Good day, ladies and gentlemen, and welcome to The Allstate Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, John Griek, Head of Investor Relations. Please go ahead, sir.

Thank you, Jonathan. Good morning and welcome, everyone, to Allstate's second quarter 2017 earnings conference call. After prepared remarks by our Chairman and CEO, Tom Wilson; Chief Financial Officer, Steve Shebik and me, we will have a question-and-answer session. Also here are Matt Winter, our President; Don Civgin, the President of Emerging Businesses; John Dugenske, our new Chief Investment Officer; Mary Jane Fortin, President of Allstate Financial; and Eric Ferren our Corporate Controller. Yesterday, following the close of the market, we issued our news release and investor supplement, filed our 10-Q for the second quarter and posted the results presentation we will use this morning in conjunction with our prepared remarks. These documents are available on our website at allstateinvestors.com. As noted on the first slide, our discussion today will contain forward-looking statements about Allstate's operations. Allstate's results may differ materially from these statements, so please refer to our 10-K for 2016, the slides and our most recent news release for information on potential risks. Also, this discussion will contain some non-GAAP measures, for which there are reconciliations in our news release or our investor supplement. We are recording this call, and a replay will be available following its conclusion. And, as always, I will be available to answer any follow-up questions you may have after the call. Now, I'll turn it over to Tom.

Well, good morning. Thank you as always for taking your time and investing with us and to understand the progress we’re making at Allstate. So let’s begin on Slide 2. Allstate delivered strong financial results in the second quarter. Net income was $550 million or $1.49 per share in the second quarter of 2017 and that is in comparison to $242 million last year really reflects improved auto insurance margins and strong investment results from our performance base strategy. Operating income per share was $1.38 in the quarter. The improvement in auto insurance profitability is a result of us rapidly reacting to higher loss costs beginning in 2015 and it was aided by declining frequency in the first half of 2017. Investment income on our $81 billion portfolio also increased in prior year, as stable earnings from the quarter, market base fixed income portfolio was supplemented with higher results from the performance base portfolio. Operating income return on equity was 30.5% as you can see at the bottom of the table, a significant improvement over last year. Go to Slide 3 which shows our operating priorities for 2017. We made excellent progress on the five operating priorities, but not all of this is yet impacted reported financial results. The first goal is to better serve customer and we measure customer satisfaction by a net promoter score and an increase for most of our businesses although this is not let yet led to higher policy retention. We do expect higher customer satisfaction to translate into higher growth particularly as insurance auto price increase is moderate. Allstate manages shareholder capital to deliver attractive returns which acquire us to achieve target economic returns on capital. As you can see from our results, we are excelling in this priority. Auto insurance margins have improved,…

Thanks, Tom. Slide 5 shows property liability results by customers segment and brand. Starting with the table at the top, net written premium was $8.3 billion which was a 3% increase from the prior year and the recorded combined ratio of 97.2 was 3.6 points better than the prior year quarter. When we exclude catastrophes and prior year reserve re-estimates, the underlying combined ratio for the second quarter was 85.5, 3.1 points better than the prior year quarter. The underlying combined ratio for the second quarter includes 0.6 points or $52 million of restructuring expenses primarily related to the expansion of QuickFoto Claim, our virtual estimating platform. This expansion resulted in improved efficiencies and the closure of a number of claims drive in offices. As you know, our strategy is to provide different customer value prepositions for the four consumer segments of the property liability market. The Allstate brand in the lower left competes with the local advice and branded segments. We're the most prominent competitors of State Farm, Nationwide and Farmers. Obviously, GEICO and Progressive target these customers as well, but do not offer the same value preposition provided by our 10,400 Allstate agencies. This segment comprises 90% of our total premiums written. The underlying combined ratio was 84.4 with the favorable prior year comparison being driven by improving loss trends in auto insurance, which had a 92.8 underlying combined ratio, 5 points below the prior year. Net written premium was 2.3% higher in the second quarter of 2017 compared to the prior year quarter due to a 3.3% increase in auto. Esurance in the lower right serves the customers who prefer branded product, but are comfortable handling their insurance needs. GEICO and Progressive Direct have a larger share of this segment than their overall market share. We continue…

