Receives Approval for $25 Million Dividend from Life Insurance Subsidiary
WORCESTER, Mass., Dec. 4 /PRNewswire-FirstCall/ -- Allmerica Financial
Corporation (NYSE: AFC) today announced the implementation of a hedging
program for its in-force variable annuity policies with Guaranteed Minimum
Death Benefit (GMDB) features. The company also noted that its lead life
insurance subsidiary, Allmerica Financial Life Insurance and Annuity Company,
will pay a dividend of $25 million to the company.
The purpose of the GMDB hedging program is to provide the company with an
economic hedge against increased GMDB claims which could arise from declines
in the equity market below current levels. The program is designed to reduce
the volatility in statutory capital levels from the effects of future equity
market movements, but it does not hedge or reduce the cost to the company from
GMDB costs at current levels.
The program utilizes a dynamic hedging approach involving exchange traded
futures contracts. Under the program, hedge contracts are expected to
generate cash to fund increases in GMDB claims resulting from declines in the
equity market. Additionally, the program is designed so that the economic
benefit resulting from a rising equity market is retained by the company.
The dividend, which approximates the company's after-tax obligations for
interest on its senior debentures and Capital Securities in 2004, combined
with existing cash, is sufficient to fund holding company obligations
throughout 2004. Accordingly, the company does not expect to take any
dividends out of its property and casualty companies next year. The company
will use these funds for general business purposes, principally debt service.
"Over the past year our significant capital enhancement actions have
established a strong statutory capital position and solid risk based capital
ratios in our life insurance subsidiaries," said Frederick H. Eppinger, Jr.,
president and chief executive officer of Allmerica. Eppinger added, "Our new
GMDB hedging program represents another significant step in our on-going
efforts to protect and maximize the embedded value of our life insurance
subsidiaries." Eppinger also noted, "The availability of a dividend from the
company's life insurance subsidiary underscores the strength of the life
insurance subsidiaries."
Allmerica Financial Corporation will host a conference call to discuss the
company's new hedging program on December 5 at 8:30 a.m. Eastern Time.
Interested investors and others can listen to the call through Allmerica's web
site, located at www.allmerica.com. Web-cast participants should go to the
web site 15 minutes early to register, download, and install any
necessary audio software. A re-broadcast of the conference call will be
available on this web site two hours after the call.
Certain statements in this release may be considered to be forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
Use of the words "believes", "anticipates", "expects" and similar expressions
is intended to identify forward-looking statements. The company cautions
investors that any such forward-looking statements are not guarantees of
future performance, and actual results could differ materially. Investors are
directed to consider the risks and uncertainties in our business that may
affect future performance and that are discussed in readily available
documents, including the company's annual report and other documents filed by
Allmerica with the Securities and Exchange Commission and which are also
available at www.allmerica.com under "Financial News". In particular,
statements relating to the anticipated impact and cost of the GMDB hedging
program constitute forward-looking statements which will depend on, among
other things, the future performance and volatility of the equity markets, the
extent to which the performance of the various hedging instruments correlates
with the investment performance of the underlying annuity sub-accounts, the
continued availability of equity index futures and redemption and mortality
patterns in the company's annuity contracts.
Allmerica Financial Corporation is the holding company for a group of
insurance companies headquartered in Worcester, Massachusetts.
CONTACTS: Investors: Media:
Henry P. St. Cyr Michael F. Buckley
(508) 855-2959 (508) 855-3099
hstcyr@allmerica.commibuckley@allmerica.com
SOURCE Allmerica Financial Corporation
-0- 12/04/2003
/CONTACT: Investor, Henry P. St. Cyr, +1-508-855-2959,
hstcyr@allmerica.com; or Media, Michael F. Buckley, +1-508-855-3099,
mibuckley@allmerica.com, both of Allmerica Financial Corporation/
/Web site: http://www.allmerica.com/
(AFC)
CO: Allmerica Financial Corporation
ST: Massachusetts
IN: FIN
SU: PDT
KH-EO
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7791 12/04/200316:37 ESThttp://www.prnewswire.com