2018 Annual Meeting of Stockholders

Performance Measures for 2017

The following pages contain descriptions of the performance measures used for executive incentive compensation. They were developed uniquely for incentive compensation purposes, are non-GAAP measures and are not reported in our financial statements. The committee has approved the use of non-GAAP measures when appropriate to drive executive focus on particular strategic, operational, or financial factors, or to exclude factors over which our executives have little influence or control. The committee monitors compensation estimates during the year based on actual performance on these measures, and the internal audit department reviews the final results.

Performance Net Income: This measure is calculated uniquely for annual cash incentive awards, the 162(m) pool, and each PSA performance cycle. For each plan, Performance Net Income is equal to net income applicable to common shareholders as reported in The Allstate Corporation annual report on Form 10-K adjusted for the after-tax effect of the items indicated below:

  • Indicates adjustments to Net Income
Annual Cash Incentive
Awards/162(m) Pool
Performance Stock Awards(1)
Net income applicable to common shareholders, excluding:    
Realized capital gains and losses (which includes the related effect on amortization of deferred acquisition and deferred sales inducement costs) except for periodic settlements and accruals on certain non-hedge derivative instruments
Valuation changes on embedded derivatives not hedged (which includes the related effect on amortization of deferred acquisition and deferred sales inducement costs)
Business combination expenses and amortization of purchased intangible assets
Gain (loss) on disposition of operations
Other significant non-recurring, infrequent or unusual items, when the nature of the charge or gain is such that it is reasonably unlikely to recur within two years or there has been no similar charge or gain within the prior two years  
  • Change in accounting for investments in qualified affordable housing projects(2)
 
  • Goodwill impairment
  • Tax legislation benefit(3)
Adjusted Net Income subtotal (See Appendix A)    
Restructuring and related charges
Underwriting results of Discontinued Lines and Coverages segment
Effects of acquiring and selling businesses  
Adjustments to be consistent with financial reporting used in establishing the measure (4)
Adjustments for other significant, non-recurring, infrequent or unusual items(5) (4)
Adjustment to exclude income associated with parent holding company level deployable assets in excess of $1 billion(6)  
Performance Net Income before adjustment for volatile items(7)    
Adjustment for after-tax volatile items Adjusted to include minimum or maximum amount of after-tax catastrophe losses and income from performance-based long-term investments(8) Three-year average adjusted to include a minimum or maximum amount of after-tax catastrophe losses
Performance Net Income    
  1. Performance Net Income is a performance measure for the 2015-2017, 2016-2018, 2017-2019, and 2018-2020 performance cycles. The 2016-2018, 2017-2019, and 2018-2020 performance cycles do not qualify for final measurement as of December 31, 2017; the items checked above and after-tax volatile items indicate items that by definition may impact the final measurement when the three-year cycle and final measurement is completed.

  2. Adjustment impacts only the calculations for the 2015-2017 performance cycle.

  3. Adjustment not applicable to 2018-2020 performance cycle.

  4. Adjustment only impacts 2017 Annual Cash Incentive.

  5. Adjustment for 2016-2018, 2017-2019, and 2018-2020 performance cycles.

  6. Adjustment for 2018-2020 performance cycle.

  7. Volatile items include catastrophe losses and income from performance-based long-term investments (“PBLT income”) depending on the measure.
  8. 162(m) pool volatile items adjustment only excludes actual amount of after-tax catastrophe losses.

Annual Cash Incentive Award Performance Measures for 2017

  • Performance Net Income: This measure is used to assess financial performance. In 2017, Performance Net Income was $2,703 million compared to reported Adjusted Net Income* of $2,467 million, an increase of $236 million. It was adjusted to remove the impacts of the underwriting loss of the Discontinued Lines and Coverages segment, restructuring and related charges, a maximum amount of after-tax catastrophes and PBLT income, pension settlement charge and employee share-based accounting tax benefit.

  • Net Investment Income: This measure is used to assess the financial operating performance provided from investments. Net Investment Income as reported in the consolidated statement of operations is adjusted to include a minimum or maximum amount of PBLT income if the actual amounts are less than or exceed those amounts, respectively. Net Investment Income is also subject to adjustments to be consistent with the financial reporting used in establishing the measure and to exclude the effects of acquiring and selling businesses. In 2017, an adjustment to reflect a maximum amount of PBLT income was necessary, resulting in Net Investment Income of $3,188 million, compared to reported net investment income of $3,401 million.

