Exhibit 10.1

 

FORM OF

 

AMENDMENT NO.1

 

To

 

AMENDED AND RESTATED SERVICE AND EXPENSE AGREEMENT

 

Among

 

ALLSTATE INSURANCE COMPANY

 

And

 

THE ALLSTATE CORPORATION

 

And

 

Certain Affiliates

 

THIS FIRST AMENDMENT, effective as of January 1, 2009 (this “Amendment”), among
Allstate Insurance Company, an Illinois insurance company (“Allstate”), The
Allstate Corporation, a Delaware corporation (“Allcorp”) and those affiliates of
Allstate whose signatures appear below (together with Allcorp, individually, an
“Affiliate” and collectively, the “Affiliates”), amends that certain Amended and
Restated Service and Expense Agreement dated as of January 1, 2004, among
Allstate and the Affiliates (the “Amended and Restated Agreement”).

 

WHEREAS, ALLSTATE and the AFFILIATES entered into the Amended and Restated
Agreement and now desire to amend it in the respects, but only in the respects,
hereinafter set forth.

 

NOW, THEREFORE, Allstate and the Affiliates hereby agree as follows:

 

1.             Capitalized terms used herein shall have the respective meanings
ascribed thereto in the Amended and Restated Agreement unless herein defined or
the context shall otherwise require.

 

2.             The following “Whereas” clause shall be added as the fifth
recital to the Amended and Restated Agreement:

 

“WHEREAS, the parties, by their execution of this Agreement, acknowledge their
intent that nothing in the Agreement shall be construed to mean or to imply that
the separate operating identity of each party or the control of, responsibility
for and the right to direct the respective performance, business, operations and
affairs of each party by its Board of Directors shall be delegated or
relinquished to any other party or be otherwise impaired.”

 

3.             Section 1 of the Amended and Restated Agreement is hereby amended
by deleting in its entirety the third full paragraph; by deleting in its
entirety the first sentence to the fourth full paragraph; and by adding the
following as the last sentence of such fourth paragraph:

 

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“Notwithstanding the foregoing, nothing in this Agreement shall be construed so
as to cause Allstate or any Affiliate to be deemed to be a Third Party
Administrator as such term is defined under applicable law.”

 

4.             Section 7 of the Amended and Restated Agreement is hereby amended
by deleting the second paragraph in its entirety; by deleting the third
paragraph in its entirety; and by replacing such third paragraph with the
following:

 

“The books and records of Affiliates’ books of account as they relate to the
business covered by this Agreement are maintained in an electronic format and
shall be kept and maintained at such Affiliate’s principal office.”

 

5.             Section 11 of the Amended and Restated Agreement is hereby
amended by deleting the last sentence in its entirety and by replacing it with
the following:

 

“This Agreement shall remain in effect for one year and shall be automatically
renewed for subsequent one-year terms unless sooner terminated by either party
pursuant to this Section 11.  This Agreement shall also be subject to
re-negotiation at least every three years.”

 

6.             Exhibits A through D to the Amended and Restated Agreement,
having been revised by Allstate’s Corporate Controller’s Department pursuant to
Section 4 of the Agreement, are hereby deleted in their entirety and replaced by
revised Exhibits A through D attached to this Amendment.

 

7.             Schedule A and Schedules A-1 through A-8 to the Amended and
Restated Agreement are hereby amended and restated in their entirety by Schedule
A and Schedules A-1 through A-7 attached to this Amendment.

 

8.             Except as specifically amended hereby, the terms and conditions
of the Amended and Restated Agreement shall remain unchanged.  To the extent
that the provisions of this Amendment No. 1 are inconsistent with those of the
Amended and Restated Agreement, the terms of the Amendment No. 1 shall govern
with respect to the parties hereto.

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be
effective as of the day and year above written.

 

 

The Allstate Corporation

 

 

 

By:

 

 

 

Steven C. Verney

 

 

Vice President and Treasurer

 

Date:

 

 

 

 

 

Allstate Insurance Company

 

 

 

 

By:

 

 

 

Steven C. Verney

 

 

Vice President and Treasurer

 

Date:

 

 

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Allstate Fire and Casualty Insurance Company

 

 

Allstate Indemnity Company

 

 

Allstate New Jersey Insurance Company

 

 

Allstate New Jersey Property and Casualty Insurance Company

 

 

Allstate North American Insurance Company

 

 

Allstate Property and Casualty Insurance Company

 

 

Encompass Home and Auto Insurance Company

 

 

Encompass Independent Insurance Company

 

 

Encompass Insurance Company of America

 

 

Encompass Insurance Company of New Jersey

 

 

Encompass Property and Casualty Company

 

 

Encompass Property and Casualty Insurance Company of New Jersey

 

 

North Light Specialty Insurance Company

 

 

Northbrook Indemnity Company

 

 

 

 

 

 

 

 

By:

 

 

 

 

Steven C. Verney

 

 

 

Vice President and Treasurer

 

 

Date:

 

 

 

 

 

 

Allstate Assurance Company

 

 

Allstate Life Insurance Company

 

 

Charter National Life Insurance Company

 

 

 

 

 

By:

 

 

 

 

Steven C. Verney

 

 

 

Treasurer

 

 

Date:

 

 

 

 

 

 

Deerbrook Insurance Company

 

 

Encompass Indemnity Company

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Vice President and Treasurer

 

 

Date:

 

 

 

 

 

 

Castle Key Indemnity Company

 

 

Castle Key Insurance Company

 

 

Encompass Floridian Indemnity Company

 

 

Encompass Floridian Insurance Company

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Vice President and Treasurer

 

 

Date:

 

 

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Encompass Insurance Company

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Vice President and Treasurer

 

 

Date:

 

 

 

 

 

 

Surety Life Insurance Company

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Treasurer

 

 

Date:

 

 

 

 

 

 

Encompass Insurance Company of Massachusetts

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Vice President and Treasurer

 

 

Date:

 

 

 

 

 

 

American Heritage Life Insurance Company

 

 

First Colonial Insurance Company

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Treasurer

 

 

Date:

 

 

 

 

 

 

Allstate Life Insurance Company of New York

 

 

Intramerica Life Insurance Company

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Treasurer

 

 

Date:

 

 

 

 

 

 

Lincoln Benefit Life Company

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Treasurer

 

 

Date:

 

 

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ALIC Reinsurance Company

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Treasurer

 

 

Date:

 

 

 

 

 

 

Allstate County Mutual Insurance Company

 

 

Allstate Texas Lloyd’s

 

 

by Allstate Texas Lloyd’s, Inc. (its attorney-in fact)

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Vice President and Treasurer

 

 

Date:

 

 

 

 

 

 

Allstate Insurance Company of Canada

 

 

Allstate Life Insurance Company of Canada

 

 

Pafco Insurance Company

 

 

Pembridge Insurance Company

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Guy Hill

 

 

 

Chairman of the Board

 

 

Date:

 

 

 

 

 

 

Allstate Enterprises, LLC

 

 

Allstate Motor Club, Inc.

