WORCESTER, Mass, Aug. 1, 2012 /PRNewswire/ -
Second Quarter Financial Highlights
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Net income of $20.8 million, or $0.46 per diluted share; segment income
after tax of $10.0 million, or $0.22 per diluted share(1)
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Combined ratio of 103.1%; ex-catastrophe combined ratio(2) of 96.0%
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Net investment income of $68.5 million
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Net premiums written of $1,197.6 million, up 46.9% over the prior-year
quarter, driven by:
- $329.8 million as a result of the Chaucer acquisition
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Growth of 13% in Commercial Lines
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Continuing improvement in Commercial Lines pricing trends; strong
retention
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Realized gain on sale of CMI, a workers' compensation and disability
program third-party administrator, for a gain of $10.9 million, or
$0.24 per share in discontinued operations
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Repurchased approximately 259,000 of common shares for $10.0 million
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Book value per share(3) of $58.81 at June 30, 2012, up 8.0% from June 30, 2011 and 2.0% from
March 31, 2012
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| In millions, except per share amounts |
Three months ended
June 30(4,5) |
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Six months ended
June 30(4,5) |
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2012
|
|
2011(3) |
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2012
|
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2011(3) |
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Net premiums written
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$ 1,197.6 |
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$ 815.4 |
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$2,214.4 |
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$1,565.3 |
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Segment income (loss) after taxes
|
10.0
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(38.4)
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56.0
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(12.5)
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| per diluted share | 0.22 |
| (0.85) |
| 1.23 |
| (0.27) |
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Net income
|
20.8
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(32.2)
|
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70.5
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(2.9)
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| per diluted share | 0.46 |
| (0.71) |
| 1.55 |
| (0.06) |
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Book value per share
| $ 58.81 |
| $ 54.44 |
| $ 58.81 |
| $ 54.44 |
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(1)
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Pre-tax segment income, segment income before interest expense and
taxes, segment income after taxes and segment income after taxes per
diluted share are non-GAAP measures. These measures are used
throughout this document. The reconciliation of these measures to the
closest GAAP measures, income from continuing operations and income
from continuing operations per diluted share, respectively, is provided
on page 12 of this press release. See the disclosure on the use of
non-GAAP measures under the heading "Forward-Looking Statements and
Non-GAAP Financial Measures."
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(2)
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Ex-catastrophe combined ratio is a non-GAAP measure. This measure and
measures excluding prior-year reserve development are used throughout
this document. The combined ratio (which includes catastrophe losses)
is the closest GAAP measure. See the disclosure on the use of non-GAAP
measures under the heading "Forward-Looking Statements and Non-GAAP
Financial Measures."
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(3)
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Prior periods were restated for the effect of the company's adoption of
the new Deferred Acquisition Cost ("DAC") methodology on the balance
sheet and income statement. See Book Value and Other Items on page 7
for more detail.
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(4)
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Second quarter 2012 results include the operations of Chaucer, which was
not acquired until July 1, 2011. Accordingly, current and prior periods
are not directly comparable.
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(5)
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Weighted average shares outstanding and per diluted share amounts for
the three months and six months ended June 30, 2011 exclude common
stock equivalents, as the impact of these instruments was
anti-dilutive.
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The Hanover Insurance Group, Inc. (NYSE: THG) today reported net income
of $20.8 million, or $0.46 per diluted share, for the second quarter of
2012. The company reported a net loss of $32.2 million, or $0.71 per
diluted share, in the second quarter of 2011.
Segment income after tax was $10.0 million, or $0.22 per diluted share,
in the second quarter of this year, compared to a segment loss of $38.4
million, or $0.85 per share, in the prior-year quarter.
Segment income before interest expense and taxes was $31.0 million in
the second quarter of 2012, which included $74.1 million in pre-tax
catastrophe losses. In the second quarter last year, the company
reported a segment loss before interest expense and taxes of $47.3
million, which included $156.7 million in pre-tax catastrophes losses.
"Our diversified business delivered profitable results in the quarter,
despite the higher than expected catastrophe losses and unfavorable
loss development in certain lines," said Frederick H. Eppinger, chief
executive officer at The Hanover. "This quarter marks one full year
since the acquisition of Chaucer Holdings plc on July 1, 2011. During
this period, Chaucer has delivered strong pre-tax earnings of $88
million, including its highest contribution this quarter, at $30
million.
