Allstate 2015 Annual Report Download - page 86

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APPENDICES
decisions, recommendations and communications
as it represents a reliable, representative and
consistent measurement of the industry and the
company and management’s performance. We
note that the price to earnings multiple commonly
used by insurance investors as a forward-looking
valuation technique uses operating income as the
denominator. Operating income should not be
considered a substitute for net income applicable
to common shareholders and does not reflect the
overall profitability of our business.
The following table reconciles consolidated operating income and net income applicable to common
shareholders for the years ended December 31.
($ in millions, except per share data) Per diluted common share
2015 2014 2013 2012 2011 2015 2014 2013 2012 2011
Operating income $2,113 $2,367 $2,670 $2,148 $662 $5.19 $5.40 $5.68 $4.36 $1.27
Realized capital gains and losses, after‑tax 19 451 385 216 324 0.05 1.03 0.82 0.44 0.62
Valuation changes on embedded derivatives
that are not hedged, after‑tax (1) (15) (16) 82 (12) — (0.03) (0.03) 0.17 (0.02)
DAC and DSI amortization relating to realized
capital gains and losses and valuation
changes on embedded derivatives that are
not hedged, after‑tax (3) (3) (5) (42) (108) — (0.01) (0.01) (0.09) (0.21)
DAC and DSI unlocking relating to realized
capital gains and losses, after‑tax — — 7 4 3 — — 0.01 0.01 —
Reclassification of periodic settlements
and accruals on non‑hedge derivative
instruments, after‑tax 2 7 (7) (33) (35) — 0.02 (0.01) (0.07) (0.07)
Business combination expenses and the
amortization of purchased intangible assets,
after‑tax (32) (45) (55) (81) (42) (0.08) (0.10) (0.12) (0.16) (0.08)
Gain (loss) on disposition of operations,
after‑tax 2 (16) (515) 12 (5) — (0.04) (1.10) 0.02 (0.01)
Loss on extinguishment of debt, after‑tax — — (319) — — — — (0.68) — —
Postretirement benefits curtailment gain,
after‑tax — — 118 — — — — 0.25 — —
Change in accounting for investments
in qualified affordable housing projects,
after‑tax (45) — — — — (0.11) — — — —
Net income applicable to common
shareholders $2,055 $2,746 $2,263 $2,306 $787 $5.05 $6.27 $4.81 $4.68 $1.50
Combined ratio excluding the effect of
catastrophes, prior year reserve reestimates
and amortization of purchased intangible assets
(“underlying combined ratio”) is a non-GAAP
ratio, which is computed as the difference between
four GAAP operating ratios: the combined ratio,
the effect of catastrophes on the combined ratio,
the effect of prior year non-catastrophe reserve
reestimates on the combined ratio, and the effect
of amortization of purchased intangible assets on
the combined ratio. We believe that this ratio is
useful to investors and it is used by management to
reveal the trends in our Property-Liability business
that may be obscured by catastrophe losses,
prior year reserve reestimates and amortization
of purchased intangible assets. Catastrophe
losses cause our loss trends to vary significantly
between periods as a result of their incidence
of occurrence and magnitude, and can have a
significant impact on the combined ratio. Prior year
reserve reestimates are caused by unexpected loss
development on historical reserves. Amortization
of purchased intangible assets relates to the
acquisition purchase price and is not indicative of
our underlying insurance business results or trends.
We believe it is useful for investors to evaluate
these components separately and in the aggregate
when reviewing our underwriting performance.
We also provide it to facilitate a comparison to
our outlook on the underlying combined ratio. The
most directly comparable GAAP measure is the
combined ratio (“recorded combined ratio”). The
underlying combined ratio should not be considered
a substitute for the combined ratio and does not
reflect the overall underwriting profitability of
our business.