ALLMERICA FINANCIAL CORPORATION REPORTS $3.30 OPERATING EARNINGS PER SHARE FOR 1997
WORCESTER, Mass., Feb. 5 -- Allmerica Financial Corporation (NYSE: AFC) today reported record operating earnings for the fourth quarter and full-year 1997.
Fourth Quarter Highlights
- Net operating income increased to $55.7 million, or $0.93 per share, from $36.6 million, or $0.73 per share in 1996. Net operating income excludes net realized investment gains and losses and other non-recurring gains and charges, net of taxes and minority interest.
- Pre-tax operating earnings were up 30 percent in both the Asset Management and Risk Management businesses.
- Strong property and casualty earnings resulted from increased earned premiums, decreased expenses, and lower catastrophe losses over the prior year.
- Variable annuity sales continued their record pace, increasing 68 percent to $670 million, from $398 million in 1996.
- Net income was $94.9 million, or $1.58 per share, compared to $45.3 million, or $0.91 per share in 1996. The 1997 quarter includes a gain of $30.5 million, net of taxes, related to the reinsurance of the mortality risk for universal life and variable universal life blocks of business.
Full-year highlights
- Net operating income was $181.0 million in 1997, or $3.30 per share, up from $137.9 million, or $2.75 per share in 1996.
- Variable annuity sales reached $2.4 billion, up 83 percent from 1996.
- Net income increased to $209.2 million, or $3.82 per share, from $181.9 million, or $3.63 per share in 1996. Basic net income per share was $3.83 for the year ended December 31, 1997. For all other periods, basic and diluted net income per share are the same.
"Our continued focus on growth strategies during the year drove record earnings in 1997,'' said John F. O'Brien, president and chief executive officer of Allmerica Financial Corporation. "In 1998, we will maintain our focus on expanding distribution, enhancing product offerings, reducing expenses, and making greater use of new technology to improve service."
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 also markets employee benefit management solutions.
Operating results reflect 100 percent ownership of Allmerica P&C 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
Fourth quarter operating earnings for the Asset Management business increased $7.9 million to $34.9 million in 1997. Full-year Asset Management earnings were up 33 percent, to $138.3 million, compared to $104.1 million in 1996.
Retail Financial Services' operating earnings increased to $20.4 million in the quarter, up from $18.6 million in the fourth quarter of 1996. Full- year retail operating earnings were $94.8 million in 1997, up 28 percent from $74.2 million in 1996. Institutional Services' fourth quarter operating earnings were $14.2 million, compared to $7.8 million in the same period in the prior year. Full-year institutional operating earnings in 1997 grew to $42.1 million, from $28.8 million in 1996.
Asset Management highlights
- Retail variable annuity sales reached a record $2.4 billion in 1997, up from $1.3 billion in 1996.
- Variable life insurance sales were up 18 percent, to $39.9 million in the quarter, and grew 27 percent, to $148.8 million for the full-year 1997.
- Retail variable product fees of $42.2 million were up nearly 50 percent over the 1996 fourth quarter, and up 43 percent for the year. Increased fees are related to variable product asset growth resulting from strong sales and stock market appreciation.
- Retail variable product assets grew to $7.9 billion at December 31, 1997, compared to $4.8 billion at year-end 1996. Including institutional deposits, total separate account balances grew 57 percent since year end 1996, to $9.8 billion.
- Fourth quarter institutional operating earnings benefitted from continued separate account asset growth, lower operating expenses, and higher guaranteed investment contract (GIC) margins.
Risk Management
Risk Management operating earnings grew to $56.7 million, up from $43.7 million for the fourth quarter of 1996. Full-year Risk Management operating earnings were $177.7 million in 1997, compared to $171.2 million in 1996.
Property and casualty operating earnings were $51.1 million in the fourth quarter of 1997, compared to $34.3 million in 1996. Full-year property and casualty operating earnings were $158.2 million in 1997, up from $150.8 million in 1996. Corporate Risk Management Services' fourth quarter 1997 operating earnings were $5.6 million, versus $9.4 million in 1996, bringing full-year 1997 Corporate Risk operating earnings to $19.5 million, compared to $20.4 million in 1996.
Risk Management highlights
- Net premiums earned were $498.7 million in the quarter, up $7.9 million from 1996, bringing full-year 1997 earned premium to more than $1.95 billion.
- Policy acquisition and other underwriting expenses in the quarter decreased $5.7 million from the prior year due primarily to lower technology and employee-related costs.
