Exhibit 99.2

 

 

STATISTICAL SUPPLEMENT

FIRST QUARTER 2012

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THE HANOVER INSURANCE GROUP

STATISTICAL SUPPLEMENT

 

 

TABLE OF CONTENTS

 

Business Description			1
Financial Highlights			2
Consolidated Financial Statements
Income Statements			3
Balance Sheets			4
GAAP Underwriting Results
Consolidated			5-6
Commercial Lines			7-8
Personal Lines			9-10
Chaucer			11-12
Investments
Net Investment Income and Yields			13
Investment Portfolio			14
Credit Quality and Duration of Fixed Maturities			15
Top 10 Corporate and Municipal Fixed Maturity Holdings			16
Reconciliation of Segment Income to Net Income			17
Other Information
Non-GAAP Financial Measures			18
Corporate Information			19
Market and Dividend Information			19
Financial Strength and Debt Ratings			19

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THE HANOVER INSURANCE GROUP

BASIS OF PRESENTATION

Information contained in this document includes the results of Chaucer from the acquisition date of July 1, 2011 onward.

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.

BUSINESS DESCRIPTIONS

COMMERCIAL LINES

Commercial multiple peril coverage insures businesses against third party liability from accidents occurring on their premises or arising out of their operations, such as injuries sustained from products sold. It also insures business property for damage, such as that caused by fire, wind, hail, water damage (except for flooding), theft and vandalism.

Commercial automobile coverage insures businesses against losses incurred from personal bodily injury, bodily injury to third parties, property damage to an insured’s vehicle, and property damage to other vehicles and property.

Workers’ compensation coverage insures employers against employee medical and indemnity claims resulting from injuries related to work. Workers’ compensation policies are often written in conjunction with other commercial policies.

Other Commercial Lines is comprised of inland marine, which insures businesses against physical losses to property, such as contractor’s equipment, builders’ risk and goods in transit. We also offer underwriting and managing of program business, including to under-served markets where there are specialty coverage or risk management needs. Other Commercial Lines also includes bonds, which provides businesses with contract surety coverage in the event of performance or payment claims, and commercial surety coverage related to fiduciary or regulatory obligations. Also included in Other Commercial Lines coverages are umbrella, general liability, fire, specialty property, and professional and management liability.

PERSONAL LINES

Personal automobile coverage insures individuals against losses incurred from personal bodily injury, bodily injury to third parties, property damage to an insured’s vehicle, and property damage to other vehicles and other property.

Homeowners coverage insures individuals for losses to their residences and personal property, such as those caused by fire, wind, hail, water damage (except for flooding), theft and vandalism, and against third party liability claims.

Other Personal Lines are comprised of personal inland marine (jewelry, art, etc.), umbrella, fire, personal watercraft, earthquake and other miscellaneous coverages.

CHAUCER

The Chaucer reporting segment represents THG’s international business written through Lloyd’s and includes international property, marine and aviation, energy, UK motor and international casualty and other coverages.

Property coverage, including direct, facultative and treaty property accounts, insures property, including commercial, auto, and industrial businesses, against physical loss or damage and business interruption. The property treaty account comprises mainly catastrophe and per risk excess contract acceptances, with a small amount of proportional treaty and reinsurance assumed business.

Marine and Aviation includes coverages that insure marine hull, excess of loss, liability, cargo and specie, in addition to political risk, war, and satellite business coverages. It also includes aviation coverages that insure airline hull and liability, general aviation and refuellers and products.

Energy coverage, encompassing exploration and production, construction, liabilities downstream and renewables, insures energy businesses against physical damage, business interruption, control of well, seepage and pollution and liabilities. Energy also includes Nuclear, which predominantly provides coverage relating to power generation at nuclear power stations.

UK Motor coverage insures the UK private car and fleet markets. In addition, it writes specialist classes including commercial vehicle, taxi, motorcycle, motor trade and classic/specialist vehicles, as well as other UK small commercial products.

Casualty and Other Lines includes coverages that insure financial institutions crime and professional indemnity, medical malpractice, workers’ compensation and professional, managerial and general liability, as well as syndicate participations.

OTHER PROPERTY AND CASUALTY

Other Property and Casualty segment consists of Opus, which provides investment advisory services to affiliates and also manages assets for unaffiliated institutions such as insurance companies, retirement plans and foundations; earnings on holding company assets; and voluntary pools business which is in run-off.