 

 

Credit Card Sentinel, Inc.

 

 

Ocoma Industries, Inc.

 

 

Roadway Protection Auto Club, Inc.

 

 

Signature Agency, Inc.

 

 

Signature Motor Club of California, Inc.

 

 

Signature Motor Club, Inc.

 

 

Signature Nationwide Auto Club of California, Inc.

 

 

Signature’s Nationwide Auto Club, Inc.

 

 

 

 

 

BY:

 

 

 

 

Patrick M. O’Brien, Sr.

 

 

 

President

 

 

Date:

 

 

 

 

 

 

Allstate International Insurance Holdings, Inc.

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Executive Vice President and Treasurer

 

 

Date:

 

 

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Allstate Insurance Holdings, LLC

 

 

Pablo Creek Services, Inc.

 

 

Sterling Collision Centers, Inc.

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Vice President and Treasurer

 

 

Date:

 

 

 

 

 

 

Allstate Assignment Company

 

 

Allstate Financial Advisors, LLC

 

 

Allstate Financial Corporation

 

 

Allstate Financial, LLC

 

 

Allstate Non-Insurance Holdings, Inc.

 

 

Allstate Settlement Corporation

 

 

American Heritage Life Investment Corporation

 

 

American Heritage Service Company

 

 

Deerbrook General Agency, Inc.

 

 

E.R.J. Insurance Group, Inc.

 

 

Ivantage Select Agency, Inc.

 

 

Kennett Capital Holdings, LLC

 

 

Kennett Capital Partners, LLC

 

 

Kennett Capital, Inc.

 

 

Northbrook Services, Inc.

 

 

Road Bay Investments, LLC

 

 

Tech-Cor, LLC

 

 

The Allstate Foundation

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Treasurer

 

 

Date:

 

 

 

 

 

 

ALFS, Inc.

 

 

Allstate Distributors, L.L.C.

 

 

Allstate Financial Services, LLC

 

 

 

 

 

 

 

 

BY:

 

 

 

 

Steven C. Verney

 

 

 

Assistant Treasurer

 

 

Date:

 

 

 

 

 

 

Allstate Institutional Advisors, LLC

 

 

 

 

 

BY:

 

 

 

 

James Flynn

 

 

 

Vice President, General Counsel, and Secretary

 

 

Date:

 

 

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Allstate Investments, LLC

 

 

 

 

 

BY:

 

 

 

 

Steven E. Shebik

 

 

 

Vice President, Treasurer and Chief Financial Officer

 

 

Date:

 

 

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Schedule A

 

Each of the attached supporting schedules depicts examples of services to be
provided by various shared services within the Allstate Group, and are not
intended by the parties to be all-inclusive.

 

Description of Service

 

Schedule

 

 

 

Finance Shared Services

 

A-1

 

 

 

Allstate Technical Operations Shared Services

 

A-2

 

 

 

Human Resource Shared Services

 

A-3

 

 

 

Law and Regulation

 

A-4

 

 

 

Corporate Relations

 

A-5

 

 

 

Corporate Marketing

 

A-6

 

 

 

Real Estate and Construction/Facility Services

 

A-7

 

1

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Schedule A-1

Finance Shared Services

 

Provider Services

 

·                  Accounting:   Provide actual monthly, quarterly and annual
financial results for internal and external reporting. Specific services include
producing financial statements and consulting on account coding, reporting,
accounting research, shared service administration, expense allocation
administration accounting governance and policies, and maintenance of any
required central accounting computer system.

·                  Auditing:   Perform and report on internal audits, which meet
Generally Accepted Auditing Standards (GAAS) at intervals deemed necessary by
Allstate.  Consult on appropriate internal controls.

·                  Claim Reserves:  Provide risk management services including
exposure analysis, risk retention and risk financing.

·                  Treasury and Planning:  Provide services related to the
annual operating plan, the long-term strategic plan, capital management, cash
management services, including setting up and maintaining bank accounts, and the
M & A function.

·                  Tax:  Comply with Federal and State corporate tax filing
requirements, perform tax research and develop tax planning strategies.

·                  Sourcing and Procurement Solutions:  Strategic sourcing and
the procuring of commodities inclusive of contract negotiation.

·                  All Areas:  Provide financial administrative services to
ensure compliance with service provider’s corporate policies.

 

2

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Schedule A-2

Technical Shared Service

 

Provider Services

 

Information Technologies:

 

·                  Build and maintain systems necessary to process Affiliate’s
business.

 

·                  Support of online networks and end-user/desktop applications.

 

·                  Technical architecture design to include application
development and end-user equipment via Technology Asset Management.

 

·                  Enterprise office tools, software licenses, maintenance,
upgrades, Microsoft Office and client software packages.

 

·                  Telecommunications support for business applications to
include equipment sourcing and voice-mail solutions.

 

·                  Database production support and development for mainframe and
distributed applications.

 

·                  Enterprise Help Center for end-user problem resolution,
equipment repair, system password resets.

 

CUSTOMER AND ENTERPRISE SERVICES

 

·                  Process and pay invoices, expense accounts, and related
bills.

 

·                  Maintain necessary bank accounts. This would include, but
would not be limited to, a depository account, refund account and investment
accounts.

 

·                  Deposit and balance remittance from Affiliate’s clients. 
Process payments against client balances in the billing database.

 

·                  Pay and track non-computer related fixed asset transactions.

 

·                  Utilize the SAP general ledger system for financial
recording.

 

·                  Perform movement of funds from depository accounts to
investment accounts as needed via wire transfers or other means.

 

·                  System production, job scheduling and runs including
technical support.

 

3

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·                  Data processing support including data storage, data
communication solutions, and network availability.

 

·                  Provide print services for document processing to include
quick print, web and sheet-fed print and laser print stuff mail.

 

·                  Provide programming support and consulting along with
complete print project management.

 

·                  Provide for storage and retention of documents and/or
equipment.

 

·                  Mail distribution services.

