Mail Stop 6010
Via Facsimile and U.S. Mail
September 9, 2005
Mr. Frederick H. Eppinger, Jr.
President, Chief Executive Officer and Director
Allmerica Financial Corporation
440 Lincoln Street
Worcester, MA 01653
Re: Allmerica Financial Corporation
Form 10-K for Fiscal Year Ended December 31, 2004
File No. 1-13754
Dear Mr. Eppinger:
We have reviewed your filing and have the following comments.
Where
indicated, we think you should revise your document in response to
these comments. If you disagree, we will consider your explanation
as
to why our comment is inapplicable or a revision is unnecessary.
Please be as detailed as necessary in your explanation. In some of
our comments, we may ask you to provide us with information so we
may
better understand your disclosure.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Management`s Discussion and Analysis
Results of Operations
Segment Income, page 24
1. It appears that you have presented an inappropriate non-GAAP
measure in your discussion of segment income. Please note that
the
disclosure of a "consolidated" segment profit or loss measure has
no
authoritative meaning outside of the SFAS No. 131 required
reconciliation in the footnotes to the consolidated financial
statements. Please refer to Question #21 in the Staff`s
Frequently
Asked Questions Regarding the Use of Non-GAAP Financial Measures
on
our website at www.sec.gov/divisions/corpfin/faqs/nongaapfaq.htm
that
we issued on June 13, 2003. Please explain to us how your
disclosure
of a consolidated segment measure complies with Item 10(e) of
Regulation S-K.
Segment Results
Property and Casualty, page 27
2. You disclose that the primary difference between statutory
accounting principles and GAAP is the deferral of certain
underwriting expenses under GAAP that are amortized over the life
of
the policy. It appears that the disclosure of your statutory loss
ratio excludes catastrophe losses, but your disclosure of
statutory
combined ratios includes catastrophe losses. Also, we note your
disclosure of "statutory underwriting (loss) profit, excluding
prior
year reserve development and catastrophes" used in your
reconciliation to segment income appears to be inconsistent with
statutory accounting principles. Please explain to us how these
adjusted statutory measures in your disclosure comparing statutory
results with segment income are meaningful to investors and comply
with Item 10 of Regulation S-K.
Life Companies
Life Companies Segment Income Excluding Certain Non-Cash Items,
page
41
3. You disclose that the alternative non-GAAP method of viewing
your
Life Companies business excludes various non-cash items. This
alternative view of your Life Companies business does not appear
to
reflect statutory results or segment income and excludes recurring
items that have occurred in prior periods and are likely to occur
in
future periods. Elimination of these items from the most
comparable
GAAP measure appears to have the effect of smoothing earnings.
While
the acceptability of a non-GAAP financial measure that eliminates
recurring items from the most comparable GAAP measure depends on
all
facts and circumstances, we do not believe that a non-GAAP measure
that has the effect of smoothing earnings is appropriate.
Exclusion
of these amounts raises significant concern about management`s
assertions as to the usefulness of these measures for investors
and
the appropriateness of its presentation in accordance with Item 10
of
Regulation S-K. Please refer to Questions 8, 9, and 21 of
"Frequently Asked Questions Regarding the Use of Non-GAAP
Financial
Measures". Please tell us how your disclosure complies with Item
10(e) of Regulation S-K.
Critical Accounting Policies, page 51
4. It appears your discussion does not include an analysis of the
uncertainties in applying these accounting policies or
quantification
of the related variability in operating results that you expect to
be
reasonably likely to occur. This disclosure should provide
investors
with a fuller understanding of the uncertainties in applying
critical
accounting policies and the likelihood that materially different
amounts would be reported under different conditions or using
different assumptions. Please disclose the uncertainties in
applying
these accounting policies, the historical accuracy of these
critical
accounting estimates, a quantification of their sensitivity to
changes in key assumptions and the expected likelihood of material
changes in the future.
5. We have read your disclosure about your reserving process on
pages
31-33. However, we believe that your disclosure regarding policy
liabilities and accruals could be further improved to better
explain
the judgments and uncertainties surrounding these estimates and
the
potential impact on your financial statements. Disclosure
explaining
the likelihood that materially different amounts would be reported
under different conditions or using different assumptions is
consistent with the objective of Management`s Discussion and
Analysis. Accordingly, please disclose the following information
for each of your lines of business.
* The range of loss reserve estimates as determined by your
actuaries.
* The key assumptions used to arrive at management`s best estimate
of
loss reserves within that range and what specific factors led
management to believe this amount rather than any other amount
within
the range represented the best estimate of incurred losses.
* Any changes in key assumptions you made to estimate the reserve
at
each reporting date. Demonstrate the sensitivity of the level of
reserves to changes in key assumptions.
* More precise insight into the existence and effects on future
operations and financial condition of known trends in claim
frequency
and severity. Explain the variability inherent in these trends and
the potential future impact on your earnings and cash flow so that
investors can ascertain the likelihood that past performance is
indicative of future performance.
* For each of your longer-tail businesses such as workers
compensation and environmental exposures, provide more precise
insight into the existence and effects on future operations and
financial condition of known trends, events and uncertainties.
Information you should consider, but not be limited to, includes
the
following:
a. the number of claims pending at each balance sheet date;
b. the number of claims reported for each period presented;
c. the number of claims dismissed, settled, or otherwise resolved
for
each period;
d. the nature of the claims including relevant characteristics of
the
claimant population (e.g., involves a large number of relatively
small individual claims of a similar type);
e. the total settlement amount for each period;
f. the cost of administering the claims;
g. emerging trends that may result in future reserve adjustments;
and
h. if management is unable to estimate the possible loss or range
of
loss, a statement to that effect.
Contractual Obligations, page 56
6. We note that you have not included estimated payments
associated
with your policy liabilities and accruals in the contractual
obligation table, and it would appear that these liabilities
represent future legal obligations of the company. Due to the
significance of these future legal obligations, we believe that
inclusion of reserves in the contractual obligation table will
allow
investors to more fully evaluate your liquidity and capital
resources. The purpose of Financial Reporting Release 67 is to
obtain
enhanced disclosure concerning a registrant`s contractual payment
obligations and the exclusion of ordinary course items is
inconsistent with the objective of the Item 303(a)(5) of
Regulation
S-K. In addition, this disclosure should be linked with your
discussion of liquidity and capital resources. Please disclose
the
expected payments associated with these liabilities in your
contractual obligation table.
* * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested information. Detailed letters greatly
facilitate our review. Please file your letter on EDGAR under the
form type label CORRESP. Please understand that we may have
additional comments after reviewing your amendment and responses
to
our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in your letter, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Frank Wyman, Staff Accountant, at 202-551-
3660
or Don Abbott, Senior Staff Accountant, at 202-551-3608, if you
have
questions regarding the comments. In this regard, do not hesitate
to
contact me, at (202) 551-3679.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief Accountant
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Mr. Frederick H. Eppinger, Jr.
Allmerica Financial Corporation
September 9, 2005
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