Good day ladies and gentlemen, and welcome to the Allstate Corporation second quarter 2009 earnings conference call. (Operator Instructions) I would now like to turn the conference over to your host, Mr. Robert Block, Vice President of Investor Relations.

Good morning, everyone. Thanks for joining us today for Allstate’s second quarter 2009 earnings call. Thomas Wilson, Don Civgin and I will make some prepared remarks and then we’ll hold the Q&A session. George Ruebenson, President of Allstate Protection, Judy Greffin, our Chief Investment Officer, and Sam Pilch our Controller are all available to assist us in the Q&A. Last night we issued our earnings press release, the majority of our investor supplement and our 10-Q. We also posted the slide presentation that will be used in conjunction with our prepared remarks. All of these documents are available on our website. On slide one you will find our Safe Harbor statement. This discussion may contain forward-looking statements regarding Allstate’s operations. Actual results may differ materially so please refer to our Form 10-K for 2008, our second quarter 10-Q, and our most recent press release for information on potential risks. We will discuss some non-GAAP measures for which there are reconciliations in our press release and on our website. Now let’s begin with Thomas.

Good morning, thank you for your continuing interest in Allstate. This morning I’ll talk about our overall results, Robert will discuss business unit trends and Don will cover our investment performance, capital and the minor impact of adopting FAS 115 to accounting standards. I will keep these comments brief so that we have plenty of time to hear your comments and questions. Moving to slide two, we have three priorities for 2009; keeping Allstate financially strong, improving customer loyalty, and reinventing our business for the consumer. We made great progress on the first two of these objectives in the second quarter and through the invention are laying the foundation for growth. On the first priority we continue to build financial strength by generating operating income and aggressively managing both the investment portfolio and capital. Operating income was $297 million despite the continue catastrophe losses that exceeded historical standards and our expectations. The auto business had a combined ratio of 94.9 which was up from last year’s second quarter primarily due to higher frequencies. Our homeowners business had an unacceptable combined ratio of 116 primarily due to higher catastrophes. We continue to work on improving profitability and obtained rate approval for rate increases in the quarter averaging 13% in 16 states that raises overall country-wide premiums by 1.7%. The underlying combined ratio for Allstate Protection was 87.2 for the quarter and 88.1 for the first six months which is in line with the annual range that we provided you at the beginning of the year. Net income was $389 million reflecting excellent investment results. On the risk mitigation front we continued reducing commercial real estate exposure. We’re now down about $2.2 billion for the year. We reduced the duration of our portfolio to protect against higher interest rates which also paid…

Thanks Thomas, on slide three the net written premium for property liability at $6.6 billion declined 2.8% from the prior year quarter. Continued declines in overall units as well as consumers managing their insurance expenditures contributed to the drop. Here are some of the key trends, in Allstate brands standard auto, units are essentially flat since January, 2009 as the inflows of new business essentially matched the outflows from the in force book. Average premium increased slightly in the quarter as approved rate increases of 4.3% in 12 states were partially offset by consumers’ actions to lower their premium levels. We are maintaining our discipline in terms of pricing while exploring ways to provide consumers more choice in their auto insurance options. Retention at 89% was off slightly from prior year levels as this ratio shows signs of stabilizing. We continue to see strong new business trends with issued application growth of 11% in the quarter. And just as a reminder new business accounts for only a small portion of the net premium written. For homeowners the net premium written was flat compared to the second quarter of 2008 as increases in average premium and retention offset the unit declines. On a before reinsurance basis premium written declined 3%. We continue to file and gain approval for rate increases as we remain committed to get this line back to acceptable margins. Emerging business personal lines grew nicely in the quarter about 6% year over year. Finally commercial lines and encompass net written premium declined as we continued to improve the margins in those businesses. Shifting the conversation to margins we recorded a combined ratio of 100% as we experienced another quarter of abnormally high catastrophe losses. The underlying combined ratio of 87.2% remained within our expectations. On slide four we…

