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, 1999
ALLMERICA FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 1-137540 4-3263626
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of 04-3263626 I.D.Number)
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 10 pages
Exhibit Index on page 4
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Item 5. Other Events.
On February 4, 1999, Allmerica Financial Corporation announced its
financial results for the fourth quarter and full-year 1998 and
expectation of a $44.5 million charge in the first quarter of 1999
due to severe winter storms and adverse weather. A copy of the press
release is attached as Exhibit 99 and is incorporated by reference
herein.
CAUTIONARY STATEMENT FOR THE PURPOSES OF THE `SAFE HARBOR' PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Forward-Looking Statements
The Company wishes to caution readers that the following important
factors, among others, in some cases have affected and in the future
could affect, the Company's actual results and could cause the Company's
actual results for 1997 and beyond to differ materially from those
expressed in any forward-looking statements made by, or on behalf of,
the Company. When used in the attached press release, words such as
"believes", "anticipated", "expects" and similar expressions are
intended to identify forward looking statements. See "Important
Factors Regarding Forward-Looking Statements" filed as Exhibit 99-2
to the Company's Annual Report on Form 10-K for the period ended
December 31, 1997.
Factors that may cause actual results to differ materially from those
contemplated or projected, forecast, estimated or budgeted in such
forward looking statements include among others, the following
possibilities: (i) adverse catastrophe experience and severe weather;
(ii) adverse loss development for events the Company insured in prior
years or adverse trends in mortality and morbidity; (iii) heightened
competition, including the intensification of price competition, the
entry of new competitors, and the introduction of new products by new
and existing competitors; (iv) adverse state and federal legislation or
regulation, including decreases in rates, limitations on premium levels,
increases in minimum capital and reserve requirements, benefit mandates,
limitations on the ability to manage care and utilization, and tax
treatment of insurance and annuity products; (v) changes in interest
rates causing a reduction of investment income or in the market value
of interest rate sensitive investments; (vi) failure to obtain new
customers, retain existing customers or reductions in policies in force
by existing customers; (vii) higher service, administrative, or general
expense due to the need for additional advertising, marketing,
administrative or management information systems expenditures; (viii)
loss or retirement of key executives; (ix) increases in medical costs,
including increases in utilization, costs of medical services,
pharmaceuticals, durable medical equipment and other covered items; (x)
termination of provider contracts or renegotiations at less
cost-effective rates or terms of payment; (xi) changes in the
Company's liquidity due to changes in asset and liability matching;
(xii) restrictions on insurance underwriting, based on genetic testing
and other criteria; (xiii) adverse changes in the ratings obtained
from independent rating agencies, such as Moody's, Standard and Poor's,
A.M. Best, and Duff & Phelps; (xiv) lower appreciation on and decline
in value of managed investments, resulting in reduced variable
products, assets and related fees; (xv) possible claims relating to
sales practices for insurance products; and (xvi) uncertainty related
to the Year 2000 issue.
Item 7. Financial Statements and Exhibits.
Exhibit 99 Press Release dated February 4, 1999, announcing
Allmerica Financial Corporation fourth quarter and
full-year 1998 financial results and expectation of a $44.5
million charge in the first quarter of 1999 due to
severe winter storms and adverse weather.
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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 5, 1999
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Exhibit Index
Exhibit 99 Press Release dated February 4, 1999, announcing Allmerica
Financial Corporation fourth quarter and full-year 1998
Financial results and expectation of a $44.5 million charge
in the first quarter of 1999 due to severe winter storms and
adverse weather.
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EXHIBIT 99
ALLMERICA FINANCIAL CORPORATION REPORTS
$3.60 OPERATING EARNINGS PER SHARE FOR 1998
WORCESTER, Mass., February 4, 1999 - Allmerica Financial Corporation
(NYSE:AFC) today reported record operating earnings for the fourth
quarter and full-year 1998.
Fourth quarter highlights:
Net operating income increased to $67.6 million, or $1.13 per share,
from $55.7 million, or $0.93 per share in 1997. Net operating income
excludes net realized investment gains and losses and other
non-recurring gains and charges, net of taxes.
Asset Accumulation pre-tax operating earnings were $49.5 million, up 25
percent from $39.6 million for the same period in 1997.
Variable annuity sales increased to $707.3 million, from $670.0 million
in the same quarter of 1997.
Risk Management pre-tax operating earnings were $54.2 million, down from
the $62.0 million reported in the fourth quarter of 1997. This decline
is principally due to lower operating results in Corporate Risk
Management Services (CRMS). CRMS had pre-tax operating earnings of
$0.8 million, versus $8.1 million in the fourth quarter of 1997, due
to a higher claims ratio and increased operating expenses.
