ALLMERICA FINANCIAL CORPORATION ANNOUNCES
IMPLEMENTATION OF GUARANTEED MINIMUM
DEATH BENEFIT HEDGING PROGRAM
-----------------------------
RECEIVES APPROVAL FOR $25 MILLION DIVIDEND FROM
LIFE INSURANCE SUBSIDIARY
WORCESTER, Mass., December 4, 2003 - Allmerica Financial Corporation (NYSE: AFC)
today announced the implementation of a hedging program for its in-force
variable annuity policies with Guaranteed Minimum Death Benefit (GMDB) features.
The company also noted that its lead life insurance subsidiary, Allmerica
Financial Life Insurance and Annuity Company, will pay a dividend of $25 million
to the company.
The purpose of the GMDB hedging program is to provide the company with an
economic hedge against increased GMDB claims which could arise from declines in
the equity market below current levels. The program is designed to reduce the
volatility in statutory capital levels from the effects of future equity market
movements, but it does not hedge or reduce the cost to the company from GMDB
costs at current levels.
The program utilizes a dynamic hedging approach involving exchange traded
futures contracts. Under the program, hedge contracts are expected to generate
cash to fund increases in GMDB claims resulting from declines in the equity
market. Additionally, the program is designed so that the economic benefit
resulting from a rising equity market is retained by the company.
The dividend, which approximates the company's after-tax obligations for
interest on its senior debentures and Capital Securities in 2004, combined with
existing cash, is sufficient to fund holding company obligations throughout
2004. Accordingly, the company does not expect to take any dividends out of its
property and casualty companies next year. The company will use these funds for
general business purposes, principally debt service.
"Over the past year our significant capital enhancement actions have established
a strong statutory capital position and solid risk based capital ratios in our
life insurance subsidiaries," said Frederick H. Eppinger, Jr., president and
chief executive officer of Allmerica. Eppinger added, "Our new GMDB hedging
program represents another significant step in our on-going efforts to protect
and maximize the embedded value of our life insurance subsidiaries."
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Eppinger also noted, "The availability of a dividend from the company's life
insurance subsidiary underscores the strength of the life insurance
subsidiaries."
Allmerica Financial Corporation will host a conference call to discuss the
company's new hedging program on December 5 at 8:30 a.m. Eastern Time.
Interested investors and others can listen to the call through Allmerica's web
site, located at www.allmerica.com. Web-cast participants should go to the web
site 15 minutes early to register, download, and install any necessary audio
software. A re-broadcast of the conference call will be available on this web
site two hours after the call.
Certain statements in this release may be considered to be forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
Use of the words "believes", "anticipates", "expects" and similar expressions is
intended to identify forward-looking statements. The company cautions investors
that any such forward-looking statements are not guarantees of future
performance, and actual results could differ materially. Investors are directed
to consider the risks and uncertainties in our business that may affect future
performance and that are discussed in readily available documents, including the
company's annual report and other documents filed by Allmerica with the
Securities and Exchange Commission and which are also available at
www.allmerica.com under "Financial News". In particular, statements relating to
the anticipated impact and cost of the GMDB hedging program constitute
forward-looking statements which will depend on, among other things, the future
performance and volatility of the equity markets, the extent to which the
performance of the various hedging instruments correlates with the investment
performance of the underlying annuity sub-accounts, the continued availability
of equity index futures and redemption and mortality patterns in the company's
annuity contracts.
Allmerica Financial Corporation is the holding company for a group of insurance
companies headquartered in Worcester, Massachusetts.
CONTACTS: Investors: Media:
Henry P. St. Cyr Michael F. Buckley
(508) 855-2959 (508) 855-3099
hstcyr@allmerica.com mibuckley@allmerica.com