Net Income of $0.86 Per Share Compared to $0.23 Per Share Last Year
After Tax Segment Income of $0.64 Per Share Compared to $0.62 Per Share Last
Year
WORCESTER, Mass., April 28 /PRNewswire-FirstCall/ -- Allmerica Financial
Corporation (NYSE: AFC) today reported first quarter net income of $46.5
million, or $0.86 per share, compared to net income of $12.1 million, or $0.23
per share in the first quarter of last year. Net income for the first quarter
of 2004 included an after-tax charge of $57.2 million, or $1.06 per share,
which reflected 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.
Total segment income after taxes was $34.2 million, or $0.64 per share in
the first quarter, compared to $33.2 million, or $0.62 per share in the first
quarter of last year. Total Property and Casualty segment income was $61.8
million in the first quarter of 2005, compared to $38.6 million in the first
quarter of 2004. The Life Companies reported a segment loss of $7.4 million
in the first quarter of 2005, compared to segment income of $9.8 million in
the first quarter last year. Segment income after taxes is presented
consistent with the manner in which management evaluates operating results.
"I am very pleased with our solid financial results for the quarter and
the improvement in the performance of our core property and casualty
operations over the past several quarters," said Frederick H. Eppinger,
president and chief executive officer of Allmerica Financial Corporation. "Our
first quarter results reflect a 60% increase in our property and casualty
earnings and continued strength in our Life Companies' capital position."
Segment Results
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 & 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 & 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; Opus Investment Management,
Inc., which provides investment management services to institutions, pension
funds and other organizations; and earnings on holding company assets. 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. It is presented in
a manner consistent with the way management evaluates results and is set forth
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)
2005 2004
Property and Casualty:
Personal Lines(1) $39.2 $10.8
Commercial Lines(2) 20.5 26.5
Other Property & Casualty 2.1 1.3
Total Property and Casualty 61.8 38.6
Life Companies (7.4) 9.8
Interest expense on corporate debt (10.0) (10.0)
Total pre-tax segment income 44.4 38.4
Federal Income Taxes (10.2) (5.2)
Total segment income after taxes(3) $34.2 $33.2
(1) Includes Personal Lines catastrophe losses of $6.8 million and $14.6
million for the first quarter of 2005 and 2004, respectively.
(2) Includes Commercial Lines catastrophe losses of $5.5 million and $6.5
million for the first quarter of 2005 and 2004, respectively.
(3) See reconciliation from segment income to net income at the end of
this document.
Property and Casualty Property and Casualty segment income was $61.8 million in the first
quarter of 2005, up from $38.6 million in the first quarter of 2004. Earnings
were higher in the quarter primarily due to favorable loss performance and
lower catastrophe losses. Pre-tax catastrophe losses were $12.3 million in
the first quarter of 2005, compared to $21.1 million in the first quarter last
year.
Property and Casualty highlights:
* Net premiums written were $548.4 million in the first quarter of 2005,
compared to $561.3 million in the first quarter of 2004.
* Net premiums earned were $550.2 million in the first quarter of 2005,
compared to $556.3 million in the first quarter of 2004.
* In the first quarter of 2005, net pre-tax catastrophe losses were $12.3
million, compared to $21.1 million in the comparable period one year
earlier.
The following table summarizes the components of the GAAP combined ratio
for the Property and Casualty segment:
Quarter ended
March 31
2005 2004
Personal Lines losses (excluding
catastrophes)(1) 58.6% 63.9%
Commercial Lines losses (excluding
catastrophes)(2) 51.7% 46.6%
Total Property and Casualty Losses
(excluding catastrophes) 56.3% 58.6%
Catastrophe losses 2.2% 3.8%
Loss adjustment expenses 8.9% 8.4%
Policy acquisition and other
underwriting expenses 31.4% 31.9%
Policyholders' dividends 0.1% --
Combined Ratio 98.9% 102.7%
(1) Catastrophe losses would add 1.9 points and 3.8 points to the Personal
Lines loss ratio in the first quarter of 2005 and 2004, respectively.
