First Quarter 2008 Financial Highlights
WORCESTER, Mass., April 28 /PRNewswire-FirstCall/ --
-- Net income of $1.12 per share, compared to $1.22 per share in the
prior-year quarter.
-- Property and Casualty pre-tax segment income of $98.0 million, compared
to $100.9 million in the prior-year quarter.
-- Higher catastrophes and non-catastrophe weather related losses in the
first quarter of 2008 resulted in unfavorable comparison with first
quarter 2007 earnings.
-- Net premiums written of $628.5 million, compared to $612.0 million in
the prior-year quarter.
-- Book value per share of $45.23 per share at March 31, 2008, from $44.37
per share at December 31, 2007.
Financial Highlights
Quarter ended
in millions, except per share amounts March 31
2008 2007
Total Segment Income after taxes $57.3 $60.2
Net realized investment (losses) gains (5.1) 1.9
Federal income tax settlement - 2.4
Gains on derivative instruments 0.1 -
Income tax benefit (expense) on non-segment income 1.2 (0.7)
Income from Continuing Operations 53.5 63.8
Discontinued Operations 5.0 (0.2)
Net Income $58.5 $63.6
Net Income per share (Diluted) $1.12 $1.22
The Hanover Insurance Group, Inc. (NYSE: THG) today reported net income
for the first quarter of 2008 of $58.5 million, or $1.12 per share, compared
to $63.6 million, or $1.22 per share, in the first quarter of the prior year.
Net income for the first quarter of 2008 included an after-tax net realized
loss on investments of $5.1 million, or $0.09 per share, compared to a gain of
$1.9 million, or $0.04 per share in the prior-year quarter. Net income for the
first quarter of 2008 included $5.0 million, or $0.09 per share, resulting
from adjustments to after-tax net gains on previously sold businesses. This
benefit compares to a $0.2 million loss on disposal of variable life insurance
and annuity business in the prior-year quarter.
(Logo: http://www.newscom.com/cgi-bin/prnh/20051031/NEM023LOGO )
Total Property and Casualty pre-tax segment income was $98.0 million in
the first quarter of 2008, compared to $100.9 million in the first quarter of
the prior year.
"I am very pleased with the strength of our performance and quality of our
earnings in the first quarter of 2008," said Frederick H. Eppinger, chief
executive officer of The Hanover Insurance Group, Inc. "Our P&C business
remains solid and reflects a 13.7% return on P&C levered equity (1). At the
same time, our underwriting practices remain disciplined, as we continue to
maintain our ex-catastrophe accident year margins and generate favorable
prior-year reserve development even in today's challenging market
environment." Eppinger continued, "Although our first quarter growth in
written premium reflects actions we have taken to reduce coastal exposures in
homeowners and a difficult prior-year comparison in personal lines, we remain
confident we can achieve full year growth in written premium and earnings."
The following table details pre-tax segment income (loss).
Quarter ended
in millions March 31
2008 2007
Property and Casualty:
Personal Lines (2) $27.6 $47.4
Commercial Lines (3) 68.3 49.0
Other Property and Casualty 2.1 4.5
Total Property & Casualty 98.0 100.9
Life Companies (2.5) (0.9)
Interest expense on corporate debt (10.0) (10.0)
Total pre-tax segment income 85.5 90.0
Federal income tax expense (28.2) (29.8)
Total segment income after taxes (4) $57.3 $60.2
(1) Calculated based on trailing four quarters.
(2) Includes Personal Lines pre-tax net impact of catastrophes of $11.0
million and $7.2 million for the first quarters of 2008 and 2007,
respectively.
(3) Includes Commercial Lines pre-tax net impact of catastrophes of $8.3
million and $7.1 million for the first quarters of 2008 and 2007,
respectively.
(4) 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 $98.0 million in the
first quarter of 2008, compared to $100.9 million in the first quarter of
2007, representing a decrease of $2.9 million. The pre-tax net impact of
catastrophes was $19.3 million in the first quarter of 2008, compared to $14.3
million in the first quarter of 2007. Excluding the pre-tax net impact of
catastrophes, property and casualty pre-tax segment income would have been
$117.3 million in the first quarter of 2008, up $2.1 million, compared to
$115.2 million in the first quarter of 2007.