Thank you Robert, I’m going to cover the investment portfolio and results during the quarter. I’ll talk about the progress we’ve made on capital and liquidity levels and briefly cover the effects of FAS 115-2. Our ongoing proactive programs to strategically manage risk and return paid off as the markets rallied in the second quarter. Slide seven displays our portfolio mix at the end of June, 2009. The value of our portfolio increased during the second quarter by $2.6 billion to $96.5 billion at quarter end. About three quarters of the portfolio remains invested in fixed income securities of which 93.6% were investment grade rated. Some key points, we continued to reduce our exposure to commercial real estate, down $1.2 billion in the quarter. This follows a similar reduction in the first quarter. We continued to reduce our exposure to rising interest rates decreasing the overall duration by 8% in the quarter, again similar to a first quarter decrease. And our position on maintaining exposure to credit paid off as spreads continued to tighten during the quarter. All three of these were the right calls this past quarter. Also as the market stabilized we took the opportunity to invest more than $5 billion of excess liquidity into higher yielding securities in order to generate future income and capital appreciation. Slide eight provides the quarterly tracking of net investment income and realized capital gains and losses. The shortfall in net investment income relative to the prior year quarter primarily reflects the negative effects of lower yields and lower average investment balances. The lower yields were exacerbated by our decision to maintain elevated levels of liquidity in anticipation of more stable market conditions. And as I said, during the second quarter we began to invest some of that liquidity which should generate…

So in summary it was a good quarter. We made progress in all three of our priorities. We made money and strengthened our capital position. Our customer loyalty results improved overall and relative to the industry which should lead to more referrals and better retention in the long-term. Our reinvention efforts continue as we pursue new ways to satisfy customers’ needs for both protection and retirement. With that, let’s begin the Q&A session.

(Operator Instructions) Your first question comes from the line of Jay Gelb - Barclays Capital

What do you feel is a reasonable return on equity expectation for Allstate in the current environment.

We look at the long-term return on equity and we’ve been targeting 15%.

What do you think it will take to get it back there on the core business.

I think there are two businesses that we need to improve the performance on, one is the fixed annuity business, so if you look at our fixed annuity business at Allstate Financial we used to make about $125 million a quarter. It’s now down to a break-even or slight loss so we need to either downsize that business or reposition it. We think we have some ideas on how to reposition it in terms of offering different products still helping people for retirement but not the traditional products that have been used in the past. And then secondly we have to improve our homeowners business and get the combined ratio below 116. If you look at our historical results on auto, you’ll see that we’ve always generated an extremely high return on, or not always but the last decade or so, extremely high return on capital in that business and of course that’s two thirds of our business so we feel good about that business continuing forward from here.

So you feel auto is generating in excess of 15% returns.

It is, yes.

And then on the capital position you mentioned in the prepared remarks the decision to decline the TARP equity, my sense is that would make Allstate the only company with a life operation to decline TARP and then not go out and raise common equity, is there anything that would change your position potentially on that decision.

We’ve turned down TARP. We’re comfortable with our capital when we turned it down which was in the first quarter or right after first quarter. We’ve continued to build capital so we don’t have any anticipated need to raise capital at this point either from the government or in the market.

Your next question comes from the line of Dan Johnson – Citadel Dan Johnson – Citadel : Let’s start with the unrealized loss position on the balance sheet, I think we’re looking at we’re down to just a little over $4 billion or so remaining if I’m looking right on the balance sheet, and I guess the question related to that is with the shadow [DAC] that went up this quarter I was thinking it would have come down because we would have the, my basic understanding of how that worked was as we took out the unrealized losses we would also lower the DAC asset that we put up against the losses when they were created. So could you help me with what went on in that shadow DAC category and then if we eventually got rid of some percentage of these unrealized losses how much of that would actually come through to the book value versus how much needs to be offset by the shadow DAC asset.

