Exhibit 99.2
ALLMERICA FINANCIAL CORPORATION
STATISTICAL SUPPLEMENT
TABLE OF CONTENTS
Financial Highlights | 1-2 | |
Consolidated Financial Statements | ||
Income Statements | 3 | |
Balance Sheets | 4 | |
Property and Casualty | ||
Condensed Income Statements | 5 | |
Property and Casualty Consolidated Balance Sheets | 6 | |
Statutory Underwriting Results | 7-11 | |
Life Companies | ||
Condensed Income Statements | 12 | |
Life Companies Consolidated Balance Sheets | 13 | |
Segment Income by Product Line | 14-15 | |
Segment Income Excluding Certain Non-Cash Items | 16 | |
Selected Financial Information-Variable Annuities | 17 | |
Future Policy Benefits and Account Balances | 18 | |
Investments | ||
Net Investment Income | 19 | |
Net Realized Investment Gains (Losses) | 20 | |
Unrealized Losses | 21 | |
Credit Quality of Fixed Maturities | 22 | |
Historical Financial Highlights | 23-24 | |
Other Information | Inside back cover | |
Corporate Information | ||
Market and Dividend Information | ||
Industry Ratings |
ALLMERICA FINANCIAL CORPORATION
FINANCIAL HIGHLIGHTS
Quarter ended September 30 | Nine Months ended September 30 | |||||||||||||||||||||
(In millions, except per share data) | 2004 | 2003 | % Change | 2004 | 2003 | % Change | ||||||||||||||||
SEGMENT INCOME | ||||||||||||||||||||||
Property and Casualty | ||||||||||||||||||||||
Personal Lines | $ | 42.1 | $ | 11.5 | N/M | $ | 88.7 | $ | 9.0 | N/M | ||||||||||||
Commercial Lines | (7.1 | ) | 18.1 | N/M | 32.0 | 92.7 | (65.5 | ) | ||||||||||||||
Other | 1.7 | 2.6 | (34.6 | ) | 3.7 | (18.0 | ) | N/M | ||||||||||||||
Total Property and Casualty | 36.7 | 32.2 | 14.0 | 124.4 | 83.7 | 48.6 | ||||||||||||||||
Life Companies | (8.7 | ) | (8.1 | ) | 7.4 | (5.2 | ) | 3.0 | N/M | |||||||||||||
Interest expense on corporate debt | (10.0 | ) | (10.0 | ) | — | (29.9 | ) | (29.9 | ) | — | ||||||||||||
Total segment income | 18.0 | 14.1 | 27.7 | 89.3 | 56.8 | 57.2 | ||||||||||||||||
Federal income tax benefit (expense) on segment income | 1.6 | 5.6 | (71.4 | ) | (7.4 | ) | 5.3 | N/M | ||||||||||||||
Total segment income after taxes | $ | 19.6 | $ | 19.7 | (0.5 | ) | $ | 81.9 | $ | 62.1 | 31.9 | |||||||||||
RECONCILIATION FROM SEGMENT INCOME TO NET INCOME | ||||||||||||||||||||||
Total segment income after taxes | $ | 19.6 | $ | 19.7 | (0.5 | ) | $ | 81.9 | $ | 62.1 | 31.9 | |||||||||||
Federal income tax settlement | — | — | — | 30.3 | — | N/M | ||||||||||||||||
Net realized investment (losses) gains, net of taxes and amortization | (3.7 | ) | (8.2 | ) | (54.9 | ) | 10.9 | 6.4 | 70.3 | |||||||||||||
Gains on derivative instruments, net of taxes | 0.1 | 0.3 | (66.7 | ) | 0.3 | 0.9 | (66.7 | ) | ||||||||||||||
Gains (losses) from retirement of funding agreements and trust instruments supported by funding obligations, net of taxes | 1.9 | 0.4 | N/M | (0.2 | ) | 3.7 | N/M | |||||||||||||||
Restructuring costs, net of taxes | (0.2 | ) | (0.8 | ) | (75.0 | ) | (3.8 | ) | (3.8 | ) | — | |||||||||||
Income from sale of universal life business, net of taxes | — | — | — | — | 3.6 | N/M | ||||||||||||||||
Income before effect of accounting change | 17.7 | 11.4 | 55.3 | 119.4 | 72.9 | 63.8 | ||||||||||||||||
Cumulative effect of change in accounting principle, net of taxes | — | — | — | (57.2 | ) | — | N/M | |||||||||||||||
Net income | $ | 17.7 | $ | 11.4 | 55.3 | $ | 62.2 | $ | 72.9 | (14.7 | ) | |||||||||||
PER SHARE DATA (DILUTED) | ||||||||||||||||||||||
Total segment income | $ | 0.34 | $ | 0.26 | 30.8 | $ | 1.67 | $ | 1.07 | 56.1 | ||||||||||||
Federal income taxes on segment income | 0.03 | 0.11 | (72.7 | ) | (0.14 | ) | 0.10 | N/M | ||||||||||||||
Total segment income after taxes | 0.37 | 0.37 | — | 1.53 | 1.17 | 30.8 | ||||||||||||||||
Federal income tax settlement | — | — | — | 0.56 | — | N/M | ||||||||||||||||
Net realized investment (losses) gains, net of taxes and amortization | (0.07 | ) | (0.16 | ) | (56.3 | ) | 0.20 | 0.12 | 66.7 | |||||||||||||
Gains on derivative instruments, net of taxes | — | 0.01 | N/M | — | 0.02 | N/M | ||||||||||||||||
Gains (losses) from retirement of funding agreements and trust instruments supported by funding obligations, net of taxes | 0.03 | 0.01 | N/M | — | 0.07 | N/M | ||||||||||||||||
Restructuring costs, net of taxes | — | (0.02 | ) | N/M | (0.07 | ) | (0.07 | ) | — | |||||||||||||
Income from sale of universal life business, net of taxes | — | — | — | — | 0.06 | N/M | ||||||||||||||||
Income before effect of accounting change | 0.33 | 0.21 | 57.1 | 2.22 | 1.37 | 62.0 | ||||||||||||||||
Cumulative effect of change in accounting principle, net of taxes | — | — | — | (1.06 | ) | — | N/M | |||||||||||||||
Net income | $ | 0.33 | $ | 0.21 | 57.1 | $ | 1.16 | $ | 1.37 | (15.3 | ) | |||||||||||
1
ALLMERICA FINANCIAL CORPORATION
FINANCIAL HIGHLIGHTS
(In millions, except per share data) | September 30 2004 | December 31 2003 | % Change | ||||||||
BALANCE SHEET | |||||||||||
Shareholders’ equity | |||||||||||
The Hanover Insurance Company (consolidated) | $ | 1,633.9 | $ | 1,545.6 | 5.7 | ||||||
Allmerica Financial Life Insurance and Annuity Company (consolidated) | 1,190.2 | 1,194.9 | (0.4 | ) | |||||||
AFC Holding Company and other | (529.9 | ) | (520.3 | ) | 1.8 | ||||||
Total shareholders’ equity | $ | 2,294.2 | $ | 2,220.2 | 3.3 | ||||||
Total adjusted statutory capital | |||||||||||
The Hanover Insurance Company (consolidated) | $ | 1,076.2 | $ | 1,001.6 | 7.4 | ||||||
Allmerica Financial Life Insurance and Annuity Company (consolidated) | $ | 610.7 | $ | 553.4 | 10.4 | ||||||
First Allmerica Financial Life Insurance Company | $ | 198.7 | $ | 176.6 | 12.5 | ||||||
The Hanover Insurance Company (consolidated) premium to surplus ratio | 2.1:1 | 2.2:1 | N/M | ||||||||
Allmerica Financial Life Insurance and Annuity Company (consolidated) estimated risk based capital ratio | 465 | % | 365 | % | 100.0 | ||||||
Book value per share | |||||||||||
The Hanover Insurance Company (consolidated) | $ | 30.69 | $ | 29.16 | 5.2 | ||||||
Allmerica Financial Life Insurance and Annuity Company (consolidated) | 22.36 | 22.55 | (0.8 | ) | |||||||
AFC Holding Company and other | (9.96 | ) | (9.82 | ) | 1.4 | ||||||
Total book value per share | $ | 43.09 | $ | 41.89 | 2.9 | ||||||
Book value per share, excluding accumulated other comprehensive income | $ | 42.69 | $ | 41.59 | 2.6 | ||||||
Shares outstanding (1) | 53.2 | 53.0 | |||||||||
Stock price | $ | 26.88 | $ | 30.77 | (12.6 | ) | |||||
Price/book value per share | 0.6 x | 0.7 x | (0.1 | ) x | |||||||
Debt/equity | 22.2 | % | 22.5 | % | (0.3 | ) pts | |||||
Debt/total capital | 18.2 | % | 18.4 | % | (0.2 | ) pts |
(1) | Shares outstanding do not include common stock equivalents. |
2
ALLMERICA FINANCIAL CORPORATION
CONSOLIDATED INCOME STATEMENTS
Quarter ended September 30 | Nine Months ended September 30 | |||||||||||||||||||||
(In millions, except per share data) | 2004 | 2003 | % Change | 2004 | 2003 | % Change | ||||||||||||||||
REVENUES | ||||||||||||||||||||||
Premiums | $ | 569.9 | $ | 568.2 | 0.3 | $ | 1,718.7 | $ | 1,711.8 | 0.4 | ||||||||||||
Universal life and investment product policy fees | 67.2 | 75.8 | (11.3 | ) | 214.6 | 242.7 | (11.6 | ) | ||||||||||||||
Net investment income | 104.2 | 110.5 | (5.7 | ) | 315.1 | 346.6 | (9.1 | ) | ||||||||||||||
Net realized investment (losses) gains | (4.4 | ) | (8.0 | ) | (45.0 | ) | 18.3 | 18.4 | (0.5 | ) | ||||||||||||
Other income | 22.7 | 42.7 | (46.8 | ) | 73.3 | 143.4 | (48.9 | ) | ||||||||||||||
Total revenues | 759.6 | 789.2 | (3.8 | ) | 2,340.0 | 2,462.9 | (5.0 | ) | ||||||||||||||
BENEFITS, LOSSES AND EXPENSES | ||||||||||||||||||||||
Policy benefits, claims, losses and loss adjustment expenses | 473.6 | 473.5 | — | 1,389.1 | 1,457.8 | (4.7 | ) | |||||||||||||||
Policy acquisition expenses | 158.4 | 146.8 | 7.9 | 458.1 | 460.3 | (0.5 | ) | |||||||||||||||
(Gains) losses from retirement of funding agreements and trust instruments supported by funding obligations | (2.9 | ) | (0.7 | ) | N/M | 0.3 | (5.7 | ) | N/M | |||||||||||||
Income from sale of universal life business | — | — | — | — | (5.5 | ) | N/M | |||||||||||||||
(Gains) losses on derivative instruments | (0.9 | ) | 1.1 | N/M | 0.4 | 1.6 | (75.0 | ) | ||||||||||||||
Restructuring costs | 0.3 | 1.2 | (75.0 | ) | 5.8 | 5.8 | — | |||||||||||||||
Other operating expenses | 115.2 | 163.4 | (29.5 | ) | 386.6 | 477.5 | (19.0 | ) | ||||||||||||||
Total benefits, losses and expenses | 743.7 | 785.3 | (5.3 | ) | 2,240.3 | 2,391.8 | (6.3 | ) | ||||||||||||||
Income before federal income taxes | 15.9 | 3.9 | N/M | 99.7 | 71.1 | 40.2 | ||||||||||||||||
Federal income tax benefit | (1.8 | ) | (7.5 | ) | (76.0 | ) | (19.7 | ) | (1.8 | ) | N/M | |||||||||||
