Allied Group: Reports Earnings Increase Contact: Jim Shaffer 515-280-4326 ALLIED GROUP, INC. REPORTS EARNINGS INCREASE Des Moines, Iowa, April 21, 1998--ALLIED Group, Inc. (NYSE symbol GRP) today reported earnings for the quarter ended March 31. Diluted operating earnings rose to $0.55 per share from $0.49 for the first quarter of 1997, a 12.2% increase. "Our earnings gave us the best quarterly results in the Company's history," said Chairman John Evans. Consolidated revenues were up 9.4% to $173.7 million, consolidated pretax operating income grew 10.3% to $24.9 million, and consolidated net income was up 12.4% to $17.9 million. In his 1997 message to stockholders, President and CEO Doug Andersen described the Company's 1998 annual goals of achieving double-digit premium growth, holding the underwriting expense ratio to 25.0, earning a minimum of 15% return on equity, and reducing loss costs as "challenging due to an increasingly competitive environment." In the first quarter of 1998, pooled net written property-casualty premiums increased 8.5% and the property-casualty segment's earned premiums increased 8.7% to $134.7 million. "We were under goal mainly due to the continuing soft commercial lines market that held our growth for that book of business to 3.3%," said Andersen, "but the indicators we monitor to track the pool's primary business of personal lines insurance were all positive." Net written premiums for personal lines were up 11% in the first quarter, with the new nonstandard private passenger auto program making a contribution. The Company had $20.6 million in transfer agreements and increased the number of AIDCO agencies selling ALLIED personal lines exclusively to 302 from 293 at year-end 1997. Personal lines business handled through the Company's service center rose to 36% of the total. The underwriting expense ratio was 27.3. It was high due to the Company paying larger than expected contingency commissions in the first quarter, incurring one-time costs associated with setting up the new Central States Regional Office, and taking care of legal expenses. "There will be ongoing costs for running the new office," Andersen elaborated, "but focus in a smaller geographic territory should pay off in increased production and a lower expense ratio as the year progresses." The Company exceeded its return on equity goal. For the trailing four quarters, the ROE was 16.1%. Andersen described progress toward the goal of reducing loss costs as difficult to assess in the short term. "I can say our first-quarter loss ratio of 54.9 was relatively low from a historical perspective. I believe placing additional experienced auto casualty reps (ACRs) in the field last year is having a positive impact on loss costs per claim this year." The earnings increase was aided by the property-casualty segment's statutory combined ratio (after policyholder dividends), which was 94.1 for the first quarter of 1998. The ratio was favorable despite a rise in wind and hail losses: $0.12 per share for the first quarter of 1998 versus $0.06 per share for the first quarter of 1997. The Company's first-quarter GAAP underwriting gain was $8.6 million. Chief Financial Officer Jim Shaffer previously cautioned stockholders that continuing lower interest rates would make it hard to improve investment income growth. "During the first quarter we built our invested assets to $932 million from $908 million at year-end 1997," Shaffer said. "Investment income was $13.3 million, up 4.8% from the previous first quarter's amount though the pretax yield was down to 5.8%." The Company's book value per diluted share also improved, increasing to $13.97 at March 31, 1998 from $13.44 at December 31, 1997. 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 (in thousands, except per share data) Three months ended March 31, ---------------------------- 1998 1997 ------------ ------------ Earned premiums $ 143,059 $ 131,867 Investment income 13,263 12,652 Realized investment gains (losses) 59 (7) Other income 17,344 14,233 ------------ ------------ Revenues 173,725 158,745 Losses and expenses 148,821 136,168 ------------ ------------ Income before income taxes and minority interest 24,904 22,577 Income taxes 6,864 6,533 Minority interest in net income of consolidated subsidiary 117 102 ------------ ------------ Net income $ 17,923 $ 15,942 ============ ============ Dividends paid per common share $ 0.1300 $ 0.1133 ============ ============ Diluted earnings per share Net operating income $ 0.55 $ 0.49 Realized investment gains, after tax 0.00 0.00 ------------ ------------ Net income $ 0.55 $ 0.49 ============ ============ Weighted average shares outstanding 30,857 30,813 ============ ============ Wind hail losses per share $ 0.12 $ 0.06 ============ ============ Basic earnings per share Net operating income $ 0.56 $ 0.49 ============ ============ Net income $ 0.56 $ 0.49 ============ ============ Weighted average shares outstanding 30,540 30,540 ============ ============ ALLIED Group, Inc. Summarized Consolidated Balance Sheet (in thousands, except per share data) March 31, December 31, 1998 1997 ------------ ------------ Assets Invested assets $ 932,151 $ 908,244 Accounts receivable 100,340 91,596 Mortgage loans held for sale 80,416 29,521 Deferred policy acquisition costs 52,740 50,695 Reinsurance receivables for losses and loss adjusting expenses 25,211 23,906 Other assets 96,205 97,271 ------------ ------------ Total assets $ 1,287,063 $ 1,201,233 ============ ============ Liabilities Losses and loss adjusting expenses $ 382,641 $ 378,026 Unearned premiums 242,366 239,763 Notes payable to nonaffiliates 108,046 51,038 Notes payable to affiliates 9,260 5,900 Guarantee of ESOP obligations 22,380 22,380 Other liabilities 74,955 74,042 ------------ ------------ Total liabilities 839,648 771,149 ------------ ------------ Stockholders' equity 447,415 430,084 ------------ ------------ Total liabilities and stockholder's equity $ 1,287,063 $ 1,201,233 ============ ============ Number of shares outstanding Nonconvertible preferred stock 1,827 1,827 Common stock 30,574 30,532 ------------ ------------ Total shares outstanding 32,401 32,359 ============ ============ Book value share $ 13.97 $ 13.44 ============ ============ Book value share, excluding SFAS 115 $ 13.43 $ 12.88 ============ ============ Pretax investment yield 5.8% 6.0% ============ ============ ALLIED Group, Inc. Segment Information (in thousands) Excess & Inter- Property- surplus All segment Reported casualty lines other elim. balances ---------- --------- -------- --------- ---------- Three months ended March 31, 1998 Revenues from: Nonaffiliates $ 148,355 $ 10,130 $ 13,874 $ --- $ 172,359 Affiliates 319 --- 30,537 (29,490) 1,366 Income before income taxes and minority interest* 22,281 2,445 178 --- 24,904 Three months ended March 31, 1997 Revenues from: Nonaffiliates $ 135,595 $ 9,615 $ 12,394 $ --- $ 157,604 Affiliates 243 --- 26,842 (25,944) 1,141 Income before income taxes and minority interest* 21,041 2,065 (529) --- 22,577 Segment assets as of March 31, 1998 $1,041,277 $ 142,807 $634,881 $(531,902)$1,287,063 December 31, 1997 1,012,926 141,814 560,270 (513,777) 1,201,233 * Including realized investing gains or losses ALLIED Group, Inc. Supplemental Insurance Information (dollars in thousands) Three months ended March 31, ---------------------------- 1998 1997 ------------ ------------ Property-casualty segment results Net written premiums $ 138,235 $ 126,911 ============ ============ Earned premiums $ 134,652 $ 123,921 Losses and loss adjusting expenses 89,832 82,553 Underwriting expenses 37,717 32,426 ------------ ------------ Statutory underwriting gain 7,103 8,942 GAAP adjustment 1,475 182 ------------ ------------ GAAP Underwriting gain 8,578 9,124 Investment income excluding realized gains (losses) 11,520 10,926 Realized investment gains (losses) 57 (6) Other income 2,126 997 ------------ ------------ Income before income taxes $ 22,281 $ 21,041 ============ ============ GAAP combined ratio 93.6 92.6 ============ ============ Wind hail losses $ 5,859 $ 2,705 ============ ============ Impact of wind and hail losses on combined ratio 4.4 2.2 ============ ============ Excess & surplus lines segment results Net written premiums $ 11,828 $ 7,928 ============ ============ Earned premiums $ 8,407 $ 7,946 Losses and loss adjusting expenses 5,411 5,338 Underwriting expenses 3,540 2,208 ------------ ------------ Statutory underwriting gain (544) 400 GAAP adjustment 1,266 (4) ------------ ------------ GAAP Underwriting gain 722 396 Investment income excluding realized gains (losses) 1,723 1,671 Realized investment gains (losses) --- (2) ------------ ------------ Income before income taxes $ 2,445 $ 2,065 ============ ============ GAAP combined ratio 91.4 95.0 ============ ============ ALLIED Group, Inc. Property-Casualty Statutory Information (dollars in thousands) Three Months ended March 31, ----------------------------------------- 1998 1997 -------------------- --------------------- Earned Combined Earned Combined premiums ratio premiums ratio ---------- -------- ---------- -------- Statutory results by line Personal automobile $ 68,615 94.8 $ 61,505 95.4 Homeowners 25,168 94.4 22,581 90.1 ---------- ---------- Personal lines 93,783 94.6 84,086 93.9 ---------- ---------- Commercial automobile 5,770 101.9 6,396 105.3 Workers' compensation 5,638 98.9 5,802 85.8 Other property/liability 28,917 90.1 27,049 87.1 Other lines 544 70.1 588 61.3 ---------- ---------- Commercial lines 40,869 92.7 39,835 89.4 ---------- ---------- Total $ 134,652 94.1 $ 123,921 92.5 ========== ========== Statutory ratios Loss ratio 54.9 57.2 Loss adjustment ratio 11.8 9.4 Underwriting expense ratio 27.3 25.6 Dividend ratio 0.1 0.3 -------- -------- Statutory combined ratio 94.1 92.5 ======== ======== --END--