WORCESTER, Mass., Oct. 30 /PRNewswire-FirstCall/ --
Third Quarter 2008 Financial Highlights
-- Segment income after tax of $3.3 million, or $0.07 per share, compared
to $51.7 million, or $0.98 per share, in the prior-year quarter(1),
which included the after-tax net impact of catastrophes of $63.8
million, or $1.25 per share, in the third quarter of 2008, and $16.3
million after tax, or $0.31 per share, in the third quarter of 2007.
-- Pre-tax catastrophe and related storm losses of $98.2 million in the
current quarter, consistent with the company's pre-released estimate of
$95 million to $100 million.
-- Net loss of $61.8 million, or $1.21 per share, included $52.8 million
of realized losses on investments, or $1.04 per share, and a loss from
discontinued operations of $18.3 million, or $0.36 per share, compared
to net income of $53.9 million, or $1.03 per share, in the prior-year
quarter. Realized losses include previously disclosed impairments
related to Lehman Brothers and Washington Mutual holdings of $36.7
million.
-- Net premiums written of $651.6 million, compared to $621.8 million in
the prior-year quarter, an increase of 4.8%.
-- Book value per share of $40.09 at September 30, 2008, compared to
$44.37 per share at December 31, 2007. The year-to-date change in book
value per share includes a reduction related to discontinued life
operations of $1.83 per share.
-- Book value per share, excluding accumulated other comprehensive income
(loss), of $44.37 at September 30, 2008, compared to $44.77 per share
at December 31, 2007.
-- Book value per share, excluding accumulated other comprehensive income
(loss) and excluding the effect of discontinued life operations,
increased 3.3% year-to-date and 6.2% since September 30, 2007.
Financial Highlights
$ in millions, except per share amounts Quarter ended
September 30
2008 2007
Total Segment Income after taxes $3.3 $51.7
Federal income tax settlement 6.4 -
Net realized investment losses (52.8) (0.8)
Income tax (expense) benefit on non-segment
income (0.4) 0.6
(Loss) Income from Continuing Operations (43.5) 51.5
Discontinued Operations (18.3) 2.4
Net (Loss) Income $(61.8) $53.9
Net (Loss) Income per share (Diluted)(2) $(1.21) $1.03
(1) Segment income after tax and segment income after-tax per share are
non-GAAP measures. The reconciliation of these measures to the closest
GAAP measure, net income, is provided in this press release.
(2) Per share data for the quarter ended September 30, 2008 represents
basic loss per share due to anti-dilution.
The Hanover Insurance Group, Inc. (NYSE: THG) today reported a net loss
for the third quarter of 2008 of $61.8 million, or $1.21 per share, compared
to income of $53.9 million, or $1.03 per share, in the third quarter of the
prior year. Net loss for the third quarter of 2008 included net realized
investment losses of $52.8 million, or $1.04 per share, compared to a $0.8
million loss in the prior-year quarter. The net loss for the current quarter
also included a loss of $18.3 million, or $0.36 per share, from discontinued
operations, compared to a $2.4 million, or $0.05 per share, gain in the
prior-year quarter.
(Logo: http://www.newscom.com/cgi-bin/prnh/20051031/NEM023LOGO )
Total Property and Casualty pre-tax segment income was $13.8 million in
the third quarter of 2008, compared to $88.3 million in the third quarter of
the prior year. The third quarter of 2008 included significantly higher
catastrophe losses of $98.2 million pre-tax, compared to $25.1 million pre-tax
in the prior-year quarter. Excluding the pre-tax net impact of catastrophes,
Property and Casualty pre-tax segment income would have been $112.0 million in
the third quarter of 2008, compared to $113.4 million in the third quarter of
2007.
"While our third quarter results reflect the pre-announced impacts of
extreme storm activity and the recent turmoil in the financial markets, we
expect to generate very solid results for the year," said Frederick H.
Eppinger, chief executive officer at The Hanover. "Through the first three
quarters, we have produced strong results in our core business, with positive
underlying trends. Our combined ratio, excluding catastrophe losses, has
improved year-over-year, we are maintaining our margins and we are generating
continued favorable loss reserve development, indicative of our disciplined
underwriting practices. At the same time, our year-to-date growth, at 4
percent, is in line with our expectations and ahead of industry averages.