 

4

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Schedule A-3

Human Resource Shared Services

 

Provider Services

 

·                  Disburse compensation, remit payroll taxes, calculate and
remit to vendors benefit contributions (employer/employee), mail W-2s, provide
lines of expense details and create new company pay system. These services will
be delivered to client within agreed upon timeframes, and will meet the client’s
quality requirements.

 

·                  Design compensation and incentive structure, provide support
services for salary planning, incentive plan and pay communications.  Provide
Affiliate with current market research/data to structure the most cost effective
and competitive compensation plan.

 

·                  Provide technical interview with employees to determine
skills and tasks necessary to a particular job function.  This work will be used
to create job descriptions in order to obtain market data to determine
competitive salary structures.

 

·                  Coordinate participation in technical job fairs, new employee
orientation, internship programs, provide sources of qualified candidates for
technical recruiter and intern openings, as well as training to technical
recruiters.

 

·                  Provide timely coaching and guidance on human resource
related issues at Affiliate’s request.  Accurately assess the appropriate Center
of Expertise within the human resource organization to assist in all problem
resolutions.

 

·                  Provide Affiliate with the most competitive benefits package
for all employees.  Conduct annual election to provide all employees with the
option of changing benefit coverages.

 

·                  Provide all employees with required services for any payroll
or benefit inquiries or processing.

 

·                  Provide Affiliate with up to date professional education
programs and research.  Provide access to just-in-time training.

 

·                  Provide Affiliate with accurate and timely payroll stubs,
checks and tax remittances.

 

5

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Schedule A-4

Legal Services

 

Provider Services

 

·                  The Law and Regulation Department will provide legal advice,
assist in the completion of business transactions, participate in corrective
action plan development to ensure compliance, assist with dispute resolution and
provide public advocacy for Affiliates.

 

·                  Provide for legal advice, assist in the completion of
business transactions, assist with dispute resolution and provide for public
advocacy.

 

·                  All legal services will be performed in a manner that is in
compliance with all applicable laws, regulations and Codes of Professional
Responsibility.

 

6

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SCHEDULE A-5

Corporate Relations

 

PROVIDER SERVICES

 

Support and implement communication strategies.

 

·                  Development of communication packages, scripts, and
presentations.

 

·                  Sourcing and coordination of meetings with internal and
external customers.

 

·                  Media preparation for external use.

 

·                  Coordination of production and recognition and/or special
events as requested.

 

·                  Reputation management.

 

7

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Schedule A-6

Corporate Marketing

 

PROVIDER SERVICES

 

·                  Provide market research, perform database analysis to
identify target customers and utilize focus groups to determine customer
preferences.

 

·                  Support and implement marketing strategies.

 

·                  Development of marketing strategies, coordination of print
and/or media requirements.

 

·                  Coordination of media/print advertising.

 

·                  Assist in the development and implementation of distribution
policy and practices, and provide other marketing and distribution support
services.

 

8

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 Schedule A-7

Real Estate and Construction/Facility Services

 

Provider Services

 

·                  Real Estate portfolio management.

 

·                  Capital improvement management and construction.

 

·                  Engineering standards.

 

·                  Compliance to local and governmental codes.

 

·                  Support of employee moves and relocation.

 

·                  Housekeeping and security

 

9

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EXHIBIT A

 

INTERCOMPANY SERVICE AND EXPENSE ALLOCATION SUMMARY MATRIX

ALLSTATE INSURANCE COMPANY AND PROPERTY & CASUALTY AFFILIATES

 

Expense Line Item
Per U&I Exhibit*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

1.              Claim adjustment services

 

Investigation and adjustment of policy claims for direct, reinsurance assumed
and ceded business. The more significant expenses and fees related to: (1) all
outside costs associated with independent adjusters, (2) lawyers for legal
services in the defense, trial, or appeal of suits, (3) general court costs, (4)
medical testimony, (5) expert and lay witnesses, (6) medical examinations for
the purpose of trial and resolution of liability and (7) miscellaneous
(appraisals, surveys, detective reports, audits, character reports, etc.).

 

No allocation — direct charge to Affiliate

2.              Commission and brokerage

 

All payments, reimbursements and allowances (on direct and reinsurance assumed
and ceded business) to managers, agents, brokers, solicitors or other producer
types.

 

No allocation — direct charge to Affiliate based on agent contract

3.              Allowances to Managers and agents

 

Net allowances, reimbursements and payments for expenditures of every nature,
not computed as a percentage of premiums, to managers, agents, brokers,
solicitors, and other producers.

 

See Appendix to Exhibit A at C

4.              Advertising

 

Typical expenses would include services of: (1) advertising agents, (2) public
relations counsel, (3) advertisements in newspapers, periodicals, billboards,
pamphlets and literature issued for advertising or promotional purposes, (4)
related paper and printing charges for advertising purposes, (5) radio
broadcasts, (6)

 

Direct charge by company where known. Allocated items handled as follows:

 

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*                                         Expense classifications per the
statutory Underwriting and Investment Exhibit, Part 3, Expenses.  Parties to the
Agreement use these twenty-four classifications to record their operating
expenses incurred.  As described in Exhibit C, expenses for these
classifications are also spread to three distinct functional expense groups: 
loss adjustment, other underwriting and investment.

 

**                                  These descriptions provide a synopsis of the
types of expenses for each classification.  Parties to the Agreement will
utilize the NAIC Property/Casualty Annual Statement Instructions Appendix —
Instructions for Uniform Classification of Expenses of Property and Casualty
Insurers in expense reporting.

 

***                           Before consideration of any applicable reinsurance
agreement.

 

1

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Expense Line Item
Per U&I Exhibit*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

 

 

prospect and mailing lists, (7) signs and medals for agents and (8) television
commercials and production.

 

See Appendix to Exhibit A at A; B 1; C 1

5.              Boards, bureaus and associations

 

Various dues, assessments, fees and charges for items such as: (1) underwriting
boards, rating organizations, statistical agencies, inspection and audit
bureaus, (2) underwriters’ advisory and service organizations, (3) accident and
loss prevention organizations, (4) claim organizations, (5) underwriting
syndicates, pools and associations, assigned risk plans.

 

No allocation - direct charge to Affiliate

6.              Surveys and underwriting reports

 

Costs to support the business including: (1) survey, credit, moral hazard,
character reports for underwriting, (2) appraisals for underwriting, (3) fire
records, (4) inspection and engineering billed specifically, (5) medical
examiner services relating to underwriting.

