FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
20668
(Commission file number)
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3164595
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
440 Lincoln Street, Worcester, Massachusetts 01653
(Address of principal executive offices)
(Zip Code)
(508) 855-1000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: 59,646,106
shares of common stock outstanding, as of May 1, 1995.
15
Total Number of Pages
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
(in millions except per share data) 1996 1995
<S> <C> <C>
Revenues
Net premiums written $ 475.7 $ 480.8
Increase in unearned premiums,
net of prepaid reinsurance premiums 10.6 25.0
Net premiums earned 465.1 455.8
Net investment income 52.3 53.0
Net realized gains on investments 45.5 -
Other income, net 0.4 4.0
Total revenues 563.3 512.8
Expenses
Losses and loss adjustment expenses 346.2 321.8
Policy acquisition and other
underwriting expenses 146.5 145.7
Policyholders' dividends 3.1 1.6
Total expenses 495.8 469.1
Income before federal income taxes and
minority interest 67.5 43.7
Federal income tax expense 13.7 8.9
Income before minority interest 53.8 34.8
Minority interest (4.2) (2.1)
Net income $ 49.6 $ 32.7
Per Share Data
Net Income $ 0.82 $ 0.53
Dividends declared to shareholders $ 0.04 $ 0.04
Weighted average shares outstanding 60.5 61.8
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<TABLE>
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
March 31, December 31,
(in millions) 1996 1995
<S> <C> <C>
Assets
Investments:
Debt securities available-for-sale, at fair value
(Amortized cost of $3,426.7 and $3,237.6) 3,480.7 3,356.5
Equity securities available-for-sale
(Cost of $260.6 and $340.8) 342.5 438.1
Other investments, at fair value (Cost of $19.9 and $20.1) 26.5 25.0
Total investments 3,849.7 3,819.6
Cash and cash equivalents 112.3 125.5
Accrued investment income 63.3 64.5
Premiums receivable (less allowance for doubtful accounts
of $5.0 and $4.6) 414.8 400.3
Finance installment receivables 28.0 30.2
Reinsurance recoverable on paid and unpaid balances 775.4 807.4
Prepaid reinsurance premiums 46.6 43.8
Deferred policy acquisition expenses 158.7 157.5
Deferred federal income taxes 107.2 81.2
Other Assets 233.3 211.8
Total assets $ 5,789.3 $ 5,741.8
Liabilities and Shareholders' Equity
Liabilities
Reserve for losses and loss adjustment expenses $ 2,868.8 $ 2,896.0
Unearned premiums 810.7 797.3
Reinsurance premiums payable 17.2 42.0
Commercial paper 26.8 27.7
Other liabilities 453.3 340.6
Total liabilities 4,176.8 4,103.6
Minority interest 127.8 128.9
Shareholders' equity
Preferred stock, par value $1.00 per share;
authorized 20.0 million shares; issued none - -
Common stock, par value $1.00 per share;
authorized 90.0 million shares; issued 61.9
million shares 61.9 61.9
Additional paid-in capital 32.0 32.0
Retained earnings 1,352.1 1,304.9
Unrealized appreciation on investments, net of deferred
federal income taxes and minority interest 85.7 133.9
Treasury stock, at cost (2.0 million and 1.1 million shares) (47.0) (23.4)
Total shareholders' equity 1,484.7 1,509.3
Total liabilities and shareholders' equity $ 5,789.3 $ 5,741.8
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<TABLE>
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
(Unaudited)
Three Months Ended
March 31,
(In millions) 1996 1995
<S> <C> <C>
Common stock
Balance at beginning and end of period $ 61.9 $ 61.9
Additional paid-in capital
Balance at beginning and end of period 32.0 32.0
Retained earnings
Balance at beginning of year 1,304.9 1,174.6
Net income 49.6 32.7
Dividends declared to shareholders (2.4) (2.5)
Balance at end of period 1,352.1 1,204.8
Unrealized appreciation (depreciation) on investments, net
Balance at beginning of period 133.9 (36.3)
(Depreciation) appreciation during the period (78.7) 82.8
Benefit (provision) for deferred federal income taxes 27.6 (29.0)
Minority interest, net of taxes 2.9 (5.2)
Balance at end of period 85.7 12.3
Treasury stock
Balance at beginning of period (23.4) (2.5)
Shares purchased at cost (23.6) (1.3)
Balance at end of period (47.0) (3.8)
Total shareholders' equity $ 1,484.7 $ 1,307.2
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
<TABLE>
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
(Unaudited)
Three months ended
March 31,
(in millions) 1996 1995
<S> <C> <C>
Cash was (used for) provided by
Operating Activities
Net income $ 49.6 $ 32.7