Thanks, John. Let’s go to Slide 9 and our investment results. Overall, investment results have been strong this year, reflecting favorable market condition and the asset allocation decision to increase performance base investments, which reflect the 10 year history of increasing commitments and building our capabilities. Today, we utilize third-party managers, co-investments through additional partnerships and our own direct investing and have created a broad portfolio of diversified investments. Total return in the upper left graph was 1.8% for the quarter, as our strategic positioning coupled with favorable market conditions, show strong results across our diversified portfolio. Investment income shown in the blue has consistently contributed approximately 1% of return per quarter with stable earnings from our market base portfolio of primarily investment grade fixed income investments. Total return varies based on the portfolio value at the end of each quarter as reflected by the valuation component shown in grey. As you can see the value of the portfolio increased in second quarter primarily due to lower corporate bond yields and higher equity prices. The Property-Liability bond portfolio which totaled $32 billion is concentrated in three to five year maturities. If interest rates rise, bond valuations will be negatively impacted however net investment income will increase over time. Net investment income in total and for the market based and performance based portfolios is shown in the upper right graph. Net investment income for the second quarter was $897 million, $135 million higher than second quarter of 2016. This increase was driven primarily by performance based investment income of $263 million. While performance based income is variable from quarter-to-quarter. Long term returns for Allstate have been attractive as shown by the bottom two graphs. The quarterly impact of performance based net income has averaged $155 million over the last 10 quarters…

[Operator Instructions] Our first question comes from the line of Greg Peters from Raymond James. Your question please.

I just wanted to circle back -- I have asked this of you before, but now that you have had two quarters in a row where your underlying combined ratio is certainly trending better than expected, I'm curious about your view of competitive positioning in the marketplace, especially when I think we've seen some anecdotal stories or situations where some of your peers have started to cut some pricing.

Greg, this is Tom. I’ll start and then Matt can jump in. First, we do think we were out early and taking the price increases that were necessary in auto insurance and that has put us in a position to not have -- assuming these trends continue. We don’t think we’ll have to raise prices as much which obviously helps because price is a large component that which we compete on. It’s not the only thing we can compete on, however, so there is a wide variety of ways in which we compete with other people. The other part is it largely depends what other companies do, so it’s -- and it’s hard for -- it's impossible for us to predict what they'll do. So some of the large mutuals which have significant underwriting losses may choose to stay there and then it will have really won’t be any competitive window for us to grab more shares from those specific competitors. Some of our other competitors choose to subsidize various state run losses there by having lower prices -- higher margins in other states. So, I would say, we prefer to be on this end of the equation having improved our profitability. So we’re in a balance position to grow, but I don’t think you can automatically assume that because other people didn’t follow us, that they will follow us or that this is sort of open to buy and it's easy to take business. Matt, you may have some more specific comments.

Sure. Thanks, Greg, and it’s Matt. First, it all varies based up geographies, so we’ll start there. On the countrywide basis as I said last quarter, we feel good that we have essentially caught up the loss trends and are now within a more reactive mode where we’re monitoring loss trends and keeping pace with them. But that of course has some variability state-by-state, there are some states where we still have indications and we still need to take some rate. And there are others where we’re doing quite well and things have stabilized. Overall, we feel really good about our competitive position. In our business with our distribution model, one of the most important things for them is stability and so as we’re stable, as we maintained more normalized adjustments to rate and more inflationary rate adjustments, as we’re able to build multi-month and multi-year marketing plans and give them predictability, they are more willing to invest, they’re able to do long-term business plans. And we see increased quota activity and increased closing rates, and as a result increased new business production. So, we actually feel quite good about our competitive position, it's interesting that you point to rate deductions that you've seen. We still see lots of our competitors with very large indications that are not yet taken all of their indications in some states, and others they're still taking double-digit rates. So, we're seeing it all over the board while we are for the most part very stable in taking modest rate increases, which we believe is very good for our business model.

As a follow-up, with frequency, both BI and property, being favorable for you in the last two quarters I believe. Is there anything going on in the environment that might lead us to believe that that's going to continue?