I’ll start off and then Don will fill in on shadow DAC, first we label them as unrealized because we think they are unrealized and we don’t expect them to be realized. So it’s merely a mark-to-market on one half of the balance sheet called the asset side since we don’t mark our liabilities to market. But when we, because we don’t believe those will be realized we then try to show what the net impact would be had they been realized but we don’t expect them to be realized so to your question of if we don’t realize them, we don’t expect to realize those as losses. It will take some time on the structures in particular so the, I think its about $3.5 billion of the amount is really due to RMBS, CMBS, it will take some time to work that way through the system, but we still don’t expect to lose money on those other than the amounts we’ve already written down through the income statement.

I think there’s a couple of answers to the question, first of all shadow DAC obviously is there to mute the impacts to the balance sheet and equity lines of what happens on the unrealized loss or the unrealized gain. I think the answer to your question is that previously when you looked at prior quarters the shadow DAC was, the amount that we were booking was actually capped and so the answer to your question is you have to take into account that you can only book shadow DAC up to the original cost essentially. And we were not at that level. Furthermore when we transferred the assets to OCI from the adoption of 115-2, we reduced DAC balance by about $180 million associated with it which also went to increase shadow DAC. So I think those two answers would probably be the piece you’re missing. Dan Johnson – Citadel : I’m probably a little slow do I didn’t quite get all of this so maybe we’ll try it just a bit different, on page nine of the supplement or maybe you want to direct me to 10, I’m not sure which of these two pages, where do we see the amount of shadow DAC that’s sitting on the balance sheet because I see the total amount of DAC, but where do we see the piece that’s related solely to the remaining unrealized losses so then that way if we wanted to assume that unrealized losses went to zero, we know how much to actually offset on the other side.

If unrealized losses go to zero and we don’t realize all those losses the net impact on the balance sheet is the number that’s, if you go to the balance sheet it’s a couple billion dollars that rattles through and that is the gross unrealized, we get all that money back, but then we write off DAC associated with it and we don’t have any tax savings associated with those losses so the deferred tax asset goes down as well. So if you’re really trying to get to what the net impact on book value is I think you should just look at the balance sheet itself and the net amount on unrealized losses. I think maybe what I would do if you want to work through the specifics of where it is in the investor supplement, and the 10-Q and all of that, let’s have— Dan Johnson – Citadel : Then where are we comfortable in running the premium to surplus levels on the P&C company. I know that’s not the most sophisticated metric but we don’t have a whole lot to go with.

Its not the most sophisticated metric and its not the way in which we run the company, its clearly one of the measures that we look at in determining what economic capital is, but we look at economic capital from several different ways. First we look at what the risk of [ruin] is so we have pretty high, or low tolerance I guess, so run a large number of scenarios and have a low tolerance for risk of ruin. That’s one standard. The second standard is under what case would you need to go get money. And the third standard is how do you maximize shareholder value. We look at all three of those measures and we select and economic capital byline of business to determine how we want to run the business. So when you look at the auto business if you look out at the external world you would conclude in item two, you could probably run that business at three to one. If you look at the homeowner business you would conclude that the number has to be lower than three to one because of the volatility in item one, that is the risk of ruin and try to maximize shareholder value becomes a little bit of a challenge at the current combined ratios which is why we’re trying to improve that business. And you could go through similar kind of analysis for the various product lines in Allstate Financial which is what we do. So we spend a lot of time on economic capital. We use that to drive our decisions on where we’re putting our resources and what profit improvements. When you sort through all of that, if your question is really what businesses do we like the most right now, we love our auto business, its doing great. Frequency is up a little bit this quarter but on a trended basis that business is doing quite well. Our life business is working quite well, and as I said, our emerging businesses are working quite well. We still have some work to do in fixed annuities and homeowner.

Your next question comes from the line of Robert Glasspiegel - Langen McAlenney

PC investment income, we’ve got some moving parts of dividends up, perhaps reducing short-term and reducing duration at the same time, who wins the battle, sort of those three forces going forward as far as direction and investment income.

Make sure I get the three parts, so you had reducing duration was part one, what were the other two.