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Net realized gains on investments (45.5) -
Deferred federal income tax provision 1.5 2.1
Change in assets and liabilities:
Deferred policy acquisition expenses (1.2) (4.0)
Premiums and notes receivable, net of reinsurance payable (39.7) (46.4)
Unearned premiums, net of prepaid reinsurance premiums 10.6 25.0
Reserve for losses and loss adjustment expenses, net of reinsurance recoverable 4.8 33.6
Other, net 5.5 0.8
Net cash (used for) provided by operating activities (14.4) 43.8
Investing Activities
Proceeds from sale of available-for-sale debt securities 446.2 203.4
Proceeds from available-for-sale debt securities maturing or called - 89.3
Proceeds from held-to-maturity debt securities maturing or called - 11.6
Proceeds from sale of available-for-sale equity securities and other investments 163.7 22.4
Purchases of available-for-sale debt securities (639.1) (261.5)
Purchases of available-for-sale equity securities and other investments (39.2) (54.2)
Decrease (increase) in net receivable from securities transactions not settled 100.3 (11.2)
Capital expenditures (0.8) (1.8)
Net cash provided by (used for) investing activities 31.1 (2.0)
Financing Activities
Dividends paid to shareholders (2.4) (2.5)
Commercial paper redeemed, net (3.9) (4.4)
Treasury stock purchased, at cost (23.6) (1.3)
Net cash (used for) financing activities (29.9) (8.2)
Net (decrease) increase in cash and cash equivalents (13.2) 33.6
Cash and cash equivalents at beginning of period 125.5 368.3
Cash and cash equivalents at end of period $ 112.3 $ 401.9
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Earnings Per Share
Earnings per share are based on a monthly weighted average of shares
outstanding. The weighted average number of shares outstanding applicable
to common stock was 60.5 million and 61.8 million for the three month
periods ended March 31, 1996 and 1995, respectively. On December 27, 1994,
the Board of Directors of Allmerica Property & Casualty Companies, Inc.
(the "Company") authorized the repurchase of up to three million shares, or
nearly five percent of its outstanding common stock. During the first
quarter of 1996, the Company purchased 0.9 million shares for a total of
2.0 million shares since the implementation of the repurchase program.
MANAGEMENT'S REPRESENTATION
In the opinion of management, the financial statements reflect all
adjustments of a normal recurring nature necessary for a fair presentation
of the interim periods. Certain reclassifications have been made to the
1995 consolidated financial statements in order to conform to the 1996
presentation. Interim results are not necessarily indicative of results
expected for the entire year. These financial statements should be read in
conjunction with the Company's 1995 Annual Report to Shareholders, as filed
on Form 10-K to the Securities and Exchange Commission.
PART I - FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The results of operations for Allmerica Property & Casualty Companies, Inc.
and subsidiaries (the "Company") include the accounts of Allmerica Property
& Casualty Companies, Inc. ("Allmerica P & C"), a non-insurance holding
company; The Hanover Insurance Company ("Hanover"), a property and casualty
insurance company wholly owned by Allmerica P & C; Citizens Corporation, a
non-insurance holding company for Citizens Insurance Company of America
(collectively, "Citizens"); and certain other insurance and non-insurance
subsidiaries. Hanover owns 81.4% of the outstanding common stock of
Citizens Corporation.
Results of Operations
Consolidated Overview
Net Income
The Company's consolidated net income increased $16.9 million, to $49.6
million, or $0.82 per share, in the first quarter of 1996, compared to
net income of $32.7 million, or $0.53 per share for the same period in
1995. The increase in net income is primarily attributable to a $45.5
million increase in realized gains primarily related to the sale of equity
securities. This increase reflects the Company's decision to increase the
proportion of debt securities in the portfolio. Excluding realized gains
and losses net of taxes, net income decreased $10.8 million, to $21.8
million in the first quarter of 1996. Net income in the quarter was
significantly impacted by catastrophes and other severe weather related
losses. This resulted in a $24.4 million increase in losses and loss
adjustment expenses (LAE) to $346.2 million in the first quarter of 1996.
