WORCESTER, Mass., July 30 /PRNewswire-FirstCall/ -- The Hanover Insurance
Group, Inc. (NYSE: THG) today reported net income for the second quarter of
$59.8 million, or $1.14 per share, compared to $50.9 million, or $0.99 per
share in the second quarter of last year. Income from continuing operations
was $59.5 million for the second quarter, or $1.14 per share, compared to
$53.7 million, or $1.04 per share, in the second quarter of last year.
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Total Property and Casualty pre-tax segment income was $98.1 million in
the quarter, compared to $86.2 million in the second quarter of last year.
The Personal Lines segment reported pre-tax segment earnings of $55.7 million
in the second quarter of 2007 compared to $53.7 million in the second quarter
of 2006, while the Commercial Lines segment reported pre-tax segment earnings
of $39.3 million in the quarter, versus $30.2 million in the second quarter of
2006.
"Our companies continue to deliver strong results and generate earnings
growth even under challenging market conditions," said Frederick H. Eppinger,
chief executive officer of The Hanover Insurance Group, Inc. "We continue to
grow and maintain positive momentum in both our Commercial and Personal Lines
of business, making progress toward another good year."
Segment Results
The Hanover conducts its business in four operating segments. Property
and casualty operations consist of three operating segments: Personal Lines,
Commercial Lines, and Other Property and Casualty. The Personal Lines segment
markets automobile, homeowners and ancillary coverages to individuals and
families. The Commercial Lines segment offers a suite of products targeted at
the small to mid-size business markets, which include commercial multiple
peril, commercial automobile, workers' compensation and other commercial
coverages. The Other Property and Casualty segment includes a block of
run-off voluntary pools business in which we have not actively participated
since 1995; AMGRO, Inc., a premium financing business; Opus Investment
Management, Inc., which provides investment management services to
institutions, pension funds and other organizations; and earnings on holding
company assets. The Life Companies, our fourth operating segment, include the
run-off business of First Allmerica Financial Life Insurance Company (FAFLIC),
principally consisting of traditional life insurance and retirement
businesses.
The following table shows pre-tax segment income. It is presented in a
manner consistent with the way management evaluates results and is set forth
in accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information."
Quarter ended
June 30
(In millions)
2007 2006
Property and Casualty:
Personal Lines(1) $55.7 $53.7
Commercial Lines(2) 39.3 30.2
Other Property and Casualty 3.1 2.3
Total Property & Casualty 98.1 86.2
Life Companies 0.8 (1.0)
Interest expense on corporate debt (9.9) (9.9)
Total pre-tax segment income 89.0 75.3
Federal income tax expense (29.8) (23.6)
Total segment income after taxes (3) $59.2 $51.7
(1) Includes Personal Lines pre-tax net impact of catastrophes of $9.2
million and $7.4 million for the second quarter of 2007 and 2006,
respectively.
(2) Includes Commercial Lines pre-tax net impact of catastrophes of $5.3
million and $12.1 million for the second quarter of 2007 and 2006,
respectively.
(3) See reconciliation from segment income to net income at the end of
this document.
Property and Casualty
Property and Casualty pre-tax segment income was $98.1 million in the
second quarter of 2007, up from $86.2 million in the second quarter of 2006.
The pre-tax net impact of catastrophes was $14.5 million in the quarter
compared, to $19.5 million in the second quarter of 2006. Excluding
catastrophes, Property and Casualty pre-tax segment income would have been
$112.6 million in the current quarter compared to $105.7 million in the
prior-year quarter, an increase of $6.9 million. Underlying this increase were
higher underwriting losses that were more than offset by several factors.
Higher underwriting losses in the quarter resulted from higher current
accident year losses that were partially offset by higher favorable
development of prior-year loss and loss adjustment reserves. The several
factors that contributed to improved earnings in the quarter were lower loss
adjustment expenses, higher investment income and favorable results from
involuntary pools.
Property and Casualty highlights:
-- Net premiums written were $619.9 million in the second quarter of 2007,
compared to $598.4 million in the second quarter of 2006, up 3.6%.
-- Net premiums earned were $590.7 million in the second quarter of 2007,
compared to $549.4 million in the second quarter of 2006.
-- New business net premiums written were $151.8 million in the second
quarter of 2007, compared to $151.8 million written in the second
quarter of 2006.
-- Favorable development of prior-year loss and loss adjustment reserves
was $34.8 million in the second quarter of 2007, compared to favorable
development of $25.6 million in the second quarter of 2006, driven
primarily by Personal Auto and Commercial Multiple Peril.