"In spite of all of the challenges facing the industry," Eppinger
continued, "our company is in excellent financial condition, as underscored by
our board of directors' decision last week to increase our common stock
dividend for the fourth consecutive year."
The following table details pre-tax segment income (loss).
$ in millions, except
per share amounts Quarter ended Year-to-date
September 30 September 30
2008(1) 2007(2) 2008 2007(2)
Personal Lines(3) $18.1 $48.8 $83.8 $150.4
Commercial Lines(4) (6.6) 39.2 114.1 126.7
Other Property and
Casualty 2.3 0.3 6.8 7.2
Total Property & Casualty 13.8 88.3 204.7 284.3
Interest expense on corporate
debt (10.0) (10.0) (29.9) (29.9)
Total pre-tax segment income 3.8 78.3 174.8 254.4
Federal income tax expense (0.5) (26.6) (58.4) (86.5)
Total segment income after
taxes (5) $3.3 $51.7 $116.4 $167.9
per share(5) $0.07 $0.98 $2.25 $3.21
(1) Per share data for the quarter ended September 30, 2008 represents
basic loss per share due to anti-dilution.
(2) Restated to reflect certain additional expenses that were previously
reported in the now discontinued traditional life business.
(3) Includes Personal Lines pre-tax net impact of catastrophes of $39.7
million and $5.2 million for the third quarters of 2008 and 2007,
respectively.
(4) Includes Commercial Lines pre-tax net impact of catastrophes of $58.5
million and $19.9 million for the third quarters of 2008 and 2007,
respectively.
(5) See reconciliation from segment income to net (loss) income at the end
of this document.
The following table summarizes the components of the GAAP combined ratio
for the Property and Casualty segment:
Quarter ended Year-to-date
September 30 September 30
2008 2007(1) 2008 2007(1)
Personal Lines losses (excluding
catastrophes) 54.1% 54.0% 54.5% 52.9%
Personal Lines catastrophe-related
losses 10.8% 1.3% 6.8% 1.8%
Total Personal Lines losses 64.9% 55.3% 61.3% 54.7%
Commercial Lines losses (excluding
catastrophes) 44.1% 38.7% 38.0% 40.2%
Commercial Lines catastrophe-related
losses 23.2% 6.7% 10.7% 3.8%
Total Commercial Lines losses 67.3% 45.4% 48.7% 44.0%
Total P&C Losses 65.8% 51.6% 56.2% 50.7%
Loss adjustment expenses 10.5% 11.2% 10.5% 10.9%
Policy acquisition and other
underwriting expenses 32.1% 33.1% 33.0% 33.2%
Combined Ratio 108.4% 95.9% 99.7% 94.8%
Combined Ratio (excluding
catastrophes) 92.6% 91.7% 91.3% 91.8%
(1) Restated to reflect certain additional expenses that were previously
reported in the now discontinued traditional life business.
Personal Lines
Personal Lines pre-tax segment income was $18.1 million in the third
quarter of 2008, compared to $48.8 million in the prior-year quarter. The
pre-tax net impact of catastrophes was $39.7 million in the third quarter of
2008, compared to $5.2 million in the third quarter of 2007. Excluding the
pre-tax net impact of catastrophes, Personal Lines pre-tax segment income
would have been $57.8 million in the third quarter of 2008, compared to $54.0
million in the prior-year quarter.
Segment income in the current quarter benefited from lower underwriting
expenses, primarily driven by a reduction in variable compensation expenses
and higher favorable development of prior-year loss reserves, partially offset
by higher current accident year losses in the personal auto line.
Current accident year losses in personal auto were higher in the quarter,
primarily due to an unusually low level of incurred losses in the third
quarter of 2007. Homeowners' accident year losses were lower in the third
quarter of 2008, when compared to unusually heavy large losses in the third
quarter of 2007.
Personal Lines highlights:
-- Net premiums written were $397.5 million in the third quarter of 2008,
compared to $392.9 million in the third quarter of 2007, an increase of
1.2%.
-- Net premiums earned were $368.6 million in the third quarter of 2008,
compared to $367.7 million in the third quarter of 2007.
-- New business net premiums written were $66.6 million in the third
quarter of 2008, compared to $67.3 million in the third quarter of
2007, and $66.5 million in the second quarter of 2008.
