The Allstate Corporation at Merrill Lynch Insurance Investor Conference - Final
as posted at www.insurancenewsnet.com
JAY COHEN, ANALYST, MERRILL LYNCH: Our kickoff speaker today is Ed -- slip of the tongue -- Tom Wilson from Allstate; relatively new CEO and President. In 1999, Ed Liddy actually had his inaugural speech at this conference, his first public presentation. Once again, we are glad to host Tom's first presentation as CEO of Allstate.
TOM WILSON, PRESIDENT & CEO, ALLSTATE CORPORATION: Thank you, Jay. It is nice to be here. I'm here to talk about Allstate, and as Jay mentioned, I have recently taken over as CEO from Ed Liddy who, of course, I worked together with for over a dozen years. He is a good friend, a mentor, and he's built an outstanding company. And if you look at where we are today, we really are an industry leader. We are an innovator, and we have a winning strategy and a proven ability to execute. We have been a great steward of our shareholders' capital and we have excellent returns.
So Ed and I worked together over the last dozen years to create that strategy; worked really hard over the last couple of years to make sure the transition was very smooth. So our focus will remain the same that you have seen over the last three or four years.
I'm going to focus my comments today on three things. First and always, we will focus on profitable growth. Second, we will focus on our excellent capital management. And then lastly, I want to talk about human capital, which is really the strength of our team and how we are developing them for the future. But, of course, first we will do our Safe Harbor statement, and you can read faster than I can talk. So I will move on past that since you have seen thousands of those.
Let's look at where we stand today. In 2006, we strengthened the Allstate brand and generated record profit. Our consolidated revenues were about $35.8 billion. Net income was just shy of $5 billion; we were $7 million short of that number. Operating income, return on equity was 25.8%. And book value, which excluding the impact of unrealized gains or losses on our fixed-income portfolio, was up 14.6%.
In our property and casualty business, the Allstate brand auto, standard auto business, was up very well last year. Excluding the cost of reinsurance, our total premiums were up 3.3%. The policies in force in standard auto were up 2.7%. And our property/liability combined ratio for the year was 83.6 -- you can see that on the graph on the right there -- sustaining a string of record performances.
Allstate Financial earned a record operating income of $594 million for the year, and continued to make very good progress on improving the returns we get out of that business. In Allstate Investments, our $119.8 billion investment portfolio continued to generate solid operating income for both of our businesses. On a consolidated basis, net investment income increased to $6.2 billion, which was up 7.5% as you can see on the upper right of that slide.
The fixed-income portfolio of $98.3 billion is 82% of our total investment. It has a very high credit quality; has about 95% of NAIC 1 or 2, which is equivalent to a Moody's rating of BAA or better. At the same time, we finished our $4 billion share repurchase program, began a new $3 billion purchase program, and paid dividends to our shareholders of $1.44 per share, which totals about $873 million. All in all, outstanding performance for the year, but there is more opportunity for growth and more opportunity for potential shareholder increases.
The key to this is our heightened focus on the consumer. At Allstate, we have begun thinking and acting more like a consumer products company. Sometimes that confuses people. We are not going to start selling good hand lotion or your choice hair coloring, but our aim is still really to protect what customers have today to prepare them for tomorrow. But we're listening to what consumers tell us, better than we have in the past, certainly much better than our competitors, and we are responding.
Exhibit A is Your Choice Auto. It came straight out of conversations with consumers who were tired of having no product choices in auto insurance. We designed and packaged and marketed -- really, it's a first of its kind portfolio of products that offers options and rewards that people want.
The result was one of the most successful financial services industry's new products, and certainly set us apart from everybody else in the industry. In one year, we sold 1.7 million policies, generating $1.1 billion in annual premium. Now that is not all necessarily incremental premium, because some of those customers would have come to Allstate anyway. But they would not have comes to us in the way they did, which is it attracts more high lifetime value customers, it generates higher average premium because they're choosing higher value options and moving up the gold and platinum as you can see on this chart. It also drives better retention because it has some good long-term features associated for customers.
