Hanover Reports Improved 2Q Earnings

The Hanover Insurance Group, Inc. in Worcester, Mass. reported net income for the second quarter of $59.8 million, or $1.14 per share, compared to $50.9 million, or $0.99 per share in the second quarter of last year.

Income from continuing operations was $59.5 million for the second quarter, or $1.14 per share, compared to $53.7 million, or $1.04 per share, in the second quarter of last year.

Total property and casualty pre-tax segment income was $98.1 million in the quarter, compared to $86.2 million in the second quarter of last year.

The personal lines segment reported pre-tax segment earnings of $55.7 million in the second quarter of 2007 compared to $53.7 million in the second quarter of 2006, while the commercial lines segment reported pre-tax segment earnings of $39.3 million in the quarter, versus $30.2 million in the second quarter of 2006.

Personal Lines
Personal Lines pre-tax segment income was $55.7 million in the quarter compared to $53.7 million in the prior-year quarter. The pre-tax net impact of catastrophes was $9.2 million in the current quarter compared to $7.4 million in the second quarter of 2006. Excluding catastrophes, personal lines pre-tax segment income would have been $64.9 million in the current quarter compared to $61.1 million in the prior-year quarter, an increase of $3.8 million. Underlying this increase were higher underwriting losses that were more than offset by several factors. Higher underwriting losses in the quarter resulted from higher current accident year losses that were partially offset by higher favorable development of prior-year loss and loss adjustment reserves. The several factors that contributed to earnings improvement in the quarter were lower loss adjustment expenses, higher net investment income and favorable results from involuntary pools.

Current accident year losses were higher in the second quarter of 2007 compared to the prior-year quarter. The increase in current accident year losses is driven by large property losses in the Homeowners’ line, as well as an increase in current accident year losses in personal auto.

Prior-year loss and loss adjustment reserves developed favorably and were $22.5 million in the second quarter of 2007, compared to $17.3 million in the second quarter of 2006. This increase was driven by personal auto liability and relates primarily to the most recent prior accident year.

Loss adjustment expenses excluding catastrophes were $4.8 million lower in the quarter, compared to the prior-year quarter resulting primarily from lower technology expenses and lower independent adjusters’ expenses.

Net investment income was $2.0 million higher in the quarter due primarily to higher operating cash flows.

Earnings were also higher by $1.9 million in the current quarter compared to the second quarter of 2006 due primarily to the more favorable results from the Massachusetts Commonwealth of Automobile Reinsurers (Mass CAR) pool.

Commercial Lines
Commercial Lines pre-tax segment income was $39.3 million in the quarter, compared to $30.2 million in the second quarter of 2006. The pre-tax net impact of catastrophes was $5.3 million in the current quarter, compared to $12.1 million in the second quarter of 2006. Excluding catastrophes, commercial lines pre-tax segment income would have been $44.6 million in the current quarter, compared to $42.3 million in the prior-year quarter, an increase of $2.3 million. Underlying this increase were higher underwriting losses that were more than offset by lower loss adjustment and underwriting expenses. Higher underwriting losses in the quarter resulted from higher current accident year losses that were partially offset by higher favorable development of prior-year loss and loss adjustment reserves.

Current accident year losses were higher in the second quarter of 2007 compared to the second quarter of 2006, driven by Commercial Multiple Peril. There are two factors driving the increase in current accident year losses in Commercial Multiple Peril as compared to the second quarter of 2006. First, current accident year losses in the second quarter of 2007 were adversely impacted by large property losses. Second, current accident year losses were unusually low in the second quarter of 2006.

Prior-year loss and loss adjustment reserve development was $13.3 million favorable in the second quarter of 2007 compared to $9.3 million favorable in the second quarter of 2006. Reserves developed favorably across most lines, with the largest improvement seen in Commercial Multiple Peril.

Loss adjustment expenses excluding catastrophes were $4.0 million lower in the quarter compared to the prior-year quarter, resulting primarily from lower legal expenses and reserves.

Source: The Hanover
www.hanover.com