  • Total Premiums: This measure is used to assess growth within the Allstate Protection, Service Businesses, Allstate Life, Allstate Benefits, and Allstate Annuities businesses. It is equal to the sum of Allstate Protection and Service Businesses premiums written and Allstate Life, Benefits, and Annuities premiums and contract charges as described below.

    Premiums written is equal to the Allstate Protection and Service Businesses net premiums written as reported in management’s discussion and analysis in The Allstate Corporation annual report on Form 10-K.

    Premiums and contract charges are equal to life premiums and contract charges reported in the consolidated statement of operations in The Allstate Corporation annual report on Form 10-K.

    Total Premiums is subject to adjustments to be consistent with the financial reporting used in establishing the measure and to exclude the effects of acquiring and selling businesses. No such adjustments were necessary in 2017.

    Total Premiums of $35,120 million were equal to reported Total Premiums.

  • Total Return: This measure is used to assess financial performance of the investment portfolio. Total return is calculated as the ratio of the sum of net investment income, realized capital gains and losses, the change in unrealized net capital gains and losses, and the change in the difference between fair value and carrying value of mortgage loans, cost method limited partnerships, bank loans and agent loans, divided by the average fair value balances at the beginning and at the end of 2017.

    Total Return is subject to adjustment to be consistent with the financial reporting used in establishing the measure and to exclude the effects of acquiring and selling businesses. In 2017, no adjustments were necessary, and Total Return was 5.9%.

Performance Stock Award Performance Measures for the 2015-2017 Performance Cycle

  • Three-Year Average Performance Net Income Return on Equity: It is calculated as the ratio of the average Performance Net Income for the three years in the period divided by the average of Adjusted Common Shareholders’ Equity at December 31 of the year-end immediately preceding the period and at the end of each year in the three-year period.

  • Adjusted Common Shareholders’ Equity is equal to common shareholders’ equity excluding the net effects of unrealized net capital gains and losses. It is subject to adjustments to be consistent with the financial reporting used in establishing the measure and to exclude the net effects of acquiring and selling businesses. Adjusted Common Shareholders’ Equity at December 31 of the year-end immediately preceding the period is not subject to adjustment.

  • Three-year Average Performance Net Income Return on Equity for the 2015-2017 performance cycle was 12.2%, compared to our reported Adjusted Net Income return on equity* of 13.4%, 10.4% and 11.6% for the three years ended 2017, 2016, and 2015, respectively, and the three-year average of 11.8%. The primary adjustments relate to underwriting loss of the Discontinued Lines and Coverages segment, restructuring and related charges, net effects of acquiring business, and employee share-based accounting tax benefit.

Performance Stock Award Performance Measures for the 2016-2018, 2017-2019 and 2018-2020 Performance Cycles

  • Three-Year Average Performance Net Income Return on Equity (measure weighted at 70%): These cycles are calculated in a similar manner to the 2015-2017 cycle as disclosed above, but are adjusted to reflect the foreign exchange rate used in establishing the measure (in place of actual foreign currency translation) for any period if the Total Premiums measure for the Annual Incentive Plan is adjusted for foreign exchange rates. For the 2018-2020 performance cycle, average common shareholders’ equity will also be adjusted to remove the impact of other significant non-recurring, infrequent or unusual items in excess of a threshold and parent holding company level deployable assets in excess of $1 billion.

  • Earned Book Value (measure weighted at 30%): Earned Book Value is the increase between common shareholders’ equity at December 31 of the year-end immediately preceding the three-year period and adjusted common shareholders’ equity at December 31 of the last year of the three-year period expressed as a compound annual growth rate.

    Adjusted common shareholders’ equity is equal to common shareholders’ equity at December 31 of the last year of the three-year period adjusted to:

    • Add back reductions for common share repurchases and declared common shareholder dividends during the three-year period.

    • Remove the impact of other significant non-recurring, infrequent or unusual items in excess of a threshold.

    • Reflect a minimum or maximum amount of after-tax catastrophe losses if the actual after-tax catastrophe losses are more or less than +/- 20% respectively of the three years of catastrophe losses used to establish the measure.

    • Be consistent with the financial reporting used in establishing the measure.

    • Exclude the effects of acquiring and selling businesses.

    • Reflect the foreign exchange rate used in establishing the measure (in place of actual foreign currency translation) for any period if the Total Premiums measure for the Annual Incentive Plan is adjusted for foreign exchange rates.

  • Measures used in this proxy statement that are not based on generally accepted accounting principles (“non-GAAP”) are denoted with an asterisk (*). These measures are defined and reconciled to the most directly comparable GAAP measures in Appendix A.