 

See Appendix to Exhibit A at C

7.              Audit of assureds’ records

 

Auditing fees and expenses of independent auditors for auditing payroll and
other premium bases.

 

No allocation - direct charge to Affiliate

8.              Salary and related items

 

Salaries, bonus, overtime, contingent compensation, and other compensation of
employees. This would include commission and brokerage to employees when the
activities for which the commission is paid are a part of their duties as
employees.

 

See Appendix to Exhibit A at A; B; C; D

9.              Employee relations and welfare

 

This category includes a variety of pension and insurance benefits for
employees, as well as some miscellaneous expenditures. The first area entails:
(1) cost of retirement insurance, pensions or other retirement allowances and
funds irrevocably devoted to the payment of pensions or other employees’
benefits, and (2) accident, health and hospitalization insurance, group life
insurance and workers’ compensation insurance. The miscellaneous category may
include the following items (1) training and welfare; (2) physical exams for
employees or candidates; (3) gatherings, outings and entertainment;
(4) education; and (5) donations to or on behalf of employees.

 

See Appendix to Exhibit A at A; B; C; D

10.        Insurance

 

Costs of insurance for employee/agent fidelity or surety bonds, public
liability, burglary and robbery, automobiles and office contents.

 

See Appendix to Exhibit A at A; B; C; D

11.      Directors fees

 

Amounts relate to fees and other compensation paid to directors for attending
Board or committee meetings.

 

Direct charge to Affiliate

 

2

--------------------------------------------------------------------------------

 

Expense Line Item
Per U&I Exhibit*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

12.        Travel and travel items

 

Major expense subcategories include: (1) transportation, hotel, meals, telephone
and other related costs associated for employees traveling, (2) expense for
transfer of employees, (3) automobile rental and license plates, depreciation,
repairs and other operating costs of automobiles (4) transportation, hotel and
meals/entertainment of guests, (5) dues and subscriptions to accounting, legal,
actuarial or similar societies and associations.

 

See Appendix to Exhibit A at A; B; C; D

13.        Rent and rent items

 

Rent of home office, branch offices, space occupied in owned buildings, light,
heat, power and water charges in leased premises, interest, taxes, etc., paid in
lieu of rent for leased premises, cost of alterations and repairs of leased
premises, rent of storage, safekeeping, warehouse space, safe deposit boxes,
post office boxes, and cost of cleaning and other expenses incidental to office
maintenance.

 

Square footage occupancy.

14.        Equipment

 

Rent and repair of furniture and equipment, including the related depreciation
charges.

 

See Appendix to Exhibit A at A; B; C; D

15.        Cost or depreciation of EDP equipment and software

 

Rent and repair of processing equipment and non-operating systems electronic
data software, including the related depreciation and amortization.

 

See Appendix to Exhibit A at A; B; C; D

16.        Printing and stationery

 

Generally, printing, stationery and office supplies (paper stock, printed forms
and manuals, Photostat copies, pens and pencils, etc.). Also included would be
policies and policy forms, in-house employee publications, books, newspapers and
periodicals including, tax and legal publications and services.

 

See Appendix to Exhibit A at A; B; C; D

17.        Postage, telephone, etc.

 

All express, freight and cartage expenses, postage, and telephone.

 

See Appendix to Exhibit A at A; B; C; D

18.        Legal & auditing

 

Legal fees and retainers excluding loss and salvage related, auditing fees of
independent auditors for examining records, services of tax experts and counsel,
custodian fees, notary and trustees’ fees.

 

See Appendix to Exhibit A at A

19.        Taxes, licenses and fees

 

Several categories comprise this expense classification: (1) state and local
insurance taxes; (2) Insurance Department licenses and fees; (3) payroll taxes;
and (4) all other, excluding real estate and federal income. Taxes, licenses and
fees based on premiums and payments to state industrial commissions for
administration of

 

Direct charge to Affiliate if identifiable. If allocated, see Appendix to
Exhibit A

 

3

--------------------------------------------------------------------------------

 

Expense Line Item
Per U&I Exhibit*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

 

 

workers’ compensation or other state benefit acts would be in the first
classification. Expenses relating to the Insurance Department would include
agents’ licenses, filing fees, certificates of authority and fees and expenses
of examination. Payroll related expenses normally include old age benefit and
unemployment insurance taxes. More significant expenses in the all other section
would be financial statement publication fees, legally mandated advertising and
personal property and state income taxes.

 

at A; B;C;D.

20.        Real estate expenses

 

Salaries, wages and other compensation of maintenance workers in connection with
owned real estate. Other expense items assigned to this category may also
include expenses associated with: operations; maintenance and insurance.

 

Square footage occupancy.

21.        Real estate taxes

 

Taxes, licenses and fees on owned real estate.

 

Direct charges by Affiliate are based on square footage occupancy. Allocated
expenses handled per Appendix to Exhibit A at A; B; C ; D

22.        Aggregate write-ins for miscellaneous expenses

 

Items for which no pre-printed statutory line exists. Description/title shown in
Part 3 will vary based on need. This line may include such items as the cost of
outside clerical services, donations to organized charities and miscellaneous
expenses.

 

Cost Management will develop the most appropriate allocation basis and maintain
documentation

 

4

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APPENDIX TO EXHIBIT A

 

INTERCOMPANY SERVICE AND EXPENSE ALLOCATION SUMMARY MATRIX

ALLSTATE INSURANCE COMPANY AND AFFILIATES

 

A.          Human Resource Shared Services, Finance Shared Services, Sourcing
and Procurement Solutions Shared Services, Corporate Marketing Shared Services, 
Research Center Shared Services, Allstate Technology Operations Shared Services,
Customer and Enterprise Shared Services, Corporate Relations Shared Services, 
Facility Service Shared Services,  Real Estate and Construction/Facility
Services Shared Services, CEO/COO Shared Services, Allstate Investment, LLC
Shared Services, Allstate Financial Services Broker Dealer allocations are based
on services and associated costs performed by the provider for the benefit of
the recipient and are generated and approved through extensive discussions
between service providers and service recipients during the Annual Corporate
Planning Process.

