Allmerica Financial Corporation Reports Third Quarter Net Income of $0.21 Per Share
October 27 2003 - 4:00PM
PR Newswire (US)
Allmerica Financial Corporation Reports Third Quarter Net Income of
$0.21 Per Share WORCESTER, Mass., Oct. 27 /PRNewswire-FirstCall/ --
Allmerica Financial Corporation today reported net income for the
third quarter of $11.4 million, or $0.21 per share, compared to a
net loss of $313.4 million, or $5.93 per share in the third quarter
of last year. The company also announced it is closing its
broker-dealer operation, VeraVest Investments, Inc., and third
quarter earnings include a related charge of $7.2 million, or $0.13
per share. "Overall, we are pleased with our continued progress,"
said Frederick H. Eppinger, Jr., president and chief executive
officer of Allmerica. "Earnings for the quarter were in line with
expectations and we began an extensive review of our operations
that will continue through the fourth quarter." Eppinger said, "The
decision to cease operations of our broker-dealer followed a great
deal of careful analysis and deliberation. Ultimately, we concluded
that the broker-dealer would not generate sufficient profitability
in the foreseeable future to justify our continued investment. This
will enable us to focus on the profitable growth of our regional
property and casualty companies." 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 marketed non-proprietary insurance and
retirement savings products and services primarily to individuals
through VeraVest Investments, Inc., a registered broker-dealer. 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 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 September 30 (In
millions) 2003 2002 Property and Casualty $38.6 $58.5 Allmerica
Financial Services(1) (5.8) (540.2) Asset Management 5.2 5.7
Corporate (23.9) (23.7) Total Segment Income (Loss)(1) (2) $14.1
$(499.7) (1) Includes a pre-tax $11.0 million asset impairment
charge for the cessation of broker-dealer operations in 2003 and
charges of $556.4 million primarily related to the decision to
cease the manufacture and sale of proprietary variable products in
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 $38.6 million in the third
quarter of 2003, compared to $58.5 million in the third quarter of
2002. The current quarter included $16.9 million of pre-tax
catastrophe losses while the comparable period in 2002 included an
unusually low $4.0 million of pre-tax catastrophe losses. Earnings
were also lower in the quarter due to an unfavorable comparison in
prior year reserve development of $23.2 million, and lower net
investment income. These items were almost entirely offset by the
favorable impact of premium rate increases and improved current
accident year loss trends. Property and Casualty highlights: -- Net
premiums written were $588.7 million in the third quarter of 2003,
compared to $596.8 million in the third quarter of 2002. -- Net
premiums earned were $561.2 million in the third quarter of 2003,
compared to $568.3 million in the third quarter of 2002. -- Pre-tax
catastrophe losses were $16.9 million in the third quarter of 2003,
versus $4.0 million in the comparable period one year earlier. The
following table summarizes the components of the statutory combined
ratio for the Property and Casualty segment: Quarter ended
September 30 2003 2002 Losses (excluding catastrophes) 62.4% 62.0%
Catastrophe losses 3.0% 0.7% Loss adjustment expenses 7.8% 8.5%
Policy acquisition and other underwriting expenses 29.1% 28.8%
Policyholders' dividends 0.1% - Combined Ratio 102.4% 100.0%
Allmerica Financial Services Allmerica Financial Services reported
a segment loss of $5.8 million in the third quarter of 2003. These
results include a pre-tax charge of $11.0 million relating to the
cessation of broker-dealer operations. These results compare to a
segment loss of $540.2 million in the third quarter of 2002, which
were impacted by charges of $556.4 million, principally 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 continued decline in the equity market
through September 30, 2002. Allmerica Financial Services
highlights: -- The Risk Based Capital (RBC) ratio of Allmerica
Financial Life Insurance and Annuity Company, Allmerica's lead life
insurance company, increased to 349 percent at September 30, 2003
up from 344 percent at June 30, 2003 and 244 percent at December
31, 2002. -- Total adjusted statutory capital for the combined life
insurance subsidiaries at September 30, 2003 was $547.2, up from
$535.6 million at June 30, 2003 and $481.9 million at December 31,
2002. -- In the third quarter, individual annuity redemptions were
$493.6 million compared to $552.5 million in the second quarter,
approximately $1.0 billion in the first quarter of 2003 and
approximately $1.3 billion in the fourth quarter of 2002. Asset
Management Asset Management's third quarter segment income was $5.2
million, compared to $5.7 million in the same period in the prior
year. In the current quarter, segment income included beneficial
foreign exchange fluctuations of $2.9 million. Apart from this,
income declined 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 $23.9
million in the third quarter of 2003, compared to $23.7 million in
the comparable period in 2002. Corporate expenses in each period
include $10.0 million of interest expense on the Company's
long-term debt and mandatorily redeemable preferred securities of a
subsidiary trust. Investment Results Net investment income was
$110.5 million for the third quarter of 2003, compared to $152.8
million in the same period of 2002. In the current quarter, 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 line of business.
