UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
Pursuant to
Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): January 8, 2003
ALLMERICA FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 1-13754 04-3263626
(State or other jurisdic- (Commission File Number) (I.R.S. Employer I.D.
tion of Incorporation) Number)
440 Lincoln Street, Worcester, Massachusetts 01653
(Address of Principal Executive Offices)
(Zip Code)
(508) 855-1000
(Registrant's Telephone Number including area code)
Page 1 of 7 pages
Exhibit Index on page 4
1
Item 5. Other Events.
On January 8, 2003, Allmerica Financial Corporation announced a series of
transactions which will significantly improve the statutory capital positions of
its life insurance companies. The benefits of these actions will be reflected in
the statutory capital of the Company's life insurance subsidiaries as of
December 31, 2002.
Item 7. Financial Statements and Exhibits.
Exhibit 99 Press Release dated January 8, 2003, announcing that
Allmerica Financial Corporation has entered into a series of
transactions which will significantly improve the statutory
capital positions of its life insurance companies.
2
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Allmerica Financial Corporation
---------------------------------
Registrant
By: /s/ Edward J. Parry III
---------------------------------
Edward J. Parry III
Executive Officer of the Chairman,
Chief Financial Officer and
Principal Accounting Officer
Date: January 9, 2003
3
Exhibit Index
Exhibit 99 Press Release dated January 8, 2003, announcing that
Allmerica Financial Corporation has entered into a series of
transactions which will significantly improve the statutory
capital positions of its life insurance companies.
4
Exhibit 99
Allmerica Financial Corporation Announces Improved Life Insurance Capital
Position
WORCESTER, Mass., January 8, 2003 - Allmerica Financial Corporation (NYSE: AFC)
today announced a series of transactions which will significantly improve the
statutory capital positions of its life insurance companies. The benefits of
these actions will be reflected in the statutory capital of the company's life
insurance subsidiaries as of December 31, 2002. Statutory capital is the measure
of capital utilized by insurance industry regulators.
The specific transactions are as follows:
o Entering into a definitive agreement to sell its fixed universal life
insurance block of business to John Hancock Life Insurance Company
o Retirement of long-term funding agreements at amounts less than
statutory carrying values, both through open market repurchases and a
tender offer
o Implementation of a new guaranteed minimum death benefit (GMDB)
mortality reinsurance program
o Redomestication and reorganization of the internal ownership structure
of its life insurance subsidiaries
Including the benefit of these actions, statutory capital at December 31, 2002
is estimated at approximately $475 million for the combined life insurance
subsidiaries, an increase of 46% from the September 30, 2002 level of $326
million. In addition, the Risk Based Capital (RBC) ratio of Allmerica Financial
Life Insurance and Annuity Company (AFLIAC), the lead life insurance company as
of December 31, 2002, increased from 133% as of September 30, 2002 to
approximately 235% as of December 31, 2002. RBC is a regulatory method of
measuring the minimum amount of capital appropriate for an insurance company.
The first level of regulatory involvement required as a result of RBC levels,
the so-called "Company Action Level", is between 100% and 125%.
"We are very pleased to announce the completion of the several initiatives we
undertook as part of the restructuring of our Allmerica Financial Services
business to significantly increase the statutory capital levels of our life
insurance subsidiaries," said Edward J. Parry, III, President of Allmerica's
Asset Accumulation Companies and Allmerica Financial Corporation's Chief
Financial Officer. Parry added, "Most importantly, these improvements
substantially reduce the sensitivity of our life companies' capital bases to
fluctuations in the equity markets. We estimate that AFLIAC's RBC level as of
December 31, 2002 could have withstood a decline of approximately 60% in the S&P
500 index from the actual level on that date before reaching the first RBC level
for required regulatory action."
5
Further Details on the Actions are as Follows.
o Agreement to sell the company's universal life insurance line of business.