Direct catastrophe losses in the first quarter of 1996 were $28.7 million,
compared to $1.9 million in the first quarter of 1995. This was partially
offset by favorable claims experience on current and prior accident years
at both Hanover and Citizens, primarily in the workers' compensation lines.
Federal income tax expense increased $4.8 million in the first quarter of
1996, but the effective tax rate decreased from 20.6% in the first quarter
of 1995, to 20.3%, for the same period in 1996. Minority interest in
Citizens net income was $4.2 million in the first quarter of 1996, compared
to $2.1 million during the first quarter of 1995.
Underwriting results
Consolidated net premiums earned increased $9.3 million, or 2.0%, to $465.1
million in the first quarter of 1996. Personal segment net premiums earned
increased $11.7 million, or 4.4%, to $280.2 million. This increase is
primarily attributable to increases in policies in force in the personal
automobile and homeowners' lines at Hanover, and to price increases in the
personal automobile and homeowners' lines at Citizens. Commercial segment
net premiums earned decreased $2.4 million, or 1.3% to $184.9 million. This
decrease is primarily attributable to competitive market conditions in the
commercial segment which resulted in decreases in policies in force in all
major lines at Hanover and to price decreases in the workers compensation
line at both Hanover and Citizens.
The consolidated underwriting loss increased $17.4 million, to a loss of
$30.7 million in the first quarter of 1996. The increase in the
underwriting loss is primarily attributable to the increase in catastrophe
losses and severe weather during the first quarter of 1996. This resulted
in a $24.4 million, or 7.6%, increase in losses and LAE to $346.2 million
in the first quarter of 1996. Policy acquisition expenses, which consist
primarily of commissions, premium taxes and other policy issuance costs,
increased $2.2 million, or 2.2%, to $103.7 million, primarily attributable
to the growth in net earned premium. Other underwriting expenses decreased
$1.4 million, or 3.2% to $42.8 million in the first quarter of 1996,
primarily attributable to reduced technology expenses and decreases in
employee related expenses in 1996, primarily at Citizens.
Investment results
Net investment income before taxes remained relatively unchanged at $52.3
million in 1996 compared to $53.0 million in the comparable quarter of
1995. The increase in average invested assets during the first quarter of
1996 was offset by a decrease in average debt security yield from 6.4% in
the first quarter of 1995 to 5.9% in the first quarter of 1996. Net
investment income after taxes increased $0.3 million, to $43.9 million
primarily attributable to the increase in tax- exempt debt securities.
During the first quarter of 1996 the Company revised its investment
strategy, resulting in the sale of a substantial portion of its equity
portfolio and the purchase of tax-exempt securities. This is consistent
with the Company's strategy of maximizing after-tax net investment income.
As a result of the sale of equity securities, the Company had realized
gains of $45.5 million during the first quarter of 1996 compared to
realized gains of $49 thousand in the first quarter of 1995.
Segment Results
Personal Segment
The personal segment represented 60.2% and 58.9% of total net premiums
earned in the first quarter of 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Hanover Citizens Consolidated
For the Quarters Ended
March 31, (In millions) 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net premiums earned $ 145.1 $ 139.2 $ 135.1 $ 129.3 $ 280.2 $ 268.5
Losses and loss adjustment expenses 116.3 92.1 107.4 104.6 223.7 196.7
Policy acquisition expenses 35.9 33.8 27.2 26.0 63.1 59.8
Other underwriting expenses 13.1 11.6 9.2 10.3 22.3 21.9
Underwriting (loss) profit $ (20.2) $ 1.7 $ (8.7) $ (11.6) $ (28.9) $ (9.9)
</TABLE>
Revenues
Personal segment net premiums earned increased $11.7 million, or 4.4%, to
$280.2 million during the first quarter of 1996, compared to $268.5 million
in the first quarter of 1995. Hanover's personal segment net premiums
earned increased $5.9 million, or 4.2%, to $145.1 million during the first
quarter of 1996. This increase was primarily attributable to increases in
policies in force in the personal automobile and homeowners' lines and
price increases in the homeowners line. Premium growth in Hanover's
personal segment was impacted by a mandated 4.5% decrease in Massachusetts
personal automobile rates which became effective January 1, 1996.