The following tables summarize the components of the GAAP combined ratio
for the Property and Casualty segment:
Quarter ended
June 30
2007 2006
Personal Lines losses (excluding catastrophes) 51.7 % 49.3 %
Personal Lines catastrophe-related losses 2.5 % 2.6 %
Total Personal Lines losses 54.2 % 51.9 %
Commercial Lines losses (excluding catastrophes) 44.2 % 41.2 %
Commercial Lines catastrophe-related losses 2.3 % 5.2 %
Total Commercial Lines losses 46.5 % 46.4 %
Total P&C Losses 51.5 % 49.9 %
Loss adjustment expenses 10.0 % 11.2 %
Policy acquisition and other underwriting
expenses 32.7 % 33.8 %
Combined Ratio 94.2 % 94.9 %
Personal Lines
Personal Lines pre-tax segment income was $55.7 million in the quarter
compared to $53.7 million in the prior-year quarter. The pre-tax net impact of
catastrophes was $9.2 million in the current quarter compared to $7.4 million
in the second quarter of 2006. Excluding catastrophes, personal lines pre-tax
segment income would have been $64.9 million in the current quarter compared
to $61.1 million in the prior-year quarter, an increase of $3.8 million.
Underlying this increase were higher underwriting losses that were more than
offset by several factors. Higher underwriting losses in the quarter resulted
from higher current accident year losses that were partially offset by higher
favorable development of prior-year loss and loss adjustment reserves. The
several factors that contributed to earnings improvement in the quarter were
lower loss adjustment expenses, higher net investment income and favorable
results from involuntary pools.
Current accident year losses were higher in the second quarter of 2007
compared to the prior-year quarter. The increase in current accident year
losses is driven by large property losses in the Homeowners' line, as well as
an increase in current accident year losses in personal auto.
Prior-year loss and loss adjustment reserves developed favorably and were
$22.5 million in the second quarter of 2007, compared to $17.3 million in the
second quarter of 2006. This increase was driven by personal auto liability
and relates primarily to the most recent prior accident year.
Loss adjustment expenses excluding catastrophes were $4.8 million lower in
the quarter, compared to the prior-year quarter resulting primarily from lower
technology expenses and lower independent adjusters' expenses.
Net investment income was $2.0 million higher in the quarter due primarily
to higher operating cash flows.
Earnings were also higher by $1.9 million in the current quarter compared
to the second quarter of 2006 due primarily to the more favorable results from
the Massachusetts Commonwealth of Automobile Reinsurers (Mass CAR) pool.
Personal Lines highlights:
-- Net premiums written were $370.8 million in the second quarter of 2007,
compared to $360.7 million in the second quarter of 2006, up 2.8%.
-- Net premiums earned were $364.4 million in the second quarter of 2007,
compared to $344.5 million in the second quarter of 2006.
-- New business net premiums written were $67.8 million in the second
quarter of 2007, representing a decrease of 4.4% compared to $71.0
million in the second quarter of 2006.
-- The Personal Lines GAAP combined ratio was 93.7% in the second quarter,
versus 92.9% in the prior-year quarter.
-- The pre-tax net impact of catastrophes was $9.2 million, or 2.5 points
of the combined ratio for the second quarter of 2007, compared to $7.4
million, or 2.2 points of the combined ratio for the second quarter of
2006.
-- Favorable development of prior-year loss and loss adjustment reserves
was $22.5 million in the current quarter, compared to favorable
development of $17.3 million in the second quarter of 2006 decreasing
the personal lines combined ratio by 6.2 points and 5.0 points,
respectively.
Commercial Lines
Commercial Lines pre-tax segment income was $39.3 million in the quarter,
compared to $30.2 million in the second quarter of 2006. The pre-tax net
impact of catastrophes was $5.3 million in the current quarter, compared to
$12.1 million in the second quarter of 2006. Excluding catastrophes,
commercial lines pre-tax segment income would have been $44.6 million in the
current quarter, compared to $42.3 million in the prior-year quarter, an
increase of $2.3 million. Underlying this increase were higher underwriting
losses that were more than offset by lower loss adjustment and underwriting
expenses. Higher underwriting losses in the quarter resulted from higher
current accident year losses that were partially offset by higher favorable
development of prior-year loss and loss adjustment reserves.
Current accident year losses were higher in the second quarter of 2007
compared to the second quarter of 2006, driven by Commercial Multiple Peril.