Income before cumulative effect of change in accounting principle | 17.7 | 11.4 | 55.3 | 119.4 | 72.9 | 63.8 | ||||||||||||||||
Cumulative effect of change in accounting principle | — | — | — | (57.2 | ) | — | N/M | |||||||||||||||
Net income | $ | 17.7 | $ | 11.4 | 55.3 | $ | 62.2 | $ | 72.9 | (14.7 | ) | |||||||||||
PER SHARE DATA (DILUTED) | ||||||||||||||||||||||
Income before cumulative effect of change in accounting principle | $ | 0.33 | $ | 0.21 | 57.1 | $ | 2.22 | $ | 1.37 | 62.0 | ||||||||||||
Cumulative effect of change in accounting principle | — | — | — | (1.06 | ) | — | N/M | |||||||||||||||
Net income (1) | $ | 0.33 | $ | 0.21 | 57.1 | $ | 1.16 | $ | 1.37 | (15.3 | ) | |||||||||||
Weighted average shares outstanding | 53.6 | 53.3 | 53.7 | 53.1 | ||||||||||||||||||
(1) | Basic net income per share was $0.33 and $0.22 for the quarters ended September 30, 2004 and 2003, respectively and $1.17 and $1.38 for the nine months ended September 30, 2004 and 2003, respectively. |
3
ALLMERICA FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(In millions, except per share data) | September 30, 2004 | December 31, 2003 | % Change | ||||||||
ASSETS | |||||||||||
Investments: | |||||||||||
Fixed maturities, at fair value (amortized cost of $7,511.2 and $7,346.3) | $ | 7,788.7 | $ | 7,646.5 | 1.9 | ||||||
Equity securities, at fair value (cost of $13.7 and $9.1) | 15.9 | 15.3 | 3.9 | ||||||||
Mortgage loans | 127.5 | 175.1 | (27.2 | ) | |||||||
Policy loans | 258.2 | 268.0 | (3.7 | ) | |||||||
Other long-term investments | 62.8 | 80.7 | (22.2 | ) | |||||||
Total investments | 8,253.1 | 8,185.6 | 0.8 | ||||||||
Cash and cash equivalents | 217.6 | 380.5 | (42.8 | ) | |||||||
Accrued investment income | 119.0 | 126.5 | (5.9 | ) | |||||||
Premiums, accounts and notes receivable, net | 498.1 | 480.9 | 3.6 | ||||||||
Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums | 2,033.7 | 2,111.2 | (3.7 | ) | |||||||
Deferred policy acquistion costs | 926.1 | 1,115.5 | (17.0 | ) | |||||||
Deferred federal income taxes | 410.3 | 381.0 | 7.7 | ||||||||
Goodwill | 128.2 | 128.2 | — | ||||||||
Other assets | 434.9 | 367.7 | 18.3 | ||||||||
Separate account assets | 10,086.0 | 11,835.4 | (14.8 | ) | |||||||
Total assets | $ | 23,107.0 | $ | 25,112.5 | (8.0 | ) | |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
LIABILITIES | |||||||||||
Policy liabilities and accruals: | |||||||||||
Future policy benefits | $ | 3,561.3 | $ | 3,556.8 | 0.1 | ||||||
Outstanding claims, losses and loss adjustment expenses | 3,196.4 | 3,124.9 | 2.3 | ||||||||
Unearned premiums | 1,083.0 | 1,032.5 | 4.9 | ||||||||
Contractholder deposit funds and other policy liabilities | 377.2 | 683.7 | (44.8 | ) | |||||||
Total policy liabilities and accruals | 8,217.9 | 8,397.9 | (2.1 | ) | |||||||
Expenses and taxes payable | 844.4 | 822.7 | 2.6 | ||||||||
Reinsurance premiums payable | 107.6 | 136.5 | (21.2 | ) | |||||||
Trust instruments supported by funding obligations | 1,048.1 | 1,200.3 | (12.7 | ) | |||||||
Long-term debt | 508.8 | 499.5 | 1.9 | ||||||||
Separate account liabilities | 10,086.0 | 11,835.4 | (14.8 | ) | |||||||
Total liabilities | 20,812.8 | 22,892.3 | (9.1 | ) | |||||||
SHAREHOLDERS’ EQUITY | |||||||||||
Preferred stock, par value $.01 per share; authorized 20.0 million shares; issued none | — | — | — | ||||||||
Common stock, par value $.01 per share; authorized 300.0 million shares; issued 60.4 million shares | 0.6 | 0.6 | — | ||||||||
Additional paid-in capital | 1,782.0 | 1,775.6 | (0.4 | ) | |||||||
Accumulated other comprehensive income | 21.8 | 16.1 | 35.4 | ||||||||
Retained earnings | 882.1 | 833.1 | 5.9 | ||||||||
Treasury stock at cost (7.2 and 7.4 million shares) | (392.3 | ) | (405.2 | ) | (3.2 | ) | |||||
Total shareholders’ equity | 2,294.2 | 2,220.2 | 3.3 | ||||||||
Total liabilities and shareholders’ equity | $ | 23,107.0 | $ | 25,112.5 | (8.0 | ) | |||||
4
PROPERTY & CASUALTY
ALLMERICA FINANCIAL CORPORATION
PROPERTY AND CASUALTY
CONDENSED INCOME STATEMENTS
Quarter ended September 30 | Nine Months ended September 30 | |||||||||||||||||||||
(In millions) | 2004 | 2003 | % Change | 2004 | 2003 | % Change | ||||||||||||||||
REVENUES | ||||||||||||||||||||||
Net premiums written | $ | 581.6 | $ | 588.7 | (1.2 | ) | $ | 1,723.0 | $ | 1,710.2 | 0.7 | |||||||||||
Change in unearned premiums, net of prepaid reinsurance premiums | (17.9 | ) | (27.5 | ) | (34.9 | ) | (36.8 | ) | (33.0 | ) | 11.5 | |||||||||||
Net premiums earned | 563.7 | 561.2 | 0.4 | 1,686.2 | 1,677.2 | 0.5 | ||||||||||||||||
Net investment income | 48.0 | 45.3 | 6.0 | 146.0 | 138.2 | 5.6 | ||||||||||||||||
Other income | 13.0 | 12.9 | 0.8 | 39.4 | 42.5 | (7.3 | ) | |||||||||||||||
Total segment revenue | 624.7 | 619.4 | 0.9 | 1,871.6 | 1,857.9 | 0.7 | ||||||||||||||||
LOSSES AND OPERATING EXPENSES | ||||||||||||||||||||||
Policy benefits, claims, losses and loss adjustment | 404.4 | 411.3 | (1.7 | ) | 1,188.6 | 1,251.7 | (5.0 | ) | ||||||||||||||
Policy acquisition expenses | 118.5 | 113.7 | 4.2 | 353.1 | 338.6 | 4.3 | ||||||||||||||||
Other operating expenses | 65.1 | 62.2 | 4.7 | 205.5 | 183.9 | 11.7 | ||||||||||||||||
Total losses and operating expenses | 588.0 | 587.2 | 0.1 | 1,747.2 | 1,774.2 | (1.5 | ) | |||||||||||||||
Segment income before federal income taxes | $ | 36.7 | $ | 32.2 | 14.0 | $ | 124.4 | $ | 83.7 | 48.6 | ||||||||||||
(1) | Policy benefits, claims, losses and loss adjustment expenses for the nine months ended September 30, 2003 include a $21.9 million charge resulting from an adverse arbitration decision in the second quarter of 2003 related to an insurance pool in which one of Allmerica Financial Corporation's subsidiaries, The Hanover Insurance Company, was formerly a participant. |
5
ALLMERICA FINANCIAL CORPORATION
PROPERTY AND CASUALTY
CONSOLIDATED BALANCE SHEETS (1)
(In millions, except per share data) | September 30 2004 | December 31 2003 | % Change | ||||||
ASSETS | |||||||||
Investments: | |||||||||
Fixed maturities, at fair value (amortized cost of $3,649.1 and $3,383.9) | $ | 3,760.4 | $ | 3,506.2 | 7.3 | ||||
Equity securities, at fair value (cost of $0.9 and $2.9) | 2.1 | 5.1 | (58.8 | ) | |||||
Mortgage loans | 51.9 | 53.8 | (3.5 | ) | |||||
Other long-term investments | 0.6 | 0.7 | (14.3 | ) | |||||
Total investments | 3,815.0 | 3,565.8 | 7.0 | ||||||
Cash and cash equivalents | 100.8 | 113.0 | (10.8 | ) | |||||
Accrued investment income | 52.5 | 49.4 | 6.3 | ||||||
Premiums, accounts, and notes receivable, net | 497.4 | 477.2 | 4.2 | ||||||
Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums | 1,033.5 | 1,070.4 | (3.4 | ) | |||||
Deferred policy acquistion costs | 221.7 | 220.9 | 0.4 | ||||||
Deferred federal income tax asset | 181.6 | 160.8 | 12.9 | ||||||
Goodwill | 121.4 | 121.4 | — | ||||||
Other assets | 187.3 | 198.7 | (5.7 | ) | |||||
Total assets | $ | 6,211.2 | $ | 5,977.6 | 3.9 | ||||
LIABILITIES AND SHAREHOLDER’S EQUITY | |||||||||
LIABILITIES | |||||||||
Policy liabilities and accruals: | |||||||||
Outstanding claims, losses and loss adjustment expenses | $ | 3,083.3 | $ | 3,018.9 | 2.1 | ||||
Unearned premiums | 1,079.6 | 1,029.0 | 4.9 | ||||||
Contractholder deposit funds and other policy liabilities | 8.0 | 8.2 | (2.4 | ) | |||||
Total policy liabilities and accruals | 4,170.9 | 4,056.1 | 2.8 | ||||||
Expenses and taxes payable | 309.8 | 251.5 | 23.2 | ||||||
Reinsurance premiums payable | 96.6 | 124.4 | (22.3 | ) | |||||
Total liabilities | 4,577.3 | 4,432.0 | 3.3 | ||||||
SHAREHOLDER’S EQUITY | |||||||||
Common stock, par value $1.00 per share; authorized 20.9 million shares; issued 5.0 million shares | 5.0 | 5.0 | — | ||||||
Additional paid-in capital | 169.2 | 169.2 | — | ||||||
Accumulated other comprehensive income | 52.1 | 60.0 | (13.2 | ) | |||||
Retained earnings | 1,407.6 | 1,311.4 | 7.3 | ||||||
Total shareholder’s equity | 1,633.9 | 1,545.6 | 5.7 | ||||||
Total liabilities and shareholder’s equity | $ | 6,211.2 | $ | 5,977.6 | 3.9 | ||||
(1) | Property and Casualty Companies includes The Hanover Insurance Company and Citizens Insurance Company of America, and their subsidiaries. |
6
ALLMERICA FINANCIAL CORPORATION
PROPERTY AND CASUALTY
STATUTORY UNDERWRITING PROFIT (LOSS) RECONCILED TO SEGMENT INCOME (LOSS)
Quarter ended September 30, 2004 | Quarter ended September 30, 2003 | % Change | ||||||||||||||||||||||||||||||||||||||||||
(In millions) | Personal Lines | Commercial Lines | Other Property and Casualty | Total | Personal Lines | Commercial Lines | Other Property and Casualty | Total | Personal Lines | Commercial Lines | Other Property and Casualty | Total | ||||||||||||||||||||||||||||||||
