the same time we were reducing the size of the homeowners business, since it's easier to make fundamental changes in operating capabilities when there's less pressure for growth. Allstate agencies are now bigger and more profitable. They are investing in their businesses and growing again. Growth will also come by leveraging our brand and differentiated product offering. We launched Your Choice Auto in 2006. Many of its features, such as declining deductible New Car Replacement, are now being copied by our competitors. We're rolling out Drivewise, which is our telematics offering to capitalize on the opportunities presented through new technologies. Last year, we launched a Claim Satisfaction Guarantee, where auto insurance customers get their premiums returned if they're not completely satisfied with their claim.
Nobody else offers Good Hands Roadside, which is another first we started, and we now have almost 1.3 million members signed up. This customer segment also likes to consolidate their purchases with one person. You can see why that makes sense. If I want some local help and advice, I don't want somebody for five different property products. We have a broad portfolio of products, including boats, personal umbrella, life insurance. Consistent with the Allstate customer value proposition, the success of Allstate agencies is driven by the number and breadth of their relationships, not just the volume in one product line. Esurance in the lower right was acquired in the fourth quarter of 2011 to provide a unique value proposition for consumers who prefer self-service and a branded experience. The largest companies in this segment are GEICO, Progressive, Direct, and USAA.
Esurance had a 36% increase in policies in the first half of this year. Future growth will come from expanding the risk profile to preferred auto risks, where we have very strong expertise. It's our history. Broadening the product portfolio beyond auto insurance include things like boats and homes and motorcycles, and utilizing Allstate's claims experience and expertise and our scale to provide more value to customers. Answer Financial, which is in the upper right, leverages the rapid growth of Esurance, since customers that are not appropriate for Esurance are routed to Answer Financial, who then places the business with a third carrier. That effectively lowers our acquisition cost. If they call Esurance, don't want to buy from us, we flip them to Answer Financial, and we get a commission for selling it. It's basically an electronic broker. As Esurance grows, Answer Financial should benefit as well.
In the upper left are customers that want local advice and who do not see a significant difference between insurance companies. They are, of course, served by independent agencies that represent many different companies, including our Encompass offering. The major competitors here are Liberty, Progressive, Travelers, and Hartford. Encompass has begun to grow by focusing on its unique package policy, which combines auto insurance and home insurance into one bundled offering. We're the only insurance company that has unique offerings and business models for each segment of the consumer marketplace, and specific customer value propositions for each customer segment enable us to compete on value, not just on price, which enables more sustainable and profitable growth for shareholders. The acquisition of Esurance to help support this strategy has achieved most of the goals that we established about two years ago.
On the top half of this slide, we show the significant growth in net written premiums and policies in force on the left, and the combined ratio components on the right. Esurance surpassed $1 billion in net written premium in 2012. Through June, net written premium increased 31% compared to the prior year. As of June 30, it had over 1.2 million policies in force. Unit growth over the last 12 months has been up 36.5%. The GAAP combined ratio remains elevated as we continue to invest in growth. The loss ratio, which is, of course, the very significant portion of that, did tick up this year higher than I would have liked. Corrections have been made and continue to be made as we proactively adjust our pricing, our underwriting, and our marketing targets. There are five levers to making sure this acquisition generates good returns for shareholders.
The brand was repositioned with the endorsement of Allstate. Ad spending was increased, both of which have improved marketing efficiency and increased growth. Leveraging Allstate's claims capabilities by applying best practices and technology improves both effectiveness and efficiency. Allstate's expertise in the preferred risk pricing has enabled Esurance to write more preferred risks, which has generated better lifetime profitability. The product portfolio is being expanded, and the process and scale benefits are being realized. Esurance is positioned for success in that self-directed, brand-sensitive customer segment. We've successfully made the profitability of the auto insurance product line through many different environments. As you know, auto business is a highly competitive business. It is dominated by large, well-capitalized firms who spend a considerable amount of money on advertising. At Allstate, we generate excellent returns and have done so for a long time.
This graph shows our combined ratio in blue bars and a few key competitors and the overall industry results are shown by those lines for the last 12 years. Remember, the lower the combined ratio is, the better. As you can see, Allstate is in blue. We're amongst the industry leaders and at least five points better than the industry average. Just to put that in perspective, five points of margin on $18 billion of premiums is $900 million of incremental underwriting income annually. The returns on economic capital in this business are well in excess of our overall cost of capital and our corporate objective. After four hurricanes in 2004 in Florida, Hurricane Katrina, I looked at exiting the homeowners business, given its poor historical results and high volatility. We decided not to exit for two reasons.