Approximately 40% of Hanover's personal automobile business is currently
written in Massachusetts. Citizens' personal segment net premiums earned
increased $5.8 million, or 4.5%, to $135.1 million in the first quarter of
1996. This increase is primarily attributable to price increases in the
personal automobile and homeowners lines.
Underwriting results
The personal segment underwriting loss increased $19.0 million, to a loss
of $28.9 million in the first quarter of 1996. Hanover's underwriting loss
increased $21.9 million, while Citizens' improved $2.9 million.
Hanover's personal segment losses and LAE increased $24.2 million, or 26.3%
to $116.3 million in the first quarter of 1996. This increase is primarily
attributable to a $18.8 million increase in losses and LAE in the
homeowners line resulting from increased catastrophes during the quarter.
Direct catastrophe losses in the personal segment increased $16.1 million,
to $17.8 million in the first quarter of 1996 from $1.7 million during the
first quarter of 1995.
Citizens' improved underwriting results are primarily attributable to
favorable claims experience on current and prior accident years in the
personal automobile line. This improvement was attained in spite of a $4.1
million increase in catastrophes in the first quarter of 1996. There
were no catastrophes in the personal segment during the first quarter
of 1995.
The increase in policy acquisition expenses in the personal segment of
$3.3 million, or 5.5%, to $63.1 million in the first quarter of 1996
reflects the growth in net earned premium at both Hanover and Citizens.
Other underwriting expenses at Hanover increased $1.5 million, or 12.9%, to
$13.1 million, reflecting costs associated with the expansion of Hanover's
group business. Other underwriting expenses at Citizens decreased $1.1
million, or 10.7%, to $9.2 million, reflecting reduced technology expenses
and decreases in employee related expenses in 1996.
Commercial Segment
The commercial segment represented 39.8% and 41.1% of total net premiums
earned in the first quarter of 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Hanover Citizens Consolidated
For the Quarters Ended
March 31, (In millions) 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net premiums earned $ 115.5 $ 121.6 $ 69.4 $ 65.7 $ 184.9 $ 187.3
Losses and loss adjustment expenses 74.4 84.0 48.1 41.1 122.5 125.1
Policy acquisition expenses 27.0 28.9 13.6 12.8 40.6 41.7
Other underwriting expenses 16.7 17.0 3.8 5.3 20.5 22.3
Policyholders' dividends 1.3 0.5 1.8 1.1 3.1 1.6
Underwriting (loss) profit $ (3.9) $ (8.8) $ 2.1 $ 5.4 $ (1.8) $ (3.4)
</TABLE>
Revenues
Commercial segment net premiums earned decreased $2.4 million, or 1.3%, to
$184.9 million in the first quarter of 1996. Hanover's commercial segment
net premiums earned decreased $6.1 million, or 5.0%, to $115.5 million.
This decrease is primarily attributable to declines in policies in force in
commercial multiple peril, workers compensation and commercial automobile
lines, and to the withdrawal from a large voluntary pool on December 1,
1995. Rate decreases of 5.4% and 1.0% in the workers compensation and
commercial multiple peril lines also contributed to the decrease in net
earned premium at Hanover. Citizens' commercial segment net premiums earned
increased $3.7 million, or 5.6%, to $69.4 million, in the first quarter of
1996. The increase is primarily attributable to increases in policies in
force in all major lines except workers' compensation, resulting from
marketing programs developed with Citizen's agents which target growth in
this segment, and to price increases in the commercial automobile line.
Increases in exposures per policy in the commercial multiple peril and
workers' compensation lines as a result of the strong Michigan economy also
contributed to premium growth. This was partially offset by rate decreases
of 8.5% and 7.0% effective May 1, and December 1, 1995, respectively, in
the workers' compensation line.
Continued competitive conditions in the workers' compensation line at both
Hanover and Citizens may result in future price decreases that will impact
growth in this line. In addition, Hanover's premium growth in the
commercial segment may be impacted by continued competitive pricing in 1996
as a result of soft market conditions combined with Hanover's effort to
maintain its current underwriting standards.
