<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
AMENDMENT NO. 4
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC.
(NAME OF THE ISSUER)
ALLMERICA FINANCIAL CORPORATION
ALLMERICA PROPERTY & CASUALTY COMPANIES, INC.
APY ACQUISITION, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, $1.00 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
__________________
01-975T105
(CUSIP NUMBER OF CLASS OF SECURITIES)
JOHN F. KELLY, ESQ.
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS 01653
(508) 855-1000
COPIES TO:
LAUREN I. NORTON, ESQ. WILLIAM S. LAMB, ESQ.
ROPES & GRAY LEBOEUF, LAMB, GREENE & MACRAE, L.L.P.
ONE INTERNATIONAL PLACE 125 WEST 55TH STREET
BOSTON, MASSACHUSETTS 02110 NEW YORK, NEW YORK 10019
(617) 951-7000 (212) 424-8000
This statement is filed in connection with (check the appropriate box):
a. [_] The filing of solicitation materials or an information statement subject
to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
b. [_] The filing of a registration statement under the Securities Act of 1933.
c. [_] A tender offer.
d. [X] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [_]
Page 1 of 4
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<PAGE>
This Amendment No. 4 to the Rule 13e-3 Transaction Statement on Schedule
13E-3 (the "Schedule 13E-3") is being jointly filed by Allmerica Financial
Corporation, Inc., a Delaware corporation ("AFC"), Allmerica Property & Casualty
Companies, Inc., a Delaware corporation ("APY"), and APY Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary of AFC ("Merger Sub"), in
connection with the merger (the "Merger") of APY with and into Merger Sub and
amends the Schedule 13E-3 filed by such parties with the Securities and Exchange
Commission (the "Commission") on June 6, 1997.
Item 17 is hereby amended and restated to read in its entirety as follows:
Item 17. Material to Be Filed as Exhibits.
--------------------------------
(a) Commitment Letter between The Chase Manhattan Bank and AFC and
related term sheet*
(b)(1) Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
included as Appendix B to the Information Statement/Prospectus
filed as Exhibit (d)(1) hereto*
(b)(2) Opinion of Salomon Brothers Inc included as Appendix C to the
Information Statement/Prospectus filed as Exhibit (d)(1) hereto*
(b)(3) Presentation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated to the Board of Directors of AFC dated February 19,
1997*
(b)(4) Presentation materials of Salomon Brothers Inc for the meeting of
the Special Committee of the Board of Directors of APY on
February 19, 1997 (with certain confidential information
omitted)**
(c)(1) Agreement and Plan of Merger among AFC, APY and Merger Sub dated
February 19, 1997, included as Appendix A-1 to the Information
Statement/Prospectus filed as Exhibit (d)(1) hereto*
(c)(2) Form of Restated Certificate of Incorporation of APY included as
Appendix A-2 to the Information Statement/Prospectus filed as
Exhibit (d)(1) hereto*
(d)(1) Information Statement, Notice of Action Taken Without a Meeting
and Notice of Appraisal Rights/Prospectus of Allmerica Property &
Casualty Companies, Inc. and Allmerica Financial Corporation*
(d)(2) Form of Election/Letter of Transmittal*
(d)(3) Letter to Brokers, Dealers and Other Nominees*
(d)(4) Letter to Clients of Brokers, Dealers and Other Nominees*
(d)(5) Notice of Guaranteed Delivery*
(e) Section 262 of the Delaware General Corporation Law included as
Appendix D to the Information Statement/Prospectus filed as
Exhibit (d)(1) hereto*
(f) None
- ------------------------------
* Previously filed
** Certain confidential information has been omitted and filed separately with
the Commission pursuant to a confidential treatment request
Page 2 of 4
<PAGE>
SIGNATURES
After due inquiry and to the best of my knowledge and belief, each of the
undersigned certify that the information set forth in this statement is true,
complete and correct.
Date: June 13, 1997 ALLMERICA PROPERTY & CASUALTY
COMPANIES, INC.
By: /s/ Edward J. Parry III
--------------------------------------
ALLMERICA FINANCIAL CORPORATION
By: /s/ Edward J. Parry III
--------------------------------------
APY ACQUISITION, INC.
By: /s/ Edward J. Parry III
--------------------------------------
Page 3 of 4
<PAGE>
EXHIBIT INDEX
Exhibits
--------
(a) Commitment Letter between The Chase Manhattan Bank and AFC and
related term sheet*
(b)(1) Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
included as Appendix B to the Information Statement/Prospectus
previously filed as Exhibit (d)(1) hereto*
(b)(2) Opinion of Salomon Brothers Inc included as Appendix C to the
Information Statement/Prospectus previously filed as Exhibit
(d)(1) hereto*
(b)(3) Presentation of Merrill Lynch, Pierce, Fenner & Smith
Incorporated to the Board of Directors of AFC dated February 19,
1997*
(b)(4) Presentation materials of Salomon Brothers Inc for the meeting of
the Special Committee of the Board of Directors of APY on
February 19, 1997 (with certain confidential information
omitted)**
(c)(1) Agreement and Plan of Merger among AFC, APY and Merger Sub dated
February 19, 1997, included as Appendix A-1 to the Information
Statement/Prospectus previously filed as Exhibit (d)(1) hereto*
(c)(2) Form of Restated Certificate of Incorporation of APY included as
Appendix A-2 to the Information Statement/Prospectus previously
filed as Exhibit (d)(1) hereto*
(d)(1) Information Statement, Notice of Action Taken Without a Meeting
and Notice of Appraisal Rights/Prospectus of Allmerica Property &
Casualty Companies, Inc. and Allmerica Financial Corporation*
(d)(2) Form of Election/Letter of Transmittal*
(d)(3) Letter to Brokers, Dealers and Other Nominees*
(d)(4) Letter to Clients of Brokers, Dealers and Other Nominees*
(d)(5) Notice of Guaranteed Delivery*
(e) Section 262 of the Delaware General Corporation Law included as
Appendix D to the Information Statement/Prospectus previously
filed as Exhibit (d)(1) hereto*
(f) None
- ------------------------------
* Previously filed
** Certain confidential information has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request
Page 4 of 4
<PAGE>
APY
Fairness Opinion Presentation to the Special Committee of
the Board of Directors
February 19, 1997
Confidential
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Salomon Brothers
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<PAGE>
Disclaimer
These materials are based solely on information received from publicly
available documents and certain other information provided by the
management of Allmerica Property & Casualty Companies, Inc. ("Allmerica
P&C," "APY," or the "Company"). Salomon Brothers Inc ("Salomon") has had
discussions with certain senior officers of Allmerica P&C and Allmerica
Financial Corporation ("Allmerica Financial" or "AFC"), but has not
attempted independently to investigate or verify such information, and
Salomon does not assume responsibility for the accuracy or the
completeness of such information. With respect to the projections
included in these materials, Salomon has relied solely on estimates from
the management of Allmerica P&C and AFC. Projections involve elements of
subjective judgment and analysis, and there can be no assurance that
such projections will be attained. Salomon expresses no opinion as to
and assumes no responsibility for the accuracy of such projections or
the assumptions underlying them. These materials are being furnished and
should be considered only in connection with the opinion being provided
by Salomon, and are not to be circulated to, or used or relied upon by,
any other persons, without Salomon's prior written consent.
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Salomon Brothers
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<PAGE>
Agenda
<TABLE>
<CAPTION>
Page
----
<S> <C>
Transaction Overview 1
Selected Financial, Market and Operating Data for APY 10
Selected Financial, Market and Operating Data for AFC 17
Summary of Valuation Analyses 25
</TABLE>
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<PAGE>
Transaction Overview
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1
<PAGE>
Background and Transaction Rationale
. Allmerica Financial Corporation ("AFC") currently owns
approximately 60% of Allmerica Property & Casualty Companies, Inc.
("APY", "Allmerica P&C" or the "Company") common stock outstanding.
. Approximately 50% of AFC's 1996 operating earnings are derived from
its 60% ownership interest in APY.
. AFC is pursuing the acquisition of the APY shares it does not
currently own in order to increase the proportion of its earnings
from Allmerica P&C's property and casualty operations, which are a
key element of AFC's future operations and strategy. Pro forma for
the proposed transaction, approximately 63% of AFC's earnings will
be derived from the property/casualty operations of APY.
. Additionally, AFC believes that the proposed acquisition will
result in a more stable surplus position for its life insurance
subsidiary, First Allmerica Financial Life Insurance Company
("FAFLIC"), since the APY common stock and therefore FAFLIC's
surplus, would no longer be linked to a fluctuating market price
for APY.
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Salomon Brothers
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2
<PAGE>
Background and Transaction Rationale (Continued)
. Further, the proposed acquisition would create a simplified
corporate structure for AFC, allowing it greater efficiency and
flexibility in its utilization of capital.
. Lastly, the proposed acquisition would provide AFC with certain
administrative cost savings, primarily resulting from the
elimination of certain Allmerica P&C shareholder-related expenses
and the elimination of taxes on Allmerica P&C dividends to its
direct shareholder, SMA Financial Corp. (The annual run-rate for
these cost savings is currently estimated at $1 million pre-tax.)
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Salomon Brothers
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3
<PAGE>
Summary of Merger Proposal
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
Significant Terms
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total Consideration Per APY Share (a) $33.00 Minority APY shareholders will receive $33.00 in value, subject to a
collar that could impact the cash portion of the consideration.
Cash Consideration $17.47 The cash portion of the consideration will initially be determined on
the date that the merger agreement is signed and will reflect the
dollar amount necessary to achieve $33.00 in value based on the .400
exchange ratio and the average AFC closing price for the date of
signing and the two prior days ("Closing Average").
Stock Consideration $15.53 AFC will issue approximately 9.7 million new shares in aggregate.
............................................................................................................................
Fixed Exchange Ratio 0.400 The exchange ratio is fixed for the common stock portion of the
consideration thereby exposing APY shareholders to both appreciation
and depreciation in the value of the proposal depending on the
performance of AFC's stock price between signing and closing. However,
a symmetrical collar will limit exposure to AFC stock price
fluctuations.
............................................................................................................................
Collar +/- 6.5% An agreed-upon symmetrical collar will limit the downside and upside,
below and above a 6.5% change in AFC's stock price from the Closing
Average (the "midpoint" of the collar) compared to the average closing
price for AFC for the ten business days prior to five days before the
closing (the "Average AFC Price"). If the Average AFC Price is outside
the collar, the cash portion of the consideration will float such that
the merger consideration will remain fixed at $34.01 outside the upper
limit of the collar and $31.99 outside the lower limit of the collar.
............................................................................................................................
Election Feature APY shareholders will be permitted to elect to receive all cash or all
shares, subject to proration in the event either election is
oversubscribed.
............................................................................................................................
Tax Status The proposed transaction will be taxable to APY shareholders.
............................................................................................................................
Outstanding Options Each option to buy APY outstanding at the time of merger will be
converted into options to acquire shares of AFC on the same terms
applicable to the APY options, subject to proportional adjustment to
reflect the Transaction Consideration.
............................................................................................................................
Vote The structure does not contemplate a vote of the non-AFC shareholders
of APY.
............................................................................................................................
</TABLE>
(a) Stock and cash mix based on the average of AFC's closing
prices for the two days prior to the execution of the merger
agreement (February 14 and 18), (the "Two Day Average").
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Salomon Brothers
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4
<PAGE>
Summary of Negotiating Process
<TABLE>
<CAPTION>
Total Value Exchange Stock Cash Warrant
per APY Share Ratio (x) Portion Portion Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Initial AFC Offer (a)
(December 17, 1996) $29.00 0.385 $12.41 $16.59 -
(42.8%) (57.2%)
APY Counterproposal
(January 23, 1997) $34.75 0.415 $15.30 $19.45 -
(44.0%) (56.0%)
AFC Second Offer
(January 24, 1997) $31.30 0.400 $15.00 $16.30 -
(47.9%) (52.1%)
APY Second Counterproposal
(January 29, 1997) $34.30 0.415 $14.80 $19.50 -
(43.1%) (56.9%)
AFC Third Offer
(February 4, 1997) $31.80 0.300 $10.76 $21.04 -
(33.8%) (66.2%)
APY Third Counterproposal
(February 6, 1997) $34.00 0.250 $8.97 $22.83 $2.20
(26.4%) (67.1%) (6.5%)
APY Fourth Counterproposal
(February 7, 1997) $33.25 0.400 $14.65 $18.60 -
(44.1%) (55.9%)
AFC Fourth Offer
(February 7, 1997) (b) $33.00 0.400 $15.53 $17.47 -
(47.0%) (53.0%)
................................................................................
</TABLE>
(a) Stock and cash mix based on AFC's average closing price 30 days prior to
the offer ($32.23). Stock and cash mix for subsequent offers and
counterproposals based on the AFC closing price prior to such offer or
counterproposal.
(b) Stock and cash mix based on the Two Day Average of $38.81.
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5
<PAGE>
Implied Purchase Price Multiples
<TABLE>
<CAPTION>
Initial Offer (a) Current
---------------------- Proposal P&C
Offer Price Per Share of APY Benchmark $29.00 $31.53 $33.00 Peer Group (b)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Price as a Multiple of:
Actual 1996 EPS $1.96 14.8 x 16.1 x 16.8 x 14.1 x
Median IBES 1997 Estimated EPS 2.30 12.6 13.7 14.3 11.9
Managements' Projected 1997 EPS 2.14 13.6 14.7 15.4 ---
1996 Statutory Net Income 139.1 12.4 13.5 14.2 ---
GAAP Book Value per Share (Post FAS 115) $26.99 1.07 x 1.17 x 1.22 x 1.36 x
Adjusted GAAP Book Value per Share (Pre FAS 115) 24.86 1.17 1.27 1.33 1.64
Premium Over APY Stock Price:
Price as of February 18, 1997 $31.38 (7.6)% 0.5 % 5.2 % ---
Price One Day Prior to Announcement (12/16/96) 28.50 1.8 10.6 15.8 ---
Price One Month Prior to Announcement (11/18/96) 28.63 1.3 10.2 15.3 ---
52-Week High (Prior to Announcement) 30.50 (4.9) 3.4 8.2 ---
52-Week Low (Prior to Announcement) 24.25 19.6 30.0 36.1 ---
1996 Average Closing Price $27.08 7.1 % 16.4 % 21.9 % ---
1995 Average Closing Price 21.73 33.5 45.1 51.9 ---
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
N.B. All EPS figures exclude realized capital gain/losses. GAAP book value and
statutory surplus are as of December 31, 1996.
