WORCESTER, Mass., Jan. 29 /PRNewswire-FirstCall/ -- Allmerica Financial
Corporation (NYSE: AFC) today reported net income for the fourth quarter of
$14.0 million, or $0.26 per share, compared to net income of $14.9 million, or
$0.28 per share in the fourth quarter of last year. For the full year, the
Company reported net income of $86.9 million, or $1.63 per share, compared to
net loss of $306.1 million, or $5.79 per share in 2002.
"The fourth quarter of 2003 marked a turning point for our organization,"
said Frederick H. Eppinger, Jr., president and chief executive officer of
Allmerica. "A.M. Best recognized the effectiveness of our recent
restructuring efforts by upgrading our property and casualty financial
strength ratings to A- and our life companies to a secure rating of B+. The
financial results for the quarter were solid and we now have set the strategic
direction of the Company based on our recently completed review of
operations." Eppinger added, "We now are well positioned to realize our goal
to become a world class regional property and casualty company."
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 until December 2003, marketed
non-proprietary insurance and retirement savings products and services. 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
previously 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 Year ended
December 31December 31
In millions) (In millions)
2003 2002 2003 2002
Property and Casualty $40.2 $35.2 $143.6 $184.3
Allmerica Financial
Services(1) 11.9 (0.7) 26.9 (625.0)
Asset Management 1.1 8.5 11.3 24.4
Corporate (23.7) (20.5) (95.5) (88.1)
Total Segment Income
(Loss)(1) (2) $29.5 $22.5 $86.3 $(504.4)
(1) Includes a pre-tax $11.0 million asset impairment charge in the third
quarter of 2003, as a result of the cessation of broker-dealer
operations and charges of $698.3 million in 2002, primarily related
to the decision to cease the manufacture and sale of proprietary
variable products, as well as the impact of the decline in the
equity market throughout 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 $40.2 million in the fourth
quarter of 2003, up from $35.2 million in the fourth quarter of 2002. Earnings
were higher in the quarter due to improved current accident year loss trends,
particularly in personal lines, and premium rate increases. Partially
offsetting these items was a $16.0 million increase to workers' compensation
reserves and higher operating expenses.
Full-year Property and Casualty segment income was $143.6 million in 2003,
compared to $184.3 million in 2002. Catastrophe losses in the current year
were $59.4 million compared to $31.3 million in the prior year. Current year
segment earnings also include a charge of $21.9 million resulting from an
adverse arbitration decision related to a single large property claim within a
voluntary insurance pool. The Company exited this pool in 1996. Excluding
these items, segment income increased by $9.3 million due primarily to premium
rate increases, partially offset by an increase in operating expenses, the
impact of the aforementioned increase in workers' compensation reserves and
lower net investment income.
Property and Casualty highlights:
* Net premiums written were $524.0 million in the fourth quarter of 2003,
compared to $543.5 million in the fourth quarter of 2002. Full-year net
premiums written were $2.2 billion in 2003 and $2.3 billion in 2002.
* Net premiums earned were $563.2 million in the fourth quarter of 2003,
compared to $575.0 million in the fourth quarter of 2002. Full-year net
premiums earned were $2.2 billion in 2003 and $2.3 billion in 2002.
* In the fourth quarter of 2003, pre-tax catastrophe losses were $10.1
million, compared to $7.5 million in the comparable period one year
earlier. Pre-tax catastrophe losses were $59.4 million for the full
year, as compared to $31.3 million for all of 2002.
The following table summarizes the components of the statutory combined
ratio for the Property and Casualty segment:
Quarter ended Year ended
December 31December 31
2003 2002 2003 2002
Losses (excluding
catastrophes) 61.7% 68.2% 63.0%(1) 64.4%
Catastrophe losses 1.8 1.3 2.7 1.4
Loss adjustment expenses 7.6 7.3 8.0 8.4
Policy acquisition and other
underwriting expenses 33.8 29.5 30.3 28.7
Policyholders' dividends (0.6) 0.5 -- 0.2
Combined Ratio 104.3% 106.8% 104.0%(1) 103.1%
(1) Excluding the effect of an adverse arbitration ruling in the second
quarter of 2003 related to an exited voluntary insurance pool, the
loss ratio is 62.1 percent and the combined ratio is 103.1 percent.
