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:


 

















 


“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:

  	
   

  



 

















 


	
   

  	
   

  	
  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:

  	
   

  



 

















 


	
   

  	
   

  	
  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:

  	
   

  



 

















 


	
   

  	
   

  	
  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:

  	
   

  



 

















 


	
   

  	
   

  	
  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:

  	
   

  



 

















 


	
   

  	
   

  	
  Allstate
  Investments, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  BY:

  	
   

  
	
   

  	
   

  	
   

  	
  Steven E. Shebik

  
	
   

  	
   

  	
   

  	
  Vice President, Treasurer and Chief Financial Officer

  
	
   

  	
   

  	
  Date:

  	
   

  



 






 












 


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

















 


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

















 


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

















 


·                  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

















 


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

















 


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

















 


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

















 


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

















 


 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
















 


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:

  



 






*                                         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

















 


	
  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

















 


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


 


1
















 


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

  



 






*                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.


 


1

















 


	
  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 

  



 


2

















 


	
  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

















 


	
  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

















 


	
  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

















 


	
  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

















 


	
  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.

  



 


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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:


 


1

















 


·                  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

















 


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
















 


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