"We are addressing the unfavorable development in our U.S. surety and
automobile liability lines of business. However, we continue to see
positive trends in our domestic businesses. Most importantly, we
achieved even greater price increases while maintaining strong
retention levels. We believe the market and our agents and broker
partners will continue to support additional pricing and continued
targeted underwriting actions.
"In addition, our high quality, longer duration investment portfolio is
well-positioned for the current low interest rate environment, and we
are able to find investment grade opportunities in the fixed income
space, which help us maintain relatively stable new money yields.
"We have confidence in our ability to achieve our financial goals and to
deliver value to our shareholders. At quarter-end, our book value per
share stood at $58.81, the highest in company history. This represents
an increase of 8% from the second quarter of last year, and
approximately 2% from last quarter," he said.
The following table provides the components of segment income after
taxes:
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| $ in millions, except per share amounts |
Three months ended
June 30 |
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Six months ended
June 30 |
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|
2012
|
|
2011
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2012
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2011
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Pre-tax segment income (loss):
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Commercial Lines
| $(9.4) |
| $(25.3) |
| $24.5 |
| $(7.1) |
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Personal Lines
|
12.3
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(22.8)
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39.8
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7.5
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Chaucer
|
29.8
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--
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55.3
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--
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Other Property and Casualty
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(1.7)
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0.8
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(2.9)
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2.1
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Total
| 31.0 |
| (47.3) |
| 116.7 |
| 2.5 |
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Interest expense on debt
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(15.9)
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(10.8)
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(32.1)
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(21.2)
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| Pre-tax segment income (loss) | 15.1 |
| (58.1) |
| 84.6 |
| (18.7) |
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Income tax (expense) benefit
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(5.1)
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19.7
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(28.6)
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6.2
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| Segment income (loss) after taxes | $10.0 |
| $(38.4) |
| $56.0 |
| $(12.5) |
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| Per diluted share | $0.22 |
| $(0.85) |
| $1.23 |
| $(0.27) |
Second Quarter Segment Highlights
Commercial Lines
Commercial Lines pre-tax segment loss was $9.4 million in the second
quarter of this year, compared to a loss of $25.3 million in the second
quarter of 2011. The Commercial Lines GAAP combined ratio was 109.7%
in the second quarter of this year, compared to 114.5% in the
prior-year quarter. Catastrophe losses were $38.4 million, or 8.5
points of the second quarter combined ratio in 2012, compared to $77.1
million, or 18.9 points, in the prior-year quarter. Second quarter
2012 results also reflected unfavorable prior-year loss reserve
development of $14.5 million, or 3.2 points of the second quarter
combined ratio, compared to favorable development of $9.3 million, or
2.3 points, in the second quarter of 2011.
The unfavorable development in the second quarter of 2012 was primarily
driven by $13.0 million in the contract surety line, as well as $5.1
million in the commercial auto line, which primarily reflected an
increase in severity of losses from the 2011 accident year.
Commercial Lines current accident year underwriting, excluding
catastrophes, generated a combined ratio of 98.0%, compared to 97.9% in
the prior-year quarter.
The current quarter's results benefited from a lower expense ratio,
driven by earned premium growth and operating efficiencies, which was
offset by a higher current accident year loss ratio in the commercial
auto and specialty lines.
The following table summarizes the components of the combined ratio in
Commercial Lines:
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Three months ended
June 30 |
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Six months ended
June 30 |
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2012
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2011
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2012
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2011
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Current accident year loss and LAE ratio, excluding catastrophe losses
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61.6 %
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58.9 %
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60.2 %
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59.9 %
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Prior-year unfavorable (favorable) reserve development
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3.2 %
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(2.3)%
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1.7 %
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(2.9)%
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Catastrophe losses
| 8.5 % |
| 18.9 % |
| 5.6 % |
| 12.9 % |
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Total loss and LAE
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73.3 %
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75.5 %
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67.5 %
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69.9 %
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Expense ratio(1) | 36.4 % |
| 39.0 % |
| 37.6 % |
| 39.3 % |
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Combined ratio
| 109.7 % |
| 114.5 % |
| 105.1 % |
| 109.2 % |
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Combined ratio, excluding catastrophe losses
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101.2 %
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95.6 %
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99.5 %
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96.3 %
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Current accident year combined ratio, excluding catastrophe losses(2) |
98.0 %
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97.9 %
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97.8 %
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99.2 %
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(1)
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Here, and later in this document, the expense ratio is reduced by
installment fee revenues for purposes of the ratio calculation.
