Allmerica Reports Improved P&C Earnings for Q1

April 28, 2004

Allmerica Financial Corporation (NYSE: AFC) in Worcester, Mass. reported net income for the first quarter of $12.1 million, or $0.23 per share, compared to net income of $37.1 million, or $0.70 per share in the first quarter of last year. Net income for the current quarter includes an after-tax charge of $57.2 million or $1.06 per share, which reflects establishing reserves for certain life insurance and annuity product benefits, and an after-tax benefit of $30.1 million, or $0.56 per share related to a favorable settlement of prior years’ tax liabilities.

“We are pleased with our first quarter results,” said Frederick H. Eppinger, president and chief executive officer of Allmerica Financial Corporation. “The property and casualty business produced solid earnings, benefiting from continued positive rate actions and an improvement in underwriting results from the successful execution of our operating strategies.” Eppinger added, “Our life companies continue to be efficiently run, generating solid cash flow and favorable segment earnings.”

Allmerica Financial consists of property and casualty operations, which represents our ongoing business, and life operations, which is 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 income was $38.6 million in the first quarter of 2004, up from $38.2 million in the first quarter of 2003 despite a $9.9 million increase in catastrophe losses.

Personal lines segment income was $10.8 million in the quarter compared to a loss of $2.7 million in the prior year. Excluding catastrophe losses, which were $9.8 million higher in the current quarter, Personal lines segment income increased by $23.3 million due primarily to continued rate increases and lower loss frequency driven primarily by fewer non-catastrophe weather-related losses.

Commercial lines segment income was $26.5 million in the quarter, compared to $39.4 million in the first quarter of 2003. The $12.9 million decrease was primarily due to $16.6 million of lower favorable development of prior years’ reserves compared to the first quarter of 2003.

Overall property and casualty results showed:
— Net premiums written were $561.3 million in the first quarter of 2004, compared to $550.5 million in the first quarter of 2003.
— Net premiums earned were $556.3 million in the first quarter of 2004, compared to $554.2 million in the first quarter of 2003.
— In the first quarter of 2004, pre-tax catastrophe losses were $21.1 million, compared to $11.2 million in the comparable period one year earlier.

The loss ratio for personal lines for the first quarter of this year came in at 101.4 percent; for commercial lines, 46.5 percent. The combined ratio for property and casualty was 101.4 percent.

Personal lines highlights reported include:
— Net premiums written were $366.0 million in the first quarter of 2004, compared to $367.4 million in the first quarter of 2003.
— Net premiums earned were $380.2 million in the first quarter of 2004, compared to $372.7 million in the first quarter of 2003.
— The personal lines statutory combined ratio was 103.7% in the first quarter, versus 108.2% in the same period last year. Personal lines catastrophe losses were $14.6 million, or 3.8 points of the combine ratio in the first quarter versus $4.8 million, or 1.3 points of the combined ratio in the first quarter of 2003.

In commercial lines the first quarter results indicated::
— Net premiums written were $195.6 million in the first quarter of 2004, compared to $182.8 million in the first quarter of 2003.
— Net premiums earned were $176.6 million in the first quarter of 2004, compared to $181.2 million in the first quarter of 2003.
— The commercial lines statutory combined ratio was 95.1% in the first quarter, compared to 89.9% in the same period last year.
— Commercial lines catastrophe losses were $6.5 million, or 3.7 points of the combined ratio in the first quarter versus $6.4 million, or 3.5 points of the combined ratio in the first quarter of 2003.

Life Companies
The life companies reported segment income of $9.8 million in the first quarter of 2004, compared to a net loss of $2.4 million in the first quarter of 2003. Results were favorably impacted by lower operating expenses and the relative improvement in the equity market.

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