 

B.            Allstate Protection Head Office allocations are based on:

 

1.                                       Compensation

2.                                       Time and effort studies

3.                                       Statistical data

 

C.            Allstate Protection Field Office allocations are based on the
following methodologies:

 

1.                                       Compensation

2.                                       Time and effort studies

3.                                       Statistical data

 

D.           The Claim Organization allocations are based on the following:

 

1.                                       Incurred Loss

2.                                       Notice counts

3.                                       Claim legal matter counts

4.                                       Other Statistical data

 

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EXHIBIT B

 

INTERCOMPANY SERVICE AND EXPENSE ALLOCATION SUMMARY MATRIX

ALLSTATE LIFE INSURANCE COMPANY AND LIFE AFFILIATES

 

Expense Line Item
Per General
Expense Exhibit 2*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

1.                        Rent

 

Rent for all premises occupied by the company, including any adequate rent for
occupancy of its own buildings, in whole or in part, except to the extent that
allocation to other expense classifications on a functional basis is permitted
and used.

 

Square footage occupancy

2.                        Salaries and wages

 

Salaries and wages, bonuses and incentive compensation to employees, overtime
payments, continuation of salary during temporary short-term absences, dismissal
allowances, payments to employees while in training and other compensation to
employees not specifically designated herein, except to the extent that
allocation to their expense classifications is permitted and used.

 

Agents’ compensation is a direct charge to Affiliate. The remaining expenses in
this category are allocated per Appendix to Exhibit B at A; B; C; D

3.11            Contributions for benefit

 

Contributions by company for pension and total permanent disability benefits,
life insurance benefits, accident, health, hospitalization, medical, surgical,
or other temporary disability benefits under a self-administered or trusteed
plan or for the purchase of annuity or insurance contracts. Appropriation of any
other assignment of funds by company in connection with any benefit plan of the
types enumerated

 

See Appendix to Exhibit B at A; B; C; D

 

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*                Expense classifications used for Exhibits 2, General Expenses
and 3, Taxes, Licenses and Fees (excluding federal income taxes).   Parties to
the Agreement use these classifications to record their operating expenses
incurred.  For Exhibit 2, the expense data is captured by five distinct
functional expense groups:  life, accident and health (including subcategories
of cost containment, all other, and all other lines of business) and
investment.  For Exhibit 3, the expense data is captured by four distinct
functional expense groups:  insurance (including subcategories of life, accident
and health, and all other lines of business) and investment.

 

**         These descriptions provide a synopsis of the types of expenses for
each classification.  Parties to the Agreement will utilize the NAIC Life,
Accident & Health Annual Statement Instructions.  Refer to this publication for
a complete breakdown of the expenses included in each line item.

 

***  Before consideration of any applicable reinsurance agreement.

 

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Expense Line Item
Per General
Expense Exhibit 2*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

plans for employees

 

herein.

 

 

3.12            Contributions for benefit plans for agents

 

Contributions by company for pension and total permanent disability benefits,
life insurance benefits, accident, health, hospitalization, medical, surgical,
or other temporary disability benefits under a self-administered or trusteed
plan or for the purchase of annuity or insurance contracts. Appropriation of any
other assignment of funds by company in connection with any benefit plan of the
types enumerated herein.

 

See Exhibit B Appendix at C 1, 2; and D 1

3.21            Payments to employees under non- funded benefit plans

 

Payments by company under a program for pension and total and permanent
disability benefits, death benefits, accident, health, hospitalization, medical,
surgical or other temporary disability benefits where no contribution or
appropriation is made prior to the payment of the benefit.

 

No allocation - direct charge to Affiliate

3.22            Payments to agents under non-funded benefit plans

 

Payments by company under a program for pension and total and permanent
disability benefits, death benefits, accident, health, hospitalization, medical,
surgical or other temporary disability benefits where no contribution or
appropriation is made prior to the payment of the benefit.

 

No allocation - direct charge to Affiliate

3.31            Other employee welfare

 

The net periodic postretirement benefit cost, meals to employees, contribution
to employee associations or clubs, dental examinations, medical dispensary or
convalescent home expenses for employees.

 

Agents’ compensation is a direct charge to Affiliate. The remaining expenses in
this category are allocated per Appendix to Exhibit B at A; B; C; D

3.32            Other agent welfare

 

The net periodic postretirement benefit cost, meals to employees, contribution
to employee associations or clubs, dental examinations, medical dispensary or
convalescent home expenses for agents.

 

Agents’ compensation is a direct charge to Affiliate. The remaining expenses in
this category are allocated per

 

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Expense Line Item
Per General
Expense Exhibit 2*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

 

 

 

 

Appendix to Exhibit B at A; B; C; D

4.1                  Legal fees and expenses

 

Court costs, penalties and all fees or retainers for legal services or expenses
in connection with matters before administrative or legislative bodies.

 

No allocation - direct charge to Affiliate.

4.2                  Medical examination fees

 

Fees to medical examiners in connection with new business reinstatements, policy
changes and applications for employment.

 

See Appendix to Exhibit B at D 1, 4

4.3                  Inspection report fees

 

Fee for inspection reports in connection with new business, reinstatements,
policy changes and applications for employment. Cost of services furnished by
the Medical Information Bureau.

 

See Appendix to Exhibit B at D 1, 4

4.4                  Fees of public accountants and consulting actuaries

 

Include expenses relating to this category except exclude examination fees made
by State Departments and internal audits by company employees.

 

See Appendix to Exhibit B at A

4.5                  Expense of investigation and settlement of policy claims

 

Payment to other than employees of fees and expenses for the investigation,
litigation and settlement of policy claims.

 

See Appendix to Exhibit B at D 1, 4

5.1                  Traveling expenses

 

Traveling expense of officers, other employees, directors and agents, including
hotel, meals, telephone, telegraph and postage charges incurred while traveling.
Also include amounts allowed employees for use of their own cars on company
business and the cost of, or depreciation on, and maintenance and running
expenses of company-owned automobiles.

 

See Appendix to Exhibit B at A; B; C; D

5.2                  Advertising

 

Newspaper, magazine and trade journal advertising for the purpose of
solicitation and conservation of business. Billboard, sign and telephone
directory, television, radio broadcasting and motion picture advertising,
excluding subjects dealing wholly with health and welfare. All canvassing or
other literature, such as pamphlets, circulars, leaflets, policy illustration
forms and other sales aids, printed

 

Direct charge by Affiliate when identifiable. Appendix to Exhibit B at A; B 1; C
1; D 1

 

3

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Expense Line Item
Per General
Expense Exhibit 2*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

 

 

material, etc., prepared for distribution to the public by agents or through the
mail for the purposes of solicitation and conservation of business. All
calendars, blotters, wallets, advertising novelties, etc., for distribution to
the public. Printing, paper stock, etc. in connection with advertising. Prospect
and mailing lists when used for advertising purposes. Fees and expenses of
advertising agencies related to advertising.

