The Allstate Corporation
December 18, 2002
By e-mail to email@example.com
Mr. Jonathan G. Katz
Re: File No. S7-43-02
Dear Mr. Katz:
I am writing on behalf of The Allstate Corporation in response to the Securities and Exchange Commission's request for comments on the proposed rule on conditions for the use of non-GAAP financial measures.
The Allstate Corporation is the nation's largest publicly held personal lines insurer. Our common stock is listed on both the New York Stock Exchange and the Chicago Stock Exchange.
Non-GAAP per share measures
Allstate is particularly concerned about the aspects of the proposed rule that would prohibit the disclosure of non-GAAP per share measures. For the insurance industry, we believe that an operating earnings per share measure provides important information to investors and allows investors to look at an insurance company through the eyes of management. As long as any non-GAAP per share measure is reconciled to GAAP and not given prominence over a GAAP measure, we believe that it is not misleading.
Analysts who follow the insurance industry regard operating income as a more reliable measure of a company's performance than net income. Net income includes capital gains and losses generated from the sale of investments. The senior management of an insurance company exercises a considerable degree of discretion in choosing when to sell investments and, therefore, in determining when the company will incur a gain or loss and the extent of that gain or loss. Generally management properly exercises this discretion on the basis of its investment expertise and in order to address legitimate business considerations. So, for example, management might decide to sell investments in an effort to minimize losses, to reposition an investment portfolio in light of changing market conditions, or to increase liquidity to pay claims following a catastrophe. Analysts recognize the legitimacy of these business considerations. However, they also recognize that, because net income includes capital gains and losses, it is a measurement that can be manipulated by management to achieve a desired level of income in a particular period or to smooth earnings over a number of periods.
The analysts who follow the insurance industry state their earnings forecasts in terms of operating income per share. If insurance companies cannot state their results in the same terms, there will be a discrepancy between the information provided to investors by analysts and the information provided by the industry. It seems that this would be a disservice to investors.
We urge the Commission to allow the disclosure of non-GAAP per share measures provided that such measures are reconciled to GAAP and not given prominence over GAAP per share measures.
In addition, Allstate shares the concerns identified by James Lootens in his letter of December 12, 2002 on behalf of the Securities Law Committee of the American Society of Corporate Secretaries, a copy of which is attached.