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News and Information Article
WORCESTER, Mass., Jan. 29 /-FirstCall/ -- The Hanover
Insurance Group, Inc. (NYSE: THG) today reported net income for the fourth
quarter of 2006 of $45.5 million, or $0.88 per share, compared to $118.7
million, or $2.19 per share, in the fourth quarter of the prior year. Net
income for the prior year quarter benefited from a favorable adjustment of
$30.2 million to reflect the actual purchase price from the sale of the
variable life insurance and annuity business that closed on December 30th
2005, a federal income tax settlement of $9.5 million related to our life
company operations in prior years and unusually low taxes for the quarter
due to a rate adjustment driven by Hurricane Katrina losses. Net income for
the current quarter includes pre- tax realized losses on investments of
$14.9 million, compared to gains of $5.7 million in the same period of
2005, and a more normal level of tax expense.
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Net income for the full year of 2006 was $170.3 million, or $3.27 per
share, compared to a net loss of $325.2 million, or $6.02 per share in
2005. The net loss in 2005 is attributable to the $444.4 million after-tax
net loss on the sale of the variable life insurance and annuity business
and the $162 million net catastrophe loss related to Hurricane Katrina.
Total Property and Casualty pre-tax segment income was $97.4 million in
the fourth quarter of 2006, compared to $89.5 million in the fourth quarter
of the prior year. For the full year, total Property and Casualty pre-tax
segment income was $328.1 million for 2006, compared to $113.7 million in
2005. Last years Property and Casualty pre-tax segment income for 2005
includes $249.7 million in pre-tax Hurricane Katrina losses, while the
current years results include $48.6 million in Hurricane Katrina losses.
"I am very pleased with our performance in 2006," said Frederick H.
Eppinger, chief executive officer of The Hanover Insurance Group, Inc. "The
company has reported strong results and did so while posting above average
growth rates. I believe we have made significant progress towards our goal
of becoming a world class Property and Casualty company."
Segment Results
The Hanover conducts its business in four operating segments. Three of
these operating segments, Personal Lines, Commercial Lines, and Other
Property and Casualty, are included in our Property and Casualty
operations. 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, and inland marine. The Other Property and Casualty
segment includes AMGRO, Inc., a premium financing business; Opus Investment
Management, Inc., which provides investment management services to
institutions, pension funds and other organizations; and earnings on
holding company assets, as well as a block of run-off voluntary pools
business in which we have not actively participated since 1995. The Life
Companies, the companys fourth operating segment, include the run-off
business of First Allmerica Financial Life Insurance Company (FAFLIC),
principally consisting of traditional life insurance and retirement
businesses.
The following table shows pre-tax segment income (loss). It is
presented in a manner consistent with the way management evaluates results
and is set forth in accordance with Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information."
Quarter ended Year ended
December 31 December 31
(In millions) (In millions)
2006 2005 2006 2005
Property and Casualty:
Personal Lines(1) $49.0 $74.4 $186.7 $143.2
Commercial Lines(2) 43.4 14.5 120.3 (35.0)
Other Property and
Casualty 5.0 0.6 21.1 5.5
Total Property & Casualty 97.4 89.5 328.1 113.7
Life Companies 0.1 (1.0) (3.9) (18.7)
Interest expense on
corporate debt (10.0) (10.0) (39.9) (39.9)
Total pre-tax segment
income 87.5 78.5 284.3 55.1
Federal income tax expense (26.9) (1.3) (88.2) (1.0)
Total segment income after
taxes(3) $60.6 $77.2 $196.1 $54.1
(1) Includes Personal Lines pre-tax net impact of catastrophes of $4.8
million and ($2.2) million for the fourth quarter of 2006 and 2005,
respectively; and $36.6 million and $110.7 million for the full year
2006 and 2005, respectively.
(2) Includes Commercial Lines pre-tax net impact of catastrophes of $11.4
million and $41.3 million for the fourth quarter of 2006 and 2005,
respectively; and $70.6 million and $193.2 million for the full year
2006 and 2005, respectively.
(3) See reconciliation from segment income to net income (loss) at the end
of this document.
Property and Casualty
Property and Casualty pre-tax segment income was $97.4 million in the
fourth quarter of 2006, compared to $89.5 million in the fourth quarter of
2005, an increase of $7.9 million due to lower catastrophe related losses
in the current quarter. The pre-tax net impact of catastrophes was $16.2
million in the current quarter compared to $39.1 million in the fourth
quarter of 2005. Excluding the pre-tax net impact of catastrophes, property
and casualty pre-tax segment income would have been $113.6 million in the
fourth quarter of 2006 compared to $128.6 million in the prior year
quarter. This decrease was driven primarily by higher operating expenses in
the fourth quarter 2006, partially offset by increased favorable
development of prior year reserves.
Full-year Property and Casualty pre-tax segment income was $328.1
million in 2006, compared to $113.7 million in 2005. The pre-tax net impact
of catastrophes was $107.2 million compared to $303.9 million in the prior
year. Excluding the pre-tax net impact of catastrophes, segment income
would have increased by $17.7 million due primarily to favorable loss
performance and stronger investment income, partially offset by higher
operating expenses. Segment income for 2006 also includes the benefit of a
$7.0 million litigation settlement related to Opus Investment Management,
Inc., recorded in the third quarter of 2006.