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(2)
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This is a non-GAAP measure, which is equal to the combined ratio
excluding prior-year favorable reserve development and catastrophe
losses. This measure also is used later in this document. See the
disclosure on the use of non-GAAP measures under the heading
"Forward-Looking Statements and Non-GAAP Financial Measures."
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Net premiums written were $496.7 million in the second quarter of 2012,
up 12.8% from the prior-year quarter, driven by growth in specialty and
core commercial lines. The net written premium growth reflected
increased new business flow and continued renewal price gains, as well
as and strong retention.
Personal Lines
Personal Lines pre-tax segment income was $12.3 million in the second
quarter of 2012, compared to a segment loss of $22.8 million in the
prior-year quarter. The Personal Lines GAAP combined ratio was 102.0%
in the second quarter of this year, compared to 112.2% in the
prior-year quarter. Catastrophe losses were $32.4 million, or 8.9
points of the second quarter combined ratio in 2012, compared to $79.6
million, or 22.0 points, in the prior-year quarter. Second quarter 2012
results also reflected prior-year reserve increases of $7.8 million, or
2.1 points of the second quarter combined ratio, compared to favorable
reserve development of $5.9 million, or 1.6 points, in the second
quarter of 2011.
The unfavorable development in the second quarter of 2012 was primarily
driven by $3.2 million in the personal auto line, reflecting an
increase in severity of losses mainly from the 2011 accident year, and
$3.5 million in the homeowners' line, as a result of the emergence of
losses on non-catastrophe weather related activity in the latter half
of 2011.
Personal Lines current accident year underwriting, excluding
catastrophes, improved to a combined ratio of 91.0%, compared to 91.8%
in the prior-year quarter. This improvement was primarily due to lower
non-catastrophe weather-related losses in the second quarter of this
year.
The following table summarizes the components of the combined ratio in
Personal Lines:
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Three months ended
June 30 |
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Six months ended
June 30 |
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2012
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2011
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2012
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2011
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Current accident year loss and LAE ratio, excluding catastrophe losses
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64.1 %
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65.0 %
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63.7 %
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66.6 %
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Prior-year unfavorable (favorable) reserve development
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2.1 %
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(1.6)%
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1.6 %
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(2.8)%
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Catastrophe losses
| 8.9 % |
| 22.0 % |
| 7.6 % |
| 14.1 % |
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Total loss and LAE
|
75.1 %
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|
85.4 %
|
|
72.9 %
|
|
77.9 %
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|
Expense ratio
| 26.9 % |
| 26.8 % |
| 27.1 % |
| 26.9 % |
|
Combined ratio
| 102.0 % |
| 112.2 % |
| 100.0 % |
| 104.8 % |
|
Combined ratio, excluding catastrophe losses
|
93.1 %
|
|
90.2 %
|
|
92.4 %
|
|
90.7 %
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|
Current accident year combined ratio, excluding catastrophe losses
|
91.0 %
|
|
91.8 %
|
|
90.8 %
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|
93.5 %
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Net premiums written were $371.1 million in the second quarter of 2012,
a decrease of 1% from the second quarter of 2011. Rate increases in all
lines were more than offset by exposure management actions, primarily
in the Northeast.
Chaucer
Chaucer's pre-tax segment income was $29.8 million in the second quarter
of 2012, resulting in a combined ratio of 91.9%. Catastrophe losses
were $3.3 million, or 1.4 points of the combined ratio. Prior-year
favorable reserve development was $5.1 million, or 2.2 points of the
combined ratio, which was primarily driven by favorable loss experience
in the Casualty and Other, as well as in the Energy division.