Reducing short-term assets, I assume you’re reducing some liquidity at PC as well, maybe not and dividends up to the parent.

Well first we look at, let me deal with the third one first, and then I’ll make a couple of comments about how we manage risk and maybe Judy can talk a little bit about where we’re investing money today. First, in terms of dividends, we look at investment income in total for the whole company where we move money between entities is really a regulatory and capital management perspective which Don runs so to the extent we take money out of Allstate protection, Allstate insurance company and move it up to the corporate, that’s really a capital management effort not an income basis. So it could be invested in different things. On the reducing the duration and short-term assets, reducing the duration was part of our risk mitigation program. We’ve done that largely in the protection business, in the Allstate Financial of course we have a lot of asset liability matching and so the net economic exposure in Allstate Financial is still large but we needed to focus first on Allstate protection so you will see a shorter duration in Allstate protection. In terms of investing the short-term assets we really try to do all of these things on what’s economic as opposed to trying to get to a [purely] investment number. Judy maybe you want to talk about where you started to put that money back to work, the $5 billion plus.

On the $5 billion if you look at it, we put about 80% of it in fixed income which much of that is in our traditional fixed income investing, high grade corporate, municipal bonds, we also bought some [TIPs], some sovereign debt, and to a far lesser extent some discounted securities where we felt that we had a good handle on what was going on with those particular securities. So the vast majority of it went into fixed income which will earn operating income and the yields were approximately 6% on the fixed income portion. The balance went largely into equities, about 15% of it went into equities and that was split between domestic and foreign equities and then a small portion of it, we went into hedge funds and that was largely a call on looking for global macro hedge funds.

Okay, [encompass] is showing a more significant premium decline then your other segments and is over 100, where do we stand sort of in your sort of IA strategy from here, just fix it, get the underwriting right and don’t worry about the top line or is this potentially an area where we can see some growth looking out.

Since that follow-up is so directly related to investment income, I’ll have George answer.

Thanks the question on [encompass], its nice to get back to the operations, what happened last year is we started showing some significant growth in [encompass] unfortunately it wasn’t in the quality of business that we wanted and because of that we’ve intentionally cut back on the number of producers that we have, some areas that we’re servicing and we’re taking rates necessary. We’re still committed to the IA business and [compass] is still part of the portfolio but as Thomas said the number one priority for Allstate is to keep Allstate financially strong and because of that we are diminishing our prospects for growth right now.

Your next question comes from the line of Matthew Heimermann - JPMorgan

Just a quick question as you look at the economy going forward I guess I’m just curious whether or not there are any issues if the economy recovers with respect to inflation that you have your eyes on in particular especially given that obviously auto continues to kind of be the ballast of your operations while you’re trying to take care of the homeowners issues, just curious about that.

Let me go way up and then I’ll come down pretty quickly, first in terms of the overall impact on the company of the economic environment of course most of it shows up in investment portfolio, there are small ups and downs that show up in the property casualty business, fewer new cars sales, people adding fewer additional cars to their personal fleets, fewer home sales which give us less opportunity to quote on new business, slight up tick in thefts in homeowners, but these are all small manageable and just work through. We deal with those in the way we deal with the rest of our business which is proactively and up front. So we feel pretty good about that. With respect to inflation last year, first we started our risk mitigation and return optimization work back in 2007 so this is, we’re a couple of years into this and back then we decided we needed to reduce our holdings in financial services companies, a lot of the banks and we did that. As we moved forward on that last year we did some scenario planning and looked at a couple of different scenarios, one was deflation, one was inflation and the one that of course that can really hurt a large fixed income investor like us is inflation. That’s why we started to bring our duration down. Even though it has a substantial hit to operating income so while nobody believes interest rates were take way off, of course they’re up 90 basis points in the second quarter, we were not hedging in close on those. Our hedging program was really for big large macro moves up 300 basis points because we didn’t want to have additional unrealized losses in the portfolio. We are still concerned about inflation. We continue to reduce our duration and are willing to give up operating income to do that and it is not insubstantial amounts of operating income, but we believe when you look at the balance sheet and the results this quarter for us were spectacular driving book value by $5.00 per share. But we still believe it’s the right economic choice to make.