Third quarter 2003 pre-tax net realized investment losses were $8.0
million, compared to $7.8 million of pre-tax net realized
investment losses in the same period of 2002. In the current
quarter, pre-tax net realized investment losses were principally
related to 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. In the third quarter of
2002, pre-tax net realized investment losses included $48.8 million
related primarily to impairments on certain fixed maturity
securities. These losses were largely offset by gains of $40.2
million primarily from sales of other fixed maturity securities.
Balance Sheet Shareholders' equity was $2.2 billion, or $41.42 per
share at September 30, 2003, compared to $2.1 billion, or $39.12
per share at December 31, 2002. Excluding accumulated other
comprehensive income, book value was $41.30 per share at the close
of the third quarter, compared to $39.83 per share at December 31,
2002. Total assets were $25.0 billion at September 30, 2003,
compared to $26.6 billion at year-end 2002. Separate account assets
were $11.5 billion at September 30, 2003, versus $12.3 million 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. Exit From Broker-Dealer
Operations The company announced the cessation of its broker-dealer
operations. Third quarter results include a pre-tax charge of
approximately $11.0 million in connection with this action. This
decision will allow the company to focus on its core property and
casualty business. The company expects to incur an additional
pre-tax charge of approximately $25 million - $30 million for
severance and other expenses related to this decision, primarily in
the fourth quarter, and to a lesser extent in the first quarter of
2004. Allmerica Financial Corporation will host a conference call
to discuss the Company's third quarter results on Tuesday, October
28th 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 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 Third Quarter Earnings Press
Release and Statistical Supplement are also available in the
Financial News section at http://www.allmerica.com/. Certain
statements in this release 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 "Financial News". 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, including the effect of the
Company's decision to close its broker-dealer operations. Allmerica
Financial Corporation is the holding company for a group of
insurance companies headquartered in Worcester, Massachusetts.
CONTACTS: Investors: Media: Henry P. St. Cyr Michael F. Buckley
(508) 855-2959 (508) 855-3099 ALLMERICA FINANCIAL CORPORATION (In
millions, except per share data) Quarter ended September 30 2003
2002 Net income (loss) $11.4 $(313.4) Net income (loss) per
share(1) $0.21 $(5.93) Weighted average shares 53.3 52.9 The
following is a reconciliation from segment income (loss) to net
income (loss)(2): Quarter ended September 30 2003 2002 Property and
Casualty $38.6 $58.5 Allmerica Financial Services (5.8) (540.2)
Asset Management 5.2 5.7 Corporate (3) (23.9) (23.7) Total segment
income (loss) 14.1 (499.7) Federal income tax benefit on segment
income 5.6 184.7 Total segment income (loss) after federal income
taxes 19.7 (315.0) Net realized investment losses, net of taxes and
deferred acquisition cost amortization (8.2) (0.7) Gain from
retirement of trust instruments supported by funding agreement
obligations, net of taxes 0.4 - Gain on derivative instruments, net
of taxes 0.3 - Restructuring costs, net of taxes (0.8) - Other
items, net of taxes - 2.3 Net income (loss) $11.4 $(313.4) Net
income (loss) includes the following items (net of taxes) by
segment: Quarter ended September 30, 2003 Allmerica Property
Financial Asset & Casualty Services Management Corporate Total
Net realized investment losses, net of taxes and deferred
acquisition cost amortization $(4.3) $(4.3) $0.4 $-- $(8.2) Gain
from retirement of trust instruments supported by funding
obligations -- -- 0.4 -- 0.4 Gain on derivative instruments -- --
0.3 -- 0.3 Restructuring costs -- (0.8) -- -- (0.8) Quarter ended
September 30, 2002 Allmerica Property Financial Asset &
Casualty Services Management Corporate Total Net realized
investment losses, net of taxes and deferred acquisition cost
amortization $(0.3) $(2.1) $0.6 $1.1 $(0.7) Other items -- 2.3 --
-- 2.3 (1) Basic net income (loss) per share was $0.22 and $(5.93)
for the quarters ended September 30, 2003 and 2002, respectively.
Per share data for the quarter ended September 30, 2002 represents
basic loss per share due to antidilution. (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 makers 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. DATASOURCE: Allmerica Financial Corporation CONTACT:
Investors, Henry P. St. Cyr, +1-508-855-2959, , or Media, Michael
F. Buckley, +1-508-855-3099, , both of Allmerica Financial
Corporation
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