DEAN EVANS, ANALYST, KEEFE, BRUYETTE & WOODS: Good afternoon, if everyone could please take your seats so we can get started with the afternoon presentation. My name is Dean Evans, I have the unenviable task of following up Carlson, sorry I don't have any political satire or commentary. But what I do have for you is a market leader, in not only auto, but homeowners lines, and probably one of the most well-known and well-respected companies that we have at our conference today. Both the CEO and CFO are here, Ed Liddy and Dan Hale. I guess without further ado I'd like to hand it over to Ed Liddy who will present for the Allstate Corporation.

ED LIDDY, CHAIRMAN, CEO, THE ALLSTATE CORPORATION: Well, thank you very much, thanks for coming out to listen to an insurance guy right after what probably was a fascinating lunch. I wasn't there for it but I know Carlson's always got some interesting points of view. I'll keep my prepared remarks to a minimum and that will give us a little bit more time for questions and answers.

In preparing for this conference, I was thinking about what a difference a year makes. Last year at this time, we had literally thousands of Allstate claims professionals down in Mississippi and Louisiana, generally working out of trailers trying to help the many, many homeowners that we have down in that area recover from hurricane Katrina. The good news is that we're about halfway through the hurricane season now and we simply haven't experienced that kind of hurricane season -- the kind of hurricane season that any of the experts have predicted. So as Martha Stewart would say, this is a good thing.

The better news is that over the past year, Allstate has taken aggressive steps to reduce our catastrophe exposure and to provide our shareholders an acceptable returns on the risks assumed in our property business and also to reduce the variability and volatility of our earnings. And I'll talk a little bit more about all of those actions in just a minute. Perhaps the best news is that we've done that while continuing to profitably grow our business in a fairly competitive environment. We've grown units over the last several years, and our book value per share, which many of you I know believe is a very important measure, that's also increased nicely. Increased about 5.2% since the year earlier period and about 10% since the end of 2005. That's not an easy thing to do. It takes scale and it takes skill and it takes strategy and today I'll tell you how we've done it and how we're building on that going forward.

First, as you might suspect, I need to talk a little bit about a Safe Harbor notice. You can read this faster than I can. I point out two things, we'll be talking about forward-looking statements and forecasts, some of those may not come to pass. The factors that could cause actuals to differ from the forecast are shown on our 10-K filed as of the end of 2005. I'll occasionally drift off into non-GAAP measures. If you want a reconciliation of some of those non-GAAP measures to GAAP, you can find that in our investor supplement.

Now, as many of you know, Allstate had a very strong first half of 2006 and I'd just like to talk about the second quarter for a minute. End of second quarter we had consolidated revenues of about $8.8 billion, our net income for diluted share was up 10.5% and our operating income per share jumped more than 20% to $2 per share. In our protection business, net premiums written were up 1.1% and the combined ratio at 82.4 for the second quarter improved by about 2.5 points versus prior year. We continued to generate really excellent underwriting margins. At Allstate Financial, premiums and deposits excluding variable annuities increased 11.5% and operating income rose to $160 million. That was the best quarter we've had in that business. That of course is operating income after tax.

During the quarter, we also closed on the previously announced sale of our variable annuity business to Prudential Financial. How did we achieve those results? By far the biggest factor is the continued outstanding performance of Allstate's standard auto business, which really is really our bread and butter area. Standard auto policies in force, or PIF, as it's shown on the upper part of this chart rose 2.9% compared with the second quarter of 2005. Our very innovative, Your Choice auto product, which I'll talk about again in a minute introduced to most of the country just within the past year reached over 1 million policies sold. Our standard auto retention rates on the right side of this chart, upper level remain strong at just over 90%. Auto severity rose slightly, very much in line with our pricing assumptions and frequencies one of the major drivers of the economics of our business continued to decline. It's hard to know how much impact, if any, higher gas prices will have on frequency trends. The rest of this year or into the future. But the decline in frequency we've seen goes back more than a decade now. And we expect that overall trend to continue over the long-term.