Underwriting profit (loss), excluding prior year reserve development and catastrophes | $ | 29.2 | $ | 10.5 | $ | (1.3 | ) | $ | 38.4 | $ | (0.9 | ) | $ | 11.5 | $ | (0.2 | ) | $ | 10.4 | N/M | (8.7 | ) | N/M | N/M | ||||||||||||||||||||
Prior year reserve development (favorable) unfavorable | (7.0 | ) | 5.5 | — | (1.5 | ) | 6.2 | 9.1 | — | 15.3 | N/M | (39.6 | ) | — | N/M | |||||||||||||||||||||||||||||
Pre-tax catastrophe losses | 24.0 | 37.7 | — | 61.7 | 12.5 | 4.4 | — | 16.9 | 92.0 | N/M | — | N/M | ||||||||||||||||||||||||||||||||
Statutory underwriting profit (loss) | 12.2 | (32.7 | ) | (1.3 | ) | (21.8 | ) | (19.6 | ) | (2.0 | ) | (0.2 | ) | (21.8 | ) | N/M | N/M | N/M | — | |||||||||||||||||||||||||
Net investment income | 23.7 | 23.8 | 0.5 | 48.0 | 22.3 | 22.6 | 0.4 | 45.3 | 6.3 | 5.3 | 25.0 | 6.0 | ||||||||||||||||||||||||||||||||
Fee income | — | — | 6.1 | 6.1 | — | — | 6.7 | 6.7 | — | — | (9.0 | ) | (9.0 | ) | ||||||||||||||||||||||||||||||
Other statutory to GAAP adjustments | 6.2 | 1.8 | (3.6 | ) | 4.4 | 8.8 | (2.5 | ) | (4.3 | ) | 2.0 | (29.5 | ) | N/M | (16.3 | ) | N/M | |||||||||||||||||||||||||||
Segment income (loss) before federal income taxes | $ | 42.1 | $ | (7.1 | ) | $ | 1.7 | $ | 36.7 | $ | 11.5 | $ | 18.1 | $ | 2.6 | $ | 32.2 | N/M | N/M | (34.6 | ) | 14.0 | ||||||||||||||||||||||
Nine Months ended September 30, 2004 | Nine Months ended September 30, 2003 | % Change | ||||||||||||||||||||||||||||||||||||||||||
Personal Lines | Commercial Lines | Other Property and Casualty | Total | Personal Lines | Commercial Lines | Other Property and Casualty | Total | Personal Lines | Commercial Lines | Other Property and Casualty | Total | |||||||||||||||||||||||||||||||||
Underwriting profit (loss), excluding prior year reserve development and catastrophes | $ | 44.4 | $ | (2.2 | ) | $ | (3.4 | ) | $ | 38.8 | $ | (25.0 | ) | $ | 16.6 | $ | (1.8 | ) | $ | (10.2 | ) | N/M | N/M | 88.9 | N/M | |||||||||||||||||||
Prior year reserve development (favorable) unfavorable | (16.0 | ) | (4.2 | ) | — | (20.2 | ) | 18.9 | (25.8 | ) | 23.0 | 16.1 | N/M | (83.7 | ) | N/M | N/M | |||||||||||||||||||||||||||
Pre-tax catastrophe losses | 50.5 | 47.4 | — | 97.9 | 31.0 | 18.3 | — | 49.3 | 62.9 | N/M | — | 98.6 | ||||||||||||||||||||||||||||||||
Statutory underwriting profit (loss) | 9.9 | (45.4 | ) | (3.4 | ) | (38.9 | ) | (74.9 | ) | 24.1 | (24.8 | ) | (75.6 | ) | N/M | N/M | (86.3 | ) | (48.5 | ) | ||||||||||||||||||||||||
Net investment income | 72.0 | 72.4 | 1.6 | 146.0 | 67.9 | 68.8 | 1.5 | 138.2 | 6.0 | 5.2 | 6.7 | 5.6 | ||||||||||||||||||||||||||||||||
Fee income | — | — | 18.8 | 18.8 | — | — | 19.8 | 19.8 | — | — | (5.1 | ) | (5.1 | ) | ||||||||||||||||||||||||||||||
Other statutory to GAAP adjustments | 6.8 | 5.0 | (13.3 | ) | (1.5 | ) | 16.0 | (0.2 | ) | (14.5 | ) | 1.3 | (57.5 | ) | N/M | (8.3 | ) | N/M | ||||||||||||||||||||||||||
Segment income (loss) before federal income taxes | $ | 88.7 | $ | 32.0 | $ | 3.7 | $ | 124.4 | $ | 9.0 | $ | 92.7 | $ | (18.0 | ) | $ | 83.7 | N/M | (65.5 | ) | N/M | 48.6 | ||||||||||||||||||||||
7
ALLMERICA FINANCIAL CORPORATION
PROPERTY AND CASUALTY
STATUTORY UNDERWRITING RESULTS
Quarter ended September 30, 2004 | |||||||||||||||||||||||||||||||||||||||||
Personal Lines | Commercial Lines | ||||||||||||||||||||||||||||||||||||||||
(In millions) | Personal Automobile | Homeowners | Other Personal Lines | Total Personal Lines | Workers’ Compensation | Commercial Automobile | Commercial Multiple Peril | Other Lines | Total Commercial Lines | Other Property and Casualty | Total and Casualty | ||||||||||||||||||||||||||||||
Net premiums written | $ | 263.7 | $ | 119.9 | $ | 11.0 | $ | 394.6 | $ | 30.4 | $ | 47.1 | $ | 83.2 | $ | 26.3 | $ | 187.0 | $ | — | $ | 581.6 | |||||||||||||||||||
Net premiums earned | $ | 267.1 | $ | 103.0 | $ | 10.4 | $ | 380.5 | $ | 31.6 | $ | 45.7 | $ | 82.7 | $ | 23.2 | $ | 183.2 | $ | — | $ | 563.7 | |||||||||||||||||||
Policy benefits, claims, losses excluding prior year reserve development and catastrophe losses | 162.1 | 40.2 | 5.2 | 207.5 | 21.9 | 18.8 | 35.2 | 5.3 | 81.2 | 1.2 | 289.9 | ||||||||||||||||||||||||||||||
Prior year reserve development (favorable) unfavorable | (4.8 | ) | (2.3 | ) | 0.1 | (7.0 | ) | 4.5 | 1.9 | (4.8 | ) | 3.9 | 5.5 | — | (1.5 | ) | |||||||||||||||||||||||||
Pre-tax catastrophe losses | 1.2 | 22.1 | 0.7 | 24.0 | — | 0.1 | 36.5 | 1.1 | 37.7 | — | 61.7 | ||||||||||||||||||||||||||||||
Loss adjustment expenses excluding prior year reserve development | 24.0 | 9.8 | 0.3 | 34.1 | 4.5 | 3.6 | 11.8 | 1.6 | 21.5 | — | 55.6 | ||||||||||||||||||||||||||||||
Policy acquisition and other underwriting expenses | 109.7 | 70.5 | 0.1 | 180.3 | |||||||||||||||||||||||||||||||||||||
Policyholders’ dividends | — | (0.5 | ) | — | (0.5 | ) | |||||||||||||||||||||||||||||||||||
Statutory underwriting profit (loss) | $ | 12.2 | $ | (32.7 | ) | $ | (1.3 | ) | $ | (21.8 | ) | ||||||||||||||||||||||||||||||
Quarter ended September 30, 2003 | |||||||||||||||||||||||||||||||||||||||||
Personal Lines | Commercial Lines | ||||||||||||||||||||||||||||||||||||||||
Personal Automobile | Homeowners | Other Personal Lines | Total Personal Lines | Workers’ Compensation | Commercial Automobile | Commercial Multiple Peril | Other Commercial Lines | Total Commercial Lines | Other Property and Casualty | Total Property and Casualty | |||||||||||||||||||||||||||||||
Net premiums written | $ | 285.7 | $ | 116.7 | $ | 12.2 | $ | 414.6 | $ | 29.0 | $ | 44.0 | $ | 79.5 | $ | 22.3 | $ | 174.8 | $ | — | $ | 589.4 | |||||||||||||||||||
Net premiums earned | $ | 277.8 | $ | 95.8 | $ | 11.1 | $ | 384.7 | $ | 31.1 | $ | 45.1 | $ | 79.5 | $ | 21.3 | $ | 177.0 | $ | — | $ | 561.7 | |||||||||||||||||||
Policy benefits, claims, losses excluding prior year reserve development and catastrophe losses | 189.8 | 45.7 | 5.3 | 240.8 | 20.4 | 21.4 | 39.6 | 4.6 | 86.0 | 1.1 | 327.9 | ||||||||||||||||||||||||||||||
Prior year reserve development unfavorable (favorable) | 4.2 | 2.0 | — | 6.2 | 6.3 | (2.2 | ) | (3.1 | ) | 8.1 | 9.1 | — | 15.3 | ||||||||||||||||||||||||||||
Pre-tax catastrophe losses | 0.7 | 11.6 | 0.2 | 12.5 | — | — | 4.0 | 0.4 | 4.4 | — | 16.9 | ||||||||||||||||||||||||||||||
Loss adjustment expenses excluding prior year reserve development | 26.5 | 7.1 | 0.4 | 34.0 | 1.9 | 2.7 | 10.7 | 2.5 | 17.8 | (0.9 | ) | 50.9 | |||||||||||||||||||||||||||||
Policy acquisition and other underwriting expenses | 110.8 | 60.9 | — | 171.7 | |||||||||||||||||||||||||||||||||||||
Policyholders’ dividends | — | 0.8 | — | 0.8 | |||||||||||||||||||||||||||||||||||||
Statutory underwriting (loss) profit | $ | (19.6 | ) | $ | (2.0 | ) | $ | (0.2 | ) | $ | (21.8 | ) | |||||||||||||||||||||||||||||
8
ALLMERICA FINANCIAL CORPORATION
PROPERTY AND CASUALTY
STATUTORY UNDERWRITING RESULTS
Nine Months ended September 30, 2004 | |||||||||||||||||||||||||||||||||||||||||||
Personal Lines | Commercial Lines | ||||||||||||||||||||||||||||||||||||||||||
(In millions) | Personal Automobile | Homeowners | Other Personal Lines | Total Personal Lines | Workers’ Compensation | Commercial Automobile | Commercial Multiple Peril | Other Commercial Lines | Total Commercial Lines | Other Property and Casualty | Total Property and Casualty | ||||||||||||||||||||||||||||||||
Net premiums written | $ | 802.2 | $ | 312.0 | $ | 31.7 | $ | 1,145.9 | $ | 99.6 | $ | 145.0 | $ | 256.1 | $ | 76.8 | $ | 577.5 | $ | 0.2 | $ | 1,723.6 | |||||||||||||||||||||
Net premiums earned | $ | 808.0 | $ | 304.8 | $ | 32.0 | $ | 1,144.8 | $ | 95.0 | $ | 134.7 | $ | 242.2 | $ | 69.9 | $ | 541.8 | $ | 0.2 | $ | 1,686.8 | |||||||||||||||||||||
Policy benefits, claims, losses excluding prior year reserve development and catastrophe losses | 525.0 | 137.4 | 17.7 | 680.1 | 66.1 | 67.5 | 111.1 | 19.8 | 264.5 | 3.0 | 947.6 | ||||||||||||||||||||||||||||||||
Prior year reserve development (favorable) unfavorable | (10.4 | ) | (4.9 | ) | (0.7 | ) | (16.0 | ) | 6.5 | (4.5 | ) | (18.8 | ) | 12.6 | (4.2 | ) | — | (20.2 | ) | ||||||||||||||||||||||||
Pre-tax catastrophe losses | 1.9 | 47.2 | 1.4 | 50.5 | — | 0.2 | 46.6 | 0.6 | 47.4 | — | 97.9 | ||||||||||||||||||||||||||||||||
Loss adjustment expenses excluding prior year reserve development | 74.8 | 23.7 | 1.6 | 100.1 | 14.2 | 10.7 | 34.5 | 4.4 | 63.8 | 0.4 | 164.3 | ||||||||||||||||||||||||||||||||
Policy acquisition and other underwriting expenses | 320.2 | 215.6 | 0.2 | 536.0 | |||||||||||||||||||||||||||||||||||||||
Policyholders' dividends | — | 0.1 | — | 0.1 | |||||||||||||||||||||||||||||||||||||||
Statutory underwriting profit (loss) | $ | 9.9 | $ | (45.4 | ) | $ | (3.4 | ) | $ | (38.9 | ) | ||||||||||||||||||||||||||||||||
Nine Months ended September 30, 2003 | |||||||||||||||||||||||||||||||||||||||||||
