1 Enterprise Scorecard Measurement Definitions 01/15/99

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Enterprise ScorecardMeasurement Definitions

01/15/99

2

Contents

� Measurement overview ---------------------- 3

� Financial Perspective ------------------------- 5– Earnings growth

– GAAP ROE

– RBC

– Capital plan

– Product & distribution mix

� Customer ----------------------------------------- 11– Rating within peer group

– Customer satisfaction index

– Retention

– Sales versus plan (variance)

– Policies under administration

– Total policyholders / total members

– Product profitability

� Process ------------------------------------------- 18– Growth in target markets

– Expense ratios (3)

– Technology ROI

� Learning & Growth ----------------------------- 22– PDP’s completed leadership& employees

– Incentive alignment

– Employee survey results

– Leadership strength

– Employee ROI

– Change initiative status

Page

Enterprise Scorecard

Objectives: Win through people, Grow profitably, Create value

Financial Perspective

Learning & Growth

Customer Perspective

Internal Process Perspective

• Growth in target market segments vs. plan• Technology ROI• Expense measures (e.g.Ttl general expenses

as % of Ttl prem.; Investment expense ratio)

• Employee survey results• PDP’s completed for all leadership & %

employees• Leadership strength• ROI (employee)• Incentive alignment• Initiative change status

• Earnings growth • Unleveraged GAAP ROE• RBC • Capital plan• Product & distribution mix

• Policies under administration• Sales (Premium) vs. plan (variance)• Product profitability• Retention (Policyholders, Agents, “Partners”)• Customer Satisfaction Index• Rating within peer group

Qualityearnings growthconsistent with

plan

Quality ROEConsistent with

plan

EnhanceEconomic

Value

Develop products thatdeliver true value tothe customer and

enterprise

Maintainappropriate

rating

Recruiting& retention

Education& training

EmployeeSatisfaction

Well-alignedincentives

Expand customer base &penetration of existing

customers

Alignment ofproducts, services &

delivery to targetcustomer segments

Efficient & effectivebusiness

fundamentals

Optimizetechnology &infrastructure

Provide qualityservice meetingcustomer needs

Developing currentleadership &

leadership of the future

Capital & Riskmanagement

BalancedPortfolio ofBusiness

To be an innovative, growing, high performance, public financial services enterprise that makes the future better for all our stakeholders.

4

Enterprise Performance Measures

•Earnings Growth1

•GAAP ROE1

Enhance Economic

Value

•Product profitability (New & existing

products)2 •Rating1

% PDP Forms

Completed2

Employee ROI1

Employee Sat. Index2

Incentive Alignment2

•Policies under administration1

•Total policies / Total members1

•Sales versus plan1

•Target Market Growth2 •Technology ROI1

•Retention (lapse) 1

•Customer Sat. Index2

% PDP Forms Completed (Leadership) 2

Leadership Strength 2

Financial

Customer

Process

Learning & Growth

•Expense Ratios1

•Product Mix1

•Distribution Mix2

•RBC1

•Capital Requirements1

1Data currently available2 Data requires development

Initiative StatusMeasure 1

Annual

Quarterly

Monthly

Frequency

5

Financial

6

Earnings Growth

Measure: Earnings Growth Owner: _____________________________

Perspective: Financial Availability: Yes No

Critical Success Factor: Quality earnings growth consistent Data Source: Actual and project consolidated with plan

Definition: Percentage growth in consolidated GAAP

earnings as defined by: TO BE COMPLETED

Formula: (Current Qtr Profit - Prior Qtr Profit )/ Prior Qtr Profit * 100%.

Frequency:

Daily Quarterly Weekly Annually Monthly Other:___________

Current Results: ________________________

Target Results:Short Term: Long Term: 15%

Alternative Measure(s):

* Comments: Check growth rate targets. % increase over last quarter.