First, the core customers of the Allstate agencies want their business through one relationship. As a result, if we exited the homeowners business in total, it would have a large negative impact on our highly profitable auto business. Secondly, we concluded that the business could be repositioned to make it profitable by using reinsurance, raising prices, improving underwriting, and exiting certain local markets. In local markets where we choose not to write business, third-party relationships were used so that our agencies could maintain their relationships, so we sell other people's products. Allstate agencies were able to maintain relationships with about the 2 million policyholders that we reduced by using third-party products provided through our Ivantage operation. This was the right long-term answer, but required us to take on a really difficult operating challenge over a five-year period, which included all those actions I've taken, which I'll show some of here.
Essentially, what we're trying to do is take a business that either lost money some years and made a little money in a good year to a business that in all years makes some money, and in low catastrophe years, makes very high returns. The net result of what we did has been to reduce the size of the business, lower our risk, and substantially improve returns. As a result, total premiums increased, but the number of risks declined significantly, as you can see from the chart in the upper left. Allstate brand homeowner policies in force declined by almost 2 million since 2005. In the upper right, we show the rate actions we've taken in the average gross premium per policy since 2005.
The rate actions resulted in an average gross premium increasing from just under $800 per policy in 2005 to $1,123 in the second quarter of 2013. The benefits of those actions are shown in the combined ratio results. Revenues increased enough to offset the significant increase in catastrophe losses. The yellow bars on the combined ratio on the lower right show the large and increasing impact of severe weather on our combined ratio since 2008. Our exposure to hurricanes and earthquake losses has declined by about 50% since 2005. As you can see, that's the red line in the lower left-hand chart. For the Allstate brand, the homeowners recorded combined ratio was 90.2 for the first half of 2013 and 88 for the full year of 2012.
While these actions improved the business, it did cause a significant amount of customer disruption and required a tremendous amount of our agency's time, both of which had a negative impact on the size of our auto business. Last year, we launched a new product, House & Home, which we're now rolling out across the country, which will once again turn homeowners business into a competitive advantage. We successfully managed through this storm of increased weather while continuing to execute on our customer-focused strategy. We're now positioned to grow. This slide provides a look at our net written premium and policy in force growth over the last few years. The chart in the middle of this slide shows the results for Allstate Protection, which is all of our brands together. In 2012, we grew 4% in total premium written and continued positive results in the first two quarters of 2013.
Unit growth was flat in the second quarter, but the trend line, which is shown in green, is moving in the right direction. Allstate brand standard auto and homeowner results are shown on the top of the slide. Units declined in 2011 and 2012 as we reduced the size of the homeowners business and worked to maintain overall profitability. Premium growth has begun to emerge in auto, and both new business and retention have improved relative to the prior year. We posted sequential growth in the second quarter for the first time in several years. Homeowners premiums have gone, but that's primarily due to the rate actions, which are still designed to improve the margins, while units continued to decline but at a slower pace than last year.
On the bottom of the slide, you'll see the favorable growth trends for both Encompass and Esurance on both a premium and policy in force basis. Overall, we're making good progress on this critical priority to grow the company. At Allstate Financial, we've been working over a number of years to adapt to the second large external event which impacted our business. That's the financial market meltdown and the subsequent decline in interest rates. Efforts to improve returns in this business included selling the variable annuity business in 2006 based on our assumption that the product pricing was not sustainable, and we lacked a competitive advantage. We reduced the size of the fixed annuity business. Really, it's been a way of life since 2004, although we should have moved faster. We've effectively exited most annuity product lines from a new business standpoint. We've lowered the cost structure.
We're growing our higher margin underwritten business, which is providing for life needs through the Allstate agencies and providing products at the workplace through Allstate Benefits. Investments are being made in higher return cash-generating assets to raise returns in the remaining annuity block that we have on the books. Lastly, we're exiting the business that serve customers that want local advice but are brand neutral. That's the upper left-hand corner with the pending sale of Lincoln Benefit Life. In July, we announced the sale of LBL and expect the transaction to close by the end of the year, pending regulatory approval. We've provided you with the estimates of the financial impact of the sale on the bottom of the slide.
Our proceeds of about $785 million, which includes some tax benefits, a GAAP loss on disposition of $475 million-$525 million, which will be recorded in the third quarter, and an expectation that about $1 billion of capital will be freed up when this transaction is complete. As the severe weather got worse, of course, so did the financial markets. This required us to adapt investment allocations, processes, and practices. On the left-hand slide, you can see the shift in the risk profile the last five and a half years into corporate credit, which is shown at the top in orange, and away from municipal debt and mortgage-backed securities. That was based on an analysis that corporate credit reflected a better risk-return trade-off than those other alternatives. The investment tasks are different for the property liability business and Allstate Financial because their liabilities are different.