Underwriting results
The commercial segment underwriting loss improved $1.6 million, or 47.1%
to a loss of $1.8 million in the first quarter of 1996. Hanover's
underwriting loss improved $4.9 million, or 55.7%, to a loss of $3.9
million and Citizens' underwriting profit decreased $3.3 million, or
61.1%, to $2.1 million in the first quarter of 1996.
Hanover's commercial segment losses and LAE decreased $9.6 million, or
11.4%, to $74.4 million in the first quarter of 1996. This improvement is
primarily attributable to a decrease of $10.8 million and $6.8 million in
the workers' compensation and commercial automobile lines, respectively as
a result of favorable claims experience on the current and prior years.
Hanover does not expect the current loss trend in the workers' compensation
line to continue in the future. Losses and LAE in the commercial multiple
peril lines increased $7.7 million, to $42.6 million, primarily due to an
increase in direct catastrophes from $0.2 million in 1995 to $6.1 million
in 1996.
Citizens' commercial segment losses and LAE increased $7.0 million, or
17.0%, to $48.1 million in the first quarter of 1996. This increase was
primarily attributable to a $6.5 million increases in losses and LAE in the
commercial multiple peril line resulting from increased claims activity.
Policy acquisition expenses in the commercial segment decreased $1.1
million, or 2.6% , to $40.6 million in the first quarter of 1996. Hanover's
policy acquisition expenses decreased $1.9 million, or 6.6%, to $27.0
million primarily attributable to the decrease in net earned premium and to
decreases in commission expenses in a workers' compensation pool. Citizens
policy acquisition expenses increased $0.8 million, or 6.3%, to $13.6
million, reflecting the growth in net earned premium. Other underwriting
expenses at Hanover decreased $0.3 million, or 1.8%, to $16.7 million, also
reflecting the decrease in net earned premiums. Other underwriting
expenses at Citizens decreased $1.5 million, or 28.3%, to $3.8 million,
reflecting reduced technology expenses and decreases in employee related
expenses in 1996.
Reserve for Losses and Loss Adjustment Expenses
The Company regularly updates its reserve estimates as new information
becomes available and further events occur which may impact the resolution
of unsettled claims. Changes in prior reserve estimates are reflected in
results of operations in the year such changes are determined to be needed
and recorded. The table below provides a reconciliation of the beginning
and ending reserve for unpaid losses and LAE as follows:
<TABLE>
<CAPTION>
For the three months ended March 31, (In millions) 1996 1995
<S> <C> <C>
Reserve for losses and LAE, beginning of period $ 2,896.0 $ 2,821.7
Incurred losses and LAE, net of reinsurance recoverable:
Provision for insured events of the current year 377.6 334.8
Decrease in provision for insured events of prior years (31.4) (13.0)
Total incurred losses and LAE 346.2 321.8
Payments, net of reinsurance recoverable:
Losses and LAE attributable to insured events of current year 111.0 87.3
Losses and LAE attributable to insured events of prior years 232.7 202.1
Total payments 343.7 289.4
Change in reinsurance recoverable on unpaid losses (29.7) (4.1)
Reserve for losses and LAE, end of period $ 2,868.8 $ 2,850.0
</TABLE>
As part of an ongoing process, the reserves have been re-estimated for all
prior accident years and were decreased by $31.4 million and $13.0 million
for the three month periods ended March 31, 1996 and 1995, respectively.
The increase in favorable development on prior years' loss reserves of
$18.4 million results primarily from a $9.4 million increase in favorable
development at Citizens to $8.1 million. The favorable reserve development
at Citizens in 1996 primarily reflects the initiatives taken by Citizens to
manage medical costs in both automobile lines and the workers' compensation
line, as well as the impact of the Michigan Supreme Court ruling on
worker's compensation indemnity payments, which decreases the maximum
amount to be paid for indemnity cases on all existing and future claims.
Hanover's favorable development increased $9.0 million to $23.3 million
during the first quarter of 1996. This increase is primarily attributable
to increased favorable development in the voluntary pools, and to increased
favorable development in the workers' compensation and commercial
automobile lines at Hanover. The increase was partially offset by
unfavorable development in the commercial multiple peril line.
Investment Portfolio
The Company's investment portfolio increased $30.1 million, to $3,849.7
million during the quarter, from $3,819.6 million at December 31, 1995.