 

1

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THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS

 

(In millions, except earnings per share)		Q1 2011				Q2 2011				Q3 2011				Q4 2011				Q1 2012
PREMIUMS
Gross premiums written		$	833.3			$	894.6			$	1,198.3			$	1,133.0			$	1,287.8
Net premiums written			749.9				815.4				1,051.0				977.1				1,016.8
Net premiums earned			761.7				770.5				1,018.6				1,047.8				1,035.6
EARNINGS
Segment income (loss) before interest and taxes		$	49.8				(47.3	)			(8.2	)		$	77.5			$	85.7
Segment income (loss) after taxes			25.9				(38.4	)			(18.8	)			45.5				46.0
Income (loss) from continuing operations			27.9				(32.8	)			(10.0	)			46.4				50.7
Net income (loss)			29.3				(32.2	)			(10.0	)			49.6				49.7
PER SHARE DATA (DILUTED) (1)
Segment income (loss) after taxes		$	0.56				(0.85	)			(0.41	)		$	1.00			$	1.01
Income (loss) from continuing operations			0.61				(0.72	)			(0.22	)			1.02				1.11
Net income (loss)			0.64				(0.71	)			(0.22	)			1.09				1.09
Weighted average shares outstanding (1)			46.0				45.4				45.3				45.3				45.5

BALANCE SHEET

 

(In millions, except per share data)		March 31 2011				June 30 2011				September 30 2011				December 31 2011				March 31 2012
Total assets		$	8,491.8			$	8,957.8			$	12,658.4			$	12,598.6			$	12,913.4
Total loss and loss adjustment expense reserves			3,315.4				3,406.4				5,722.0				5,760.3				5,827.3
Total shareholders’ equity			2,465.6				2,461.5				2,428.8				2,484.0				2,579.0
U.S. Property and Casualty Companies
Statutory surplus		$	1,776.6			$	1,658.6			$	1,538.5			$	1,582.8			$	1,681.1
Premium to surplus ratio			1.73:1				1.86:1				2.02:1				2.00:1				1.92:1
Book value per share		$	54.55			$	54.44			$	54.40			$	55.67			$	57.65
Book value per share, excluding net unrealized investment gains and losses, net of tax		$	51.54			$	50.60			$	51.06			$	51.58			$	52.32
Tangible book value per share (total book value excluding goodwill and intangibles)		$	49.11			$	49.05			$	46.61			$	48.29			$	50.31
Shares outstanding			45.2				45.2				44.6				44.6				44.7
Total debt/equity			22.8	%			34.9	%			37.1	%			36.7	%			35.6	%
Total debt/total capital			18.5	%			25.8	%			27.1	%			26.8	%			26.3	%

 

(1)	Weighted average shares outstanding and per diluted share amounts in the second and third quarters of 2011 exclude common stock equivalents, as the impact of these instruments was anti-dilutive.

 

2

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THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME STATEMENTS

 

		Three Months ended March 31
(In millions)		2012				2011				% Change
REVENUES
Premiums earned		$	1,035.6			$	761.7				36.0
Net investment income			68.8				60.4				13.9
Total net realized investment gains			3.1				3.3				(6.1	)
Fees and other income			14.3				8.4				70.2
Total revenues			1,121.8				833.8				34.5
LOSSES AND EXPENSES
Losses and loss adjustment expenses			661.4				511.0				29.4
Policy acquisition expenses			228.1				162.5				40.4
Interest expense			16.2				10.4				55.8
Other operating expenses			145.3				112.4				29.3
Total losses and expenses			1,051.0				796.3				32.0
Income from continuing operations before income taxes			70.8				37.5				88.8
Income tax expense			20.1				9.6				109.4
Income from continuing operations			50.7				27.9				81.7
Discontinued operations			(1.0	)			1.4				N/M
Net income		$	49.7			$	29.3				69.6

 

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THE HANOVER INSURANCE GROUP

CONSOLIDATED BALANCE SHEETS

 