And then we are working on new iterations to build on our lead here. In Allstate Financial, consumer focus was used to design a patented treasury linked annuity. The country's aging baby boomers said they wanted an annuity that reflected the realities of an incredibly low interest rate environment. So we designed it, we gave it to them, and it's been a very successful product launch; $3 billion in sales since its introduction, $1 billion last year alone.
Now, our consumer focus is also reflected in our marketing. People told us they wanted an insurance company that was big, strong, and on their side; particularly important, on their side. That is why the Our Stand campaign, featuring our spokesperson Dennis Haysbert has been such a success. But you know, consumers -- we also know that consumers aren't just sitting in front of their television anymore, so we followed them whenever they went.
You might have seen Allstate at Indianapolis where we came the title sponsor of one of NASCAR's biggest races; that the Brickyard. You might have seen our name on the goalpost nets at dozens of major universities. This is when the net goes up, they get the field goal, our logo is right there; something no other marketer had done, and it was really brilliant. Sometimes these games, people start chanting Allstate which is, of course, exactly what you want, when it was time to kick a field goal.
Maybe you sell us online if you were on YouTube. We filmed a commercial where we drove a car off an apartment building into the Chicago River; it fell 19 stories. We had tens of thousands of people watching on YouTube. So we are trying to be in more places and we are spending more money on marketing.
But we're also spending it smarter and we are getting good feedback from our customers. We know, for example, that with Your Choice Auto commercials have caused a 35% increase in consumers contacting Allstate for a quote. So linking together the new product features, great marketing, has really been driving growth.
Going forward, our marketing will also continue to reflect consumer trends and differences. We know, for example, that different media mixes work in different parts of the country and different times of the day, and so we play to the strength to where the holes in the market are. We are also becoming much more sophisticated measuring our return on marketing. As you spend as much money as we do, it is incredibly important.
In fact, we believe our method and our models are better than almost all insurers and really on par with the best consumer product companies. They also show that our advertising is a good investment for us. Now at Allstate Financial, consumers have been increasingly buying financial products through nonproprietary distributors like banks. So our marketing strategy reflected that we sell under the Allstate brand in banks, and we are now the number three seller of fixed annuities in that channel.
So where will they lead us from here, the consumers? We have begun to roll out Your Choice Home, which is conceptually very similar to Your Choice Auto. It has features like claim-free bonuses and guaranteed renewals. Your Choice Auto, though, also offers up to seven additional coverage options which are based on a consumer's specific needs. For example, there options for customers who need coverage for their home business or their prized collections or even their garden.
And what we're really doing here is expanding our product line and protecting additional assets of our customers. We tested Your Choice Homeowner last year in a couple of states, then we put out a final product in November in Kansas. We will have ten additional states rolled out in 2007, really focusing on the heartland because of our catastrophe management program. So we will have this in 13 states by the end of this year.
We're also launching Allstate Blue, is really the newest component of our Your Choice offering. This is an innovative, all new product focused on the nonstandard auto market. This is a $37 billion market where 6 out of 10 consumers say they would like to buy quality insurance from a major company that rewarded them for good performance. But they haven't had the opportunity up until now, so Allstate Blue takes advantage of our pricing expertise. We have over 1000 pricing points in this product. And like Your Choice Auto, it offers rewards, including a loyalty rebate every time consumers renew and unique features like optional roadside assistance. Our plan is to offer it in more than a dozen states this year.
So we will be driven by what our consumers tell us. We will make use of our skills and our experience in areas like pricing and claims to find new sources of growth. Overall, the share of customers who say they are completely satisfied with Allstate are very likely to renew and will recommend us has increased over the last three years. But our competition is getting better too, so this will continue to be a high priority for us.
We think a strong consumer focus has the potential to change the game. Our competition and many analysts tend to segment the industry by product or by channel. They think price is all that matters. Price is very important. But consumers have said consistently again and again that they will pay for good value. So we are competing by focusing on customers. It's a subtle but a very profound distinction between our strategy and other companies.