(a) The initial offer was subject to interpretation as to whether or not it was
for a fixed value (with a fixed exchange ratio of 0.385 and a floating cash
component).
The first column assumes AFC's interpretation of a fixed value of $29.00 and the
second column assumes a literal interpretation (0.385 exchange ratio and $16.59
in cash) and is based on the AFC Two Day Average of $38.81.
(b) Includes ALGR, ASX, BKLY, CB, CGI, CINF, CZC, FG, HGIC, HMN, OCAS, SAFC,
SIGI, SPC and STFC
(c) Multiple shown relative to enterprise value.
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6
<PAGE>
Summary of Merger Consequences
<TABLE>
<CAPTION>
AFC
AFC Initial Offer: AFC
AFC Initial Offer: Fixed Cash Current
AFC Two Day Average of $38.81 Stand-Alone Fixed Price (a) Portion (a) Proposal
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Purchase Price Per APY Share $29.00 $31.53 $33.00
Cash Consideration per Share 14.06 16.59 17.47
Stock Consideration per Share 14.94 14.94 15.53
Percent Cash 48.5% 52.6% 53.0%
Transaction Value $700 $761 $797
Implied Aggregate Value of APY 1,730 1,881 1,968
AFC Shares Issued 9.3 9.3 9.7
AFC Pro Forma Shares Outstanding 59.4 59.4 59.8
Shares Issued as a Percentage of
Existing Shares Out. 18.6% 18.5% 19.3%
Exchange Ratio 0.3850 x 0.3850 x 0.4000 x
Premium to Initial Offer --- --- 13.8%
Premium to Current Market Price --- --- 5.2
APY Shareholders' Pro Forma % Ownership
in AFC 15.6 15.6 16.2
Goodwill Created $49 $110 $145
- ----------------------------------------------------------------------------------------------------------------------------
AFC Pro Forma 1997E EPS $2.91 $3.01 $2.93 $2.88
Accretion/(Dilution) 2.02% (0.59)% (2.40)%
- ----------------------------------------------------------------------------------------------------------------------------
AFC Pro Forma Book Value per Share $34.40 $35.09 $35.09 $35.11
Accretion/(Dilution) 2.00% 2.01% 2.07%
Implied Pro Forma ROE 8.46% 8.57% 8.36% 8.20%
AFC Capitalization
Long Term Debt $202 $144 $205 $226
Trust Preferred Securities 0 297 297 297
Equity 1,725 2,086 2,086 2,100
-------- --------- ---------- ----------
Total Capital $1,927 $2,526 $2,587 $2,623
LT Debt/Total Cap. 10.5% 5.7% 7.9% 8.6%
LT Debt and Preferred/Total Cap. 10.5 17.4 19.4 19.9
Trust Preferred to Total Capital 0.0 11.8 11.5 11.3
</TABLE>
(a) The initial offer was subject to interpretation as to whether or not it was
for a fixed value (with a fixed exchange ratio of 0.385 and a floating cash
component). The first column assumes AFC's interpretation of a fixed value of
$29.00 and the second column assumes a literal interpretation (0.385 exchange
ratio and $16.59 in cash).
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Salomon Brothers
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7
<PAGE>
Summary of Collar Mechanics
As previously discussed, the collar is symmetrical +/- 6.5% around the midpoint
of $38.81(a) per AFC share. Outside the collar the merger consideration remains
fixed (minimum/maximum: $31.99/$34.01)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Floating Price Inside Collar
- ------------------------------------------------------------------------------------------------------------------------------------
Common Cash Total Common Total Pro
AFC % Exchange Value Value Value Shares Forma Shares
Share Price Change Ratio Received Received Received Issued (mil.) Outstanding
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
$31.24 (19.5%) 0.4000 $12.50 19.49 31.99 9.7 59.8
31.87 (17.9%) 0.4000 12.75 19.24 31.99 9.7 59.8
32.51 (16.3%) 0.4000 13.00 18.99 31.99 9.7 59.8
33.14 (14.6%) 0.4000 13.25 18.74 31.99 9.7 59.8
33.77 (13.0%) 0.4000 13.51 18.48 31.99 9.7 59.8
34.40 (11.4%) 0.4000 13.76 18.23 31.99 9.7 59.8
35.03 (9.8%) 0.4000 14.01 17.98 31.99 9.7 59.8
35.66 (8.1%) 0.4000 14.26 17.73 31.99 9.7 59.8
- ------------------------------------------------------------------------------------------------------------------------------
36.29 (6.5%) 0.4000 14.52 17.47 31.99 9.7 59.8
36.92 (4.9%) 0.4000 14.77 17.47 32.24 9.7 59.8
37.55 (3.3%) 0.4000 15.02 17.47 32.50 9.7 59.8
38.18 (1.6%) 0.4000 15.27 17.47 32.75 9.7 59.8
38.81 0.0% 0.4000 15.53 17.47 33.00 9.7 59.8
39.44 1.6% 0.4000 15.78 17.47 33.25 9.7 59.8
40.07 3.3% 0.4000 16.03 17.47 33.50 9.7 59.8
40.70 4.9% 0.4000 16.28 17.47 33.76 9.7 59.8
41.34 6.5% 0.4000 16.53 17.47 34.01 9.7 59.8
- --------------------------------------------------------------------------------------------------------------------------------
41.97 8.1% 0.4000 16.79 17.22 34.01 9.7 59.8
42.60 9.8% 0.4000 17.04 16.97 34.01 9.7 59.8
43.23 11.4% 0.4000 17.29 16.72 34.01 9.7 59.8
43.86 13.0% 0.4000 17.54 16.47 34.01 9.7 59.8
44.49 14.6% 0.4000 17.80 16.21 34.01 9.7 59.8
45.12 16.3% 0.4000 18.05 15.96 34.01 9.7 59.8
45.75 17.9% 0.4000 18.30 15.71 34.01 9.7 59.8
46.38 19.5% 0.4000 18.55 15.46 34.01 9.7 59.8
</TABLE>
(a) AFC Two Day Average
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Salomon Brothers
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8
<PAGE>
Implied Value of Offer Based on AFC Stock Price
The graph below outlines APY's closing stock price versus the implied value of
AFC's initial offer (0.385 exchange ratio plus $16.59 in cash). From December
18, 1996 through February 18, 1997, APY's price has exceeded the implied value
of the initial offer by an average of $0.72 per APY share, ranging from a high
of $1.44 to a low of ($0.35).
[GRAPH APPEARS HERE]
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9
<PAGE>
Selected Financial, Market and Operating
Data for APY
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10
<PAGE>
Consolidated APY Income Statement Data
<TABLE>
<CAPTION>
(Dollars in millions, except per share data)
GAAP Basis 1992 1993 1994 1995 1996 1997E CAGR '92-'96 '96-'97 Growth
-------- -------- -------- -------- -------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net premiums earned $1,678.1 $1,678.2 $1,791.3 $1,863.1 $1,898.3 $2,027.0 3.1% 6.8%
Net investment income 210.6 202.2 202.4 209.6 235.4 238.7 2.8 1.4
Net realized gains on
investments 28.7 67.3 3.5 14.6 48.1 - 13.7 NM
Net realized gain on sale
of subsidiary - 35.7 - - - - - NM
Net realized gain on sale
of subsidiary common stock - 62.9 - - - - - NM
Other income, net 5.5 4.8 7.6 7.9 11.9 7.1 21.0 (40.3)
--------------------------------------------------------------------- ------------ --------------
Total Revenues $1,923.0 $2,051.1 $2,004.8 $2,095.2 $2,193.7 $2,272.8 3.3% 3.6%
--------------------------------------------------------------------- ------------ --------------
Losses and loss adjustment
expenses 1,246.2 1,199.4 1,306.7 1,289.7 1,371.9 1,476.9 2.4% 7.7%
Policy acquisition expenses 370.1 370.1 390.3 409.1 422.6 442.0 3.4 4.6
Other underwriting expenses 135.8 146.2 185.9 179.4 190.0 192.4 8.8 1.3
Policyholders "dividends" 5.9 8.2 8.8 10.6 11.5 - 18.4 NM
--------------------------------------------------------------------- ------------ --------------
Total Expenses $1,758.0 $1,723.9 $1,891.7 $1,888.8 $1,996.0 $2,111.3 3.2% 5.8%
--------------------------------------------------------------------- ------------ --------------
Operating Earnings $114.6 $208.3 $98.9 $131.1 $117.6 $127.5 0.7% 8.4%
Operating EPS $1.85 $3.37 $1.60 $2.14 $1.96 $2.14 1.5 9.0
Net Income per Share $2.16 $4.15 $1.61 $2.28 $2.44 $2.14 3.1 NM
Reconciliation to Statutory:
Net Income:GAAP $133.7 $256.4 $99.2 $140.2 $146.4 $127.5 2.3
Adjustment(a) (25.9) (89.6) (24.7) (0.4) (7.3) -
--------------------------------------------------------------------- ------------ --------------
Net income:Statutory Basis $107.8 $166.8 $74.5 $139.8 $139.1 - 6.6% NM
===================================================================== ============ ==============
Statutory Ratios
Loss, LAE and Div ratio 75.1% 72.2% 73.6% 69.9% 72.9% 73.0%
Underwriting expense ratio 29.4 30.5 31.7 31.1 31.6 30.6
Combined ratio 104.5 102.7 105.3 101.0 104.5 103.6
</TABLE>
N.B. APY 1996 results based on APY Statistical Supplement as of December 31,
1996. Estimated 1997 results based on APY management projections.
(a) Includes deferred policy acquisition expenses, realized gain on sale of
subsidiary, cumulative changes in accounting (postemployment benefits,
postretirement benefits, income taxes and deferred policy acquisition
expenses), gain on issuance of subsidiary common stock, deferred federal
income tax benefit and other expenses, net.
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11
<PAGE>
Consolidated APY Income Statement Data (Continued)
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
-------- -------
Q1'95 Q2'95 Q3'95 Q4"95 1995 Q1'96 Q2'96 Q3'96 Q4'96 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Premiums Written
Personal lines $282.4 $272.9 $313.4 $269.9 $1,138.6 $283.2 $280.7 $317.0 $287.0 $1,167.9
Commercial lines 198.4 180.9 193.9 173.5 746.7 192.5 188.7 187.2 178.1 746.5
Total $480.8 $453.8 $507.3 $443.4 $1,885.3 $475.7 $469.4 $504.2 $465.1 $1,914.4
Revenues
Net premiums earned $455.8 $460.8 $474.4 $472.1 $1,863.1 $465.1 $469.7 $472.7 $490.8 $1,898.3
Net investment income 53.0 51.0 53.7 51.9 209.6 52.3 56.3 63.0 63.8 235.4
Net realized gains
(losses) on investments 0.0 4.6 10.4 (0.4) 14.6 45.5 2.0 (1.6) 2.2 48.1
Other income, net 4.0 0.4 1.8 1.7 7.9 0.4 4.3 5.2 2.0 11.9
Total revenues $512.8 $516.8 $540.3 $525.3 $2,095.2 $563.3 $532.3 $539.3 $558.8 $2,193.7
Statutory Underwriting Loss ($19.6) ($1.2) ($4.4) ($0.8) ($26.0) ($30.1) ($25.3) ($11.4) ($22.7) ($89.5)
GAAP Underwriting Loss ($13.3) ($5.1) ($2.7) ($4.5) ($25.6) ($30.7) ($21.0) ($6.9) ($29.6) ($88.2)
Statutory Combined Ratio 102.6% 100.7% 98.9% 102.1 101.0% 105.8% 105.4% 100.5% 106.4% 104.5%
Net Operating Income $32.6 $33.6 $36.8 $28.1 $131.1 $21.8 $27.3 $41.8 $26.7 $117.6
Net Income $32.7 $36.4 $43.1 $27.9 $140.1 $49.6 $28.6 $40.8 $27.4 $146.4
Per Share Data
Net operating income $ 0.53 $ 0.55 $ 0.60 $ 0.46 $ 2.14 $ 0.36 $ 0.46 $ 0.70 $ 0.45 $ 1.96
Net realized gains
(losses) on investments,
net of taxes and
minority interest 0.04 0.04 0.10 -- 0.14 0.46 0.02 (0.02) 0.02 0.49
Other, net of taxes and
minority interest -- -- -- -- -- -- -- -- (0.01) (0.01)
Net income $0.53 $ 0.59 $ 0.70 $ 0.46 $ 2.28 $ 0.82 $ 0.48 $ 0.68 $ 0.46 $ 2.44
------- -------
</TABLE>
- ----------------------
Salomon Brothers
----------------------
12
<PAGE>
Selected APY Historical Balance Sheet Data
(Dollars in millions, except per share data)
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------
1992 1993 1994 1995 1996 CAGR
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total investment assets $2,957.2 $3,330.7 $3,190.8 $3,819.6 $3,962.4 7.6%
Total assets 4,693.0 5,198.1 5,408.7 5,741.8 5,678.5 4.9
Total shareholders' equity 968.6 1,203.0 1,229.7 1,509.3 1,608.5 13.5
Book value per common share 15.65 19.47 19.91 24.82 26.99 14.6
Book value per share, excluding SFAS 115 15.10 19.06 20.50 22.62 24.86 13.3
Losses and loss adjustment expenses $2,599.0 $2,717.3 $2,821.7 $2,896.0 $2,718.7 1.1
Unearned premium 741.0 755.4 793.2 797.3 815.1 2.4%
---------------------------------------------------------------------
</TABLE>
- ----------------------
Salomon Brothers
----------------------
13
<PAGE>
Selected Operating Data by Segment
<TABLE>
<CAPTION>
Citizens Hanover Total APY
.............................. .............................. ............................
1996 1997E 1996 1997E 1996 1997E
- ------------------------------------------------------------------------------------------------------------------------------------
GAAP:
<S> <C> <C> <C> <C> <C> <C>
Net Premium Earned $835.5 $878.9 $1,062.8 $1,108.5 $1,898.3 $2,027.0
Operating Revenue 926.4 969.3 1,211.9 1,253.9 2,145.6 2,272.8
Policyholder Benefits and Claims 604.4 637.2 767.5 810.2 1,371.9 1,476.9
Underwriting Income 0.7 1.3 (88.9) (88.9) (88.2) (87.6)
Net Income 84.1 80.4 78.2 69.0 146.4 127.5
Net Operating Income 75.1 80.4 56.7 69.0 117.6 127.5
Net Operating EPS 2.12 2.28 -- -- 1.96 2.14
Statutory:
Loss, LAE and Div. Ratio 73.2% 72.8% 72.7% 73.1% 72.9 73.0
Expense Ratio 27.2 26.9 35.0 33.4 31.6 30.6
Combined Ratio 100.4 99.7 107.7 106.4 104.5 103.6
....................................................................................................................................