-- The Personal Lines GAAP combined ratio was 103.7% in the third quarter
of 2008, compared to 95.7% in the prior-year quarter. Catastrophe
related losses were $39.7 million, or 10.8 points of the third quarter
combined ratio in 2008, compared to $5.2 million, or 1.4 points in the
prior-year quarter.
-- Favorable development of prior-year loss reserves was $15.8 million in
the third quarter of 2008, compared to $9.8 million in the third
quarter of 2007, improving the Personal Lines combined ratio by 4.3
points and 2.6 points, respectively.
Commercial Lines
Commercial Lines pre-tax segment loss was $6.6 million in the third
quarter of 2008, compared to a profit of $39.2 million in the third quarter of
2007. The pre-tax net impact of catastrophes was $58.5 million in the third
quarter of 2008, compared to $19.9 million in the third quarter of 2007.
Excluding the pre-tax net impact of catastrophes, Commercial Lines pre-tax
segment income would have been $51.9 million in the third quarter of 2008,
compared to $59.1 million in the prior-year quarter.
The decrease of Commercial Lines ex-catastrophe segment income was
primarily driven by higher ex-catastrophe accident year losses in the current
quarter, attributable to a high incidence of large property losses in the
commercial multiple peril line compared to the prior-year quarter. On a year-
to-date basis, however, the commercial multiple peril line showed an
improvement in both the ex-catastrophe accident year loss performance and in
large property losses when compared to the prior-year period.
Commercial Lines highlights:
-- Net premiums written were $254.1 million in the third quarter of 2008,
compared to $228.9 million in the third quarter of 2007, representing
an increase of 11.0%.
-- Net premiums earned were $252.5 million in the third quarter of 2008,
compared to $227.5 million in the third quarter of 2007.
-- New business net premiums written were $79.1 million in both the third
quarters of 2008 and 2007, and were $80.8 million in the second quarter
of 2008.
-- The Commercial Lines GAAP combined ratio was 115.3% in the third
quarter of 2008, compared to 96.0% in the prior-year quarter.
Catastrophe related losses were $58.5 million or 23.2 points of the
third quarter combined ratio in 2008, compared to $19.9 million, or 8.8
points in the prior-year quarter.
-- Favorable development of prior-year loss reserves was $19.5 million in
the third quarter of 2008, compared to favorable development of $22.4
million in the third quarter of 2007, improving the Commercial Lines
combined ratio by 7.7 points and 9.8 points, respectively.
Other Property & Casualty
Other Property & Casualty's pre-tax segment income was $2.3 million in the
third quarter of 2008, compared to $0.3 million in the prior-year quarter.
Discontinued Operations
Discontinued Operations include several exited businesses as well as
results of First Allmerica Life Insurance Company ("FAFLIC"), our traditional
life business, currently under a definitive agreement to be sold.
Net loss in the third quarter of 2008 included a loss related to the
discontinued FAFLIC business of $21.7 million, primarily driven by investment
impairment charges of $15.7 million.
The third quarter of 2008 also included an after-tax gain of $3.4 million
on previously disposed businesses.
Investment Results
Net investment income from continuing operations increased by $2.7
million, to $65.5 million for the third quarter of 2008, compared to $62.8
million in the third quarter of 2007. This increase was primarily the result
of an inter-company transfer of assets effective January 1, 2008.
Pre-tax net realized investment losses were $52.8 million in the third
quarter of 2008, compared to a loss of $0.8 million in the same period of
2007. In the third quarter of 2008, the company recognized impairments of
$53.1 million on certain fixed maturity securities in continuing operations,
as well as $15.7 million of impairments included in discontinued operations.
These were partially offset by pre-tax net investment gains in continuing
operations of $0.3 million. The increase in impairments in 2008 primarily
reflects investment losses in the financial sector, including impairments of
$36.7 million related to holdings of securities issued by Lehman Brothers and
Washington Mutual.
Investment Portfolio
The company held $6.0 billion in cash and investment assets at September
30, 2008, which included $1.1 billion of assets to be sold as part of our
discontinued FAFLIC business. Fixed maturities and cash represented 96% of
our investment portfolio with a carrying value of $5.8 billion. Approximately
95% of our fixed maturity portfolio is rated investment grade.
Holdings of finance sector fixed maturities were $677.0 million with an
average credit rating of A, representing 12.6% of total fixed maturities.