(2) Catastrophe losses would add 2.9 points and 3.7 points to the
Commercial Lines loss ratio in the first quarter of 2005 and 2004,
respectively.
Personal Lines Personal Lines segment income was $39.2 million in the quarter compared to
$10.8 million in the prior year, an increase of $28.4 million. Excluding net
pre-tax catastrophe losses, which were $7.8 million lower in the current
quarter compared to the first quarter of last year, Personal Lines segment
income for the current quarter was $46.0 million compared to $25.4 million in
the first quarter of last year. This $20.6 million improvement in segment
income was primarily due to favorable loss performance.
The current quarter loss ratio, excluding catastrophes, was 5.3 points
better than the prior-year quarter. The continued impact of earned rate
increases and the lower frequency of losses in the current quarter contributed
to the improvement in loss results. In addition, favorable development of
prior-year loss reserves was $9.0 million in the quarter, primarily resulting
from the 2004 accident year. This compares to $0.4 million of favorable
development of prior-year loss reserves in the first quarter of last year.
Personal Lines highlights:
* Net premiums written were $335.8 million in the first quarter of 2005,
compared to $366.0 million in the first quarter of 2004.
* Net premiums earned were $360.5 million in the first quarter of 2005,
compared to $380.2 million in the first quarter of 2004.
* The Personal Lines GAAP combined ratio was 96.7% in the first quarter,
versus 104.1% in the same period last year.
* Net pre-tax catastrophe losses were $6.8 million, or 1.9 points of the
combined ratio for the first quarter of 2005 compared to $14.6 million,
or 3.8 points of the combined ratio for the first quarter of 2004.
Commercial Lines Commercial Lines segment income was $20.5 million in the quarter, compared
to $26.5 million in the first quarter of 2004, a decrease of $6.0 million.
Excluding net pre-tax catastrophe losses, which were $1.0 million lower in the
current quarter compared to the first quarter of last year, Commercial Lines
segment income was $26.0 million, compared to $33.0 million in the prior-year
quarter.
This $7.0 million decrease in segment income was due to an $11.6 million
reduction in favorable development of prior-year loss and loss adjustment
expense reserves partially offset by improved current accident year results
through the first quarter. Favorable development of loss and loss adjustment
expense reserves was $4.9 million in the first quarter of 2005, compared to
$16.5 million in the same quarter last year. The favorable development in the
first quarter of 2004 was primarily the result of a decrease in claims
frequency in the commercial automobile and commercial multiple peril lines.
Commercial Lines highlights:
* Net premiums written were $212.6 million in the first quarter of 2005,
compared to $195.3 million in the first quarter of 2004.
* Net premiums earned were $189.7 million in the first quarter of 2005,
compared to $176.1 million in the first quarter of 2004.
* The Commercial Lines GAAP combined ratio was 102.8% in the first
quarter, compared to 99.2% in the same period last year.
* Net pre-tax catastrophe losses were $5.5 million, or 2.9 points of the
combined ratio in the first quarter versus $6.5 million, or 3.7 points
of the combined ratio in the first quarter of 2004.
Other Property & Casualty Other Property & Casualty segment income was $2.1 million in the quarter,
compared to $1.3 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 $7.4 million in the first
quarter of 2005. Quarterly results for the Life Companies are expected to
approximate breakeven with an assumed equity market appreciation of 2% per
quarter. Segment income for the first quarter of 2004 was $9.8 million.
The segment loss of $7.4 million in the first quarter of 2005 is due to
higher amortization of deferred policy acquisition costs (DAC) and higher
guaranteed minimum death benefit (GMDB) expense, net of hedge gains, resulting
from a lower than expected equity market return of negative 2.6% in the
current quarter, as measured by the S&P 500 Index.
Segment income excluding certain non-cash items was $35.6 million in the
quarter versus $13.6 million in the fourth quarter of 2004. Segment income
excluding certain non-cash items, which is a non-GAAP financial measure, is
reconciled to segment income at the end of this document. Comparisons for
this measure are made on a sequential-quarter basis.