The property liability business has mostly shorter term duration liabilities. We've been reducing the exposure in that portfolio to rising interest rates. This involves shifting out of longer term bonds and into intermediate term bonds, as you can see in the scheduled maturity graph in the upper right. Today, about 80% of our bonds in that portfolio are less than 7 years maturity. A year and a half ago, that was about half. The result of these actions was to generate capital gains today, but lower operating income in the near term, which we believe is the right economic choice for our shareholders, even though it slightly reduces the return on equity.
Referring to the total return chart in the lower right, positive total GAAP returns have been achieved every year since 2008, until the last quarter with interest rates going up, it more than offset the returns in the investment income. As you know, the world continues to change. Having a team that's proactive and uses change to improve the business is critical for long-term returns. Telematics has created a lot of buzz in the auto insurance market. Under the Allstate brand, we have a product called Drivewise. It's part of a much larger innovation effort we have really around the connected customer. Strategically, we're moving from a relationship with customers that's based on restoration to one that's more aligned with the concept of prevention. Specifically with Drivewise, we remain connected to the customer.
Some other models in the industry are primarily price-based and do not provide continuous connectivity. Allstate agencies are actively engaged in selling Drivewise, and customers have responded well. We're capturing increased amounts of data as well, with over 700 million miles reported so far. Drivewise is currently in 20 states, and we're expanding it throughout the country this year. We're also developing a number of new services which will be provided through this platform. An investment in Allstate also provides substantial cash returns. We returned over $33 billion to shareholders since we went public in 1993, which is not bad when you consider we went public for a little over $12 billion and have a market cap today of $22 billion. We returned almost $2.5 billion in the last 18 months, as you can see from the top of the slide.
Total cash provided has averaged annually about 7.5% of market capitalization over the last three years, as you can see from the chart on the bottom of the slide. Shareholders can capture this return through dividends and participating in the share repurchase program on a pro rata basis. Obviously, some shareholders choose to just capture the dividend and retain greater ownership share in the company. In either case, it shows the great cash generation potential of Allstate. We don't exist in a vacuum, of course. We've had to deal with many significant external events, too, in the environment and changes to our strategy. The hurricane losses of 2005, I referenced earlier, the financial crisis, our impacts are still impacting our business with low interest rates, and the significant increase in severe weather, which created additional challenges to fixing returns in the homeowners business.
While those headwinds are still out there, we're successfully executing our customer-focused strategy, creating sustainable growth and shareholder value for the investor. With that, I think now is a great time to invest in Allstate, and we'd be happy to take any of your questions.
Turn it over to the audience response system, if we can pull up this first question, please. This is new this year for the Barclays Financials Conference, and each of you hopefully will find a response remote in front of you or near you. Feel free to grab one. The first question we have for the audience is, if you currently do not own shares of Allstate or are underweight the stock, what would cause you to change your mind? We'll have about 10 seconds available for people to respond to one of these five options. Okay, somewhat evenly split here. It looks like the greatest responses come out of, in terms of what would get people more positive in the stock, either positive growth in Allstate brand policies in force, a lower valuation, I guess that's a high-class problem, Tom.
Can't help you on that one.
Third, further improvement in the underlying combined ratio. Any thoughts on those, Tom?
Sure. Let's start with the highest, which is lower valuation. I think if you look at the valuation of our company over a longer period of time, it's still lower than it has been for many years. We traded 1.1, 1.2 times book, depending which book number you want to use. Obviously, if you look over a long period of time, it's been much higher than that. You might say, "Well, why?" If you look at our book value, it's pretty much all hard assets. We have about $1 billion of goodwill. We have about $4 billion worth of deferred acquisition costs. Other than that, it's a $92 billion investment portfolio and some money we owe other people called insurance reserves or life reserves, and then shareholders money. Really, our book value is, in a sense, your net investment.
You would expect that if you can earn a higher return on that investment, that you should trade at a premium to book value. Before the financial crisis, you could do your own math, it was almost always over 1.5, sometimes over 2. I think the valuation is not aligned, even though it's made a big move since it bottomed in 2011. I think what happened in 2011 was the market has a hard time seeing through change when you're in the middle of it. People couldn't see what was going on with the homeowners business because we hadn't executed it. We, of course, knew what we wanted to do, market wanted to see it. At the same time, we were doing a bunch of changes in the auto business to position that for growth.
