KWESI ACQUAY - WILLIAM KURINSKAS - CHRISTELLE KHOURI - ALEXANDRA RHEINHARDT

WHY AUTO INSURANCE?

AGENDAINDUSTRY STRUCTURE

ADVERTISING STRATEGIES

RECOMMENDATIONS

INDUSTRY OVERVIEWINDUSTRY ORGANIZATIONCOMPETITIVE LANDSCAPE

MAJOR PLAYERS

INDUSTRY STRUCTURE

INDUSTRY OVERVIEW

PRODUCT SEGMENTATION

QUICK STATISTICS

QUICK STATISTICS

Allstate

Dish

Home Depot

Comcast

Wal-mart

DirecTV

State Farm

Geico

Verizon Wireless

AT&T

$0 $200 $400 $600 $800 $1,000 $1,200

$240 $266 $278 $283

$316 $326 $336

$415 $702

$1,100 Top 10 Brand Advertisers on TV (2011)

TV advertising expenditures ($mm)

ADVERTISING EXPENDITURESAD/SALES RATIO: 1.2

AD GROWTH: 4.7%

SALES GROWTH: 5.4%

INDUSTRY DATA

INDUSTRY PERFORMANCE

HIGHER PREMIUMS

INDUSTRY PERFORMANCE

EXPECTED GROWTH

RECOVERY of AUTO INDUSTRY

INCREASE IN CONSUMER DEMAND

CONSUMERS: WHO PURCHASES?

TECHNOLOGY & PRODUCTION COSTS

UNDERWRITING SOFTWARE

LOW PRODUCTION COSTS

INDUSTRY ORGANIZATION

INSURANCE CARRIER

BROKERS or AGENTSUNDERWRITING SOFTWARE

COMPETITIVE LANDSCAPE

MARKET SHARE & HHI

State Farm18%

All State9%

Geico9%

Progressive8%Farmers

6%Liberty

4%

USAA4%

NationWide4%

Travelers2%

American Family2%

Other33%

Source: IBISWorld

HHI 1170

BARRIERS TO ENTRY

PRODUCT DIFFERENTIATION

MAJOR PLAYERS

LIST OF MAJOR PLAYERS

18.4% MARKET SHARE

ABSENT FROM STOCK MARKET$33 billion REVENUE

CROSS PROMOTION

9.5% MARKET SHARE

70% of PROPERTY & PREMIUMS$17 billion REVENUE

PRODUCT BUNDLING

8.6% MARKET SHARE

Until 1973: FEDERAL-EMPLOYEE-ONLY INSURER $15 million REVENUE

LOW PRICES

ADVERTISING STRATEGIES

CAN YOU GUESS?

CAN YOU GUESS?

CAN YOU GUESS?

CAN YOU GUESS?

CAN YOU GUESS?

ICONIC ADVERTISING

GEICO AD

BRAND RECOGNITION?

SURVEY ON CHARACTER RECOGNITION

INTERESTING RESULTS . . .

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Brand/Character Recognition

Amount of Correct Identi-fications

Firm and Ad Character

Perc

enta

ge o

f Tim

es C

orre

ctly

Iden

tified

N=73

HUMOR

ALL STATE

“COMFORT” ADVERTISING

CELEBRITY ENDORSEMENT

GEICO CELEBRITY

Aaron Rodgers Chris Paul

COMPARATIVE ADVERTISING

“Helping you save even if it’s not with us”

INFORMATIVE vs. PERSUASIVE

“15 minutes could save you 15%”

PRODUCT PLACEMENT

SPONSORSHIP

EVENTS

TELEVISION ADVERTISING

EMPIRICAL FINDINGS

INTERNET ADVERTISING

UNIVERSITY OF FARMERS

GOOGLE TRENDS

SOCIAL MEDIA

SOCIAL MEDIA

Farmers

American Family Insurance

Liberty Mutual

Geico

Allstate

State Farm

Progressive

Nationwide Insurance

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

46.4%

50.0%

51.7%

56.1%

57.9%

73.1%

76.5%

76.9%

Facebook response rates to insurance ads

Response rate (number of FB posts that received a response/ total)