There are two factors driving the increase in current accident year losses in
Commercial Multiple Peril as compared to the second quarter of 2006. First,
current accident year losses in the second quarter of 2007 were adversely
impacted by large property losses. Second, current accident year losses were
unusually low in the second quarter of 2006.
Prior-year loss and loss adjustment reserve development was $13.3 million
favorable in the second quarter of 2007 compared to $9.3 million favorable in
the second quarter of 2006. Reserves developed favorably across most lines,
with the largest improvement seen in Commercial Multiple Peril.
Loss adjustment expenses excluding catastrophes were $4.0 million lower in
the quarter compared to the prior-year quarter, resulting primarily from lower
legal expenses and reserves.
Commercial Lines highlights:
-- Net premiums written were $248.8 million in the second quarter of 2007,
compared to $237.4 million in the second quarter of 2006, up 4.8%.
-- Net premiums earned were $226.0 million in the current quarter,
compared to $204.7 million in the prior-year quarter.
-- New business net premiums written were $84.0 million in the second
quarter of 2007, representing an increase of 3.9% compared to $80.8
million in the second quarter of 2006.
-- The Commercial Lines GAAP combined ratio was 94.6% in the second
quarter, compared to 98.4% in the prior- year quarter.
-- The pre-tax net impact of catastrophes was $5.3 million or 2.3 points
of the combined ratio for the second quarter of 2007, compared to $12.1
million, or 5.9 points of the combined ratio for the second quarter of
2006.
-- Favorable development of prior-year loss and loss adjustment reserves
was $13.3 million in the current quarter, compared to favorable
development of $9.3 million in the second quarter of 2006; decreasing
the Commercial Lines combined ratio by 5.9 points and 4.5 points,
respectively.
Other Property & Casualty
Other Property & Casualty pre-tax segment income was $3.1 million in the
quarter, compared to $2.3 million in the prior-year quarter. Other Property &
Casualty includes the company's premium financing business, investment
management operations, earnings on holding company assets, as well as run-off
voluntary pools.
Life Companies
Continuing Operations:
The continuing operations of the Life Companies include the run-off FAFLIC
business. This business primarily includes the closed block of traditional
life insurance, group retirement business, guaranteed investment contract
(GIC) businesses, and the company's discontinued group life and health
business, including group life and health voluntary pools.
The Life Companies continuing operations reported a segment profit of $0.8
million in the current quarter of 2007, compared to a loss of $1.0 million in
the second quarter of 2006, primarily attributable to lower pension and other
expenses.
Investment Results
Net investment income was $80.3 million for the second quarter of 2007,
compared to $79.2 million in the same period of 2006. Net investment income
for the property and casualty segment increased by $3.6 million, to $59.6
million for the second quarter of 2007, compared to the second quarter of
2006. This increase in property and casualty segment net investment income for
the quarter was driven primarily by increased operating cash flows.
Offsetting the increase in property and casualty net investment income was a
decrease in net investment income in the Life Companies' of $2.5 million to
$20.5 million. The decrease in Life Companies net investment income was driven
by lower average invested assets, resulting from continued cash outflows from
the run off of the life operations and maturities of long-term funding
agreements.
Second quarter 2007 pre-tax net realized investment gains were $0.8
million, compared to $2.9 million in the same period of 2006. In the second
quarter of 2007, pre-tax net realized gains on sales of fixed maturities of
$1.1 million were partially offset by $0.3 million of capital losses,
resulting from impairments on certain fixed maturity securities. In the second
quarter of 2006, pre-tax net realized investment gains of $4.8 million were
primarily from sales of investments. These gains were partially offset by $1.9
million of capital losses resulting from impairments on certain fixed maturity
securities.
Balance Sheet
Shareholders' equity was $2.1 billion, or $40.55 per share at June 30,
2007, compared to $2.0 billion or $39.10 per share at December 31, 2006.
Excluding accumulated other comprehensive income, book value per share was
$42.51 per share at the close of the current quarter, compared to $39.88 per
share at December 31, 2006.
Earnings Conference Call
The Hanover will host a conference call to discuss the company's second
quarter results on Tuesday, July 31st at 10:00 a.m. Eastern Time. A
PowerPoint slide presentation will accompany our prepared remarks and has been
posted on our web site. Interested investors and others can listen to the
call and access the presentation through The Hanover's web site, located at
http://www.hanover.com. Web-cast participants should go to the web site 15
minutes early to register, download, and install any necessary audio software.
A re-broadcast of the conference call will be available on this web site two
hours after the call.
