Net operating income grew to $50.4 million, or $0.84 per share, from $33.2 million, or $0.66 per share in 1997. Net operating income excludes net realized investment gains and losses and other non-recurring gains and charges, net of taxes and minority interest.
Pre-tax operating earnings in the Asset Accumulation business increased 38 percent to $45.6 million, up from $33.0 million last year, driven by continued strong variable annuity sales. Risk Management operating earnings increased 4 percent to $42.8 million, up from $41.1 million in the first quarter of 1997.
Variable annuity sales increased 34 percent to $696 million, up from $519 million in the first quarter of 1997.
Net income was $66.8 million, or $1.11 per share, compared to $15.9 million, or $0.32 per share in 1997. The 1997 quarter included a $35.0 million charge related to the transfer of the Company's disability income business, net of tax.

"We are pleased with our first quarter results, and the continuation of the strong earnings trend we have established since going public in 1995," said John F. O'Brien, president and chief executive officer of Allmerica Financial Corporation. "Variable annuity sales remained strong in the quarter, and we expect our continued focus on variable products to further enhance our market share."

FAS 131 Resegmentation

Beginning with reported earnings for the first quarter of 1998, Allmerica Financial will present results in accordance with Statement of Financial Accounting Standard No. 131 (FAS 131). This standard is effective for calendar year 1998 financial statements, and requires disclosure of segment information consistent with financial information reviewed by its "chief operating decision maker" in assessing performance of individual components of Company operations.

The Allmerica Financial Services segment now includes results previously reported in the separate Retail Financial and Institutional Services segments, except for the GIC product line, which will be reported in the Allmerica Asset Management segment. Group retirement products, including defined benefit and defined contribution plans and group variable universal life, will now be included in this segment, along with results previously reported in Retail Financial Services.

Results from the GIC product line are now reported in the Allmerica Asset Management segment, and reflect the Company's entrance into the floating-rate GIC product line in 1997. Traditional GIC deposits continue to run-off as scheduled, and will also be reported in this segment.

Results of holding companies and certain non-insurance subsidiaries are no longer included in the Property & Casualty segment. These are now reported in the Corporate segment and the Corporate Risk Management Services segment, respectively.

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 its 82.5 percent ownership interest in Citizens Corporation (NYSE: CZC). Risk Management also markets employee benefit management solutions.

In the segment reviews that follow, results are reported on a pre-tax basis, before minority interest in Citizens. Corporate overhead expenses previously included in the results of each segment are now included in the Corporate segment, as a result of the FAS 131 resegmentation.

Asset Accumulation

First quarter operating earnings for the Asset Accumulation business increased to $45.6 million, up from $33.0 million in 1997. Allmerica Financial Services' operating earnings increased to $41.7 million in the quarter, up from $29.8 million in the first quarter of 1997. Allmerica Asset Management first quarter operating earnings were $3.9 million, compared to $3.2 million last year.

Asset Accumulation highlights

Variable annuity sales were up 34 percent to $696 million in 1998, from $519 million in the first quarter of 1997.
Variable product fees were $69.5 million in the quarter, up from $56.3 million last year. Increased fees are related to variable product asset growth resulting from strong sales and stock market appreciation.
Variable product assets grew to $11.4 billion at March 31, 1998, from $9.8 billion at year-end 1997.
First quarter Allmerica Asset Management operating earnings primarily benefitted from sales of floating-rate guaranteed investment contracts.

Risk Management

Risk Management operating earnings were $42.8 million in the quarter, up from $41.1 million for the first quarter of 1997. Property and casualty operating earnings were $37.7 million in the first quarter of 1998 and 1997. Corporate Risk Management Services' first quarter 1998 operating earnings were $5.1 million, compared to $3.4 million in 1997.

