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Allmerica Financial Corporation Reports First Quarter: Net Income of $0.23 Per Share Compared to $0.70 Per Share Last Year

April 26, 2004
              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