Standard auto is the business Allstate was built on. We've been a power player in this market for many, many years. But especially during this decade, we've been a leader in auto because we're in a leader in all of the disciplines that drive it. I'll try to explain that point on this chart.

Our strategy is to grow profitably, using a strong foundation of operational efficiency, information technology, and really great people. We think the best in the industry. Leveraging our capabilities and pricing, and product development and claims management enable us to stay ahead of the competition. I think we've clearly been able to do that. And then adding a powerful distribution system, a focus on the customer, and an increasingly effective investment in marketing completes our winning formula. Let me talk briefly about some of those items.

Allstate is acknowledged as one of the most precise and sophisticated pricers in the industry. We introduced what we call strategic risk management, that's our tiered pricing system. More than 5 or 6 years ago. We're already on our fourth and fifth iterations in standard auto and our third iterations in homeowners. The newest version of auto SRM increases our initial rating tiers from 7 to potentially 384 and of course it's three dimensional so the 384 of a very large number of additional tiers. That kind of precision helps us attract and keep customers who buy more products and just as importantly, they stay with us longer. On average, they have lower frequencies, they have higher renewal rates and more cross sales. In homeowners, we are well out in front of the competition with SRM III, which introduces by peril pricing.

Other companies are taking their first step into tiered pricing, but Allstate has been out in front in this area for some time. Our experience level, our skill sets, and one of the biggest databases in the industry will continue to give us an edge in this very important area. Probably the best example of that mind set in action is the product I mentioned earlier that's, Your Choice Auto and you can see a brief summary of it on this chart that's up now. Our ability to analyze data and segment our customer base really made Your Choice Auto possible. It lets consumers taylor policies to meet their individual needs and their individual performances since different consumers have different appetites for risks. Features include safe driving deductibles and accident forgiveness with more than 1 million cars covered now in 42 states, customers are choosing from 4 different packages at 4 different price points. You can see summarized on this chart.

Your Choice Auto is the first product of its kind and it's proving very popular. Not only with our customers, which obviously is important, but also with our agencies. It's helping increase average premium because many customers are choosing the higher priced packages reflecting their appetite for risk. And early returns suggest it will have a positive impact on retention, as well. By the end of this year, Your Choice Auto will be available in states representing 75% of the U.S. population. And as with strategic risk management, we're always at work on new features, new iterations so we can stay a step ahead of the competition. A Your Choice homeowners product is already being tested in one state, and will be in two more states this year. We expect to rollout that product during 2007. So when you couple innovative products with sophisticated pricing structures, it becomes a very powerful force, a winning force, if you will in the marketplace.

A third key discipline in our business is claims management, and here again, I think we have a very enviable and proven track record of innovation and execution. More than a decade ago, we redesigned our claims processes literally from top to bottom. Claims core process redesign focused primarily on managing our lost costs, handling bodily injury claims, for example, much more efficiently and much more effectively. The results can be seen on the chart in the upper left corner of the slide. We've outperformed the industry for a decade in bodily injury, paid severity results, one of the largest and most important coverages for a personal lines company. And we continually refine those processes.

A few years ago as part of a larger organizational effort we centralized the way we handle about one-third of our auto claims, utilizing a call center approach, making the process more efficient for us and a whole lot easier for the customer. We also focussed on refining our measurement systems to ensure a consistency and to allow for more flexibility to react to trends quickly. The result has been a clear and continuing gap between Allstate and the industry on virtually every measure in the claims area that matters.

Of course, the measure that matters the most is the bottom line, and last quarter the combined ratio for our entire auto business was 86.5, compared with 89.7 a year earlier. On a run rate basis, our adjusted combined ratio has been in the middle 80s or below for more than three years now, that's really remarkably low and remarkably consistent. But like many people, we are not satisfied, so we are currently redesigning and have begun to implement some of the initial pieces of what we call our next generation claim system. Among other things it improves technology, institutionalizing best practices and processes, once fully rolled out, we expect to gain additional competitive advantage in severity results while improving customer satisfaction and to do it less expensively relative to our competition. The savings, we think will be significant. In fact, we expect to invest over $100 million in the effort without raising our overall claims expense ratio. The next generation claims system will rollout over the next three years, beginning with our property business and moving into auto in 2007.