Boy, if I could predict the future, Greg, I'd be a very man and Tom will be happier too. What we've seen is a moderation in frequency the first half of this year, as we closed out last year, it was really unclear what frequency would look like, we were as you know monitoring miles driven, monitoring the unemployment rate, monitoring cash prices, and monitoring all those things that fed into miles driven, which fed into in addition to distracted driving fed in tax within frequency. And we've seen some moderation there which has been good for our business, these first two quarter. And we have no way really projecting what is going to look like for the remainder of the year. We feel as I said, good about the fact that it appears not to be making step function changes that is, it appears to be moving in a more normalized basis up and down, normal variability with weather and things like that, which is much easier for us to react to and monitor and take appropriate rates for.

Thank you. Our next question comes from the line of Sarah DeWitt from JP Morgan. Your question please.

As you begin to transition to growth, should we expect the underlying combined ratio to stay around these levels or should we start to see it rise a bit given maybe a new business penalty or less price action?

When we manage overall profitability, we obviously look at the underlying combined ratio and it's lower than we expected this year, obviously. We also looked at the reported combined ratio and factor in cats and everything else. And we kind of like where we're at. Could it drift up? Sure, frequency and severity typically bounce around by more than a 1% a year. So, it's a move around, but you said, do we have an objective to further reduce it from here? The answer would be no. Might it go lower? It all depends what happens in the market, but we don't -- we really try to prioritize and balance between maintaining that combined ratio and growth. Obviously, when 2015, frequency and severity went up faster than we had factored into our pricing, we had to prioritize profitability over growth. I would say we're back to a more normal position today. Matt, anything you want to add?

Yes, let me just add. This is Matt. Let me add just two items for you. You mentioned the new business penalty and whether or not, as we begin growing whether or not that could influence the combined ratio. Certainly, the new business penalty is fact of life that as you grow fast, the newer businesses not yet tenured, they tend to have a higher loss ratio than the more tenured business. One of these things, however, that mitigates against that is that in our reaction to the frequency spreads in the last two years, we took very segmented rate actions, and we took segmented rate actions against those worst performing segments of the book. As a result, the quality of our book increased that led to more defections from the worst performing segments. It also led to us adding few or new customers from those lower performing segments. So, we believe that the new business penalty will be dampened as we add on assuming that we maintain the same high quality, we’ve been seeing lately. So I don’t expect that to be a significant drag. The other things I would point out is that there has been some commentary about whether or not this will cause us to dramatically increase marketing spend to stimulate growth, and really the marketing spend is not the primary driver on the growth right now, as we've discussed many-many times. Retention was actually a bigger influence for us than the new business on our total items in force. And so, we are just as focused on, I am trying to improve our retention within those balance of what we can control, since a lot of it is uncontrollable since it's based upon competitor actions. But for those things that we can influence, such as customer satisfaction and customer engagements and stability of pricing, we're just as focused on the retention component as we are on new business.

And then secondly, I was wondering if you could talk a little bit about your QuickFoto Claim and other claims initiatives and how we should think about the potential for savings there, as well as if there should be further restructuring cost? I think your LAE ratio is running around 11 points, but would it be fair to say maybe over time you could shave a couple points off of that?