Personal Lines | Commercial Lines | ||||||||||||||||||||||||||||||||||||||||||
Personal Automobile | Homeowners | Other Personal Lines | Total Personal Lines | Workers’ Compensation | Commercial Automobile | Commercial Multiple Peril | Other Commercial Lines | Total Commercial Lines | Other Property and Casualty | Total Property and Casualty | |||||||||||||||||||||||||||||||||
Net premiums written | $ | 841.8 | $ | 295.1 | $ | 33.0 | $ | 1,169.9 | $ | 98.1 | $ | 133.0 | $ | 241.8 | $ | 67.5 | $ | 540.4 | $ | 0.3 | $ | 1,710.6 | |||||||||||||||||||||
Net premiums earned | $ | 823.1 | $ | 278.4 | $ | 32.9 | $ | 1,134.4 | $ | 99.8 | $ | 137.9 | $ | 235.3 | $ | 69.7 | $ | 542.7 | $ | 0.3 | $ | 1,677.4 | |||||||||||||||||||||
Policy benefits, claims, losses excluding prior year reserve development and catastrophe losses | 584.6 | 143.3 | 11.7 | 739.6 | 67.2 | 72.5 | 121.0 | 22.0 | 282.7 | 2.2 | 1,024.5 | ||||||||||||||||||||||||||||||||
Prior year reserve development unfavorable (favorable) | 15.8 | 3.1 | — | 18.9 | 4.7 | (5.9 | ) | (24.3 | ) | (0.3 | ) | (25.8 | ) | 23.0 | 16.1 | ||||||||||||||||||||||||||||
Pre-tax catastrophe losses | 1.9 | 28.5 | 0.6 | 31.0 | — | 0.3 | 15.9 | 2.1 | 18.3 | — | 49.3 | ||||||||||||||||||||||||||||||||
Loss adjustment expenses excluding prior year reserve development | 80.3 | 22.5 | 0.9 | 103.7 | 10.2 | 8.0 | 32.3 | 5.7 | 56.2 | (0.3 | ) | 159.6 | |||||||||||||||||||||||||||||||
Policy acquisition and other underwriting expenses | 316.1 | 184.8 | 0.2 | 501.1 | |||||||||||||||||||||||||||||||||||||||
Policyholders’ dividends | — | 2.4 | — | 2.4 | |||||||||||||||||||||||||||||||||||||||
Statutory underwriting (loss) profit | $ | (74.9 | ) | $ | 24.1 | $ | (24.8 | ) | $ | (75.6 | ) | ||||||||||||||||||||||||||||||||
9
ALLMERICA FINANCIAL CORPORATION
PROPERTY AND CASUALTY
STATUTORY UNDERWRITING RATIOS
Quarter ended September 30, 2004 | ||||||||||||||||||||||||||||||||
Personal Lines | Commercial Lines | |||||||||||||||||||||||||||||||
(In millions) | Personal Automobile | Homeowners | Other Personal Lines | Total Personal Lines | Workers’ Compensation | Commercial Automobile | Commercial Multiple Peril | Other Commercial Lines | Total Commercial Lines | Other Property and Casualty | Total Property and Casualty | |||||||||||||||||||||
Losses, excluding catastrophe losses | 59.0 | % | 37.7 | % | 51.0 | % | 53.0 | % | 85.8 | % | 46.2 | % | 38.3 | % | 30.2 | % | 47.4 | % | — | 51.4 | % | |||||||||||
Catastrophe losses | 0.4 | % | 21.5 | % | 6.7 | % | 6.3 | % | — | 0.2 | % | 44.1 | % | 4.7 | % | 20.6 | % | — | 10.9 | % | ||||||||||||
Loss adjustment expenses | 8.9 | % | 8.6 | % | 2.9 | % | 8.7 | % | 12.0 | % | 7.0 | % | 12.7 | % | 16.4 | % | 11.6 | % | — | 9.7 | % | |||||||||||
Policy acquisition and other underwriting expenses | 27.8 | % | 37.7 | % | — | 31.0 | % | |||||||||||||||||||||||||
Policyholders’ dividends | — | (0.3 | )% | — | (0.1 | )% | ||||||||||||||||||||||||||
Combined | 95.8 | % | 117.0 | % | — | 102.9 | % | |||||||||||||||||||||||||
Policies in force | (10.0 | )% | (6.5 | )% | (6.4 | )% | (8.2 | )% | (0.5 | )% | (1.8 | )% | (1.3 | )% | (2.3 | )% | (1.7 | )% | — | (7.5 | )% | |||||||||||
Retention (1) | 78.7 | % | 81.3 | % | N/M | 80.1 | % | 72.5 | % | 77.5 | % | 80.7 | % | N/M | 77.6 | % | ||||||||||||||||
Quarter ended September 30, 2003 | ||||||||||||||||||||||||||||||||
Personal Lines | Commercial Lines | |||||||||||||||||||||||||||||||
Personal Automobile | Homeowners | Other Personal Lines | Total Personal Lines | Workers’ Compensation | Commercial Automobile | Commercial Multiple Peril | Other Commercial Lines | Total Commercial Lines | Other Property and Casualty | Total Property and Casualty | ||||||||||||||||||||||
Losses, excluding catastrophe losses | 70.1 | % | 51.0 | % | 47.7 | % | 64.7 | % | 83.6 | % | 42.8 | % | 51.2 | % | 67.3 | % | 56.7 | % | — | 62.4 | % | |||||||||||
Catastrophe losses | 0.3 | % | 12.1 | % | 1.8 | % | 3.2 | % | — | — | 5.0 | % | 1.9 | % | 2.5 | % | — | 3.0 | % | |||||||||||||
Loss adjustment expenses | 9.3 | % | 6.2 | % | 3.6 | % | 8.3 | % | 8.4 | % | 5.8 | % | 8.2 | % | 4.2 | % | 7.2 | % | — | 7.8 | % | |||||||||||
Policy acquisition and other underwriting expenses | 26.7 | % | 34.8 | % | — | 29.1 | % | |||||||||||||||||||||||||
Policyholders’ dividends | — | 0.4 | % | — | 0.1 | % | ||||||||||||||||||||||||||
Combined | 102.9 | % | 101.6 | % | — | 102.4 | % | |||||||||||||||||||||||||
Policies in force | (5.2 | )% | (1.9 | )% | (5.5 | )% | (3.8 | )% | (5.6 | )% | (10.6 | )% | (4.4 | )% | (20.6 | )% | (11.7 | )% | — | (4.8 | )% | |||||||||||
Retention (1) | 80.2 | % | 82.5 | % | N/M | 81.4 | % | 64.8 | % | 74.2 | % | 74.1 | % | N/M | 72.2 | % |
(1) | The retention rate for personal lines is a twelve month rolling average calculation based on policies in force; the retention rate for commercial lines is based on direct voluntary written premiums, based on processed policies in the current period versus the same period in the prior year. Additionally, the retention rates have been adjusted to exclude the effect of our strategic termination of specialty commercial programs which resulted from an extensive review during the fourth quarter of 2001. |
10
ALLMERICA FINANCIAL CORPORATION
PROPERTY AND CASUALTY
STATUTORY UNDERWRITING RATIOS
Nine Months ended September 30, 2004 | ||||||||||||||||||||||||||||||||
Personal Lines | Commercial Lines | |||||||||||||||||||||||||||||||
(In millions) | Personal Automobile | Homeowners | Other Personal Lines | Total Personal Lines | Workers’ Compensation | Commercial Automobile | Commercial Multiple Peril | Other Commercial Lines | Total Commercial Lines | Other Property and Casualty | Total Property and Casualty | |||||||||||||||||||||
Losses, excluding catastrophe losses | 63.7 | % | 44.2 | % | 53.1 | % | 58.2 | % | 79.2 | % | 48.3 | % | 40.6 | % | 45.6 | % | 49.9 | % | — | 55.7 | % | |||||||||||
Catastrophe losses | 0.2 | % | 15.5 | % | 4.4 | % | 4.4 | % | N/M | 0.1 | % | 19.2 | % | 0.9 | % | 8.7 | % | — | 5.8 | % | ||||||||||||
Loss adjustment expenses | 9.3 | % | 7.0 | % | 5.0 | % | 8.5 | % | 12.2 | % | 6.4 | % | 11.8 | % | 7.0 | % | 9.9 | % | — | 9.0 | % | |||||||||||
Policy acquisition and other underwriting expenses | 27.9 | % | 37.3 | % | — | 31.1 | % | |||||||||||||||||||||||||
Policyholders’ dividends | — | — | — | — | ||||||||||||||||||||||||||||
Combined | 99.0 | % | 105.8 | % | — | 101.6 | % | |||||||||||||||||||||||||
Policies in force | (10.0 | )% | (6.5 | )% | (6.4 | )% | (8.2 | )% | (0.5 | )% | (1.8 | )% | (1.3 | )% | (2.3 | )% | (1.7 | )% | — | (7.5 | )% | |||||||||||
Retention (1) | 78.7 | % | 81.3 | % | N/M | 80.1 | % | 75.0 | % | 78.3 | % | 78.8 | % | N/M | 77.9 | % | ||||||||||||||||
Nine Months ended September 30, 2003 | ||||||||||||||||||||||||||||||||
Personal Lines | Commercial Lines | |||||||||||||||||||||||||||||||
Personal Automobile | Homeowners | Other Personal Lines | Total Personal Lines | Workers’ Compensation | Commercial Automobile | Commercial Multiple Peril | Other Commercial Lines | Total Commercial Lines | Other Property and Casualty | Total Property and Casualty | ||||||||||||||||||||||
Losses, excluding catastrophe losses | 73.1 | % | 53.9 | % | 35.6 | % | 67.3 | % | 74.8 | % | 49.6 | % | 46.8 | % | 33.9 | % | 51.0 | % | — | 63.5 | % | |||||||||||
Catastrophe losses | 0.2 | % | 10.2 | % | 1.8 | % | 2.7 | % | N/M | 0.2 | % | 6.8 | % | 3.0 | % | 3.4 | % | — | 2.9 | % | ||||||||||||
Loss adjustment expenses | 9.6 | % | 6.8 | % | 2.7 | % | 8.7 | % | 7.4 | % | 4.5 | % | 8.0 | % | 5.5 | % | 6.7 | % | — | 8.1 | % | |||||||||||
Policy acquisition and other underwriting expenses | 27.0 | % | 34.2 | % | — | 29.3 | % | |||||||||||||||||||||||||
Policyholders’ dividends | N/M | 0.4 | % | — | 0.1 | % | ||||||||||||||||||||||||||
Combined | 105.7 | % | 95.7 | % | — | 103.9 | % | |||||||||||||||||||||||||
Policies in force | (5.2 | )% | (1.9 | )% | (5.5 | )% | (3.8 | )% | (5.6 | )% | (10.6 | )% | (4.4 | )% | (20.6 | )% | (11.7 | )% | — | (4.8 | )% | |||||||||||
Retention (1) | 80.2 | % | 82.5 | % | N/M | 81.4 | % | 67.7 | % | 72.7 | % | 75.0 | % | N/M | 72.9 | % |
(1) | The retention rate for personal lines is a twelve month rolling average calculation based on policies in force; the retention rate for commercial lines is based on direct voluntary written premiums, based on processed policies in the current period versus the same period in the prior year. Additionally, the retention rates have been adjusted to exclude the effect of our strategic termination of specialty commercial programs which resulted from an extensive review during the fourth quarter of 2001. |
11
LIFE COMPANIES
ALLMERICA FINANCIAL CORPORATION
LIFE COMPANIES
CONDENSED INCOME STATEMENTS