Risk Management highlights

Property and casualty net premiums earned increased to $491.2 million in the quarter, up from $475.1 million in 1997.
Property and casualty policy acquisition and other underwriting expenses in the quarter decreased $8.3 million over last year, due primarily to lower employee related costs. The statutory expense ratio improved to 29.4 in the quarter, compared to 31.5 for the first quarter last year and 30.0 for the full 1997 year.
Losses and loss adjustment expenses increased $20.8 million in the quarter, compared to the first quarter of 1997, due primarily to premium growth at both Hanover and Citizens and unfavorable experience in Hanover's personal automobile line and Citizens' commercial automobile line, partially offset by favorable experience in personal automobile at Citizens.
Pre-tax catastrophe losses were $10.1 million in the quarter, up from $9.4 million in 1997. Catastrophe losses in 1998 were primarily sustained as a result of a severe winter ice storm that struck Maine during January.
Corporate Risk operating earnings primarily benefitted from continued growth in administrative service contract fees and improved mortality in group life, partially offset by higher volume related expenses.

Corporate

Corporate segment net expenses were $12.3 million in the first quarter of 1998, compared to $11.0 million in 1997. The expense increase primarily reflects lower investment income in the first quarter of 1998. The lower investment income resulted from last years temporary investment of proceeds from capital securities issued in February 1997. Corporate overhead expenses of $9.8 million and $9.9 million in the first quarter of 1998 and 1997, respectively, are now aggregated in the Corporate segment. Prior to FAS 131 resegmentation, these corporate overhead expenses were allocated to each operating segment. The Corporate segment now also includes results of all holding companies, along with corporate debt service costs.

Investment Results

Net investment income, including the Closed Block, was $168.3 million for the first quarter of 1998, compared to $176.9 million in the same 1997 period. The decrease primarily reflects lower average invested assets. Assets were lower due to the $207.0 million sale of assets for the disability income business and $425.6 million of assets used for the purchase of the minority interest in Allmerica Property & Casualty Companies, Inc.

First quarter net realized investment gains were $17.0 million, after taxes and minority interest, compared to $17.7 million last year. Realized gains in 1998 related principally to the sale of appreciated bonds and equities.

Balance Sheet

Shareholders' equity was $2.47 billion, or $40.94 per share at March 31, 1998, compared to $2.38 billion, or $39.71 per share at December 31, 1997. Excluding the impact of SFAS No. 115, book value was $37.07 per share at the close of the first quarter, compared to $36.08 per share at December 31, 1997.

Total assets were $24.5 billion at March 31, 1998, up from $22.5 billion at year-end 1997. Separate account assets increased to $11.4 billion at March 31, 1998, up from $9.8 billion at December 31, 1997.

Interim information is unaudited.

Allmerica Financial Corporation
(In millions, except per share data)
	quarter ended march 31,
	1998	1997
net income (a)	<$66.8	$15.9
net income per share	<$1.11	<$0.32
weighted average shares	<60.3	<50.2

NOTE(A): Results in the first quarter of 1998 included $17.0 million of after-tax net realized investment gains, net of minority interest, and a $0.6 million non-operating charge, net of taxes and minority interest. First quarter 1997 earnings included $17.7 million in net realized investment gains, net of taxes and minority interest, and a $35.0 million charge related to the transfer of the Company's disability income business, net of tax. The impact of these items is demonstrated below in the reconciliation from net operating income to net income per share:

	quarter ended march 31,
	1998	1997
Net operating income	$0.84	$0.66
Net realized gains on investments, net of applicable federal income taxes, minority Interest and amortization	0.28	0.36
Other, net of applicable federal income taxes	(0.01)	(0.70)
Net income	$ 1.11	$ 0.32

Basic and diluted earnings per share are the same for both periods presented. All figures reported are unaudited and are in accordance with generally accepted accounting principles.

The Hanover Insurance Group, Inc. is the holding company for a group of insurance companies headquartered in Worcester, Massachusetts.

Contact Information

Investors:
Sujata Mutalik
E-mail: smutalik@hanover.com
1-508-855-3457

Media:
Michael F. Buckley
E-mail: mibuckley@hanover.com
1-508-855-3099

[ Back to Top ]