Another key to succeeding in the auto business is marketing. If anything, it's more important than it's ever been in this industry. We're seeing what some have called an advertising arms race in this category. In fact, where at one point in time pricing was the primary area of competition I now think that the primary area of competition has shifted for the marketing side. Spending has ramped up considerably. In fact, industry expenditures were up 41% in the first quarter compared to the same period of 2005. And Allstate is spending more too in order to keep up and in fact to lead the industry.

What really counts is spending more effectively. That's what we are doing. Allstate has become an industry leader measuring returns on marketing investment. Our product people calculate how much money we can use to acquire new customers profitably in our various lines of business. Then our marketing experts use response modeling to determine how different factors affect the number of calls, the number of quotes and sales Allstate generates. The models look at the impact of rate increases or decreases, competitors advertising, the roll of our agencies, general brand awareness of Allstate, and macroeconomic variables like auto sales and inflation among others. And they frequently do this on a very local basis.

As part of that mix, they also measure the impact of advertising. It's a pretty sophisticated analysis that's done at both the local and national levels and for all of our different product lines. The bottom line shows that Allstate is generating a positive return on hour advertising spend and that our advertising ROI is actually increasing. We're into the second generation of these response models and we're developing a third generation that will give us more detail and more timely information.

Now, besides measuring advertising ROI, we're learning which media works best for us, network TV, for example verses cable or syndication. We're learning which programs work best, sitcoms say versus game shows, all of those things that you typically associate with a consumer focused company. Allstate has been a marketing innovator in terms of venues, putting our logo on goal post nets in college football stadiums for example, we're also ahead of the competitive curve when it comes to marketing, science, and measurement. Better, we believe, than anyone else in the industry and beginning to be on a par with some of the very best consumer products giants. Insurance is a data-driven business. Bringing the same rigor and sophistication to marketing that we brought to areas like pricing and claims opens up new possibilities for us and fuels profitable growth.

The final key to Allstate's success in the auto business is our very impressive distribution system. In recent years we've increased customer options through the Internet and through direct channels. But the biggest opportunities continue to come through our national network of 13,000 agencies. So we're adding about 500 net new agencies per year and just as importantly, we're adding license support staff within those agencies reaching a combined total of about 30,000 sales professionals across the country. We're backing them with better technology, better training, and better support systems and we've increased the share of rewards and resources that go to high performing agencies. Just as we focus on high value customers, we're focusing on our higher value agencies. The competition should help us expand our leadership position in the auto business going forward.

Now for the most part, the superior skills that drive our auto business, pricing, product, claims, marketing, and distribution also create a competitive advantage for Allstate in the homeowners market. And excluding catastrophes, we've been profitably growing that line, as well. Now, of course, you can't exclude a consideration of catastrophes. We can't prevent them, but we can manage and minimize their impact, which is exactly what we're doing. One answer is reinsurance, and we've completed a program before this year's hurricane season that covers an additional 12 Atlantic and Gulf Coast states more or less from Bridgeport, Connecticut to Brownsville, Texas.

All told, on total -- on a total annualized cost basis, we'll spend roughly $840 million on reinsurance this year, that's about 600 million more than in 2005 as measured on a comparable basis. And it covers not just hurricanes, it covers earthquakes and fires following earthquakes and it's a really good investment. Last year, for example, we suffered losses of $4.8 billion on damages from three unprecedented storms, Katrina, Rita, and Wilma. This year if that same scenario occurred our losses would total 1.8 billion. And if, as we hope, the same scenario does not occur we still improve protection for our customers and for our shareholders. It's also important to note that we are aggressively seeking to recover our reinsurance costs. Through the end of the second quarter, we submitted more than 300 rate filings in 25 states. We've already implemented new rates in 12 states covering more than $65 million of that cost. Today our effective rates reflect about 35% of our total reinsurance cost and that number will continue to increase.