Quarter ended September 30 | Nine Months ended September 30 | ||||||||||||||||||||
(In millions) | 2004 | 2003 | % Change | 2004 | 2003 | % Change | |||||||||||||||
REVENUES | |||||||||||||||||||||
Premiums | $ | 6.2 | $ | 7.0 | (11.4 | ) | $ | 32.5 | $ | 34.6 | (6.1 | ) | |||||||||
Fees: | |||||||||||||||||||||
Fees from surrenders | 11.1 | 13.3 | (16.5 | ) | 37.2 | 54.3 | (31.5 | ) | |||||||||||||
Other proprietary product fees | 56.1 | 62.5 | (10.2 | ) | 177.4 | 188.4 | (5.8 | ) | |||||||||||||
Net investment income | 56.1 | 65.4 | (14.2 | ) | 168.9 | 209.1 | (19.2 | ) | |||||||||||||
Brokerage and investment management income (1) | 5.1 | 24.0 | (78.8 | ) | 17.7 | 86.6 | (79.6 | ) | |||||||||||||
Other income | 7.8 | 7.1 | 9.9 | 23.1 | 19.8 | 16.7 | |||||||||||||||
Total segment revenue | 142.4 | 179.3 | (20.6 | ) | 456.8 | 592.8 | (22.9 | ) | |||||||||||||
POLICY BENEFITS, CLAIMS AND OPERATING EXPENSES | |||||||||||||||||||||
Policy benefits, claims and losses | 69.0 | 62.1 | 11.1 | 200.2 | 201.7 | (0.7 | ) | ||||||||||||||
Policy acquisition expenses | 39.6 | 31.0 | 27.7 | 103.0 | 115.2 | (10.6 | ) | ||||||||||||||
Brokerage and investment management variable expenses (1) | 2.3 | 14.4 | (84.0 | ) | 8.9 | 56.2 | (84.2 | ) | |||||||||||||
Other operating expenses | 40.2 | 79.9 | (49.7 | ) | 149.9 | 216.7 | (30.8 | ) | |||||||||||||
Total policy benefits, claims and operating expenses | 151.1 | 187.4 | (19.4 | ) | 462.0 | 589.8 | (21.7 | ) | |||||||||||||
Segment (loss) income before federal income taxes | $ | (8.7 | ) | $ | (8.1 | ) | 7.4 | $ | (5.2 | ) | $ | 3.0 | N/M | ||||||||
(1) | Brokerage and investment management income for 2004 primarily reflect fees earned from the management of assets for proprietary products. Brokerage and investment management income for 2003 primarily reflect fees earned from the distribution of non-proprietary insurance products. Variable expenses for 2004 consist primarily of subadvisory fees while these expenses primarily reflect commissions in 2003. The Company no longer sells non-proprietary products through its brokerage sales force. |
12
ALLMERICA FINANCIAL CORPORATION
LIFE COMPANIES
CONSOLIDATED BALANCE SHEETS (1)
(In millions, except per share data) | September 30 2004 | December 31 2003 | % Change | |||||||
ASSETS | ||||||||||
Investments: | ||||||||||
Fixed maturities, at fair value (amortized cost of $3,813.2 and $3,912.6) | $ | 3,973.8 | $ | 4,080.1 | (2.6 | ) | ||||
Equity securities, at fair value (cost of $3.5 and $6.2) | 4.6 | 10.3 | (55.3 | ) | ||||||
Mortgage loans | 76.1 | 122.3 | (37.8 | ) | ||||||
Policy loans | 258.2 | 268.0 | (3.7 | ) | ||||||
Other long-term investments | 62.2 | 80.0 | (22.3 | ) | ||||||
Total investments | 4,374.9 | 4,560.7 | (4.1 | ) | ||||||
Cash and cash equivalents | 97.7 | 242.8 | (59.8 | ) | ||||||
Accrued investment income | 66.0 | 76.2 | (13.4 | ) | ||||||
Premiums, accounts, and notes receivable, net | 0.7 | 3.8 | (81.6 | ) | ||||||
Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums | 1,000.2 | 1,042.9 | (4.1 | ) | ||||||
Deferred policy acquisition costs (2) | 704.4 | 894.6 | (21.3 | ) | ||||||
Deferred federal income tax asset | 238.3 | 223.8 | 6.5 | |||||||
Goodwill | 6.8 | 6.8 | — | |||||||
Other assets (2) | 229.6 | 150.6 | 52.5 | |||||||
Separate account assets | 10,086.0 | 11,835.4 | (14.8 | ) | ||||||
Total assets | $ | 16,804.6 | $ | 19,037.6 | (11.7 | ) | ||||
LIABILITIES AND SHAREHOLDER’S EQUITY | ||||||||||
LIABILITIES | ||||||||||
Policy liabilities and accruals: | ||||||||||
Future policy benefits | $ | 3,561.3 | $ | 3,556.8 | 0.1 | |||||
Outstanding claims, losses and loss adjustment expenses | 113.1 | 105.2 | 7.5 | |||||||
Unearned premiums | 3.4 | 3.5 | (2.86 | ) | ||||||
Contract holder deposit funds and other policy liabilities | 369.2 | 675.5 | (45.3 | ) | ||||||
Total policy liabilities and accruals | 4,047.0 | 4,341.0 | (6.8 | ) | ||||||
Expenses and taxes payable | 422.3 | 453.9 | (7.0 | ) | ||||||
Reinsurance premiums payable | 11.0 | 12.1 | (9.1 | ) | ||||||
Trust instruments supported by funding obligations | 1,048.1 | 1,200.3 | (12.7 | ) | ||||||
Separate account liabilities | 10,086.0 | 11,835.4 | (14.8 | ) | ||||||
Total liabilities | 15,614.4 | 17,842.7 | (12.5 | ) | ||||||
SHAREHOLDER’S EQUITY | ||||||||||
Common stock, par value $1,000 per share; authorized 10,000 shares; issued 2,526 shares | 2.5 | 2.5 | — | |||||||
Additional paid-in capital | 1,075.0 | 1,075.0 | — | |||||||
Accumulated other comprehensive income (loss) | 9.9 | (23.5 | ) | N/M | ||||||
Retained earnings | 102.8 | 140.9 | (27.0 | ) | ||||||
Total shareholder’s equity | 1,190.2 | 1,194.9 | (0.4 | ) | ||||||
Total liabilities and shareholder’s equity | $ | 16,804.6 | $ | 19,037.6 | (11.7 | ) | ||||
(1) | The Life Companies include Allmerica Financial Life Insurance and Annuity Company and First Allmerica Financial Life Insurance Company, and their subsidiaries. First Allmerica Financial Life Insurance Company includes assets related to our discontinued operations (Group Life & Health). |
(2) | Other assets at September 30, 2004 include a reclassification of $82.5 million from deferred policy acquisition costs as a result of the implementation of SOP 03-1 at January 1, 2004. |
13
ALLMERICA FINANCIAL CORPORATION
LIFE COMPANIES
SEGMENT INCOME BY PRODUCT LINE
Quarter ended September 30, 2004 | Quarter ended September 30, 2003 | ||||||||||||||||||||||||||
(In millions) | Variable Annuities | Variable Universal Life | Other (3) | Total | Variable Annuities | Variable Universal Life | Other (3) | Total | |||||||||||||||||||
REVENUES | |||||||||||||||||||||||||||
Premiums | $ | — | $ | — | $ | 6.2 | $ | 6.2 | $ | — | $ | — | $ | 7.0 | $ | 7.0 | |||||||||||
Fees: | |||||||||||||||||||||||||||
Fees from surrenders | 8.6 | 2.5 | — | 11.1 | 10.4 | 2.9 | — | 13.3 | |||||||||||||||||||
Other proprietary product fees | 35.6 | 20.4 | 0.1 | 56.1 | 39.4 | 22.7 | 0.4 | 62.5 | |||||||||||||||||||
Net investment income | 17.9 | 4.4 | 33.8 | 56.1 | 14.1 | 3.8 | 47.5 | 65.4 | |||||||||||||||||||
Brokerage and investment management income (1) | 4.0 | 0.9 | 0.2 | 5.1 | 3.2 | 1.0 | 19.8 | 24.0 | |||||||||||||||||||
Other income | 2.9 | 0.7 | 4.2 | 7.8 | 2.5 | 0.4 | 4.2 | 7.1 | |||||||||||||||||||
Total segment revenue | 69.0 | 28.9 | 44.5 | 142.4 | 69.6 | 30.8 | 78.9 | 179.3 | |||||||||||||||||||
POLICY BENEFITS, CLAIMS AND OPERATING EXPENSES | |||||||||||||||||||||||||||
Policy benefits, claims and losses | 36.5 | 12.6 | 19.9 | 69.0 | 24.7 | 11.6 | 25.8 | 62.1 | |||||||||||||||||||
Policy acquisition expenses | 33.4 | 5.7 | 0.5 | 39.6 | 27.0 | 3.1 | 0.9 | 31.0 | |||||||||||||||||||
Variable operating expenses | 7.1 | 1.0 | 12.0 | 20.1 | 6.9 | 1.7 | 26.4 | 35.0 | |||||||||||||||||||
Gain on hedge derivatives (2) | (5.9 | ) | — | — | (5.9 | ) | — | — | — | — | |||||||||||||||||
71.1 | 19.3 | 32.4 | 122.8 | 58.6 | 16.4 | 53.1 | 128.1 | ||||||||||||||||||||
Segment (loss) income before other operating expenses | $ | (2.1 | ) | $ | 9.6 | $ | 12.1 | 19.6 | $ | 11.0 | $ | 14.4 | $ | 25.8 | 51.2 | ||||||||||||
Other operating expenses | 28.3 | 59.3 | |||||||||||||||||||||||||
Segment loss before federal income taxes | $ | (8.7 | ) | $ | (8.1 | ) | |||||||||||||||||||||
(1) | Brokerage and investment management income for 2004 primarily reflect fees earned from the management of assets for proprietary products. Brokerage and investment management income for 2003 primarily reflect fees earned from the distribution of non-proprietary insurance products. Variable expenses for 2004 consist primarily of subadvisory fees while these expenses primarily reflect commissions in 2003. The Company no longer sells non-proprietary products through its brokerage sales force. |
(2) | Gain on hedge derivatives relates to the economic hedging program implemented in the fourth quarter of 2003 involving exchange traded futures contracts used to hedge against increased GMDB claims that could arise from declines in the equity market below levels at December 3, 2003. |
(3) | Other includes results from guaranteed investment contracts, closed block, universal life, traditional life, yearly renewable term life, individual health, other insurance and group retirement products, and our broker/dealer, VeraVest Investments, Inc. |
14
ALLMERICA FINANCIAL CORPORATION
LIFE COMPANIES
SEGMENT INCOME BY PRODUCT LINE
Nine Months ended September 30, 2004 | Nine Months ended September 30, 2003 | ||||||||||||||||||||||||
(In millions) | Variable Annuities | Variable Universal Life | Other (3) | Total | Variable Annuities | Variable Universal Life | Other (3) | Total | |||||||||||||||||
REVENUES | |||||||||||||||||||||||||