People didn't really see through that change. I believe that one, there's more to come. Of course, that's what you would expect me to think. In terms of positive growth in the Allstate brand policies in force, you did see the trend. I like where the trends are going. We do need to grow that business. It's a core focus of what we want to do. There's really nothing, either from a systemic or cyclical standpoint that would lead you to conclude that some customers don't want to buy from people with local advice or want a branded product. My evidence of that would be not everybody buys an index fund in the stock markets either. People do choose and are prepared to pay for value, and we're executing well on that side.
Next question from the response system, please. This question is: Do you believe Allstate homeowners insurance business is fixed? Yes, no, or number 3, too early to tell. I have about 10 seconds for folks to key in. I'm somewhat surprised that slightly over half the response are saying too early to tell, a third saying yes, and less than 10% saying no.
Well, first, we've made a lot of progress, so I'm happy to see number 2 is below double digits. I don't know if too early to tell is the right way to say it. When you're forecasting catastrophes, it's really impossible. I think if you're buying into the proposition, the question is, do we have a set of processes, a market position, and a management team that's adapting and changing? Catastrophes could go higher from here, and they might. Then you would expect to have a management team that worked hard on your behalf to make sure you were getting a good return.
Catastrophes could go lower from here, and you'd like to make sure you had a management team that didn't suddenly change and say, "Let's cut prices because we've had two good years in catastrophes." As I said, what we're trying to do with that business is take it from a business which you get an adequate return for the volatility that comes with it. You're always going to have volatility in weather. I can't predict that nor will we try, but what I can do is make sure that our team and processes adapt to it and make sure you get a return that's commensurate with that volatility. Some quarters, we will have a tremendous amount of profitability because there won't be a lot of catastrophes. Other quarters, we won't have as much profitability.
What we're trying to do is on a longer term basis, take it to a business that either generates really great returns some quarters and okay returns some quarters to one that basically lost money for 10 or 20 years.
Tom, what are some of the changes that are in the House & Home product that should drive structural improvement in the homeowners book?
The biggest change is roofs. If you think about a house and what does weather do to it, the roof is, of course, the most exposed portion of the house. The industry collectively had moved to a position where it was replacing your roof. If your roof had 20-year-old shingles on it, you hoped a hailstorm came so you could get new shingles as opposed to paying for actual cash value. We've changed the way we insure roofs. If your roof is brand new, you're likely to get a brand new roof from us. If your roof is 20 years old, you're going to get a percentage of the replacement value of that house, so it controls cost associated. There's a variety of other things we're doing in terms of home inspections and underwriting, but that would be the biggest change, Jay.
Okay, thank you. Next question for the response system. Allstate's return on equity goal is 13% ex-AOCI or excluding unrealized investment gains by 2014. For the last four quarters, that was around 12%. What is investors' confidence level in the company's ability to exceed this target? We have 10 seconds for people to key in. Okay. This is a little more weighted towards the middle. 40% saying high confidence, 42% saying medium confidence. When you outlined this goal initially, Tom, did you think it was a stretch to get there?
Well, the way we did it initially was a little over two years ago, it was the middle of 2011. We were earning about a 9% return. The homeowners business wasn't doing very well, we picked 13 because that was the return we had earned over a long period of time, we said we ought to be able to do that, our shareholders deserve it, given the volatility in the business. We had four elements to doing that. One was to maintain profitability auto business, which we've done. About 70% of the change was due to improving the homeowners business, I feel like we're well on the way to making that happen. The third piece was to maintain investment income, which required continued interest rates where they were. That has not happened, in fact, that's been a drag on ROE.
Sorry.
Allstate Financial.
Oh, no. Well, it was fixing Allstate Financial, which was getting return up from, which is included in part because of the interest rate. That piece we've been working on, the fourth piece. I think about this, which is, we want to deliver good returns for our shareholders. We've done the first two. The second one, investment income, we have given up ROE on purpose because we believe that it was the right trade for our shareholders. I talked about shortening the property liability portfolio. That does two things. One, we basically front-end load operating income because we're selling bonds that are at a gain. We give up future interest income for that, and we get the gain associated, which adds equity. It has a two-part kick to return on equity.
That said, we think it's the right thing to do for our shareholders, so we do it. We're moving forward to protect shareholders. Our goal is to give shareholders a much higher return than they got before, but we won't be a slave to that goal in such a way that it impacts your long-term value. Interest rates, I think, will eventually go up, so I'm thinking that'll be a good thing to generate more investment income. We've made some changes in Allstate Financial by selling Lincoln Benefit, and we'll continue to work our way on that. Again, I want to say, we try to do this in the right way. Four or five years ago, everybody says, "Just dump Allstate Financial, sell the whole thing." We have substantially reduced the size of that business.