Now reinsurance is really only a partial solution for catastrophe exposures. So we stop offering additional earthquake coverage on new policies in most of the country. We've limited new business in some markets and not offered continuing coverage to customers in other areas. Where possible, in Florida, for example, we've worked to find alternative carriers for affected policy holders, helping to bring new capital into the state so the policy holders continue to get coverage from a nonaffiliated company.

But catastrophe exposure is not just an issue for Allstate or for the insurance industry. As last year's hurricane season demonstrated I think so vividly, it's an economic issue and a public policy issue for the country and for the states that are affected. So we've helped launch the Protect and Prepare America coalition which includes businesses, not for profit groups, regulators, and others. The coalition favors creating catastrophe funds at the state and federal levels, financed not by taxes, but by insurance premiums and transaction fees and related industry. It's an idea whose time has come. Already more than 150 organizations have joined the group from AT&T to State Farm to the Property Casualty Insurance Association of America. A bill to create a national catastrophe fund has been introduced in Congress. It has more than 20 sponsors. We hope to see hearings on this issue this fall. A similar legislation has been introduced at the state level in New York and New Jersey and other states are looking at it.

Across the public policy spectrum, momentum is building for a more comprehensive solution to the growing threat that catastrophes pose. Allstate will continue to lead that effort. Of course, the actions we've taken to limit catastrophe exposure also have limited -- limited growth in homeowners lines in certain markets. Some expected that to spill over into our auto business, as well. But we really haven't seen much evidence of that. In fact, in some markets, we've seen the exact opposite. In Florida, one of the most hard-hit states from a catastrophe standpoint, we've actually added agencies and producers over the past year. We've also changed our pricing plan there and our new standard auto business is up 39% so far this year.

We've been -- we've seen steady growth in auto policies enforced while we reduce catastrophe exposure by managing our property units down. And Florida is not the only example. In states like North Carolina, South Carolina, and Alabama where we've announced major coverage changes in the coastal areas of those states. Our new auto business this year has grown 10%, 21%, and 31% respectively. That reflects the strength of our overall auto business, especially Your Choice Auto. It's also a tribute to the outstanding efforts of our employees and our agencies across the country.

Beyond auto and homeowners, Allstate is growing profitably in areas like specialty lines, after upgrading our products, processes, and our rating plans, new business and motorcycle coverage, for example, is up 125%, 78% in manufactured homes, and 34% in boats. In Allstate Financial, strong growth in fixed annuity deposits helped fuel a second quarter increase of 11.5% and premiums and deposits excluding our variable annuity business. New sales of financial products by our Allstate agencies rose 5% this year continuing a very strong trend.

We're absolutely committed to improving returns in this business so expenses are down and we're focusing resources on our most profitable opportunities. Improving returns also requires strong capital management skills. And here again, Allstate has a proven ability to execute. Since 1995, we have repurchased more than $13 billion of our stock. This year we'll finish our latest $4 billion program on schedule. We've also raised dividends for 12 conservative years at a compound growth rate of just over 12%. Over the past decade, we've returned 3 out of $4 in net income to our shareholders.

We're confident about Allstate's prospects going forward. In standard auto by far our biggest business we're introducing a unique and popular product. We're gaining market share, we're marketing aggressively, we're controlling losses, and we are on a roll in that business. In homeowners, and in Allstate Financial we're focused on growing profitably both today and in the future. And as always we're managing capital wisely on behalf of our shareholders. That's what it takes to succeed in a very competitive environment. Excellence across the board.

And since the NFL season officially kicks off, I think tomorrow night, I'll do something I rarely do and use a football analogy. If you want to win in this business, we have to be outstanding literally at every position, and in every discipline. So offense and defense, special teams, pricing product claims, marketing, distribution, auto, property, financial, capital management, when it all comes together, you can create tremendous momentum. You get the game going in your direction, and that's how you build dynasties. And I think over the past decade, Allstate's total return to shareholders has doubled the S&P 500 and substantially outperformed the S&P property casualty index. In our league, we are clearly acknowledged as a leader. And we think we're just hitting our stride. That's why we're confident that we can continue to put up winning numbers for a long time to come. It's a great history and it will be a great future.