Benchmark Internal External

Source: _______________________________

Q1 '98 Q2 '98 Q3 '98 Q4 '98 Q1 '99

Earnings

Earnings Growth from Prior Quarter

Target Growth Rate

7

Unleveraged GAAP ROE

Measure: Unleveraged GAAP ROE Owner: _____________________________


Critical Success Factor: Quality ROE consistent with plan Data Source: Actual and project consolidated

Definition: Consolidated GAAP earnings divided by average GAAP equity

Formula: Industry & AUL’s formula

FORMULA TO BE COMPLETED

Frequency:


Current Results: ________________________

Target Results:Short Term: Long Term: 10 - 15%


Comments: Check formula differences. Inclusive of Investment Gains?


Source: Moody’s and other (TBD)

Consolidated GAAP ROE

0%

2%

4%

6%

8%

10%

12%

14%

Q1

'98

Q2

'98

Q3

'98

Q4

'98

Q1

'99

Q2

'99

Q3

'99

Q4

'99

Quarter

% R

OE

Consolidated ROE (%)

Target

8

Risk-Based Capital

Measure: RBC Owner: _____________________________


Critical Success Factor: Capital & Risk Management Data Source: Blue Book

Definition: Consolidated GAAP earnings divided by average GAAP equity

Formula: per NAIC rules

Frequency:


Current Results: ________________________

Target Results:Short Term: 270%Long Term: TBD (250%)

Alternative Measure(s): Capital Plan, ALM

Comments:


Source: _______________________________

NAIC RBC

0%

50%100%

150%

200%

250%300%

350%

Q1'98

Q2'98

Q3'98

Q4'98

Q1'99

Q2'99

Q3'99

Quarter

NAIC RBC

Target

9

Capital Plan

Measure: Capital Plan Owner: _____________________________


Critical Success Factor: Capital & Risk Management Data Source: TO BE DETERMINED

Definition: Consolidated quarterly projection of capital needs for all products projected for 6 quarters and sources of funds (e.g. LOB, AUL, other)

Formula: Summation of total capital needs for all products by quarter for next 6 quarters and sources of funds

Frequency:


Current Results: ________________________

Target Results:Short Term:

Long Term:

Alternative Measure(s): RBC, ALM

Comments:


Source: _______________________________

Q1 '99 Q2 '99 Q3 '99 Q4 '99 Q1 '00 Q2 '00

Capital Requirements (Consolidated Needs)

Sources of Capital

Line of Business AUL Other (Specify) Total

10

Product & Distribution Mix

Measure: Product & Distribution Mix Owner: _____________________________


Critical Success Factor: Balanced Portfolio of Business Data Source: LIMRA

Definition: Sales by product lines* versus the industry

Sales by distribution channel10% or greater share of production (Agents, IMO, Legacy, Joint Venture, Strategic Alliance, Other

Formula: Sales by product line Sales by channel

Frequency:


Current Results: ________________________

Target Results:Short Term: Sales vs. plan

4 Channels with > 10% production

Alternative Measure(s): Product line ranking versus industry (goal = top 10)

Comments: Annuity production will count only retained business (not 100% reinsured).


Source: _______________________________

Sample Product Mix Chart: Monthly Sales (Premium)

Whole Life24%

UL13%

Term13%

Fixed Annuity25%

Var Annuity25%

“Mock Data”

Sample Distribution Mix Chart: Monthly Sales by Channel

Agents37%

IMO12%

Legacy12%

Joint Venture13%

Strategic Alliance

13%

Other13%

“Mock Data”

11

Customer

12

Rating within Peer Group

Measure: Rating within Peer Group Owner: _____________________________

Perspective: Customer Availability: Yes No

Critical Success Factor: Maintain appropriate rating Data Source:

Definition: Ratings from A.M. Best, Duff & Phelps, S&P and Moody’s

Formula:

Frequency:


Current Results: ________________________

Target Results:Short Term: Current ratings

Long Term: to be determined

Alternative Measure(s): RBC, Capital Plan

Comments:


Source: _______________________________

A.M. Best Duff & Phelps S & P Moody's97 98 97 98 97 98 97 98

Indianapolis Life A (Exc) AA AA- A2OtherOtherOtherOtherOtherOtherOtherOtherOther

13

Customer Satisfaction Index

Measure: Customer Satisfaction Index Owner: _____________________________


Critical Success Factor: Provide quality service meeting Data Source: _________________customer needs