Net income was $65.9 million, or $1.10 per share, compared to $94.9
million, or $1.58 per share in 1997. Fourth quarter 1998 net income
includes a charge of $8.4 million, net of taxes, for certain
restructuring expenses. This charge relates to actions taken in the
Risk Management business to exit CRMS' administrative services only
business, close certain sales offices and take additional expense
reductions in the home office. Further, property and casualty
operations consolidated field support activities from fourteen
regional branches into three hub locations. 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, and a $2.0 million charge net of taxes, for other
restructuring and non-operating items.
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Full-year highlights:
Net operating income increased to $216.9 million in 1998, or $3.60 per
share, up from $181.0 million, or $3.30 per share in 1997.
Asset Accumulation pre-tax operating income was $190.4 million, a 24
percent increase from $153.0 million in 1997.
Variable annuity sales increased 32 percent to $3.2 billion, up from
$2.4 billion in 1997.
Risk Management pre-tax operating income for the year was $159.0
million, down from $199.9 million for the full year 1997. This
decrease is principally the result of catastrophe losses which
increased by $63.8 million on a year-to-year basis, and a decrease
of $19.4 million in operating results from the CRMS unit, offset by
reductions in expenses.
1998 net income was $201.2 million, or $3.33 per share, a decrease from
$209.2 million, or $3.82 per share in 1997. Basic net income per share
was $3.36 and $3.83, respectively, for the years ended December 31,
1998 and 1997.
Full-year 1998 net income includes the following non-operating items:
A gain of $29.9 million for net realized gains on investments, net of
taxes, minority interest and amortization
A charge of $20.2 million for sales practice litigation expense, net of
taxes
A charge of $16.4 million from exiting reinsurance pools, net of taxes
Restructuring charges of $8.4 million, net of taxes and minority interest
Other non-operating items totaling $0.6 million, net of taxes
Full year 1997 net income includes the following non-operating items:
A gain of $37.5 million for net realized gains on investments, net of
taxes, minority interest and amortization
A loss of $35.0 million from cession of disability income business, net
of taxes
A gain of $30.5 million from a change in mortality assumptions, net of
taxes
Restructuring charges and other non-operating items totaling $4.8
million, net of taxes and minority interest
"Our fourth year of record operating earnings illustrate that our
basic strategies are sound," said John F. O'Brien, president and chief
executive officer of Allmerica Financial Corporation. "Excessive
weather-related catastrophe losses were the principal cause of our
lower earnings in the Risk Management segment. However, we made
solid progress in our Asset Accumulation business which reported
another year of record growth and profits."
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Segment Results
Allmerica Financial operates in two primary businesses: Asset
Accumulation and Risk Management. Asset Accumulation 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 Insurance Company of America. Risk
Management also markets group life and health benefit solutions.
Asset Accumulation
Fourth quarter pre-tax operating earnings for the Asset Accumulation
business increased to $49.5 million from $39.6 million in 1997.
Full-year Asset Accumulation pre-tax operating earnings increased
24 percent, to $190.4 million, compared to $153.0 million in 1997.
Allmerica Financial Services' pre-tax operating earnings increased to
$42.8 million in the quarter, up from $35.0 million in the fourth
quarter of 1997. Full-year pre-tax operating earnings were $166.7
million in 1998, up 24 percent from $134.6 million in 1997.
Allmerica Asset Management's fourth quarter pre-tax operating earnings
were $6.7 million, a 46 percent increase, from $4.6 million in the same
period in the prior year. Full-year pre-tax operating earnings in 1998
grew to $23.7 million, from $18.4 million in 1997.
Asset Accumulation highlights:
Variable annuity sales reached a record $3.2 billion in 1998, up from
$2.4 billion in 1997.
Variable life insurance sales were up 16 percent, to $21.4 million in
the quarter, and increased 11 percent, to $74.8 million for the
full-year 1998.
Variable product fees of $56.1 million were up nearly 32 percent over
the 1997 fourth quarter, and up 40 percent for the year to $201.7
million. Increased fees are related to variable product asset growth
resulting from strong sales and stock market appreciation.
Variable product assets grew to $13.7 billion at December 31, 1998,
up 40 percent from $9.8 billion at year-end 1997.
Allmerica Asset Management's funding agreement sales for the year were
$1.1 billion.
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Risk Management
Risk Management pre-tax operating earnings were $54.2 million, compared
to $62.0 million for the fourth quarter of 1997. Pre-tax catastrophe
losses were $7.9 million in the quarter, up from $0.6 million in 1997.
Full-year Risk Management pre-tax operating earnings were $159.0
million in 1998, compared to $199.9 million in 1997, reflecting full
year over year increased catastrophe losses of $63.8 million, and a
decrease in CRMS profits of $19.4 million.
Property and casualty pre-tax operating earnings were $53.4 million
in the fourth quarter of 1998, compared to $53.9 million in 1997.
Full-year property and casualty pre-tax operating earnings were
$151.4 million in 1998, down from $172.9 million in 1997.