Allmerica Financial Services Allmerica Financial Services reported segment income of $11.9 million in
the fourth quarter of 2003, compared to a net loss of $0.7 million in the
fourth quarter of 2002. Results were favorably impacted by the strong equity
market performance in the quarter and lower operating expenses related to the
decision to exit the life insurance, annuity and broker-dealer businesses.
Allmerica Financial Services reported segment income of $26.9 million for
the full year 2003, compared to a segment loss of $625.0 million in 2002.
Prior year results reflect charges 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 decline in the equity market
throughout 2002.
Allmerica Financial Services highlights:
* Life operations segment income excluding certain non-cash items was
$38.8 million in the fourth quarter and $144.7 million for the full-
year 2003. Segment income excluding certain non-cash items is
reconciled to segment income at the end of this document.
* The Risk Based Capital (RBC) ratio of Allmerica Financial Life Insurance
and Annuity Company, Allmerica's lead life insurance company, increased
to 366 percent at December 31, 2003 up from 349 percent at September
30, 2003 and 244 percent at December 31, 2002.
* Total adjusted statutory capital for the combined life insurance
subsidiaries at December 31, 2003 was $553.4 million, up from $547.2
million at September 30, 2003 and $481.9 million at December 31, 2002.
Total adjusted statutory capital at December 31, 2003 has been reduced
by the $25.0 million dividend paid to the holding company, recently
approved by the Massachusetts Division of Insurance.
* In the fourth quarter, individual annuity redemptions were $505.9
million compared to $493.6 million in the third quarter and
approximately $1.3 billion in the fourth quarter of 2002.
Asset Management Asset Management's fourth quarter segment income was $1.1 million,
compared to $8.5 million in the same period in the prior year. For the full
year, Asset Management reported segment income of $11.3 million, compared to
$24.4 million in 2002. In both periods, segment income declined primarily 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 $23.7 million in the fourth quarter of
2003, compared to $20.5 million in the comparable period in 2002. For the
full year, Corporate segment net expenses were $95.5 million compared to $88.1
million in 2002. Corporate expenses in each quarter and year include interest
expense of $10.0 million and $39.9 million, respectively on the Company's long
term debt and mandatorily redeemable preferred securities of a subsidiary
trust.
Investment Results
Net investment income was $109.1 million for the fourth quarter of 2003,
compared to $137.3 million in the same period of 2002. For the full year, net
investment income was $455.7 million compared to $590.2 million in 2002. In
both periods, 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 business. Also contributing to the
decline were lower portfolio yields driven by a shift in the portfolio to
higher credit quality bonds.
Fourth quarter 2003 pre-tax net realized investment gains were $5.7
million, compared to $78.4 million of pre-tax net realized investment losses
in the same period of 2002. In the current quarter, pre-tax net realized
investment gains of $11.2 million from sales of investments were partially
offset by $5.4 million of capital losses resulting from impairments on certain
fixed maturity and equity securities. In the fourth quarter of 2002, pre-tax
net realized investment losses from impairments of $122.3 million and losses
from derivative investments of $19.9 million were partially offset by gains of
$64.8 million from sales of investments.
Full year 2003 pre-tax net realized investment gains were $24.1 million,
compared to $162.3 million of pre-tax net realized investment losses in 2002.
In 2003, pre-tax net realized investment gains of $87.7 million from sales of
investments were partially offset by $61.6 million of capital losses resulting
from impairments on certain fixed maturity and equity securities. In 2002,
pre-tax net realized investment losses from impairments of $238.5 million and
losses from derivative investments of $53.1 million were partially offset by
gains of $131.1 million from sales of investments.
Balance Sheet
Shareholders' equity was $2.2 billion, or $41.89 per share at December 31,
2003, compared to $2.1 billion, or $39.12 per share at December 31, 2002.
Excluding accumulated other comprehensive income, book value was $41.59 per
share at the close of the fourth quarter, compared to $39.83 per share at
December 31, 2002.
Total assets were $25.1 billion at December 31, 2003, compared to $26.6
billion at year-end 2002. Separate account assets were $11.8 billion at
December 31, 2003, versus $12.3 billion 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. These declines were almost
entirely offset by the effect of the strong equity market in the fourth
quarter of 2003.
