This excerpt taken from the ALL DEF 14A filed Apr 1, 2009.
Annual Cash Incentive Awards for 2008
Adjusted operating income per diluted share: This measure is used to assess financial performance. The measure is equal to net income adjusted to exclude the after-tax effects of the items listed below, divided by the weighted average shares outstanding on a diluted basis:
Allstate Protection Measures
Customer loyalty index: This is an indicative measure used by management to assess the future retention of customers. This measure represents the change in Allstate's index value between the prior and current year end. The index is based on responses to a consumer survey developed by Allstate. The survey measures consumer satisfaction, likelihood to renew, and likelihood to recommend their insurance company. A vendor administers the survey and tabulates the index.
Financial product sales ("production credits"): This measure of sales and related profitability of proprietary and non-proprietary financial products is used by management to assess the execution of our financial services strategy. This measure is calculated as the total amount of production credits for current year transactions. Production credits are an internal statistic calculated as a percent of premium or deposits to life insurance, annuities, or mutual funds which vary based on the expected profitability of the specific financial product.
Growth and profit matrix: A combination of financial measures used by management to emphasize a balanced approach to premium growth and profit. The matrix utilizes (a) the percent increase in Allstate Protection premiums written, excluding the cost of catastrophe reinsurance and excluding premiums written for personal property insurance in catastrophe prone markets and commercial property insurance in nineteen states with hurricane exposure and (b) the Allstate Protection combined ratio adjusted to exclude the effect of restructuring and related charges. For disclosure of Allstate Protection premiums written and combined ratio, see the discussion of the Allstate Protection segment in Management's Discussion and Analysis of Financial Condition and Results of Operations.
Allstate Financial Measures
Adjusted net income: This is a measure management uses to assess the profitability of the business. The Allstate Financial measure, net income, is adjusted to exclude the after tax effects of restructuring and related charges and the potential cost of any guaranty fund assessments related to the potential insolvency of Executive Life Insurance Company of New York. For disclosure of this Allstate Financial measure see footnote 18 to our audited financial statements.
Adjusted operating income: This is a measure management uses to assess the profitability of the business. The Allstate Financial segment measure, operating income, is adjusted to exclude the after tax effects of restructuring and related charges and the potential cost of any guaranty fund assessments related to the potential insolvency of Executive Life Insurance Company of New York. For disclosure of the Allstate Financial segment measure see footnote 18 to our audited financial statements.
Financial product sales ("production credits"): This measure of sales and related profitability of proprietary and non-proprietary financial products sold through the Allstate Exclusive Agency channel is used by management to assess the execution of our strategy to become broader in financial services. This measure is calculated as the total amount of production credits for current year transactions. Production credits are an internal sales statistic calculated as a percent of premium or deposits to life insurance, annuities, or mutual funds which vary based on the expected profitability of the specific financial product.
Sales and return matrix: This is a measure used by management that balances growth and profit. The matrix utilizes various combinations of sales with the expected new business lifetime return on capital. Sales include premiums (which are reported as life and annuity premiums and contract charges) and deposits (which are reported as increases in liabilities) and exclude renewal premiums and deposits on life insurance products for all Allstate Financial products issued. Sales are weighted to reflect each product's profitability relative to other products. (For example, certain life insurance sales are adjusted to receive a higher relative weighting to reflect the recurring nature of life insurance premiums and their profitability relative to other products). The expected new business lifetime return on capital is the actuarially determined weighted-average expected return on required capital for all products issued, excluding certain developmental expenses for consumer driven innovation and new market growth initiatives.
Allstate Investments Measures
Total Return Measures
Portfolio excess total return: Management uses the four following measures to assess the value of active portfolio management relative to the benchmark. The measure is calculated as the excess, in basis points, of the specific portfolio total return over a designated benchmark. Total return is principally determined using industry standards and the same sources used in preparing the financial statements to determine fair value. (See footnote 6 to our audited financial statements for our methodologies for estimating the fair value of our investments.) In general, total return represents the increase or decrease, expressed as a percentage, in the value of the portfolio over one- and three-year periods. Time weighted returns are utilized. The designated benchmark is a composite of pre-determined, customized indices which reflect the investment risk parameters established in the investment policies by the boards of the relevant subsidiaries, weighted in proportion to our investment plan, in accordance with our investment policy. Certain investments that do not have external benchmarks and for which fair value cannot readily be determined, such as investments in limited partnerships, are excluded. The specific measures and investments included are listed below:
Other Relative Return: Management uses this measure to assess its results of the activities described below. The measure is calculated as the average of the following three measures:
general, total return represents the increase or decrease, expressed as a percentage, in the value of the portfolio over a one- year period. This measure includes all investments held by Kennett Capital Partners.
Allstate Financial net spread: Management uses this measure to assess the value provided on each specific fixed income security and commercial mortgage purchase decision, up to specific purchase volumes, relative to a benchmark. Net spread is calculated as the difference between the adjusted purchase yield and the benchmark, calculated on a dollar weighted average basis for the majority of new purchases expressed in basis points. The adjusted purchase yield is the yield at purchase adjusted by a predetermined formula to align with predetermined Allstate Financial investment risk parameters. The benchmark is based on the U. S. Treasury bond yield with a comparable duration at the time of purchase adjusted on a monthly basis to reflect changes in corporate credit market spreads. As a result of this monthly adjustment process, performance ranges are adjusted accordingly.
Adjusted Net Investment Income: Management uses this measure to assess the financial operating performance provided from investments relative to internal goals. Adjusted net investment income is calculated as the total of certain amounts reported in 2008 net investment income in the consolidated financial statements. It includes interest and dividends, net investment income from partnership interests, and income from certain derivative transactions, less investment expenses adjusted to exclude the difference between actual and planned expenses for certain employee benefit and incentive expenses. It is the sum of amounts for the following group of subsidiaries: Allstate Insurance Company, Allstate Financial, and Allstate Investment Management Company.