Segmenting and focusing on consumers changes your perspective. It leads to better products, it leads to different processes, and it is a powerful competitive differentiator, especially for a multiline -- multichannel company like Allstate. But this only works if you maintain your discipline in other areas of the business, which brings us to precision management. Probably the best example of precision management is pricing. Allstate is acknowledged as one of the best pricers in the business, and we keep getting better.
We are now on our fourth iteration in our standard auto pricing and our third in homeowners. We have also demonstrated a clear correlation between pricing sophistication, retention and profitability. Another example of precision management is claims. For more than a decade, we have been an innovator in this area, reducing loss costs and making Allstate a leader in key measures like bodily injury severity, auto property damage, and comprehensive severity.
This slide shows the advantage we have gained over our competitors by improving the accuracy and efficiency of our claim processes. You can see we have a substantial cost advantage versus the industry. This is extremely important since about 60% to 65% of our total premiums that are collected go out in claims. You cannot provide good value to customers if you're not great at claims, and you do that by paying the right amount on every claim, not too little, not too much. And we have a detailed measurement system throughout the claims organization that helps us do that. Some of these measures are leading indicators, some are lagging indicators. Some are measures of our adherence to customer service standards or the promptness of our processes.
And when we see unfavorable trends, we react quickly. We address those issues, and then if we need to, we reflect them in our pricing if they become permanent cost drivers. The underlying data for bodily injury and the other coverages confirms that our belief that severity levels, as Jay said, are well within our target ranges, and we really have no new areas of concerns that came up in the fourth quarter.The real measure here, though, is -- the real message, I guess, is that we have measures that, and reporting processes in place that give us the ability to manage this with great precision at all levels of the Company.
So what about the future in terms of precision management? Well, in pricing, we will always be competitive in our key customer segments. We may reduce rates in certain segments or areas, but that's the flexibility that sophisticated pricing gives you. But Allstate will not engage in a price war across the board. If it doesn't make money, it doesn't make sense. We have a competitive strategy that is based on the customer.
Our experience with Your Choice Auto and other products shows that by adding value and features that customers want, we can compete successfully on more than just price. Of course, we will maintain our pricing leadership by continuing to improve our models and our method. The same holds true in claims in the future. We have streamlined organization; we're making it more efficient, and more effective for our customers.
Most recently, we launched next-generation claims initiative, which is better technology, better processes, using information that enables our people to manage our costs and raise customer satisfaction levels at the same time. We really have three goals with next gen, which is peer group leadership in loss cost management, top quartile expense management, and improved customer satisfaction.
We began rolling out next gen last year. We really started it in property because that is a smaller line to get our hands around. We're starting to roll it out this year in auto, and it will continue through next year as well. At Allstate Financial, we have sophisticated asset liability models and measurements that we are using to help improve returns and reduce the capital we have in the business.
Moving on to capital management, Allstate has a great track record when it comes to capital management. In a little over a decade as a fully public company, we bought back over 350 million shares. We raised dividends at a rate of 12.5% annually, and returned roughly $2 out of $3 dollars to shareholders. We have developed a sophisticated enterprise risk management strategy that includes all of our businesses, and it responds both to external and internal risks.
Now building on that success means we must find new ways to optimize our risk and return profile. And as part of that strategy, one of the most important priorities is reducing our catastrophe risk. To protect our customers and reduce earnings volatility, we purchased reinsurance for 2007 at an acceptable cost, and we provided the details of that in our reinsurance program in our January release. Dan did that, and it's very similar to our 2006 program.
The 2007 program includes a countrywide aggregate, although that excludes Florida, with state-specific programs underlying all that in California, and then really along the coast from Texas up through Connecticut. We estimate that the 2007 program will cost about $770 million, slightly less than we paid last year. And we have gone out and aggressively sought rate increases to recover those costs. We submitted more than 350 filings in 29 states, and we currently have approval to capture about 40% of those reinsurance costs.
Where necessary, we have also taken the effort -- we have started to not offer continuing coverage to some consumers, and we have limited new business in catastrophe current markets as well. But when we have done this, we have done it with a focus on the customer. By working to provide alternative coverage, we let our agencies broker small amounts of business to keep those customers covered.