The following table summarizes the components of the combined ratio in
the Chaucer segment:
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|
Three months ended
June 30 |
|
Six months ended
June 30 |
|
|
|
2012
|
|
2012
|
|
Current accident year loss and LAE ratio, excluding catastrophe losses
|
|
55.5%
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59.7%
|
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Prior-year favorable reserve development
|
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(2.2)%
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|
(5.7)%
|
|
Catastrophe losses
|
| 1.4 % |
| 2.1 % |
|
|
Total loss and LAE
|
|
54.7%
|
|
56.1%
|
|
Expense ratio
|
| 37.2% |
| 36.7% |
|
Combined ratio
|
| 91.9% |
| 92.8% |
|
Combined ratio, excluding catastrophe losses
|
|
90.5%
|
|
90.7%
|
|
Current accident year combined ratio, excluding catastrophe losses
|
|
92.7%
|
|
96.4%
|
Net premiums written and earned were $329.8 million and $236.5 million,
respectively, in the second quarter of 2012.
Second Quarter Investment Results
Net investment income from continuing operations was $68.5 million for
the second quarter of 2012, compared to $61.0 million in the prior-year
period. The increase in 2012 is primarily due to higher invested assets
related to the acquisition of Chaucer, partially offset by lower new
money yields on fixed maturities. The average pre-tax earned yield on
fixed maturities was 4.31% and 5.35% for the quarters ended June 30,
2012 and 2011, respectively. The decline in yield is primarily due to
the lower embedded yield in the Chaucer portfolio.
Pre-tax net realized investment losses were $3.4 million in the second
quarter of 2012, including $1.6 million of impairment charges. In the
second quarter of 2011, pre-tax net realized investment gains were
$13.4 million, including $0.8 million of impairment charges.
The company held $7.7 billion in cash and invested assets at June 30 of
this year.
Fixed maturities and cash represented 92% of our investment portfolio.
Approximately 94% of our fixed maturity portfolio is rated investment
grade. Pre-tax net unrealized investment gains on our portfolio
increased $93.7 million during the first six months of 2012, to $379.1
million at June 30, 2012 from $285.4 million at December 31, 2011.
During the second quarter, pre-tax net unrealized investment gains
increased by $28.2 million.
Book Value and Other Items
The following exhibit provides a roll forward of book value for the
three months and six months ended June 30, 2012:
|
|
|
|
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|
| $ in millions, except per share |
Three months ended June 30 |
Six months ended June 30 |
|
|
$ Amount
|
$ Per diluted share
|
$ Amount
|
$ Per diluted share
|
|
Beginning of Period Book Value
| $2,579.0 | $57.65 | $2,484.0 | $55.67 |
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Net Income
|
|
|
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Continuing Operations
|
9.8
|
0.22
|
60.5
|
1.33
|
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Discontinued Operations(1) |
11.0
|
0.24
|
10.0
|
0.21
|
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Change in AOCI(2), net of tax
|
|
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Change in Pension and Postretirement Related Benefits
|
1.5
|
0.03
|
3.0
|
0.07
|
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|
Change in Net Unrealized Investment Gains(3) |
44.9
|
1.01
|
88.8
|
2.00
|
|
|
Currency Translation Adjustment
|
(8.4)
|
(0.19)
|
0.9
|
0.02
|
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Stock Repurchases
|
(10.0)
|
(0.23)
|
(10.0)
|
(0.23)
|
|
Dividends to Shareholders
|
(13.5)
|
(0.30)
|
(27.0)
|
(0.60)
|
|
Common Stock Activity(4) |
3.2
|
-
|
7.3
|
-
|
|
Common Stock Net Activity, per share
|
-
|
0.38
|
-
|
0.34
|
|
End of Period Book Value
| $2,617.5 | $58.81 | $2,617.5 | $58.81 |
|
(1)
|
Second quarter and year-to-date 2012 include a one-time gain of $10.9
million for the sale of Citizens Management Inc. |
|
(2)
|
Accumulated other comprehensive income.
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(3)
|
Second quarter and year-to-date 2012 include a net benefit of $24.4
million, or $0.55 per share related to the release of a deferred tax
valuation allowance resulting from the implementation of certain tax
planning strategies, which were partially offset by other tax-related
items.
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(4)
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Primarily exercise of employee stock options and vesting of restricted
stock.
|
Book value per share was $58.81 at June 30, 2012, compared to $57.65 at
March 31, 2012, and $54.44 at June 30, 2011, up 2.0% and 8.0%,
respectively.