Statistical Supplement
The Hanover's second quarter earnings press release and statistical
supplement are also available in the Investors section at
http://www.hanover.com.
Forward-Looking Statements and Non-GAAP Financial Measures
Certain statements in this release or in the above referenced conference
call may be forward-looking statements as defined in the Private Securities
Litigation Reform Act of 1995. Use of the words "believes," "anticipates,"
"expects," "projections," "outlook," "should," "plan," "guidance" and similar
expressions is intended to identify forward-looking statements. The Company
cautions investors that any such forward-looking statements are not guarantees
of future performance, and actual results could differ materially. Investors
are directed to consider the risks and uncertainties in its business that may
affect future performance and that are discussed in readily available
documents, including the Company's annual report and other documents filed by
The Hanover with the Securities and Exchange Commission and which are also
available at http://www.hanover.comunder "Investors". These uncertainties
include the possibility of adverse catastrophe experiences (including
terrorism) and severe weather, the uncertainties in estimating property and
casualty losses (particularly with respect to products with longer tails and
with respect to losses incurred as the result of Hurricanes Katrina and Rita),
the possibility of adverse judicial decisions including those which expand
policy coverage beyond its intended scope (such as recent decisions in
Louisiana involving the so-called "flood" exclusions and so-called "Valued
Policy Law"), the ability to increase or maintain certain property and
casualty insurance rates, the impact of new product introductions (such as the
multivariate personal auto product and the homeowners tiered product), adverse
loss development and adverse trends in mortality and morbidity and medical
costs, changes in the frequency and loss trends generally being experienced
industry-wide, the ability to improve renewal rates and increase new property
and casualty policy counts, investment impairments, heightened competition
(including increasing rate pressure, particularly in Commercial lines),
adverse state and federal legislation or regulation or regulatory actions
(such as recent mandated decrease in rates for Massachusetts personal
automobile insurance and Florida homeowners policies), financial ratings
actions, uncertainties in estimating the FIN 45 liability recorded in
conjunction with certain indemnity obligations to Goldman Sachs in connection
with the sale of the variable life insurance and annuity business (including
with respect to existing and potential litigation and regulatory actions and
the remediation of certain processing errors in connection with tax
reporting), and various other factors.
The Hanover uses non-GAAP financial measures as important measures of the
Company's operating performance, including total segment income, property and
casualty segment income, and measures of segment income and loss ratios
excluding catastrophe losses or reserve development.
Segment income is net income excluding federal income taxes and net
realized investment gains and losses, including gains or losses on certain
derivative instruments, because fluctuations in these gains and losses are
determined by interest rates, financial markets and the timing of sales.
Segment income also excludes net gains and losses on disposals of businesses,
discontinued operations, restructuring costs, extraordinary items, the
cumulative effect of accounting changes and certain other items. Property and
Casualty segment income is the sum of the segment income of the three
operating segments of The Hanover's property and casualty operations:
Personal Lines, Commercial Lines and Other Property and Casualty. The Hanover
believes that measures of total segment income and Property and Casualty
segment income provide investors with a valuable measure of the performance of
the Company's ongoing businesses because they highlight net income
attributable to the core operations of the business.
The Hanover also provides measures of segment income and loss ratios that
exclude the effects of catastrophe losses. A catastrophe is a severe loss,
resulting from natural or manmade events, including risks such as fire,
hurricane, earthquake, windstorm, explosion, terrorism or other similar
events. Each catastrophe has unique characteristics. Catastrophes are not
predictable as to timing or loss amount in advance. The Hanover believes that
a discussion of the effect of catastrophes is meaningful for investors to
understand the variability of periodic earnings and loss ratios.
Net income is the most directly comparable GAAP measure for total segment
income, Property and Casualty segment income and measures of segment income
that exclude the effects of catastrophe losses or reserve development.
Segment income, Property and Casualty segment income and measures of segment
income that exclude the effects of catastrophe losses or reserve development
should not be construed as a substitute for net income determined in
accordance with GAAP. A reconciliation of net income to segment income and
Property and Casualty segment income for the quarters ended June 30, 2007 and
2006 is set forth in the table at the end of this document and in the
statistical supplement. Loss ratios calculated in accordance with GAAP are
the most directly comparable GAAP measure for loss ratios calculated excluding
the effects of catastrophe losses. The presentation of loss ratios calculated
excluding the effects of catastrophe losses should not be construed as a
substitute for loss ratios determined in accordance with GAAP.
