WORCESTER, Mass., Oct. 27 /PRNewswire-FirstCall/-- Allmerica Financial
Corporation (NYSE: AFC) today reported net income for the third quarter of
$11.4 million, or $0.21 per share, compared to a net loss of $313.4 million,
or $5.93 per share in the third quarter of last year. The company also
announced it is closing its broker-dealer operation, VeraVest Investments,
Inc., and third quarter earnings include a related charge of $7.2 million, or
$0.13 per share.
"Overall, we are pleased with our continued progress," said Frederick H.
Eppinger, Jr., president and chief executive officer of Allmerica. "Earnings
for the quarter were in line with expectations and we began an extensive
review of our operations that will continue through the fourth quarter."
Eppinger said, "The decision to cease operations of our broker-dealer followed
a great deal of careful analysis and deliberation. Ultimately, we concluded
that the broker-dealer would not generate sufficient profitability in the
foreseeable future to justify our continued investment. This will enable us
to focus on the profitable growth of our regional property and casualty
companies."
Segment Results
Allmerica Financial conducts business in three operating segments:
Property and Casualty, Allmerica Financial Services, and Asset Management.
Property and Casualty markets property and casualty insurance products on a
regional basis through The Hanover Insurance Company and Citizens Insurance
Company of America. Allmerica Financial Services manages a portfolio of
proprietary life insurance and annuity products previously issued through
Allmerica's two life insurance subsidiaries, and marketed non-proprietary
insurance and retirement savings products and services primarily to
individuals through VeraVest Investments, Inc., a registered broker-dealer.
The Asset Management segment markets investment management services to
institutions, pension funds, and other organizations through Opus Investment
Management, Inc., and manages a portfolio of guaranteed investment contracts
issued through one of Allmerica's life insurance subsidiaries.
The following table shows segment income, which is presented consistent
with the manner in which management evaluates results and is in accordance
with Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information". Segment income represents
income before income taxes and excludes the items listed in the table at the
end of this document.
Quarter ended
September 30
(In millions)
2003 2002
Property and Casualty $38.6 $58.5
Allmerica Financial Services(1) (5.8) (540.2)
Asset Management 5.2 5.7
Corporate (23.9) (23.7)
Total Segment Income (Loss)(1) (2) $14.1 $(499.7)
(1) Includes a pre-tax $11.0 million asset impairment charge for the
cessation of broker-dealer operations in 2003 and charges of $556.4
million primarily related to the decision to cease the manufacture
and sale of proprietary variable products in 2002.
(2) See reconciliation from segment income (loss) to net income (loss) at
the end of this document.
Property and Casualty Property and Casualty segment income was $38.6 million in the third
quarter of 2003, compared to $58.5 million in the third quarter of 2002. The
current quarter included $16.9 million of pre-tax catastrophe losses while the
comparable period in 2002 included an unusually low $4.0 million of pre-tax
catastrophe losses. Earnings were also lower in the quarter due to an
unfavorable comparison in prior year reserve development of $23.2 million, and
lower net investment income. These items were almost entirely offset by the
favorable impact of premium rate increases and improved current accident year
loss trends.
Property and Casualty highlights:
-- Net premiums written were $588.7 million in the third quarter of 2003,
compared to $596.8 million in the third quarter of 2002.
-- Net premiums earned were $561.2 million in the third quarter of 2003,
compared to $568.3 million in the third quarter of 2002.
-- Pre-tax catastrophe losses were $16.9 million in the third quarter of
2003, versus $4.0 million in the comparable period one year earlier.
The following table summarizes the components of the statutory combined
ratio for the Property and Casualty segment:
Quarter ended
September 30
2003 2002
Losses (excluding catastrophes) 62.4% 62.0%
Catastrophe losses 3.0% 0.7%
Loss adjustment expenses 7.8% 8.5%
Policy acquisition and other
underwriting expenses 29.1% 28.8%
Policyholders' dividends 0.1% -
Combined Ratio 102.4% 100.0%
Allmerica Financial Services Allmerica Financial Services reported a segment loss of $5.8 million in
the third quarter of 2003. These results include a pre-tax charge of $11.0
million relating to the cessation of broker-dealer operations. These results
compare to a segment loss of $540.2 million in the third quarter of 2002,
which were impacted by charges of $556.4 million, principally related to the
Company's decision to cease the manufacture and sale of proprietary variable
annuity and variable life insurance products, as well as the impact of the
continued decline in the equity market through September 30, 2002.
