Allmerica Claims ‘Solid’ Second Quarter

Allmerica Financial Corporation (NYSE: AFC) in Worcester, Mass, whose companies include Hanover and Citizens insurance, reported second quarter net income of $32.4 million, or $0.60 per share, compared to net income of $24.4 million, or $0.46 per share, in the second quarter of last year.

Segment income after taxes was $29.1 million, or $0.54 per share, compared to $18.7 million or $0.35 per share, in the second quarter of last year.
management evaluates operating results.

“Our second quarter results reflect continued improvement in our core property and casualty operations,” said Frederick H. Eppinger, president and chief executive officer of Allmerica Financial. “The property and casualty business produced another solid quarter driven by improved underwriting performance and continued rate increases.”

Eppinger said Allmerica’s life insurance operations also continued to produce “solid cash flow and remain financially strong.” Allmerica ‘s life operations are a run-off business consisting primarily of proprietary life insurance, annuity and guaranteed investment products previously issued by Allmerica’s life insurance subsidiaries.

Property and casualty segment income was $49.1 million in the second quarter of 2004, up from $13.3 million in the second quarter of 2003. Its property and casualty segment of commercial and personal lines.

Personal lines income was $35.8 million in the quarter compared to $0.2 million in the prior year. Loss performance improved in the quarter, resulting in a nine point improvement in the loss ratio. Results improved due to a favorable change in the development of prior accident years’ loss reserves as well as improved accident year results. In the current quarter, the company said it had favorable development of prior accident years’ loss reserves in the personal automobile line. In the second quarter of 2003, it had adverse development of prior accident years’ loss reserves in the personal automobile line, largely related to its Michigan personal injury protection coverage. Current accident year underwriting performance improved as a result of reduced loss frequency and continued rate increases.

Commercial lines income was $12.6 million in the quarter, compared to $35.2 million in the second quarter of 2003. The decrease in segment income is due primarily to an increase in underwriting and loss adjustment expenses, according to the company, while the increase in underwriting expenses is due to higher staffing and technology costs related to the development of this business, as well as an increase in contingent commissions. Loss adjustment expenses in the second quarter of last year benefited from reserve reductions that did not recur in the current year. Furthermore, the loss ratio increased due to an increase in adverse development of prior accident years’ loss reserves in the workers’ compensation line and certain other less significant commercial lines.

Allmerica’s property and casualty segment also includes a block of run-off voluntary pools business in which it has not actively participated since 1995; AMGRO, Inc., a premium financing business; and Opus Investment Management, Inc., which provides investment management services to institutions, pension funds and other organizations. Its income for these other units was $0.7 million in the quarter, compared to a loss of $22.1 million in the prior year. The significant loss in the prior year was due to a pre-tax charge of $23.0 million resulting from an adverse arbitration decision related to an insurance pool it exited in 1996.

As highlights, Allmerica cited:

Overall propertycCasualty highlights:
* Net premiums written were $580.1 million in the second quarter of 2004, compared to $571.0 million in the second quarter of 2003.

* Net premiums earned were $566.2 million in the second quarter of 2004, compared to $561.8 million in the second quarter of 2003.

* In the second quarter of 2004, pre-tax catastrophe losses were $15.1 million, compared to $21.2 million in the comparable period one year earlier.

Personal lines highlights:
* Net premiums written were $385.3 million in the second quarter of 2004, compared to $387.9 million in the second quarter of 2003.

* Net premiums earned were $384.1 million in the second quarter of 2004, compared to $377.0 million in the second quarter of 2003.

* The personal lines statutory combined ratio was 97.8 percent in the second quarter, versus 106.2 percent in the same period last year. Personal lines catastrophe losses were $11.9 million, or 3.1 points of the combined ratio in the second quarter versus $13.7 million, or 3.6 points of the combined ratio in the second quarter of 2003.

Commercial lines highlights:
* Net premiums written were $194.9 million in the second quarter of 2004, compared to $182.8 million in the second quarter of 2003.

* Net premiums earned were $182.0 million in the second quarter of 2004, compared to $184.5 million in the second quarter of 2003.

* The commercial lines statutory combined ratio was 105.3 percent in the second quarter, compared to 95.5 percent in the same period last year. Commercial lines catastrophe losses were $3.2 million, or 1.8 points of the combined ratio in the second quarter versus $7.5 million, or 4.0 points of the combined ratio in the second quarter of 2003.

Allmerica also reported that net investment income was $106.2 million for the second quarter of 2004, compared to $117.4 million in the same period of 2003, a decrease of $11.2 million. Second quarter 2004 pre-tax net realized investment gains were $7.0 million, compared to $13.2 million of pre-tax net realized investment gains in the same period of 2003.