After Tax Segment Income of $0.62 Per Share in the
Quarter Versus $0.45 Per Share Last Year
WORCESTER, Mass., April 26 /PRNewswire-FirstCall/ -- Allmerica Financial
Corporation (NYSE: AFC) today reported net income for the first quarter of
$12.1 million, or $0.23 per share, compared to net income of $37.1 million, or
$0.70 per share in the first quarter of last year. Net income for the current
quarter includes an after-tax charge of $57.2 million or $1.06 per share,
which reflects the cumulative effect of the adoption of Statement of Position
03-1 relating to establishing reserves for certain life insurance and annuity
product benefits, and an after-tax benefit of $30.1 million, or $0.56 per
share related to a favorable settlement of prior years' tax liabilities.
Segment income after taxes was $33.2 million, or $0.62 per share compared
to $23.7 million or $0.45 per share in the first quarter of last year.
Segment income after taxes is presented consistent with the manner in which
management evaluates operating results.
"We are pleased with our first quarter results," said Frederick H.
Eppinger, president and chief executive officer of Allmerica Financial
Corporation. "The property and casualty business produced solid earnings,
benefiting from continued positive rate actions and an improvement in
underwriting results from the successful execution of our operating
strategies." Eppinger added, "Our Life Companies continue to be efficiently
run, generating solid cash flow and favorable segment earnings."
Segment Results
Allmerica Financial consists of property and casualty operations, which
represents our ongoing business, and life operations, which is a run-off
business consisting primarily of proprietary life insurance, annuity and
guaranteed investment products previously issued by Allmerica's life insurance
subsidiaries.
The Company conducts its business in four operating segments. Property
and casualty operations consist of three operating segments: Personal Lines,
Commercial Lines and Other Property and Casualty. The Personal Lines segment
markets automobile, homeowners and ancillary coverages to individuals and
families. The Commercial Lines segment offers a suite of products targeted at
the small to mid-size business markets, which include commercial multiple
peril, commercial automobile, workers' compensation and other commercial
coverages. The Other Property and Casualty segment includes a block of run-
off voluntary pools business in which the Company has not actively
participated in since 1995; AMGRO, Inc. a premium financing business; and Opus
Investment Management, Inc., which markets investment management services to
institutions, pension funds and other organizations. The Life Companies, our
fourth operating segment, includes the results of our run-off business of life
and annuity products and guaranteed investment contracts.
The following table shows segment income after taxes, and is presented in
a manner consistent with the way 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 after taxes excludes the items listed in the table at the end
of this document.
Quarter ended
March 31
(In millions)
2004 2003
Property and Casualty:
Personal Lines $10.8 $(2.7)
Commercial Lines 26.5 39.4
Other Property & Casualty 1.3 1.5
Total Property & Casualty 38.6 38.2
Life Companies 9.8 (2.4)
Corporate Debt (10.0) (10.0)
Total pre-tax segment income 38.4 25.8
Federal Income Taxes (5.2) (2.1)
Total segment income after taxes(1) $33.2 $23.7
(1) See reconciliation of after-tax segment income to net income at the
end of this document.
Property and Casualty
Property and Casualty income was $38.6 million in the first quarter of
2004, up from $38.2 million in the first quarter of 2003 despite a $9.9
million increase in catastrophe losses.
Personal Lines segment income was $10.8 million in the quarter compared to
a loss of $2.7 million in the prior year. Excluding catastrophe losses, which
were $9.8 million higher in the current quarter, Personal Lines segment income
increased by $23.3 million due primarily to continued rate increases and lower
loss frequency driven primarily by fewer non-catastrophe weather-related
losses.
Commercial Lines segment income was $26.5 million in the quarter, compared
to $39.4 million in the first quarter of 2003. The $12.9 million decrease was
primarily due to $16.6 million of lower favorable development of prior years'
reserves compared to the first quarter of 2003.
Property and Casualty highlights:
-- Net premiums written were $561.3 million in the first quarter of 2004,
compared to $550.5 million in the first quarter of 2003.