</TABLE>
Note: Data for 1997 based on APY Management projections.
- ----------------------
Salomon Brothers
- ----------------------
14
<PAGE>
Summary of Reserve Margins
Based on * reserve study at December 31, 1996, the following summarizes the
reserve margins at The Hanover Insurance Company and Citizens Insurance Company
of America at such date.
<TABLE>
<CAPTION>
Hanover Citizens Total
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Carried Loss Reserve $1,103.5 $597.2 $1,700.0
-------- ------ --------
Company's Indicated Reserve $1,049.2 $550.2 $1,599.4
--------------------------------------------------------------------------------
Implied Margin $ 54.3 $ 47.0 $ 101.3
Margin as a % of Carried Reserve 5.2% 8.5% 6.0%
After-Tax Margin per APY Share --- --- $ 1.10
* Indicated Reserve $1,027.0 $552.6 $1,579.6
--------------------------------------------------------------------------------
Implied Margin $ 76.5 $ 44.6 $ 121.1
Margin as a % of Carried Reserve 7.4% 8.1% 7.1%
After-Tax Margin per APY Share --- --- $ 1.32
</TABLE>
- ----------------------
Salomon Brothers
----------------------
* The name of the leading independent actuarial firm that prepared such reserve
study has been omitted pursuant to a request for confidential treatment filed
with the SEC. The omitted material has been filed separately with the SEC.
15
<PAGE>
APY Relative Price Performance
Although APY has outperformed its peer group since the beginning of
1996, the stock has lagged the stock price performance of AFC, CZC and
the S&P 500.
[LINE GRAPH APPEARS HERE] [LINE GRAPH APPEARS HERE]
[The first graph shows the price and trading volume of APY Common Stock for the
period from January 1, 1996 through February 17, 1997. The second graph compares
the price performance of APY Common Stock with the performance of AFC Common
Stock, the S&P Composite Average (500 Stocks) and the Salomon Brothers Custom
Index:(ASX, CB, HMN, CGI, CINF, OCAS, SAFC, SIGI, SPC, FG, BKLY, CZC, GRP, HGIC
and STFC) for the period from January 1, 1996 through February 17, 1997.]
----------------------
Salomon Brothers
----------------------
16
<PAGE>
Selected Financial, Market and
Operating Data for AFC
- ----------------------
Salomon Brothers
----------------------
17
<PAGE>
AFC Historical Income Statement Data By Segment
<TABLE>
<CAPTION>
(Dollars in millions) 1992 1993 1994 1995 1996 CAGR
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Risk Management
Regional property and casualty $1,923.0 $2,051.1 $2,004.8 $2,095.1 $2,193.7 3.3%
Corporate risk management services 363.9 296.0 302.4 328.5 361.5 (0.2)
Retirement and Asset Management
Retail financial services 492.6 524.0 507.9 486.7 450.9 (2.2)
Institutional services 408.3 382.0 397.9 330.2 266.7 (10.1)
Allmerica asset management - - 4.0 4.4 8.8 NM
Corporate - - - 0.4 1.8 NM
Eliminations and other (12.1) (13.9) (21.9) (4.4) (8.7) (7.9)
----------------------------------------------------------------------------
Total revenues $3,175.7 $3,239.2 $3,195.1 $3,240.9 $3,274.7 0.8%
============================================================================
Net Operating Income: (1)
Risk Management
Regional property and casualty
Net operating income after taxes $ 109.0 $ 126.4 $ 98.7 $ 131.1 $ 117.6 1.9
Minority interest (46.8) (52.4) (42.0) (55.6) (48.2) 0.7
----------------------------------------------------------------------------
Regional property and casualty contribution
to consolidated net operating income 62.2 74.0 56.7 75.5 69.4 2.8
----------------------------------------------------------------------------
Corporate risk management services
Net operating income before taxes 17.1 18.6 19.8 18.8 20.4 4.5
----------------------------------------------------------------------------
Retirement and Asset Management,
and Corporate
Net operating income before taxes
Retail financial services 34.1 45.5 17.3 34.6 74.2 21.5
Institutional services 17.3 5.7 3.9 17.7 28.8 13.6
Allmerica asset management - - 1.9 2.3 1.1 NM
Corporate - - - (3.1) (15.9) NM
----------------------------------------------------------------------------
51.4 51.2 23.1 51.5 88.2 14.5%
----------------------------------------------------------------------------
Plus: Writedown of deferred policy acquisition
cost asset - - 9.6 - - NM
----------------------------------------------------------------------------
Differential earnings tax adjustment 10.9 (10.9) 35.0 (7.6) (10.2) NM
----------------------------------------------------------------------------
Federal income taxes, except taxes (benefit)
on net realized investment gains (losses) (31.7) (13.8) (53.8) (21.8) (29.9) (1.5)
----------------------------------------------------------------------------
Consolidated net operating income $ 109.9 $ 119.1 $ 90.4 $ 116.4 $ 137.9 5.8%
============================================================================
</TABLE>
(1) Net operating income excludes from net income net realized gains (losses),
extraordinary items and cumulative effect of changes in accounting, all net
of taxes and minority interest. Net operating income also excludes a
differential earnings tax adjustment, which is applicable only to mutual
life insurance companies.
- ----------------------
Salomon Brothers
----------------------
18
<PAGE>
AFC Historical Quarterly Income Statement Data
<TABLE>
<CAPTION>
----------
(Dollars in millions, except per share data) Q1'95 Q2'95 Q3'95 Q4'95 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Operating Income (1)
Risk Management
Regional property and casualty
Net operating income after taxes $32.6 $33.6 $36.8 $28.1 $131.1
Minority interest (13.9) (14.1) (15.8) (11.8) (55.6)
----------------------------------------------
Regional property and casualty
contribution to net operating income 18.7 19.5 21.0 16.3 75.5
Corporate risk management services
Net operating income before taxes 2.5 2.0 4.9 9.4 18.8
Retirement and Asset Management
Net operating income before taxes (1)
Retail financial services 10.1 7.6 8.6 8.3 34.6
Institutional services 3.9 3.7 4.5 5.6 17.7
Allmerica asset management 0.5 0.6 0.6 0.6 2.3
Corporate - - - (3.1) (3.1)
Federal income taxes (benefit) and other (2) (7.9) (6.7) (7.7) (7.1) (29.4)
----------------------------------------------
Consolidated Net operating income $9.1 $7.2 $10.9 $13.7 $40.9
----------------------------------------------
Net operating income, excluding $27.8 $26.7 $31.9 $30.0 $116.4
==============================================
regional property and casualty
Net income $36.7 $26.4 $30.1 $40.7 $133.9
Per share data (3)
Net operating income $0.55 $0.53 $0.64 $0.60 $2.32
Net income 0.73 0.53 0.60 0.81 2.67
Dividends - - - 0.05 0.05
-------
<CAPTION>
----------
(Dollars in millions, except per share data) Q1'96 Q2'96 Q3'96 Q4'96 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Operating Income (1)
Risk Management
Regional property and casualty
Net operating income after taxes $21.8 $27.3 $41.8 $26.7 $117.6
Minority interest (9.1) (11.1) (17.1) (10.9) (48.2)
----------------------------------------------
Regional property and casualty
contribution to net operating income 12.7 16.2 24.7 15.8 69.4
Corporate risk management services
Net operating income before taxes 4.2 3.2 3.6 9.4 20.4
Retirement and Asset Management
Net operating income before taxes (1)
Retail financial services 14.2 20.3 21.1 18.6 74.2
Institutional services 6.0 7.7 7.3 7.8 28.8
Allmerica asset management 0.3 0.2 - 0.6 1.1
Corporate (4.0) (4.0) (3.8) (4.1) (15.9)
Federal income taxes (benefit) and other (2) (7.9) (10.5) (10.2) (11.5) (40.1)
----------------------------------------------
Consolidated Net Operating income $12.8 $16.9 $18.0 $20.8 $68.5
----------------------------------------------
Net operating income, excluding $25.5 $33.1 $42.7 $36.6 $137.9
==============================================
regional property and casualty
Net income $47.3 $42.6 $46.7 $45.3 $181.9
Per share data (3)
Net operating income $0.51 $0.66 $0.85 $0.73 $2.75
Net income 0.94 0.85 0.93 0.91 3.63
Dividends 0.05 0.05 0.05 0.05 0.20
-------
</TABLE>
(1) Net operating income excludes from net income net realized gains (losses)
and other non-operating items, net of taxes and minority interest.
(2) Includes Federal income taxes, except taxes (benefit) on net realized gains
(losses) and a differential earnings tax adjustment.
(3) Per share data reflects outstanding shares of 50.1 million in all periods
presented.
- ----------------------
Salomon Brothers
----------------------
19
<PAGE>
AFC Selected Balance Sheet Data
<TABLE>
<CAPTION>
At December 31,
......................................................................
(Dollars in Millions, except per share data) 1992 1993 1994 1995 1996 CAGR
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total investments $9,915.3 $10,099.4 $9,477.7 $9,430.7 $8,993.4 (2.4%)
Separate account assets 1,272.2 2,218.7 2,965.7 4,348.8 6,233.0 48.8
Total assets 14,083.1 15,378.4 15,921.5 17,757.7 18,997.7 7.8
Total shareholders' equity 896.6 1,050.9 992.4 1,574.2 1,724.7 17.8
Book value per share 23.95 28.07 26.51 31.40 34.40 9.5
Book value per share, excluding SFAS 115 23.54 27.72 28.09 28.35 31.78 7.8%
....................................................................................................................................
</TABLE>
Note: Shares outstanding equal to 50.1 million for all periods.
Source: AFC Management.
N.B. '92-'94 have been restated to reflect AFC's demutualization
and IPO (October 1995).
- ----------------------
Salomon Brothers
----------------------
20
<PAGE>
AFC 1997 Management Projections
<TABLE>
<CAPTION>
==================================================================================
APY
- -------------------------------------- ==================================================================================
CZC Hanover
================================= ===============================
Total TOTAL
* * * Citizens Hanover * * * APY
-------- --- ----- -------- ------- --- ------ --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue * $878.9 $1,108.5 * $2,027.0
U/L & Investment Product Policy Fees
Net Investment Income * * * 90.5 143.7 * * 238.7
Fees & Other Income * * * (0.1) 1.7 * 7.1
- -------------------------------------- -------------------------------- --------------------------------------------
Operating Revenue * * * 969.3 1,253.9 * * * 2272.8
U/L Policy Benefits, Claims, Losses &
Loss Adjustment Expenses * 637.2 810.2 * 1476.9
Policy Acquisition Costs Amortized * 167.0 266.9 * 442.0
* * * *
- -------------------------------------- -------------------------------- --------------------------------------------
* * * * * * * * * *
* * * * * * * *
- -------------------------------------- -------------------------------- --------------------------------------------
* * * * * * * * * *
====================================== ================================ ============================================
- -------------------------------------- -------------------------------- --------------------------------------------
<CAPTION>
AFC
====================================================================================
- -------------------------------------- ------------------------------------------------------------------------------------
First Allmerica Financial
=========================================================
Total
* * * * * * * * * AFC
--- ---- ---- ----- --- ---- ---- ------ ========= =======
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue * * * * $2,464.8
U/L & Investment Product Policy Fees * * * 218.6
Net Investment Income * * * * * * 671.2
Fees & Other Income * * * * * * 120.7
- -------------------------------------- -------------------------------------------------------- --------- -------
Operating Revenue * * * * * * * * 3,475.3
U/L Policy Benefits, Claims, Losses &
Loss Adjustment Expenses * * * * 2,145.3
Policy Acquisition Costs Amortized * * * * 516.5
* * * * * * * * *
- -------------------------------------- -------------------------------------------------------- --------- -------
* * * * * * * * * *
* * * * * * *
- -------------------------------------- -------------------------------------------------------- --------- -------
* * * * * * * * * *
====================================== ======================================================== ========= =======
- -------------------------------------- -------------------------------------------------------- --------- -------
</TABLE>
Source: AFC Management
- ----------------------
Salomon Brothers
----------------------
21
* Omitted pursuant to a request for confidential treatment filed with the SEC.
Omitted material has been filed with the SEC.
<PAGE>
AFC 1997 Management Projections
<TABLE>
<CAPTION>
-------------------------------------------------------------------
APY
-------------------------------------------------------------------
CZC Hanover
------------------------------ -------------------------
Total Total
* * * Citizens Hanover * * * APY
-------- --- ----- -------- ------- --- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
* * * * * * * * * *
*
- --------------------------------------------- ------------------------------ ---------------------------- -------
* * * * * * * * * *
* * * * * * * * *
Income Taxes * * * 18.1 3.9 * * * 19.9
- --------------------------------------------- ------------------------------ ---------------------------- -------
Net Operating Income before
Minority Interest * * * 80.4 69.0 * * * 141.6
Minority Interest on Operating Income (14.1)
- --------------------------------------------- ------------------------------ ---------------------------- -------
Net Operating Income - 1997 * * * 80.4 69.0 * * * 127.5
============================================= ============================== ============================ =======
Net Operating income before
Minority Interest - 1996 * * * 69.4 68.1 * * * 130.9
Minority interest on Operating Income (12.1)
- --------------------------------------------- ------------------------------ ---------------------------- -------
Net Operating income - 1996 * * * 69.4 68.1 * * * 118.8
============================================= ============================== ============================ =======
Adjustments to 1997 Net Income:
- -------------------------------
Realized Gains (Losses)-Net
Other Non-Operating Items
Minority Interest on Non-operating items
- --------------------------------------------- ------------------------------ ---------------------------- -------
Net Income - 1997 * * * $80.4 $69.0 * * * $127.5
============================================= ============================== ============================ =======
Weighted average shares outstanding 35.3 59.6
====== =======
Net Operating EPS $2.28 $2.14
====== =======
- --------------------------------------------- ------------------------------ ---------------------------- -------
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
First Allmerica Financial
-------------------------------------------------------------
Total
* * * * * * * * * AFC
--- ---- ------ ------ --- ----- ---- ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
* * * * * * * * * *
* * * * *
- --------------------------------------------- -------------------------------------------------------------- ---------- -------
* * * * * * * * *
* * * *
Income Taxes * * 61.4
- --------------------------------------------- ------- ---------- -------
Net Operating Income before
Minority Interest * * 211.6
Minority Interest on Operating Income (65.8)
- --------------------------------------------- ------- ---------- -------
Net Operating Income - 1997 * * 145.8
============================================= ======= ========== =======
Net Operating income before
Minority Interest - 1996 * * 193.1
Minority interest on Operating Income (60.2)
- --------------------------------------------- ------- ---------- -------
Net Operating Income - 1996 * * 132.9
============================================= ======= ========== =======
Adjustments to 1997 Net Income:
- -------------------------------
Realized Gains (Losses)-Net * 4.9
Other Non-Operating Items
Minority Interest on Non-operating items
- --------------------------------------------- ------- ---------- -------
Net Income - 1997 * * $150.7
============================================= ======= ========== =======
Weighted average shares outstanding 50.1
=======
Net Operating EPS 2.91
=======
- --------------------------------------------- -------------------------------------------------------------- ---------- -------
</TABLE>
Source: AFC Management
- ----------------------
Salomon Brothers
----------------------
* Omitted pursuant to a request for confidential treatment filed with the SEC.