Now I'd be delighted to answer any of your questions. I'm told that there are not mics out in the audience. So if you ask a question, if you'll bear with me I'll repeat it so all those on the webcast will be able to participate in the answer. Questions? Want to talk politics? Yes.

ANALYST: [Inaudible - microphone inaccessible]

ED LIDDY: Yes, there's a whole lot of questions there. Let me see if I can take them kind of one at a time. Normalized combined ratio, we're going to work very hard to keep our combined ratios in that high 80s to low 90s level. I never want to be so bold as to suggest that the marketplace has completely changed, but when you look at this industry over a long period of time, there's much more pricing sophistication. The returns on investment portfolios are much lower than they've ever been because of lower interest rates. I think the whole industry has a very healthy and ongoing focus on combined ratios. And managing them well so that we can generate acceptable returns on equity. And you know, does it ever drift up from where it is? I don't know, it's possible, but we're going to do everything we can to keep that high 80s kind of low 90s combined ratio in excellent, I mean really excellent returns on equity and returns on capital.

Allstate Financial. Allstate Financial is a large and successful business. Sometimes people don't realize. It generates GAAP revenues in the $0.6 billion range. Last year made about $580 million after tax in operating profit. We think it's closely linked in the consumer's mind to the protection business. It's a very much an adjacent product. We're going to make that business larger and we're going to get the returns on it up. We sold the VA business to a potential -- but the way you affect that is through a reinsurance transaction that is all -- Prudential is responsible for all that business going forward.

Metrics. In the piece of the financial marketplace in which we play, so we do not play that heavily in the retirement area, yet. But on the fixed annuity business, or in the traditional life insurance business, whether it be traditional or universal life, our sales, our product returns are equal to most of the leaders in that business. We are opportunistic in that when interest rates were even lower than they are today and fixed annuities weren't particularly a popular product to sell, we simply let the top line go down because we don't want to be giving away that product at an 8 or 9% return. We would like to get the unlevered return of Allstate Financial , unlevered because we don't have debt pushed down to that business. We'd like to have the unlevered return of Allstate Financial into that 12, 12.5, 13% range and we'd like to get it there as quickly as possible. If you took that level of performance and equated it to those companies that have traditional leverage of 20 to 25%, it would be very respectable against anyone. Yes?

ANALYST: [Inaudible - microphone inaccessible]

ED LIDDY: It's a good question with lots of tentacles to it. You'll hear the question in my response. We have invested heavily in both of our businesses. The first point I would make to you is that while we've returned a lot of the capital and cash that we've generated to our shareholders, we haven't done that by starving our businesses. When you talk about investments in pricing sophistication and marketing and claims management, we are investing in every single piece of our business and in every business to stay leading edge. Even despite those investments, we're able to return 65 or 70%. I suspect that the past will be prologued to the future.

Doesn't mean every year will be that, but the really important message, I think in your question for me is a well run property casualty business is a thing of beauty. It generates a lot of cash and we are a well-run business. We're going to grow our business as quickly as we can, profitably grow our business, and keep generating really good ROEs because we think that has an impact on book values, and price to book and valuations, et cetera, et cetera. We can clearly do that and still have aggressive share repurchase programs and good dividend increases, somewhat similar to what we've done in the past. A group that had too much lunch. Yes?

ANALYST: [Inaudible - microphone inaccessible]

ED LIDDY: I would say it's -- there's more coincidence in the growth patterns of the states than perhaps planning. We divide the country into 14 different regions and we have market operating committees in each of those regions. And each of the people that runs those regions is charged with understanding the competitive dynamics really well in that business. I would suggest that Iowa is more like Illinois than it is like Florida. And I would suggest that North Carolina is more like South Carolina than it is like Illinois. There tends to be some coastal issues that can impact growth, there tend to be some demographic issues where are people moving, what are the economies of the various states look like. It would be no intentional management on our part that would drive those kinds of results.