-- Net premiums earned were $556.3 million in the first quarter of 2004,
compared to $554.2 million in the first quarter of 2003.
-- In the first quarter of 2004, pre-tax catastrophe losses were $21.1
million, compared to $11.2 million in the comparable period one year
earlier.
The following table summarizes the components of the statutory combined
ratio for the property and casualty business:
Quarter ended
March 31
2004 2003
Personal lines losses 63.9% 70.6%
Commercial lines losses 46.5% 46.0%
Other P&C losses N/M N/M
58.5% 62.7%
Catastrophe losses 3.8% 2.0%
Loss adjustment expenses 8.4% 8.3%
Policy acquisition and other
underwriting expenses 30.7% 29.3%
Policyholders' dividends -- 0.2%
Combined ratio 101.4% 102.5%
Personal Lines highlights:
-- Net premiums written were $366.0 million in the first quarter of 2004,
compared to $367.4 million in the first quarter of 2003.
-- Net premiums earned were $380.2 million in the first quarter of 2004,
compared to $372.7 million in the first quarter of 2003.
-- The personal lines statutory combined ratio was 103.7% in the first
quarter, versus 108.2% in the same period last year. Personal lines
catastrophe losses were $14.6 million, or 3.8 points of the combined
ratio in the first quarter versus $4.8 million, or 1.3 points of the
combined ratio in the first quarter of 2003.
Commercial Lines highlights:
-- Net premiums written were $195.6 million in the first quarter of 2004,
compared to $182.8 million in the first quarter of 2003.
-- Net premiums earned were $176.6 million in the first quarter of 2004,
compared to $181.2 million in the first quarter of 2003.
-- The commercial lines statutory combined ratio was 95.1% in the first
quarter, compared to 89.9% in the same period last year. Commercial
lines catastrophe losses were $6.5 million, or 3.7 points of the
combined ratio in the first quarter versus $6.4 million, or 3.5 points
of the combined ratio in the first quarter of 2003.
Life Companies
The Life Companies reported segment income of $9.8 million in the first
quarter of 2004, compared to a net loss of $2.4 million in the first quarter
of 2003. Results were favorably impacted by lower operating expenses and the
relative improvement in the equity market.
Life Companies highlights:
-- Life Companies segment income excluding certain non-cash items was
$40.3 million in the first quarter of 2004 compared to $31.8 million in
the first quarter of 2003 and $29.4 million in the fourth quarter of
2003. Segment income excluding certain non-cash items is reconciled to
segment income at the end of this document.
-- In the first quarter of 2004, individual annuity redemptions were
$634.1 million compared to $505.9 million in the fourth quarter of
2003. The individual annuity redemption rate was 22 percent in the
current quarter compared to 18 percent in the fourth quarter of 2003.
-- Total adjusted statutory capital for the combined life insurance
subsidiaries at March 31, 2004 was $589.8 million, compared to $553.4
million at December 31, 2003. This increase includes a $30.1 million
benefit related to the favorable settlement of prior years' tax
liabilities.
-- The Risk Based Capital (RBC) ratio of Allmerica Financial Life
Insurance and Annuity Company, Allmerica's lead life insurance company,
increased to 420 percent at March 31, 2004, compared to 365 percent at
December 31, 2003.
Investment Results
Net investment income was $104.7 million for the first quarter of 2004,
compared to $118.7 million in the same period of 2003. First quarter net
investment income decreased $14.0 million, due to a decrease of $16.2 million
for the Life Companies partially offset by a $2.2 million increase for
Property and Casualty. First quarter net investment income increased for
Property and Casualty primarily due to an increase in average invested assets,
partially offset by a reduction in average pre-tax yields on fixed maturities
due to lower prevailing fixed maturity investment rates. First quarter net
investment income decreased for the Life Companies primarily due to lower
invested assets resulting from general account annuity redemptions and a
reduction in outstanding guaranteed investment contract balances. Also
contributing to the decline was the aforementioned reduction in average pre-
tax yields on fixed maturities.