 

 

5.3                  Postage, express, telegraph and telephone

 

Freight and cartage, cables, radiograms and teletype. Also charges for use,
installation and maintenance of related equipment if not included elsewhere.

 

See Appendix to Exhibit B at A; B; C; D

5.4                  Printing and stationery

 

Policy forms, riders, supplementary contracts, applications, etc., rate books,
instruction manuals, punch-cards, house organs, and all other printed material
which is not required to be included in any other expense classification. Office
supplies and pamphlets on health, welfare and education subjects. Also include
annual reports to policyholders and stockholders if not included in Line 5.2.

 

See Appendix to Exhibit B at A; B; C; D

5.5                  Cost or depreciation of furniture and equipment

 

The cost or depreciation of office machines except for such charges as may be
reported in Line 5.3.

 

See Appendix to Exhibit B at A; B; C; D

5.6                  Rental of equipment

 

Rental of office machines except for such charges as may be reported in Line
5.3.

 

See Appendix to Exhibit B at A; B; C; D

5.7                  Cost or depreciation of EDP equipment and software

 

Include cost, depreciation and amortization for EDP equipment and operating and
non-operating systems software.

 

See Appendix to Exhibit B at A; B; C; D

6.1                  Books and periodicals

 

Books, newspapers, periodicals, etc., including investment tax and legal
publications and information services, and including all such material for
company’s law department and libraries.

 

See Appendix to Exhibit B at A; B; C; D

 

4

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Expense Line Item
Per General
Expense Exhibit 2*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

6.2                  Bureau and association fees

 

All dues and assessments of organizations of which the company is a member. All
dues for employees’ and agents’ memberships on the company’s behalf.

 

No allocation - direct charge to Affiliate.

6.3                  Insurance, except on real estate

 

Premiums for Workers’ Compensation, burglary, holdup, forgery and the public
liability insurance, fidelity or surety bonds, insurance on contents of
company-occupied buildings and all other insurance or bonds not included
elsewhere.

 

See Appendix to Exhibit B at A

6.4                  Miscellaneous losses

 

Uncollectible losses due to deficiencies, defalcations, robbery, or forgery,
except those offset by bonding companies’ payments. Also include Worker’s
Compensation benefits not covered by insurance and other uninsured losses not
included elsewhere.

 

Primarily a direct charge to Affiliate. Remaining expenses are allocated per
Appendix to Exhibit B at A; and D

6.5                  Collection and bank service charges

 

Collection charges on checks and drafts and charges for checking accounts and
money orders.

 

See Appendix to Exhibit B at A; D

6.6                  Sundry general expenses

 

Direct expense of local agency meetings, luncheons and dinners, tabulating
service rendered by outside organizations, gifts and donations. Any portion of
commissions and expense allowances on reinsurance assumed for group business
which represents specific reimbursement of expenses. Reimbursement to another
insurer for expense of jointly underwritten group contracts.

 

See Appendix to Exhibit B at A; B; C; D

6.7                  Group service and administration fees

 

Administration fees, service fees, or any other form of allowance, reimbursement
of expenses, or compensation (other than commissions) to agents, brokers,
applicants, policyholders or third parties in connection with the solicitation,
sale, issuance, service and administration of group business.

 

See Appendix to Exhibit B at B; C; D

7.1                  Agency expense allowance

 

All bona fide allowance for agency expense, but not allowances constituting
additional compensation.

 

No allocation - direct charge to Affiliate.

7.2                  Agents’ balances

 

Agents’ balances charged off less any amounts recovered during the year.

 

No allocation - direct charge to Affiliate.

 

5

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Expense Line Item
Per General
Expense Exhibit 2*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

charged off

 

 

 

 

7.3                  Agency conferences other than local meetings

 

Cost of banquets and rental of meeting rooms. Expenses of all persons traveling
to conferences and their expenses at conferences.

 

Primarily a direct charge to Affiliate. Remaining expenses are allocated per
Appendix to Exhibit B at B; C; D

9.1                  Real estate expenses

 

The cost of repairs, maintenance, service, and operation of all real estate
properties including insurance whether occupied by the company or not; salaries
and other compensation of managing agents and their employees; expenses incurred
in connection with rental of such properties; legal fees specifically associated
with real estate transactions other than sale; rent, salaries and wages, and
other direct expenses of any branch of Home Office until engaged solely in real
estate work (not real estate and mortgages combined).

 

Square footage occupancy

9.2                  Investment expenses not included elsewhere

 

Only items for which no specific provisions has been made elsewhere, e.g.,
contributions or assessments for bondholders’ protective committees, fees of
investment counsel, custodian and trustee fees.

 

See Appendix to Exhibit B at A; D

9.3                  Aggregate write-ins for expenses

 

Items for which no pre-printed statutory line exists. Description title shown in
Exhibit 2 will vary based on need.

 

Cost Management will develop the most appropriate allocation basis and maintain
documentation

 

6

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Expense Line Item
Per Taxes,
Licenses and Fees
Exhibit 3*

 

Expense Classification Description**

 

Basis of Expense
Allocation***

1.                        Real estate taxes

 

Those taxes directly assessed against property owned by the company. Canadian
and other foreign taxes should be included appropriately.

 

Square footage occupancy

2.                        State insurance department licenses and fees

 

Assessments to defray operating expenses of any state insurance department.
Canadian and other foreign taxes should be included appropriately. Fees for
examinations by state departments.

 

No allocation - direct charge to Affiliate.

3.                        State taxes on premiums

 

State taxes based on policy reserves, if in lieu of premium taxes. Canadian and
other foreign taxes should be included appropriately. Any portion of commissions
or allowances on reinsurance assumed for group business which represents
specific reimbursement of premium taxes. Deduct any portion of commissions or
allowances on reinsurance ceded for group business which represents specific
reimbursement of premium taxes.

 

No allocation - direct charge to Affiliate.

4.                        Other state taxes

 

Assessments of state industrial or other boards for operating expenses or for
benefits to sick unemployed persons in connection with disability benefit laws
or similar taxes levied by states. Canadian and other foreign taxes are to be
included appropriately. Advertising required by law, regulation or ruling,
except in connection with investments. State sales taxes, if company does not
exercise option of including such taxes with the cost of goods and services
purchased. State income taxes.

 

No allocation - direct charge to Affiliate.

5.                        U.S. Social Security taxes

 

Company’s contribution is based on the current tax rate, which is applied to all
wages, salary or compensation entered on the employees earning record and
federal unemployment tax.