The following table summarizes the components of the GAAP combined ratio
for the Property and Casualty segment:
Quarter ended
March 31
2008 2007
Personal Lines losses (excluding catastrophes) 57.8% 53.0%
Personal Lines catastrophe-related losses 3.0% 1.7%
Total Personal Lines losses 60.8% 54.7%
Commercial Lines losses (excluding catastrophes) 32.5% 37.7%
Commercial Lines catastrophe-related losses 3.3% 2.5%
Total Commercial Lines losses 35.8% 40.2%
Total P&C Losses 51.0% 49.1%
Loss adjustment expenses 10.5% 10.8%
Hurricane Katrina-related loss adjustment expenses -- 0.5%
Policy acquisition and other underwriting expenses 33.5% 33.4%
Combined Ratio 95.0% 93.8%
Personal Lines
Personal Lines pre-tax segment income was $27.6 million in the first
quarter of 2008, compared to $47.4 million in the prior-year quarter. The
pre-tax net impact of catastrophes was $11.0 million in the first quarter of
2008, compared to $7.2 million in the first quarter of 2007. Excluding the
pre-tax net impact of catastrophes, Personal Lines pre-tax segment income
would have been $38.6 million in the first quarter of 2008, compared to $54.6
million in the prior-year quarter.
Favorable development of prior-year loss and LAE reserves was $12.0
million in the first quarter of 2008, compared to $21.5 million in the
prior-year quarter. The reduction in the first quarter of 2008 in favorable
development occurred primarily in personal auto.
Current ex-catastrophe accident year losses were higher in the quarter
compared to the prior-year quarter, principally due to higher non-catastrophe
weather related losses, principally in homeowners, resulting from a more
severe winter in the Midwest and in the Northeast.
Personal Lines highlights:
-- Net premiums written were $351.7 million in the first quarter of 2008,
compared to $366.3 million in the first quarter of 2007, a decrease of
4.0%.
-- Net premiums earned were $369.3 million in the first quarter of 2008,
compared to $360.3 million in the first quarter of 2007, an increase of
2.5%.
-- New business net premiums written were $58.8 million in the first
quarter of 2008, compared to $75.2 million in the first quarter of 2007
and $59.8 million in the fourth quarter of 2007.
-- The Personal Lines GAAP combined ratio was 101.2% in the first quarter
of 2008, compared to 95.9% in the prior-year quarter. Catastrophe
related losses were $11.0 million, or 3.0 points of the first quarter
combined ratio in 2008, compared to $7.2 million, or 2.0 points in the
prior-year quarter.
-- Favorable development of prior-year loss and LAE reserves was $12.0
million in the first quarter of 2008, compared to $21.5 million in the
first quarter of 2007, improving the Personal Lines combined ratio by
3.2 points and 6.0 points, respectively.
Commercial Lines
Commercial Lines pre-tax segment income was $68.3 million in the first
quarter of 2008, compared to $49.0 million in the first quarter of 2007. The
pre-tax net impact of catastrophes was $8.3 million in the first quarter of
2008, compared to $7.1 million in the first quarter of 2007. Excluding the
pre-tax net impact of catastrophes, Commercial Lines pre-tax segment income
would have been $76.6 million in the first quarter of 2008, compared to $56.1
million in the prior-year quarter, an increase of $20.5 million. This increase
was primarily due to higher favorable development of loss and LAE reserves,
and improvement in current accident year losses.
Commercial Lines highlights:
-- Net premiums written were $276.8 million in the first quarter of 2008,
compared to $245.7 million in the first quarter of 2007, representing
an increase of 12.7%.
-- Net premiums earned were $248.4 million in the first quarter of 2008,
compared to $224.1 million in the first quarter of 2007, an increase of
10.8%.
-- New business net premiums written were $78.7 million in the first
quarter of 2008, compared to $79.6 million in the first quarter of
2007, and $77.0 million in the fourth quarter of 2007.
-- The Commercial Lines GAAP combined ratio was 85.3% in the first quarter
of 2008, compared to 90.8% in the prior-year quarter. Catastrophe
related losses were $8.3 million, or 3.3 points of the first quarter
combined ratio in 2008, compared to $ 7.1 million, or 3.2 points in the
prior-year quarter.
-- Favorable development of prior-year loss and LAE reserves was $44.6
million in the first quarter of 2008, compared to favorable development
of $30.5 million in the first quarter of 2007, improving the Commercial
Lines combined ratio by 18.0 points and 13.6 points, respectively.
Other Property & Casualty
Other Property & Casualty's pre-tax segment income was $2.1 million in the
first quarter of 2008, compared to $4.5 million in the prior-year quarter, a
decrease of $2.4 million driven primarily by adverse development of $1.3
million in our run-off voluntary pools business, and increased expenses in our
premium financing business, the sale of which, as previously announced, is
anticipated to close in the second quarter.
