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Allstate adjusting to acquisition of Esurance

Published: Tuesday, June 12, 2012

Updated: Tuesday, June 12, 2012 09:06

In its earnings call in May, Allstate said Esurance is "growing and competing effectively with Geico and Progressive." As of spring 2011, Geico and Progressive had combined market share of more than 50 percent of online car insurance sales, which is more than 10 times the combined share of Allstate and Esurance.

An Allstate spokeswoman said she couldn't share the statistics to back up its claim that Esurance is making inroads against Geico and Progressive, though the company reports that Esurance had 849,000 policies on its books in the first quarter, up from 786,000 in the fourth quarter.

"We are just as happy as the day we made the announcement, if not more at this point," Don Civgin, the Allstate executive who oversees Esurance, said during the first-quarter earnings call.

Allstate launched an advertising campaign in December for Esurance, rebranding it to reflect its affiliation with Allstate. Allstate poured $45 million into first-quarter advertising for Esurance, which in 2011 spent a total of $100 million on ads.

"We wanted to get some weight behind it," Civgin told analysts. "I'm happy to say it's working as well as we expected." Industrywide, advertising spending rose by 12 percent in 2011, to $5.7 billion, J.D. Power said.

Esurance's monthly unique visitors to its website rose 98 percent and 79 percent in January and February, respectively, from the same months last year, according to ComScore Inc., which measures Web traffic. The rates of increase slowed to 8 percent and 38 percent, respectively, in March and April.

Allstate said it's considering launching new Esurance products and increasing its presence beyond the 30 states where it does business.

RBC Capital Markets analyst Mark Dwelle said he believes that growth opportunities for Esurance will be "significant" as new products are rolled out, the brand gains recognition and Esurance's products are available in more states.

Although Allstate has seen the number of policies on its books shrink along with its market share, it remains among the industry's more profitable players.

"Growth without profitability destroys shareholder value, and we are about building shareholder value," Matt Winter, president of Allstate auto, home and agencies, said during the earnings call.

Among the 10 biggest auto insurers, Allstate was the fourth-most profitable in 2011, according to data tracker SNL Financial. It had a "combined ratio" of 97.8 percent.

Geico, with its low expenses, including relatively little paid on commissions, and Progressive, with its lower losses, had combined ratios of 96.9 percent and 94.4 percent, respectively, SNL found.

In general, the combined ratio is a measurement of underwriting losses and expenses as a percentage of premiums coming in; 100 percent represents break-even.

"If a company has a combined ratio greater than 100 percent, then they have more money going out than coming in, and they are losing money on their underwriting," SNL senior industry analyst Terry Leone said.

Six of the 10 biggest car insurers had combined ratios exceeding 100 percent.

In the first quarter, the combined ratio of the Allstate brand was 95.2 percent; it was 127.6 percent for Esurance, or 10 percentage points higher than Credit Suisse analyst Michael Zaremski expected.

David Carr, creator of ALLBlueBlog.com, a social network for Allstate agents, said Allstate needs a bigger online presence but doesn't know if Esurance is the right tool because it can't seem to make an underwriting profit. He also said Allstate could improve the profit of its new acquisition if it didn't keep Esurance as a separate brand.

Allstate says integration of Esurance is going "quite well" and outlines ways in which it can wring value out of its new unit.

"An obvious one is claims," Bob Block, Allstate's senior vice president of investor relations, said at a Raymond James institutional investor conference in March. "Our claims capability and scale provides Esurance the opportunity to lower their claim costs just by simply being on our national contracts for repair shops, salvage, things of that nature."

At least one consumer who recently went through Esurance's claims process didn't like what she encountered.

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