Definition: 4 surveys rating customer satisfactionFormula: (TBD) Results from 1) CAP Survey, 2) New Business Survey, 3) Surrender Survey (top non-financial reasons), 4) Agent Survey

Frequency:

Daily Quarterly Weekly Annually (Agent Survey) Monthly Other:___________

Current Results: ________________________

Target Results:Short Term: LIMRA CAP Survey

above industry averages, New Business > 4.5, 95% positive results from agents,

Alternative Measure(s): Retention

Comments: Agent survey requires annual development (with AGA). Review and redefine Surrender Survey


Source: _______________________________

New Business Customer Survey

0

1

2

3

4

5

Sep '98 Oct '98 Nov '98 Dec '98

Month

Ave

rag

e o

f 5

dim

ensi

on

s

Average

Target

Dimensions: Timeliness, Accuracy, Communication, Professionalism, Overall Service

CAP Survey (LIMRA)

94.4

94.6

94.8

95

95.2

95.4

95.6

Sep'98

Oct'98

Nov'98

Dec'98

Month

% R

epo

nd

ing

Ag

ents

S

atis

fied

% response extremelyor very helpful

% response normSurrender SurveyTop Non-Financial Reasons Q3 '98 Q4 '98 Q1 '99No Longer Need 1 2 2Recently replaced 2 1 1Received poor service (HQ) 3 4 3Received poort service (Agent) 4 3 4

Agent Survey to be developed

Mock Data

14

Retention

Measure: Retention Owner: _____________________________


Critical Success Factor: Provide quality service meeting Data Source: #’s 1 & 4 Availablecustomer needs

Definition: Retention of policyholders, agents and partnersFormula: (TBD) 1) Lapse study, 2) Policyholders with > 1 policy, 3) IMO’s, GA’s, and Agents meeting minimum requirements, 4) No. of new strategic partners

Frequency:


Current Results: ________________________

Target Results:Short Term: Lapse Study: Actual vs.

Expected, Minimum contract no.’s: IMA’s 200,000, GA’s 20,000, Agents 5000, Strategic partner growth: 4

Alternative Measure(s): Customer Satisfaction Survey results

Comments: Develop numbers 2 and 3 in formula


Source: _______________________________

15

Sales versus Plan (Variance)

Measure: Sales versus plan (variance) Owner: _____________________________


Critical Success Factor: Expand customer base & penetration Data Source: Board Report, End of Mo. Salesof existing customers

Definition: Continuous Paid Premium Equivalent comparedto plan (measurement of the variance)

Formula: Sales: 100% of WL Premium + Target of UL & VUL + 10% x Single Premium + 10% x Annuity premium collected (per month compared to prior year)

Frequency:


Current Results: ________________________

Target Results:Short Term: X% variance

Alternative Measure(s): Policies Under Administration

Comments: Ensure formula accurately reflects actual revenue


Source: _______________________________

Monthly Sales vs. Plan & Variance

0

5

10

15

20

25

30

35

Jan Feb Mar

Month

Sal

es (

$'s)

0%

20%

40%

60%

80%

100%

120%

Var

ian

ce f

rom

pla

n (

%) Monthly Sales

Plan

Variance

Mock Data

16

Policies Under Administration

Measure: Policies Under Administration (2) Owner: _____________________________


Critical Success Factor: Expand customer base & penetration Data Source: Available but not monthlyof existing customers

Definition: Volume growth in policies under administrationand Policyholders with multiple policies

Formula: 1) Total policies under administration, 2) # of policies/No. of members

Frequency:


Current Results: ________________________


Alternative Measure(s): Sales, Policyholders with > 1 policy, # of policies/No. of members

Comments: Review prior year performance to assist in target setting. Determine if compared month to month or current month vs. year ago for seasonality adjustments.