During the second quarter 2012, the company repurchased approximately
259,000 shares of its common stock for approximately $10.0 million. On
August 1, 2012, the company had approximately $125 million of capacity
remaining under its $500 million stock repurchase program.
Earnings Conference Call
The Hanover will host a conference call to discuss its second quarter
results on Thursday, August 2nd at 10:00 a.m. Eastern Time. A PowerPoint slide presentation will accompany the prepared remarks and
has been posted on The Hanover 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 second quarter earnings news release and statistical
supplement are available in the Investors section of the company's Web
site at www.hanover.com.
Forward-Looking Statements and Non-GAAP Financial Measures
Forward-looking statements
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," "could,"
"confident," "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 or projections that involve significant judgment and that
neither historical results and trends nor forward-looking statements
are guarantees or necessarily indicative of future performance. Actual
results could differ materially.
In particular, statements in this press release regarding actions to
address negative development in our domestic business, continuing
positive pricing and retention trends, the expected success of pricing
and underwriting actions, the ability to continue to improve our
financial performance and capitalize on growth opportunities, upgrades
in the quality of our portfolio and improvements in the market and
economic environment, and statements in the above-referenced conference
call regarding expectations and guidance for 2012 or beyond, including
with respect to segment income after interest expense and taxes,
segment income after tax and interest expense per share, expectations
for future reserve development, catastrophe losses, net written
premium, new business growth, momentum in new states, retention, the
ability to achieve rate increases and maintain or improve
ex-catastrophe accident year loss and expense ratios, net investment
income, interest expense on debt, the potential impact of capital
actions and business investments, financial strength, the impact of
product, account-based and geographic mix changes on future
profitability, expectations for our surety business, prior-year loss
and loss adjustment expense reserve development, the impact of
seasonality, the impact of various agency and exposure management
actions on net written premiums or segment income, effective tax rates,
weighted shares outstanding, returns on equity, the impact of foreign
currency fluctuations, and statements regarding expected financial
results and profitability of Chaucer Holdings plc ("Chaucer"), are all
forward-looking statements. Statements regarding the possible impact
of the current economic conditions on the company's business and
investment portfolio, and with respect to the anticipated pricing
environment, are also forward looking statements.
Investors should consider the risks and uncertainties in the company's
business that may affect such estimates and future performance,
including (i) the inherent difficulties in arriving at such estimates,
particularly with respect to current accident year results and loss
reserve development or with respect to lines of business which are more
volatile, or with respect to which historical losses are less
predictive of future losses, or "longer tail" products; (ii) the
complexity of estimating losses from large catastrophe events or with
respect to emerging issues where circumstances may delay reporting of
the existence, nature or extent of losses or where "demand surge,"
regulatory assessments, litigation, coverage and technical complexities
or other factors may significantly impact the ultimate amount of such
losses; (iii) the difficulties of estimating the impact of the current
financial and economic environment on rates, investment income, product
demand, losses and competitor actions; (iv) the uncertainties of future
rating agency requirements, which could affect the company as well as
the company's investment portfolio; (v) the impact of the evolving
regulatory and legal environment; and (vi) those related to the
integration of the Chaucer transaction and inherent in Chaucer's
business, including the adequacy of reserves and the nature of its
underwriting activities.
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 ("SEC") 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 uncertainty in estimating weather-related losses, and
property and casualty losses (particularly with respect to products
with longer tails or involving emerging issues and with respect to
losses incurred as the result of new lines of business or reinsurance
contracts); litigation and 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
and expansion in new geographic areas; the impact of the company's
recent or future acquisitions (including integration risks with respect
to Chaucer), and expenses incurred as a result of such acquisitions;
adverse loss and loss adjustment expense development from prior years
and adverse trends in mortality and morbidity and medical costs;
changes in frequency and loss trends; the ability to increase renewal
rates and new property and casualty policy counts; investment
impairments (which may be affected by, among other things, the
company's ability and willingness to hold investment assets until they
recover in value) and currency, credit and interest rate risk; the
impact of competition; the economic environment; adverse state, federal
and, with respect to Chaucer, international legislation or regulation
or regulatory actions; financial ratings actions; uncertainties in
estimating indemnification liabilities recorded in conjunction with
obligations undertaken in connection with the sale of various
businesses; and uncertainties in general economic conditions (including
inflation, particularly in various sectors such as healthcare) 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 and the performance of the
discontinued and run-off voluntary pools.