Risk Management highlights:
Net written premiums were $455.1 million and $483.9 million for the
fourth quarters of 1998 and 1997, respectively. Full year net written
premiums were $2.0 billion in both 1998 and 1997. Net written
premiums, adjusted for exit states and the discontinuance of Allmerica
Re increased by approximately 4.6% on a year-over-year basis.
Net premiums earned were $489.8 million in the quarter, bringing
full-year 1998 earned premium to $2.0 billion.
Policy acquisition and other underwriting expenses in the quarter
decreased $15.1 million from the prior year due primarily to lower
technology and employee-related costs. The statutory expense ratio
improved by 1.1 points to 28.9 percent in the quarter, down from
30.0 percent in the same period in 1997. The full-year statutory
expense ratio was 28.5 percent in 1998, compared to 30.0 percent in
1997.
Corporate
Corporate segment net expenses were $15.3 million in the fourth
quarter of 1998, compared to $17.2 million in 1997. Full-year
corporate net expenses were $50.9 million and $48.0 million in
1998 and 1997, respectively.
Investment Results
Net investment income, including the Closed Block, was $175.1 million
for the fourth quarter of 1998, compared to $168.5 million in the same
period in 1997. This increase was due to higher average invested assets
and lower investment expenses, partially offset by lower portfolio
yields. Full-year 1998 net investment income, including the Closed
Block, was $677.5 million, compared to $706.8 million in 1997. This
decline is due to a shift from the general account to separate
account business and the disposal of Allmerica's individual disability
income business.
Fourth quarter net realized investment gains were $10.4 million,
compared to $19.5 million in 1997. Full-year 1998 net realized
investment gains were $60.9 million, down from $76.2 million in 1997.
During 1998, 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.
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Balance Sheet
Shareholders' equity was $2.5 billion, or $41.95 per share at
December 31, 1998, compared to $2.4 billion, or $39.71 per share
at December 31, 1997. Excluding the impact of SFAS No. 115, book
value was $38.87 per share at the close of the fourth quarter,
compared to $36.08 per share at December 31, 1997.
Total assets were $27.6 billion at December 31, 1998, up from $22.5
billion at year-end 1997. Separate account assets increased to $13.7
billion at December 31, 1998, up from $9.8 billion at December 31,
1997.
Additional Items
As a result of several winter snow storms and adverse weather that
struck the Midwest, Northeast, and the South, Allmerica Financial
sustained pre-tax catastrophe losses estimated at $44.5 million in
January, 1999.
As of February 4, 1999 Allmerica Financial had repurchased 2,522,700
shares of its common stock for an aggregate cost of approximately
$137.7 million.
At December 31, 1998 Allmerica Financial had common equity securities
carried at $397.1 million. In January, 1999 the Company sold
approximately $340 million at a gain, after taxes, of approximately
$88.5 million.
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
Henry P. St. Cyr Michael F. Buckley
(508) 855-2959 (508) 855-3099
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<TABLE>
<CAPTION>
ALLMERICA FINANCIAL CORPORATION
(In millions, except per share data)
Quarter ended Year ended
December 31 December 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $65.9 $94.9 $201.2 $209.2
Net income per share $1.10 $1.58 $3.33 $3.82
Weighted average shares 59.9 60.2 60.3 54.8
</TABLE>
The following is a reconciliation from net operating income to net
income per share:
<TABLE>
<CAPTION>
PER SHARE DATA (DILUTED) <F2>
Quarter ended Year ended
December 31 December 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net operating income <F1> $1.13 $0.93 $3.60 $3.30
Net realized gains on
investments, net of taxes,
minority interest and
amortization 0.11 0.18 0.49 0.68
Sales practice litigation
expense, net of taxes 0 0 (0.33) 0
Loss from exiting reinsurance
pool, net of taxes 0 0 (0.27) 0
Loss from cession of
disability income business,
net of taxes 0 0 0 (0.63)
Gain from change in mortality
assumptions, net of taxes 0 0.51 0 0.56
Restructuring charges, net of
taxes and minority interest (0.14) (0.03) (0.15) (0.08)
Other non-operating items,
net of taxes 0 (0.01) (0.01) (0.01)
----- ----- ----- -----
Net income $1.10 $1.58 $3.33 $3.82
===== ===== ===== =====
<FN>
<F1> Net operating income excludes net realized gains and losses and
other items which management believes are not indicative of overall
operating trends, all net of taxes and minority interest.
<F2> Basic net income per share was $1.11 for the quarter ended
December 31, 1998 and $3.36 and $3.83 for the years ended December 31,
1998 and 1997, respectively. For the quarter ended December 31, 1997,
basic and diluted net income per share are the same.
</FN>
</TABLE>
All figures reported are unaudited and are in accordance with generally
accepted accounting principles.
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