Sure, it's Matt again. So let me just start high first. So, we've talked about integrated digital enterprise and emerging technologies, one of those areas that we are deploying it initially and in quite some force is the claims area. We believe it's an area of primed for it because there it is some inefficiency in the way the model operated. In the past, there was a lot of windshield time, there was a lot of dead time, unproductive time as adjusters drove around, driving to cars, driving to body shops for both initial estimates and supplements, and we looked at that and realized that emerging technologies, data and analytics could rectify that and take some of the inefficiency out of the system. So we began the digitalization of the claims process. Last year, we launched a new immediate payment method which we called Quick Card Pay. Quick Card Pay is the fastest claim payment method in the P&C industry. We make payments directly to the debit cards within seconds. We’ve also been assessing roof damage with from hell event utilizing drowns, and we’ve been doing that quite successfully for the last several quarters. In the last quarter, we open two digital operating centers. They handle auto claims on the countrywide basis by estimating through photos. Approximately half right now of all drivable vehicles are currently being inspected through our Quick Photo method of settlement. That has led to the shutdown of many of our driving claim centers and it has also led to reduce need for fuel adjuster adjusters since we took a lot of that inefficiency out of the system. We now have our adjusters looking at enhance photos, digital photos in the computers without having to drive tooling from the sites. We’ve also began utilizing video chat technology to review supplemental damage with auto body shops, it’s something we call virtual assist and the combination of all those things has led to a dramatically more productive and more efficient claim system. We've taken a cycle that use to take five to seven days in order to get eyes on a vehicle and get an estimate at and we’ve done that now in hours and we are literally doing that in under claim for hour. So, for supplementary instead of having for schedule when adjusted from back out to body shop and look at supplemental damage, we now use to video chat technology same day and we move it along everybody sat either customer get the car back center, the body shop gets the car up their much sooner and they take another car in. And we are reducing rental car time and improving customer satisfaction. So we do believe that the combination to be leads to more efficient system, it leads to obvious cost savings as we take inefficiency out of the system and it leads to greater customer satisfaction.

Sarah, this is Tom. So I think you might have to go back and look at the ULAE, your number seemed higher to me. I’m not sure how you’re slicing out, but you can get that from John. Let me pick up on Matt's Virtual Assist, so this is -- that’s really a great technology and we’re making available to other insurance company. Basically, as Matt mentioned, it's face time that combined with your claim system. And so, if what enables you to do, it not yet somebody drive out the body shop to do the supplement and that you can do it remotely. So, we’re -- this is -- it’s available to Arity, so if insurance companies want to use it, this is where we can use our market leading movement here because we think we’re ahead of other people and doing this because you don’t have to go out and train a bunch of body shops how to use this technology. We’ve already trained body shops on it and deployed. So, we’re making that available to other insurance companies. So that's my commercial for Arity.

Okay. And can you quantify the savings you've seen from these initiatives at all?

Here is what I would say is, we’re not going to qualify the exact savings. It’s obviously when we take the charge of $52 million, it’s not all that was related to that claim fees. Some was related to restructuring in the legal department. But, we obviously expect the earn net back in a relatively short period of time. And so, that's not five years, it's not five days either. But, so it's pretty substantial savings on an absolute dollar basis. When you look at percentage basis, it's obviously much smaller. Okay, we break all that number -- we break out the restructuring fees by component in the Q.

Thank you. Your next question comes from the line of Jay Gelb from Barclays. Your question please.

The Allstate brand underlying combined ratio in auto clearly improved year over year, although it was higher quarter over quarter. I'm just wondering if there is some seasonality that would explain that or if there is some other cause?

That would make anything of it, Jay. It bounces around. You'll remember the first quarter January and February were much lower, so really better look at it versus the prior year quarter because of weather patterns.

All right. I thought there was some seasonality there. Okay. And then on a bigger picture -- has Allstate given thought to purchasing increased catastrophe reinsurance protection on the working layer catastrophes? It seems that over the past or the Company is on track over the past two years to have around 8 points of catastrophe losses. So, as reinsurance rates keep dropping I'm wondering if there might be an opportunity there for increased risk transfer.

I'll make some general comments and then Steve may well jump in. So, first we look at reinsurance broadly continuously and have helped actually develop markets whether that'd be cat bonds or larger longer-term aggregates where we grew out three plus years which were never available before. So we are always active in the market and that's because we're obviously one of the biggest buyers in the market, so people respond to our request. But it comes in couple of different ways, I think what you're suggesting is have we looked at using reinsurance to moderate the annual impact of what I'll call non-large models events, so hail, windstorm and stuff, and so having a lower level of protection. We feel we can handle that in the volatility, that volatility in our P&L. We look over the at the homeowners business each of the rolling last 12 months, we've made over $1 billion a year, and it gets expensive when you look at. When you go the higher end levels, there is sort of a one in a 100 year event, it has obviously the benefit of not having to have that volatility event back that that event happens, but it also is a capital relief tool. So, we don't mind paying a little higher price for that because we think we can earn a higher return on our equity then the reinsurers need to because of their portfolio diversification and our specific needs, we use it for that purpose. But I would say we're always looking at different ways to do it, we're always trying to moderate the amount of capital we have to put out and maximize the return we get on that capital. Steve, do you want to add?