Just to summarize its fair to say that to the extent there are any pressures on loss trend that emerge from a pick up in the economy if we think about the duration of your portfolio and leverage of short-term yields, we should kind of think about those things potentially offsetting. Thomas Wilson I’m not sure I get to the offset, there’s some math required in that piece which I’m not prepared right now, I would say to the extent there are inflation in the bond portfolio that reduces the value of the bond portfolio and we’re taking proactive steps to minimize that impact while still earning some money. In terms of inflation in severities, we’re not seeing that in our business today. If you look at the auto business, the paid severities are quite low and that’s both in the physical damage coverages and in bodily injury. Now frequency is up so as Robert talked about a little earlier you’ve got to do the multiplication because those things bounce around a little bit so its better to do multiplication. But in total our loss cost associated with the auto business are well under control and we’re not seeing run away inflation there. Nor do we see trends that lead us to conclude that in fact its coming. In the homeowner business of course frequency is way up because of the weather and we need to reflect that in our pricing and we’re working hard on doing that, but if you look at the loss costs themselves, we’re actually not seeing the downward move in building materials and labor costs that we thought we would in this environment given that so many, so many less houses being built. We would have thought that construction labor and drywall prices and that kind of stuff would have come down more than they have. They have not. But then again if you look at our combined ratio the big challenge there is we have to just raise prices. But its not runaway inflation.

And then just on the demand side with respect to government programs either healthcare or cash for clunkers, has either of those had any impact I guess either on how you think about lost cost trends over time, I know its early days or two, just what you’d expect to see with respect to fleet and average age of fleet insured.

I’ll do healthcare, George can do cash for clunkers, in terms of healthcare of course very little of our actual claim payments are made for directly for medical expenses. So about 55% of our auto insurance premiums go out as physical damage stuff, only about 25% is bodily injury and a large portion of that is for suits and litigation and damages we pay to people as opposed to direct medical costs. Those sometimes can be based on medical expenses so they are somewhat related to medical inflation so we would have some exposure but depending what comes out of healthcare what we’re seeing is not perhaps in programs being, they may driver overall increased costs for the country in terms of healthcare, we’re not seeing trends that would raise individual treatment costs up. In fact I think what you’re seeing now is a debate on how to get the individual costs down so that people can pay for their broader coverage.

With regard to cash for clunkers, the program itself has only been out for a couple of weeks but in the short-term we are experiencing an increase in additional change car. People are buying more cars and they are retiring the clunker. What happens with that is that the average premium goes up and they are also opting for coverages that they had declined before. So they’re putting collision and comp on it and they’re being more careful I think with some of the deductible that they have. But its pretty early to tell. It’s a small part of the business but I do think that replenishing the fleet is probably good for us long-term. The newer cars are safer and I think the long-term trends will benefit from additional new car turnover.

Your next question comes from the line of Paul Newsome - Sandler O'Neill

I have a little trouble understanding the, what seems like a recent trend in increased cat losses particularly the sort of non-hurricane cat losses following what appeared to be a couple years of very significant efforts by Allstate to reduce PMLs and improve their overall exposures. I buy that some of this is due to Midwest storms that are up a little bit but I guess I’m asking is there something going on with terms and conditions that may have changed, is there a possibility that you ended up swapping hurricane related exposure for more Midwest cat exposure because it does seem like we are having a much higher severity for these Midwestern storms then we’ve seen for awhile.