(In millions, except per share data)		March 31 2012				December 31 2011				% Change
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $6,141.2 and $6,008.7)		$	6,470.6			$	6,284.7				3.0
Equity securities, at fair value (cost of $315.5 and $239.9)			334.1				246.4				35.6
Other investments			212.8				190.2				11.9
Total investments			7,017.5				6,721.3				4.4
Cash and cash equivalents			628.3				820.4				(23.4	)
Accrued investment income			71.2				71.8				(0.8	)
Premiums and accounts receivable, net			1,223.9				1,168.1				4.8
Reinsurance recoverable on paid and unpaid losses, benefits and unearned premiums			2,431.8				2,262.2				7.5
Deferred policy acquisition costs			468.0				458.6				2.0
Deferred income taxes			265.8				274.0				(3.0	)
Goodwill			184.4				185.5				(0.6	)
Other assets			496.0				515.5				(3.8	)
Assets of discontinued operations			126.5				121.2				4.4
Total assets		$	12,913.4			$	12,598.6				2.5
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Loss and loss adjustment expense reserves		$	5,827.3			$	5,760.3				1.2
Unearned premiums			2,363.4				2,292.1				3.1
Expenses and taxes payable			613.8				642.9				(4.5	)
Reinsurance premiums payable			484.1				378.9				27.8
Debt			918.1				911.1				0.8
Liabilities of discontinued operations			127.7				129.3				(1.2	)
Total liabilities			10,334.4				10,114.6				2.2
SHAREHOLDERS’ EQUITY
Preferred stock, par value $0.01 per share; 20.0 million shares authorized; none issued			—				—				—
Common stock, par value $0.01 per share; 300.0 million shares authorized; 60.5 million shares issued			0.6				0.6				—
Additional paid-in capital			1,780.1				1,784.8				(0.3	)
Accumulated other comprehensive income			265.1				210.4				26.0
Retained earnings			1,248.8				1,211.3				3.1
Treasury stock at cost (15.8 and 15.9 million shares)			(715.6	)			(723.1	)			(1.0	)
Total shareholders’ equity			2,579.0				2,484.0				3.8
Total liabilities and shareholders’ equity		$	12,913.4			$	12,598.6				2.5

 

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

CONSOLIDATED

Three Months ended March 31

 

		2012																				2011
(In millions, except percentage data)		Commercial Lines				Personal Lines				Chaucer				Other P&C				Total P&C				Commercial Lines				Personal Lines				Other P&C				Total P&C
Gross premiums written		$	532.6			$	373.2			$	381.7			$	0.3			$	1,287.8			$	466.8			$	366.5			$	—			$	833.3
Net premiums written		$	468.9			$	347.4			$	200.2			$	0.3			$	1,016.8			$	408.5			$	341.4			$	—			$	749.9
Net premiums earned		$	434.9			$	363.3			$	237.0			$	0.4			$	1,035.6			$	400.8			$	360.9			$	—			$	761.7
Losses and LAE:
Current accident year, excluding catastrophe losses			256.3				229.9				151.6				0.2				638.0				244.1				245.6				0.1				489.8
Prior year (favorable) unfavorable reserve development			0.5				3.8				(21.7	)			0.2				(17.2	)			(14.3	)			(14.1	)			(0.1	)			(28.5	)
Catastrophe losses			11.1				23.0				6.5				—				40.6				27.5				22.2				—				49.7
Total losses and LAE			267.9				256.7				136.4				0.4				661.4				257.3				253.7				—				511.0
Policy acquisition and other underwriting expenses			169.5				102.4				85.9				0.4				358.2				159.5				100.8				(0.1	)			260.2
GAAP underwriting profit (loss)			(2.5	)			4.2				14.7				(0.4	)			16.0				(16.0	)			6.4				0.1				(9.5	)
Net investment income			35.7				21.6				9.4				2.1				68.8				33.6				22.7				4.1				60.4
Other income			5.1				3.5				5.3				2.0				15.9				4.9				3.1				1.7				9.7
Other operating expenses			(4.4	)			(1.8	)			(3.9	)			(4.9	)			(15.0	)			(4.3	)			(1.9	)			(4.6	)			(10.8	)
Segment income (loss) before income taxes		$	33.9			$	27.5			$	25.5			$	(1.2	)		$	85.7			$	18.2			$	30.3			$	1.3			$	49.8
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			58.9	%			63.4	%			64.1	%			N/M				61.7	%			60.9	%			68.0	%			N/M				64.2	%
Prior year (favorable) unfavorable reserve development			0.1	%			1.0	%			(9.2	)%			N/M				(1.7	)%			(3.6	)%			(3.9	)%			N/M				(3.7	)%
Catastrophe losses			2.6	%			6.3	%			2.7	%			N/M				3.9	%			6.9	%			6.2	%			N/M				6.5	%
Total loss and LAE ratio			61.6	%			70.7	%			57.6	%			N/M				63.9	%			64.2	%			70.3	%			N/M				67.0	%
Expense ratio			38.7	%			27.3	%			36.2	%			N/M				34.2	%			39.5	%			27.2	%			N/M				33.7	%
Combined ratio			100.3	%			98.0	%			93.8	%			N/M				98.1	%			103.7	%			97.5	%			N/M				100.7	%
Change in policies in force			18.2	%			(1.5	)%															16.4	%			(3.9	)%
Retention			84.6	%			81.0	%															83.5	%			79.0	%

 

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

CONSOLIDATED

 

