Hanover Reports Third Quarter $34M Charge for Katrina Claims

The Hanover Insurance Group, Inc. said it expects third quarter results to include a $34 million charge, or $0.66 per share, of after-tax net losses and loss adjustment expenses related to Hurricane Katrina.

The Worcester, Mass.-based company said it increased its estimate for pre-tax net losses and loss adjustment expenses related to Hurricane Katrina by $52 million following a detailed claim review conducted in the third quarter, which includes an increase of $36 million in commercial lines losses, $8 million in personal lines losses and $8 million in loss adjustment expenses.

In addition, the company reported third quarter pre-tax non-Katrina catastrophe losses of $12 million. Total net pre-tax catastrophe losses and loss adjustment expenses are expected to be $64 million for the quarter, of which $39 million relate to commercial lines losses, $17 million relate to personal lines losses and $8 million relate to loss adjustment expenses.

Recent trends in claims activity observed over the past several months caused the company to re-evaluate and increase its estimate of Hurricane Katrina loss and loss adjustment expense reserves.

In commercial lines, the estimate of net losses increased primarily due to the recognition of higher business interruption exposure as more complete information was provided by insureds in response to a recent initiative to obtain supporting claim documentation, the impact of disputes related to wind versus water as the cause of loss and the continuation of supplemental payments on previously closed claims caused by the development of latent damages and inflationary pressures on repair costs.

In personal lines, the estimate of net losses increased by $8 million, primarily due to the continuation of supplemental payments on previously closed claims caused by the development of latent damages and inflationary pressures on repair costs. The estimate of loss adjustment expenses also increased driven primarily by the recent increase in litigation activity leading up to the pre-existing, one year limit, on homeowner policyholders’ ability to challenge claims and a recent change to the Louisiana bad faith law.

“Katrina was an unprecedented event for the industry,” said Frederick H. Eppinger, chief executive officer of The Hanover. “Given the unique nature of this event, the loss estimation process has been particularly challenging. In particular, the approach of the one-year anniversary of the storm, as well as recent changes in the ability of policyholders to challenge claim settlements, have resulted in an increase in claim activity over the past three months. This activity caused us to change our view of ultimate losses from the event. This additional Katrina charge represents a relatively modest revision to our prior estimate of gross losses.”

The Hanover expects to announce its third quarter financial results on October 30.

Source: The Hanover
www.hanover.com.