 

See Appendix to Exhibit B at A; B; C; D

6.                        All other taxes

 

Guaranty fund assessments and taxes of Canada or of any other foreign country
not specifically provided for elsewhere. Sales taxes, other than state sales
taxes, if company does not exercise option of including such taxes with the cost
of goods and services purchased.

 

No allocation - direct charge to Affiliate.

 

7

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APPENDIX TO EXHIBIT B

 

INTERCOMPANY SERVICE AND EXPENSE ALLOCATION SUMMARY MATRIX

ALLSTATE LIFE INSURANCE COMPANY AND LIFE AFFILIATES

 

A.          Human Resource Shared Services, Finance Shared Services, Sourcing
and Procurement Solutions Shared Services, Corporate Marketing Shared Services, 
Research Center Shared Services, Allstate Technology Operations Shared Services,
Customer and Enterprise Shared Services, Corporate Relations Shared Services, 
Facility Service Shared Services,  Real Estate and Construction/Facility
Services Shared Services, CEO/COO Shared Services, Allstate Investment, LLC
Shared Services, Allstate Financial Services Broker Dealer allocations are based
on services and associated costs performed by the provider for the benefit of
the recipient and are generated and approved through extensive discussions
between service providers and service recipients during the Annual Corporate
Planning Process.

 

B.            Allstate Protection Head Office allocations to the Life Company
and Affiliates are based on:

 

1.               Compensation

2.               Time and effort studies

3.               Statistical data

 

C.            Allstate Protection Field Office allocations to the Life Company
and Affiliates are based on:

 

1.               Compensation

2.               Time and effort/usage studies

3.               Statistical Data

 

D.            Life Parent Company allocations to Life Affiliates are based on:

 

1.               Time and effort/usage studies

2.               Required Capital

3.               Invested Assets

4.               Statistical Data

 

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EXHIBIT C

 

EXPENSE PROCESS OVERVIEW

ALLSTATE INSURANCE GROUP

 

For purposes of operational analysis and financial reporting, functional expense
groups are made up of three primary categories:  (1) Loss adjustment expenses,
(2) Other underwriting expenses; and (3) Investment expenses.  A more detailed
description of expense items, which comprise these categories, is provided in
Exhibits A and B.  These exhibits are the framework for reporting expenses
required by the NAIC.    The expense categories, in turn, flow into the
financial records based on the following cost allocation methods: a direct
charge basis; an allocated or shared basis; or in accordance with the terms of
one or several reinsurance agreements.  The combined expense process ultimately
provides for financial records that reflect the financial performance of the
business.

 

On a day-to-day basis, expenses are incurred directly by affiliates within the
Allstate Group.  The expenses are charted numerically by account. Formalized
procedures are used in order to ensure that the expenses are accurately recorded
and allocated to the appropriate affiliate (via use of the designated company
code), cost center and cost element.  Allocations are also provided for various
support costs, which include:  company code, cost center and cost element level
with the objective of providing for an accurate means of tracking expenses.

 

A brief description of each of the three expense categories follows:

 

·                  Loss adjustment expenses are various costs associated with
the claim handling process.  These costs, which comprise all aspects of the
claims handling function, include: the adjustment, factual investigation,
defense and record keeping functions.  Salaries of claim personnel and allocated
executive salaries, as well as other basic costs associated with the claim
function (accounting, data processing, rent, utilities, etc.) are grouped in
this category.  Generally, these expenses may be either direct charged,
allocated, or flow to an entity by means of a separate reinsurance agreement.

 

·                  Other underwriting expenses include acquisition, general
expenses, taxes, licenses and fees.  The larger piece, acquisition expenses, is
comprised of agent commissions, various expenses related to underwriting (motor
vehicle reports, home inspections, etc.), salaries, marketing and other
allocations of expenses which support the production of new and renewal
business.  General expenses are typically administrative in nature and do not
fit cleanly in any other expense grouping.  Taxes, licenses and fees pertain
to:  taxes (income and franchise) and licenses fees levied by state and local
government; insurance department expenses; and guaranty fund assessments.  These
expense categories are charged to an affiliate in any of the same three methods
shown above for loss adjustment expenses.

 

·                  Investment expenses for research, purchase and sale
activities, safekeeping, accounting and data support are the bulk of expenses in
this bucket.  Generally, these expenses will flow to an affiliate by direct
charges to an affiliate or on an allocated basis.

 

The mechanism for recording expenses can occur by means of one of the following
three methods:

 

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·                  Direct Charges — This method is used where the expenses are
unique to the affiliate incurring them.  These types of expenses are not
allocated to another affiliate due to their unique relationship to the affiliate
incurring them.  Expense payments are classified to the responsible affiliate
through an accounting coding expense system involving company code, cost center,
and cost element  (See Exhibits A and B for more detail).  By way of example:
agents’ commissions, taxes, licenses and fees, are company specific, and
therefore, coded directly to the appropriate company code.

 

·                  Allocations

 

The expense allocation process can be divided into 3 subcategories:

 

1.               Cost Center(s) — The objective of this phase of the allocation
process is to properly transfer various support costs performed by one cost
center(s) to another cost center(s) that they directly relate to.  The basic
justification for this cost transfer is efficiency gain, which is mutually
beneficial to both parties.  Certain processes are centrally performed on behalf
of a number of affiliates, then allocated to the cost center(s) being
supported.  Routine expenses of this nature often include support activities
from the following functional areas: Accounting; Systems; Investments; Corporate
Relations; Law and Regulation; and Human Resources.   These costs cannot be
directly expensed. It is necessary to provide for an appropriate method of
allocation.  An example of this method of allocation would relate to the
accounting treatment of costs and expenses attributable to Allstate’s Internal
Audit Department (IAD).  As part of the Allstate Corporate Home Office
structure, IAD salaries and related expenses are allocated to other affiliates
and/or cost center(s) (i.e. data and profit centers) based on time and effort
studies.   The terms for this allocation are delineated in a separate agreement
between the parties which is referred to as a Shared Service Agreement (SSA). 
The SSA is a vehicle which allows the parties to agree in advance on certain
essential terms and conditions which include: a description of the services to
be provided; the period covered; costs and standards.  The SSA concept can be
used to transfer expenses between Brands (e.g., Allstate, Ivantage, Indemnity,
Life), between Shared Services (e.g., Finance, Investments, Human Resources,
Technical) or between a Brand and Shared Service.

