UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to
Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): February 5, 1998
ALLMERICA FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 1-13754 04-3263626
(State or other (Commission File (I.R.S. Employer I.D.
jurisdiction Number) Number)
of Incorporation)
440 Lincoln Street, Worcester, Massachusetts 01653
(Address of Principal Executive Offices)
(Zip Code)
(508) 855-1000
(Registrant's Telephone Number including area code)
Page 1 of 8 pages
Exhibit Index on page 4
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Item 5. Other Events.
On February 5, 1998, Allmerica Financial Corporation announced that first
quarter results will be negatively impacted by an estimated $12 million in
pre-tax catastrophe losses resulting from a severe winter ice storm which
struck Maine during January. The charge is expected to result in a reduction
of first quarter earnings per share for Allmerica Financial Corporation of
approximately thirteen cents. A copy of the press release is attached as
Exhibit 99 and is incorporated by reference herein.
Item 7. Financial Statements and Exhibits.
Exhibit 99 Press Release dated February 5, 1998, announcing Allmerica
Financial Corporation's fourth quarter 1997 results and expectation of a $12
million charge in the first quarter of 1998 due to a severe winter ice storm.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ALLMERICA FINANCIAL
CORPORATION
By: /s/ Edward J. Parry III,
Edward J. Parry III
Vice President, Chief Financial
Officer, and Treasurer
Date: February 10, 1998
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Exhibit Index
Exhibit 99 Press Release dated February 5, 1998, announcing Allmerica
Financial Corporation's fourth quarter 1997 results and expectation of a $12
million charge in the first quarter of 1998 due to a severe winter ice storm.
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EXHIBIT 99
ALLMERICA FINANCIAL CORPORATION REPORTS
$3.30 OPERATING EARNINGS PER SHARE FOR 1997
WORCESTER, Mass., February 5, 1998 - Allmerica Financial Corporation
(NYSE: AFC) today reported record operating earnings for the fourth quarter
and full-year 1997.
Fourth quarter highlights:
Net operating income increased to $55.7 million, or $0.93 per share,
from $36.6 million, or $0.73 per share in 1996. Net operating income
excludes net realized investment gains and losses and other
non-recurring gains and charges, net of taxes and minority interest.
Pre-tax operating earnings were up 30 percent in both the Asset
Management and Risk Management businesses.
Strong property and casualty earnings resulted from increased earned
premiums, decreased expenses, and lower catastrophe losses over the
prior year.
Variable annuity sales continued their record pace, increasing 68
percent to $670 million, from $398 million in 1996.
Net income was $94.9 million, or $1.58 per share, compared to $45.3
million, or $0.91 per share in 1996. The 1997 quarter includes a gain
of $30.5 million, net of taxes, related to the reinsurance of the
mortality risk for universal life and variable universal life blocks of
business.
Full-year highlights:
Net operating income was $181.0 million in 1997, or $3.30 per share, up
from $137.9 million, or $2.75 per share in 1996.
Variable annuity sales reached $2.4 billion, up 83 percent from 1996.
Net income increased to $209.2 million, or $3.82 per share, from $181.9
million, or $3.63 per share in 1996. Basic net income per share was
$3.83 for the year ended December 31, 1997. For all other periods,
basic and diluted net income per share are the same.
"Our continued focus on growth strategies during the year drove record
earnings in 1997," said John F. O'Brien, president and chief executive
officer of Allmerica Financial Corporation. "In 1998, we will maintain our
focus on expanding distribution,enhancing product offerings, reducing
expenses, and making greater use of new technology to improve service."
Segment Results
Allmerica Financial operates in two primary businesses: Asset Management
and Risk Management. Asset Management markets insurance and retirement
savings products and services to individual and institutional clients. Risk
Management markets property and casualty insurance products on a regional
basis through The Hanover Insurance Company and Citizens Corporation (NYSE:
CZC). Risk management also markets employee benefit management solutions.
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Operating results reflect 100 percent ownership of Allmerica P&C since
July 16, as well as the company's 82.5 percent ownership interest in Citizens.
In the segment reviews that follow, results are reported on a pre-tax basis,
before minority interest in Citizens.
Asset Management
Fourth quarter operating earnings for the Asset Management business
increased $7.9 million to $34.9 million in 1997. Full-year Asset
Management earnings were up 33 percent, to $138.3 million, compared to
$104.1 million in 1996.
Retail Financial Services' operating earnings increased to $20.4 million
in the quarter, up from $18.6 million in the fourth quarter of 1996.
Full-year retail operating earnings were $94.8 million in 1997, up 28
percent from $74.2 million in 1996.
Institutional Services' fourth quarter operating earnings were $14.2 million,
compared to $7.8 million in the same period in the prior year. Full-year
institutional operating earnings in 1997 grew to $42.1 million, from $28.8
million in 1996.
Asset Management highlights:
Retail variable annuity sales reached a record $2.4 billion in 1997, up
from $1.3 billion in 1996.
