Allied Group: Reports 1997 Results Contact: Jim Shaffer 515-280-4326 ALLIED GROUP, INC. REPORTS 1997 RESULTS Des Moines, Iowa, February 4, 1998 -- ALLIED Group, Inc. (NYSE symbol GRP) today released earnings for the quarter and the year ended December 31, 1997. Diluted operating earnings for the fourth quarter were $0.54 per share compared with $0.46 for the same quarter of 1996; for the year, they came to $2.00 per share compared with $1.51 for 1996. Chairman John Evans spoke of two changes that adjusted earnings per share: "In November, we split the stock 3 for 2; it increased the number of our common shares outstanding to over 30 million. Recently, the Financial Accounting Standards Board issued SFAS 128 that requires stock options, regardless of their materiality, to be considered in the calculation of diluted earnings per share; our 1997 earnings were reduced $0.02 per share as a result." The Company had three major 1997 goals: to achieve double-digit growth of pooled property-casualty net written premiums, to reduce the underwriting expense ratio by 50 basis points, and to earn a return on equity of at least 15%. Net written premiums for the property-casualty pool were up 8.9% for 1997. The 1997 underwriting expense ratio was 24.7, down 80 basis points from the 1996 ratio. The ROE for 1997 was 16.3% "Even though we grew 8.9% within an industry estimated to have grown at only 3.3%, we didn't make our ambitious double-digit growth goal due to an extremely soft commercial lines market," stated Doug Andersen, President and CEO. "Our commercial lines growth was 4.1%, disappointing by our standards but positive in comparison with the industry's that was only 1.7% for the first nine months of 1997. We did grow our primary business of personal lines 11.2%; we're pleased with that improvement because it evidences the strength of our specialty." Andersen described the 1997 underwriting expense reduction as "another ambitious goal, considering we already had lowered the ratio by a cumulative 440 basis points over the previous four years." He expressed doubt that the ratio could be lowered much more and said, "In the future, we're going to concentrate on the loss-cost side of the combined ratio." The statutory combined ratio (after policyholder dividends) improved to 94.4 for 1997 from 97.7 for 1996. The GAAP underwriting gain rose to $26.8 million from $9.9 million. Less severe weather contributed to a record high operating profit of $91.9 million: wind and hail losses were $27.9 million ($0.59 per share) compared with $39.1 million ($0.82 per share) in 1996, the worst storm year in the Company's history. Consolidated net income of $65.4 million for 1997 was also a record high. Consolidated revenues were up 11.5% to $664.7 million from $596.4 million a year ago. Consolidated invested assets at market value were $908.2 million compared with $819.6 million for 1996. On those assets, the Company earned $51.1 million in investment income, a 3.9% increase over the 1996 total. Chief Financial Officer Jim Shaffer described the 1997 interest rate environment and looked ahead to 1998: "Falling short- and intermediate-term interest rates had a positive effect on the market value of our fixed income portfolio; on the negative side, they dampened the growth of our investment income. If the lower rates continue in 1998, it will be a real challenge to improve our investment income growth." Company management set these major goals for 1998: to achieve double-digit growth of pooled net written premiums, to hold the underwriting expense ratio to 25.0, to earn a minimum of 15% ROE, and to reduce loss costs. Andersen said, "There's no reasons to believe the commercial lines market will improve any time soon, and the personal lines market is becoming more competitive--but we have several initiatives to help us gain market share, including a program to broaden our private passenger auto coverages to virtually all of the driving public, incentives to encourage more agencies to sign exclusive contracts for our personal lines, a means of further penetrating emerging marketing territories, and a plan to increase the percentage of personal lines business serviced through our customer service center. Already, we've invested in automation, equipment, and personnel to improve claims service and settle claims faster--a strategy of spending more on adjusting expenses in the short term to save loss costs in the long term." ALLIED Group, Inc. is a regional property-casualty insurance holding company specializing in personal lines. The Company's property-casualty subsidiaries use independent agencies, exclusive agencies, and direct response marketing to offer products in central and western states. ALLIED GROUP, INC. SUMMARIZED CONSOLIDATED FINANCIAL HIGHLIGHTS Three Months Ended December 31, -------------------------------- 1997 1996 --------------- --------------- Earmed premiums $ 142,038,311 $ 129,295,125 Investment income 12,630,422 12,614,223 Realized investment gains (losses) 373,481 (15,573) Other income 21,022,685 13,821,151 --------------- --------------- Revenues 176,064,899 155,714,926 Losses and expenses 151,350,964 135,010,330 --------------- --------------- Income before income taxes and minority interest 24,713,935 20,704,596 Income taxes 6,813,018 5,575,739 Minority interest in income of consolidated subsidiary 129,357 --- --------------- --------------- Net income $ 17,771,560 $ 15,128,857 =============== =============== Dividends paid per common share $ 0.120 $ 0.100 =============== =============== Diluted earnings per share: Net operating income $ 0.54 $ 0.46 Realized investment gains, after tax 0.01 0.00 --------------- --------------- Net income $ 0.55 $ 0.46 =============== =============== Weighted average shares outstanding 30,873,405 30,693,464 =============== =============== Wind and hail losses per share $ 0.03 $ 0.08 =============== =============== Basic earnings per share Net operating income $ 0.54 $ 0.47 =============== =============== Net income $ 0.55 $ 0.47 =============== =============== Weighted average shares outstanding 30,526,047 $ 30,516,744 =============== =============== ALLIED GROUP, INC. SUMMARIZED CONSOLIDATED FINANCIAL HIGHLIGHTS Twelve Months Ended December 31, -------------------------------- 1997 1996 --------------- --------------- Earned premiums $ 547,597,313 $ 493,524,578 Investment income 51,124,122 49,221,905 Realized investment gains 390,758 49,398 Other income 65,570,016 53,558,391 --------------- --------------- Revenues 664,682,209 596,354,272 Losses and expenses 572,769,744 525,043,301 --------------- --------------- Income before income taxes and minority interest 91,912,465 71,310,971 Income taxes 25,973,118 20,226,758 Minority interest in income of consolidated subsidiary 503,750 --- --------------- --------------- Net income $ 65,435,597 $ 51,084,213 =============== =============== Dividends paid per common share $ 0.4600 $ 0.3933 =============== =============== Diluted earnings per share: Net operating income $ 2.00 $ 1.51 Realized investment gains, after tax 0.01 --- --------------- --------------- Net income $ 2.01 $ 1.51 =============== =============== Weighted average shares outstanding 30,811,846 31,143,198 =============== =============== Wind and hail losses per share $ 0.59 $ 0.82 =============== =============== Basic earnings per share Net operating income $ 2.02 $ 1.61 =============== =============== Net income $ 2.03 $ 1.61 =============== =============== Weighted average shares outstanding 30,487,259 29,112,144 =============== =============== ALLIED Group, Inc. SUMMARIZED CONSOLIDATED BALANCE SHEET December 31, December 31, 1997 1996 --------------- --------------- Assets Invested assets $ 908,244,404 $ 819,644,636 Accounts receivable 91,594,524 84,706,290 Mortgage loans held for sale 29,520,857 12,054,171 Deferred policy acquisition costs 50,694,922 46,671,432 Reinsurance receivables for losses and loss adjusting expenses 23,905,549 18,182,520 Other assets 97,272,649 96,400,017 --------------- --------------- Total assets $1,201,232,905 $1,077,659,066 =============== =============== Liabilities Losses and loss adjusting expenses $ 378,025,962 $ 362,191,014 Unearned premiums 239,762,900 220,596,194 Notes payable to nonaffiliates 51,037,769 31,744,468 Notes payable to affiliates 5,900,000 2,350,000 Guarantee of ESOP obligations 22,380,000 24,370,000 Other liabilites 74,041,875 65,815,908 --------------- --------------- Total liabilities 771,148,506 707,067,584 Stockholders' equity 430,084,399 370,591,482 --------------- --------------- Total liabilities and stockholders' equity $1,201,232,905 $1,077,659,066 =============== =============== Number of shares outstanding Nonconvertible preferred stock 1,827,222 1,827,222 Common stock 30,532,074 20,382,954 --------------- --------------- Total shares outstanding 32,359,296 22,210,176 =============== =============== Book value per share $ 13.44 $ 11.59 =============== =============== Pretax investment yield 6.0% 6.3% =============== =============== ALLIED Group, Inc. SEGMENT INFORMATION Three Months Ended Deceember 31, -------------------------------- 1997 1996 --------------- --------------- Revenues* Property-casualty $ 150,869,455 $ 133,991,480 Excess & surplus lines 10,191,330 9,134,214 All other 47,000,519 38,545,013 Eliminations and other (31,996,405) (25,955,781) --------------- --------------- Total $ 129,064,380 $ 155,714,926 =============== =============== Income before income taxes and minority interest* Property-casualty $ 22,331,510 $ 18,002,520 Excess & surplus lines 2,650,201 2,779,251 All other (267,776) (77,175) --------------- --------------- Total $ 24,713,935 $ 20,704,596 =============== =============== Twelve Months Ended December 31, -------------------------------- 1997 1996 --------------- --------------- Revenues* Property-casualty $ 569,375,296 $ 515,706,148 Excess & surplus lines 40,092,763 33,557,101 All other 165,865,591 147,218,023 Eliminations and other (110,651,441) (100,127,000) --------------- --------------- Total $ 664,682,209 $ 596,354,272 =============== =============== Income before income taxes* Property-casualty $ 81,874,517 $ 59,434,869 Excess & surplus lines 10,008,957 8,053,072 All other 28,991 3,823,030 --------------- --------------- Total $ 91,912,465 $ 71,310,971 =============== =============== December 31, December 31, 1997 1996 Assets --------------- --------------- Property-casualty $1,012,925,912 $ 917,537,303 Excess & surplus lines 141,813,547 131,404,681 All other 560,270,657 477,759,940 Eliminations and other (513,777,211) (449,042,858) --------------- --------------- Total $1,201,232,905 $1,077,659,066 =============== =============== * Including realized investment gains or losses. ALLIED Group, Inc. SUPPLEMENTAL INSURANCE INFORMATION Three Months Ended December 31, -------------------------------- 1997 1996 --------------- --------------- Property-casualty segment results Net written premiums $ 131,983,199 $ 121,606,059 =============== =============== Earned premiums $ 133,536,159 $ 121,815,152 Losses & loss adjusting expenses 95,963,257 83,678,065 Underwriting expenses 30,986,499 32,076,863 --------------- --------------- Statutory underwriting gain 6,586,403 6,060,224 GAAP adjustments (1,588,189) (234,032) --------------- --------------- GAAP underwriting gain 4,998,214 5,826,192 Investment income excluding realized gains (losses) 10,933,574 10,917,802 Realized investment gains (losses) 80,049 (16,867) Other income 6,319,673 1,275,393 --------------- --------------- Income before income taxes $ 22,331,510 $ 18,002,520 =============== =============== GAAP combined ratio 96.3 95.2 =============== =============== Wind and hail losses $ 1,646,895 $ 3,778,243 =============== =============== Impact of wind and hail losses on combined ratio 1.2 3.1 =============== =============== Excess & Surplus lines segment results Net written premiums $ 8,257,953 $ 8,226,685 =============== =============== Earned premiums $ 8,502,152 $ 7,479,973 Losses & loss adjusting expenses 4,833,140 4,105,818 Underwriting expenses 2,683,960 2,410,398 --------------- --------------- Statutory underwriting gain 985,052 963,757 GAAP adjustments (24,029) 161,253 --------------- --------------- GAAP underwriting gain 961,023 1,125,010 Investment income excluding realized gains 1,689,178 1,654,241 Realized investment gains --- --- --------------- --------------- Income before income taxes $ 2,650,201 $ 2,779,251 =============== =============== GAAP combined ratio 88.7 85.0 =============== =============== ALLIED Group, Inc. SUPPLEMENTAL INSURANCE INFORMATION Twelve Months Ended December 31, -------------------------------- 1997 1996 --------------- --------------- Property-casualty segment results Net written premiums $ 531,679,324 $ 488,189,368 =============== =============== Earned premiums $ 514,303,107 $ 466,210,505 Losses & loss adjusting expenses 357,841,177 335,614,689 Underwriting expenses 131,070,741 124,621,421 --------------- --------------- Statutory underwriting gain 25,391,189 5,974,395 GAAP adjustments 1,411,139 3,964,831 --------------- --------------- GAAP underwriting gain 26,802,328 9,939,226 Investment income excluding realized gains 44,257,909 42,295,692 Realized investment gains 96,462 179,955 Other income 10,717,818 7,019,996 --------------- --------------- Income before income taxes $ 81,874,517 $ 59,434,869 =============== =============== GAAP combined ratio 94.8 97.9 =============== =============== Wind and hail losses $ 27,885,800 $ 39,110,682 =============== =============== Impact of wind and hail losses on combined ratio 5.4 8.4 =============== =============== Excess & Surplus lines segment results Net written premiums $ 34,056,089 $ 28,416,851 =============== =============== Earned premiums $ 33,294,206 $ 27,314,073 Losses & loss adjusting expenses 20,368,853 17,483,520 Underwriting expenses 9,884,057 8,106,571 --------------- --------------- Statutory underwriting gain 3,041,296 1,723,982 GAAP adjustments 169,104 86,062 --------------- --------------- GAAP underwriting gain 3,210,400 1,810,044 Investment income excluding realized gains (losses) 6,802,300 6,240,848 Realized investment gains (losses) (3,743) 2,180 --------------- --------------- Income before income taxes $ 10,008,957 $ 8,053,072 =============== =============== GAAP combined ratio 90.4 93.4 =============== =============== ALLIED Group, Inc. PROPERTY-CASUALTY STATUTORY INFORMATION Twelve Months Ended December 31, ---------------------------------------- 1997 1996 ------------------- ------------------- Earned Comb. Earned Comb. Premiums Ratio Premiums Ratio ------------ ------ ------------ ------ Statutory results by line Personal automobile $ 256,398,202 94.5 $229,894,152 98.9 Homeowners 93,832,988 96.7 81,616,679 102.4 ------------ ------------ Personal lines 350,231,190 95.1 311,510,831 99.8 ------------ ------------ Commercial automobile 25,991,131 90.3 25,272,196 98.8 Workers' compensation 23,837,862 93.6 25,498,587 76.5 Other property/liab. 111,811,998 94.3 101,590,617 97.3 Other lines 2,430,926 59.7 2,338,274 46.9 ------------ ------------ Commercial lines 164,071,917 93.1 154,699,674 93.5 ------------ ------------ Total $ 514,303,107 94.4 $466,210,505 97.7 ============ ============ Statutory ratios Loss ratio 58.7 62.6 Loss adjustment expense ratio 10.8 9.4 Underwriting expense ratio 24.7 25.5 Dividend ratio 0.2 0.2 ------ ------ Statutory combined ratio 94.4 97.7 ====== ====== - - END - -