Allmerica Financial Services highlights:
-- The Risk Based Capital (RBC) ratio of Allmerica Financial Life
Insurance and Annuity Company, Allmerica's lead life insurance company,
increased to 349 percent at September 30, 2003 up from 344 percent at
June 30, 2003 and 244 percent at December 31, 2002.
-- Total adjusted statutory capital for the combined life insurance
subsidiaries at September 30, 2003 was $547.2, up from $535.6 million
at June 30, 2003 and $481.9 million at December 31, 2002.
-- In the third quarter, individual annuity redemptions were $493.6
million compared to $552.5 million in the second quarter, approximately
$1.0 billion in the first quarter of 2003 and approximately $1.3
billion in the fourth quarter of 2002.
Asset Management Asset Management's third quarter segment income was $5.2 million, compared
to $5.7 million in the same period in the prior year. In the current quarter,
segment income included beneficial foreign exchange fluctuations of $2.9
million. Apart from this, income declined due to the continued runoff of the
company's funding agreements and the effect of replacing high-yield
investments with lower yielding, higher quality fixed income securities.
Corporate
Corporate segment net expenses were $23.9 million in the third quarter of
2003, compared to $23.7 million in the comparable period in 2002. Corporate
expenses in each period include $10.0 million of interest expense on the
Company's long-term debt and mandatorily redeemable preferred securities of a
subsidiary trust.
Investment Results
Net investment income was $110.5 million for the third quarter of 2003,
compared to $152.8 million in the same period of 2002. In the current quarter,
net investment income decreased primarily due to lower invested assets
resulting from surrenders in the general account, a reduction in outstanding
guaranteed investment contract balances and the sale of the Company's fixed
universal life insurance line of business.
Third quarter 2003 pre-tax net realized investment losses were $8.0
million, compared to $7.8 million of pre-tax net realized investment losses in
the same period of 2002. In the current quarter, pre-tax net realized
investment losses were principally related to impairments of $13.2 million on
certain fixed maturity and equity securities offset by gains of $5.2 million
primarily from the sale of fixed maturity securities. In the third quarter of
2002, pre-tax net realized investment losses included $48.8 million related
primarily to impairments on certain fixed maturity securities. These losses
were largely offset by gains of $40.2 million primarily from sales of other
fixed maturity securities.
Balance Sheet
Shareholders' equity was $2.2 billion, or $41.42 per share at September
30, 2003, compared to $2.1 billion, or $39.12 per share at December 31, 2002.
Excluding accumulated other comprehensive income, book value was $41.30 per
share at the close of the third quarter, compared to $39.83 per share at
December 31, 2002.
Total assets were $25.0 billion at September 30, 2003, compared to $26.6
billion at year-end 2002. Separate account assets were $11.5 billion at
September 30, 2003, versus $12.3 million at December 31, 2002. The declines
in total and separate account assets were principally the result of surrenders
of individual variable annuities as well as the sale of the Company's fixed
universal life insurance line of business.
Exit From Broker-Dealer Operations
The company announced the cessation of its broker-dealer operations.
Third quarter results include a pre-tax charge of approximately $11.0 million
in connection with this action. This decision will allow the company to focus
on its core property and casualty business. The company expects to incur an
additional pre-tax charge of approximately $25 million - $30 million for
severance and other expenses related to this decision, primarily in the fourth
quarter, and to a lesser extent in the first quarter of 2004.
Allmerica Financial Corporation will host a conference call to discuss the
Company's third quarter results on Tuesday, October 28th at 10:00 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.
Allmerica Financial Corporation's Third Quarter Earnings Press Release and
Statistical Supplement are also available in the Financial News section at
www.allmerica.com.