(In millions, except percentage data)		Q1 2011				Q2 2011				Q3 2011				Q4 2011				Q1 2012
Gross premiums written		$	833.3			$	894.6			$	1,198.3			$	1,133.0			$	1,287.8
Net premiums written		$	749.9			$	815.4			$	1,051.0			$	977.1			$	1,016.8
Net premiums earned		$	761.7			$	770.5			$	1,018.6				1,047.8			$	1,035.6
Losses and LAE:
Current accident year, excluding catastrophe losses			489.8				476.1				664.1				662.5				638.0
Prior year (favorable) unfavorable reserve development			(28.5	)			(15.3	)			(28.8	)			(30.7	)			(17.2	)
Catastrophe losses			49.7				156.7				99.6				55.6				40.6
Total losses and LAE			511.0				617.5				734.9				687.4				661.4
Policy acquisition and other underwriting expenses			260.2				260.1				357.8				353.7				358.2
GAAP underwriting profit (loss)		$	(9.5	)		$	(107.1	)		$	(74.1	)		$	6.7			$	16.0
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			64.2	%			61.8	%			65.2	%			63.2	%			61.7	%
Prior year (favorable) unfavorable reserve development			(3.7	)%			(2.0	)%			(2.8	)%			(2.9	)%			(1.7	)%
Catastrophe losses			6.5	%			20.3	%			9.8	%			5.3	%			3.9	%
Total loss and LAE ratio			67.0	%			80.1	%			72.2	%			65.6	%			63.9	%
Expense ratio			33.7	%			33.3	%			34.7	%			33.4	%			34.2	%
Combined ratio			100.7	%			113.4	%			106.9	%			99.0	%			98.1	%
Combined ratio, excluding catastrophe losses			94.2	%			93.1	%			97.1	%			93.7	%			94.2	%
Current accident year combined ratio, excluding catastrophe losses			97.9	%			95.1	%			99.9	%			96.6	%			95.9	%

 

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

COMMERCIAL LINES

Three Months ended March 31

 

		2012																				2011
(In millions, except percentage data)		Multiple Peril				Auto				Workers’ Comp				Other				Total				Multiple Peril				Auto				Workers’ Comp				Other				Total
Net premiums written		$	148.0			$	70.7			$	55.0			$	195.2			$	468.9			$	137.2			$	62.0			$	45.8			$	163.5			$	408.5
Net premiums earned		$	141.9			$	64.5			$	45.9			$	182.6			$	434.9			$	139.9			$	61.3			$	41.8			$	157.8			$	400.8
Losses and LAE:
Current accident year, excluding catastrophe losses			76.8				42.1				34.5				102.9				256.3				89.5				39.0				31.5				84.1				244.1
Prior year (favorable) unfavorable reserve development			(5.9	)			3.5				(1.2	)			4.1				0.5				(5.6	)			(0.3	)			(3.7	)			(4.7	)			(14.3	)
Catastrophe losses			9.7				0.5				—				0.9				11.1				21.6				0.2				—				5.7				27.5
Total losses and LAE			80.6				46.1				33.3				107.9				267.9				105.5				38.9				27.8				85.1				257.3
Policy acquisition and other underwriting expenses																			169.5																				159.5
GAAP underwriting loss																			(2.5	)																			(16.0	)
Net investment income																			35.7																				33.6
Other income																			5.1																				4.9
Other operating expenses																			(4.4	)																			(4.3	)
Segment income before income taxes																		$	33.9																			$	18.2
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			54.2	%			65.2	%			75.2	%			56.4	%			58.9	%			64.0	%			63.6	%			75.4	%			53.4	%			60.9	%
Prior year (favorable) unfavorable reserve development			(4.2	)%			5.4	%			(2.6	)%			2.2	%			0.1	%			(4.0	)%			(0.5	)%			(8.9	)%			(3.0	)%			(3.6	)%
Catastrophe losses			6.8	%			0.8	%			N/M				0.5	%			2.6	%			15.4	%			0.3	%			N/M				3.6	%			6.9	%
Total loss and LAE ratio			56.8	%			71.4	%			72.6	%			59.1	%			61.6	%			75.4	%			63.4	%			66.5	%			54.0	%			64.2	%
Expense ratio																			38.7	%																			39.5	%
Combined ratio																			100.3	%																			103.7	%
Change in policies in force			5.6	%			16.1	%			30.5	%			28.5	%			18.2	%			16.9	%			18.1	%			37.0	%			10.3	%			16.4	%
Retention			86.1	%			84.5	%			80.0	%			N/M				84.6	%			85.0	%			82.0	%			81.8	%			N/M				83.5	%

 

7

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

COMMERCIAL LINES

 