We can and will reduce Allstate's catastrophe exposure, but we believe that is not enough. That is not going to answer the program for other consumers or for communities or our economy in general. That is why I helped create the effort to better protect and prepare our country through protectingamerica.org. We have more than 150 organizations among its supporters, including the American Red Cross, a number of other industrial companies; State Farm is in that coalition with us. And we have been produced bills in Congress to establish a privately-funded, publicly-sponsored catastrophe fund.
We believe that the ultimate customer-driven strategy would include help for first responders, better building codes, better land use, and greater public education. And all of those things are good long-term solutions, but in the meantime, we need a comprehensive approach that establishes a financial backstop which will be funded by private ownership or by private insurance premiums coming from consumers or businesses, but then collected in a fund at the state or national level.
While we are on the subject of cash freeze, let me take a minute and comment on developments in a couple of states. First, let me provide some perspective on Mississippi, since I know many of you are interested in the implication of State Farm's action. I think the key message here is every insurance company is in a unique position in Mississippi. Our read of the situation is that our claim practices and policy interpretations were different than State Farm's.
We're proud of the fact that we were one of the first to people on the ground in Mississippi, and we have closed about 98% of our claims. We worked hard on every individual claim, which is a big distinction, and we've paid for any coverage, wind damage. We also retained engineers to determine what the causation of any loss was.
In Florida, some recent legislation brought about considerable change. They are trying to fix what is a broken market. Some view it as favorable as we do, including the expansion of Florida Hurricane Cat Fund. Some parts of it, we think, will be helpful in addressing the affordability issues we support.
Now, there are some changes that we think are unnecessary and detrimental to moving the business forward. In particular, the provisions on crossline sales and the recent emergency order slowing down nonrenewals. Now we are going to have to interpret and figure out exactly where everybody is. We are working with the Florida Office of Insurance Regulation to comply with the regulations and sort out what it actually means. But overall, we feel good that Florida is starting to address the problem of their major catastrophe exposure.
Our capital management future, it will include the three levers that we have traditionally used, both dividend and share repurchases and enterprise risk management. We have used those very effectively to drive returns in our business. But to improve returns at Allstate Financial, we also dividended out $675 million last year to the parent company, which was really due to the sale of our variable annuity business in the middle of the year.
Another area of opportunity in capital management is investment. We call this Effort Investments 2010, because we're not rushing into anything and it won't affect our results right away, but it is the right thing to do. Because everybody knows there is a tremendous competition for return out there today. The world is awash in liquidity and spreads are shrinking. Today, our portfolio is mainly focused on publicly-traded fixed-income securities or some private placements in the U.S. or Europe, and then we have some traditional equity investments.
Judiciously expanding the places that we make investments and the type of investments we make to enhance returns will improve our overall risk and return profile. Finally, as I said, Allstate must continue to attract and develop outstanding leaders and employees. I know everybody says they have great people. Nobody comes up here end says I have had people, but you know, in business or sports or politics or medicine, the proof is really in the result.
You have to say, what did your people produce? Did they excel, did they innovate, did they win? And if you look at our track record, we have. Allstate's people have executed consistently and delivered excellent returns year after year. Our officer group includes talented insurance executives, people who have been with us, people who have been with other companies, and we have also brought in professionals from outside our industry.
We have done a great job of helping them grow as individuals and professionals. Consequently, we are able to keep virtually every successful key leader on our team. The focus of our human resources is evident really everywhere in our company. If you look at our claims organization, the expertise, the skills, certification levels of our people are really recognized as amongst the best in the industry. Or if you look at our exclusive agency force, more than 4 out of 10 of our Allstate agency owners have run their agencies for more than 10 years.
If you look at our new agency owners, 7 out of 10 of them come with successful track records running other businesses. That collective experience is a huge asset in our disturbing our products because most consumers still prefer to do business with a knowledgeable professional with a well-run office in local areas. We also have a talented engaged and independent Board of Directors.