First as we said we have unacceptable levels of profitability in the homeowner business paying out $0.16 for every dollar you take in is not a strategy for success and we’re working hard on improving that situation in large part by increasing rates. We did look in 2005 at the profitability and risk return profiles of the entire homeowner business. We broke it into three categories, one which you mentioned hurricanes and earthquakes, two [non-model] cats, three slip and falls, kitchen fires, broken windows, stuff like that. When you look at the profitability we concluded that in item one that hurricanes and earthquakes that that was not a good business for us and so we set about a massive program which you’re familiar which is basically to divest ourselves from that coverage. Some of that is reinsurance, some of its deductible, some of its not offering continuing coverage to people getting smaller in Florida. All of the things we’ve talked about over the last decade. In bucket two, the non-model cats, they bounce around a lot but over a longer period of time, three, four, five years, that is a profitable business. It is what the customers want insurance for but it’s a little more volatile. So we’ve been working to make sure we get that properly priced. On the baseline business, that’s a lot like auto, that’s just very good business. We know how to underwrite it, we know how to service those claims well and efficiently and we make good money there. So you’re right it has bounced around a little bit, 2006 and 2007 were very low years, 2008 and 2009 are ones we’re not happy with. And George can talk to you about the things he does to control those exposures on a regional basis but we have not swapped, so its not like we quit writing on the Coast and we wrote a whole bunch of stuff in hurricane alley and Oklahoma. So we didn’t swap but George can talk about the things he’s doing to make sure we get the right return on that business.

To reinforce what Thomas said, if I could take you back to slide four in our presentation, you can see we have a 15 year average of catastrophes in the first half of the year. Catastrophes in the first half of the year are predominantly non-modeled, the only modeled cat that you could have in the first half would be an earthquake which is what we did have back in 1994. But after that if you look at it the results for the last two years, both 2008 and 2009 are more than twice as bad as any other year in the 15 year period. We do have a meteorologist on staff. We have been checking with him to see if there’s any changes in weather patterns that we would need to do to adjust is or pricing mechanism is. He says that there is not. It appears that there is some inherent volatility in the business itself and a lot of this could be just bad luck. That is not acceptable to us which is why we’re taking rates and we’re looking at our risk profile in the central part of the United States. But your statement that it was just a little bit worse, we’ve had in the country $11.1 billion worth of natural disasters in the first half of the year. I’m going to back over that, in the National Underwriter two weeks ago they said it was $11.1 billion, we have 10% of the market, we pick up about a billion dollars so our exposure is about the same. We’ve done a real good job I think on handling non-modeled cats, buying reinsurance, reducing our exposure, eliminating our exposure in places like Florida. We have not concentrated very much on the heartland because our loss profile has been pretty good up until the last two years. Having said that we are going to take rates aggressively to return this to profitability.

So in your view its really just purely a rate issue on non-model cats.

It appears to be. We found by looking at changes in weather patterns that the water in the Atlantic and in the Gulf of Mexico did get significantly warmer over the last few years which does fuel more severe hurricanes. We have not seen any significant change in weather patterns in the heartland of the United States that would lead us to believe that this is a long-term trend.

I don’t want you to think that there is, George is always doing things like looking at types of roofs we write, age of the home, so there’s plenty of operational excellence things that go on that would go on whether we had a lot of cat losses or not. This might put a little more heat behind those, but we’re always working to try to make sure we get the right price for the right risk. We don’t want to charge people too much nor do we want to charge them too little. George Ruebenson And we do look at it on a local market basis, its not just state by state. But its also market by market within those states to make sure that we’re not overexposed or that our pricing is out of whack. Paul Newsome - Sandler O'Neill Great, thank you. I’ll look forward to getting my higher homeowner insurance bill. Thomas Wilson Just buy your auto from us and we’ll be in great shape.

Your next question comes from the line of Meyer Shields - Stifel Nicolaus

I’m going to continue to beat the drum on the catastrophic losses, in the supplement you showed that the country-wide impact of homeowner rate increases in the quarter was 1.7%, can you give us a sense of what that needs to be to get the non-model cat rate provision about right.

The way we have to get that right is to get it to an underwriting profit and that’s less than 99 as a combined ratio. I think to give you some sense, it varies of course obviously by state but if you look at the last three quarters in that supplement, you’ll see a steadily increasing overall increase in the amount of rates both by individual state and in terms of the country-wide average. You should expect that trend to continue until such time as this business makes money.