(In millions, except percentage data)		Q1 2011				Q2 2011				Q3 2011				Q4 2011				Q1 2012
Gross premiums written		$	466.8			$	494.6			$	501.3			$	475.3			$	532.6
Net premiums written		$	408.5			$	440.5			$	438.4			$	415.7			$	468.9
Net premiums earned		$	400.8			$	408.5			$	410.1			$	422.3			$	434.9
Losses and LAE:
Current accident year, excluding catastrophe losses			244.1				240.7				270.7				249.3				256.3
Prior year (favorable) unfavorable reserve development			(14.3	)			(9.3	)			(3.6	)			(7.5	)			0.5
Catastrophe losses			27.5				77.1				39.8				4.0				11.1
Total losses and LAE			257.3				308.5				306.9				245.8				267.9
Policy acquisition and other underwriting expenses			159.5				160.1				160.3				166.3				169.5
GAAP underwriting profit (loss)		$	(16.0	)		$	(60.1	)		$	(57.1	)		$	10.2			$	(2.5	)
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			60.9	%			58.9	%			66.1	%			59.1	%			58.9	%
Prior year (favorable) unfavorable reserve development			(3.6	)%			(2.3	)%			(0.9	)%			(1.8	)%			0.1	%
Catastrophe losses			6.9	%			18.9	%			9.7	%			0.9	%			2.6	%
Total loss and LAE ratio			64.2	%			75.5	%			74.9	%			58.2	%			61.6	%
Expense ratio			39.5	%			39.0	%			38.8	%			39.2	%			38.7	%
Combined ratio			103.7	%			114.5	%			113.7	%			97.4	%			100.3	%
Combined ratio, excluding catastrophe losses			96.8	%			95.6	%			104.0	%			96.5	%			97.7	%
Current accident year combined ratio, excluding catastrophe losses			100.4	%			97.9	%			104.9	%			98.3	%			97.6	%

 

8

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

PERSONAL LINES

Three Months ended March 31

 

		2012																2011
(In millions, except percentage data)		Auto				Home				Other				Total				Auto				Home				Other				Total
Net premiums written		$	233.1			$	105.0			$	9.3			$	347.4			$	231.1			$	101.2			$	9.1			$	341.4
Net premiums earned		$	225.7			$	126.8			$	10.8			$	363.3			$	228.9			$	121.5			$	10.5			$	360.9
Losses and LAE:
Current accident year, excluding catastrophe losses			163.9				60.6				5.4				229.9				170.2				72.4				3.0				245.6
Prior year (favorable) unfavorable reserve development			3.5				0.3				—				3.8				(11.9	)			(2.6	)			0.4				(14.1	)
Catastrophe losses			2.4				20.0				0.6				23.0				—				21.9				0.3				22.2
Total losses and LAE			169.8				80.9				6.0				256.7				158.3				91.7				3.7				253.7
Policy acquisition and other underwriting expenses															102.4																100.8
GAAP underwriting profit															4.2																6.4
Net investment income															21.6																22.7
Other income															3.5																3.1
Other operating expenses															(1.8	)															(1.9	)
Segment income before income taxes														$	27.5															$	30.3
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			72.5	%			47.7	%			50.0	%			63.4	%			74.4	%			59.6	%			28.5	%			68.0	%
Prior year (favorable) unfavorable reserve development			1.6	%			0.2	%			N/M				1.0	%			(5.2	)%			(2.1	)%			3.8	%			(3.9	)%
Catastrophe losses			1.1	%			15.8	%			5.6	%			6.3	%			N/M				18.0	%			2.9	%			6.2	%
Total loss and LAE ratio			75.2	%			63.7	%			55.6	%			70.7	%			69.2	%			75.5	%			35.2	%			70.3	%
Expense ratio															27.3	%															27.2	%
Combined ratio															98.0	%															97.5	%
Change in policies in force			(2.3	)%			(0.2	)%			(6.5	)%			(1.5	)%			(6.7	)%			(0.6	)%			(6.9	)%			(3.9	)%
Retention			79.1	%			82.4	%			N/M				81.0	%			77.1	%			80.6	%			N/M				79.0	%

 

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

PERSONAL LINES

 