Property and Casualty highlights:
* Net premiums written were $531.8 million in the fourth quarter of 2006,
compared to $502.5 million in the fourth quarter of 2005, an increase of
5.8%. Full-year net premiums written were $2,307.1 million, compared to
$2,150.4 million in 2005. Excluding the effect of reinsurance
reinstatement premiums of $27.0 million, which were incurred following
Hurricane Katrina, full year 2005 net premiums written were $2,177.4
million. Excluding the effect of these reinsurance reinstatements
premiums in 2005, net written premium growth was 6.0% for the full year
of 2006.
* Net premiums earned were $566.3 million in the fourth quarter of 2006,
compared to $541.6 million in the fourth quarter of 2005. Full-year net
premiums earned were $2,219.2 million, compared to $2,161.3 million in
2005. Excluding the effect of reinsurance reinstatement premiums of
$27.0 million, net premiums earned were $2,188.3 million for the full
year 2005.
* New business net premiums written were $142.3 million in the fourth
quarter of 2006, representing an increase of 41% over $100.9 million in
the fourth quarter of 2005. New business net premiums written for the
full year were $585.6 million, representing an increase of 63% compared
to $360.0 million in 2005.
* Favorable development of prior-year loss and LAE reserves was $37.3
million in the fourth quarter of 2006, compared to favorable development
of $26.5 million in the fourth quarter of 2005. Favorable development of
prior-year reserves was $128.6 million for the full year, compared to
favorable development of $79.5 million for all of 2005.
The following table summarizes the components of the GAAP combined
ratio for the Property and Casualty segment:
Quarter ended
December 31
2006 2005
Personal Lines losses (excluding
catastrophes) 51.0% 48.2%
Personal Lines catastrophe-
related losses 1.4% (1.2)%
Total Personal Lines losses 52.4% 47.0%
Commercial Lines losses
(excluding catastrophes) 39.0% 41.5%
Commercial Lines catastrophe-
related losses 5.3% 20.4%
Total Commercial Lines losses 44.3% 61.9%
Total P&C Losses 49.4% 52.8%
Loss adjustment expenses 10.4% 9.9%
Hurricane Katrina-related loss
adjustment expenses -- 0.4%
Policy acquisition and other
underwriting expenses 34.6% 31.2%
Combined Ratio 94.4% 94.3%
Year ended
December 31
Adjusted
2006 2005(1) 2005
Personal Lines losses (excluding
catastrophes) 51.1% 52.7% 53.4%
Personal Lines catastrophe-related
losses 2.4% 6.4% 6.5%
Total Personal Lines losses 53.5% 59.1% 59.9%
Commercial Lines losses (excluding
catastrophes) 39.4% 47.3% 47.9%
Commercial Lines catastrophe-related
losses 7.8% 23.2% 23.4%
Total Commercial Lines losses 47.2% 70.5% 71.3%
Total P&C Losses 51.4% 63.3% 64.1%
Loss adjustment expenses 10.6% 9.4% 9.5%
Hurricane Katrina-related loss
adjustment expenses 0.4% 0.3% 0.3%
Policy acquisition and other
underwriting expenses 34.3% 30.9% 31.3%
Combined Ratio 96.7% 103.9% 105.2%
(1) The Adjusted 2005 ratios have been adjusted to exclude the impact of
the reinsurance reinstatement premiums.
Personal Lines
Personal Lines pre-tax segment income was $49.0 million in the fourth
quarter of 2006, compared to $74.4 million in the prior-year quarter. For
the full year, Personal Lines segment income was $186.7 million in 2006
compared to $143.2 million in 2005. The pre-tax net impact of catastrophes
was $4.8 million in the fourth quarter of 2006, compared to a benefit of
$2.2 million in the fourth quarter of 2005. Excluding the pre-tax net
impact of catastrophes, personal lines pre-tax segment income would have
been $53.8 million in the fourth quarter of 2006, compared to $72.2 million
in the prior- year quarter. The pre-tax net impact of catastrophes was
$36.6 million for the full year 2006, compared to $110.7 million in the
full year 2005. Excluding this pre-tax net impact of catastrophes, Personal
Lines segment income for the full year 2006 would have been $223.3 million
compared to $253.9 million in the prior year. The decrease in Personal
Lines pre-tax segment income, excluding catastrophes, for the quarter and
the year is primarily due to higher expenses.
Underwriting and loss adjustment expenses were higher in the most
recent quarter and the year due to several factors, including: an increase
in variable compensation expenses, increased claims spending principally
related to the operating model, the impact of new accounting for
stock-based compensation, increased technology spending, and, to a lesser
extent, an increase in the proportion of overhead expenses absorbed by the
Property and Casualty segment.