Non-GAAP financial measures
As discussed on page 8 of the Annual Report, The Hanover uses non-GAAP
financial measures as important measures of its operating performance,
including total segment income before interest expense and taxes,
segment income after tax, segment income after-tax per share, and
measures of segment income and loss ratios excluding catastrophe losses
and reserve development. Segment income after taxes EPS (sometimes
referred to as "after-tax segment income per share") is a non-GAAP
measure. It is defined as net income excluding the after-tax impact of
net realized investment gains (losses), gains and losses from the
retirement of the company's debt, and results from discontinued
operations, divided by the average number of diluted shares of common
stock. The definition of other financial measures and terms can be
found in the Annual Report on pages 80-82.
Segment income is net income, excluding federal income taxes and net
realized investment gains and losses, including gains or losses on
certain derivative instruments. Such gains and losses are excluded for
purposes of presenting segment income since they are largely 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.
Segment income is the sum of the segment income from: Commercial
Lines, Personal Lines, Chaucer and Other Property and Casualty, and may
be presented before or after interest expense. The Hanover believes
that measures of total 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 and
combined 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 and combined ratios.
Reserve development, which can be favorable or unfavorable, represents
changes in the company's estimate of the costs to resolve claims from
prior years. The company believes that a discussion of segment income
and loss and combined ratios excluding reserve development is helpful
to investors since it provides insight into both its estimate of
current year accident results and the accuracy of prior-year estimates.
Calendar year loss ratios determined in accordance with GAAP, excluding
reserve development, are sometimes referred to as "accident-year loss
ratios".
Income from continuing operations is the most directly comparable GAAP
measure for total segment income (and total segment income after tax)
and measures of segment income that exclude the effects of catastrophe
losses or reserve development. Segment income and measures of segment
income that exclude the effects of catastrophe losses or reserve
development should not be construed as substitutes for income from
continuing operations or net income determined in accordance with
GAAP. A reconciliation of segment income to income from continuing
operations and net income for the three months and six months ended
June 30, 2012 and 2011 is set forth in the table at the end of this
document and in the statistical supplement.
Loss and combined ratios calculated in accordance with GAAP are the most
directly comparable GAAP measures for loss and combined ratios
calculated excluding the effects of catastrophe losses or reserve
development. The presentation of loss and combined ratios calculated
excluding the effects of catastrophe losses or reserve development
should not be construed as a substitute for loss or combined ratios
determined in accordance with GAAP.
About The Hanover
The Hanover Insurance Group, Inc. (NYSE: THG), 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 Chaucer
Holdings plc, based in London, and their affiliates. The Hanover offers
a wide range of property and casualty products and services to
businesses, individuals, and families through a select group of agents
and brokers. The company ranks among the top 25 property and casualty
insurers in the United States and has been meeting its obligations to
its agent partners and their customers for 160 years. Through Chaucer,
the company also underwrites business at Lloyd's of London in several
major insurance and reinsurance classes, including property, marine and
aviation, energy, U.K. motor and casualty. For more information, please
visit www.hanover.com.
Definition of Reported Segments
Continuing operations include four Property and Casualty operating
segments: Commercial Lines, Personal Lines, Chaucer, and Other Property
and Casualty. 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 Personal Lines segment markets automobile,
homeowners and ancillary coverages to individuals and families. The
Chaucer reporting segment represents THG's international business
written through Lloyd's of London in several major insurance and
reinsurance classes, including property, marine and aviation, energy,
U.K. motor and casualty.The Other Property and Casualty segment includes Opus Investment
Management, Inc., which provides investment management services to
institutions, pension funds and other organizations, the operations of
the holding company, as well as a block of run-off voluntary pools
business, in which we have not actively participated since 1995.