Gross unrealized losses relating to these holdings were $101.6 million at
September 30, 2008, or approximately 39% of total gross unrealized losses on
investments. Included in this amount are gross unrealized losses of $16.3
million on securities expected to be transferred in connection with the sale
of FAFLIC. While market valuations of financial sector holdings have
deteriorated in the current quarter due to unprecedented events in the
financial markets, the company believes the unrealized losses are temporary.
Management believes that recent government actions, the quality of the assets,
and the company's ability and intent to hold such securities until recovery,
will allow the company to realize the securities' anticipated long-term
economic value.
Total fixed-income investments, excluding financial issuers, were $4,841.9
million at book value and $4,713.5 million at fair value at September 30,
2008. Included in these net unrealized losses of $128.4 million are net
unrealized losses of $29.8 million on securities expected to be transferred in
connection with the sale of FAFLIC.
The Hanover continues to have no direct exposure to investment in sub-
prime mortgages or sub-prime mortgage-backed securities, nor does it currently
own any collateralized debt or loan obligations or invest in credit
derivatives. Residential mortgage-backed securities constitute $1.1 billion of
its invested assets with approximately 15% held in non-agency prime
securities, substantially all of which are rated AAA. Commercial mortgage
backed securities constitute $461.6 million of the company's invested assets.
Approximately 92% of its CMBS holdings were from pre-2005 vintages, with 5%
from 2007 vintage, 3% from 2006 vintage and no 2005 vintage. The entire CMBS
portfolio, of which approximately 80% was AAA rated, has a weighted average
loan-to-value ratio of 66.7%. As of September 30, 2008, The Hanover holds
$785.0 million of municipal bonds, with an overall rating of AA-. Financial
guarantor insurance enhanced municipal bonds represent $344.3 million, or 44%,
of the municipal portfolio. The overall credit rating of The Hanover's insured
municipal bond portfolio, giving no effect to the insurance enhancement, was
A-.
Please see exhibits at the end of this document for more disclosures on
the investment portfolio.
Earnings Conference Call
The Hanover will host a conference call to discuss the company's third
quarter results on Friday, October 31, 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
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 third quarter earnings news release and statistical
supplement are available in the Investors section at http://www.hanover.com.
Forward-Looking Statements and Non-GAAP Financial Measures
The company's estimate of catastrophe losses for the third quarter 2008
and certain statements regarding financial holdings and potential impairments,
as well as statements regarding our balance sheet, capital and liquidity
positions, margins, and loss reserve development, expectations regarding
results for the year, and determinations as to whether unrealized losses are
temporary, 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," "on track to" and
similar expressions is intended to identify forward-looking statements. The
company cautions investors that any such forward-looking statements are
estimates which involve significant judgment and not guarantees of future
performance, and actual results could differ materially. Investors should
consider the risks and uncertainties in our business and under current
financial market conditions that may affect such estimates and future
performance, including (i) the inherent difficulties in arriving at such
estimates; (ii) the complexity of estimating losses from large catastrophe
events where circumstances may delay reporting of the existence, nature or
extent of losses or where "demand surge," regulatory assessments or other
factors may significantly impact the ultimate amount of such losses; (iii) the
difficulties of estimating the impact of the current financial turmoil on the
value of our investment portfolio and future investment income, including the
amount of realized losses and impairments which will be recognized in future
financial reports and our ability and intent to hold such investments until
recovery; (iv) the uncertainties in current circumstances of future rating
agency requirements, which could affect the company as well as the company's
investment portfolio; (v) the impact on our capital and liquidity of the
current financial turmoil; (vi) variations in our current estimates that may
change as the company finalizes future financial results; and (vii) the impact
of recent federal government intervention into the financial sector.
Investors are directed to consider the risks and uncertainties in the
company's 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
Gustav, Ike, Katrina and Rita), the possibility of adverse judicial decisions,
including those which expand policy coverage beyond its intended scope, 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. and its pending acquisition of AIX 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," the continued
deterioration of the economic environment, particularly in the state of
Michigan, where the company has a significant portion of its business, 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
of 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 or the
inability to collect from reinsurers, the performance of the discontinued
voluntary pools and accident and health business to be transferred to The
Hanover Insurance Company from FAFLIC in connection with the sale of FAFLIC,
and various other factors.