I think you did a pretty good Tom. The only couple of things that might add, we do look not only buying more but how we structure the reinsurance and so we look at annually, it's kind of an annual buy for Allstate in the early part of the year and for Florida, it's going to be mid-part of the year. So if you look particularly this year, we did buy a 200 million cover in the Southeast Florida, in Southeast for auto, which kind of filled in up whole we thought we had, in terms of bringing down retention dollar fit for that area. So we continue to look not only how it was structured, but there is whole we think might be if a storm were to hit, we focus on that. And as Tom said, it's really economics. And generally what we've seen over the last ample of years, it's hasn’t effect economic for us at that time to buy more or destructed differently. But we are entering into what we consider our normal type period and probably when we look at so we look at again given you our correct. The insurance rate has continued to move down.

Thank you. Our next question comes from the line of Elyse Greenspan from Wells Fargo. Your question please.

As you guys talk about looking to grow in auto and some of your comments you also did mention in home. Can you just remind us about the bundling within your book, those that purchase both auto and home coverages? And how you expect as you look to improve the retention in auto, how you expect that the play out in home?

Matt will answer for the Allstate brand and then Don will make a comment on Esurance because I think there is one of the analyst write-ups last night there was a comment about the Esurance that makes sense.

Sure, Elyse. It's Matt. So let me talk about the Allstate brands. The last couple of years have bundling capabilities and we have bundled primarily with auto and another product auto and home, auto and life, auto and consumer household products and with all the disruption in the auto business, it has influenced and impacted the potential growth of the other business first. We know that we watch the home area specifically and we know that home is lagging auto because not only because of the 12 month policy and home but the different renewal periods. And as a result, you tend to see a lag in the growth. So when -- when auto kick-up, it tends to be a quarter or two before home takes-up. And so we're still seeing some of the influence from that disruption in home even though auto has began to stabilize internally other way. Our expectation is fully that as this works its way through the system and I remind you that a lot of growth was taken just to over 12 months ago it has now worked its way through the system as this stabilized and as we hope retention stabilize it's in potentially improved we expect to see our capacity for bundling to improve. We like that obviously number one we want to serve customers holistically we think it's a 100% consistent with our trusted advisors strategy, but it also helps to leverage the single acquisition cost across multiple product lines, leading to a more efficient system and a more efficient use of marketing fronts. So, as you should expect to see continued emphasis on the part of the Allstate brand to increase the bundling, increase the number of product sold for household, and increasingly meet the needs of our customers. Don, you want to talk about our future?

First, much of what Matt said about the Allstate brands, Allstate body to the Esurance brand and actually the other brands as well as you see across the industry people, different companies have maybe made the bundle for their customers. That recall them, we acquired Esurance six years ago as a monoline company, so they sold all the auto insurance. If the time we knew that there was an opportunity for us to homeowners to get a different kind of relationship with the customers and that given the different type of customers. Now, we have -- and by the way we obviously not having the homeowners as a corporation. And so, we were able to leverage the skill we have at Allstate as we build out the Esurance capabilities. The Esurance now has homeowners in 31 states, bundling is a very important to us for the same reasons Matt talked for Allstate. Our attach rates are going up dramatically, as we roll the product out and make it available to customers. And so, it will offer us an opportunity to increase retention, build the different customer relationship and really build the business. Now, I want to temper those comments, there is only $20 million net return premium here in the second quarter. We have 69,000 policies. It's still relatively small percentage of the book. And there is still volatility in that number, so few large losses will swing back loss ratio up by dramatically, as it did in the second quarter. But, we’ve done for strategic reasons, it’s delivering everything we expect and I think it’s a big opportunity for us to continue to growing Esurance.