Debt securities increased $124.2 million, to $3,480.7 million, from
$3,356.5 million, and represented 90.4% and 87.9% of the carrying value of
all investments at March 31, 1996 and December 31, 1995, respectively.
This increase is consistent with the Company's strategy of increasing the
level of debt securities in the portfolio. This was accomplished by
reducing the level of equities in the portfolio, which resulted in a $95.6
million decrease in equity securities to $342.5 million in the first
quarter of 1996. Tax-exempt securities increased $156.7 million, to
$2,303.4 million, from $2,146.7 million during the quarter. Tax-exempt
securities represented 66.2% of total debt securities at March 31, 1996
compared to 64.0% at December 31, 1995. This increase reflects the
Company's efforts to maximize after-tax investment income.
Net unrealized appreciation in the investment portfolio at March 31, 1996
was $142.4 million compared to $221.1 million at December 31, 1995.
Unrealized depreciation in the quarter was $64.9 million and $13.8 million
on debt and equity securities, respectively.
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash
flows to meet the cash requirements of business operations. As a holding
company, Allmerica P&C's primary source of cash for the payment of
dividends to its shareholders is dividends from its insurance subsidiaries.
However, dividend payments to Allmerica P&C by its insurance subsidiaries
are subject to limitations imposed by state regulators, such as the
requirement that cash dividends be paid out of unreserved and unrestricted
earned surplus and restrictions on the payment of "extraordinary"
dividends, as defined.
Sources of cash for the Company's insurance subsidiaries are from premiums
collected, investment income and maturing investments. Primary cash
outflows are paid losses and loss adjustment expenses, policy acquisition
expenses, other underwriting expenses and investment purchases. Cash
outflows related to claim losses and loss adjustment expenses can be
variable because of uncertainties surrounding settlement dates for
liabilities for unpaid losses and because of the potential for large losses
either individually or in the aggregate. Accordingly, the Company's
strategy is to monitor available cash and short-term investment balances in
relation to projected cash needs by matching maturities of investments with
expected payments of current and long-term liabilities. The Company
periodically adjusts its investment policy to respond to changes in
short-term and long-term cash requirements.
Net cash used for operating activities for the three months ended March 31,
1996 was $14.4 million, compared to $43.8 million provided in the
comparable prior year period. This decrease is primarily attributable to
the increase in underwriting losses during the first quarter of 1996 which
resulted in an increase in claims payments.
Net cash provided by investing activities was $31.1 million for the three
months ended March 31, 1996 compared to cash used of $2.0 million in the
comparable prior year period. This increase results primarily from timing
of cash payments to settle securities transactions resulting from the sale
of equity securities and the subsequent purchase of debt securities.
Net cash used for financing activities for the three months ended March 31,
1996 was $29.9 million, compared to $8.2 million in the comparable prior
year period. This change primarily reflects share repurchases of 0.9
million shares of the Company's common stock compared to 0.1 million in the
comparable period of 1995. The Company implemented a stock repurchase
program of up to three million shares in December 1994.
Shareholders' equity was $1,484.7 million at March 31, 1996, or $24.78 per
share, compared to $1,509.3 million at December 31, 1995, or $24.82 per
share. Shareholders' equity reflects net income for the quarter and the
impact of a decrease of $51.1 million due to a decrease in the fair values
of available-for-sale debt and equity securities. Changes in shareholders'
equity related to the unrealized values of underlying portfolio investments
will continue to be volatile as market prices of debt securities fluctuate
with changes in the interest rate environment.
The Company expects to continue to pay dividends in the foreseeable future.
However, payment of future dividends is subject to the Board of Directors'
approval and is dependent upon earnings and the financial condition of the
Company.
Based on current trends, the Company expects to continue to generate
sufficient positive operating cash to meet all short-term and long-term
cash requirements. The Company maintains a high degree of liquidity within
the investment portfolio in fixed maturities, common stock and short-term
investments. The Company also has unsecured lines of credit with certain
banks to support its commercial paper borrowings. At March 31, 1996, these
lines totaled $80 million and are subject to annual renewal. There were no
borrowings under these lines of credit during the first quarter. In
addition, the holding company's financial structure provides the
flexibility to obtain funds externally through debt or equity financing, if
needed.
