Allied Group: Announces 2nd Quarter Earnings Contact: Jim Shaffer, Sr. V.P. & CFO ph. 515-280-4326 ALLIED Group, Inc. Announces Second-quarter Earnings Des Moines, Iowa, July 22, 1998--ALLIED Group, Inc. (NYSE symbol GRP) today released earnings for the quarter ended June 30 and reported midyear results. Second-quarter diluted operating earnings fell 33.3% to $0.32 per share from $0.48 for the same quarter of 1997. Year-to- date operating earnings were $0.87 per share, a decline of 10.3% from the midyear 1997 total of $0.97. At June 30, 1998, consolidated revenues were up 9.5% to $353 million but consolidated pretax operating income was down 9.2% to $40.4 million and consolidated net income was down 9% to $28.7 million. Like other property-casualty insurers, ALLIED Group suffered from the highest ever second-quarter catastrophes. The Company's wind and hail losses came to $0.57 per share for that quarter alone compared with $0.27 per share in the last year's second quarter. The resulting claims volume also affected the Company's return on equity. For the trailing four quarters, the ROE was 14.4%, down from 16.1% at March 31, 1998. Earnings were lowered another $0.09 per share by expenses associated with the second-quarter merger agreement with Nationwide Mutual Insurance Company whereby Nationwide has offered $48.25 per share to purchase all outstanding shares of ALLIED Group, Inc. common stock. Additional merger-related expenses will be incurred until the transaction is completed. "Midyear wind and hail losses totaled $0.69 per share compared with $0.33 last midyear, but thanks to favorable loss experience in the first quarter, efficiencies recently instituted in our claims division, and the performance of our private passenger auto liability business, we ended the first six months of 1998 with a combined ratio we expect to be well below the industry average," said Doug Andersen, President and CEO. The property-casualty segment's statutory combined ratio (after policyholder dividends) was 97.6; the GAAP underwriting gain was $9 million. Absent the storm experience, the Company had a sound six months. In terms of growth, personal lines net written premiums for the property-casualty pool were up 11.5%. A 3.3% increase in commercial lines premiums, though, held overall premium growth for the pool to 8.9%--rising to $448.6 million from $412.1 million. Earned premiums for the Company's property-casualty segment were up 8.9% to $273.7 million from $251.4 million. The underwriting expense ratio at midyear was 26.0, appreciably better than the 27.3 at the end of the first quarter. Other positives included growth of the AIDCO program, additions to transfer business, and increased use of Service Plus. There were 313 agencies selling ALLIED personal lines exclusively at midyear, up from 293 at year-end 1997. There was a total of $40.8 million in transfer agreements for the first half of 1998. The amount of personal lines business handled through the centralized service center rose to 37% of the total. Also solid was the investment performance. Invested assets increased to $927 million from $908 million at year-end 1997. On those assets, the Company earned $26.9 million in investment income, up 5.3% from the $25.5 million earned in the first six months of 1997. The pretax yield was 5.8%. Book value per diluted share increased to $13.97 from $13.44 at year-end 1997. ALLIED Group, Inc. Summarized Consolidated Financial Highlights (in thousands, except per share data) Three months ended Six months ended June 30, June 30, ------------------------ ------------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ----------- Earned premiums $ 147,541 $ 135,876 $ 290,600 $ 267,743 Investment income 13,606 12,874 26,869 