So finding and developing talent at every level of our organization is the key to our success, and you should expect to continue to see us do that. So where do we go from here? As I said at the beginning, you shouldn't expect a major shift. Allstate will continue to focus on profitable growth, sound capital management, and great people.
But in terms of strategy, what you should expect to see us is an even stronger consumer focus and improved customer loyalty, new and different products to help drive growth; even greater precision in areas like pricing and claims, continued progress on catastrophes, both with inside our company and in the public policy arena, more options for investing and improving a return on assets; an optimized balance sheet, particularly using some of the new financial tools that are available; and continued focus on attracting and developing new people.
The result of that, of course, as we said in our January 30 call was that we expect property/liability combined ratios this year excluding catastrophes to be in the range of 84 to 86, which will deliver continued strong performance and solid returns for our investors. That is our history, that is our reputation, and that is our future.
Now, Allstate went public in 1995 with a market cap of $12 billion. It's when we fully spun off from Sears and that's when I first came to Allstate. Through the end of last year, we had returned $6.6 billion in dividends, repurchased $12.5 billion in stock, and finished with a market cap of $38 billion. And our total return to shareholders over time has been excellent. This is the chart that you will see in our 2006 proxy. An investor who bought Allstate stock over any time period shown over the last 10 years would have earned returns that outpaced the S&P 500 or the S&P property/casualty insurance index.
Those returns reflect the strong performance of our people, our company, and our commitment to effective capital management. So don't get caught behind the curve. The sooner you buy, the more you own, the longer you hold, the happier you're likely to be. So we are well-prepared and well-positioned to build on our success, to manage our capital wisely, and drive profitable growth even faster in the future.
So I would be happy to answer any questions you might have.
UNIDENTIFIED AUDIENCE MEMBER: My question is with respect to Florida. It looks like when talking to the legislators down there, they basically said insurance costs too much; let's do something to bring down the price. And the people that they (indiscernible) to me this time around were the reinsurers. What happens if the big one hits before they have had enough time to accumulate sufficient funds in their cat fund?
And then the next time around, the policyholders say, we don't want to pay higher rates, and the next target is the insurance industry?
TOM WILSON: Well, embedded in your question is a presumption of where it might come out. Let me just -- Florida has been a situation we have been living through -- I have been living through the last 12 years. It's starting to sort of feel like that move Groundhog Day where Bill Murray like the same thing keeps happening every year. And I sometimes ask myself why. And it's because the water is warmer and the air is different, so there is a lot more risk down in Florida. Home prices have gone up tremendously down in Florida, and consumers haven't gotten used to the fact that there is more risk, more hurricanes, more severe hurricanes, and their houses are worth a lot more. So they don't want to pay that much for insurance.
That creates the political problem, which the legislature attempted to address. We are in favor of expanding the Florida Hurricane Cat Fund. We think that is a good solution. We think it is a good solution for our company. We think it is a good solution for the consumers, because we don't believe you can accurately price and predict hurricanes down in Florida. And if you can't price it, you probably shouldn't sell it. And the best way to do that, the lowest cost way is to have a privately-funded, government-sponsored pool.
What happens if a large hurricane comes? Well, the Florida Hurricane Cat Fund, of course, has the ability to issue bonds and assess policyholders in Florida. And the capacity -- right now, they have -- they're going to end up between 28 and 32 billion. That is a pretty big storm. Clearly, some storms could be bigger than that. Multiple storms could create greater losses than that.
The state of Florida would then have to sort that out with the federal government, I believe, where I think, quite honestly, I think most of the legislators in Florida are saying, well, look what happened with Katrina. Mississippi and Louisiana got a bunch of federal money, we should line up too; which is why we started and have been sponsoring and saying the federal government needs to do something about this.
Because when a large event like that happens, it is beyond the capacity of any individual homeowner, beyond the capacity of any individual insurance company, and beyond the capacity of any individual state. So you need to sort the federal government to come in and do something about it. They always have, they probably always will. We are just suggesting they do it by looking out the windshield rather than in the rearview mirror.