Omitted material has been filed with the SEC.
22
<PAGE>
AFC Stock Price Performance
The two graphs below depict AFC's stock performance since the IPO, both
on an absolute basis and relative to its peer group and the S&P 500.
[LINE GRAPH APPEARS HERE] [LINE GRAPH APPEARS HERE]
[The first graph shows the price and trading volume of AFC Common Stock for the
period from October 11, 1995 through February 17, 1997. The second graph
compares the price performance of AFC Common Stock to the S&P Composite Average
(500 Stocks) and the Salomon Brothers Custom Index: (AGC, CNC, EIC, EQ, PL, PVN,
RLR, SAI) for the period from October 11, 1995 through February 17, 1997.]
- ----------------------
Salomon Brothers
----------------------
23
<PAGE>
Market Data for Selected Life Insurance Companies
<TABLE>
<CAPTION>
Price Price
Change Change 52-Week Range
Market Enterprise Current Since Since ---------------- 1996A 1997E
Company Value Value Price (a) 1/1/96 12/17/96 High Low EPS EPS (b)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allmerica Financial $1,923.9 $ 2,164.5 $38.38 46.7% 21.3% $39.63 $24.75 $2.75 $3.15
American General $8,927.1 $19,001.1 $43.38 24.8% 11.9% 43.38 32.88 3.07 3.55
Conseco (d)(e) 2,788.7 4,655.9 41.63 32.1 9.0 42.38 15.63 3.70 5.13
Equitable Cos 5,956.0 11,832.0 32.13 33.9 36.0 32.13 21.88 2.25 2.35
Equitable of Iowa 1,647.4 1,947.8 51.50 54.9 13.8 52.75 32.88 3.60 4.00
Protective Life 1,297.6 1,436.6 42.13 35.3 8.0 42.88 31.38 2.90 3.45
Providian (d) 5,224.1 6,112.1 55.75 36.0 6.2 56.00 38.13 4.64 5.00
Reliastar Financial Corp. (d) 2,209.1 2,743.8 59.13 35.1 7.7 59.38 40.00 4.60 5.13
SunAmerica, Inc. 5,935.5 7,823.6 49.50 93.6 27.3 51.00 22.81 2.27 2.63
<CAPTION>
Price as a Multiple of:(a)
------------------------------------
Book Pre Post
Value 1997 FAS 115 FAS 115
per Share Dividend Implied 1996A 1997 Book Book
Company 12/31/96 Yield ROE (c) EPS IBES (b) Value Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Allmerica Financial $34.40 0.5% 9.2% 14.0x 12.2x 1.21x 1.12x
American General $24.78 3.2% 14.3% 14.1x 12.2x 1.86x 1.75x
Conseco (d)(e) 25.21 0.3 20.4 11.3 8.1 1.61 1.65
Equitable Cos 19.12 0.6 12.3 14.3 13.7 1.70 1.68
Equitable of Iowa 28.00 1.2 14.3 14.3 12.9 1.91 1.84
Protective Life 19.98 1.7 17.3 14.5 12.2 2.05 2.11
Providian (d) 30.89 2.0 16.2 12.0 11.2 1.87 1.80
Reliastar Financial Corp. (d) 35.40 1.9 14.5 12.9 11.5 1.79 1.67
SunAmerica, Inc. 12.46 0.8 21.1 21.8 18.8 4.13 3.97
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Median 1.4% 15.3% 14.2x 12.2x 1.86x 1.78x
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Mean 1.5 16.3 14.4 12.6 2.11 2.06
High 3.2 21.1 21.8 18.8 4.13 3.97
Low 0.3 12.3 11.3 8.1 1.61 1.65
</TABLE>
(a) Market prices as of the close on February 18, 1997.
(b) Based on median IBES estimates as of January 16, 1997. Earnings estimate for
SunAmerica is calendarized.
(c) Based on 1997E IBES earnings estimate and December 31, 1996 book value.
(d) Book value as of September 30, 1996.
(e) 1996 EPS is the IBES median estimate.
- ----------------------
Salomon Brothers
----------------------
24
<PAGE>
Summary of Valuation Analyses
- ----------------------
Salomon Brothers
----------------------
25
<PAGE>
Summary of Valuation Results
<TABLE>
<CAPTION>
APY Selected Range of Implied
Reference Multiples and Premiums Value Per APY Shares
Point ----------------------------- -----------------------------
Low Median High Low Median High
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Comparable Company Analysis
Price to 1996 Earnings $1.96 10.4x 14.1x 20.5x $20.37 $27.64 $40.10
Price to 1997E Earnings-IBES 2.30 8.9 11.9 16.4 20.50 27.34 37.76
Price to 1997E Earnings-Mgmt. 2.14 8.9 11.9 16.4 19.07 25.44 35.13
Price to 12/31/96 Book Value 26.99 1.16 1.36 2.09 31.38 36.69 56.37
Price to Pre FAS 115 12/31/96
Book Value 24.86 1.26 1.64 2.14 31.42 40.76 53.28
- ------------------------------------------------------------------------------------------------------------------------------------
Recapitalization Analysis
Adjusted 1997E EPS $1.74 8.9x 11.9x 16.4x $15.55 $20.74 $28.64
Dividend Per Share 7.67 7.67 7.67 7.67
------ ------ ------
Total Value Per Share 23.22 28.41 36.31
Adjusted Book Value Per Share $19.30 1.16x 1.36x 2.09x $22.44 $26.23 $40.30
Dividend Per Share 7.67 7.67 7.67 7.67
------ ------ ------
Total Value Per Share 30.11 33.90 47.97
- ------------------------------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Analysis
Base Case
---------
Terminal Multiple to Earnings 12.0x 13.0x 14.0x
11% Discount Rate $28.19 $29.77 $31.36
13% Discount Rate 26.31 27.76 29.21
Upside Scenario
---------------
Terminal Multiple to Earnings 12.0x 13.0x 14.0x
11% Discount Rate $34.81 $36.86 $38.92
13% Discount Rate 32.38 34.26 36.14
- ------------------------------------------------------------------------------------------------------------------------------------
Dividend Discount Analysis
Terminal Multiple to Earnings 12.0x 13.0x 14.0x
11% Discount Rate $28.10 $29.72 $31.34
13% Discount Rate 26.01 27.49 28.97
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
Salomon Brothers
----------------------
26
<PAGE>
Summary of Valuation Results (Continued)
<TABLE>
<CAPTION>
Selected Range of Implied
Multiples and Premiums Value Per APY Share
APY -------------------------------- --------------------------------
Reference 25th 75th 25th 75th
Point Percentile Median Percentile Percentile Median Percentile
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Analysis of Selected Going Private Transactions(a)
Premium to Market One Week Prior $29.25 15.4% 21.3% 38.1% $33.76 $35.49 $40.40
- ------------------------------------------------------------------------------------------------------------------------------------
Analysis of Selected Insurance Company Acquisitions(a)
Price to Earnings $1.96 7.7x 14.4x 26.3x $15.01 $28.16 $51.64
Price to Book 26.99 1.03 1.19 1.38 27.82 32.17 37.37
Premium to Market One Month Prior 28.63 15.5% 30.7% 58.8% 33.07 37.42 45.46
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The high and low statistics were not considered meaningful.
- ----------------------
Salomon Brothers
----------------------
27
<PAGE>
Valuation Methodology: Comparable Company Analysis
We have analyzed the market valuations, trading history and operating
data for selected property and casualty companies comparable to APY.
. In our analysis we reviewed APY's market valuation multiples
based on both its current market price ($31.38) and the proposed
deal price ($33.00).
. We analyzed the following peer group market multiples in order
to arrive at an implied valuation for APY:
(i) Price to operating earnings (actual '96 and projected 1997)
(ii) Price to book value (with and without the impact of FAS
No.115)
. Also, we reviewed the following operating data for the peer
group companies from '92 - '95 (and '96 where available):
- Capitalization structure (i.e. debt/capitalization, coverage
ratios)
- Operating performance including revenues; net premiums written;
net income; return on equity; statutory expense, loss and
combined ratios and net premiums written/statutory surplus
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28
<PAGE>
Market Data for Selected Property/Casualty Companies
<TABLE>
<CAPTION>
% Price % Price
Change Change 52-Week Range
Market Enterprise Current Since Since ---------------------
Company Value Value Price(a) 1/1/96 12/17/96 High Low
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Allmerica P&C
Current Price $1,871.5 $1,899.5 $31.38 16.2% 11.1% $31.88 $25.00
Offer Price 1,968.4 1,996.4 33.00 22.2 16.8 - -
ALLIED Group (f) $657.2 $734.0 $32.38 34.9 7.0 34.25 $22.31
American States Fin. Corp 1,628.9 1,928.3 27.13 NM 6.9 27.88 19.38
Chubb 10,208.0 11,536.5 58.00 15.7 10.7 58.00 40.88
Cincinnati Financial 3,794.9 4,127.7 68.13 8.8 9.4 68.13 53.25
Citizens Corporation 877.2 877.2 24.88 33.6 14.4 24.88 17.63
Commerce Group 897.1 897.1 24.88 19.9 3.1 25.75 18.50
Harleysville Group(f)(g) 432.8 530.5 30.75 (4.7) 1.7 31.50 24.50
Horace Mann 957.3 1,106.9 42.50 32.3 7.6 43.38 28.00
Ohio Casualty 1,440.7 1,495.7 41.00 5.8 18.0 41.75 30.00
SAFECO Corp.(f) 5,199.8 6,391.7 41.25 16.2 2.5 42.38 30.88
Selective Ins. Group Inc.(f) 614.4 725.3 42.00 15.9 10.5 43.50 31.00
The St. Paul Companies 5,839.7 6,770.5 70.38 24.6 21.1 71.00 50.13
State Auto Fin.(f)(g) 325.6 325.6 18.00 2.9 10.8 19.00 12.75
USF&G(f) 2,602.2 3,361.2 22.50 31.4 13.2 22.88 14.25
W.R. Berkley(f)(g) 998.4 1,515.4 50.88 (4.5) 0.5 53.50 40.25
<CAPTION>
Book
Value 1997
1996A 1997E per Share Dividend Implied
Company EPS EPS (b) 12/31/96 Yield ROE(c)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allmerica P&C
Current Price $1.96 $2.30 $26.99 0.5% 8.5%
Offer Price -- -- -- 0.5 --
ALLIED Group (f) $2.30 $2.87 $15.50 1.9% 18.5%
American States Fin. Corp 2.61 2.80 22.25 3.1 12.6
Chubb 3.58 4.18 32.38 1.9 12.9
Cincinnati Financial 3.33 4.15 56.78 2.4 7.3
Citizens Corporation 2.12 2.15 21.39 0.8 10.0
Commerce Group 2.18 2.37 16.28 4.0 14.6
Harleysville Group(f)(g) 1.90 3.45 25.02 2.7 13.8
Horace Mann 3.11 3.55 21.50 1.3 16.5
Ohio Casualty 2.76 3.05 33.44 3.9 9.1
SAFECO Corp.(f) 3.02 3.30 31.02 2.8 10.6
Selective Ins. Group Inc.(f) 3.60 4.33 30.90 2.7 14.0
The St. Paul Companies 4.55 5.65 48.06 2.7 11.8
State Auto Fin.(f)(g) 1.10 1.60 9.72 0.9 16.5
USF&G(f) 1.37 1.60 13.43 0.9 11.9
W.R. Berkley(f)(g) 3.60 4.28 39.04 1.0 11.0
<CAPTION>
Price as a Multiple of: (a)
----------------------------------------------------
Pre Post Enterprise
FAS 115 FAS 115 Value/
1996A 1997 Book Book Statutory
Company EPS IBES(b) Value(d) Value Surplus(e)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allmerica P&C
Current Price 16.0x 13.6x 1.26x 1.16x 1.65x
Offer Price 16.8 14.3 1.33 1.22 1.73
ALLIED Group (f) 14.1x 11.3x 2.14x 2.09x 2.57x
American States Fin. Corp 10.4 9.7 1.35 1.22 1.91
Chubb 16.2 13.9 1.85 1.79 4.38
Cincinnati Financial 20.5 16.4 2.06 1.20 3.24
Citizens Corporation 11.7 11.6 1.26 1.16 1.41
Commerce Group 11.4 10.5 1.55 1.53 2.04
Harleysville Group 16.2 8.9 1.27 1.23 1.75
Horace Mann 13.7 12.0 2.03 1.98 3.05
Ohio Casualty NM 13.4 1.64 1.23 1.54
SAFECO Corp.(f) 13.7 12.5 1.63 1.33 2.70
Selective Ins. Group Inc.(f) 11.7 9.7 1.50 1.36 2.02
The St. Paul Companies 15.5 12.5 1.68 1.46 2.71
State Auto Fin (f)(g) 16.4 11.3 1.89 1.85 2.79
USF&G(f) 16.4 14.1 1.66 1.68 1.70
W.R. Berkley(f)(g) 14.1 11.9 1.33 1.30 1.80
</TABLE>
<TABLE>
<CAPTION>
Summary for all Comparables
Price as a Multiple of: (a)
----------------------------------------------------------
Pre Post Enterprise
1997 FAS 115 FAS 115 Value/
Dividend Implied 1996A 1997 Book Book Statutory
Yield ROE(c) EPS IBES(B) Value(d) Value Surplus (e)
- -------------------------------------------------------------------------------------------
Median 2.4% 12.6% 14.1x 11.9x 1.64x 1.36x 2.04x
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mean 2.2 12.7 14.4 12.0 1.66 1.49 2.37
High 4.0 18.5 20.5 16.4 2.14 2.09 4.38
Low 0.8 7.3 10.4 8.9 1.26 1.16 1.41
</TABLE>
Source: Company SEC filings.