Finally, the projected proceeds from the sale of our life insurance
business, FAFLIC, and the estimated loss on sale of this business, which is
included in discontinued operations, are forward looking statements. There are
certain factors that could cause actual results to differ materially from
those anticipated in this press release, slide presentation and statements
made. These include: (1) the successful consummation of the transactions with
Commonwealth Annuity and Life Insurance Company in a timely manner; (2) the
various conditions to the consummation of such transactions being satisfied or
waived without the imposition of material burdens or expenses; (3) the
required regulatory approvals of the transactions being obtained in a timely
manner without the imposition of any material restrictions or burdens,
including the proposed dividend, the sale to Commonwealth Annuity and Life
Insurance Company, the coinsurance and related agreements for the accident and
health business, certain intercompany transactions, including the proposed
sale by the holding company to its subsidiary for cash and securities of
assets the holding company receives from the proposed dividend; (4) the
statutory results of operations of FAFLIC until close, which will impact the
statutory surplus of FAFLIC and consequently the ultimate dividend and
purchase price; (5) the uncertainties as to the gross or net proceeds to be
received by THG, including the uncertainty as to the effects of the various
purchase price adjustments and expenses incurred by THG and the impact of
various tax elections, declines in value of certain investment assets and
potential increases in investment impairments; (6) the ability to realize
post-closing earnings for the property-casualty segment that are taxable and
make FAFLIC's tax attributes valuable; and (7) the impact of contingent
liabilities, including litigation and regulatory matters, assumed by the
holding company in connection with the transaction.
The Hanover uses non-GAAP financial measures as important measures of the
Company's operating performance, including total segment income, segment
income after tax, segment income after-tax per share, property and casualty
segment income, and measures of segment income and loss ratios excluding
catastrophe losses.
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 (loss) income to segment income
and Property and Casualty segment income for the quarters ended September 30,
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
Our continuing operations include three Property and Casualty 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, 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, as well as a
block of run-off voluntary pools business, in which we have not actively
participated since 1995.
THE HANOVER INSURANCE GROUP, INC.
in millions, except per share amounts Quarter ended
September 30
2008 2007
Net (loss) income $(61.8) $53.9
Net (loss) income per share (diluted)(1) $(1.21) $1.03
Weighted average shares(2) 51.0 52.5
(1) Per share data for the quarter ended September 30, 2008 represents
basic loss per share due to anti-dilution.
(2) Weighted average shares outstanding for the quarter ended September
30, 2008 represents basic shares outstanding due to anti-dilution.
The following is a reconciliation from segment income to net (loss)
income(1):
$ in millions except per share
Quarter ended Sept. 30 Nine months ended Sept. 30
2008 2007 2008 2007
$ Per $ Per $ Per $ Per
Share(2) Share(3) Share(3) Share(3)
Property and
Casualty
Personal Lines $18.1 $ -- $48.8 $ -- $83.8 $-- $150.4 --
Commercial
Lines (6.6) -- 39.2 -- 114.1 -- 126.7 --
Other Property &
Casualty 2.3 -- 0.3 -- 6.8 -- 7.2 --
Total Property and
Casualty 13.8 -- 88.3 -- 204.7 -- 284.3 --
Interest expense
on corporate
debt (10.0) -- (10.0) -- (29.9) -- (29.9) --
Total segment
income 3.8 0.08 78.3 1.49 174.8 3.37 254.4 4.87
Federal income tax
expense on segment
income (0.5) (0.01) (26.6)(0.51) (58.4) (1.12) (86.5) (1.66)
Total segment
income after
federal income
taxes 3.3 0.07 51.7 0.98 116.4 2.25 167.9 3.21
Federal income tax
settlement 6.4 0.13 -- -- 6.4 0.12 -- --
Net realized
investment
losses (52.8) (1.04) (0.8)(0.01) (60.7) (1.17) (0.3) (0.01)
Federal income
tax (expense)
benefit on
non-segment
income (0.4) (0.01) 0.6 0.01 (0.4) (0.01) 0.4 0.01
(Loss) income from
continuing
operations,
net of taxes (43.5) (0.85) 51.5 0.98 61.7 1.19 168.0 3.21
(Loss) income from
operations of
discontinued
FAFLIC businesses
(includes loss on
assets held-for-
sale in 2008),
net of taxes (21.7) (0.42) 1.5 0.03 (92.9) (1.80) 8.3 0.16
Income from
operations of AMGRO
(includes gain on
disposal, in 2008),
net of taxes -- -- -- -- 10.1 0.20 -- --
Gain on disposal of
variable business,
net of taxes 2.7 0.05 0.1 -- 8.1 0.16 0.2 --
Other 0.7 0.01 0.8 0.02 (0.5) (0.01) 0.8 0.02
Net (loss)
income(4) $(61.8) $(1.21) $53.9 $1.03 $(13.5) $(0.26) $177.3 $3.39
(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 represents basic loss per share due to anti-dilution.