Premiums | $ | — | $ | — | $ | 32.5 | $ | 32.5 | $ | — | $ | — | $ | 34.6 | $ | 34.6 | |||||||||
Fees: | |||||||||||||||||||||||||
Fees from surrenders | 28.4 | 8.8 | — | 37.2 | 43.9 | 10.4 | — | 54.3 | |||||||||||||||||
Other proprietary product fees | 113.8 | 62.7 | 0.9 | 177.4 | 116.7 | 69.7 | 2.0 | 188.4 | |||||||||||||||||
Net investment income | 51.9 | 13.4 | 103.6 | 168.9 | 45.9 | 11.3 | 151.9 | 209.1 | |||||||||||||||||
Brokerage and investment management income (1) | 13.0 | 2.8 | 1.9 | 17.7 | 13.4 | 3.0 | 70.2 | 86.6 | |||||||||||||||||
Other income | 8.9 | 2.0 | 12.2 | 23.1 | 6.8 | 3.5 | 9.5 | 19.8 | |||||||||||||||||
Total segment revenue | 216.0 | 89.7 | 151.1 | 456.8 | 226.7 | 97.9 | 268.2 | 592.8 | |||||||||||||||||
POLICY BENEFITS, CLAIMS AND OPERATING EXPENSES | |||||||||||||||||||||||||
Policy benefits, claims and losses | 94.4 | 34.4 | 71.4 | 200.2 | 77.9 | 30.6 | 93.2 | 201.7 | |||||||||||||||||
Policy acquisition expenses | 82.4 | 19.2 | 1.4 | 103.0 | 99.0 | 14.8 | 1.4 | 115.2 | |||||||||||||||||
Variable operating expenses | 23.0 | 4.0 | 39.3 | 66.3 | 23.4 | 4.4 | 89.0 | 116.8 | |||||||||||||||||
Loss on hedge derivatives (2) | 5.4 | — | — | 5.4 | — | — | — | — | |||||||||||||||||
205.2 | 57.6 | 112.1 | 374.9 | 200.3 | 49.8 | 183.6 | 433.7 | ||||||||||||||||||
Segment income before other | |||||||||||||||||||||||||
operating expenses | $ | 10.8 | $ | 32.1 | $ | 39.0 | 81.9 | $ | 26.4 | $ | 48.1 | $ | 84.6 | 159.1 | |||||||||||
Other operating expenses | 87.1 | 156.1 | |||||||||||||||||||||||
Segment (loss) income before federal income taxes | $ | (5.2 | ) | $ | 3.0 | ||||||||||||||||||||
(1) | Brokerage and investment management income for 2004 primarily reflect fees earned from the management of assets for proprietary products. Brokerage and investment management income for 2003 primarily reflect fees earned from the distribution of non-proprietary insurance products. Variable expenses for 2004 consist primarily of subadvisory fees while these expenses primarily reflect commissions in 2003. The Company no longer sells non-proprietary products through its brokerage sales force. |
(2) | Loss on hedge derivatives relates to the economic hedging program implemented in the fourth quarter of 2003 involving exchange traded futures contracts used to hedge against increased GMDB claims that could arise from declines in the equity market below levels at December 3, 2003. |
(3) | Other includes results from guaranteed investment contracts, closed block, universal life, traditional life, yearly renewable term life, individual health, other insurance and group retirement products, and our broker/dealer, VeraVest Investments, Inc. |
15
ALLMERICA FINANCIAL CORPORATION
LIFE COMPANIES
SEGMENT INCOME EXCLUDING CERTAIN NON-CASH ITEMS
Quarter ended | ||||||||||||
(In millions) | September 30, 2004 | June 30, 2004 | September 30, 2003 | |||||||||
Segment loss before federal income taxes | $ | (8.7 | ) | $ | (6.3 | ) | $ | (8.1 | ) | |||
Deferred acquisition cost operating amortization and amortization of sales inducements, net | 44.6 | 33.6 | 28.1 | |||||||||
Property, plant and equipment, net | 0.6 | 0.9 | 0.2 | |||||||||
Statement of Position 98-1 amortization, net | 1.1 | 1.1 | 1.1 | |||||||||
VeraVest asset impairment | — | — | 11.1 | |||||||||
Change in guaranteed minimum death benefit reserves | 0.3 | (2.4 | ) | (9.4 | ) | |||||||
Total segment income excluding certain non-cash items | $ | 37.9 | $ | 26.9 | $ | 23.0 | ||||||
Nine Months ended | ||||||||||||
September 30, 2004 | September 30, 2003 | |||||||||||
Segment (loss) income before federal income taxes | $ | (5.2 | ) | $ | 3.0 | |||||||
Deferred acquisition cost operating amortization and amortization of sales inducements, net | 116.2 | 107.3 | ||||||||||
Property, plant and equipment, net | 2.4 | 1.6 | ||||||||||
Statement of Position 98-1 amortization, net | 3.4 | 3.0 | ||||||||||
VeraVest asset impairment | — | 11.1 | ||||||||||
Change in guaranteed minimum death benefit reserves | (11.7 | ) | (49.2 | ) | ||||||||
Total segment income excluding certain non-cash items | $ | 105.1 | $ | 76.8 | ||||||||
16
ALLMERICA FINANCIAL CORPORATION
LIFE COMPANIES
SELECTED FINANCIAL INFORMATION - VARIABLE ANNUITIES
Quarter ended September 30 | Nine Months ended September 30 | ||||||||||||||||||||||
(In millions) | 2004 | 2003 | % Change | 2004 | 2003 | % Change | |||||||||||||||||
SEPARATE ACCOUNT INDIVIDUAL ANNUITIES | |||||||||||||||||||||||
Balance at beginning of period | $ | 9,579.6 | $ | 10,196.6 | (6.1 | ) | $ | 10,545.8 | $ | 10,611.9 | (0.6 | ) | |||||||||||
Direct premiums and deposits | 8.7 | 27.9 | (68.8 | ) | 43.0 | 82.9 | (48.1 | ) | |||||||||||||||
Redemptions | (425.0 | ) | (425.7 | ) | (0.2 | ) | (1,468.0 | ) | (1,695.4 | ) | (13.4 | ) | |||||||||||
Market (depreciation) appreciation | (145.2 | ) | 258.3 | N/M | 50.8 | 1,042.1 | (95.1 | ) | |||||||||||||||
Transfers and other (1) | (44.7 | ) | (22.2 | ) | N/M | (198.2 | ) | (6.6 | ) | N/M | |||||||||||||
Balance at end of period | $ | 8,973.4 | $ | 10,034.9 | (10.6 | ) | $ | 8,973.4 | $ | 10,034.9 | (10.6 | ) | |||||||||||
Quarter ended | |||||||||||||||||||||||
September 30, 2004 | June 30, 2004 | September 30, 2003 | |||||||||||||||||||||
VARIABLE INDIVIDUAL ANNUITIES (2) | |||||||||||||||||||||||
Redemptions | $ | 491.7 | $ | 555.9 | $ | 493.6 | |||||||||||||||||
Redemption rates (3) | 19 | % | 20 | % | 17 | % | |||||||||||||||||
September 30 2004 | December 31 2003 | % Change | |||||||||||||||||||||
VARIABLE INDIVIDUAL ANNUITIES | |||||||||||||||||||||||
Account values | $ | 10,172.6 | $ | 11,742.6 | (13.4 | ) | |||||||||||||||||
Net amount at risk | $ | 2,489.8 | $ | 2,551.2 | (2.4 | ) | |||||||||||||||||
Deferred acquisition cost asset and capitalized sales inducements | $ | 564.3 | $ | 660.2 | (14.5 | ) | |||||||||||||||||
Value of surrender charges (inforce block) | $ | 363.1 | $ | 458.3 | (20.8 | ) |
(1) | Reserves for individual annuities at September 30, 2004 include a reclassification of $107.1 million to general account liabilities as a result of the implementation of SOP 03-1 on January 1, 2004. |
(2) | Includes both full policy and partial policy surrenders, withdrawals and death benefits (to the extent equal to account value). |
(3) | Redemption rates are annualized based on the average account value in the quarter. |
17
ALLMERICA FINANCIAL CORPORATION
LIFE COMPANIES
FUTURE POLICY BENEFITS AND ACCOUNT BALANCES
(In millions) | September 30 2004 | December 31 2003 | % Change | ||||||
GENERAL ACCOUNT RESERVES | |||||||||
Insurance | |||||||||
Traditional life | $ | 823.6 | $ | 845.8 | (2.6 | ) | |||
Universal life (1) | 595.9 | 633.0 | (5.9 | ) | |||||
Variable universal life (2) | 245.2 | 249.8 | (1.8 | ) | |||||
Individual health (3) | 262.5 | 260.3 | 0.8 | ||||||
Total insurance | 1,927.2 | 1,988.9 | (3.1 | ) | |||||
Annuities | |||||||||
Individual annuities (4) | 1,449.7 | 1,363.1 | 6.4 | ||||||
Group annuities | 430.3 | 572.5 | (24.8 | ) | |||||
Total annuities | 1,880.0 | 1,935.6 | (2.9 | ) | |||||
Guaranteed investment contracts | |||||||||
Contractholder deposit funds and other policy liabilities | 29.4 | 207.5 | (85.8 | ) | |||||
Total general account reserves | $ | 3,836.6 | $ | 4,132.0 | (7.1 | ) | |||
Trust instruments supported by funding obligations | $ | 1,048.1 | $ | 1,200.3 | (12.7 | ) | |||
SEPARATE ACCOUNT LIABILITIES | |||||||||
Variable universal life | $ | 966.0 | $ | 1,053.2 | (8.3 | ) | |||
Variable individual annuities (4) | 8,973.4 | 10,545.8 | (14.9 | ) | |||||
Total individual | 9,939.4 | 11,599.0 | (14.3 | ) | |||||
Group variable universal life | 51.4 | 127.0 | (59.5 | ) | |||||
Group annuities | 95.2 | 109.4 | (13.0 | ) | |||||
Total group | 146.6 | 236.4 | (38.0 | ) | |||||
Total separate account liabilities | $ | 10,086.0 | $ | 11,835.4 | (14.8 | ) | |||
(1) | Universal life reserves include reinsured balances of $594.1 and $631.7 million at September 30, 2004 and December 31, 2003, respectively. |
(2) | Variable universal life reserves include group variable universal life reserves of $11.1 and $13.2 million September 30, 2004 and December 31, 2003, respectively. |
(3) | Individual health reserves include reinsured balances of $261.8 and $258.9 million at September 30, 2004 and December 31, 2003, respectively. |
(4) | Reserves for individual annuities at September 30, 2004 include a reclassification of $107.1 million from separate account liabilities as a result of the implementation of SOP 03-1 on January 1, 2004. |
18
INVESTMENTS
ALLMERICA FINANCIAL CORPORATION
NET INVESTMENT INCOME
Nine Months ended September 30, 2004 | |||||||||||||||||||||
(In millions, except yields) | Property and Casualty (1) | Yield | Life Companies | Yield | Total | Yield | |||||||||||||||