(In millions, except percentage data)		Q1 2011				Q2 2011				Q3 2011				Q4 2011				Q1 2012
Gross premiums written		$	366.5			$	399.7			$	415.1			$	380.0			$	373.2
Net premiums written		$	341.4			$	374.6			$	390.3			$	354.9			$	347.4
Net premiums earned		$	360.9			$	361.9			$	363.7			$	364.0			$	363.3
Losses and LAE:
Current accident year, excluding catastrophe losses			245.6				235.3				253.3				254.0				229.9
Prior year (favorable) unfavorable reserve development			(14.1	)			(5.9	)			(8.5	)			(4.5	)			3.8
Catastrophe losses			22.2				79.6				46.2				15.7				23.0
Total losses and LAE			253.7				309.0				291.0				265.2				256.7
Policy acquisition and other underwriting expenses			100.8				99.9				101.8				101.7				102.4
GAAP underwriting profit (loss)		$	6.4			$	(47.0	)		$	(29.1	)		$	(2.9	)		$	4.2
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			68.0	%			65.0	%			69.6	%			69.7	%			63.4	%
Prior year (favorable) unfavorable reserve development			(3.9	)%			(1.6	)%			(2.3	)%			(1.2	)%			1.0	%
Catastrophe losses			6.2	%			22.0	%			12.7	%			4.3	%			6.3	%
Total loss and LAE ratio			70.3	%			85.4	%			80.0	%			72.8	%			70.7	%
Expense ratio			27.2	%			26.8	%			27.1	%			27.1	%			27.3	%
Combined ratio			97.5	%			112.2	%			107.1	%			99.9	%			98.0	%
Combined ratio, excluding catastrophe losses			91.3	%			90.2	%			94.4	%			95.6	%			91.7	%
Current accident year combined ratio, excluding catastrophe losses			95.2	%			91.8	%			96.7	%			96.8	%			90.7	%

 

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND SEGMENT INCOME INFORMATION AND RATIOS

CHAUCER

Three Months ended March 31

 

		2012
(In millions, except percentage data)		Property				Marine & Aviation				Energy				UK Motor				Casualty & Other				Total
Gross premiums written		$	87.7			$	99.5			$	71.3			$	66.6			$	56.6			$	381.7
Net premiums written		$	29.6			$	58.5			$	23.3			$	45.5			$	43.3			$	200.2
Net premiums earned		$	46.7			$	54.2			$	39.4			$	61.5			$	35.2			$	237.0
Losses and LAE:
Current accident year, excluding catastrophe losses																							151.6
Prior year favorable reserve development																							(21.7	)
Catastrophe losses																							6.5
Total losses and LAE																							136.4
Policy acquisition and other underwriting expenses																							85.9
GAAP underwriting profit																							14.7
Net investment income																							9.4
Other income																							5.3
Other operating expenses																							(3.9	)
Segment income before income taxes																						$	25.5
Loss and LAE ratio:
Current accident year, excluding catastrophe losses																							64.1	%
Prior year favorable reserve development																							(9.2	)%
Catastrophe losses																							2.7	%
Total loss and LAE ratio																							57.6	%
Expense ratio																							36.2	%
Combined ratio																							93.8	%

 

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THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING INFORMATION AND RELATED RATIOS

CHAUCER

 

(In millions, except percentage data)		Q3 2011				Q4 2011				Q1 2012
Gross premiums written		$	281.9			$	277.7			$	381.7
Net premiums written		$	222.3			$	206.5			$	200.2
Net premiums earned		$	244.8			$	261.5			$	237.0
Losses and LAE:
Current accident year, excluding catastrophe losses			140.0				159.2				151.6
Prior year favorable reserve development			(16.6	)			(18.9	)			(21.7	)
Catastrophe losses			13.6				35.9				6.5
Total losses and LAE			137.0				176.2				136.4
Policy acquisition and other underwriting expenses			95.7				85.5				85.9
GAAP underwriting profit (loss)		$	12.1			$	(0.2	)		$	14.7
Loss and LAE ratio:
Current accident year, excluding catastrophe losses			57.2	%			60.9	%			64.1	%
Prior year favorable reserve development			(6.8	)%			(7.2	)%			(9.2	)%
Catastrophe losses			5.6	%			13.7	%			2.7	%
Total loss and LAE ratio			56.0	%			67.4	%			57.6	%
Expense ratio			39.1	%			32.7	%			36.2	%
Combined ratio			95.1	%			100.1	%			93.8	%
Combined ratio, excluding catastrophe losses			89.5	%			86.4	%			91.1	%
Current accident year combined ratio, excluding catastrophe losses			96.3	%			93.6	%			100.3	%

 

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THE HANOVER INSURANCE GROUP

NET INVESTMENT INCOME AND YIELDS

 

(In millions, except yields)		Q1 2011				Q2 2011				Q3 2011				Q4 2011				Q1 2012
Net Investment Income
Fixed maturities		$	60.6			$	60.3			$	66.1			$	67.3			$	65.9
Equity securities			1.3				1.4				1.5				2.6				3.4
Other investments			0.5				1.0				2.3				1.0				2.0
Investment expenses			(2.0	)			(1.7	)			(2.1	)			(1.9	)			(2.5	)
Total		$	60.4			$	61.0			$	67.8			$	69.0			$	68.8
Pre-tax Yields
Fixed maturities			5.28	%			5.35	%			4.49	%			4.48	%			4.38	%
Total			4.97	%			5.09	%			3.96	%			3.92	%			3.90	%

Pre-tax yields are calculated as annualized investment income divided by the average of investment balances at the end of each month during the period. Investment balances, for purposes of the pre-tax yield calculation, exclude unrealized capital gains and losses.