NA - Not Available; NM- Not Meaningful.
(a) Prices as of February 18, 1997.
(b) Earnings based on median IBES estimates as of January 16, 1997.
(c) Based on 1997E IBES earnings estimate and December 31, 1996 book value.
(d) Book value before the mark-to-market adjustment.
(e) Statutory surplus as of December 31, 1995.
(f) Book value as of September 30, 1996.
(g) 1996 EPS is the IBES median estimate.
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29
<PAGE>
APY: Peer Performance Comparison
<TABLE>
<CAPTION>
Median Average for
APY Peer Group (a)
==================================================================================================================
<S> <C> <C>
Capitalization Statistics ('96)
Long-Term Debt/Total Capitalization (b) 0.0% 16.0%
Total Debt/Total Capitalization (b) 1.7% 19.7%
Operating Statistics ('92-'95)
Net Premiums Written - CAGR 3.0% 6.6%
Net Income - CAGR 2.2 3.0
Average Combined Ratio (c) 103.4% 103.9%
Average Loss Ratio (c) 72.7 73.0
Average Expense Ratio (c) 30.7 31.1
Average Net Premium Written/Statutory Surplus 1.87 x 1.76 x
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Peer group includes ASX, CB, CINF, CGI, HMN, OCAS, SAFC, SIGI, SPC, FG and
BKLY.
(b) Total Capitalization of APY, CINF, HMN, and OCAS as of 12/31/96. All
others as of 9/30/96.
(c) Statutory
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30
<PAGE>
Capitalization Statistics for Selected P&C Companies
<TABLE>
<CAPTION>
American States The Chubb Cincinnati Commerce
Financial Corp. Corporation Financial Corp. Group Inc. Horace Mann Ohio Casualty
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ratings (Moody's/S&P)
Senior Debt -/- Aa2/AA+ A2/AA- -/- Baa2/A- (c) -/-
Subordinated Debt -/- Aa3/- -/- -/- -/BBB+ -/-
Preferred Stock -/- -/- -/- -/- -/- -/-
Claims-Paying Rating Aa3/Aa Aaa/AA- -/- -/BBBQ A3/AA- -/A+
A.M Best Rating A+ A++ A++ A A A+
Capitalization:
Short-Term Debt $0.0 $250.5 $262.1 $0.0 $34.4 $0.0
Long-Term Debt 299.5 1,078.0 79.8 0.0 99.6 55.0
..............................................................................................
Total Debt 299.5 1,328.5 341.9 0.0 134.0 55.0
----------------------------------------------------------------------------------------------
Preferred Stock $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Common Equity 1,262.1 5,410.6 3,162.9 559.5 484.4 1,175.1
..............................................................................................
Total Equity 1,262.1 5,410.6 3,162.9 559.5 484.4 1,175.1
----------------------------------------------------------------------------------------------
Total Capitalization $1,561.6 $6,739.1 $3,504.8 (b) $559.5 $618.4(b) $1,230.1(b)
----------------------------------------------------------------------------------------------
Capitalization Ratios:
Long-Term Debt / Total Cap. 19.2 % 16.0 % 2.3 % 0.0 % 16.1 % 4.5 %
Total Debt / Total Capitalization 19.2 19.7 9.8 0.0 21.7 4.5
Total Debt + Pref./ Total Cap. 19.2 19.7 9.8 0.0 21.7 4.5
Total Debt / Common Equity 23.7 24.6 10.8 0.0 21.7 4.7
Common Equity / Total Assets 22.8 22.9 44.9 32.9 12.5 30.1
Coverage Ratios:
EBIT / Interest Expense (a) 9.15 x 8.74 x 10.15 x NM 10.59 x NM
EBIT / Int Exp. + Preferred Divs. (a) 9.15 8.74 10.15 NM 10.59 NM
..............................................................................................
</TABLE>
Note: Data as of 9/30/96 unless stated otherwise.
(a) EBIT excludes investment gains and losses and extraordinary items.
(b) As of 12/31/96
(c) Rating for Horace Mann Life.
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31
<PAGE>
Capitalization Statistics for Selected P&C Companies Continued
<TABLE>
<CAPTION>
Allmerica
Property &
The St. Paul Selective Ins. Casualty
Safeco Corp. Companies Group Inc. USF&G W.R.Berkley Cos. Inc. MEDIAN
------------------------------------------------------------------------------- ---------- ---------
Citizen's/
Hanover
<S> <C> <C> <C> <C> <C> <C>
Ratings (Moody's/S&P)
Senior Debt Aa3/AA Aa3/AA -/BBB+ Baa2/BBB A3/A -/- -/-
Subordinated Debt -/- -/- Ba3/BB Baa3/BBB- Baa1/- -/- -/-
Preferred Stock -/- Aa3/AA -/- Baa3/BBB- a3/BBB+ -/- -/-
Claims-Paying Rating Aa1/AAA Aa1/AAA -/A+ A3/A -/- -/- A1/Aa-
A.M. Best Rating A++ A+r A+ Ar A+r A+/-
Capitalization:
Short-Term Debt $992.0 $178.5 $0.0 $0.0 $0.0 $28.0
Long-Term Debt 200.0 529.1 110.9 530.0 390.0 0.0
............................................................................... ..........
Total Debt 1,192.0 707.6 110.9 530.0 390.0 28.0
------------------------------------------------------------------------------- ----------
Preferred Stock $0.0 $223.8 $0.0 $213.0 $127.0 $0.0
Common Equity 3,910.0 3,856.9 452.0 1,553.0 766.3 1,608.5
............................................................................... ..........
Total Equity 3,910.0 4,080.6 452.0 1,766.0 893.3 1,608.5
------------------------------------------------------------------------------- ----------
Total Capitalization $5,101.9 $4,788.2 $562.9 $2,296.0 $1,283.4 $1,636.5 (b)
------------------------------------------------------------------------------- ----------
Capitalization Ratios:
Long-Term Debt / Total Cap. 3.9 % 11.0 % 19.7 % 23.1 % 30.4 % 0.0 % 16.0 %
Total Debt / Total
Capitalization 23.4 14.8 19.7 23.1 30.4 1.7 19.7
Total Debt + Pref. / Total
Cap. 23.4 19.5 19.7 32.4 40.3 1.7 19.7
Total Debt / Common Equity 30.5 18.3 24.5 34.1 50.9 1.7 24.5
Common Equity / Total Assets 20.3 18.9 20.9 10.7 20.1 28.2 20.9
Coverage Ratios:
EBIT / Interest Expense (a) 8.43 x 5.35 x 7.48 x 4.10 x 4.52 x NM 8.43 x
EBIT / Int.Exp. + Preferred
Divs. (a) 8.43 4.52 7.48 2.73 3.18 NM 8.43
................................................................................ ......... .........
</TABLE>
Note: Data as of 9/30/96 unless stated otherwise.
(a) EBIT excludes investment gains and losses and extraordinary items.
(b) As of 12/31/96
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32
<PAGE>
Operating Statistics for Selected P&C Companies
<TABLE>
<CAPTION>
American States The Chubb Cincinnati Commerce
Financial Corp Corporation Financial Corp Group, Inc. Horace Mann Ohio Casualty
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Revenues
1995 $2,026 $6,089 $1,656 $684 $741 $1,268
1994 2,026 5,710 1,513 699 712 1,322
1993 2,272 5,500 1,442 626 708 1,401
1992 2,396 4,941 1,304 465 704 1,538
CAGR (5.4)% 7.2% 8.3% 13.7% 1.7% (6.2)%
Total Net Premiums Written
1996 $1,673 $4,800 $1,384 $712 $705 $1,209
1995 1,716 4,306 1,303 603 702 1,251
1994 1,656 3,951 1,198 589 693 1,286
1993 1,709 3,646 1,131 563 647 1,306
1992 1,973 3,243 NA 509 633 1,509
CAGR (4.0)% 10.3% 6.9% 8.7% 2.7% (5.4)%
1995 Breakdown of P&C Prems. Written
% of Total 59.3% 78.4% 70.0% 1.0% 0.0% 23.9%
% of Total 40.7 21.6 30.0 99.0 100.0 76.1
Net Income
1996 $170 $695 $224 NA $65 $103
1995 178 697 227 110 74 100
1994 185 528 201 123 63 97
1993 206 344 216 75 77 87
1992 106 617 171 84 58 99
CAGR 12.5% 3.0% 6.9% 9.3% 2.7% 1.0%
Return on Equity (a)
1996 11.6% 12.7% 7.7% NA 13.5% 9.0%
1995 11.4 14.7 9.9 22.9 16.8 10.2
1994 11.6 12.5 10.4 30.8 14.9 11.3
1993 12.9 8.4 11.8 22.6 19.6 10.3
1992 7.2 16.5 10.9 36.4 17.5 12.3
Average ROE 10.9% 13.0% 10.1% 28.2% 16.5% 10.6%
</TABLE>
Note: CAGR and Average calculated for years shown, excluding years where "NA"
is indicated, unless noted otherwise.
(a) Calculated as Net Income/Average Common Equity
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33
<PAGE>
Operating Statistics for Selected P&C Companies Continued
<TABLE>
<CAPTION> Allmerica
Selective Ins. Property &
Safeco Corp. St. Paul Group Inc. USF&G W.R. Berkley Casualty Cos. Inc. MEDIAN
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Revenues
1995 $3,869 $5,410 $839 $3,459 $1,022 $2,095
1994 3,727 4,701 768 3,310 831 2,005
1993 3,538 4,460 680 3,323 673 1,953
1992 3,420 4,499 620 3,712 567 1,923
CAGR 4.2% 6.3% 10.6% (2.3)% 21.7% 2.9% 6.3%
Total Net Premiums
Written
1996 NA $4,396 $692 NA NA $1,914
1995 2,207 4,243 757 2,563 860 1,885
1994 2,103 3,623 698 2,389 718 1,823
1993 2,000 3,179 607 2,502 538 1,745
1992 1,820 3,142 560 2,475 418 1,700
CAGR 6.6% 8.8% 5.4% 1.2% 27.2% 3.0% 6.6%
1995 Breakdown of
P&C Prems. Written
% of Total 25.4% 52.1% 70.6% 67.1% 0.0% 39.6% 52.1%
% of Total 74.6 47.9 29.4 32.9 100.0 60.4 47.9
Net Income
1996 $439 $450 $56 $261 NA $146
1995 399 521 53 209 50 140
1994 314 443 38 237 25 99
1993 429 428 23 168 52 256
1992 311 (156) 54 29 52 134
CAGR 9.0% 1.7%(b) 0.8% 15.8%(b) (1.7)% 2.2% 3.0%
Return on Equity(a)
1996 11.1% 11.7% 12.5% 13.8% NA 9.6 11.7%
1995 11.7 16.2 13.9 14.5 6.5 10.2 13.9
1994 11.2 15.4 11.7 21.4 4.4 8.2 11.7
1993 16.4 16.4 7.1 17.5 10.3 23.6 12.9
1992 13.3 (6.6) 18.5 3.4 11.7 14.9 12.3
Average ROE 12.8% 10.6% 12.8% 14.2% 8.2% 13.3% 12.8%
</TABLE>
Note: CAGR and Average calculated for years shown, excluding years where "NA"
is indicated, unless noted otherwise.
(a) Calculated as Net Income/Average Common Equity
(b) Calculated for years '93-'96.
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34
<PAGE>
Operating Statistics for Selected P&C Companies Continued
<TABLE>
<CAPTION>
American States The Chubb Cincinnati Commerce
Financial Corp Corporation Financial Corp Group Inc. Horace Mann Ohio Casualty
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory Ratios:
Combined Ratio
1996 105.8 % 98.3 % 103.0 % 98.0 % 93.5 % 109.5 %
1995 103.6 96.8 99.4 91.0 93.3 104.0
1994 104.6 99.5 NA 91.7 93.7 103.8
1993 107.1 114.8 NA 93.7 93.3 110.3
1992 112.5 101.1 NA 94.3 97.1 108.0
Average Combined Ratio 106.7 % 102.1 % 101.2 % 93.7 % 94.2 % 107.1 %
Loss Ratio
1995 71.3 % 64.7 % 72.3 % 62.0 % 73.5 % 71.4 %
1994 73.0 67.0 NA 64.6 73.8 71.6
1993 75.4 82.5 NA 68.0 73.6 76.7
1992 81.9 66.7 NA 66.2 77.3 74.5
Average Loss Ratio 75.4 % 70.2 % NA 65.2 % 74.6 % 73.6 %
Expense Ratio
1995 32.3 % 32.1 % 27.1 % 29.0 % 19.8 % 32.6 %
1994 31.6 32.5 NA 27.1 19.8 32.2
1993 31.7 32.3 NA 25.7 19.6 33.6
1992 30.6 34.4 NA 28.1 19.6 33.5
Average Expense Ratio 31.6 % 32.8 % NA 27.5 % 19.7 % 33.0 %
Net Premiums Written / Surplus Ratio
1995 1.70 x 1.64 x NA 1.37 x 1.94 x 1.43 x
1994 1.70 1.78 NA 1.68 2.09 1.95
1993 1.60 NA NA 1.98 2.04 1.83
1992 1.90 NA NA 2.30 NA 2.24
Average NPW / Surplus 1.73 x 1.71 x NA 1.83 x 2.02 x 1.86 x
</TABLE>
Note: CAGR and Average calculated for years shown, excluding years where "NA"
is indicated, unless noted otherwise.
