NET INCOME OF $0.33 PER SHARE COMPARED TO $0.21 PER SHARE LAST YEAR
AFTER TAX SEGMENT INCOME OF $0.37 PER SHARE CONSISTENT WITH PRIOR YEAR --
DESPITE HIGHER LOSSES FROM THE SOUTHEAST HURRICANES
WORCESTER, Mass., Oct. 25 /PRNewswire-FirstCall/ -- Allmerica Financial
Corporation (NYSE: AFC) today reported third quarter net income of $17.7
million, or $0.33 per share, compared to net income of $11.4 million, or $0.21
per share, in the third quarter of last year.
Total segment income after taxes was $19.6 million, or $0.37 per share,
consistent with $19.7 million or $0.37 per share, in the third quarter of last
year. Segment income after taxes is presented consistent with the manner in
which management evaluates operating results.
The property and casualty business reported solid pre-tax segment earnings
in the quarter despite being materially impacted by catastrophe losses
primarily related to hurricanes in the Southeast.
During the quarter, the company incurred gross catastrophe losses of
approximately $99 million, primarily related to hurricanes in the Southeast.
After reinsurance, pre-tax catastrophe losses were approximately $62 million
compared to $17 million in the comparable period one year earlier.
"I am proud of the prompt, high quality service we provided to our agents
and customers in the aftermath of the recent hurricanes," said Frederick H.
Eppinger, president and chief executive officer of Allmerica Financial
Corporation. "Despite the catastrophe losses, I am pleased that we reported
strong property and casualty 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 we have not actively participated since
1995; AMGRO, Inc., a premium financing business; and Opus Investment
Management, Inc., which provides 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
September 30
(In millions)
2004 2003
Property & Casualty:
Personal Lines $42.1 $11.5
Commercial Lines (7.1) 18.1
Other Property and Casualty 1.7 2.6
Total Property & Casualty 36.7 32.2
Life Companies (8.7) (8.1)
Interest expense on
corporate debt (10.0) (10.0)
Total pre-tax segment income 18.0 14.1
Federal Income Taxes 1.6 5.6
Total segment income after
taxes(1) $19.6 $19.7
(1) See reconciliation of after-tax segment income to net income at the
end of this document.
Property and Casualty
Total Property and Casualty segment income was $36.7 million in the third
quarter of 2004, compared to $32.2 million in the third quarter of 2003.
Pre-tax catastrophe losses were $61.7 million after reinsurance in the
quarter, compared to $16.9 million in the prior year's quarter. Excluding net
pre-tax catastrophe losses, Property and Casualty segment income was $98.4
million, compared to $49.1 million in the prior year quarter.
The company maintains a property catastrophe aggregate reinsurance treaty
that protects against multiple catastrophes within a single year. The treaty
provides $50 million of reinsurance coverage in excess of cumulative
catastrophe losses in the year of approximately $80 million. For purposes of
the approximately $80 million retention, individual events are capped at $30
million. In addition, the company retains 10% of the risk on the $50 million
coverage. Under the terms of the reinsurance agreement, the company has
approximately $8 million in reinsurance coverage available for eligible
catastrophe losses during the fourth quarter of 2004.
Property and Casualty highlights:
* Net premiums written were $581.6 million in the third quarter of 2004,
compared to $588.7 million in the third quarter of 2003.
* Net premiums earned were $563.7 million in the third quarter of 2004,
compared to $561.2 million in the third quarter of 2003.
* In the third quarter of 2004, net pre-tax catastrophe losses were $61.7
million, compared to $16.9 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
September 30
2004 2003
Personal lines losses 53.0% 64.7%
Commercial lines losses 47.4% 56.7%
Other P&C losses NM NM
51.4% 62.4%
Catastrophe losses 10.9% 3.0%
Loss adjustment expenses 9.7% 7.8%
Policy acquisition and other
underwriting expenses 31.0% 29.1%
Policyholders' dividends (0.1)% 0.1%
Combined ratio 102.9% 102.4%
Personal Lines
Personal Lines segment income was $42.1 million in the quarter compared to
$11.5 million in the prior year. Excluding net pre-tax catastrophe losses,
Personal Lines segment income was $66.1 million in the quarter, compared to
$24.0 million in the prior year quarter.