The increase in net investment income and decline in pre-tax yields beginning in Q3 2011 is primarily due to the acquisition of Chaucer.

 

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THE HANOVER INSURANCE GROUP

INVESTMENT PORTFOLIO

March 31, 2012

 

(in millions)
Investment Type		Weighted Average Quality		Amortized Cost or Cost				Fair Value				% of Total				Net Unrealized Gain				Change in Net Unrealized During Q1 2012
Fixed Maturities:
U.S. Treasury and government agencies		AAA		$	224.4			$	231.0				3.0	%		$	6.6			$	(1.0	)
Foreign government		AAA			273.3				273.8				3.6	%			0.5				0.6
Municipals:
Taxable		AA			786.2				853.3				11.2	%			67.1				8.7
Tax exempt		AA-			147.1				151.7				2.0	%			4.6				(0.5	)
Corporate:
NAIC 1		A+			1,768.0				1,857.6				24.3	%			89.6				22.4
NAIC 2		BBB			1,265.3				1,359.8				17.8	%			94.5				15.1
NAIC 3 and below		B+			312.6				328.2				4.3	%			15.6				4.8
Total corporate		BBB+			3,345.9				3,545.6				46.4	%			199.7				42.3
Asset backed:
Residential mortgage backed		AA			778.1				811.4				10.6	%			33.3				0.8
Commercial mortgage backed		AA+			373.1				387.4				5.0	%			14.3				2.8
Asset backed		AA+			213.1				216.4				2.8	%			3.3				(0.3	)
Total fixed maturities		A+			6,141.2				6,470.6				84.6	%			329.4				53.4
Equity securities					315.5				334.1				4.4	%			18.6				12.1
Total fixed maturities and equity securities					6,456.7				6,804.7				89.0	%			348.0				65.5
Cash and cash equivalents					628.3				628.3				8.2	%			—				—
Other investments					209.9				212.8				2.8	%			2.9				—
Total				$	7,294.9			$	7,645.8				100.0	%		$	350.9			$	65.5

 

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THE HANOVER INSURANCE GROUP

CREDIT QUALITY AND DURATION OF FIXED MATURITIES

March 31, 2012

 

(In millions)
CREDIT QUALITY OF FIXED MATURITIES
NAIC Designation		Rating Agency Equivalent Designation		Amortized Cost				Fair Value				% of Total Fair Value
1		Aaa/Aa/A		$	4,425.3			$	4,641.8				71.7	%
2		Baa			1,372.0				1,470.2				22.7	%
3		Ba			144.2				154.3				2.4	%
4		B			129.4				134.0				2.1	%
5		Caa and lower			58.6				58.3				0.9	%
6		In or near default			11.7				12.0				0.2	%
Total fixed maturities				$	6,141.2			$	6,470.6				100.0	%

 

DURATION OF FIXED MATURITIES
		Amortized Cost				Fair Value				% of Total Fair Value
0-2 years		$	1,828.1			$	1,874.0				28.9	%
2-4 years			1,590.8				1,670.3				25.8	%
4-6 years			1,315.2				1,416.1				21.9	%
6-8 years			885.6				949.6				14.7	%
8-10 years			376.7				406.0				6.3	%
10+ years			144.8				154.6				2.4	%
Total fixed maturities		$	6,141.2			$	6,470.6				100.0	%
Weighted Average Duration			3.97

 

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THE HANOVER INSURANCE GROUP

TOP 10 CORPORATE AND MUNICIPAL FIXED MATURITY HOLDINGS

March 31, 2012

 