(3) Per share data is per diluted share of common stock.
(4) Per share data from the quarter ended September 30, 2008 represents
basic loss per share due to anti-dilution. Basic income (loss) per
share was $1.04 for quarter ended September 30, 2007, and $(0.26) and
$3.44 for the nine months ended September 30, 2008 and 2007,
respectively.
The table below includes our top twenty-five financial sector fixed
maturity holdings as of September 30, 2008 and related financial ratings. The
allocation of securities has been prepared on a pro forma basis to reflect the
securities that will be held by each entity after consideration of the FAFLIC
sale.
($ In millions, except percentage data)
Holdings to be transferred
Property & Casualty to FAFLIC Buyer
Amortized Fair Amortized Fair
Issuer Cost Value Cost Value
Bank of America $41.1 $32.4 $2.0 $1.8
Merrill Lynch (1) 15.4 12.0 7.0 4.9
Total Bank of America 56.5 44.4 9.0 6.7
JP Morgan 26.9 24.9 5.0 4.4
Goldman Sachs 26.3 21.1 - -
Morgan Stanley 21.2 13.2 4.0 2.7
GE Capital 24.8 23.1 - -
Capital One 17.4 15.3 7.1 5.3
Royal Bank of Scotland 12.1 12.4 12.3 12.5
HSBC Bank 19.1 19.0 5.0 4.5
Manufacturers & Traders
Bank 13.1 9.7 7.9 5.8
Wachovia Bank 13.7 9.2 7.1 5.0
Aetna 16.4 16.0 3.6 3.4
Credit Suisse First
Boston 11.6 10.6 7.7 7.4
American Express 16.2 14.2 3.0 2.5
Wellpoint 14.8 14.3 4.0 3.7
PNC Bank 16.6 15.4 - -
Wells Fargo 16.4 14.9 - -
Bank of New York 10.9 10.1 4.4 4.3
Fifth Third Bancorp 15.0 10.9 - -
National City 15.0 6.3 - -
CIT Group (2) 14.5 14.5 - -
Student Loan Market (2) 10.7 10.7 3.1 3.1
Genworth Global Funding 11.2 9.6 2.0 1.7
Regions Bank 8.2 5.6 5.0 4.1
FMR 7.2 6.8 5.0 4.9
HBOS 12.0 11.8 - -
Top 25 Financial 427.8 364.0 95.2 82.0
Other Financial 227.3 205.7 27.4 25.3
Total Financial $655.1 $569.7 $122.6 $107.3
Total
Amortized Fair % of S&P
Issuer Cost Value Inv. Assets Ratings
Bank of America $43.1 $34.2 0.57% AA-
Merrill Lynch (1) 22.4 16.9 0.28% A
Total Bank of America 65.5 51.1 0.85% AA-
JP Morgan 31.9 29.3 0.48% AA-
Goldman Sachs 26.3 21.1 0.35% AA-
Morgan Stanley 25.2 15.9 0.26% A+
GE Capital 24.8 23.1 0.38% AAA
Capital One 24.5 20.6 0.34% BBB+
Royal Bank of Scotland 24.4 24.9 0.41% A+
HSBC Bank 24.1 23.5 0.39% A-
Manufacturers & Traders
Bank 21.0 15.5 0.26% A-
Wachovia Bank 20.8 14.2 0.24% A+
Aetna 20.0 19.4 0.32% A-
Credit Suisse First
Boston 19.3 18.0 0.30% AA-
American Express 19.2 16.7 0.28% A+
Wellpoint 18.8 18.0 0.30% A-
PNC Bank 16.6 15.4 0.26% A+
Wells Fargo 16.4 14.9 0.25% AA+
Bank of New York 15.3 14.4 0.24% AA-
Fifth Third Bancorp 15.0 10.9 0.18% A-
National City 15.0 6.3 0.10% A-
CIT Group (2) 14.5 14.5 0.24% A-
Student Loan Market (2) 13.8 13.8 0.23% BBB-
Genworth Global Funding 13.2 11.3 0.19% A
Regions Bank 13.2 9.7 0.16% BBB+
FMR 12.2 11.7 0.19% AA-
HBOS 12.0 11.8 0.20% A
Top 25 Financial 523.0 446.0
Other Financial 254.7 231.0
Total Financial $777.7 $677.0
(1) Merrill Lynch acquisition by Bank of America is anticipated to close
on January 2009.