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35
<PAGE>
Operating Statistics for Selected P&C Companies Continued
<TABLE>
<CAPTION>
Allmerica
Selective Ins. Property
Safeco Corp. St. Paul Group Inc. USF&G W.R. Berkley Casualty Cos. Inc. MEDIAN
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statutory Ratios:
Combined Ratios
1996 NA 105.5 % 102.9 % NA NA 104.5 % 103.0 %
1995 99.7 101.8 101.6 105.8 102.5 101.0 101.6
1994 103.8 102.3 104.3 107.9 105.0 105.3 103.8
1993 99.5 104.5 108.5 108.8 103.3 102.7 105.8
1992 104.1 117.8 107.9 116.6 104.9 104.5 106.4
Average Combined Ratio 101.8 % 106.4 % 105.0 % 109.8 % 103.9 % 103.6 % 103.9 %
Loss Ratio
1995 70.6 % 72.1 % 71.2 % 72.4 % 70.7 % 69.9 % 71.3 %
1994 74.4 72.1 71.7 73.1 73.7 73.6 72.6
1993 70.0 72.5 71.8 75.3 71.1 72.2 73.1
1992 74.5 85.6 NA 81.8 73.7 75.1 74.5
Average Loss Ratio 72.4 % 75.6 % 71.6 % 75.7 % 72.3 % 72.7 % 73.0 %
Expense Ratio
1995 28.4 % 29.7 % NA 33.4 % 31.3 % 31.1 % 30.5 %
1994 28.2 30.2 NA 34.8 30.8 31.7 30.8
1993 28.4 32.0 NA 33.5 31.7 30.5 31.7
1992 28.7 32.2 NA 34.8 30.6 29.4 30.6
Average Expense Ratio 28.4 % 31.0 % NA 34.1 % 31.1 % 30.7 % 31.1 %
Net Premiums Written/Surplus Ratio
1995 1.20 x 1.70 x 2.10 x 1.91 x 1.02 x 1.64 x 1.67 x
1994 1.40 1.91 2.40 1.47 1.07 1.84 1.74
1993 1.30 1.77 2.60 1.59 0.81 1.82 1.77
1992 1.30 NA 2.50 NA 1.00 2.20 2.07
Average NPW/Surplus 1.30 x 1.79 x 2.40 x 1.66 x 0.98 x 1.87 x 1.76 x
</TABLE>
Note: CAGR and Average calculated for years shown, excluding years where "NA"
is indicated, unless noted otherwise.
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36
<PAGE>
Valuation Methodology: Recapitalization Analysis
. In our recapitalization analysis, we attempted to enhance the
"efficiency" of APY's capitalization by adding financial
leverage and distributing excess capital (both improve return on
equity).
(i) $200 million of excess capital is assumed to be distributed
to APY shareholders in the form of a dividend.
(ii) subsequent to (i) debt is added to APY's capitalization to
increase the debt/capitalization ratio to 20%. The proceeds
from the debt are assumed to be distributed to APY
shareholders in the form of a dividend.
. The total implied value for APY was based on the total dividend
($7.67 per share) plus comparable company valuation multiples to
pro forma book value ($19.30) and E1997 earnings ($1.74).
. The recapitalization analysis follows on the next page.
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37
<PAGE>
Valuation Methodology: Recapitalization Analysis
<TABLE>
<CAPTION>
APY Dividend Leverage APY
12/31/96 Adjustments Adjustments Pro Forma
--------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
Balance Sheet
Total Assets $5,703.9 $(200.0) $5,503.9
========== ==========
Debt 28.0 $257.4 285.4
Other Liabilities 3,935.3 3,935.3
---------- ----------
Total Liabilites 3,963.3 4,220.7
Minority Interest 132.1 132.1
Equity 1,608.5 (200.0) (257.4) 1,151.1
---------- ----------
Total Liabilities and Equity 5,703.9 5,503.9
========== ==========
Earnings
Management 1997 Projected Operating Earnings $127.5 (10.0) (a) (13.4) (b) $104.1
Shares Outstanding 59.6 59.6
---------- ----------
Earnings Per Share $2.14 $1.74
Cash Distribution Per APY Shares 7.67
Book Value Per Share 26.99 19.30
Ratios
Debt/Total Capital 1.7% 20.0
Return on Equity 7.9 9.0
</TABLE>
(a) Assumes a 5.0% after tax cost of cash.
(b) Assumes new debt issued at 8.0% (a 120 bp reoffer spread to the 30 year
Treasury currently at 6.83%)
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38
<PAGE>
Recapitalization Valuation Summary
- -------------------------------------------
Assumptions
- -------------------------------------------
Pro Forma EPS (Management Case) $1.74
Pro Forma Book Value per Share 19.30
Cash Distribution per Share 7.67
- -------------------------------------------
<TABLE>
<CAPTION>
Multiple of 1997 Earnings
---------------------------------------
8.9 x 11.9 x 16.4 x
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro Forma APY Value $15.55 $20.74 $28.64
Cash Distribution 7.67 7.67 7.67
Total Value per Share to APY ------------ ----------- -----------
Shareholders $23.22 $28.41 $36.31
<CAPTION>
Multiple of Adjusted Book Value
---------------------------------------
1.16 x 1.36 x 2.09 x
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro Forma APY Value $22.44 $26.23 $40.30
Cash Distribution 7.67 7.67 7.67
Total Value per Share to APY ------------ ----------- -----------
Shareholders $30.11 $33.90 $47.97
</TABLE>
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Salomon Brothers
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39
<PAGE>
Valuation Methodology: Discounted Cash Flow Analysis Assumptions
Base Case:
. Statutory results for Hanover and Citizens were projected
through 2001 (five years)
- 1997 based on management projections
- 1998 - 2001 based on Salomon estimates
. Free cash flows based on the maximum statutorily allowable
dividend for Hanover and a dividend of $7.1 MM from Citizens.
. Free cash flows and terminal value (in year 2001) discounted
using factors of 11% and 13%
. Terminal value based on projected 2002 statutory earnings
- 11 - 15x statutory earnings
. Total APY value based on Hanover's value plus 82.5% of Citizen's
terminal value
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40
<PAGE>
Valuation Methodology: Discounted Cash Flow Analysis Assumptions
Upside Scenario
. Hanover's expense ratio is reduced by 0.7 points per year from
1998 through 2001.
. Hanover's loss ratio is reduced by 0.3 points per year from 1998
through 2001.
. The assumptions for Citizens remain the same as in the Base Case
Scenario.
- ----------------------
Salomon Brothers
----------------------
41
<PAGE>
Summary of Discounted Cash Flow Analysis: Base Case
<TABLE>
<CAPTION>
Projected
---------------------------------------------------
1997 1998 1999 2000 2001
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hanover
Dividends Paid $ 120.4 $ 119.4 $ 72.3 $ 57.6 $ 84.4
Stat Net Inc. 50.5 54.3 63.4 59.1 78.8
Stat Surplus (a) 1,194.1 1,189.3 1,238.0 1,307.0 1,375.6
Citizens
Dividends Paid $ 7.1 $ 7.1 $ 7.1 $ 7.1 $ 7.1
Stat Net Inc. 80.3 80.2 76.8 88.9 96.9
Stat Surplus 672.6 745.8 815.5 897.4 987.3
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Combined Value
At a terminal value multiple of Stat. Net Inc.:
Discount ------------------------------------------------------------
Rate 11.00x 12.00x 13.00x 14.00x 15.00x
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11.0% Aggregate Value $1,586.8 $1,681.4 $1,776.0 $1,870.5 $1,965.1
Value Per APY Share 26.60 28.19 29.77 31.36 32.94
13.0 Aggregate Value 1,482.9 1,569.4 1,655.9 1,742.5 1,829.0
Value Per APY Share 24.86 26.31 27.76 29.21 30.66
</TABLE>
(a) Ending surplus includes 82.5% of the change in Citizens' surplus.
- ----------------------
Salomon Brothers
----------------------
42
<PAGE>
Summary of Discounted Cash Flow Analysis: Upside Scenario
<TABLE>
<CAPTION>
Projected
---------------------------------------------------
1997 1998 1999 2000 2001
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hanover
Dividends Paid $ 120.4 $ 119.4 $ 98.9 $ 84.0 $ 120.8
Stat Net Inc. 50.5 63.1 81.2 85.5 115.2
Stat Surplus (a) 1,194.1 1,198.2 1,238.0 1,307.0 1,375.6
Citizens
Dividends Paid $ 7.1 $ 7.1 $ 7.1 $ 7.1 $ 7.1
Stat Net Inc. 80.3 80.2 76.8 88.9 96.9
Stat Surplus 672.6 745.8 815.5 897.4 987.3
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Combined Value
At a terminal value multiple of Stat. Net Inc.:
Discount ------------------------------------------------------------
Rate 11.00x 12.00x 13.00x 14.00x 15.00x
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11.0% Aggregate Value $1,953.6 $2,076.3 $2,198.9 $2,321.5 $2,444.1
Value Per APY Share 32.75 34.81 36.86 38.92 40.98
13.0 Aggregate Value 1,819.4 1,931.5 2,043.7 2,155.8 2,268.0
Value Per APY Share 30.50 32.38 34.26 36.14 38.02
</TABLE>
(a) Ending surplus includes 82.5% of the change in Citizens' surplus.
- ----------------------
Salomon Brothers
----------------------
43
<PAGE>
Valuation Methodology: Dividend Discount Model
In our dividend discount model, we attempt to capture the value of the
future stream of dividend payments to APY shareholders.
. The operating earnings per share for 1997 are management's estimate
of $2.14. For the following years, we estimate growth at 5% per
annum.(a)
. The dividend payout ratio is held constant at the current level of
8.2%.
. The terminal value was based on a multiple of projected 2002
earnings.
. The range of discount rates used was 10-14%
(a) The 1992-1996 average annual growth in operating earnings and
operating earnings per share are 0.7% and 1.5%,; APY management's
'96-'97 projected growth rates are 8.4% and 9.0%, respectively.
----------------------
Salomon Brothers
----------------------
44
<PAGE>
Valuation Methodology: Dividend Discount Model
<TABLE>
<CAPTION>
Assumed
CAGR
APY Projections 1997 1998 1999 2000 2001 '97-'01
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Earnings per Share(a) $2.14 $2.25 $2.36 $2.48 $2.60 5.0%
Dividends per Share 0.17 0.18 0.19 0.20 0.21 5.0
Payout Ratio 8.2% 8.2% 8.2% 8.2% 8.2% --
</TABLE>
<TABLE>
<CAPTION>
Terminal Value as a Multiple of 2002 Operating Earnings
Assumed ........................................................................................
Discount Rate 11.0 x 12.0 x 13.0 x 14.0 x 15.0 x
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
10.0% $27.54 $29.23 $30.93 $32.62 $34.32
11.0 26.48 28.10 29.72 31.34 32.97
12.0 25.48 27.03 28.58 30.13 31.68
13.0 24.53 26.01 27.49 28.97 30.46
14.0 23.62 25.04 26.46 27.88 29.29
</TABLE>
(a) Based on management's projection for 1997 and an assumed growth rate of 5.0%
thereafter.
- ----------------------
Salomon Brothers
----------------------
45
<PAGE>
Valuation Methodology: Acquisition of Minority Interests by Controlling
Stockholders
. On the following pages, we have outlined precedent transactions
involving the acquisition by controlling stockholders of minority
interests.
For all transactions analyzed, the median offer premium to
the stock price one week prior and one month prior to
announcement is 21.3% and 22.8%, respectively.
Excluding withdrawn offers, the median offer premium to the
stock price one week prior and one month prior to
announcement is 21.3% and 23.5%, respectively.
. We have separately analyzed those transactions involving insurance
companies.
For insurance transactions, the median offer premium to the
stock price one week prior and one month prior to
announcement is 21.4% and 22.3%, respectively.
----------------------
Salomon Brothers
----------------------
46
<PAGE>
Valuation Methodology: Acquisition of Minority Interests by
Controlling Stockholders
<TABLE>
Per Share % Change
Date ------------------ From
- ------------------- Initial Final Offer Initial
Announced Completed Price Price Amended? Offer Acquiror Name Target Name
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1/13/97 (pending) $36.00 -- -- -- Zurich Group Zurich Reinsurance Centre Holding
11/27/96 (pending) 14.25 14.25 no -- JW Childs Equity Partners LP Central Tractor Farm & Country
11/20/96 (pending) 19.00 22.50 yes 18.4% Andrews Group Inc. Toy Biz Inc.
10/10/96 (pending) 10.00 10.00 no -- Renco Group Inc. WCI Steel Inc
9/9/96 9/23/96 -- -- no -- Highwoods Property Crocker Realty Trust Inc.
8/8/96 9/17/96 41.00 41.00 no -- Chemed Corp Roto-Rooter Inc
7/31/96 11/13/96 8.00 8.00 no -- Monsanto Co. Calgene
5/27/96 (pending) 17.00 19.50 no -- Sandoz Ltd. SyStemix Inc
5/10/97 12/11/97 23.52 24.32 yes 3.4 PXRE Corp. Transnational Re Corp.