(In millions, except percentage data)
Issuer		Amortized Cost				Fair Value				As a Percent of Invested Assets				S&P Ratings
Royal Bank of Scotland: (1)
Term deposits (2)		$	165.1			$	165.8				2.17	%		A
Notes			10.6				10.6				0.14	%		A
Lloyds TSB Bank: (3)
Term deposits (2)			84.2				84.7				1.11	%		A
Notes			7.1				7.0				0.09	%		A
Santander US:
Term deposits (4)			33.5				33.5				0.44	%		A+
Notes			4.3				4.4				0.05	%		A+
GE Capital			35.0				36.7				0.48	%		AA+
Rabobank			33.2				33.5				0.44	%		AA
HSBC Bank			29.4				29.7				0.39	%		A+
JP Morgan			27.5				28.2				0.37	%		A
American Express			25.5				27.4				0.36	%		BBB+
Wells Fargo			25.2				27.2				0.35	%		A+
Metlife			22.6				23.8				0.31	%		AA-
Top 10 Corporate and Municipal Fixed		$	503.2			$	512.5				6.70	%

 

(1)	UK government owns 83% of bank equity

(2)	Weighted average duration is approximately 2 years

(3)	UK government owns 40% of bank equity

(4)	Matured in April 2012

 

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THE HANOVER INSURANCE GROUP

RECONCILIATION OF SEGMENT INCOME TO NET INCOME

 

		Three Months ended March 31
		2012								2011
(In millions, except per share data)		$				Per Share (Diluted)				$				Per Share (Diluted)
SEGMENT INCOME
Commercial Lines		$	33.9							$	18.2
Personal Lines			27.5								30.3
Chaucer			25.5								—
Other Property and Casualty			(1.2	)							1.3
Total			85.7								49.8
Interest expense on debt			(16.2	)							(10.4	)
Segment income before income taxes			69.5			$	1.53				39.4			$	0.85
Income tax expense on segment income			(23.5	)			(0.52	)			(13.5	)			(0.29	)
Segment income after income taxes			46.0				1.01				25.9				0.56
Net realized investment gains			3.1				0.07				3.3				0.07
Loss from retirement of debt			—				—				(2.5	)			(0.05	)
Costs related to acquired businesses			(1.5	)			(0.03	)			(2.7	)			(0.06	)
Net foreign exchange losses			(0.3	)			(0.01	)			—				—
Income tax benefit on non-segment income			3.4				0.07				3.9				0.09
Income from continuing operations			50.7				1.11				27.9				0.61
Discontinued operations, net of taxes			(1.0	)			(0.02	)			1.4				0.03
NET INCOME		$	49.7			$	1.09			$	29.3			$	0.64

 

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Non-GAAP Financial Measures

The Hanover uses non-GAAP financial measures as important measures of the Company’s operating performance, which we believe provide investors’ with additional information regarding management’s evaluation of our results of operations and financial performance. These metrics include segment income before interest expense and taxes, total segment income after taxes, total segment income after taxes per share, total book value per share, total book value per share excluding net unrealized gains and losses related to investments, net of tax, tangible book value per share and measures of segment income and loss ratios excluding catastrophe losses and reserve development. After-tax segment income EPS (sometimes referred to as “after-tax segment income per share”) is a non-GAAP measure. It is defined as net income (loss) excluding the after-tax impact of net realized investment gains (losses), as well as results from discontinued operations for a period divided by the average number of diluted shares of common stock.

Segment income before interest expense and taxes is net income, excluding interest expense on debt, income taxes and net realized investment gains and losses, because fluctuations in these gains and losses are determined by interest rates, financial markets and the timing of sales. Segment income before interest expense and taxes 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 before interest expense and taxes is the sum of the segment income from: Commercial Lines, Personal Lines, Chaucer, and Other Property and Casualty. The Hanover believes that measures of segment income before interest expense and taxes 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.

Book value per share is total shareholders’ equity divided by the number of common shares outstanding. Book value per share excluding net unrealized gains and losses related to investments, net of tax is total shareholders’ equity excluding the after-tax effect of unrealized investment gains and losses divided by the number of common shares outstanding. Tangible book value per share is total shareholders’ equity, excluding goodwill, divided by the number of common shares outstanding.

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 providing certain financial metrics and trends excluding the effects of catastrophes is meaningful for investors to understand the variability of periodic earnings and loss ratios.

Prior year reserve development, which can be favorable or unfavorable, represents changes in our estimate of the costs to pay claims from prior years. We believe that a discussion of segment income excluding prior year reserve development is helpful to investors since it provides insight into both our estimate of current year accident results and changes to prior-year reserve estimates.

Segment income before and after interest expense and taxes and measures of segment income that exclude the effects of catastrophe losses or reserve development should not be construed as substitutes for net income determined in accordance with GAAP. A reconciliation of income from continuing operations to segment income before interest expense and taxes and income from continuing operations per share to segment income after taxes per share for the three months ended March 31, 2012 and 2011 is set forth on page 17 of this document. The presentation of loss ratios calculated excluding the effects of reserve development and/or catastrophe losses should not be construed as a substitute for loss ratios determined in accordance with GAAP.

 

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