The Hanover Insurance Group, Inc., based in Worcester, Mass., is the
holding company for a group of insurers that includes The Hanover Insurance
Company, also based in Worcester, Citizens Insurance Company of America,
headquartered in Howell, Michigan, and their affiliates. The Hanover offers a
wide range of property and casualty products and services to individuals,
families and businesses through an extensive network of independent agents,
and has been meeting its obligations to its agent partners and their customers
for more than 150 years. Taken as a group, The Hanover ranks among the top 40
property and casualty insurers in the United States.
THE HANOVER INSURANCE GROUP, INC.
(In millions, except per share data)
Quarter ended
June 30
2007 2006
Net income $59.8 $50.9
Net income per share(1) $1.14 $0.99
Weighted average shares (diluted) 52.3 51.6
The following is a reconciliation from segment income to net income (2):
PER SHARE DATA (DILUTED) (1) Quarter ended
June 30
2007 2006
Segment Income $ Per Share $ Per Share
Property and Casualty
Personal Lines $55.7 -- $53.7 --
Commercial Lines 39.3 -- 30.2 --
Other Property &
Casualty 3.1 -- 2.3 --
Total Property and Casualty 98.1 -- 86.2 --
Life Companies 0.8 -- (1.0) --
Interest expense on
corporate debt (9.9) -- (9.9) --
Total segment income 89.0 $1.70 75.3 $1.46
Federal income tax expense
on P&C segment income (33.8) -- (30.3) --
Federal income tax benefit
on other segment income 4.0 -- 6.7 --
Total federal income tax
expense on segment income (29.8) (0.57) (23.6) (0.46)
Total segment income after
federal income taxes 59.2 1.13 51.7 1.00
Net realized investment
gains, net of amortization 0.2 0.01 3.6 0.07
Gain on derivative instruments 0.1 -- 0.1 --
Restructuring benefit (cost) 0.2 -- (0.6) (0.01)
Federal income tax expense
on non-segment income (0.2) -- (1.1) (0.02)
Income from continuing
operations, net of taxes 59.5 1.14 53.7 1.04
Gain (loss) on disposal of
variable life insurance and
annuity business, net of taxes 0.3 -- (2.8) (0.05)
Net income 59.8 $1.14 $50.9 $0.99
(1) Basic net income per share was $1.16 and $1.00 for the quarters ended
June 30, 2007 and 2006, respectively.
(2) In accordance with Statement of Financial Accounting Standards No.
131, Disclosure about Segments of an Enterprise and Related
Information, the separate financial information of each segment is
presented consistent with the way results are regularly evaluated by
the chief operating decision maker in deciding how to allocate
resources and in assessing performance.
Management evaluates the results of the aforementioned segments on a pre-
tax basis. Segment income is determined by adjusting net income for net
realized investment gains and losses including certain gains or losses on
derivative instruments, because fluctuations in these gains and losses are
determined by interest rates, financial markets and the timing of sales.
Also, segment income excludes net gains and losses on disposals of businesses,
discontinued operations, restructuring costs, extraordinary items, the
cumulative effect of accounting changes and certain other items.
Net income includes the following items by segment:
Quarter ended June 30, 2007
Other
Personal Commercial Property Life
Lines Lines & Casualty Companies Total
Net realized investment
gains (losses) $0.4 $0.3 $(0.5) -- $0.2
Gains on derivative
instruments -- -- -- 0.1 0.1
Restructuring benefit -- -- -- 0.2 0.2
Gain on disposal of
variable life insurance
and annuity business, net
of taxes -- -- -- 0.3 0.3
Quarter ended June 30, 2006
Other
Personal Commercial Property Life
Lines Lines & Casualty Companies Total
Net realized investment
gains (losses) $2.5 $2.5 $(1.5) $0.1 $3.6
Gain on derivative
instruments -- -- -- 0.1 0.1
Restructuring costs -- -- -- (0.6) (0.6)
Gain on disposal of
variable life insurance
and annuity business, net
of taxes -- -- -- (2.8) (2.8)
All figures reported are unaudited.
Contact Information
Investors: Media:
Sujata Mutalik Michael F. Buckley
E-mail: smutalik@hanover.com E-mail: mibuckley@hanover.com
1-508-855-3457 1-508-855-3099
SOURCE The Hanover Insurance Group, Inc.
Contact: Investors, Sujata Mutalik, +1-508-855-3457, smutalik@hanover.com, or Media, Michael F. Buckley, +1-508-855-3099, mibuckley@hanover.com, both of The Hanover Insurance Group, Inc.