This excerpt taken from the ALL 8-K filed Dec 18, 2007.
Combined ratio excluding the effect of catastrophes and prior year reserve re-estimates is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the combined ratio, the effect of catastrophes on the combined ratio and the effect of prior year reserve re-estimates on the combined ratio. The most directly comparable GAAP measure is the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our Property-Liability business that may be obscured by catastrophe losses and prior year reserve re-estimates. These catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude and can have a significant impact on the combined ratio. Prior year reserve re-estimates are caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. We also provide it to facilitate a comparison to our outlook on the 2007 combined ratio excluding the effect of catastrophe losses and prior year reserve re-estimates. The combined ratio excluding the effect of catastrophes and prior year reserve re-estimates should not be considered a substitute for the combined ratio and does not reflect the overall underwriting profitability of our business.
In this press release, we provide our outlook on the 2007 combined ratio excluding the effect of catastrophe losses and prior year reserve re-estimates. A reconciliation of this measure to the combined ratio is not possible on a forward-looking basis because it is not possible to provide a reliable forecast of catastrophes for December. Future prior year reserve re-estimates are expected to be zero because reserves are determined based on our best estimate of ultimate loss reserves as of the reporting date.