The increase in segment income excluding certain non-cash items in the
first quarter of 2005 compared to the fourth quarter of 2004 was primarily due
to the relative poor performance of the equity market, which resulted in
derivatives gains of $5.8 million in the current quarter, compared to
derivatives losses of $19.7 million in the fourth quarter of 2004. These
derivatives gains and losses are related to our GMDB hedging program, which is
designed to generate gains during a falling equity market, as in the current
quarter, and losses during a rising equity market, as in the fourth quarter of
2004, to offset changes in the underlying GMDB exposure.
The Life Companies' segment income is expected to continue to be volatile
due to the hedge program and the impact of the SOP 03-1 rules on the GMDB
reserve and DAC accounting. The inherent volatility is due to several
factors, with the most significant being equity market levels. Life Companies
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 operations segment income excluding certain non-cash items was
$35.6 million in the first quarter. Segment income excluding certain
non-cash items, which is a non-GAAP financial measure, is reconciled to
segment income at the end of this document.
* Total adjusted statutory capital for the combined life insurance
subsidiaries at March 31, 2005 was $588.7 million, compared to $581.9
million at December 31, 2004 and $589.8 million at March 31, 2004.
Total adjusted statutory capital at December 31, 2004 reflects the
$75.0 million dividend to the holding company approved by the
Massachusetts Division of Insurance.
* The Risk Based Capital (RBC) ratio of Allmerica Financial Life Insurance
and Annuity Company, Allmerica's lead life insurance company, increased
to 506 percent at March 31, 2005, up from 472 percent at December 31,
2004 and 420 percent at March 31, 2004.
* In the first quarter, individual annuity redemptions were $526.5 million
compared to $478.3 million in the fourth quarter of 2004 and
approximately $634.1 million in the first quarter of 2004.
Investment Results Net investment income was $101.1 million for the first quarter of 2005,
compared to $104.7 million in the same period of 2004. First quarter net
investment income decreased primarily due to lower invested assets in the Life
Companies, resulting from maturities of long-term funding agreements and
continued run-off of the business, as well as declining yields in both the
Life Companies and Property and Casualty portfolios, driven by the lower
current interest rates. This was partially offset by increased average
invested assets in the Property and Casualty segment due to increased cash
flows.
First quarter 2005 pre-tax net realized investment gains were $20.2
million, compared to $15.7 million in the same period of 2004. In the current
quarter, pre-tax net realized investment gains of $23.1 million from sales of
investments were partially offset by $2.9 million of capital losses resulting
from impairments on certain fixed maturity securities. In the first quarter of
2004, pre-tax net realized investment gains of $18.1 million from sales of
investments were partially offset by $2.4 million of capital losses resulting
from impairments on certain fixed maturity and equity securities.
Balance Sheet
Shareholders' equity was $2.3 billion, or $43.53 per share at March 31,
2005, compared to $2.3 billion, or $43.91 per share at December 31, 2004.
Excluding accumulated other comprehensive income, book value was $44.67 per
share at the close of the first quarter, compared to $43.85 per share at
December 31, 2004.
Total assets were $22.2 billion at March 31, 2005, compared to $23.7
billion at December 31, 2004. Separate account assets were $9.7 billion at
March 31, 2005, versus $10.5 billion at December 31, 2004. The declines in
total and separate account assets were principally the result of surrenders of
individual variable annuities and a large GIC maturity in the quarter.
Earnings Conference Call
Allmerica Financial Corporation will host a conference call to discuss the
company's first quarter results on Friday, April 29th at 10:00 a.m. Eastern
time. This quarter, a PowerPoint slide presentation will accompany our
prepared remarks and has been posted on our website. Interested investors and
others can listen to the call and access the presentation through Allmerica's
web site, located at http://www.allmerica.com. Web-cast participants should go
to the web site at least 15 minutes early to register, download the new
presentation, 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 are also available in the Investor Relations section 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 "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.