I prefer to do it surgically, which in a way that's consistent with our strategy and gets you the best money over time rather than just makes everybody feel good because we can do an announcement in one quarter and have it go away, and nobody has to project it anymore.
All right. Next item for the response system, please. Which should Allstate pursue more of: organic growth, acquisitions, divestitures, or four, return of capital to shareholders? All right. This response is definitely skewed more towards return of capital to shareholders. Almost 60%, followed up by 25% saying organic growth, and then a few are saying divestitures. That seems largely in line with your plan, right, Tom?
I think it's very consistent. You see what we do is we obviously have a great track record of providing cash returns to our shareholders. That said, if we think there's a good place we can invest it in the far left on this slide in organic growth, we will and do. We've been funding Esurance. One of the other things that's hurt the return on equity is we like what we have with Esurance, and we're dropping a whole bunch of money into making it grow. I'll do that if I believe that it's in shareholders' long-term value interest. We do think there's room to go on organic growth. In terms of acquisitions, we're kind of picky. We haven't done a whole bunch of them. If we really think it fits with what we can do, something like Esurance, we'll take the shot to do it.
We have to be a better owner than somebody else for us to want to buy something.
Okay, let's turn it over to the audience for any topics they'd like to cover. First question. Let me kick it off first, Tom. In terms of Allstate's underlying combined ratio guidance for this year between 88%-90%, year to date, it's running at just slightly over 87%, already below the more optimistic end of the range. Why keep it there?
First, we try to give it to you from an annual basis because we feel comfortable that's when we can make a commitment to you that you don't want to really project the combined ratio every quarter because frequency moves, weather goes, and we don't believe that we should be adjusting it every quarter. I would give you the combined ratio on an underlying basis to tell you how good we think the business will do, and then we've added to that the monthly CAT number so you can get a good sense for where we'll come out in that individual quarter. I don't like to change it, Jay, every quarter because then it basically turns into a quarterly forecast.
If I do it now for the rest of the year, I'm giving you a forecast for the last six months of the year, and I don't think that's indicative of the pace of the business. The business bounces around a little bit from quarter to quarter. I feel comfortable on a 12-month shot. I think when you start forecasting sort of three, four months, six months at a time, it doesn't provide that much additional information to you to understand how we're running the business.
Okay. Questions from the audience? There's a question over here.
Hi. Could you speak a little bit about the capital structure changes you've been making with the issuance of hybrids and preferred that you recently announced?
Yes. We announced a restructuring of our capital structure to repurchase a bunch of debt, which we thought was at a premium. As you know, when debt trades at a premium, there's a tax advantage to taking the loss now economically. We refunded that with some other debt, but we're taking somewhere between $1 billion and $2 billion will be in preferred stock, which we'll use to bolster the financial strength of the company. I think if you look at our ratings, it should boost it by some amount. You can decide whether it's one notch or two notches. We decided that at this cyclical low in interest rates, that it was a good time to capture that capital, which we just did the first issue of preferred stock we did for less than 6%. Market's a little above six today.
If you look at the returns we get from our business, we believe that strengthens the company, costs us nothing in earnings, and gives us more firepower to just strengthen the business, handle the volatility of the business. We see it really as sort of a unique opportunity to restructure the balance sheet.
Next question. The question I typically or most often get from investors is, how is Allstate competing effectively against GEICO?
Well, I think you'd have to go back to the four-square. I would say we used to have a direct business under the Allstate brand that competed directly against GEICO. It was growing in the 20-plus % range, it was not taking share. If you look at Esurance, it has a fundamentally different value proposition. We're on the left and the right. GEICO was on the left. As the natural limits of growth in their segment is coming out, they're starting to move to the left. In Illinois, for example, they advertise agencies. We've been there, done that, tried to do it under the same brand. It didn't work for us. Maybe it'll work for them. What we're doing is positioning Esurance to the self-serve customer on the right-hand side more effectively for self-serve and strengthen the Allstate channel, we kind of box them in.
We'll be adding things like homeowners in our products and actually selling the homeowners. Speed to quote, we're much faster at Esurance than they are at GEICO, just the platform we have. I think it'll be a combination of doing the existing single product focus better, and making it a broader platform, that GEICO will have to decide how they want to compete with us.
Excellent. Well, with that, please join me in thanking-
Thank you
Tom Wilson from Allstate.