Third Quarter Results
WORCESTER, Mass., October 30, 1997 - Allmerica Financial Corporation (NYSE: AFC) today reported third quarter and year-to-date results for the period ended September 30, 1997.
Third Quarter Highlights
- Net operating income increased 23 percent to $52.4 million, or $0.90 per share, from $42.7 million, or $0.85 per share in 1996. Earnings in the third quarter of 1997 included 100 percent ofAllmerica Property & Casualty, Inc. following the July 16 merger.
- Net operating income excludes net realized investment gains and losses and other non-recurring gains and charges, net of taxes and minority interest.
- Results continued to reflect strong Asset Management pre-tax earnings, which increased 39 percent in the quarter.
- Retail variable annuity sales more than doubled to a record $667 million, up from $328 million in 1996.
- Risk Management's property and casualty results were adversely impacted by higher losses, primarily due to increased catastrophe damage in Michigan during July, and increased claim severity, primarily in the personal automobile and commercial multiple peril lines.
- Net income increased 30 percent to $60.7 million, or $1.04 per share, compared to $46.7 million, or $0.93 per share in 1996.
- On October 23, 1997, Standard & Poors upgraded to AA-(Excellent) from A+ (Good) the claims-paying ability rating of First Allmerica Financial Life Insurance Company and Allmerica Financial Life Insurance and Annuity Company, both subsidiaries of Allmerica Financial.
- Allmerica Financial, on July 16, completed its merger with Allmerica P&C, in which Allmerica Financial purchased the 40.5 percent of Allmerica P&C that it did not already own.
Nine-month Highlights
Net operating income increased to $125.3 million, or $2.36 per share, from $101.3 million, or $2.02 per share last year.
Net income was $114.3 million, or $2.16 per share, down from $136.6 million, or $2.72 per share in 1996.
"We are pleased with the continued growth of our variable business," said John F. O'Brien, president and chief executive officer of Allmerica Financial Corporation. "We expect continued strong variable product sales, and will gain greater efficiency through our Service Company initiatives."
Segment Results
Allmerica Financial operates in two primary businesses: Asset Management and Risk Management. Asset Management markets insurance and retirement savings products and services to individual and institutional clients. Risk Management markets property and casualty insurance products on a regional basis through The Hanover Insurance Company and Citizens Corporation (NYSE: CZC). Risk management is also responsible for marketing employee benefit management solutions.
Operating results reflect 100 percent ownership of Allmerica P&C on a pro rata basis since July 16, as well as the company's 82.5 percent ownership interest in Citizens. In the segment reviews that follow, results are reported on a pre-tax basis, before minority interest in Citizens.
Asset Management
Third quarter pre-tax operating earnings for the Asset Management business were up nearly 40 percent, to $39.4 million, versus $28.4 million in 1996. Asset Management earnings through nine months were up 34 percent, to $103.4 million, compared to $77.1 million in 1996.
Retail Financial Services' earnings grew to $28.5 million, from $21.1 million in the third quarter of 1996. Nine-month retail earnings were $74.4 million in 1997, and $55.6 million in 1996. Institutional Services' third quarter earnings were $10.4 million, up from $7.3 million in the same period last year. Through the first nine months of 1997, institutional earnings grew to $27.9 million, from $21.0 million in 1996.
Highlights of Asset Management Results
- Retail variable annuity sales more than doubled in the quarter, increasing to$666.7 million, and bringing nine-month 1997 new deposits to just under $1.8 billion.
- Variable life insurance sales grew 26 percent to $37.4 million, from $29.7 million in the third quarter of 1996.
- Retail variable product fees grew 47 percent, to $37.7 million in the quarter. Increased fees are related to variable product asset growth resulting primarily from strong sales as well as from stock market appreciation.
- Retail variable product assets increased over 54 percent, to $7.4 billion at September 30, 1997, compared to $4.8 billion at year end 1996. Including institutional deposits, total separate account balances grew to $9.2 billion, up 48 percent since year end 1996.
- Earnings continued to benefit from higher guaranteed investment contract (GIC) margins and telemarketing programs.
Risk Management
Risk Management operating earnings in the third quarter of 1997 decreased to $38.5 million, compared to $63.0 million for the same period in 1996, primarily as a result of higher losses due to increased catastrophe losses, increased claims severity, and decreased favorable reserve development. Risk Management earnings through the first nine months were $121.0 million and $127.5 million in 1997 and 1996, respectively.
Third quarter property and casualty earnings were $31.0 million in 1997, compared to $59.4 million for the same period last year. Property and casualty nine-month earnings in 1997 were $107.1 million, down from $116.5 million in 1996. Corporate Risk Management Services' third quarter 1997 earnings more than doubled, growing to $7.5 million from $3.6 million in 1996. Through nine months, Corporate Risk earnings were $13.9 million and $11.0 million in 1997 and 1996, respectively.
Highlights of Risk Management Results
- Pre-tax catastrophe losses, which added 1.9 points to the combined ratio, increased to $9.2 million in the quarter, up from $4.2 million in the third quarter of 1996.
- Losses were adversely impacted by increased claim severity in the personal automobile line at Hanover, and the commercial multiple peril line at Citizens.