Okay, great. And then in terms of capital return, you mentioned the new 2 billion buyback program and being financed with capital at hand in your earnings. How do you view M&A right now? I mean you just completed the SquareTrade deal, but any kind of high-level thoughts how you think M&A is still part of the equation as you think about capital return here?

Well, of course thing we do is look at managing the overall capital and we’d like to invest in our existing businesses to the extent that we can, which is organic growth of obviously leverages our real capabilities for higher returns. We do look at acquisitions and as you mentioned we brought SquareTrade to broadening our product portfolio broadening our distribution we have and give us additional products to be able sell through the adjusted advisor issue through Esurance. And so, if you look at them what we do after that so if we don’t have additional use of the money, we should return it to the shareholder and help increase their relative ownership and the Company. So in the last three years, we bought that 15% of the shares outstanding. So, your value should grow up by 15% just because return of capital to shareholders, over five years of spend, a little over 25%. So, I would expect that same pattern to continue if we see something interesting, we'll buy it and we paid a lot of money for a SquareTrade, but we believe we can grow just as we did Esurance and Allstate Benefits.

Thank you. Our next question comes from the line of Kai Pan from Morgan Stanley. Your question please.

First question to follow up on the digital claim processing technology, I just wonder how do you measure the accuracy using photos to settle the initial loss reserve versus using adjusters in person?

Hi, it's Matt. That's a good question. Obviously when you initiate a massive change in process such as this, the quality is one of the most critical things so we did a lot of testing along the way. We still have testing that we do both secondary reviews as well as reviews in persons. So we do selectively have people doing onsite reviews, as I said in the summary that 50% of the drivable cars right now, so we have to look at. And the reality is that quality has been exceptional, supplements are slightly higher but rather an insignificant amount. And the overall quality is quite good. We are continuing to develop our ability to enhance the digital photos and get better visibility into the damage, obviously as our adjustors get more familiar with how to use these photos and what angles to request and how to change the lighting on it we're able to pick up more-and-more information; we're using some technology to actually help us learn from that and compare photos from similar autos and similar types of accidents to help us baseline. So overall the quality has been quite good, actually slightly better than we expected and the productivity and efficiency savings have been tremendous.

Kai, the reserves, remember these are relatively short tailed. So, within 90 days you know what it costs to fix a car. So it cycles its way through and we think we are good there.

Okay, that's great. By the way, how much do you spend on these R&D investments? It's a part of your expense ratio, right?

I won't give you a number or percentage. I will just tell you that we always look at these things and expense. We invest heavily in research and development whether that'd be the things we talked about here or Arity for other things, and we believe we can handle with the overall P&L. So we do not resource constrain that. Capabilities and ability to execute might constrains but it is not a money constraint.

My second question is on your sort of like the change of reporting structure. Is there any change in the underlying operating structure? And how big do you think the service business will become a sort of meaningful percentage of the overall like business of the Company?

The operating structure is sort of -- what we did really was try to align its way we allocate capital in a way we think about our businesses and to give you increased transparency. We don't have a specific goal percentage of revenue or profit we want them any of those period businesses. But let me give you an example, if you go to Allstate Financial, it's the way -- even though we showed people many of the underlying numbers. When Mary Jane manages that overall business, she doesn't just -- people would look at the overall ROE and tell it's like 6%, or 7% or 8% in the quarter and that is that -- Allstate benefits has great ROEs, Allstate like has good ROEs and it's dragged down by annuities business, and we felt like we just needed to show people in a different way. And even though some of this information you could parse out and accumulate together by looking at the Q or the K or the investor supplement. This really increases our transparency by bundling it together for you in a way that aligns with the way we think about to manage the business.

Thank you. Our next question comes from the line of Josh Shanker from Deutsche Bank. Your question please.

Allstate. I'm going to apologize in advance because this is going to get in the weeds a little bit, but between Sarah and Kai's questions I'm still having trouble understanding the expenses in technology versus what's in the expense ratio and what's not. Can we talk a little about why the 52 million maybe shows up in the expense ratio? Typically you guys have like 10 million or so of expenses that are other that show up. How should we think about it going forward? And normally, just to understand, you guys are always investing in the future. Why does this show up in the expense ratio and other stuff in the past has not?