- The statutory expense ratio improved by 4.3 points to 30.0 in the quarter, down from 34.3 in the same 1996 period. The full-year statutory expense ratio was 30.0 in 1997, compared to 31.6 in 1996.
- Pre-tax catastrophe losses were $0.6 million in the quarter, down from $4.4 million in 1996.
- Continued quarterly growth in Corporate Risk dental product premiums and administrative service contract fees was more than offset by less favorable loss experience, primarily in the life, long-term disability and reinsurance pool lines, and increased expenses.
Corporate
Corporate segment net expenses were $13.2 million in the fourth quarter of 1997, compared to $4.1 million in 1996. Both periods included $3.8 million of interest on long-term debt. Fourth quarter 1997 included $6.2 million of dividends paid on capital securities issued in February 1997. Full-year corporate net expenses were $33.5 million and $15.9 million in 1997 and 1996, respectively.
Investment Results
Net investment income, including the Closed Block, was $168.5 million for the fourth quarter of 1997, compared to $184.0 million in the same 1996 period. The decrease primarily reflects lower income from investment partnerships and the continued runoff of GICs. Higher average invested assets and portfolio yields in the property and casualty portfolio partially offset the decreases. Full-year 1997 net investment income, including the Closed Block, was $706.8 million, compared to $725.2 million in 1996.
Fourth quarter net realized investment gains were $10.7 million, after taxes and minority interest, compared to $7.1 million last year. Full-year 1997 net realized investment gains were $37.5 million, up from $31.0 million in 1996. During 1997, realized gains related principally to the sale of appreciated equities in the property and casualty investment portfolio, gains on fixed maturities in the Asset Management investment portfolio, and the sale of real estate properties.
Balance Sheet
Shareholders' equity was $2.38 billion, or $39.71 per share at December 31, 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 $36.08 per share at the close of the fourth quarter, compared to $31.78 per share at December 31, 1996
Total assets were $22.5 billion at December 31, 1997, up from $19.0 billion at year-end 1996. Separate account assets increased to $9.8 billion at December 31, 1997, up from $6.2 billion at December 31, 1996.
First Quarter 1998 Catastrophe
As a result of a severe winter ice storm that struck Maine during January, Allmerica Financial, through its subsidiary The Hanover Insurance Company, expects to incur an estimated $12 million in pre-tax catastrophe losses, or 13 cents per share in the first quarter of 1998.
Other
During the fourth quarter, Allmerica Financial agreed to reinsure approximately $18 billion of universal life and variable universal life mortality risk to the Reinsurance Group of America (RGA), effective as of January 1, 1998. As a result of this agreement, the mortality assumption used in the amortization of deferred acquisition costs was adjusted. This change in assumption produced a non-operating benefit to income of $47 million in the fourth quarter.
Interim information is unaudited.
December 31 |
December 31 |
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| Net income(A) | ||||
| Net income per share | ||||
| Weighted average shares | ||||
NOTE(A): Net income in the fourth quarter of 1997 Included $10.7 million of net realized investment gains, a $1.6 million restructuring charge, a $30.5 million gain related to the reinsurance of the universal life and variable universal life blocks, and a $0.4 million charge for other non-operating items, all net of tax and applicable minority interest. Fourth quarter 1996 net income included $7.1 million in net realized investment gains, a $0.3 million restructuring charge, and a differential earnings tax adjustment of $1.9 million, all not of tax and applicable minority interest.
Full-year net income in 1997 included $37.5 million of net realized investment gains, a $4.4 million restructuring charge, a $35.0 million charge related to the transfer of the company's individual disability income block, a $30.5 million gain related to the reinsurance, and a $0.4 million charge for other non-operating items, all net of tax and applicable minority interest. Full-year 1996 net income included $31.0 million of net realized investment gains, a $3.1 million benefit from the sale of a mutual fund servicing business, a $0.3 million restructuring charge, and a $10.2 million differential earnings tax adjustment, all net of tax and applicable minority interest.
The impact of these items is demonstrated below in the reconciliation from net operating income to net income per share (all items shown are net of tax and applicable minority interest):
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December 31 |
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| Net operating income | ||||
| Net realized investment gains | ||||
| Restructuring costs | ||||
| Gain from change in mortality assumptions | ||||
| Loss from cession of disability income business | ||||
| Other non-operating items | ||||
| Net income | ||||
Basic net income per share was $3.83 for the year ended December 31, 1997. For all other periods presented, basic and diluted net income per share are the same.
All figures reported are unaudited and are in accordance with generally accepted accounting principles.
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 |