Variable life insurance sales were up 18 percent, to $39.9 million in the
quarter, and grew 27 percent, to $148.8 million for the full-year 1997.
Retail variable product fees of $42.2 million were up nearly 50 percent
over the 1996 fourth quarter, and up 43 percent for the year. Increased
fees are related to variable product asset growth resulting from strong
sales and stock market appreciation.
Retail variable product assets grew to $7.9 billion at December 31, 1997,
compared to $4.8 billion at year-end 1996. Including institutional
deposits, total separate account balances grew 57 percent since year end
1996, to $9.8 billion.
Fourth quarter institutional operating earnings benefitted from continued
separate account asset growth, lower operating expenses, and higher
guaranteed investment contract (GIC) margins.
Risk Management
Risk Management operating earnings grew to $56.7 million, up from $43.7
million for the fourth quarter of 1996. Full-year Risk Management operating
earnings were $177.7 million in 1997, compared to $171.2 million in 1996.
Property and casualty operating earnings were $51.1 million in the fourth
quarter of 1997, compared to $34.3 million in 1996. Full-year property and
casualty operating earnings were $158.2 million in 1997, up from $150.8
million in 1996. Corporate Risk Management Services' fourth quarter 1997
operating earnings were $5.6 million,versus $9.4 million in 1996, bringing
full-year 1997 Corporate Risk operating earnings to $19.5 million, compared
to $20.4 million in 1996.
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Risk Management highlights:
Net premiums earned were $498.7 million in the quarter, up $7.9 million
from 1996, bringing full-year 1997 earned premium to more than $1.95
billion.
Policy acquisition and other underwriting expenses in the quarter
decreased $5.7 million from the prior year due primarily to lower
technology and employee-related costs. The statutory expense ratio
improved by 4.3 points to 30.0 in the quarter, down from 34.3 in the
same 1996 period. The full-year statutory expense ratio was 30.0 in
1997, compared to 31.6 in 1996.
Pre-tax catastrophe losses were $0.6 million in the quarter, down from
$4.4 million in 1996.
Continued quarterly growth in Corporate Risk dental product premiums and
administrative service contract fees was more than offset by less
favorable loss experience, primarily in the life, long-term disability
and reinsurance pool lines,and increased expenses.
Corporate
Corporate segment net expenses were $13.2 million in the fourth quarter
of 1997, compared to $4.1 million in 1996. Both periods included $3.8
million of interest on long-term debt. Fourth quarter 1997 included $6.2
million of dividends paid on capital securities issued in February 1997.
Full-year corporate net expenses were $33.5 million and $15.9 million in 1997
and 1996, respectively.
Investment Results
Net investment income, including the Closed Block, was $168.5 million
for the fourth quarter of 1997, compared to $184.0 million in the same 1996
period. The decrease primarily reflects lower income from investment
partnerships and the continued runoff of GICs. Higher average invested
assets and portfolio yields in the property and casualty portfolio partially
offset the decreases. Full-year 1997 net investment income, including the
Closed Block, was $706.8 million, compared to $725.2 million in 1996.
Fourth quarter net realized investment gains were $10.7 million, after
taxes and minority interest, compared to $7.1 million last year. Full-year
1997 net realized investment gains were $37.5 million, up from $31.0 million
in 1996. During 1997, realized gains related principally to the sale of
appreciated equities in the property and casualty investment portfolio, gains
on fixed maturities in the Asset Management investment portfolio, and the
sale of real estate properties.
Balance Sheet
Shareholders' equity was $2.38 billion, or $39.71 per share at December
31,1997, compared to $1.72 billion, or $34.40 per share at December 31,
1996. Excluding the impact of SFAS No. 115, book value was $36.08 per share
at the close of the fourth quarter, compared to $31.78 per share at December
31, 1996.
Total assets were $22.5 billion at December 31, 1997, up from $19.0
billion at year-end 1996. Separate account assets increased to $9.8 billion
at December 31,1997, up from $6.2 billion at December 31, 1996.
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First Quarter 1998 Catastrophe
As a result of a severe winter ice storm that struck Maine during
January, Allmerica Financial, through its subsidiary The Hanover Insurance
Company, expects to incur an estimated $12 million in pre-tax catastrophe
losses, or 13 cents per share in the first quarter of 1998.
Other
During the fourth quarter, Allmerica Financial agreed to reinsure
approximately $18 billion of universal life and variable universal life
mortality risk to the Reinsurance Group of America (RGA), effective as of
January 1, 1998. As a result of this agreement, the mortality assumption
used in the amortization of deferred acquisition costs was adjusted. This
change in assumption produced a non-operating benefit to income of $47
million in the fourth quarter.
Interim information is unaudited.
Allmerica Financial Corporation is the holding company for a diversified
group of insurance and financial services companies headquartered in
Worcester, Mass.
CONTACTS: Investors Media
Jean Peters Michael F. Buckley
(508) 855-3599 (508) 855-3099
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