MOBILE ADVERTISING

+ BANNER ADS

RECOMMENDATIONS

ADVERTISING RECOMMENDATIONSIndustry recommendations:Continue to promote online and adjust to evolving trends in social media

Have more balance in commercials between building brand and selling product

Emphasize more features in coverage or service attributes for better product differentiation

Ensure commercial characters have stronger tie to actual product of insurance

INVESTMENT RECOMMENDATION: ALLSTATE

Investment Thesis:Strong recent market performance

Superior margins compared to competitors

Solid growth prospects (premium increases have been successful to compensate for low interest rates)

Dividend increase despite Sandy $1.1B hit shows strength

Allstate (ALL) key statisticsPrevious closing price $49.01Market cap $23.4BEnterprise Value/ EBITDA 6.9 xP/ E 10.5 xEPS $4.68Dividend yield 2.0%

Allstate is outpacing competitor and market growth

COMPANY FUNDAMENTALSALL PGR Industry

Market Cap: 23.40B 15.05B 2.78BEmployees: 38,000 25,889 2.10KQtrly Rev Growth (yoy): 0.04 0.09 0.02Revenue (ttm): 33.32B 17.38B 2.46BGross Margin (ttm): 0.23 0.09 0.23EBITDA (ttm): 3.90B 1.62B 351.20MOperating Margin (ttm): 0.11 0.09 0.07Net Income (ttm): 2.31B 953.30M N/ AEPS (ttm): 4.68 1.57 1.75P/ E (ttm): 10.47 15.9 12.72PEG (5 yr expected): 1.24 1.89 1.4P/ S (ttm): 0.7 0.86 0.87

ALLSTATE (ALL) DCF VALUATIONFree cash flows ($mm)

2012A 2013E 2014E 2015E 2016E 2017E TerminalRevenue $27,027 $27,653 $28,387 $28,128 $28,386 $28,954 $29,533

% growth 2.3% 2.7% (0.9%) 0.9% 2.0% 2.0%EBIT 2,458 2,765 2,850 3,324 3,354 3,421 3,490

% margin 9.1% 10.0% 10.0% 11.8% 11.8% 11.8% 11.8%Less: taxes at 35.0% (968) (997) (1,163) (1,174) (1,197) (1,221)Plus: D&A 245 245 245 245 245 245Less: capex 0 0 0 0 0 0

% revenue 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Less: increases in NWC 0 0 0 0 0 0

% revenue 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%Unlevered free cash flow for discounting $2,042 $2,097 $2,405 $2,425 $2,468 $2,513

Discount period 0.875 1.875 2.250 3.250 4.250 4.250Discount factor 92.7% 85.1% 82.4% 75.6% 69.3% 69.3%Discounted free cash flows $1,894 $1,784 $1,981 $1,832 $1,711 $24,889

Projections

Present value of explicit cash flows $9,203Present value of perpetual cash flows 24,889Enterprise value $34,092Plus: cash 4Less: debt (6,012)Less: non controlling interest and other 0Plus: unconsolidated investments 0Equity value $28,084Divided by shares outstanding 477.4

Price per share $58.81

SENSITIVITY ANALYSISImplied share price

Terminal growth rate1.0% 1.5% 2.0% 2.5% 3.0%

10.0% $46.44 $49.00 $51.87 $55.12 $58.85Discount 9.5% $49.02 $51.88 $55.12 $58.83 $63.10

rate 9.0% $51.89 $55.12 $58.81 $63.07 $68.048.5% $55.13 $58.80 $63.04 $67.99 $73.848.0% $58.80 $63.02 $67.95 $73.77 $80.75

DCF range: $51.88- $67.99

Valuation represents a 6% -39% premium over Monday’s closing price of $49.01

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