UNIDENTIFIED AUDIENCE MEMBER: You are basically banking on the federal government coming in and bailing out Florida. Because the real question is, yes, they have the power to assess, but the consumers in Florida have already shown an unwillingness to accept any kind of rate increases. So if they had to assess on the back end, especially if you're not even a homeowner, if you're an auto owner or all of these other policies that have now become assessable, I can see the backlash being even greater than it was this time around and not being able to implement the revenue-generating actions that they would have to collect.
TOM WILSON: I think clearly, consumers don't like to pay. Many of you probably didn't like paying your portion of the $105 billion that went down to Mississippi and Louisiana, but you did. The Florida Hurricane Cat Fund has a legal obligation to our company. When we by reinsurance from it, we fully expect that they will pay us the money that we've paid premiums for, the reinsurance. So we are okay with it. We think it will be there. Do I think that it solves Florida's long-term problem? No. I think more has to be done to fix the market down there, but I think it is a step in the right direction.
UNIDENTIFIED AUDIENCE MEMBER: Good morning. Would you agree with the statement that frequency is bottoming while severity is going up in auto? And second, could you speak to these trends by state or by region?
TOM WILSON: I would agree that the decline in frequency that we have experienced over the last couple of years has continued to get smaller. So if you look at the declines in frequency for us, in the fourth quarter they were lower than the declines in frequency that we had for the whole year, and that was lower than the declines in frequency we had for the prior year. So the fact that there are safer cars, that there are older drivers and there is more cars per person today has led to declining frequency in the industry, which has created overall good industry profitability. And it has started to bottom out. So, in fact, in our projections, I think that we mentioned on January 30, we said we expect frequency to be flat this year, not to be another year of decline as it was last year.
Severity does creep up a little bit, going along with inflation. From our standpoint if you look at our paid severity, the physical damages which account for about 60% of the dollars that go out are kind of in line with inflation. We believe we are doing better than the industry there. On bodily injury, our paids have been up less than inflation, up less than the medical costs. So we feel pretty good about where we are there.
How that translates into profitability, we think, is about managing your costs. If you assume your only lever is price and you assume that you can do nothing about the costs, obviously, your margins go down. We take a more proactive approach to it. We continually try to reduce our costs, whether that be in the underwriting area by shipping jobs offshore or reducing the size of our home office, both of which we did last year. or if you look at the claims stuff, the next-gen claims initiative is all about getting your arms around and lowering those costs to try to protect your margins.
At the same time, we have been working on the top line by selling things like Your Choice Auto, which raised average premiums. So even though -- because people are buying more. We are basically selling more coverage. If we can sell more coverage, we can keep our margins where they're at.
UNIDENTIFIED AUDIENCE MEMBER: You have mentioned in Mississippi that you have closed 98% of your cases there and that you do things differently than State Farm, but we are talking about Mississippi here. Could you address the issue of having these cases reopened and what the likelihood of that might be?
TOM WILSON: Well, 98% closed means we have talked to 100% of the people. And 98%, we think we have gotten to the point were we are settled and we have closed it up. Sometimes consumers either didn't have coverage, didn't get the kind of money they needed to rebuild their house because they didn't have flood insurance or they didn't have proper coverage, and so they are looking for money.
So sometimes those people sue. We do have some suits against us. We deal with each one of those individually. The difference between us and State Farm is we paid on a case where a house was totally wiped out. Under the insurance contract, a reading can be made that if the approximate cause was not covered, then you don't have to pay anything. So some wind destroyed the house, a big wave came and washed it away; the house would have been destroyed by the wave anyway, so don't owe them any money.
We went through each and every individual case. We did not deny those kinds of claims. We went through each and every case and said, okay, how much was destroyed by wind before the wave got there? Now it's not exactly easy to figure that out, because you have got to hire engineers, you've got to look at what happened to the trees around it, what happened to the other houses. But we worked hard on every one of those claims, and so we will be -- have tried to resolve those without attorneys. Sometimes there will be attorneys there, but we feel pretty good about where we are at on the individual cases.