- Favorable development on prior years' reserves decreased substantially, to $15.4 million in the quarter, from $24.6 million in the third quarter of last year, decreasing primarily in the personal automobile and commercial multiple peril lines.
- Third quarter net premiums earned increased 4.4 percent to $493.4 million, up from $472.7 million in 1996.
- The statutory expense ratio improved to 29.2 in the quarter, from 29.5 in the same 1996 period, due primarily to decreased employee-related expenses.
- Earnings benefited from improved loss experience in the long-term disability and accidental death and dismemberment lines, and continued growth in sales of dental products and administrative service contracts.
Corporate
Corporate segment net expenses were $8.3 million in the third quarter of1997, compared to $3.8 million last year. The charge in both periods reflects interest on long-term debt. The current period included $6.3 million of dividends paid on preferred securities issued in February 1997, and $3.3 million of net investment income primarily on the proceeds from the preferred securities. Corporate net expenses through the first nine months were $20.3 million in 1997, compared to $11.8 million in the same period of 1996.
Investment Results
Net investment income for the third quarter of 1997 was $177.6 million, compared to $187.2 million in the same 1996 period. The decrease primarily reflects lower income from investment partnerships and the continued runoff of GICs. Income on proceeds from preferred securities and the percentage shift from equities to higher-yielding fixed income securities in the property and casualty portfolio, partially offset the decreases. For the first nine months of 1997, net investment income was $538.3 million, compared to $541.2 million in 1996.
Third quarter net realized investment gains were $10.1 million, after taxes and minority interest, compared to $1.6 million for the same period in1996. Results in the 1997 quarter include gains from the sale of a joint venture. Net realized investment gains were $26.8 million through the first nine months of 1997, up from $23.9 million for the nine months ended September 30 of last year. During 1997, realized gains related principally to the sale of equities in the property and casualty investment portfolio and the sale of real estate properties.
Balance Sheet
Shareholders' equity was $2.26 billion, or $37.74 per share at September 30, 1997, compared to $1.72 billion, or $34.40 per share at December 31,1996. Excluding the impact of SFAS No. 115, book value was $34.54 per share at the close of the third quarter, compared to $31.78 per share at December 31, 1996.
Total assets were $22.0 billion at September 30, 1997, up from $19.0 billion at year-end 1996. Separate account assets increased to $9.2 billion at September 30, 1997, up from $6.2 billion at December 31, 1996.
Interim information is unaudited.
September 30 |
September 30 |
|||
| Net Income* | ||||
| Net income per share | ||||
| Weighted average shares | ||||
* Net income in the third quarter of 1997 included $10.1 million of net realized investment gains, net of taxes and minority interest and a $1.8 million restructuring charge, net of taxes and minority interest. Third quarter 1996 net income included $1.6 million in net realized investment gains, net of taxes and minority interest, and a differential earnings tax adjustment of $2.4 million.
Nine month net income in 1997 included $26.8 million of after-tax net realized investment gains, net of minority interest, a $2.8 million restructuring charge, net of taxes and minority interest, and a $35.0 million charge related to the agreement to transfer the company's individual disability income block, net of tax. In the first three quarters of 1996, net income included $23.9 million of after-tax net realized investment gains, net of minority interest, a $3.1 million benefit from the sale of a mutual fund servicing business, net of taxes, and an $8.3 million differential earnings tax adjustment.
The impact of these items is demonstrated below in the reconciliation from net operating income to net income per share:
| Quarter
ended September 30 |
Nine
months ended September 30 |
|||
| Net operating income | ||||
| Net realized investment gains, net of taxes and amortization | ||||
| Contingency payment from sale of mutual fund processing business, net of taxes | ||||
| Restructuring costs, net of taxes and minority interest | ||||
| Loss from cession of disability income business, net of taxes | ||||
| Differential earnings tax adjustment | ||||
| Net income income | ||||
All figures reported are unaudited and are in accordance with generally accepted accounting principles.
Corporate Information
Common Stock
Common stock of Allmerica Financial is traded on the New York Stock Exchange under the symbol "AFC".
| Quarter ended 1997 | |||
| Price Range | |||
| High | Low | Dividends Per Share | |
| March 31 | |||
| June 30 | |||
| September 30 | |||
| December 31 | |||
| Quarter ended 1996 | |||
| Price Range | |||
| High | Low | Dividends Per Share | |
| March 31 | |||
| June 30 | |||
| September 30 | |||
| December 31 | |||
| A.M. Best | Standard & Poors | Moody's | Duff & Phelps | |
| First Allmerica Financial Life Insurance Company (a) | ||||
| Allmerica Financial Life Insuarance and Annuity Company (b) | ||||
| The Hanover Insurance Company | ||||
| Citizens Insurance Company of America |
(a)Formerly
State Mutual Life Assurance Company of America
(b)Formerly
SMA Life Assurance Company
| Allmerica Financial Corporation |
The Hanover Insurance Group, Inc. is the holding company for a group of insurance companies headquartered in Worcester, Massachusetts.
Contact Information
| Investors: Sujata Mutalik E-mail: smutalik@hanover.com 1-508-855-3457 |
Media: Michael F. Buckley E-mail: mibuckley@hanover.com 1-508-855-3099 |