The following is reconciliation from segment income (loss) to net income
(loss)(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| In millions, except per share amounts |
2012
|
|
2011
|
|
2012
|
|
2011
|
|
|
$
Amount
|
|
Per
Diluted
Share
|
|
$
Amount
|
|
Per
Diluted
Share
|
|
$
Amount
|
|
Per
Diluted
Share
|
|
$
Amount
|
|
Per
Diluted
Share
|
|
Segment income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Lines
| $ (9.4) |
|
|
| $(25.3) |
|
|
| $ 24.5 |
|
|
| $ (7.1) |
|
|
|
|
Personal Lines
|
12.3
|
|
|
|
(22.8)
|
|
|
|
39.8
|
|
|
|
7.5
|
|
|
|
|
Chaucer
|
29.8
|
|
|
|
--
|
|
|
|
55.3
|
|
|
|
--
|
|
|
|
|
Other Property & Casualty
| (1.7) |
|
|
| 0.8 |
|
|
| (2.9) |
|
|
| 2.1 |
|
|
|
Total
|
31.0
|
|
|
|
(47.3)
|
|
|
|
116.7
|
|
|
|
2.5
|
|
|
|
Interest expense on debt
| (15.9) |
|
|
| (10.8) |
|
|
| (32.1) |
|
|
| (21.2) |
|
|
|
Segment income (loss) before income taxes
|
15.1
|
| $ 0.33 |
|
(58.1)
|
| $ (1.28) |
|
84.6
|
| $ 1.86 |
|
(18.7)
|
| $ (0.41) |
|
Income tax (expense) benefit on segment income
| (5.1) |
| (0.11) |
| 19.7 |
| 0.43 |
| (28.6) |
| (0.63) |
| 6.2 |
| 0.14 |
|
Segment income (loss) after taxes
|
10.0
|
|
0.22
|
|
(38.4)
|
|
(0.85)
|
|
56.0
|
|
1.23
|
|
(12.5)
|
|
(0.27)
|
|
Non-Segment Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains (losses)
|
(3.4)
|
|
(0.07)
|
|
13.4
|
|
0.30
|
|
(0.3)
|
|
(0.01)
|
|
16.7
|
|
0.37
|
|
|
Net gain (loss) from retirement of debt
|
--
|
|
--
|
|
0.3
|
|
0.01
|
|
--
|
|
--
|
|
(2.2)
|
|
(0.05)
|
|
|
Costs related to acquired businesses
|
(0.9)
|
|
(0.02)
|
|
(11.1)
|
|
(0.25)
|
|
(2.4)
|
|
(0.05)
|
|
(13.8)
|
|
(0.31)
|
|
|
Loss on derivative instruments
|
--
|
|
--
|
|
(4.7)
|
|
(0.10)
|
|
--
|
|
--
|
|
(4.7)
|
|
(0.10)
|
|
|
Net foreign exchange gains
|
0.3
|
|
0.01
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
--
|
|
|
Income tax benefit on non-segment income
| 3.8 |
| 0.08 |
| 7.7 |
| 0.17 |
| 7.2 |
| 0.16 |
| 11.6 |
| 0.25 |
|
Income (loss) from continuing operations
|
9.8
|
|
0.22
|
|
(32.8)
|
|
(0.72)
|
|
60.5
|
|
1.33
|
|
(4.9)
|
|
(0.11)
|
|
Gain on sale of Citizens Management Inc |
10.9
|
|
0.24
|
|
--
|
|
--
|
|
10.9
|
|
0.24
|
|
--
|
|
--
|
|
Other discontinued operations, net of taxes
| 0.1 |
| -- |
| 0.6 |
| 0.01 |
| (0.9) |
| (0.02) |
| 2.0 |
| 0.05 |
|
Net income (loss)
| $ 20.8 |
| $ 0.46 |
| $ (32.2) |
| $ (0.71) |
| $ 70.5 |
| $ 1.55 |
| $ (2.9) |
| $ (0.06) |
|
Weighted average shares (2)
|
|
|
45.4
|
|
|
|
45.4
|
|
|
|
45.4
|
|
|
|
45.4
|
|
(1)
|
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 without consideration of interest expense on
debt and 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. These gains and
losses are excluded because they 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)
|
Weighted average shares outstanding and per diluted share amounts for
the three months and six months ended June 30, 2011 exclude common
stock equivalents, as the impact of these instruments was
anti-dilutive.
|
SOURCE The Hanover Insurance Group, Inc.