People, you know, if we made a mistake and the court tells us we made a mistake, we will fix it, but we don't believe we are in any mass settlement position. It is a one-by-one deal for us.
I didn't answer your question about regional stuff. The frequency pretty much is, for us anyway -- it all depends on other companies -- is you see similar trends in most areas of the country. There are a few states where the trends have been up a little bit. Florida, we're up a little bit, but we increased our price in Florida. So we react in a much more micro version that even state-based or regional-based. We do it really by territory. That is part of our precision management.
We track loss costs and average premiums and all of those things at very small subsegments of a state.
JAY COHEN: Let me ask a couple questions as well. With the Allstate Blue initiative, you have had nonstandard auto premiums declining for years, significant declines for years. When do you think that bottoms? Is it in the middle of '07, is it '08? Do you have any sense of that when that might bottom?
TOM WILSON: Well, hopefully, it will bottom. Because if it doesn't bottom at some point, that business will be gone. As you know, that business has been shrinking in the double digits for some number of years. That was intentional on our part. Back in the 2000-2001 period, we did not have a profitable book of business in the higher risk or nonstandard segment, so we started to exit that business. As a result of that, you saw Progressive grow quite rapidly during that period of time.
We then decided to put our efforts into Your Choice Auto instead of the nonstandard business, because we thought there was more opportunity for us in that segment a couple of years ago, and we thought that the business would cycle down. That's the most price-sensitive segment of the auto business. And it hasn't cycled down as rapidly as we thought, Jay, but we did decide with this new focus we could start to grow again. I don't know that we will grow again in 2007. It will depend how quickly we get the space rolled out and what the competitive conditions look like in those individual states.
Some of those states are big states; some of those are small states. We are not likely to sell Allstate Blue in the great state of New York. So some of it depends on where you roll it out. We do expect, though, to start to grow that business on a long-term basis, and it shouldn't continue to be the -- reduce our volumes the way it has in the past. But I don't know that it will turn to positive in 2007. Hopefully, it will be a lot less smaller, negative.
JAY COHEN: Then last question, and I think this is probably all the time we have for questions; growth in Asia, there has always been kind of opportunities to grow your business. But is it getting tougher and tougher to grow quality agents across the country?
TOM WILSON: Well, that is a good question. We don't have any agents. We have agency owners. An agent is defined in the dictionary as an individual that represents the Company. We don't have any individuals left. We have agency owners. We happen to have 12,500 agency owners. Inside those agencies, we have about 30,000 people who sell only for us every day, and that is really measured distribution capacity. So about four or five years -- I guess four years ago when I first moved into protection, we didn't even really track that number.
We started to track it; we started to measure and manage by it. We went out to our agency owners and we told them, this is a good deal. If you hire a licensed sales professional, you pay them X dollars per hour, X dollars per policy, however you choose to do it. It's about a 50% to 70% return on your investment, because you can basically pay them what you get out of a policy on the first-year basis and you keep all of the renewal. So it's a good economic deal.
We asked them to start investing in their businesses. We added over 5000 licensed sales professional over the last four years, I think. So some of it is about finding good agency owners, Jay, but it's also about helping them find better people to work in their offices, so increasing that 30,000. I don't really care how many agency owners we have. I want to know how many people we have answering the phones for us every day.
So we are just -- because we just got focused on that about four years ago, I would say we had an initial pop of just bringing people in. I think our processes, the way in which we bring those people on, the way we find those people, we are still working on making those better. And as we make those, it should improve the productivity of our sales force.
JAY COHEN: Great. Please join me in thanking Tom.
TOM WILSON: Thank you very much.
United Policyholders is a non-profit organization founded in 1991 and dedicated to educating the public on insurance issues and consumer rights. UP publishes educational materials and serves as a resource for individual and business policyholders and residents of communities with insurance problems. UP’s Amicus Project provides information to courts of law to support policyholders’ legal rights. UP unites policyholders and their advocates by sharing information. Write to UP at 110 Pacific Ave., PMB 262, San Francisco, CA. 94111, call us at (510) 763-9740, or visit our website at www.unitedpolicyholders.org.
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