ANALYST: [Inaudible - microphone inaccessible]

ED LIDDY: Sure. If you have 14 people, some of them hit the cover off the ball every day and some hit the cover off the ball every other day. There could be some of that in it. I wouldn't read too much into it. We are -- again, the important thing is, in order to be successful in this business, you have to have economies of scale, you have to be large. But, boy, you have to be very focussed on local markets. Because there are 1,200 companies in the U.S. that sell product like ours. You've got to be prepared to compete against every one of those, national players, regional players, and local players on a daily basis. Having a local feel at the same time as you capitalize on the national economies of scale that's how you produce the kind of results we've been able to produce. Yes? Yes, go ahead I'm sorry.

ANALYST: [Inaudible - microphone inaccessible]

ED LIDDY: Again, you'll hear the question in the answer. I think the '80s were a troubling time for the industry. Sometime between 1980 and 1990 I think the industry was technically bankrupt because of very high interest rates and the impact that it had on statutory capital. My instincts are that when you could generate 10, 11, 12% on investments, people can get sloppy on the underwriting or insurance side and that's exactly what happened. As we began, the -- early to mid '90s an inexorable, long march down in interest rates. All of a sudden you had to be much better at the business of insurance. And I think that's what woke up a lot of companies to get much more sophisticated in their pricing mechanism and recognize that a dollar of revenue is not created equal. So a dollar of revenue from a customer who has the promise of few accidents and longevity in staying with us is a whole lot different than $1 revenue garnered from an individual who has multiple accidents and is going to change carriers every six months or every year because he can save $3 on a premium. I think there's been a great awareness of that.

And the second thing I would say is, and I know this is not what you implied, but what's happening now with the use of sophisticated modeling is much more than just a computer system. It's much more than just a black box, so make no mistake about it tier pricing or strategic risk management starts with very sophisticated and very complex rating and underwriting algorithms, but then you have to have an agency force who can explain it to people, and who will embrace it and who will do something with it. There's very much a human element in there. And people sometimes miss that. I think it's a human element that's much more applicable to those companies that have a captive agency force. I don't like that word. A captive agency force as opposed to an independent agency force.

I think there are some secular things at work which probably make the future of the industry a little different than what the past has been. And I believe you see that now in higher ROEs than we've ever had, much more attention to pricing than we've ever had. People don't go at pricing with as much of a blunt instrument than they used to. That's why I think continuing to generate very healthy combined ratios and the concomitant very strong ROEs that go with that are very much a part of our future. Yes?

ANALYST: [Inaudible - microphone inaccessible]

ED LIDDY: It's more B than A. Let me just explain. Reinsurance is a very effective temporary solution. Might not be there next year, might be there next year at four times the price. You just don't know. So not relying solely on reinsurance as a solution, we think is a better thing to do. It's painful for us to reduce our homeowners coverage in Florida. Just around the time hurricane Andrew hit in 1992, we had, I think, at the high watermark maybe 1.2 million homeowners policies in Florida. Today, I think we're down maybe slightly below 400,000 and going less than that.

The reason why we are so aggressive on Protect and Prepare America, that really is a solution. It doesn't, it doesn't allow insurance companies quote to get off the hook. It's not a bail out, but when a company like Allstate stops writing in the state of Florida it means the basic homeowners coverage, which is what 96% of Americans need, I've got a burglary, I got a fire and my son or daughter drove the car through the garage and into the family room. That product is not available to you. That's a shame. That product ought to be available everywhere in the country. It's those unusual events, the very low frequency, but high severity stuff that occurs when you get a Katrina or an Andrew or a tsunami or what have you. Insurance is not built to handle that. That's why we think there ought to be a better model. When that better model gets put in place, then you can see those policies in force for the homeowners begin to grow, because it becomes a much more effective and attractive area from a return on capital schedule. Yes?