Ratings Upgrade
On January 21, 2004, A.M. Best Co. upgraded the Company's property and
casualty financial strength ratings to A- (Excellent) from B++ (Very Good) and
upgraded the life companies' financial strength ratings to B+ (Very Good) from
B- (Fair). In addition, the Company's debt ratings were upgraded to "bb+" from
"bb" for senior debt, "bb-" from "b+" for capital securities and AMB-3 from
AMB-4 for commercial paper. All ratings from A.M. Best have been assigned
stable outlooks.
Exit from Broker-Dealer Operations
During the third quarter of 2003, the Company announced the cessation of
its broker-dealer operations. As a result, the Company recorded a pre-tax
charge of $22 million in the fourth quarter of 2003, primarily for severance
and lease termination costs. The Company expects to incur an additional pre-
tax charge of approximately $3 million - $5 million, primarily in the first
quarter of 2004.
Allmerica Financial Corporation will host a conference call to discuss the
Company's fourth quarter results on Friday, January 30th 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 fourth quarter Earnings Press Release
and Statistical Supplement are also available in the Investor Relations
section at www.allmerica.com.
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 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 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 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:
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 Year ended
December 31December 31
2003 2002 2003 2002
Net income (loss) $14.0 $14.9 $86.9 $(306.1)
Net income (loss)
per share(1) $0.26 $0.28 $1.63 $(5.79)
Weighted average shares 53.5 52.9 53.2 52.9
The following is a reconciliation from segment income (loss) to net income
(loss)(2):
PER SHARE DATA (DILUTED) (1)
Quarter ended December 31
2003 2002
$ Per Share $ Per Share
Property and Casualty $40.2 -- $35.2 --
Allmerica Financial
Services 11.9 -- (0.7) --
Asset Management 1.1 -- 8.5 --
Corporate (23.7) -- (20.5) --
Total segment income
(loss) $29.5 $0.55 $22.5 $0.43
Federal income tax
benefit (expense)
on segment income 0.8 0.02 (0.6) (0.01)
Total segment income
(loss) after
federal income taxes 30.3 0.57 21.9 0.42
Net realized investment
gains (losses), net of
taxes and amortization 4.0 0.07 (45.8) (0.87)
(Loss) gain on
derivatives, net of
taxes (5.4) (0.10) 6.5 0.12
Gain from retirement
of trust instruments
supported by funding
obligations, net of
taxes -- -- 66.7 1.26
Restructuring costs,
net of taxes (14.9) (0.28) (9.6) (0.18)
Other reorganization
expenses, net of taxes -- -- (4.5) (0.09)
(Loss) income from sale
of universal life
business, net of
taxes -- -- (20.3) (0.38)
Additional consideration
received from sale of
defined contribution
business, net of taxes -- -- -- --
Sales practice
litigation, net of
taxes -- -- -- --
Income before effect
of accounting change 14.0 0.26 14.9 0.28
Cumulative effect of
change in accounting
principle, net of taxes -- -- -- --
Net income (loss) $14.0 $0.26 $14.9 $0.28
PER SHARE DATA (DILUTED) (1)
Year ended December 31
2003 2002
$ Per Share $ Per Share
Property and Casualty $143.6 -- $184.3 --
Allmerica Financial
Services 26.9 -- (625.0) --
Asset Management 11.3 -- 24.4 --
Corporate (95.5) -- (88.1) --
Total segment income
(loss) $86.3 $1.62 $(504.4) $(9.54)
Federal income tax
benefit (expense)
on segment income 6.1 0.12 229.0 4.33
Total segment income
(loss) after
federal income taxes 92.4 1.74 (275.4) (5.21)
Net realized investment
gains (losses), net of
taxes and amortization 10.4 0.19 (89.4) (1.69)
(Loss) gain on
derivatives, net of
taxes (4.5) (0.08) 26.2 0.50
Gain from retirement
of trust instruments
supported by
funding obligations,
net of taxes 3.7 0.07 66.7 1.26
Restructuring costs,
net of taxes (18.7) (0.35) (9.6) (0.18)
Other reorganization
expenses,
net of taxes -- -- (4.5) (0.09)