Excluding catastrophes, personal lines results improved primarily due to
favorable loss performance. The loss ratio excluding catastrophes was twelve
points better than the prior year quarter. The major factors driving this
improvement were:
-- Continued impact of rate increases in both personal automobile and
homeowners.
-- Improved frequency of current year losses for the quarter in both
personal automobile and homeowners.
-- A favorable change in development of prior years' loss reserves, with
$7.0 million of favorable development in the current quarter compared
to $6.2 million of adverse development in the year ago quarter.
-- Strategic actions taken to withdraw from less profitable sponsored
business in certain states and the continued improvement in the
Massachusetts business.
Personal Lines highlights:
* Net premiums written were $394.6 million in the third quarter of 2004,
compared to $414.6 million in the third quarter of 2003.
* Net premiums earned were $380.5 million in the third quarter of 2004,
compared to $384.7 million in the third quarter of 2003.
* The personal lines statutory combined ratio was 95.8% in the third
quarter, versus 102.9% in the same period last year.
* Net pre-tax catastrophe losses were $24.0 million, or 6.3 points of the
combined ratio in the third quarter versus $12.5 million, or 3.2 points
of the combined ratio in the third quarter of 2003.
Commercial Lines
Commercial Lines produced a segment loss of $7.1 million in the quarter,
compared to segment income of $18.1 million in the third quarter of 2003.
Excluding net pre-tax catastrophe losses, Commercial Lines segment income was
$30.6 million in the quarter compared to $22.5 million in the prior year
quarter.
Excluding catastrophes, commercial lines results improved due to favorable
underwriting experience which was partially offset by higher expenses. The
loss ratio excluding catastrophes was 9 points better than the prior year
quarter. The major factors driving this improvement were:
-- Continued impact of rate increases taken across all product lines,
which improved margins
-- A favorable change in development of prior year loss reserves, with
$5.5 million of adverse development in the current quarter compared to
$9.1 million in the year ago quarter.
Expenses in this segment were higher in the current quarter primarily due
to the lack of favorable development in prior years' loss adjustment expense
reserves. In addition, policy acquisition and other operating expenses
increased in the quarter resulting from the increased investment in people and
technology associated with the company's commercial lines growth strategy.
Commercial Lines highlights:
* Net premiums written were $187.0 million in the third quarter of 2004,
compared to $174.8 million in the third quarter of 2003.
* Net premiums earned were $183.2 million in the third quarter of 2004,
compared to $177.0 million in the third quarter of 2003.
* The commercial lines statutory combined ratio was 117.0% in the third
quarter, compared to 101.6% in the same period last year.
* Net pre-tax catastrophe losses were $37.7 million, or 20.6 points of the
combined ratio in the third quarter versus $4.4 million, or 2.5 points
of the combined ratio in the third quarter of 2003.
Other Property & Casualty
Other Property & Casualty segment income was $1.7 million in the quarter,
compared to $2.6 million in the prior year. Other Property & Casualty
includes our run-off voluntary pools, premium financing and investment
management operations.
Life Companies
The Life Companies reported a segment loss of $8.7 million in the third
quarter of 2004, compared to a segment loss of $8.1 million in the third
quarter of 2003. The segment loss in the current quarter was primarily due to
the higher amortization of deferred policy acquisition costs (DAC) and higher
guaranteed minimum death benefit (GMDB) costs, partially offset by lower
operating expenses. Lower equity market returns in the quarter resulted in
the higher DAC and GMDB costs versus the prior year quarter.
Segment income excluding certain non-cash items was $37.9 million in the
quarter versus $26.9 million in the second quarter of 2004. This increase was
primarily due to $5.9 million in derivatives gains related to the GMDB hedge
program for the quarter, versus derivatives losses of $5.9 million related to
the hedge program in the prior quarter.