25,526 Realized investment gains 269 7 328 -- Other income 17,862 14,950 35,206 29,182 ---------- ---------- ---------- ---------- Revenues 179,278 163,707 353,003 322,451 Losses and expenses 163,808 141,822 312,629 277,989 ----------- ---------- ---------- ---------- Income before income taxes and minority interest 15,470 21,885 40,374 44,462 Income taxes 4,500 6,104 11,364 12,638 Minority interest in net income of consolidated subsidiary 144 125 261 227 ----------- ---------- ---------- --------- Net income $ 10,826 $ 15,656 $ 28,749 $ 31,597 =========== ========== ========== ========= Dividends paid per common share $ 0.1300 $ 0.1133 $ 0.2600 $ 0.2266 =========== ========== ========== ========= Diluted earnings per share Net operating income $ 0.32 $ 0.48 $ 0.87 $ 0.97 Realized investment gains, after tax -- -- 0.01 -- ----------- ---------- ---------- --------- Net income $ 0.32 $ 0.48 $ .088 $ 0.97 =========== ========== ========== ========= Weighted average shares outstanding 30,688 30,721 30,772 30,767 =========== ========== ========== ========= Wind hail losses per share $ 0.57 $ 0.27 $ 0.69 $ 0.33 =========== ========== ========== ========= Basic earnings per share Net operating income $ 0.32 $ 0.49 $ 0.88 $ 0.98 =========== ========== ========== ========= Net income $ 0.33 $ 0.49 $ 0.89 $ 0.98 =========== ========== ========== ========= Weighted average shares outstanding 30,328 30,412 30,434 30,476 =========== ========== ========== ========= ALLIED Group, Inc. Summarized Consolidated Balance Sheet (in thousands, except per share data) June 30, December 31, 1998 1997 ----------- ----------- Assets Invested assets $ 926,733 $ 908,244 Accounts receivable 105,184 91,596 Mortgage loans held for sale 71,953 29,521 Deferred policy acquisition costs 54,937 50,695 Reinsurance receivables for losses and loss adjusting expenses 35,842 23,906 Other assets 104,988 97,271 ----------- ----------- Total assets $ 1,299,637 $ 1,201,233 =========== =========== Liabilities Losses and loss adjusting expenses $ 396,938 $ 378,026 Unearned premiums 252,551 239,763 Notes payable to nonaffiliates 99,939 51,038 Notes payable to affiliates 7,250 5,900 Guarantee of ESOP obligations 20,530 22,380 Other liabilities 80,764 74,042 ----------- ----------- Total liabilities 857,972 771,149 ----------- ----------- Stockholders' equity 441,665 430,084 ----------- ----------- Total liabilities and stockholder's equity $ 1,299,637 $ 1,201,233 =========== =========== Number of shares outstanding Nonconvertible preferred stock 1,827 1,827 Common stock 30,119 30,532 ----------- ----------- Total shares outstanding 31,946 32,359 =========== =========== Book value per share $ 13.97 $ 13.44 =========== =========== Book value per share (excluding SFAS 115) $ 13.48 $ 12.88 =========== =========== Pretax investment yield 5.8% 6.0% =========== =========== ALLIED Group, Inc. Segment Information (in thousands) Revenues -------------------------------------------Income before Revenues Revenues Realized income taxes from from investment Total and minority nonaffiliates affiliates gains(losses)revenues interest* Six months ended ------------- ---------- ------------ --------- --------- June 30, 1998 Property-casualty $ 300,713 $ 598 $ 312 $301,623 $ 36,863 Excess & surplus lines 20,402 -- 12 20,414 4,756 All other 28,916 61,876 4 90,796 (1,245) Intersegment elimin. -- (59,830) -- (59,830) -- ---------- --------- -------- --------- --------- Total $ 350,031 $ 2,644 $ 328 $ 353,003 $ 40,374 ========== ========= ======== ========= ========= Six months ended June 30, 1997 Property-casualty $ 275,344 $ 494 $ (2) $ 275,836 $ 39,542 Excess & surplus lines 19,726 -- (2) 19,724 4,740 All other 25,364 53,940 4 79,308 180 Intersegment