On December 31, 2002, Allmerica Financial Corporation signed a definitive
agreement to sell through a reinsurance arrangement its interest in a block
of fixed universal life policies to John Hancock Life Insurance Company, a
wholly-owned subsidiary of John Hancock Financial Services, Inc. (NYSE:
JHF). The transaction, which is subject to customary closing conditions,
including receipt of regulatory approvals and customary representations and
warranties regarding the business being transferred, is expected to close
in January and produce an increase in statutory surplus of approximately
$106 million in 2002. Under the agreement, John Hancock will receive
reserves and a recurring stream of premium payments on the book of
business. John Hancock will assume responsibility for Allmerica's fixed
universal life policies, including claims payments and other obligations
under the policies.
o Retirement of long-term funding agreements at amounts less than statutory
accounting carrying values. On December 20, 2002, Allmerica Financial
Corporation successfully completed a tender offer through which it retired
additional long-term funding agreements. The tender offer was made
available to non-United States holders of certain series of notes
previously issued under a medium term note program. This transaction,
together with open market repurchases of long-term funding agreements that
occurred in the fourth quarter, resulted in the retirement of a total of
$551 million par value of funding agreements at amounts below face value.
This resulted in a net increase in statutory surplus of the combined life
insurance subsidiaries of approximately $90 million.
o Implementation of a new guaranteed minimum death benefit (GMDB) mortality
reinsurance program. Effective December 1, 2002, the company's life
subsidiaries entered into a new mortality reinsurance program covering the
incidence of mortality on its variable annuity policies. This program
provides statutory GMDB reserve relief by reducing the assumed mortality
cost in the establishment of statutory reserves for GMDB. In addition, the
program reduces the volatility in GMDB reserves associated with future
fluctuations in equity market values. This new agreement is expected to
provide a statutory capital benefit of approximately $40 million as of
December 31, 2002. This benefit will include a capital contribution of $20
million from Allmerica Financial Corporation, the holding company, to the
life insurance subsidiaries in consideration of the relief of the holding
company's obligations under an existing GMDB reinsurance agreement.
o Redomestication and change in the internal ownership structure of the life
insurance subsidiaries. Effective December 31, 2002, AFLIAC, previously a
Delaware domiciled life insurance company, became a Massachusetts domiciled
insurance company and a direct subsidiary of Allmerica Financial
Corporation as well as the immediate parent of First Allmerica Financial
Life Insurance Company (FAFLIC), which remains a Massachusetts domiciled
insurance company. Under the previous internal ownership structure, FAFLIC
was the immediate parent of AFLIAC and a direct subsidiary of Allmerica
Financial Corporation.
These actions enhance the overall capital position of the life insurance
subsidiaries. AFLIAC will receive the benefit of FAFLIC's capital base for
statutory capital and RBC purposes through consolidation. AFLIAC's
statutory capital and RBC ratios have increased as a result, and its
ability to withstand equity market volatility is greatly enhanced. In
addition, FAFLIC will have greater
6
insulation from fluctuations in the equity market as a result of the fact
that its financial results will no longer include those of AFLIAC.
As part of this transaction, AFC's commitment to the Massachusetts Division
of Insurance to maintain a minimum level of 100% RBC in FAFLIC was replaced
by an identical commitment for AFLIAC.
Goldman, Sachs & Co. advised Allmerica on both the sale of its fixed universal
life block and the funding agreement tender offer. The company expects to
announce fourth quarter results on February 3, 2003.
Chief Executive Officer Search Update
The company also has advanced its search for a president and chief executive
officer to succeed John F. O'Brien, who resigned late last year. Russell
Reynolds Associates, a global executive recruitment and management assessment
firm, has been retained as Allmerica's search partner.
"The process is progressing well," said Michael P. Angelini, chairman of
Allmerica's Board of Directors. "This will continue to be a priority over the
next several months as we plan for an effective leadership transition."
Allmerica Financial Corporation is the holding company for a diversified group
of insurance and financial services companies headquartered in Worcester, Mass.
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 or statutory capital 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 available at
www.allmerica.com. These uncertainties include the possibility of adverse
catastrophe experience and severe weather, adverse loss development and adverse
trends in mortality and morbidity, the closing, on a timely basis and on terms
expected by the company, of the transaction with John Hancock Life Insurance
Company, which will depend among other things on the satisfaction of various
closing conditions including the prompt receipt of required regulatory
approvals, changes in the stock and financial markets, changes from assumed
surrender activities, adverse selection in surrender patterns, investment
impairments, heightened competition, adverse state and federal legislation or
regulation, financial ratings downgrades, and various other factors, including
the effect of the company's restructuring actions.
-30-
Contacts: Investors: Media:
Henry St. Cyr Michael Buckley
(508) 855-2959 (508) 855-3099
E-mail: hstcyr@allmerica.com E-mail: mibuckley@allmerica.com
AF-01
1/8/03
7