The Life Companies segment income is expected to be volatile due to the
hedge program and the impact of the new SOP 03-1 rules on GMDB reserve and DAC
accounting. The inherent volatility is due to several factors, with the most
significant being equity market levels. Life Company segment income is also
affected by changes in interest rates, surrenders and any deviation between
the performance of the underlying mutual funds and the indices associated with
futures contracts in connection with the hedging program.
Life Companies highlights:
* Life Companies segment income excluding certain non-cash items was $37.9
million in the third quarter of 2004 compared to $26.9 million in the
second quarter of 2004.
* Total adjusted statutory capital for the combined life insurance
subsidiaries at September 30, 2004 was $610.7 million compared to
$592.0 million at June 30, 2004.
* The Risk Based Capital (RBC) ratio of Allmerica Financial Life Insurance
and Annuity Company, Allmerica's lead life insurance company, increased
to 465 percent at September 30, 2004, compared to 428 percent at June
30, 2004.
* In the third quarter of 2004, individual annuity redemptions were $491.7
million compared to $555.9 in the second quarter of 2004. The
individual annuity redemption rate was 19 percent in the current
quarter compared to 20 percent in the second quarter of 2004.
Investment Results
Net investment income was $104.2 million for the third quarter of 2004,
compared to $110.5 million in the same period of 2003. Third quarter net
investment income decreased $6.3 million, due to a decrease of $9.3 million
for the Life Companies offset by a $3.0 million increase for Property and
Casualty. Third 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. Third quarter net
investment income decreased for the Life Companies primarily due to lower
average invested assets resulting from general account annuity redemptions and
a reduction in outstanding guaranteed investment contract balances. Lower
prevailing fixed maturity investment rates also contributed to the decline.
Third quarter 2004 pre-tax net realized investment losses were $4.4
million, compared to $8.0 million of pre-tax net realized investment losses in
the same period of 2003. In the current quarter, pre-tax net realized
investment losses of $12.0 million, primarily from derivative transactions and
other-than-temporary impairments on certain fixed maturity securities, were
partially offset by $7.6 million of realized gains resulting from sales of
fixed maturity and equity securities. In the third quarter of 2003, pre-tax
net realized investment losses were principally related tZ/I5"!an-
temporary 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.
Balance Sheet
Shareholders' equity was $2.3 billion, or $43.09 per share at September
30, 2004, compared to $2.2 billion, or $41.89 per share at December 31, 2003.
Excluding accumulated other comprehensive income, book value was $42.69 per
share at the close of the third quarter, compared to $41.59 per share at
December 31, 2003.
Total assets were $23.1 billion at September 30, 2004, compared to $25.1
billion at year-end 2003. Separate account assets were $10.1 billion at
September 30, 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.
Earnings Conference Call
Allmerica Financial Corporation will host a conference call to discuss our
third quarter results on Tuesday, October 26th at 10:00 a.m. Eastern time.
Interested investors and others can listen to the call through Allmerica's web
site, located at http://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 third quarter earnings press release and
statistical supplement are available in the "investors" section of the
Allmerica web site at http://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 http://www.allmerica.com
under "investors". These uncertainties include the possibility of adverse
catastrophe experience (including terrorism) and severe weather, the
uncertainties in estimating property and casualty losses, 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
and evolving state and federal legislation or regulation and financial ratings
actions, and various other factors, which include 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
September 30
2004 2003
Net income $17.7 $11.4
Net income per share (diluted)(1) $0.33 $0.21
Weighted average shares 53.6 53.3
The following is a reconciliation of segment income to net income(2):
PER SHARE DATA (DILUTED)(1) Quarter ended September 30
2004 2003
$ Per Share $ Per Share
Property and Casualty
Personal Lines $42.1 - $11.5 -
Commercial Lines (7.1) - 18.1 -
Other Property & Casualty 1.7 - 2.6 -
Total Property & Casualty 36.7 - 32.2 -
Life Companies (8.7) - (8.1) -
Interest expense on
corporate debt(3) (10.0) - (10.0) -
Total segment income $18.0 $0.34 $14.1 $0.26
Federal income tax benefit
on segment income 1.6 0.03 5.6 0.11
Total segment income after
federal income taxes 19.6 0.37 19.7 0.37
Net realized investment
losses, net of taxes and
amortization (3.7) (0.07) (8.2) (0.16)
Gains on derivatives,
net of taxes 0.1 - 0.3 0.01
Gain from retirement of
funding agreements and
trust instruments supported
by funding obligations,
net of taxes 1.9 0.03 0.4 0.01
Restructuring costs, net of
taxes (0.2) - (0.8) (0.02)
Net income $17.7 $0.33 $11.4 $0.21
(1) Basic net income per share was $0.33 and $0.22 for the quarters ended
September 30, 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 Interest
Expense on Corporate Debt and primarily reflect the interest on the
Company's senior and junior subordinated debentures.