ANALYST: [Inaudible - microphone inaccessible]

ED LIDDY: I'll start with the second question first, we're the only property casualty insurer that lets you choose how you want to buy the product. If you want to buy from an Allstate agent, you go to an Allstate agent. If you want go to an independent agent, you go to an independent agent. If you want to buy it over the telephone, you can do that. Or if you want to buy it over the Internet, you can do that. It's a fully integrated model. The benefit of that and the beauty of it is no one in this room is smart enough to know what is the evolution of the marketplace? Is it going to be as everyone thinks that more and more goes direct? I heard that back in '99/2000, didn't happen, absolutely didn't happen. Is now the time when it will happen? I don't know.

But what you have at Allstate is incredible optionality. So however the marketplace evolves, we're there. If you couple distribution any way you choose with a full array of property casualty products it's a very effective competitor. It's different than those companies that are direct only, it's different than those companies that are auto only and don't have homeowners. Again, when you take that strategy with a company that has got the kind of scale we have and the ability to invest in technology and claims and marketing. It really is, we think it's a winner.

California. There's a couple of trends, countervailing trends in California. The Commissioner Garamendi, who is running for Lieutenant Governor in that election is in early November, periodically makes a statement about insurance in the state of California and he's decided right now that auto companies are making too much money and there ought to be rollbacks. But the way he's trying to do it is the use or nonuse of territorial rating. I would just tell you to be patient and everything that comes out in California doesn't necessarily mean it's going to come to pass. There are substantial legal challenges and legal obstacles to what he's trying to do. When you take what he's trying to do, and run it through tiered pricing, it's not nearly as much of an impact as you might think. He's not doing away with territorial rating, he's just saying that you have to de-emphasize it in terms of the way you calculate your prices. I would just suggest that people be patient until November and December comes and we wait and see what the new commissioner, who I assume is probably going to be Cruz Bustamante what the new commissioner has to do with it.

Now, we recently filed, and you may have seen it in the news, we recently filed for a homeowners rate increase in California. And that has to do with this gentleman's question over here about how much capital do you have dedicated to homeowners in the state. It's not just the profits that you're making, it's what's the capital that you have dedicated to the states generate to generate those returns. Based upon the capital that we have generated in homeowners in California we think our product is underpriced and that's the rate increase that we filed for in California. I think there's more to come out of the state of California and it will play out over the next six months. I'll take one more question. This young man back here has been dying to ask his question. Go right ahead. Been a long time since somebody referred to you as young man?

ANALYST: [Inaudible - microphone inaccessible]

ED LIDDY: We use only outside models. And we use multiple models. And to the extent the models tell us the same thing we draw a little bit of comfort, not much. When they tell you wildly different things, then we experiment greatly as to why there are differences. The cat models you all know as much about this as I do I'm sure have recently been updated to reflect the fact that there's a whole lot more exposure because more people live in harm's way. The value of houses in harm's way have gone up. The warming weather and different air currents and everything suggests that there's a much different probability of more storms and intense storms than we've ever had in the past. And wouldn't it be wonderful if 2006 was a very mild year and we didn't have anything like what we saw in '05 or '04? That just means '06 was a light year. It has nothing to say about what could happen in '07 or '08. We think the cat models are tools, but they're just tools. And the better way to approach these is to manage your exposure in a way that just doesn't cause the potential harm if something were to happen. We're out of time. Thank you very much.

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In the conference calls upon which Event Transcripts are based, companies may make projections or other forward-looking statements regarding a variety of items. Such forward-looking statements are based upon current expectations and involve risks and uncertainties. Actual results may differ materially from those stated in any forward-looking statement based on a number of important factors and risks, which are more specifically identified in the companies' most recent SEC filings. Although the companies may indicate and believe that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate or incorrect and, therefore, there can be no assurance that the results contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS. IN NO WAY DOES THOMSON FINANCIAL OR THE APPLICABLE COMPANY OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.]

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