(2) Reflects impairments taken as of September 30, 2008.
The table below includes our top twenty-five non-financial sector
corporate fixed maturity holdings as of September 30, 2008 and related
financial ratings. The allocation of securities has been prepared on a pro
forma basis to reflect the securities that will be held by each entity after
consideration of the FAFLIC sale.
($ In millions, except percentage data)
Holdings to be transferred
Property & Casualty to FAFLIC Buyer
Amortized Fair Amortized Fair
Issuer Cost Value Cost Value
AT&T $34.2 $33.8 $9.2 $8.7
Dominion Resources 23.2 22.0 8.7 8.3
CVS 24.5 22.9 7.0 6.5
Valero Energy 24.8 24.5 4.0 3.8
Vodafone 18.6 17.6 7.0 6.4
Verizon 15.1 14.2 10.4 9.7
Conoco Phillips 23.4 23.8 - -
Safeway 17.7 17.7 5.0 5.0
Telefonica Europe 11.9 11.0 10.1 10.2
Kroger 20.6 20.5 - -
Lowe's 13.6 13.1 7.0 6.7
Oracle 4.6 5.1 15.4 15.4
Home Depot 16.8 14.5 3.0 2.1
Textron 17.0 17.0 2.3 2.3
McKesson 12.1 11.9 7.3 7.0
General Mills 10.8 10.9 8.4 8.4
Consolidated Edison 16.0 15.6 3.1 3.1
Union Pacific 19.0 19.6 - -
Canadian Natural
Resources 12.3 11.1 6.6 5.9
Schering-Plough 15.4 14.1 3.2 2.8
Miller Brewing 16.4 16.0 2.0 2.0
Comcast 15.8 15.4 2.0 1.8
Encana 17.7 17.3 - -
MidAmerican Energy 10.1 9.5 7.5 7.3
British Telecom 12.5 11.9 5.0 4.7
Top 25 Non-Financial 424.1 411.0 134.2 128.1
Other
Non-Financial 1,139.0 1,075.3 306.9 308.4
Total
Non-Financial $1,563.1 $1,486.3 $441.1 $436.5
Total
Amortized Fair % of S&P
Issuer Cost Value Inv. Assets Ratings
AT&T $43.4 $42.5 0.70% A
Dominion Resources 31.9 30.3 0.50% A-
CVS 31.5 29.4 0.49% BBB+
Valero Energy 28.8 28.3 0.47% BBB
Vodafone 25.6 24.0 0.40% A-
Verizon 25.5 23.9 0.40% A
Conoco Phillips 23.4 23.8 0.39% A
Safeway 22.7 22.7 0.38% BBB
Telefonica Europe 22.0 21.2 0.35% BBB+
Kroger 20.6 20.5 0.34% BBB-
Lowe's 20.6 19.8 0.33% A+
Oracle 20.0 20.5 0.34% A
Home Depot 19.8 16.6 0.28% BBB+
Textron 19.3 19.3 0.32% A-
McKesson 19.4 18.9 0.31% BBB+
General Mills 19.2 19.3 0.32% BBB+
Consolidated Edison 19.1 18.7 0.31% A-
Union Pacific 19.0 19.6 0.32% BBB
Canadian Natural
Resources 18.9 17.0 0.28% BBB
Schering-Plough 18.6 16.9 0.28% A-
Miller Brewing 18.4 18.0 0.30% BBB+
Comcast 17.8 17.2 0.29% BBB+
Encana 17.7 17.3 0.29% A-
MidAmerican Energy 17.6 16.8 0.28% A-
British Telecom 17.5 16.6 0.28% BBB+
Top 25 Non-Financial 558.3 539.1
Other
Non-Financial 1,445.9 1,383.7
Total
Non-Financial $2,004.2 $1,922.8
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.