Net income includes the following items (net of taxes) by segment:
Quarter ended September 30, 2004
Other
Property
(In millions) Personal Commercial and Life
Lines Lines Casualty Companies Total
Net realized
investment
gains (losses),
net of taxes
and deferred
acquisition
cost
amortization $0.6 $0.2 $0.1 $(4.6) $(3.7)
Gain from
retirement of
funding
agreements and
trust instruments
supported by
funding
obligations - - - 1.9 1.9
Net gains on
derivative
instruments - - - 0.1 0.1
Restructuring
costs - - - (0.2) (0.2)
Quarter ended September 30, 2003
Other
Property
Personal Commercial and Life
Lines Lines Casualty Companies Total
Net realized
investment
gains (losses),
net of taxes
and deferred
acquisition
cost
amortization $(2.2) $(2.1) $0.2 $(3.9) $(8.2)
Net gains on
derivative
instruments - - - 0.3 0.3
Gain from
retirement of
funding
agreements and
trust instruments
supported by
funding
obligations - - - 0.4 0.4
Restructuring
costs - - - (0.8) (0.8)
Nine Months ended September 30, 2004
Other
Property
Personal Commercial and Life
Lines Lines Casualty Companies Total
Net realized
investment
gains (losses),
net of taxes
and deferred
acquisition
cost
amortization $4.4 $4.1 $2.9 $(0.5) $10.9
Federal income
tax settlement - - - 30.3 30.3
Net gains on
derivative
instruments - - - 0.3 0.3
Losses from
retirement of
funding
agreements
and trust
instruments
supported by
funding
obligations - - - (0.2) (0.2)
Restructuring
costs - - - (3.8) (3.8)
Cumulative effect
of change in
accounting
principle - - - (57.2) (57.2)
Nine Months ended September 30, 2003
Other
Property
Personal Commercial and Life
Lines Lines Casualty Companies Total
Net realized
investment
gains (losses),
net of taxes
and deferred
acquisition cost
amortization $2.7 $2.7 $(3.1) $4.1 $6.4
Net gains on
derivative
instruments - - - 0.9 0.9
Gain from retirement
of funding
agreements and
trust instruments
supported by funding
obligations - - - 3.7 3.7
Restructuring costs - 0.2 - (4.0) (3.8)
Income from
sale of universal
life business - - - 3.6 3.6
The following is a reconciliation of the Life Companies segment loss to
the Life Companies segment income excluding certain non-cash items:
Quarter ended Quarter ended Quarter ended
Sept. 30, 2004June 30, 2004Sept. 30, 2003
Life Companies segment loss $(8.7) $(6.3) $(8.1)
Deferred acquisition cost
operating amortization
and amortization of sales
inducements, net 44.6 33.6 28.1
VeraVest broker/dealer asset
impairment - - 11.1
Net change in property, plant
and equipment balances 0.6 0.9 0.2
Statement of Position 98-1
amortization, net 1.1 1.1 1.1
Change in guaranteed minimum
death benefit reserves 0.3 (2.4) (9.4)
Total segment income excluding
certain non-cash items $37.9 $26.9 $23.0
All figures reported are unaudited.
SOURCE Allmerica Financial Corporation
-0- 10/25/2004
/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 MAV
NJ-EO
-- NEM056 --
3704 10/25/200416:08 EDThttp://www.prnewswire.com