(Loss) income from sale
of universal life business,
net of taxes 3.6 0.06 (20.3) (0.38)
Additional consideration
received from sale of
defined contribution
business, net of taxes -- -- 2.3 0.04
Sales practice litigation,
net of taxes -- -- 1.6 0.03
Income before effect
of accounting change 86.9 1.63 (302.4) (5.72)
Cumulative effect of
change in accounting
principle, net of taxes -- -- (3.7) (0.07)
Net income (loss) $86.9 $1.63 $(306.1) $(5.79)
Net income (loss) includes the following items (net of taxes) by segment:
Quarter ended December 31, 2003
Allmerica
Property & Financial Asset
Casualty Services Management Corporate Total
Net realized
investment
gains (losses),
net of taxes and
amortization $1.7 $3.1 $(1.8) $1.0 $4.0
(Loss) gain
on derivatives,
net of taxes - (5.5) 0.1 - (5.4)
Restructuring
costs, net
of taxes - (14.9) - - (14.9)
Quarter ended December 31, 2002
Allmerica
Property & Financial Asset
Casualty Services Management Corporate Total
Net realized
investment
(losses) gains
net of taxes and
amortization $(17.5) $(10.4) $(18.0) $0.1 $(45.8)
Gain on
derivatives,
net of taxes - - 6.5 - 6.5
Gain from
retirement of
trust
instruments
supported by
funding
obligations,
net of taxes - - 66.7 - 66.7
Restructuring
costs, net
of taxes - (9.6) - - (9.6)
Other
reorganization
expenses, net
of taxes - (4.5) - - (4.5)
Loss from sale
of universal
life business,
net of taxes - (20.3) - - (20.3)
Year ended December 31, 2003
Allmerica
Property & Financial Asset
Casualty Services Management Corporate Total
Net realized
investment
gains (losses),
net of taxes
and
amortization $7.1 $(2.7) $8.1 $(2.1) $10.4
(Loss) gain
on derivatives,
net of taxes - (5.5) 1.0 - (4.5)
Gain from
retirement
of trust
instruments
supported by
funding
obligations,
net of taxes - - 3.7 - 3.7
Restructuring
costs, net
of taxes 0.2 (18.9) - - (18.7)
Income from
sale of
universal life
business, net
of taxes - 3.6 - - 3.6
Year ended December 31, 2002
Allmerica
Property & Financial Asset
Casualty Services Management Corporate Total
Net realized
investment
(losses) gains,
net of taxes
and
amortization $(18.4) $(36.3) $(37.1) $2.4 $(89.4)
Gain on
derivatives,
net of taxes - - 26.2 - 26.2
Gain from
retirement
of trust
instruments
supported by
funding
obligations,
net of taxes - - 66.7 - 66.7
Restructuring
costs, net
of taxes - (9.6) - - (9.6)
Other
reorganization
expenses,
net of taxes - (4.5) - - (4.5)
Loss income
from sale of
universal life
business, net
of taxes - (20.3) - - (20.3)
Additional
consideration
received from
sale of
defined
contribution
business, net
of taxes - 2.3 - - 2.3
Sales practice
litigation, net
of taxes - 1.6 - - 1.6
The following is a reconciliation of Allmerica Financial Services and
Asset Management segment income to Allmerica Financial Services and Asset
Management segment income excluding certain non-cash items:
Quarter ended Year ended
December 31,December 31,
2003 2003
Allmerica Financial Services segment income $11.9 $26.9
Asset Management segment income 1.1 11.3
13.0 38.2
Add:
Deferred acquisition cost operating
amortization, net 23.8 131.1
Property, plant and equipment depreciation 4.2 12.7
VeraVest asset impairment 0.4 11.5
Statement of Position 98-1 amortization, net 1.1 4.1
AIN goodwill impairment 2.1 2.1
Less:
Change in guaranteed minimum death benefit
reserves (5.8) (55.0)
Total segment income excluding certain
non-cash items $38.8 $144.7
(1) Basic net income (loss) per share was $0.26 and $0.28 for the quarters
ended December 31, 2003 and 2002, respectively, and $1.64 and $(5.79)
for the years ended December 31, 2003 and 2002, 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 (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- 01/29/2004
/CONTACT: Sujata Mutalik, +1-508-855-3457, smutalik@allmerica.com, or
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
EO-ES
-- NETH025 --
7851 01/29/200416:55 ESThttp://www.prnewswire.com