Fixed maturities | $ | 148.5 | 5.70 | % | $ | 164.3 | 5.90 | % | $ | 312.8 | 5.80 | % | |||||||||
Equity securities | 1.5 | N/M | — | — | 1.5 | N/M | |||||||||||||||
Mortgages | 3.2 | 8.18 | % | 6.1 | 7.86 | % | 9.3 | 7.97 | % | ||||||||||||
All other | (3.9 | ) | — | 3.6 | — | (0.3 | ) | — | |||||||||||||
Investment expenses | (3.1 | ) | — | (5.1 | ) | — | (8.2 | ) | — | ||||||||||||
Total | $ | 146.2 | 5.42 | % | $ | 168.9 | 5.35 | % | $ | 315.1 | 5.38 | % | |||||||||
Nine Months ended September 30, 2003 | |||||||||||||||||||||
Property and Casualty (1) | Yield | Life Companies | Yield | Total | Yield | ||||||||||||||||
Fixed maturities | $ | 141.9 | 6.07 | % | $ | 179.2 | 6.06 | % | $ | 321.1 | 6.06 | % | |||||||||
Equity securities | 0.5 | 5.22 | % | 0.5 | 3.23 | % | 1.0 | 4.03 | % | ||||||||||||
Mortgages | 5.1 | 8.60 | % | 9.6 | 8.05 | % | 14.7 | 8.23 | % | ||||||||||||
All other | (7.1 | ) | — | 23.8 | — | 16.7 | — | ||||||||||||||
Investment expenses | (2.9 | ) | — | (4.0 | ) | — | (6.9 | ) | — | ||||||||||||
Total | $ | 137.5 | 5.57 | % | $ | 209.1 | 5.99 | % | $ | 346.6 | 5.82 | % | |||||||||
(1) | Includes purchase accounting adjustments of $2.4 million and $2.5 million for the nine months ended September 30, 2004 and 2003, respectively. Also includes corporate eliminations of $0.4 million and $0.7 million for the nine months ended September 30, 2004 and 2003, respectively. |
19
ALLMERICA FINANCIAL CORPORATION
COMPONENTS OF NET REALIZED INVESTMENT GAINS (LOSSES)
Quarter ended September 30 | ||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||
Net Realized Gains (Losses) | Net Realized Gains (Losses) | |||||||||||||||||||||||
(In millions) | Property and Casualty | Life Companies | Total | Property and Casualty | Life Companies | Total | ||||||||||||||||||
Net gains on securities transactions | $ | 3.5 | $ | 4.1 | $ | 7.6 | $ | 3.2 | $ | 2.0 | $ | 5.2 | ||||||||||||
Other than temporary impairments | (1.2 | ) | (2.5 | ) | (3.7 | ) | (8.1 | ) | (5.1 | ) | (13.2 | ) | ||||||||||||
Other | (0.7 | ) | (7.6 | ) | (8.3 | ) | (0.3 | ) | 0.3 | — | ||||||||||||||
Net realized investment gains (losses) | $ | 1.6 | $ | (6.0 | ) | $ | (4.4 | ) | $ | (5.2 | ) | $ | (2.8 | ) | $ | (8.0 | ) | |||||||
Nine Months ended September 30 | ||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||
Net Realized Gains (Losses) | Net Realized Gains (Losses) | |||||||||||||||||||||||
Property and Casualty | Life Companies | Total | Property and Casualty | Life Companies | Total | |||||||||||||||||||
Net gains on securities transactions | $ | 19.3 | $ | 14.1 | $ | 33.4 | $ | 18.0 | $ | 59.0 | $ | 77.0 | ||||||||||||
Other than temporary impairments | (1.9 | ) | (4.2 | ) | (6.1 | ) | (15.8 | ) | (40.4 | ) | (56.2 | ) | ||||||||||||
Other | (0.7 | ) | (8.3 | ) | (9.0 | ) | 0.6 | (3.0 | ) | (2.4 | ) | |||||||||||||
Net realized investment gains | $ | 16.7 | $ | 1.6 | $ | 18.3 | $ | 2.8 | $ | 15.6 | $ | 18.4 | ||||||||||||
20
ALLMERICA FINANCIAL CORPORATION
AGING OF GROSS UNREALIZED LOSSES ON SECURITIES AVAILABLE FOR SALE
(In millions) | September 30, 2004 | |||||||||||||||||
Gross Unrealized Losses | Fair Value | |||||||||||||||||
Property and Casualty | Life Companies | Total | Property and Casualty | Life Companies | Total | |||||||||||||
INVESTMENT GRADE FIXED MATURITIES: | ||||||||||||||||||
0 - 6 months | $ | 3.0 | $ | 2.4 | $ | 5.4 | $ | 314.0 | $ | 310.7 | $ | 624.7 | ||||||
7 - 12 months | 2.3 | 2.4 | 4.7 | 83.8 | 77.2 | 161.0 | ||||||||||||
Greater than 12 months | 9.0 | 6.6 | 15.6 | 214.9 | 167.0 | 381.9 | ||||||||||||
Total investment grade fixed maturities | 14.3 | 11.4 | 25.7 | 612.7 | 554.9 | 1,167.6 | ||||||||||||
BELOW INVESTMENT GRADE FIXED MATURITIES: | ||||||||||||||||||
0 - 6 months | 2.8 | 1.3 | 4.1 | 38.4 | 15.4 | 53.8 | ||||||||||||
7 - 12 months | 1.5 | 0.3 | 1.8 | 11.9 | 2.0 | 13.9 | ||||||||||||
Greater than 12 months | — | 3.8 | 3.8 | — | 3.5 | 3.5 | ||||||||||||
Total below investment grade fixed maturities | 4.3 | 5.4 | 9.7 | 50.3 | 20.9 | 71.2 | ||||||||||||
Equity securities | 0.1 | 0.1 | 0.2 | 0.2 | 1.2 | 1.4 | ||||||||||||
Total fixed maturities and equity securities | $ | 18.7 | $ | 16.9 | $ | 35.6 | $ | 663.2 | $ | 577.0 | $ | 1,240.2 | ||||||
December 31, 2003 | ||||||||||||||||||
Gross Unrealized Losses | Fair Value | |||||||||||||||||
Property and Casualty | Life Companies | Total | Property and Casualty | Life Companies | Total | |||||||||||||
INVESTMENT GRADE FIXED MATURITIES: | ||||||||||||||||||
0 - 6 months | $ | 11.0 | $ | 6.8 | $ | 17.8 | $ | 565.2 | $ | 458.3 | $ | 1,023.5 | ||||||
7 - 12 months | 4.9 | 10.8 | 15.7 | 92.7 | 239.0 | 331.7 | ||||||||||||
Greater than 12 months | 1.2 | 3.7 | 4.9 | 21.8 | 74.5 | 96.3 | ||||||||||||
Total investment grade fixed maturities | 17.1 | 21.3 | 38.4 | 679.7 | 771.8 | 1,451.5 | ||||||||||||
BELOW INVESTMENT GRADE FIXED MATURITIES: | ||||||||||||||||||
0 - 6 months | 0.5 | 0.7 | 1.2 | 18.1 | 20.4 | 38.5 | ||||||||||||
7 - 12 months | — | 2.5 | 2.5 | — | 8.2 | 8.2 | ||||||||||||
Greater than 12 months | 0.5 | 5.2 | 5.7 | 8.1 | 29.0 | 37.1 | ||||||||||||
Total below investment grade fixed maturities | 1.0 | 8.4 | 9.4 | 26.2 | 57.6 | 83.8 | ||||||||||||
Equity securities | — | 0.1 | 0.1 | 0.5 | 1.3 | 1.8 | ||||||||||||
Total fixed maturities and equity securities | $ | 18.1 | $ | 29.8 | $ | 47.9 | $ | 706.4 | $ | 830.7 | $ | 1,537.1 | ||||||
21
ALLMERICA FINANCIAL CORPORATION
CREDIT QUALITY OF FIXED MATURITIES
(In millions) | September 30, 2004 | |||||||||||||||||||
Amortized Cost | Fair Value | |||||||||||||||||||
NAIC Designation | Rating Agency Equivalent Designation | Property and Casualty | Life Companies | Total | Property and Casualty | Life Companies | Total | |||||||||||||
1 | Aaa/Aa/A | $ | 2,563.7 | $ | 2,323.4 | $ | 4,887.1 | $ | 2,644.3 | $ | 2,397.9 | $ | 5,042.2 | |||||||
2 | Baa | 918.7 | 1,291.8 | 2,210.5 | 945.1 | 1,358.4 | 2,303.5 | |||||||||||||
3 | Ba | 102.2 | 126.8 | 229.0 | 106.6 | 136.0 | 242.6 | |||||||||||||
4 | B | 80.8 | 48.7 | 129.5 | 83.6 | 51.2 | 134.8 | |||||||||||||
5 | Caa and lower | 29.3 | 12.6 | 41.9 | 31.7 | 17.5 | 49.2 | |||||||||||||
6 | In or near default | 3.3 | 9.9 | 13.2 | 3.6 | 12.8 | 16.4 | |||||||||||||
Total fixed maturities | $ | 3,698.0 | $ | 3,813.2 | $ | 7,511.2 | $ | 3,814.9 | $ | 3,973.8 | $ | 7,788.7 | ||||||||
December 31, 2003 | ||||||||||||||||||||
Amortized Cost | Fair Value | |||||||||||||||||||
NAIC Designation | Rating Agency Equivalent Designation | Property and Casualty | Life Companies | Total | Property and Casualty | Life Companies | Total | |||||||||||||
1 | Aaa/Aa/A | $ | 2,360.7 | $ | 2,341.9 | $ | 4,702.6 | $ | 2,442.5 | $ | 2,417.4 | $ | 4,859.9 | |||||||
2 | Baa | 874.8 | 1,346.9 | 2,221.7 | 902.5 | 1,427.3 | 2,329.8 | |||||||||||||
3 | Ba | 91.0 | 134.4 | 225.4 | 97.0 | 138.8 | 235.8 | |||||||||||||
4 | B | 75.9 | 64.5 | 140.4 | 83.9 | 65.9 | 149.8 | |||||||||||||
5 | Caa and lower | 25.9 | 14.3 | 40.2 | 34.6 | 19.4 | 54.0 | |||||||||||||
6 | In or near default | 5.4 | 10.6 | 16.0 | 5.9 | 11.3 | 17.2 | |||||||||||||
Total fixed maturities | $ | 3,433.7 | $ | 3,912.6 | $ | 7,346.3 | $ | 3,566.4 | $ | 4,080.1 | $ | 7,646.5 | ||||||||
22
ALLMERICA FINANCIAL CORPORATION
HISTORICAL FINANCIAL HIGHLIGHTS
(In millions, except per share data) | Q3 04 | Q2 04 | Q1 04 | 2003 | Q4 03 | Q3 03 | Q2 03 | Q1 03 | ||||||||||||||||||||||||
SEGMENT INCOME (1) | ||||||||||||||||||||||||||||||||
Property and Casualty | ||||||||||||||||||||||||||||||||
Personal Lines | $ | 42.1 | $ | 35.8 | $ | 10.8 | $ | 34.3 | $ | 25.3 | $ | 11.5 | $ | 0.2 | $ | (2.7 | ) | |||||||||||||||
Commercial Lines | (7.1 | ) | 12.6 | 26.5 | 98.7 | 6.0 | 18.1 | 35.2 | 39.4 | |||||||||||||||||||||||
Other | 1.7 | 0.7 | 1.3 | (15.5 | ) | 2.5 | 2.6 | (22.1 | ) | 1.5 | ||||||||||||||||||||||
Total Property and Casualty | 36.7 | 49.1 | 38.6 | 117.5 | 33.8 | 32.2 | 13.3 | 38.2 | ||||||||||||||||||||||||
Life Companies | (8.7 | ) | (6.3 | ) | 9.8 | 8.7 | 5.7 | (8.1 | ) | 13.5 | (2.4 | ) | ||||||||||||||||||||
Interest expense on corporate debt | (10.0 | ) | (9.9 | ) | (10.0 | ) | (39.9 | ) | (10.0 | ) | (10.0 | ) | (9.9 | ) | (10.0 | ) | ||||||||||||||||
Total segment income before federal income taxes | $ | 18.0 | $ | 32.9 | $ | 38.4 | $ | 86.3 | $ | 29.5 | $ | 14.1 | $ | 16.9 | $ | 25.8 | ||||||||||||||||
Federal income tax benefit (expense) on segment income | 1.6 | (3.8 | ) | (5.2 | ) | 6.1 | 0.8 | 5.6 | 1.8 | (2.1 | ) | |||||||||||||||||||||
Total segment income after federal income taxes | 19.6 | 29.1 | 33.2 | 92.4 | 30.3 | 19.7 | 18.7 | 23.7 | ||||||||||||||||||||||||
Federal income tax settlement | — | 0.2 | 30.1 | — | — | — | — | — | ||||||||||||||||||||||||