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". These uncertainties
include the possibility of adverse catastrophe experience and severe weather,
adverse loss development and adverse trends in mortality and morbidity,
changes in the stock and financial markets, changes from assumed surrender
activities and assumed stock market returns, adverse selection in surrender
patterns, investment impairments, heightened competition, adverse state and
federal legislation or regulation, financial ratings actions, and various
other factors, including the effect of the Company's decision to close its
broker-dealer operations.
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.comALLMERICA FINANCIAL CORPORATION
(In millions, except per share data)
Quarter ended
September 30
2003 2002
Net income (loss) $11.4 $(313.4)
Net income (loss) per share(1) $0.21 $(5.93)
Weighted average shares 53.3 52.9
The following is a reconciliation from segment income (loss) to net income
(loss)(2):
Quarter ended
September 30
2003 2002
Property and Casualty $38.6 $58.5
Allmerica Financial Services (5.8) (540.2)
Asset Management 5.2 5.7
Corporate (3) (23.9) (23.7)
Total segment income (loss) 14.1 (499.7)
Federal income tax benefit on
segment income 5.6 184.7
Total segment income (loss) after
federal income taxes 19.7 (315.0)
Net realized investment losses, net of
taxes and deferred acquisition cost amortization (8.2) (0.7)
Gain from retirement of trust instruments
supported by funding agreement
obligations, net of taxes 0.4 -
Gain on derivative instruments,
net of taxes 0.3 -
Restructuring costs, net of taxes (0.8) -
Other items, net of taxes - 2.3
Net income (loss) $11.4 $(313.4)
Net income (loss) includes the following items (net of taxes) by segment:
Quarter ended September 30, 2003
Allmerica
Property Financial Asset
& Casualty Services Management Corporate Total
Net realized
investment
losses,
net of taxes
and deferred
acquisition
cost amortization $(4.3) $(4.3) $0.4 $-- $(8.2)
Gain from
retirement
of trust
instruments
supported by
funding
obligations -- -- 0.4 -- 0.4
Gain on
derivative
instruments -- -- 0.3 -- 0.3
Restructuring
costs -- (0.8) -- -- (0.8)
Quarter ended September 30, 2002
Allmerica
Property Financial Asset
& Casualty Services Management Corporate Total
Net realized
investment
losses,
net of taxes
and deferred
acquisition
cost
amortization $(0.3) $(2.1) $0.6 $1.1 $(0.7)
Other items -- 2.3 -- -- 2.3
(1) Basic net income (loss) per share was $0.22 and $(5.93) for the
quarters ended September 30, 2003 and 2002, respectively. Per share
data for the quarter ended September 30, 2002 represents basic loss
per share due to antidilution.
(2) In accordance with Statement of Financial Accounting Standards No.
131, Disclosure about Segments of an Enterprise and Related
Information, the separate financial information of each segment is
presented consistent with the way results are regularly evaluated by
the chief operating decision makers in deciding how to allocate
resources and in assessing performance. Management evaluates the
results of the aforementioned segments based on a pre-tax basis.
Segment income (loss) is determined by adjusting net income (loss) for
net realized investment gains and losses including certain gains or
losses on derivative instruments, because fluctuations in these gains
and losses are determined by interest rates, financial markets and the
timing of sales. Also, segment income (loss) excludes net gains and
losses on disposals of businesses, discontinued operations,
restructuring and reorganization costs, extraordinary items, the
cumulative effect of accounting changes and certain other items.
(3) In compliance with Statement of Accounting Standards No. 150
"Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity" and Statement of Accounting Standards No.
131 "Disclosures About Segments of an Enterprise and Related
Information", items previously disclosed as "Minority Interest:
distributions on mandatorily redeemable preferred securities of a
subsidiary trust" are now included in the Corporate segment.
All figures reported are unaudited.
SOURCE Allmerica Financial Corporation
-0- 10/27/2003
/CONTACT: Investors, 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 /
(AFC)
CO: Allmerica Financial Corporation
ST: Massachusetts
IN: FIN
SU: ERN
ES-AL
-- NEM039 --
7101 10/27/200316:01 ESThttp://www.prnewswire.com