First quarter 2004 pre-tax net realized investment gains were $15.7
million, compared to $13.2 million of pre-tax net realized investment gains in
the same period of 2003. In the current quarter, pre-tax realized investment
gains of $18.1 million from sales of fixed maturity and equity securities were
partially offset by $2.4 million of realized losses resulting from other-than-
temporary impairments on certain fixed maturity and equity securities. In the
first quarter of 2003, pre-tax net realized investment gains were principally
related to realized gains of $42.8 million from sales of certain fixed
maturity and equity securities, partially offset by $23.5 million of realized
losses resulting from other-than-temporary impairments on certain fixed
maturity securities and $6.2 of realized losses primarily due to derivative
instruments related to our guaranteed investment contract portfolio.
Balance Sheet
Shareholders' equity was $2.3 billion, or $43.04 per share at March 31,
2004, compared to $2.2 billion, or $41.89 per share at December 31, 2003.
Excluding accumulated other comprehensive income, book value was $41.77 per
share at the close of the first quarter, compared to $41.59 per share at
December 31, 2003.
Total assets were $24.4 billion at March 31, 2004, compared to $25.1
billion at year-end 2003. Separate account assets were $11.3 billion at March
31, 2004, versus $11.8 billion at December 31, 2003. The declines in total
and separate account assets were principally the result of surrenders of
individual variable annuities.
Other Items
During the quarter, the Company adopted American Institute of Certified
Public Accountants' Statement of Position 03-1, Accounting and Reporting by
Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and
for Separate Accounts. This adoption resulted in a charge of $57.2 million,
net of taxes, which represents the cumulative effect of a change in accounting
principle. The charge results from new requirements for recognizing
guaranteed minimum death benefit and guaranteed minimum income reserves based
on various assumptions, including estimates of future market returns,
mortality and expected contract persistency.
Also during the quarter, the Company recorded a $30.1 million after-tax
benefit resulting from the settlement of disputed items in the Company's
federal tax returns filed for 1979 to 1991. The largest of the disputed items
relates to deductions taken for increased death benefits pertaining to certain
life insurance contracts existing in 1982 and 1983. The settlement entitles
the Company to receive a refund of amounts paid for these years, as well as
various tax credits that can be applied to offset federal tax liabilities in
other years.
Earnings Conference Call
Allmerica Financial Corporation will host a conference call to discuss the
Company's first quarter results on Tuesday, April 27th 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 access 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.
Statistical Supplement
Allmerica Financial Corporation's first quarter Earnings Press Release and
Statistical Supplement, as well as a Statistical Supplement Historical
Restatement prepared to reflect the Company's current reporting segments, are
also available in the Investor Relations section of the Allmerica web site at
www.allmerica.com.
Forward-Looking Statements
Certain statements in this release or in the above referenced conference
call 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
"Investor Relations". 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 underwriting activities and surrender patterns,
investment impairments, heightened competition, adverse state and federal
legislation or regulation, financial ratings actions, and various other
factors, which include the effect of the Company's decision to close its
retail broker-dealer operations as well as the anticipated impact and cost of
the GMDB hedging program. The performance of the hedging program is dependent
on, among other things, the future performance and volatility of the equity
market, the extent to which the performance of the various hedging instruments
correlate 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:
Sujata Mutalik Michael F. Buckley