Recent Developments
In March 1996, two recently enacted tort reform statutes became effective
in Michigan, one which limits the recovery for tort liability for bodily
injury by restricting the situations which qualify for serious bodily
impairment and requiring the determination to be made by a judge instead of
a jury and the other which provides for a comparative negligence system as
opposed to joint and several liability. Both statutes prohibit recovery in
certain circumstances in which the party was more than 50% at fault. The
Company believes that the new statutes will improve future loss experience
in the personal and commercial segments. However, the benefits of the tort
reform laws may be offset over time by price decreases in these lines. As
a result, the Company believes that the new laws will not have a material
effect on its results of operations or financial condition.
In February 1996, an amendment to the Essential Insurance Act became
effective in Michigan. This amendment eliminates personal automobile and
homeowners insurance territorial rating restrictions and limits merit
ratings for automobile policies. The Company cannot predict the effect of
this new legislation, but believes this law may result in additional
competition in the personal segment.
The Company expects second quarter results to be impacted by catastrophe
losses related to its property and casualty insurance operations in
Michigan and Indiana. The Company expects to incur an estimated $14
million in pre-tax catastrophe losses, net of reinsurance, resulting
from tornadoes and wind storms that struck the two states in April. The
Company believes the after-tax impact on second quarter net income will be
less than $10 million.
PART II - OTHER INFORMATION
ITEM 6
Exhibits and Reports on Form 8-K
(a) Exhibits.
EX - 11 Statement regarding computation of per share
earnings.
EX - 27 Financial Data Schedule
(b) Reports on Form 8-K
On March 26, 1996, a report on Form 8-K was filed reporting under
Item 5, Other Events, the announcement by the Registrant that first
quarter results will be impacted by an estimated $24.0 million in
direct catastrophe losses.
On May 2, 1996, a report on Form 8-K was filed reporting under
Item 5, Other Events, the announcement by the Registrant that
Citizens Corporation second quarter results will be impacted by an
estimated $14.0 million in catastrophe losses.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Allmerica Property & Casualty Companies, Inc.
Registrant
Dated May 10, 1996 /s/ John F. O'Brien
John F. O'Brien
President and Chief Executive
Officer
Dated May 10, 1996 /s/ Eric A. Simonsen
Eric A. Simonsen
Vice President, Chief Financial
Officer and Principal Accounting Officer
<TABLE>
Exhibit 11
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the Periods Ended March 31, 1995 and 1994
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Primary:
Average shares outstanding . . . . . . . . . 60.5 61.8
Net effect of dilutive stock options
based on the treasury stock
method using average market
price . . . . . . . . . . . . . . . . . . - -
TOTALS 60.5 61.8
Net income . . . . . . . . . . . . . . . . .$ 49.6 $ 32.7
Per share amount . . . . . . . . . . . . . .$ 0.82 $ 0.53
Fully diluted:
Average shares outstanding . . . . . . . . . 60.5 61.8
Net effect of dilutive stock options
based on the treasury stock
method using the higher of
period end or average market
price . . . . . . . . . . . . . . . . . . - -
TOTALS 60.5 61.8
Net income . . . . . . . . . . . . . . . . .$ 49.6 $ 32.7
Per share amount . . . . . . . . . . . . . .$ 0.82 $ 0.53
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 3481
<DEBT-CARRYING-VALUE> 3427
<DEBT-MARKET-VALUE> 3481
<EQUITIES> 343
<MORTGAGE> 0
<REAL-ESTATE> 4
<TOTAL-INVEST> 3850
<CASH> 112
<RECOVER-REINSURE> 41
<DEFERRED-ACQUISITION> 159
<TOTAL-ASSETS> 5789
<POLICY-LOSSES> 2869
<UNEARNED-PREMIUMS> 811
<POLICY-OTHER> 17
<POLICY-HOLDER-FUNDS> 13
<NOTES-PAYABLE> 27
0
0
<COMMON> 62
<OTHER-SE> 1423
<TOTAL-LIABILITY-AND-EQUITY> 5789
465
<INVESTMENT-INCOME> 52
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<RESERVE-OPEN> 2896
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<PROVISION-PRIOR> (31)
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<PAYMENTS-PRIOR> 233
<RESERVE-CLOSE> 2869
<CUMULATIVE-DEFICIENCY> (30)
</TABLE>
