This excerpt taken from the ALL DEF 14A filed Apr 2, 2008.
Annual Cash Incentive Awards for 2007
Adjusted operating income per diluted share: This measure is used to assess financial performance. The measure is equal to net income adjusted to exclude the after-tax effects of the items listed below, divided by the weighted average shares outstanding on a diluted basis:
Allstate Protection Segment Measures
Customer loyalty index: This is an indicative measure used by management to assess the future retention of customers. This measure represents the change in Allstate's index value between the prior and current year end. The index is based on responses to a consumer survey developed by Allstate. The survey measures consumer satisfaction, willingness to renew, and likelihood to recommend their insurance company. A vendor administers the survey and tabulates the index.
Financial product sales ("production credits"): This measure of sales and related profitability of proprietary and non-proprietary financial products is used by management to assess the execution of our financial services strategy. This measure is calculated as the total amount of production credits for current year transactions. Production credits are an internal statistic calculated as a percent of premium
or deposits to life insurance, annuities, or mutual funds which vary based on the expected profitability of the specific financial product.
Growth and profit matrix: A combination of financial measures, "matrix," used by management to emphasize a balanced approach to premium growth and profit. The matrix utilizes (a) the percent increase in Allstate Protection premiums written, excluding ceded catastrophe reinsurance premiums, and excluding premiums written for personal property insurance in catastrophe prone markets and commercial property insurance and (b) the Allstate Protection combined ratio adjusted to exclude the effect of restructuring and related charges. For disclosure of Allstate Protection premiums written and combined ratio, see the discussion of the Allstate Protection segment in Management's Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2007.
Allstate Financial Segment Measures
Adjusted operating income: This is a measure management uses to assess the profitability of the business. The Allstate Financial segment measure, operating income, is adjusted to exclude the after tax effects of restructuring and related charges, expenses for specific litigation, and the impact of any deviation from planned dividend payments from Allstate Financial to its parent. For disclosure of the Allstate Financial segment measure, see footnote 18 to our audited financial statements for 2007.
Financial product sales ("production credits"): This measure of sales and related profitability of proprietary Allstate Financial products sold through the Allstate Exclusive Agency channel is used by management to assess the execution of our strategy to grow sales of proprietary financial services products. This measure is calculated as the total production credits of 2007 Allstate Financial product sales divided by the total production credits of 2006 Allstate Financial product sales. Production credits are an internal sales statistic calculated as a percent of premium or deposits to life insurance or annuities, where the percent of premium varies based on the relative expected profits of the specific financial product.
Sales and return matrix: This is a measure, "matrix," used by management that balances growth and profit. The matrix utilizes various combinations of sales with the expected new business lifetime return on capital. Sales include premiums (which are reported as life and annuity premiums and contract charges) and deposits (which are reported as increases in liabilities) and exclude renewal premiums and deposits on life insurance products for all Allstate Financial products issued in 2007. Sales exclude Allstate Bank and Workplace Division. Sales are weighted to reflect each product's profitability relative to other products. (For example, certain life insurance sales are adjusted to receive a higher relative weighting to reflect the recurring nature of life insurance premiums and their profitability relative to other products). The expected new business lifetime return on capital is the actuarially determined weighted-average expected return on required capital for all products issued in 2007.
Allstate Investments Business Unit Measures
AIC portfolio excess total return: Management uses this measure to assess the value of active portfolio management relative to the benchmark. The measure is calculated as the excess, in basis points, of the AIC portfolio total return over a designated benchmark. Total return is principally determined using industry standards and the same sources used in preparing the financial statements to determine fair value. (See footnote 6 to our audited financial statements for 2007 for our methodologies for estimating the fair value of our investments.) In general, total return represents the increase or decrease, expressed as a percentage, in the value of the portfolio over one- and three-year periods. Time weighted returns are utilized. The portfolio includes Property-liability investments excluding investments held in certain subsidiaries, primarily New Jersey and Florida subsidiaries, and certain investments that do not have external benchmarks and for which fair value cannot readily be determined, such as investments in limited partnerships. The designated benchmark is a composite of pre-determined, customized indices which reflect the investment risk parameters established in the investment policies by the boards of the
relevant subsidiaries, weighted in proportion to our investment plan, in accordance with our investment policy.
Allstate Financial credit loss: Management uses this measure to assess the quality of credit decisions. The measure evaluates the realized capital losses attributed to credit incurred in the current year relative to a target, the determination of which is informed by a forecasting model and estimated investment positions. Credit losses include write downs and write offs, net of recoveries, and losses on sales of securities for credit concern reasons and other losses on dispositions where the price realized, as a percent of par value of fixed income securities or cost of equity securities, is below 85%. For purposes of this measure, lower losses are a better result.
Allstate Financial excess spread: Management uses this measure to assess the value provided on each specific fixed income security and commercial mortgage purchase decision, up to specific purchase volumes, relative to a benchmark. Excess spread is calculated as the difference between Allstate Financial's adjusted purchase yield and the benchmark, calculated on a dollar weighted average basis for the majority of new purchases expressed in basis points. The adjusted purchase yield is the yield at purchase adjusted by a predetermined formula to align with predetermined Allstate Financial investment risk parameters. The benchmark is based on the U. S. Treasury bond yield with a comparable duration at the time of purchase adjusted on a monthly basis to reflect changes in corporate credit market spreads. As a result of this monthly adjustment process, performance ranges are adjusted accordingly.
Allstate Financial high value add excess spread: Management uses this measure to assess the value provided by fixed income security and commercial mortgage purchase decisions on a predetermined volume of new investments targeted at a moderately higher risk and return than the total Allstate Financial excess spread measure above. High value add excess spread is calculated as the difference between Allstate Financial's adjusted purchase yield and the benchmark calculated on a dollar weighted average basis expressed in basis points, as described and determined in the Allstate Financial excess spread measure.