Life Segment
Continuing Operations:
The Life segment continuing operations reported a pre-tax loss of $2.5
million in the first quarter of 2008, compared to a loss of $0.9 million in
the first quarter of 2007. The segment loss in the current quarter was $1.0
million higher than expected, primarily due to unfavorable mortality
experience in our run off traditional Life business.
Discontinued Operations:
For the first quarter of 2008, the company recorded an after-tax gain of
$5.0 million resulting from adjustments to after-tax net gains on previously
sold businesses, principally from a favorable litigation outcome. In 2007, we
reported a loss of $0.2 million in the first quarter, resulting from the
disposal of the variable life insurance and annuity business.
Investment Results
Net investment income was $80.7 million for the first quarter of 2008,
compared to $80.2 million in the same period of 2007.
Net investment income for the Property and Casualty segment increased by
$3.6 million, to $64.3 million for the first quarter of 2008, compared to
$60.7 million in the first quarter of 2007. Partially offsetting the increase
in Property and Casualty was a decrease in the Life Companies' net investment
income of $3.1 million, to $16.2 million in the first quarter 2008, compared
to $19.3 million in the first quarter of 2007.
These changes were primarily the result of an intercompany transfer of
assets. Effective January 1, 2008, certain employee benefit related assets and
liabilities were transferred from our life insurance subsidiary, First
Allmerica Life Insurance Company, to Hanover Insurance. These asset transfers
resulted in a first quarter $2.5 million increase to investment income in the
Property and Casualty segment, offset by an equal decrease in the Life
segment. The increase in Property and Casualty net investment income in 2008
also was driven primarily by positive operating cash flows from the business,
while the decrease in the Life Companies' net investment income was driven by
lower average invested assets, resulting from continued cash outflows from the
run-off of life operations.
First quarter 2008 pre-tax net realized investment losses were $5.0
million, compared to a gain of $2.3 million in the same period of 2007. In the
first quarter of 2008, the company recognized impairments of $7.5 million on
certain fixed maturity securities, partially offset by pre-tax net investment
gains of $2.5 million, primarily from sales of fixed maturities. The increase
in impairments in the current quarter was attributable to credit market
conditions not directly associated with financial institution losses. In the
first quarter of 2007, pre-tax net realized gains on sales of invested assets
were $2.8 million, partially offset by $0.5 million from impairments.
Investment Portfolio
The company held $6.1 billion in cash and investment assets at March 31,
2008. Fixed maturities represented 92% of our investment portfolio, with a
carrying value of $5.6 billion. 95% of our fixed maturity portfolio is rated
investment grade.
We have little to no exposure to investment in sub-prime mortgages or
sub-prime mortgage-backed securities, or the secondary credit risk presented
by financial guarantors. Residential mortgage backed securities constitute
$1.1 billion of our invested assets, with less than 15% held in non-agency
securities. We have no sub-prime exposure. Commercial mortgage backed
securities constitute $468.3 million of our invested assets. Approximately 95%
of our CMBS holdings were from pre-2005 vintages, with 5% from the 2006
vintage and no 2005 vintage. The entire CMBS portfolio had a weighted average
loan-to-value ratio of 67.2%. As of March 31, 2008, we hold $824.7 million of
municipal bonds in our portfolio, with an overall rating of AA. Financial
guarantor insurance enhanced municipal bonds represent $365.8 million, or 44%
of this portfolio. The overall credit rating of our insured municipal bond
portfolio, giving no effect to the insurance enhancement, was A-.
Earnings Conference Call
The Hanover will host a conference call to discuss the company's first
quarter results on Tuesday, April 29th, at 11:00 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
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
approximately two hours after the call.
Statistical Supplement
The Hanover's first quarter earnings news release and statistical
supplement are available in the Investors section at 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 www.hanover.com under "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 decisions in Louisiana involving the so-
called "Valued Policy Law," which is pending before the Louisiana Supreme
Court), 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) and
expansion in geographic areas, the impact of the company's acquisitions of
Professionals Direct, Inc. and of Verlan Holdings, Inc., adverse loss
development and adverse trends in mortality and morbidity and medical costs,
changes in frequency and loss trends, 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), the recent change in the Massachusetts private passenger
automobile regulatory environment from the "fix-and-establish" system to
"managed competition," adverse state and federal legislation or regulation or
regulatory actions, financial ratings actions, uncertainties in estimating FIN
45 liabilities recorded in conjunction with indemnity obligations undertaken
in connection with the sale various businesses and increased uncertainties in
general economic conditions and in investment and financial markets, which,
among other things, could result in increased impairments of fixed income
investments, 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, catastrophe losses relating to Hurricane Katrina
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
(including development related to Hurricane Katrina) 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 March 31, 2008 and 2007 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.