5/7/96 7/3/96 17.50 18.50 yes 5.7 Orion Capital Corp Guaranty National Corp
4/8/96 8/16/96 55.00 55.00 no -- AirTouch Communications Cellular Communications Inc
3/29/96 4/26/96 50.00 50.00 no -- Equity Holdings Ltd. Great American Mgmt. & Invt. Inc
1/26/96 5/31/96 25.80 25.80 no -- NationsBank Corp. Charter Bancshares Inc
11/6/95 Withdrawn 9.00 -- -- -- Investor Group NPC International Inc
10/18/95 11/28/95 11.75 11.75 no -- Rhone-Poulenc Rover Inc Applied Immune Sciences Inc
9/27/95 Withdrawn 25.00 -- -- -- Varity Corp. Hayes Wheels International Inc
9/26/95 12/21/95 14.00 15.25 yes 8.9 SCOR SA SCOR SA Corp
8/25/95 1/2/96 70.00 70.00 no -- Berkshire Hathaway Inc GEICO Corp
7/14/95 12/11/95 18.00 20.00 yes 11.1 COBE Laboratories (Gambro AB) REN Corp-USA
5/19/95 12/6/95 36.50 40.50 yes 11.0 BICSA Bic Corp
<CAPTION>
Offer Premium Percent Percent
Date Deal ----------------- Held at Owned
- ------------------- Value % % 1 Week 4 Weeks Ann Percent After
Announced Completed ($ mil) Stock Cash Prior Prior Date Sought Transaction
- ------------------------------------------------------------------------------------------------------------------------------------
1/13/97 (pending) $322.5 0.0% 100.0% 18.5% 12.1% 65.7% 34.3% 100.0%
11/27/96 (pending) 53.6 0.0 100.0 21.3 26.7 64.5 35.5 100.0
11/20/96 (pending) 206.0 0.0 100.0 25.9 20.0 67.0 33.0 100.0
10/10/96 (pending) 56.5 0.0 100.0 29.0 77.8 84.5 15.5 100.0
9/9/96 9/23/96 73.7 0.0 100.0 NA NA 77.0 23.0 100.0
8/8/96 9/17/96 88.3 0.0 100.0 20.6 19.7 58.1 41.9 100.0
7/31/96 11/13/96 50.0 0.0 100.0 80.3 39.1 49.9 4.7 54.6
5/27/96 (pending) 76.2 0.0 100.0 69.5 59.2 73.0 27.0 100.0
5/10/97 12/11/97 130.5 100.0 0.0 16.5 9.9 22.3 77.7 100.0
5/7/96 7/3/96 85.1 0.0 100.0 15.6 22.3 49.5 30.7 80.2
4/8/96 8/16/96 1,606.5 0.0 100.0 7.8 6.3 40.0 60.0 100.0
3/29/96 4/26/96 55.6 0.0 100.0 4.2 3.6 87.9 12.1 100.0
1/26/96 5/31/96 94.7 100.0 0.0 15.9 22.8 42.0 58.0 42.0
11/6/95 Withdrawn 82.1 0.0 100.0 44.0 33.3 62.0 38.0 62.0
10/18/95 11/28/95 84.6 0.0 100.0 51.6 38.2 46.0 54.0 99.0
9/27/95 Withdrawn 235.9 0.0 100.0 19.0 19.8 46.3 53.7 46.3
9/26/95 12/21/95 55.4 0.0 100.0 35.6 38.6 80.0 20.0 100.0
8/25/95 1/2/96 2,347.0 0.0 100.0 23.1 25.3 52.4 47.6 100.0
7/14/95 12/11/95 177.7 0.0 100.0 20.3 26.0 53.0 47.0 100.0
5/19/95 12/6/95 212.6 0.0 100.0 12.5 28.6 78.0 22.0 100.0
</TABLE>
(Continued on next page)
N.B. Includes transactions over $40 million in which acquiror owns 40%
or more of target before announcement date. Includes acquisitions of
public U.S. targets only. "Offer" represents public announcement of
offer to purchase.
Source: Securities Data Corporation.
- ----------------------
Salomon Brothers
----------------------
47
<PAGE>
Valuation Methodology: Acquisition of Minority Interests by Controlling
Stockholders (Continued)
<TABLE>
<CAPTION>
Per Share % Change
Date ------------------------------ From
- -------------------- Initial Final Offer Initial
Announced Completed Price Price Amended? Offer Acquiror Name
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4/7/95 10/3/95 $127.50 $129.90 yes 1.9% McCaw Cellular Commun (AT&T)
4/5/95 8/2/95 26.25 32.00 yes 21.9 Club Mediterranee SA
3/27/95 Withdrawn 30.00 -- -- -- Terra Industries Inc
2/27/95 Withdrawn 22.00 -- -- -- Conseco
2/27/95 8/31/95 22.50 23.25 yes 3.3 Conseco
2/7/95 7/12/95 14.00 16.35 yes 16.8 WMX Technologies Inc
1/31/95 2/1/95 -- 69.54 yes NA Sandoz AG
1/18/95 8/9/95 26.00 29.00 yes 11.5 Arcadian Corp
12/28/94 4/28/95 20.00 20.00 no -- Fleet Financial Group Inc
11/2/94 9/27/95 28.00 30.00 yes 7.1 PacifiCorp
9/8/94 5/12/95 22.50 25.50 yes 13.3 GTE Corp
8/24/94 3/24/95 14.00 15.75 yes 12.5 Dole Food Co Inc
8/9/94 Withdrawn 7.50 -- -- -- Minorco SA (Anglo American)
7/29/94 11/1/94 65.00 65.00 no -- Foundation Health Corp
7/28/94 1/24/95 7.80 8.85 yes 13.5 WMX Technologies Inc
6/6/94 12/29/94 18.38 18.38 no -- Ogden Corp
4/28/94 Withdrawn 17.50 -- -- -- Investor Group
4/26/94 7/26/94 4.48 4.48 no -- Burlington Resources Inc
3/14/94 8/9/94 2.68 2.68 no -- Sea Containers Inc
2/17/94 9/15/94 84.75 84.75 no -- EW Scripps (Edward Scripps Tr)
Offer Premium Percent Percent
Deal ----------------- Held at Owned
Value % % 1 Week 4 Weeks Ann Percent After
Target Name ($ mil) Stock Cash Prior Prior Date Sought Transaction
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIN Bdcstg $3,323.4 0.0% 100.0% 6.7% 1.3% 52.0% 48.0% 100.0%
Club Med Inc 153.4 0.0 100.0 39.9 44.6 67.0 33.0 100.0
Terra Nitrogen Co LP 229.1 0.0 100.0 11.1 8.6 59.4 40.6 59.4
Bankers Life Holding Corp 458.5 0.0 100.0 21.4 6.0 63.2 39.6 100.0
CCP Insurance Inc 273.7 0.0 100.0 30.1 23.2 48.1 51.9 100.0
Rust International Inc 50.5 0.0 100.0 39.1 39.1 96.3 3.7 100.0
SyStemix Inc 80.0 0.0 100.0 315.2 303.1 60.0 11.6 71.6
Arcadian Partners LP 428.4 0.0 50.0 21.5 26.1 45.0 55.0 100.0
Fleet Mortgage Group Inc 188.1 0.0 100.0 18.5 18.5 81.0 19.0 100.0
Pacific Telecom 159.0 0.0 100.0 23.7 23.7 86.6 13.4 100.0
Contel Cellular Inc (Contel) 254.3 0.0 100.0 37.8 36.0 90.0 10.0 100.0
Castle & Cooke Homes Inc 81.5 0.0 100.0 41.6 55.6 81.7 18.3 100.0
Terra Industries Inc 99.8 0.0 100.0 25.0 (4.8) 44.6 15.9 44.6
Intergroup Healthcare Corp 255.7 91.5 0.0 71.1 71.1 62.6 37.4 100.0
Chemical Waste Management Inc 397.4 NA NA 8.9 1.1 78.5 21.5 100.0
Ogden Projects Inc 110.3 100.0 0.0 17.6 20.5 84.2 15.8 100.0
Enquirer/Star Group Inc 315.0 0.0 100.0 20.7 7.7 56.8 43.2 56.8
Diamond ShamrocO Offshore 42.6 0.0 100.0 (0.4) 5.4 87.1 12.9 100.0
Orient-Express Hotels Inc 75.2 20.2 0.0 64.8 64.8 41.9 58.1 100.0
Scripps Howard Broadcasting Co 115.9 100.0 0.0 13.0 13.0 86.0 14.0 100.0
</TABLE>
(Continued on next page)
N.B. Includes transactions over $40 million in which acquiror
owns 40% or more of target before announcement date. Includes
acquisitions of public U.S. targets only. "Offer" represents
public announcement of offer to purchase.
Source: Securities Data Corporation.
- ----------------------
Salomon Brothers
----------------------
48
<PAGE>
Valuation Methodology: Acquisition of Minority Interests by Controlling
Stockholders (Continued)
<TABLE>
<CAPTION>
Per Share %Change
Date -------------- From Deal
- -------------------- Initial Final Offer Initial Value
Announced Completed Price Price Amended? Offer Acquiror Name Target Name ($ mill)
- -----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <S> <C>
1/7/94 2/23/94 $7.65 $7.65 no -- Holderbank Financiere Glarus Holnam Inc(Holdernam Inc) $51.7
10/22/93 10/22/93 14.70 14.70 no -- Manville Corp Riverwood International Corp 50.0
10/14/93 5/31/94 11.00 12.10 yes 10.0% Valero Energy Corp Valero Natural Gas Partners LP 117.4
10/13/93 4/6/94 27.25 27.75 yes 1.8 Medco Containment Services Inc Medical Marketing Group Inc 122.5
9/20/93 12/10/93 48.00 46.00 yes (4.2) Valley Fashions Corp West Point-Pepperell Inc 66.3
9/13/93 10/5/93 13.00 7.56 yes (41.8) Blockbuster Entertainment Corp Spelling Entertainment Inc 101.3
3/22/93 5/7/93 25.00 30.00 yes 20.0 New Marvel Holdings Inc Marvel Entertainment Group Inc 300.0
11/13/92 5/7/93 17.88 18.75 yes 4.9 Rust International Inc Brand Cas Inc 185.0
9/9/92 2/26/93 21.04 25.50 yes 21.2 American Maize-Products Co American Fructose Corp 130.3
8/19/92 11/19/92 13.50 13.50 no -- Investor Group FoxMeyer Corp(Natl Intergroup) 44.6
8/17/92 12/31/92 14.72 25.78 yes 75.1 Leucadia National Corp PHLCORP Inc 139.9
6/25/92 Withdrawn 22.00 -- -- 17.0 Oaty Holdings Oaty Holdings Inc 111.8
3/2/92 7/14/92 16.50 19.00 yes 15.2 WR Grace & Co Grace Energy Corp 77.3
2/6/92 7/30/92 6.00 7.25 yes 20.8 Charter Co(American Financial) Spelling Entertainment Inc 43.0
- -----------------------------------------------------------------------------------------------------------------------------
12/17/96 (pending) $29.00 $33.00 yes 13.8% Allmerica Financial Corporation Allmerica Property & Casualty $796.9
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Offer Premium Percent Percent
-------------- Held at Owned
% % 1 Week 4 Weeks Ann Percent After
Acquiror Name Target Name Stock Cash Prior Prior Date Sought Transaction
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Holderbank Financiere Glarus Holnam Inc(Holdernam Inc) 0.0% 100.0% 15.5% 7.4% 95.0% 5.0% 100.0%
Manville Corp Riverwood International Corp 0.0 100.0 12.0 8.9 80.5 1.0 81.5
Valero Energy Corp Valero Natural Gas Partners LP 0.0 100.0 29.1 36.3 49.0 51.0 100.0
Medco Containment Services Inc Medical Marketing Group Inc 0.0 100.0 NA (5.9) 51.5 48.5 100.0
Valley Fashions Corp West Point-Pepperell Inc 0.0 100.0 (19.8) (19.8) 95.1 4.9 100.0
Blockbuster Entertainment Corp Spelling Entertainment Inc 100.0 0.0 (5.5) 0.8 50.3 20.9 71.2
New Marvel Holdings Inc Marvel Entertainment Group Inc 0.0 100.0 42.9 58.9 59.6 20.7 80.3
Rust International Inc Brand Cas Inc 30.0 70.0 13.6 4.9 55.8 44.2 100.0
American Maize-Products Co American Fructose Corp 100.0 0.0 23.6 29.1 42.7 57.3 100.0
Investor Group FoxMeyer Corp(Natl Intergroup) 0.0 100.0 18.7 1.9 66.5 10.4 76.9
Leucadia National Corp PHLCORP Inc 100.0 0.0 15.2 28.9 63.1 36.9 100.0
Oaty Holdings Oaty Holdings Inc 0.0 100.0 51.5 46.1 51.9 48.1 51.9
WR Grace & Co Grace Energy Corp 0.0 100.0 21.6 7.8 83.4 16.6 100.0
Charter Co(American Financial) Spelling Entertainment Inc 0.0 0.0 45.0 45.0 82.3 17.7 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
47.0% 53.0% 12.8% 15.3% 59.5% 40.5% 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
For all Transactions: Median 0.0% 100.0% 21.3% 22.8% 62.9% 31.9% 100.0%
Mean 15.9 79.6 31.2 28.9 64.8 31.1 90.3
High 100.0 100.0 315.2 303.1 96.3 77.7 100.0
Low 0.0 0.0 (19.8) (19.8) 22.3 1.0 42.0
25th Percentile 0.0 100.0 15.4 7.7 50.6 15.8 85.9
75th Percentile 0.0 100.0 38.1 38.2 80.9 47.5 100.0
Excluding Withdrawn Offers: Median 0.0% 100.0% 21.3% 23.5% 65.7% 23.0% 100.0%
Mean 18.3 76.5 31.8 30.8 66.2 29.8 94.8
High 100.0 100.0 315.2 303.1 96.3 77.7 100.0
Low 0.0 0.0 (19.8) (19.8) 22.3 1.0 42.0
</TABLE>
N.B. Includes transactons over $40 million in which acquiror owns 40% or more of
target before announcement date. Includes acquisitions of public U.S. targets
only. "Offer" represents public announcement of offer to purchase.
Source: Securities Data Corporation.
- ----------------------
Salomon Brothers
------------------------
49
<PAGE>
Valuation Methodology: Acquisition of Minority Interest by
Controlling Stockholders - Insurance Companies
<TABLE>
<CAPTION>
Per Share % Change
Date -------------------- From
- ------------------------ Intial Final Offer Intial
Announced Completed Price Price Amended? Offer Acquiror Name Target Name
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <S>
1/13/97 (pending) $36.00 --- --- --- Zurich Group Zurich Reinsurance Centre Holding
5/10/97 12/11/97 23.52 24.32 yes 3.4 % PXRE Corp. Transnational Re Corp.
5/7/96 7/3/96 17.50 18.50 yes 5.7 Orion Capital Corp Guaranty National Corp.
9/26/95 12/21/95 14.00 15.25 yes 8.9 SCOR SA SCOR SA Corp
8/25/95 1/2/96 70.00 70.00 no --- Berkshire Hathaway Inc. GEICO Corp
2/27/95 Withdrawn 22.00 --- --- --- Conseco Bankers Life Holding Corp.