Source: _______________________________

# of Policies Under Administration

0

50

100

150

200

250

300

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep Oct

Nov

Dec Jan

Month

Act

ive

Po

licie

s (0

00's

)

Current Month Total

Yr Ago Month Total

Target

17

Product Profitability

Measure: Product profitability Owner: _____________________________


Critical Success Factor: Develop products that deliver Data Source: _______________________true value to the customer and enterprise

Definition: ROE and ROI for new and existing productsFormula: ROI and ROE by product

Frequency:

Daily Quarterly: Existing products Weekly Annually Monthly Other: as-needed for new

productsCurrent Results: ________________________

Target Results: GAAP ROE: 12%

Subsidiaries: ROI: 12%, TS - 1.75 CAL, ILICo: ROI = 10%, TS = 3.00 CAL


Comments:


Source: _______________________________

18

Process

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Growth in Target Markets

Measure: Growth in target markets Owner: _____________________________

Perspective: Process Availability: Yes No

Critical Success Factor: Alignment of products, services & Data Source: _________________delivery to target customer segments

Definition: Sales growth. Target Markets: Business Owners and Retirement Savings

Formula: Premium sales growth by market> (Current Month Sales - Prior Month Sales) / Prior Month Sales

Frequency:


Current Results: ________________________

Target Results:Short Term: 10% annual growth


Comments: Report requires development. New markets may be added in the future


Source: _______________________________

Business Owner Sales (Premium)

05

1015202530

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep Oct

Nov

Dec Jan

Month

Sal

es (

Pre

miu

m)

$000

's

Business Ow ner

Business Ow ner Target

Sh

ould

be

% in

crea

se

Retirement Savings Sales

05

1015202530

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep Oct

Nov

Dec Jan

Month

Sal

es (

$000

's) Retirement Savings

Retirement Savings Target

Mock Data

Mock Data

20

General Expense + Commissions / Assets

45%

50%

55%

60%Ja

n

Mar

May Ju

l

Sep

Nov Jan

Month

Exp

ense

s +

Co

mm

issi

on

s /

Ave

rag

e A

sset

s

% of Expenses + Commissions /Average Assets

Target Expenses +Commissions / Assets

Monthly General Expenses / Average Assets

0%10%20%30%40%50%60%

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep Oct

Nov

Dec Jan

Month%

Exp

ense

s /

Ass

ests

% of Total General Expenses /Average Assets

Target Expenses / Assets

% General Expenses / Total Premiums

42%

44%

46%

48%

50%

Jan

Feb

Mar

Apr

May Jun

Jul

Aug Sep Oct

Nov

Dec Jan

Month

% o

f E

xpen

ses

/ P

rem

ium

s % of Total General Expenses /Total Premiums

Target Expenses / Premiums

Expense Ratios

Measure: Expense Ratios Owner: _____________________________


Critical Success Factor: Efficient & Effective Business Data Source: GLFundamentals

Definition: Expenses as a % of premium and assetsFormula: 1) General Expenses / Total Premium

2) General Expense/Ave. Assets3) Expenses + Commissions / Ave Assets

Frequency:


Current Results: ________________________

Target Results:Short Term: Long Term:

Alternative Measure(s): Different expense ratios, process cycle times

Comments:


Source: Moody’s

Sam

ple Data

21

Technology ROI

Measure: Technology ROI Owner: Larry H.


Critical Success Factor: Optimize Technology Infrastructure_ Data Source: GL

Definition: Measures value added of investing in informationtechnology. Based on Saratoga’s Human Capital ROI.

Formula: (Revenue - (General Expenses - IT Expenses))/ (IT Expenses)

Frequency:

Daily Quarterly Weekly Annually Monthly Other:_________

Current Results: 15

Target Results:Short Term: 18, Long Term 20

Alternative Measure(s): Technology Scorecard Index

Comments: Excludes outsourcing IT costs


Source: LOMA TIPE STUDY

Technology ROI

0

5

10

15

20

1994

1995

1996

1997

1998

Q1

'99

Annual / Quarter

($'s

) Technology ROI

Target

22

Learning & Growth

23

PDP’s Completed for All Leadership

Measure: PDP’s completed for all leadership Owner: __________________________

Perspective: Learning & Growth Availability: Yes No

Critical Success Factor: Development of future and current Data Source: HR (TBD)leaders

Definition: Professional Development Plans completed jointly by employee and manager and reviewed and updated annually

Formula: # PDP’s completed/(# of managers + officers)

Frequency:


Current Results: _______________________

Target Results:Short Term: 100% completion


Comments:


Source: _________________________

24

PDP’s Completed for All Employees

Measure: PDP’s completed for all employees Owner: __________________________


Critical Success Factor: Recruiting & Retention Data Source: HR (TBD)and Education & Training

Definition: Professional Development Plans completed jointly by employee and manager and reviewed and updated annually

Formula: # PDP’s completed/(# of employees - managers - officers)

Frequency:


Current Results: _______________________

Target Results:Short Term: 50% completion by ‘99


Comments:


Source: _________________________

25

Incentive Alignment

Measure: Incentive Alignment Owner: __________________________


Critical Success Factor: Well aligned incentives Data Source: AIP, LTI, Sales Incentives and Education & Training

Definition: Incentive plans are in place which link individual and corporate success. Ensure a correlation between salaries + bonuses + long term incentives and GAAP ROE

Formula: (TO BE DETERMINED)

Frequency:


Current Results: _______________________

Target Results:Short Term: Balanced Scorecard

measures

Alternative Measure(s): Compensation benchmark

Comments:


Source: _________________________

26

Employee Survey Results

Measure: Employee Survey Results Owner: __________________________


Critical Success Factor: Employee Satisfaction Data Source: Possible LOMA customized survey

Definition: Annual employee survey results coveringcritical areas of concern

Formula: (TBD)

Frequency:


Current Results: _______________________

Target Results:Short Term: Meet benchmarks

Long Term: Exceed benchmarks

Alternative Measure(s): Other survey results, exit interview results, new hire survey results, phone calls/requests

Comments: Possible index entailing quality of work life, employee involvement, quality service, teamwork and employee morale


Source: LOMA

1997 LOMA Employee Survey Results

0102030405060708090

100

Wor

kLi

fe IL

ICo

Invo

lvem

ent I

LIC

o

Qua

lity

Ser

vice

ILIC

o

Team

wo

rk IL

ICo

Mor

ale

ILIC

o

Dimension

Rat

ing

ILICo

Norm

Target

27

Leadership Strength

Measure: Leadership Strength Owner: __________________________


Critical Success Factor: Developing current & future leaders Data Source: Internal analysis tool (TBD)

Definition: Depth of leadership skills and talent at all levelsof the organization to ensure both short and long term success Formula: (TBD)

Frequency:


Current Results: _______________________


Alternative Measure(s): PDP’s completed for all leaders, skill bank database, competency assessment

Comments: Initial annual assessment and then quarterly. Includes succession planning, talent audit form and discussion of needs vs. resources


Source: __________________________

28

Employee ROI

Measure: Employee ROI Owner: __________________________


Critical Success Factor: Education & Training Data Source: GL

Definition: The value added of investing in the organizationshuman assets

Formula: (Revenue - (Operating Expense - Comp Costs - Benefit Costs - PTNW))/ (Comp Costs + Benefit Costs + PTNW)

Frequency:


Current Results: _______________________

Target Results:Short Term: Exceed industry

benchmark


Comments: Data available by company size and percentiles. Consider quarterly reporting.


Source: Saratoga Report

Employee ROI

0

0.5

1

1.5

2

2.5

3

3.5

1996 1997

Year

Rat

ing

ILICo

InsuranceIndustry Mean

Stretch Goal(90th Percentile)

29

Change Initiative Status

Measure: Change Initiative Status Owner: __________________________


Critical Success Factor: Employee Satisfaction Data Source: TBD

Definition: Current status of major enterprise changeinitiatives for monitoring and evaluation on resource usage

Formula: # of initiatives (started, completed, on-going), status (on-time, ahead, delayed, postponed, Owner, resources involved

Frequency:


Current Results: _______________________



Comments:


Source:

Initiative Overview

Beginning of Period x number

Completed x number Started x number Total On-Going x number

Inititiative Area Status Owner End Date # of ResourcesInitiative 1 On-TimeInitiative 2 DelayedInitiative 3 AheadInitiative 4 PostponedInitiative 5Initiative 6Initiative 7Initiative 8Initiative 9Initiative 10Initiative 11Initiative 12Initiative 13

Documents

1 Enterprise Scorecard Measurement Definitions 01/15/99