Do you have, can you I guess give us a sense of the elasticity of demand, in other words, do homeowners do multi policy customers care that much about homeowners rate, is that going to start to effect retention.

Maybe answer it both from a macro homeowner sense, George maybe you want to answer what you have going to make sure we protect those multi line customers. In terms of overall price sensitivity homeowners in general is less price sensitive than auto insurance, there’s a couple of reasons. One is people value their homes a lot and they really want the best coverage so when you look at your choice home we sell much more platinum coverage there then we do for auto insurance which tells you that people value their homes, want to pay to protect their homes and want the right kind of coverage. So its not nearly as price sensitive from that standpoint. Secondly I would say there’s not nearly as much advertising going on in homeowners insurance about low prices and third most people buy this indirectly through and it their mortgage companies pay the bill so they’re not writing the direct check every month so it also tends to be less, they don’t see it every month and so they don’t, its not as price sensitive. So I would say homeowners in general is less price sensitive, George maybe you want to talk about what we’re doing to make sure we take care of our multi line customers.

Multi line customers get a discount and what we’re trying to do is reinforce that with everyone who does have insurance and even for people who have mono lines, we have customer contact programs where we’ll call the customer and explain if they would migrate to higher deductibles, there is a way to manage some of these rate increases. It has proven in the past to be very successful. To go back to the beginning of the decade, we took significant rate increases, a lot of it was because of what happened in Texas and mold and different things that were migrating throughout the country and we do know how to moderate these rate increases especially for our high value customers.

Your next question comes from the line of Joshua Shanker - Citi Investment Research

Following up on Jay’s question I’m wondering if you could talk about the way you view capital cushion a little bit. We’ve talked about how much capital you have and how you’re confident in that, but what would make you under confident. Is there any metrics you can give us around capital cushion.

We don’t give out what we think is excess capital but I think you could get to it different ways. We look at the two insurance companies, we have Allstate insurance company, Allstate life insurance company and then we have the parent company and there are capital in basically all three of those businesses. We believe that the two insurance companies are well capitalized then we also have $3.4 billion at the parent company. Now not all of that would be excess because you’d want to have some in case something bad happened that you alluded to that you want to make sure you give them money. We also have fixed charges called interest payments, potential dividend payments, debt repayments of the parent company, but we feel very comfortable with the amount of capital we have. And in fact we were comfortable at the end of the year and we’re even more comfortable at the mid point of this year. I know that’s not as specific as you want but I’m not going to give you a real specific excess capital amount.

And do you have any thoughts on where your unrealized loss position or your book value is today.

We don’t give it out I think you could go look at what’s happened to spreads since the end of the quarter and you would see that they continued to come in some, it varies obviously by asset class, it goes up and down, but when, our investment strategy is largely the same now as it was the last time when we talked to you a quarter ago which is we’re maintaining our credit exposure, we like that. We’re continuing to shorten duration not as aggressively as we have in the past because we’ve gotten a lot done in the first six months of the year. We are continuing to invest in our excess liquidity. We will probably move some of that into less liquid higher return vehicles as we go throughout the year. Not clear to me whether that will be split between operating income and capital gains.

Just out of curiosity you did give us some mark-to-market last quarter, in terms of at this point right now you just decide to [abberate] from that policy.

No its not a policy. The time we gave mark-to-market was when we put out the release on TARP. So that was why we did it, it was related to the TARP decision not related to, we’re not mark-to-market every month or when we do a call.

Your next question comes from the line of Vinay Misquith - Credit Suisse

This quarter Allstate Financial generated about an 8% ROE, that’s what I estimate, what do you think is the long-term ROE for this segment and how long do you think its going to take to get there.

