Lehman/A.M. Best Co. 2nd Annual Conference

"Right now, the commercial part of the property/casualty business is getting stronger--faster than any other part of the business," John F. O'Brien President & Chief Executive Officer, Allmerica Financial Corp.

Allmerica CEO Sets Sights on Company as Key Variable Annuity Player

Despite disappointing first-quarter earnings, the head of Allmerica Financial Corp. (NYSE: AFC) says the company has set its course to concentrate on being a variable products company.

Jack O'Brien, president and chief executive officer of Allmerica Financial, who spoke at the second annual Insurance Conference held in New York May 21 and May 22, co-sponsored by Lehman Bros. and A.M. Best Co., said that in the long term, Allmerica Financial plans on being a key player in both the variable annuity and variable life businesses.

"In this year's first quarter, we had an 11% decline in variable annuity sales, primarily due to investor concerns about volatility in the equity markets and concerns about the economy," said O'Brien. "But on a sequential-quarter basis, our variable annuity sales increased by about 2% from the fourth quarter."

O'Brien noted that Allmerica Financial has three methods of distribution: agency, select broker-dealer and mutual-fund partner channels. "As market conditions improve, I believe we are well positioned for future growth in these areas," he said. "Strategically, this year, we have started to place more emphasis on our select broker-dealer channel, because the market environment there appears to offer more opportunity during a weaker market."

And the emphasis on that method of distribution looks promising, he said. In the first quarter, "we nearly doubled" the number of wholesalers and introduced new products, he said. "As a result, our sales in that particular area were up 26%," O'Brien pointed out. "In addition, we have other attractive distribution opportunities under way."

After his presentation, O'Brien discussed with BestWire long- and short-term opportunities. "Right now, the commercial part of the property/casualty business is getting stronger--faster than any other part of the business," he said. "There are (more) real opportunities for price increases in the small commercial market than there have been for the past two or three years." Despite that sector's short-term potential, O'Brien noted that during the first quarter, its property/casualty business was Allmerica's weakest segment. "We got hit with (adverse) weather and unfavorable developments in the fourth quarter," he said.

Allmerica's risk-management business markets property and casualty insurance through independent agents, brokers, other distribution channels and at the work site. The property/casualty products are offered by Hanover Insurance Co. and Citizens Insurance Company of America.

Over the long term, the variable products business of the company is poised for growth, O'Brien said. "In the first quarter, we were only down 10% or 11%--while the industry was down about 15% or 20%," he told BestWire.

Before his election at Allmerica Financial, O'Brien worked for 21 years at Fidelity Investments, the Boston-based mutual fund company, where he was last the group managing director of FMR Corp., the No. 2 position at Fidelity.

On the morning of May 23, Allmerica Financial's stock was trading at $54.31 a share, down slightly from its previous close.

All of Allmerica Financial's subsidiaries are rated A (Excellent) by A.M. Best Co.

(By Fran Matso Lysiak, associate editor, Best's Review: lysiakf@ambest.com)