So, it's not just -- let me be clear, it's not about technology expenses. This is about the cost to for severance for people who were no longer to be required so that's over 500 people, and we have 937 drive-ins, now a lot of those overtime, we structured and month-to-month leases because we knew we are headed here. But we still have in charge to take I mean shut things down, getting leasehold improvements out. So, it's really -- that's not really related to the investment in it at all. It's really related to the shutting down of other stuff. Why does it show up in underlying combined ratio, is the question Matt and I have harangued Steve with for the last three weeks. And our restructuring charges have always been in there, so I think you should expect to continue to see I mean there even though they perhaps are not a continuing and we would think in terms of underlying. So I don’t think you should expect us to take a $52 million charge there in quarter. With that said to the extent we need to take the charge or any charge really, as we manage it quite on cash flow and economic returns. And if it rattles through the P&L, it rattles through the P&L.

Okay, that's perfect. I am on the same page now. And then the limited partnerships, I mean I'm not going to get a great answer out of it, but they were phenomenal this quarter. Were there any specific gains taken that were unusual or was it just a great quarter for mark-to-markets? How should we think about this going forward?

John will give you that perspective.

Thanks, Josh, this is John. It was a combination of factors. One, we have been building up the book of business you expect that the return that the book of business we get larger. But two, favorable markets to the influence when you look at our performance base assets that you have a correlation of about 70% to public markets so that was a fact there. And then three, to answer your question specifically, there were a few idiosyncratic properties that performed quite well and credit to the team that sifts through many-many opportunities there were some down to the one that make most sense to this firm and investment.

Well, if you need some more co-investment let me know, I have got -- I will try.

If I get good returns, right. Jonathan, we have time for one more question.

Certainly, our final question then comes from the line of Bob Glasspiegel from Janney. Your question please.

Thanks for squeezing me in. One numbers question. On your net investment income page on 51 -- I'm going in the weeds, I apologize -- your fixed income yields are actually up year-over-year despite the fact you've shortened maturities. How have you been able to keep the yield on fixed incomes going up in a low interest rate world with shorter maturities?

Hi, this is John again. As you would imagine that the combination of events can cause changes in yields, not only where you are placed on the yield curve, but also what investments you buy in the market. So part of that is in response to increased holding in securities like high yield and other higher yielding securities. We also did and it should be noted while it is a small move. In the first quarter of this year, we did extend the duration of portfolio by about a quarter of the year and that impacted yields by about 20 basis points.

Got you. And one other quickie. On the preferred that you say you are going to issue to help fund the buyback, what's the motivation there? What roughly yield and magnitude are we talking?

So, we’re looking at part of the potential funding to our buyback.

Right.

So, I think currently right now the market seems fairly attractive and this kind of goes on cycles. And so we will look at that as part of that financial, obviously, we don’t have to do it because we have plenty of capital and cash. But when opportunities there, we think our track available we want to take advantage of that.

Rough idea of the size and yield that you would be paying? Ballpark?

Well, the yield should be as low as possible from our standpoint.

Right.

You saw a deal went out earlier this week and a couple of ticks over five. And so when you can issue perpetual equity that as we guarantee a 5% return you can use that as a buyback comment, we think that’s a good trade on behalf of shareholders. And as you know we’ve done a 1 billion a three quarters of it over the last, Steve, two or three years.

Four years.

Four years and we like the results of that. And so there is more -- you wouldn't obviously do this for a $100 million bucks, it’s not worth all the overall effort. So, we haven’t sized it, but there is plenty of opportunities for us to issue given our brand name, our credit capacity and our affiliated payments.

Thank you.

Let me close by, again, thank you all for participating. Overall, we made an excellent on our five operating priorities most importantly better serving the customers, achieving economic returns and capital employ really managing our investments. We also are beginning to focus more on growing the customer base and then always again building long-term growth platform whether that's investing in integrated digital, enterprise or new initiatives like SquareTrade and Arity. Looking forward, we’re just going to stay focus on the 2017 priorities and be precise in the way we execute our business balancing both short-and long-term initiatives. So, thank you all and we’ll see you in the next quarter.

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.