Contact Information
Investors: Media:
Sujata MutalikMichael F. Buckley
E-mail: smutalik@hanover.com E-mail: mibuckley@hanover.com
1-508-855-3457 1-508-855-3099
Definition of Reported Segments
The Hanover conducts its business in four operating segments. Three of
these operating segments, Personal Lines, Commercial Lines, and Other Property
and Casualty, are included in our Property and Casualty operations. 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, such as fidelity and surety bonds, and inland
marine. The Other Property and Casualty segment includes Opus Investment
Management, Inc., which provides investment management services to
institutions, pension funds and other organizations; earnings on holding
company assets; AMGRO, Inc., a premium financing business, as well as a block
of run-off voluntary pools business in which we have not actively participated
since 1995. The Life Companies, the company's fourth operating segment,
include the run-off business of First Allmerica Financial Life Insurance
Company (FAFLIC), principally consisting of traditional life insurance and
group retirement businesses.
THE HANOVER INSURANCE GROUP, INC.
Quarter ended
in millions, except per share amounts March 31
2008 2007
Net income $58.5 $63.6
Net income per share (1) $1.12 $1.22
Weighted average shares 52.3 51.9
(1) Net income per share (diluted)
The following is a reconciliation from segment income to net income (1):
Quarter ended March 31
in millions, except per share amount 2008 2007
Per Per
$ Share (2) $ Share (2)
Property and Casualty
Personal Lines $27.6 $ -- $47.4 $ --
Commercial Lines 68.3 -- 49.0 --
Other Property & Casualty 2.1 -- 4.5 --
Total Property and Casualty 98.0 -- 100.9 --
Life Companies (2.5) -- (0.9) --
Interest expense on corporate debt (10.0) -- (10.0) --
Total segment income 85.5 1.63 90.0 1.73
Federal income tax expense on
segment income (28.2) (0.54) (29.8) (0.57)
Total segment income after federal
income taxes 57.3 1.09 60.2 1.16
Federal income tax settlement -- -- 2.4 0.04
Net realized investment (losses)
gains, net of amortization (5.1) (0.09) 1.9 0.04
Gains on derivatives 0.1 -- -- --
Federal income tax benefit (expense)
on non-segment income 1.2 0.02 (0.7) (0.01)
Income from continuing operations,
net of taxes 53.5 1.02 63.8 1.23
Gain (loss) on disposal of variable
life insurance and annuity business,
net of taxes 6.2 0.12 (0.2) (0.01)
Loss on sale of Financial Profiles
Inc., net of tax (1.2) (0.02) -- --
Net income (3) $58.5 $1.12 $63.6 $1.22
(1) 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.
(2) Per Share data is per diluted share of common stock.
(3) Basic net income per share was $1.13 and $1.24 for quarters ended
March 31, 2008 and 2007, respectively.
Net income includes the following items by segment:
in millions Quarter ended March 31, 2008
Personal Commercial Other Property Life Total
Lines Lines & Casualty (2) Companies
Net realized investment
(losses) gains (1) (2.0) (1.4) 3.1 (4.8) (5.1)
Gains on derivatives -- -- -- 0.1 0.1
Gain on disposal of
variable life insurance
and annuity business,
net of taxes -- -- -- 6.2 6.2
Loss on sale of Financial
Profiles, Inc. -- -- -- (1.2) (1.2)
Quarter ended March 31, 2007
Personal Commercial Other Property Life Total
Lines Lines & Casualty Companies
Net realized investment
(losses) gains (1) (0.4) (0.3) 1.0 1.6 1.9
Federal income
tax settlement -- -- -- 2.4 2.4
Loss on disposal of
variable life insurance
and annuity business,
net of taxes -- -- -- (0.2) (0.2)
(1) We manage investment assets for our property and casualty business
based on the requirements of the entire property and casualty group.
We allocate the investment income, expenses and realized gains
(losses) to our Personal Lines, Commercial Lines and Other Property
and Casualty segments based on actuarial information related to the
underlying business.
(2) Includes corporate eliminations.
All figures reported are unaudited
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.