(508) 855-3457 (508) 855-3099
smutalik@allmerica.commibuckley@allmerica.comALLMERICA FINANCIAL CORPORATION
(In millions, except per share data)
Quarter ended
March 31
2004 2003
Net income $12.1 $37.1
Net income per share(1) $0.23 $0.70
Weighted average shares 53.7 53.0
The following is a reconciliation of segment income to net income(2):
PER SHARE DATA
(DILUTED)(1) Quarter ended March 31
2004 2003
$ Per Share $ Per Share
Property and Casualty
Personal Lines $10.8 -- $(2.7) --
Commercial Lines 26.5 -- 39.4 --
Other Property & Casualty 1.3 -- 1.5 --
Total Property & Casualty 38.6 -- 38.2 --
Life Companies 9.8 -- (2.4) --
Corporate Debt(3) (10.0) -- (10.0) --
Total segment income $38.4 $0.72 $25.8 $0.49
Federal income taxes
on segment income (5.2) (0.10) (2.1) (0.04)
Total segment income after
federal income taxes 33.2 0.62 23.7 0.45
Tax settlement 30.1 0.56 -- --
Net realized investment
gains, net of taxes
and amortization 10.2 0.19 8.0 0.14
Gain on derivatives,
net of taxes -- -- 1.0 0.02
(Loss) gain from
retirement of funding
agreements and trust
instruments supported
by funding obligations,
net of taxes (2.1) (0.04) 3.0 0.06
Restructuring costs,
net of taxes (2.1) (0.04) (2.2) (0.04)
Income from sale of
universal life business,
net of taxes -- -- 3.6 0.07
Income before effect
of accounting change 69.3 1.29 37.1 0.70
Cumulative effect of
change in accounting
principle, net
of taxes (57.2) (1.06) -- --
Net income $12.1 $0.23 $37.1 $0.70
(1) Basic net income per share was $0.23 and $0.70 for the quarters ended
March 31, 2004 and 2003, respectively.
(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 maker 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 is determined by adjusting net income 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 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, "Disclosure 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 Corporate Debt.
Net income includes the following items (net of taxes) by segment:
Quarter Ended March 31, 2004
Other
Personal Commercial Property Life
Lines Lines and Casualty(2) Companies Total
Tax settlement $-- $-- $-- $30.1 $30.1
Net realized
investment gains,
net of taxes and
amortization(1) 1.9 2.0 2.2 4.1 10.2
Loss from retirement
of funding
agreements and
trust instruments
supported by funding
obligations,
net of taxes -- -- -- (2.1) (2.1)
Restructuring costs,
net of taxes -- -- -- (2.1) (2.1)
Cumulative effect
of change in
accountingprinciple,
net of taxes -- -- -- (57.2) (57.2)
Quarter Ended March 31, 2003
Other
Personal Commercial Property Life
Lines Lines and Casualty(2) Companies Total
Net realized
investment gains
(losses),
net of taxes and
amortization(1) $4.1 $4.1 $(3.0) $2.8 $8.0
Gain on derivatives,
net of taxes -- -- -- 1.0 1.0
Gain from retirement
of funding
agreements and
trust instruments
supported by funding
obligations,
net of taxes -- -- -- 3.0 3.0
Restructuring costs,
net of taxes -- -- 0.2 (2.4) (2.2)
Income from sale
of universal
life business,
net of taxes -- -- -- 3.6 3.6
(1) Investment assets for the property and casualty business are managed
on the requirements of the entire property and casualty group.
Investment income, expenses and realized gains (losses) are allocated
to the Personal Lines, Commercial Lines and Other segments based on
actuarial information related to the underlying business.
(2) Includes corporate eliminations
The following is a reconciliation of the Life Companies segment income to
the Life Companies segment income excluding certain non-cash items:
Quarter ended Quarter ended
March 31, 2004March 31, 2003
Life Companies segment income (loss) $9.8 $(2.4)
Deferred acquisition cost operating
amortization and amortization
of sales inducements, net 38.0 58.4
Net change in property, plant
and equipment balances 0.9 --
Statement of Position 98-1 amortization, net 1.2 1.1
Change in guaranteed minimum
death benefit reserves (9.6) (25.3)
Total segment income excluding certain
non-cash items $40.3 $31.8
All figures reported are unaudited.
SOURCE Allmerica Financial Corporation
-0- 04/26/2004
/CONTACT: Investors: Sujata Mutalik, +1-508-855-3457,
smutalik@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 INS
SU: ERN CCA
CP-ES
-- NEM035 --
6960 04/26/200417:00 EDThttp://www.prnewswire.com