The ROE would be 8% on some basis and it would be a lot lower on another basis if you went down to net income because it would make $19 million of net income. I prefer to look at cash in total and over a long-term period of time. That business should compete and get the same kind of returns we get in our other opportunities. I know other life companies have, believe that their returns will stay down in the single-digits for some period of time. We have been downsizing our business in those areas where we’re not getting acceptable returns. In those places where we do get good returns we’re trying to grow those so if you look at our life business its up some. If you look at our workplace business that’s up. So we are trying to grow those pieces that are successful. I think on the Allstate Financial in total though should still have high return expectations because we have other places to put the money too so I’m not in the permanently accept low returns in life business.

Would you be willing to accept low double-digit ROEs in this business and sort of mid teens ROEs in your PNC operations.

If low double-digits could be anything below 50, so I think all the businesses go through cycles up and down. Sometimes homeowner business is not having a good year. Sometimes the auto business is not having a good year. Sometimes life business is not. Sometimes annuity business is not, so in total, I believe the corporation should [inaudible] 15% return on our capital. We managed through that in various times, that means you have to have some people do better than 15 and some people do less than 15 but in total, everybody should be able to see a way to get to 15 over time. And we believe that’s necessary given our cost of capital and given the other opportunities we have to invest money.

On the auto business curious what you’re seeing in terms of shopping trends, has that receded now.

No, people are still shopping. The economic environment is still fairly dire. What we’re seeing is more and more people opting to our value product and we’re also seeing people basically engineering their policy by going to higher deductibles or actually dropping some coverages. I think as long as unemployment stays high you’ll see shopping activity fairly high.

Your final question comes from the line of Brian Meredith - UBS

Non-standard auto, looking at big increase in frequency in the quarter understanding auto is getting back to normalized levels, but that just seems like a large number. Are there any underwriting issues kind of evolving there or any issues with Allstate Blue that have come up.

First in looking at the auto business I would encourage you to look at both the frequency and severity combined so, and you know this, I’ve been telling you what you already know but I think it is important to look at that because you’ll see its bounced around a lot in the last couple of years so if you look at frequency is particularly bodily injury is way up this quarter but it was way down a year ago. But paid severities were higher a year ago and paid severities are way down so really the best way to get a read on the whole business is to look at it in total. Frequency is up some in Allstate Blue, we’re comfortable with the new products, we’re comfortable with the roll out. You always get a little bit of up turn in frequency when you add new business so you should expect to get it. We price for it and we’re comfortable with that part of it in terms of looking at the total loss cost of Allstate Blue. So we feel comfortable about that. We do not think that is going to be the kind of growth we had in [encompass] where we’re downsizing the business.

And then what’s the trend in close ratios going on right now, it looks like it improved a little bit sequentially but year over year its still down and what are you doing to improve close ratios.

George can answer that question but I want to make sure I get the right close ratio, close ratio on new business.

Yes exactly, quote to close.

What we’re doing is trying to make sure that we have less variability in the way that we go to the marketplace and specifically at the agency owners’ offices. What we were doing is simply quoting higher limits and lower deductibles and I think in response to the changing economic environment, we’ve change the way that we ask people questions, specifically why did you come here, what existing policies do you have, and we tried to give them the best possible quote for themselves. That seems to be panning out quite a bit. In addition we have discounts that we have not used before. We can automatically take money out of their checking account, [inaudible] in advance, we’re pushing our multi line discounts and so its our sales and service process at the point of sale that is actually making the difference. One other thing we’ve changed our advertising and we’re now emphasizing the fact that Allstate is not as expensive as people might think and if you look at our ads it says call Allstate first. What we found from our consumer focused research is that if people can save some money they will stop the shopping process at the first person who can save them some money. So we’re trying to get a call to action as opposed to simply doing more institutional or product advertising and it seems to be working.

So to summarize, we made good progress in all three of our objectives this year. You can expect us to continue to be proactive whether that’s managing our businesses, our investments, our capital. We’ll keep Allstate financially strong, we will get customer loyalty to continue to improve and we will reinvent the business for the consumer which will drive long-term shareholder value. So thanks again for your interest and we’ll talk to you next quarter.