 

SAP is programmed to perform the allocation process on a monthly basis.  The
process begins with the extraction of direct costs for each  cost center and
cost element.  Varying premium and claim statistics (e.g., policies in force,
claim counts) as well as other common factors (e.g., number of employees, number
of retirees) are then entered into the program.  The resulting data provides the
bases, or allocation drivers, for transferring expenses from a cost
center(s)/cost element level of detail to other cost center(s)/cost elements. 
Detail records are generated in order to provide the source and recipient of the
allocated expenses.

 

A separate process has been initiated in order to periodically review the
accuracy of the factors or drivers of the allocations.  The accuracy of service
provider time and effort studies may be taken into account (i.e. projected v.
actual).  Other factors that may be considered include an inventory of
activities and customers in order to ensure that allocations are accurate.  
Intensive discussions and management agreement between the provider and customer
are also an integral part of the annual corporate planning process.  Flexibility
in the overall allocation process must routinely occur to provide for changes in

 

2

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the business activities or organizational structure.

 

2.               Company — This step in the expense allocation process is
similar to the cost center allocation process described above in that
allocations are charged to other affiliates.  For instance, both Allstate
Insurance Company and Allstate Life Insurance Company incur expenses on a direct
basis for themselves and on behalf of their affiliates.  A portion of these
expenses may be transferred to other affiliates, as appropriate.  Fixed factors
are normally based on internal time and effort studies, agents’ compensation, or
statistical criteria such as gross policies issued or incurred losses.

 

3.               Uniform Accounting Transfer (UAT) — The next step in the
process is to reclassify all of the general office expenses addressed in the
direct charges and expense allocation sections above, having been recorded on a
management basis, to their required statutory expense classifications.  The use
of a consistent basis for reporting expenses, as dictated by the NAIC, allows
the regulators to better compare various insurance companies’ operations.  On
the property/casualty side, broad expense categories and detail breakouts are
required for both the Expense Exhibit in the annual Statutory Statement as well
as the Supplemental Expense Filing, which is contained in the Insurance Expense
Exhibit.  For Life companies, the General Expense and the Taxes, Licenses and
Fees Exhibits from the annual Statutory Statement have distinct expense
categories.  A synopsis of these required expense categories, along with a
description of each expense category and the basis of allocation presently used
by Allstate is contained in Exhibit A and appendix (Property and Casualty
affiliates) and Exhibit B and appendix (Life Company affiliates).

 

In order to provide for accurate summarization and reporting, each cost element
included in the Chart of Accounts is assigned a statutory expense
classification.  Loss adjustment, other underwriting and investment expenses are
the broad classifications that UAT applies to.  By way of example, a systems
function, whether relating to claims, sales, or investments, is initially
classified as a general office expense on a management basis.  Based on the UAT
process, these expenses are reclassified for statutory reporting purposes to
loss adjustment, other underwriting or investments.  Taxes, licenses and fees,
although included in the other underwriting expense category, are not used in
the UAT calculation process. These expenses are directly charged to the
appropriate statutory classification within company code.

 

Reinsurance Agreements — Separate arrangements exist between the
property/casualty parent, Allstate Insurance Company, and certain affiliates,
and the life parent, Allstate Life Insurance Company, and certain affiliates
that drive expenses.   Terms and conditions relating to methods of expense
classification are contained in each of the individual reinsurance agreements. 
Typically, the reinsurer will be liable for a pre determined pro-rata share of
all underwriting related expenses to support the assumed business.  However, the
reinsurer is not generally liable for the investment expenses.

 

3

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EXHIBIT D

 

DEFINITIONS

 

The following terms shown by “process flow” and “general” categories are
commonly used in explanation of the Allstate Group’s overall expense process. 
Presentation of the “process flow” section follows the same hierarchical order
of our current expense processing methodology.

 

PROCESS FLOW

 

Company — Identifies affiliates that expense is charged to and may be disbursed
from.  Each affiliate who is a party to this agreement is assigned a separate
three digit company code (e.g., Allstate Insurance Company — 010, Allstate Life
Insurance Company — 030).  A “charged company” is the Allstate affiliate charged
with the expense under review and whose Statement of Income would be ultimately
impacted.

 

Cost Center — Describes an area of responsibility where specific costs are
incurred and planned.  A cost center will be the most common object used and
identifies administrative grouping within an office and duties as well as the
manager responsible.  As an example a Regional Office Department may include:
Underwriting; Sales; Human Resources; and Claims.

 

Cost Elements — Describe what specific costs have occurred and are used to plan
and incur direct expenses for cost objects representing a unique item or
category of expense to the affiliate.

 

Internal Orders — A cost collector used to gather, identify and allocate costs
associated with a process, event, activity or project.

 

Profit Center — Aligns expense to a distribution channel, geographic location
and product grouping (i.e. Midwest Region, Illinois, standard auto).

 

GENERAL

 

ASSESSMENTS/ALLOCATED EXPENSES — WHICH, ARE INCURRED BY ONE ALLSTATE
AFFILIATE/COST CENTER AND CHARGED, OR ALLOCATED, TO OTHER COST CENTER/AFFILIATE
ON THE BASIS OF MUTUAL BENEFIT.  EXAMPLES OF THE TYPES OF ALLOCATED EXPENSES
INCLUDE: LOSS ADJUSTMENT, OTHER UNDERWRITING AND INVESTMENT EXPENSES.   THESE
EXPENSES INCLUDE ALLOCATIONS IN COST CENTERS FROM COST ELEMENTS TO SECONDARY
COST ELEMENTS AND ARE DESCRIBED IN EXHIBIT C.  CRITERIA FOR COST ALLOCATION
“DRIVERS” ARE BASED ON THE IMPLEMENTATION OF MANAGEMENT OBJECTIVES.   THE
ASSESSMENTS CAN USE ALL THREE METHODS OF ALLOCATIONS: FIELD PERCENTAGE; FIXED
AMOUNT; AND VARIABLE PORTIONS, WHICH CONTAIN STATISTICAL KEY FIGURES. 
ADDITIONAL INFORMATION IS INCLUDED IN THE EXHIBITS AND APPENDIXES ATTACHED. 
ALLOCATION DRIVERS AGREED TO BY MANAGEMENT ARE USED TO ALLOCATE EXPENSES, AND
THESE ARE DESCRIBED IN DETAIL IN THE VARIOUS EXHIBITS AND APPENDIXES.

 

Reinsurance Agreement — An agreement between two parties where one insurer
spreads its risk (premium, loss and expense) of losses with other insurers.

 

1

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