elimin. -- (52,417) -- (52,417) -- ---------- --------- -------- --------- --------- Total $ 320,434 $ 2,017 $ -- $ 322,451 $ 44,462 ========== ========= ======== ========= ========= Segment Assets ------------------------------ June 30, December 31, 1998 1997 ----------- ------------ Property-casualty $ 1,070,790 $ 1,012,926 Excess & surplus lines 149,172 141,814 All other 631,379 560,270 Eliminations (551,704) (513,777) ----------- ----------- Total $ 1,299,637 $ 1,201,233 =========== =========== * Includes realized investment gains or losses. ALLIED Group, Inc. Supplemental Insurance Information (dollars in thousands) Three months ended Six months ended June 30, June 30, ----------------------- ----------------------- 1998 1997 1998 1997 ---------- --------- ----------- ----------- Property-casualty segment results Net written premiums $ 148,310 $ 135,334 $ 286,545 $ 262,245 ========== ========== ========== ========== Earned premiums $ 139,065 $ 127,484 $ 273,717 $ 251,405 Losses and loss adjusting expenses 105,806 89,679 195,638 172,232 Underwriting expenses 36,671 33,230 74,388 65,656 ---------- --------- ---------- ---------- Statutory underwriting gain (loss) (3,412) 4,575 3,691 13,517 GAAP adjustment 3,791 1,413 5,266 1,595 ---------- --------- ---------- ---------- GAAP Underwriting gain 379 5,988 8,957 15,112 Investment income, excluding realized gains 11,846 11,167 23,366 22,093 Realized investment gains (losses) 255 4 312 (2) Other income 2,102 1,342 4,228 2,339 --------- --------- --------- --------- Income before income taxes $ 14,582 $ 18,501 $ 36,863 $ 39,542 ========= ========= ========= ========= GAAP combined ratio 99.7 95.3 96.7 94.0 ========= ========= ========= ========= Wind hail losses $ 26,773 $ 12,905 $ 32,632 $ 15,610 ========= ========= ========= ========= Impact of wind and hail losses on combined ratio 19.3 10.1 11.9 6.2 ========= ========= ========= ========= Excess & surplus lines segment results Net written premiums $ 9,217 $ 9,482 $ 21,045 $ 17,410 ========= ========= ========= ========= Earned premiums $ 8,476 $ 8,392 $ 16,883 $ 16,338 Losses and loss adjusting expenses 5,758 5,119 11,169 10,457 Underwriting expenses 2,393 2,466 5,933 4,674 --------- --------- --------- --------- Statutory underwriting gain (loss) 325 807 (219) 1,207 GAAP adjustment 178 151 1,444 147 --------- --------- --------- --------- GAAP Underwriting gain 503 958 1,225 1,354 Investment income, excluding realized gains 1,796 1,717 3,519 3,388 Realized investment gains (losses) 12 -- 12 (2) --------- --------- --------- --------- Income before income taxes $ 2,311 $ 2,675 $ 4,756 $ 4,740 ========= ========= ========= ========= GAAP combined ratio 94.1 88.6 92.7 91.7 ========= ========= ========= ========= ALLIED Group, Inc. Property-casualty Statutory Information (dollars in thousands) Six Months ended June 30, ------------------------------------------------- 1998 1997 ---------------------- --------------------- Combined Earned Combined Earned ratio premiums ratio premiums ----------- -------- ---------- -------- Statutory results by line Personal automobile $ 137,901 94.8 $ 124,893 93.1 Homeowners 51,445 111.2 45,666 100.5 ---------- ---------- Personal lines 189,346 99.3 170,559 95.1 ---------- ---------- Commercial automobile 13,434 95.4 12,881 92.1 Workers' compensation 11,296 96.9 11,968 88.1 Other property/liability 58,454 93.4 54,834 92.0 Other lines 1,187 65.1 1,163 60.5 ---------- ---------- Commercial lines 84,371 93.8 80,846 91.0 ---------- ---------- Total $ 273,717 97.6 $ 251,405 93.8 ========== ========== Statutory ratios Loss ratio 59.3 59.4 Loss adjustment ratio 12.2 9.2 Underwriting expense ratio 26.0 25.0 Dividend ratio 0.1 0.2 ------ ----- Statutory combined ratio 97.6 93.8 ====== ===== -- End --