Net realized investment (losses) gains, net of amortization and taxes | (3.7 | ) | 4.4 | 10.2 | 10.4 | 4.0 | (8.2 | ) | 6.6 | 8.0 | ||||||||||||||||||||||
Gains (losses) from retirement of funding agreements and trust instruments supported by funding obligations, net of taxes | 1.9 | — | (2.1 | ) | 3.7 | — | 0.4 | 0.3 | 3.0 | |||||||||||||||||||||||
Income from sale of universal life business, net of taxes | — | — | — | 3.6 | — | — | — | 3.6 | ||||||||||||||||||||||||
Gains (losses) on derivative instruments, net of taxes | 0.1 | 0.2 | — | (4.5 | ) | (5.4 | ) | 0.3 | (0.4 | ) | 1.0 | |||||||||||||||||||||
Restructuring costs, net of taxes | (0.2 | ) | (1.5 | ) | (2.1 | ) | (18.7 | ) | (14.9 | ) | (0.8 | ) | (0.8 | ) | (2.2 | ) | ||||||||||||||||
Income before cumulative effect of accounting change | 17.7 | 32.4 | 69.3 | 86.9 | 14.0 | 11.4 | 24.4 | 37.1 | ||||||||||||||||||||||||
Cumulative effect of change in accounting principle, net of taxes | — | — | (57.2 | ) | — | — | — | — | — | |||||||||||||||||||||||
NET INCOME | $ | 17.7 | $ | 32.4 | $ | 12.1 | $ | 86.9 | $ | 14.0 | $ | 11.4 | $ | 24.4 | $ | 37.1 | ||||||||||||||||
PER SHARE DATA (DILUTED) | ||||||||||||||||||||||||||||||||
NET INCOME | $ | 0.33 | $ | 0.60 | $ | 0.23 | $ | 1.63 | $ | 0.26 | $ | 0.21 | $ | 0.46 | $ | 0.70 | ||||||||||||||||
WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED) | 53.6 | 53.7 | 53.7 | 53.2 | 53.5 | 53.3 | 53.0 | 53.0 | ||||||||||||||||||||||||
BALANCE SHEET | ||||||||||||||||||||||||||||||||
Total investments | $ | 8,253.1 | $ | 8,091.3 | $ | 8,239.5 | $ | 8,185.6 | $ | 8,279.5 | $ | 8,219.0 | $ | 8,172.2 | ||||||||||||||||||
Separate account assets | $ | 10,086.0 | $ | 10,740.3 | $ | 11,304.9 | $ | 11,835.4 | $ | 11,546.0 | $ | 11,719.0 | $ | 11,016.2 | ||||||||||||||||||
Total assets | $ | 23,107.0 | $ | 23,664.2 | $ | 24,380.4 | $ | 25,112.5 | $ | 25,008.0 | $ | 25,173.2 | $ | 24,372.8 | ||||||||||||||||||
Total shareholders’ equity | $ | 2,294.2 | $ | 2,207.2 | $ | 2,289.3 | $ | 2,220.2 | $ | 2,196.6 | $ | 2,225.6 | $ | 2,115.9 | ||||||||||||||||||
Book value per share | $ | 43.09 | $ | 41.48 | $ | 43.04 | $ | 41.89 | $ | 41.42 | $ | 41.96 | $ | 39.86 | ||||||||||||||||||
Book value per share, excluding accumulated other comprehensive income | $ | 42.69 | $ | 42.36 | $ | 41.77 | $ | 41.59 | $ | 41.30 | $ | 41.07 | $ | 40.59 |
(1) | Represents income or loss of the Company’s operating segments: Personal Lines, Commercial Lines, Other Property and Casualty, Life Companies and Corporate Debt. In accordance with Statement of Financial Accounting Standards No.131, the separate financial information of each segment is presented consistent with the manner in which results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. |
23
ALLMERICA FINANCIAL CORPORATION
HISTORICAL FINANCIAL HIGHLIGHTS
(In millions, except per share data) | 2002 | Q4 02 | Q3 02 | Q2 02 | Q1 02 | |||||||||||||||
SEGMENT INCOME (LOSS) (1) | ||||||||||||||||||||
Property and Casualty | ||||||||||||||||||||
Personal Lines | $ | 40.2 | $ | (6.7 | ) | $ | 13.3 | $ | 24.3 | $ | 9.3 | |||||||||
Commercial Lines | 124.2 | 40.7 | 37.2 | 21.1 | 25.2 | |||||||||||||||
Other | 5.8 | (3.7 | ) | 3.9 | 4.4 | 1.2 | ||||||||||||||
Total Property and Casualty | 170.2 | 30.3 | 54.4 | 49.8 | 35.7 | |||||||||||||||
Life Companies | (634.7 | ) | 2.2 | (544.1 | ) | (118.3 | ) | 25.5 | ||||||||||||
Interest expense on corporate debt | (39.9 | ) | (10.0 | ) | (10.0 | ) | (9.9 | ) | (10.0 | ) | ||||||||||
Total segment (loss) income before federal income taxes | $ | (504.4 | ) | $ | 22.5 | $ | (499.7 | ) | $ | (78.4 | ) | $ | 51.2 | |||||||
Federal income tax benefit (expense) on segment (loss) income | 229.0 | (0.6 | ) | 184.7 | 50.7 | (5.8 | ) | |||||||||||||
Total segment (loss) income after federal income taxes | (275.4 | ) | 21.9 | (315.0 | ) | (27.7 | ) | 45.4 | ||||||||||||
Net realized investment (losses) gains, net of amortization and taxes | (89.4 | ) | (45.8 | ) | (0.7 | ) | (38.5 | ) | (4.4 | ) | ||||||||||
Gains from retirement of funding agreements and trust instruments supported by funding obligations, net of taxes | 66.7 | 66.7 | — | — | — | |||||||||||||||
Loss from sale of universal life business, net of taxes | (20.3 | ) | (20.3 | ) | — | — | — | |||||||||||||
Gains on derivative instruments, net of taxes | 26.2 | 6.5 | — | 9.1 | 10.6 | |||||||||||||||
Restructuring costs, net of taxes | (9.6 | ) | (9.6 | ) | — | — | — | |||||||||||||
Other items, net of taxes | (0.6 | ) | (4.5 | ) | 2.3 | 1.6 | — | |||||||||||||
(Loss) income before cumulative effect of accounting change | (302.4 | ) | 14.9 | (313.4 | ) | (55.5 | ) | 51.6 | ||||||||||||
Cumulative effect of change in accounting principle, net of taxes | (3.7 | ) | — | — | — | (3.7 | ) | |||||||||||||
NET (LOSS) INCOME | $ | (306.1 | ) | $ | 14.9 | $ | (313.4 | ) | $ | (55.5 | ) | $ | 47.9 | |||||||
PER SHARE DATA (DILUTED) | ||||||||||||||||||||
NET (LOSS) INCOME | $ | (5.79 | ) | $ | 0.28 | $ | (5.93 | ) | $ | (1.05 | ) | $ | 0.90 | |||||||
WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED) (2) | 52.9 | 52.9 | 52.9 | 52.9 | 53.1 | |||||||||||||||
BALANCE SHEET | ||||||||||||||||||||
Total investments | $ | 8,806.8 | $ | 9,816.0 | $ | 9,844.9 | $ | 9,977.2 | ||||||||||||
Separate account assets | $ | 12,343.4 | $ | 12,152.9 | $ | 14,054.3 | $ | 15,085.9 | ||||||||||||
Total assets | $ | 26,578.9 | $ | 27,528.6 | $ | 29,157.3 | $ | 30,292.2 | ||||||||||||
Total shareholders’ equity | $ | 2,072.2 | $ | 2,105.4 | $ | 2,391.7 | $ | 2,384.8 | ||||||||||||
Book value per share | $ | 39.12 | $ | 39.69 | $ | 45.07 | $ | 44.98 | ||||||||||||
Book value per share, excluding accumulated other comprehensive income | $ | 39.83 | $ | 39.47 | $ | 45.32 | $ | 46.32 |
(1) | Represents income or loss of the Company’s operating segments: Personal Lines, Commercial Lines, Other Property and Casualty, Life Companies and Corporate Debt. In accordance with Statement of Financial Accounting Standards No.131, the separate financial information of each segment is presented consistent with the manner in which results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. |
(2) | Excludes 0.2 million shares for the year ended December 31, 2002, 0.1 million shares for the quarter ended September 30, 2002 and 0.4 million shares for the quarter ended June 30, 2002 due to antidilution. |
24
CORPORATE OFFICES AND
PRINCIPAL SUBSIDIARIES
Allmerica Financial
440 Lincoln Street
Worcester, MA 01653
The Hanover Insurance Company
440 Lincoln Street
Worcester, MA 01653
Citizens Insurance Company of America
645 West Grand River
Howell, MI 48843
MARKET AND DIVIDEND INFORMATION
The following information shows trading activity for the Company for the periods indicated:
Quarter Ended | 2004 | |||||||
Price Range | ||||||||
High | Low | Dividends Per Share | ||||||
March 31 | $ | 38.25 | $ | 30.84 | — | |||
June 30 | $ | 36.10 | $ | 30.71 | — | |||
September 30 | $ | 34.61 | $ | 26.05 | — | |||
December 31 | ||||||||
Quarter Ended | 2003 | |||||||
Price Range | ||||||||
High | Low | Dividends Per Share | ||||||
March 31 | $ | 16.43 | $ | 9.84 | — | |||
June 30 | $ | 18.53 | $ | 13.75 | — | |||
September 30 | $ | 24.90 | $ | 17.74 | — | |||
December 31 | $ | 31.29 | $ | 24.65 | — |
INDUSTRY RATINGS AS OF OCTOBER 25, 2004
Financial Strength Ratings | A.M. Best | Standard & Poor’s | Moody’s | |||
Property and Casualty Insurance Companies: | ||||||
The Hanover Insurance Company | A- | BBB+ | Baa1 | |||
Citizens Insurance Company of America | A- | BBB+ | — | |||
Life Insurance Companies: | ||||||
Allmerica Financial Life Insurance and Annuity Company | B+ | BB | Ba1 | |||
First Allmerica Financial Life Insurance Company | B+ | BB | Ba1 | |||
Debt Ratings | A.M. Best | Standard & Poor’s | Moody’s | |||
Allmerica Financial Corporation | bb+ | BB | Ba1 | |||
Senior Debt | ||||||
Allmerica Financial Corporation | bb- | B | Ba2 | |||
Capital Securities | ||||||
Allmerica Financial Corporation | AMB-3 | — | NP | |||
Short Term Debt | ||||||
First Allmerica Financial Life Insurance Company Short Term Insurance Financial Strength Rating | — | — | NP |
TRANSFER AGENT
EquiServe, LP
PO Box 43076
Providence, RI 02940-3076
1-800-317-4454
COMMON STOCK
Common stock of Allmerica Financial Corporation is traded on the New York Stock Exchange under the symbol “AFC”.
INQUIRIES
Sujata Mutalik
Vice President, Investor Relations
(508) 855-3457
smutalik@Allmerica.com
William J. Steglitz, CPA
Director, Investor Relations
(508) 855-3883
wsteglitz@Allmerica.com
INVESTOR INFORMATION LINE
Dial 1-800-407-5222 to receive additional printed information, fax-on-demand services or other prerecorded messages.
Please visit our internet site at http:// www.Allmerica.com