2/27/95 8/31/95 22.50 23.25 yes 3.3 Conseco CCP Insurance Inc
- ---------------------------------------------------------------------------------------------------------------------------------
12/17/96 (pending) $29.00 $33.00 yes 13.8% Allmerica Financial Corporation Allmerica Property & Casualty
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Offer Premium Percent Percent
Deal ----------------- Held at Earned
Value % % 1 Week 4 Weeks Ann Percent After
Acquiror Name Target Name ($.mil) Stock Cash Prior Prior Date Sought Transaction
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Zurich Group Zurich Reinsurance Centre Holding $322.5 0.0% 100.0% 18.5% 12.1% 65.7% 34.3% 100.0%
PXRE Corp. Transnational Re Corp. 130.5 100.0 0.0 16.5 9.9 22.3 77.7 100.0
Orion Capital Corp Guaranty National Corp. 85.1 0.0 100.0 15.6 22.3 49.5 30.7 80.2
SCOR SA SCOR SA Corp 55.4 0.0 100.0 35.6 38.6 80.0 20.0 100.0
Berkshire Hathaway Inc. GEICO Corp 2,347.0 0.0 100.0 23.1 25.3 52.4 47.6 100.0
Conseco Bankers Life Holding Corp. 458.5 0.0 100.0 21.4 6.0 63.2 39.6 100.0
Conseco CCP Insurance Inc 273.7 0.0 100.0 30.1 23.2 48.1 51.9 100.0
- ----------------------------------------------------------------------------------------------------------------------------------
Allmerica Financial Corporation Allmerica Property & Casualty $796.9 47.0% 53.0% 12.8% 15.3% 59.5% 40.5% 100.0%
- -----------------------------------------------------------------------------------------------------------------------------------
Median 0.0% 100.0% 21.4% 22.3% 52.4% 39.6% 100.0%
Mean 14.3 85.7 23.0 19.6 54.5 43.1 97.2
</TABLE>
- ----------------------
Salomon Brothers
----------------------
50
<PAGE>
Valuation Methodology: Selected Property / Casualty Insurance Company
Acquisition Statistics
As an added valuation perspective, we have analyzed selected
transactions (greater than $25 million) involving the acquisition of
insurance companies. The median statistics are as follows:
<TABLE>
<S> <C>
Premium to market price one month
prior to announcement: 30.7%
Price to GAAP net operating income: 14.4x
Price to GAAP book value: 1.19
Price to statutory net operating income: 15.3
Price to statutory capital and surplus: 1.33
</TABLE>
----------------------
Salomon Brothers
----------------------
51
<PAGE>
Valuation Methodology: Selected Property / Casualty Insurance
Company Acquisition Statistics
Summary of Selected Acquisitions over $25 Million
<TABLE>
<CAPTION>
Description Total Price Premium
Announced Target Acquiror of Consideration Per to
(Closed) (parent) (parent) Target (in millions) Share Mkt. (a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1/23/97 Coregis Group Inc. (b) General Electric Primary P&C $375.0 NA NA
(Pending)
1/17/97 AVEMCO Corporation HCC Insurance Holdings, Inc. Aviation 230.0 $27.50 83.3 %
(Pending) Property & Casualty
1/13/97 Zurich Reinsurance Centre Hold. Zurich Group Reinsurance 322.5 36.00 12.1
(Pending)
11/21/96 American Fidelity Ins. Co (b) Mercury General Corp. Automobile/casualty 34.8 NA NA
(Pending)
9/17/96 Pac Rim Holding Corporation Superior National Insurance Workers' compensation 54.0 3.05 16.2
(Pending)
9/16/96 Allstate Reinsurance Scor U.S. Corp. Reinsurance 500.0 NA NA
(10/8/96)
8/14/96 American Re Corporation Munich Re Reinsurance 3,300.0 65.00 53.4
(11/25/96)
8/14/96 Guardian Royal Exchange (b) Transatlantic Reinsurance Co. Reinsurance 105.0 NA NA
(8/14/96)
7/1/96 National Reinsurance General Reinsurance Property/Casualty 940.0 53.00 60.6
(10/3/96) Rein.
6/21/96 Vik Brothers (b) Highlands Insurance Grp, Inc. Com. P&C for small 126.0 NA NA
(Pending) to medium sized co's
6/20/96 Northbrook Group (b) St. Paul Fire and Marine Ins. Comm. auto, workers' 180.0 NA NA
(8/1/96) (Allstate) comp. and inland
marine
5/10/96 Transnational Reins. Corp PXRE Corp. Retr. reins. in 124.9 23.28 4.0
(12/11/96) brokered prop., marine,
& aviation
3/4/96 Citation Insurance Group Physicians Ins. Co. of Ohio Workers' comps and 32.2 5.03 15.0
(11/21/96) commercial P&C
2/21/96 Skandia America Rein. Corp (b) Fairfax Financial Holdings Lim P&C Reinsurance 230.0 NA NA
(5/31/96) (Skandia Insurance Co, Ltd.
Sweden)
2/19/96 Financial Institutions Ins. Grp. Castle Harlan Prtnr's II LP Reinsurance 48.6 16.00 15.3
(9/9/96) Specialty Line P&C
<CAPTION>
Price as a Multiple of
----------------------------------
GAAP SAP
--------------- ------------------
Description Net Net Capital
Announced Target Acquiror of Operating Book Operating and
(Closed) (parent) (parent) Target Income Value Income Surplus
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1/23/97 Coregis Group Inc. (b) General Electric Primary P&C NA NA 14.1 x 1.50 x
(Pending)
1/17/97 AVEMCO Corporation HCC Insurance Holdings, Inc. Aviation 29.9 x 3.88 x 19.4 3.16
(Pending) Property & Casualty
1/13/97 Zurich Reinsurance Centre Hold. Zurich Group Reinsurance 29.0 1.32 52.6 0.49
(Pending)
11/21/96 American Fidelity Ins. Co (b) Mercury General Corp. Automobile/casualty NA NA NM 0.94
(Pending)
9/17/96 Pac Rim Holding Corporation Superior National Insurance Workers' compensation NM 1.29 NM 1.16
(Pending)
9/16/96 Allstate Reinsurance Scor U.S. Corp. Reinsurance NA NA NA NA
(10/8/96)
8/14/96 American Re Corporation Munich Re Reinsurance NM 3.86 NM 2.87
(11/25/96)
8/14/96 Guardian Royal Exchange (b) Transatlantic Reinsurance Co. Reinsurance NA NA NA NA
(8/14/96)
7/1/96 National Reinsurance General Reinsurance Property/Casualty 18.5 2.30 18.6 2.07
(10/3/96) Rein.
6/21/96 Vik Brothers (b) Highlands Insurance Grp, Inc. Com. P&C for small 3.4 1.07 9.9 1.02
(Pending) to medium sized co's
6/20/96 Northbrook Group (b) St. Paul Fire and Marine Ins. Comm. auto, workers' NA 1.38 11.1 0.73
(8/1/96) (Allstate) comp. and inland
marine
5/10/96 Transnational Reins. Corp PXRE Corp. Retr. reins. in 5.8 0.96 5.9 1.05
(12/11/96) brokered prop., marine,
& aviation
3/4/96 Citation Insurance Group Physicians Ins. Co. of Ohio Workers' Comps and 9.6 0.70 21.7 1.09
(11/21/96) commercial P&C
2/21/96 Skandia America Rein. Corp (b) Fairfax Financial Holdings Lim P&C Reinsurance NA NA NM 0.81
(5/31/96) (Skandia Insurance Co, Ltd.
Sweden)
2/19/96 Financial Institutions Ins. Grp. Castle Harlan Prtnr's II LP Reinsurance and 13.7 1.06 84.0 1.15
(9/9/96) Specialty Line P&C
</TABLE>
(a) Premium to market one month prior to public announcement.
(b) Represents a private transaction.
- -----------------------
Salomon Brothers
-----------------------
52
<PAGE>
Valuation Methodology: Selected Property / Casualty Insurance
Company Acquisition Statistics
Summary of Selected Acquisitions over $25 Million
<TABLE>
<CAPTION>
Description Total Price Premium
Announced Target Acquiror of Consideration Per to
(Closed) (parent) (parent) Target (in millions) Share Mkt.(a)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2/9/96 Tempest Re (b) Ace Limited Property Catastrophe $743.9 NA NA
(5/22/96) Reinsurance
11/29/95 Aetna Property & Casualty (b) Travelers Group National P&C Co. 4,000.0 NA NA
(4/2/96) (Aetna Life & Casualty)
9/26/95 Scor U.S. Scor S.A. Reinsurance 50.9 14.00 21.7
(12/21/95)
9/14/95 Midwest Employer Casualty Co.(b) W.R. Berkley Workers' Comp. Co. 138.0 NA NA
(11/8/95) (MECC Inc.)
8/25/95 GEICO Berkshire Hathaway Multi-line P&C 2,322.8 70.00 25.8
(1/2/96)
6/19/95 Milwaukee Insurance Grp. Inc. Unitrin Inc. P&C Insurance 94.0 22.00 91.3
(10/3/95)
4/27/95 Viking Insurance Holdings, Inc.(b) Guaranty National Corp. Regional P&C Company 102.0 NA NA
(7/18/95) (Xerox Corp.)
1/12/95 Re Capital Corp. Zurich Reinsurance Co. Reinsurance 203.5 18.50 49.5
(4/26/95)
12/19/94 Victoria Financial Corp. USF&G Regional P&C 55.3 13.00 89.1
(5/22/95)
12/19/94 Constitution Re Corporation(b) EXOR America, Inc. Specialty Reinsurance 421.0 NA NA
(4/26/95) (Talegen Holdings / Xerox)
12/6/94 Continental Corp. CNA Financial Corp. Regional P&C 1,107.3 20.00 35.6
(5/10/95)
7/28/94 Bankers and Shippers Ins. Co.(b) Integon Corp. Regional P&C Company 142.0 NA NA
(10/18/94) (Travelers Indemnity Co.)
11/23/93 Federal Kemper Insurance Co.(b) Anthem P&C Holdings Regional P&C Company 105.0 NA NA
(1/03/94) (Kemper Corp) (Associated Insurance Co.)
10/29/93 Ranger Insurance Co.(b) Fairfax Financial Hold. Ltd. Regional P&C Company 135.0 NA NA
(1/06/94)
Median 30.7 %
Mean 40.9
75th Percentile 58.8
25th Percentile 15.5
<CAPTION>
Price as a Multiple of
............................
GAAP
----------------------------
Description Net
Announced Target Acquiror of Operating Book
(Closed) (parent) (parent) Target Income Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2/9/96 Tempest Re (b) Ace Limited Property Catastrophe 7.0 x 1.01 x
(5/22/96) Reinsurance
11/29/95 Aetna Property & Casualty (b) Travelers Group National P&C Co. NM 1.03
(4/2/96) (Aetna Life & Casualty)
9/26/95 Scor U.S. Scor S.A. Reinsurance NM 0.93
(12/21/95)
9/14/95 Midwest Employer Casualty Co.(b) W.R. Berkley Workers' Comp. Co. 5.0 1.09
(11/8/95) (MECC Inc.)
8/25/95 GEICO Berkshire Hathaway Multi-line P&C 24.0 2.86
(1/2/96)
6/19/95 Milwaukee Insurance Grp. Inc. Unitrin Inc. P&C Insurance 27.1 1.26
(10/3/95)
4/27/95 Viking Insurance Holdings, Inc.(b) Guaranty National Corp. Regional P&C Company NA NA
(7/18/95) (Xerox Corp.)
1/12/95 Re Capital Corp. Zurich Reinsurance Co. Reinsurance 15.0 1.08
(4/26/95)
12/19/94 Victoria Financial Corp. USF&G Regional P&C 34.1 2.03
(5/22/95)
12/19/94 Constitution Re Corporation(b) EXOR America, Inc. Specialty Reinsurance 10.8 1.19
(4/26/95) (Talegen Holdings / Xerox)
12/6/94 Continental Corp. CNA Financial Corp. Regional P&C NM 0.80
(5/10/95)
7/28/94 Bankers and Shippers Inc. Co.(b) Integon Corp. Regional P&C Company NA NA
(10/18/94) (Travelers Indemnity Co.)
11/23/93 Federal Kemper Insurance Co.(b) Anthem P&C Holdings Regional P&C Company NA 1.20
(1/03/94) (Kemper Corp) (Associated Insurance Co.)
10/29/93 Ranger Insurance Co.(b) Fairfax Financial Hold. Ltd. Regional P&C Company NA NA
(1/06/94)
Median 14.4 x 1.19 x
Mean 16.6 1.54
75th Percentile 26.3 1.38
25th Percentile 7.7 1.03
<CAPTION>
Price as a Multiple of
............................
SAP
----------------------------
Description Net Capital
Announced Target Acquiror of Operating and
(Closed) (parent) (parent) Target Income Surplus
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2/9/96 Tempest Re (b) Ace Limited Property Catastrophe NA NA
(5/22/96) Reinsurance
11/29/95 Aetna Property & Casualty (b) Travelers Group National P&C Co. NM 1.71
(4/2/96) (Aetna Life & Casualty)
9/26/95 Scor U.S. Scor S.A. Reinsurance NM 1.01
(12/21/95)
9/14/95 Midwest Employer Casualty Co.(b) W.R. Berkley Workers' Comp. Co. 7.8 1.96
(11/8/95) (MECC Inc.)
8/25/95 GEICO Berkshire Hathaway Multi-line P&C 23.6 4.56
(1/2/96)
6/19/95 Milwaukee Insurance Grp. Inc. Unitrin Inc. P&C Insurance NM 1.85
(10/3/95)
4/27/95 Viking Insurance Holdings, Inc.(b) Guaranty National Corp. Regional P&C Company 10.1 1.24
(7/18/95) (Xerox Corp.)
1/12/95 Re Capital Corp. Zurich Reinsurance Co. Reinsurance NA 1.23
(4/26/95)
12/19/94 Victoria Financial Corp. USF&G Regional P&C 18.6 2.68
(5/22/95)
12/19/94 Constitution Re Corporation(b) EXOR America, Inc. Specialty Reinsurance 12.3 1.41
(4/26/95) (Talegen Holdings / Xerox)
12/6/94 Continental Corp. CNA Financial Corp. Regional P&C 9.9 0.61
(5/10/95)
7/28/94 Bankers and Shippers Inc. Co.(b) Integon Corp. Regional P&C Company 22.4 2.21
(10/18/94) (Travelers Indemnity Co.)
11/23/93 Federal Kemper Insurance Co.(b) Anthem P&C Holdings Regional P&C Company 11.5 1.62
(1/03/94) (Kemper Corp) (Associated Insurance Co.)
10/29/93 Ranger Insurance Co.(b) Fairfax Financial Hold. Ltd. Regional P&C Company 16.5 1.41
(1/06/94)
Median 15.3 x 1.33 x
Mean 20.6 1.60
75th Percentile 21.1 1.93
25th Percentile 10.3 1.03
</TABLE>
- ----------------------
Salomon Brothers
----------------------
(a) Premium to market one month prior to public announcement.
(b) Represents a private transaction.
53