Contact Information
Investors:
Sujata Mutalik
E-mail: smutalik@allmerica.com
1-508-855-3457
Media:
Michael F. Buckley
E-mail: mibuckley@allmerica.com
1-508-855-3099
ALLMERICA FINANCIAL CORPORATION
(In millions, except per share data)
Quarter ended
March 31
2005 2004
Net income $46.5 $12.1
Net income per share(1) $0.86 $0.23
Weighted average shares 53.8 53.7
The following is a reconciliation from segment income to net income(2):
PER SHARE DATA (DILUTED)(1) Quarter ended
March 31
2005 2004
$ Per Share $ Per Share
Property and Casualty
Personal Lines $39.2 -- $10.8 --
Commercial Lines 20.5 -- 26.5 --
Other Property &
Casualty 2.1 -- 1.3 --
Total Property and
Casualty 61.8 -- 38.6 --
Life Companies (7.4) -- 9.8 --
Interest expense
on corporate debt (10.0) -- (10.0) --
Total segment income $44.4 $0.83 $38.4 $0.72
Federal income tax
expense on segment
income (10.2) (0.19) (5.2) (0.10)
Total segment income
after federal income
taxes 34.2 0.64 33.2 0.62
Federal income tax
settlement -- -- 30.1 0.56
Net realized investment
gains, net of taxes
and amortization 12.8 0.23 10.2 0.19
Loss on derivatives,
net of taxes (0.1) -- -- --
Loss from retirement of
trust instruments
supported by funding
obligations, net of taxes -- -- (2.1) (0.04)
Restructuring costs,
net of taxes (0.4) (0.01) (2.1) (0.04)
Income before effect
of accounting change 46.5 0.86 69.3 1.29
Cumulative effect of
change in accounting
principle, net of taxes -- -- (57.2) (1.06)
Net income $46.5 $0.86 $12.1 $0.23
(1) Basic net income per share was $0.87 and $0.23 for the quarters ended
March 31, 2005 and 2004, 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 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.
Net income includes the following items (net of taxes) by segment:
Quarter ended March 31, 2005
Personal Commercial Other Property Life
Lines Lines & Casualty Companies Total
Net realized
investment gains
(losses), net
of taxes and
amortization $ (0.5) $(0.5) -- $13.8 $12.8
Loss on
derivative
instruments,
net of taxes -- -- -- (0.1) (0.1)
Restructuring
costs, net of
taxes -- -- -- (0.4) (0.4)
Quarter ended March 31, 2004
Personal Commercial Other Property Life
Lines Lines & Casualty Companies Total
Net realized
investment
gains net of
taxes and
amortization $1.9 $2.0 $2.2 $4.1 $10.2
Loss from
retirement of
trust instruments
supported by
funding
obligations,
net of taxes -- -- -- (2.1) (2.1)
Restructuring
costs, net of
taxes -- -- -- (2.1) (2.1)
Federal income
tax settlement -- -- -- 30.1 30.1
Cumulative effect
of change in
accounting
principle,
net of taxes -- -- -- (57.2) (57.2)
The following is a reconciliation of the Life Companies' segment (loss)
income to the Life Companies' segment income excluding certain non-cash items:
Quarter ended Quarter ended
March 31, 2005December 31, 2004
Life Companies segment (loss) income $(7.4) $16.5
Deferred acquisition cost operating
amortization, net 39.2 14.6
Property, plant and equipment
depreciation, net 1.3 0.8
Statement of Position 98-1 amortization,
net 0.9 0.7
Change in guaranteed minimum death and
income benefit reserves 1.6 (19.0)
Total segment income excluding certain
non-cash items $35.6 $13.6
All figures reported are unaudited.
SOURCE Allmerica Financial Corporation
-0- 04/28/2005
/CONTACT: Investors: Sujata Mutalik, smutalik@allmerica.com,
+1-508-855-3457, or Media: Michael F. Buckley, mibuckley@allmerica.com,
+1-508-855-3099, both of Allmerica Financial Corporation/
/Web site: http://www.allmerica.com/
(AFC)
CO: Allmerica Financial Corporation
ST: Massachusetts
IN: FIN
SU: ERN CCA MAV
NJ-CP
-- NETH026 --
9426 04/28/200516:12 EDThttp://www.prnewswire.com