Personal Lines highlights:
* Net premiums written were $342.3 million in the fourth quarter of 2006,
compared to $326.0 million in the fourth quarter of 2005, an increase of
5.0%. Net premiums written for the full-year 2006 were $1,427.8
million, compared to $1,363.0 million in 2005. Excluding the effect of
reinsurance reinstatement premiums of $17.7 million, net premiums
written were $1,380.7 million for the full year 2005. Excluding the
effect of these reinsurance reinstatement premiums in 2005, net written
premium growth was 3.4% for the full year of 2006.
* Net premiums earned were $351.1 million in the fourth quarter of 2006,
compared to $341.5 million in the fourth quarter of 2005. Net premiums
earned for the full year 2006 were $1,388.5 million. Excluding the
effect of reinsurance reinstatement premiums of $17.7 million, net
premiums earned were $1,404.4 million for the full year 2005.
* New business net premiums written were $71.6 million in the fourth
quarter of 2006, representing an increase of 43.0% over $50.0 million in
the fourth quarter of 2005. New business net premiums written for the
full year were $279.5 million in 2006, representing an increase of 91.4%
compared to $145.9 million in 2005.
* The Personal Lines GAAP combined ratio was 94.8% in the fourth quarter
in 2006, versus 86.7% in the prior-year quarter. The full year Personal
Lines GAAP combined ratio was 95.1% in 2006. Excluding the effect of
reinsurance reinstatement premiums, the Personal Lines GAAP combined
ratio was 96.6% for the full year of 2005.
* The pre-tax net impact of catastrophes was $4.8 million, or 1.4 points
of the combined ratio, for the fourth quarter of 2006, compared to a
favorable adjustment of $2.2 million, or 0.6 points of the combined
ratio, for the fourth quarter of 2005. For the full year, the pre-tax
net impact of catastrophes was $36.6 million or 2.6 points of the
combined ratio in 2006, versus $110.7 million, or 7.9 points of the
combined ratio in 2005.
* Favorable development of prior-year loss and LAE reserves was $9.9
million in the current quarter consistent with the fourth quarter of
2005, improving the Personal Lines combined ratio by 2.8 points and 3.2
points, respectively. The full-year favorable development of prior-year
reserves was $48.9 million in 2006, compared to $42.4 million in 2005.
Commercial Lines
Commercial Lines pre-tax segment income was $43.4 million in the fourth
quarter of 2006, compared to $14.5 million in the fourth quarter of 2005.
The pre-tax net impact of catastrophes was $11.4 million in the fourth
quarter of 2006, compared to $41.3 million in the fourth quarter of 2005.
Excluding the pre-tax net impact of catastrophes, Commercial Lines pre-tax
segment income would have been $54.8 million in the fourth quarter of 2006,
compared to $55.8 million in the prior-year quarter, a decrease of $1.0
million. For the full year, Commercial Lines segment income was $120.3
million, compared to a loss of $35.0 million in 2005. The pre-tax net
impact of catastrophes in the full year 2006 was $70.6 million, compared to
$193.2 million in the full year 2005. The Commercial Lines segment income
excluding the impact of catastrophes for the full year 2006 would have been
$190.9 million, compared to $158.2 million in 2005, an increase of $32.7
million for the year. The $1.0 million decrease in Commercial Lines segment
income excluding the pre-tax net impact of catastrophes for the quarter was
primarily due to higher expenses offset by favorable prior-year reserve
development. Commercial Lines segment income for the full year benefited
primarily from favorable prior-year reserve development, improvement in
current accident year results, as well as from growth in specialty lines
that more than offset higher underwriting expenses incurred for the year.
In the fourth quarter of 2006, development of prior-year loss and loss
adjustment reserves were favorable by $28.2 million, compared to $18.3
million in the fourth quarter of 2005. The increase in favorable prior-year
reserve development was driven by Workers Compensation and Other
Commercial lines. Similarly, prior-year reserves developed favorably by
$81.9 million in the full-year 2006, compared to $41.2 million in 2005.
Current accident year results also improved for the year.
Underwriting and loss adjustment expenses were higher in the most
recent quarter and the year due to several factors which include: an
increase in variable compensation expenses, increased technology spending,
higher expenses in support of our specialty lines, the impact of new
accounting for stock- based compensation, certain other miscellaneous
items, and to a lesser extent, an increase in the proportion of overhead
expenses absorbed by the Property and Casualty segment.
Commercial Lines highlights:
* Net premiums written were $189.5 million in the fourth quarter of 2006,
compared to $176.5 million in the fourth quarter of 2005, an increase of
7.4%. Net premiums written for the full year 2006 were $879.0 million,
compared to $787.2 million in 2005. Excluding the effect of reinsurance
reinstatement premiums of $9.3 million, net premiums written were $796.5
million for the full year 2005. Excluding the effect of these
reinsurance reinstatement premiums in 2005, net written premium growth
was 10.4% for the full year of 2006.
* Net premiums earned were $215.2 million in the fourth quarter of 2006,
compared to $200.1 million in the fourth quarter of 2005. Net premiums
earned for the full year 2006 were $830.5 million. Excluding the effect
of reinsurance reinstatement premiums of $9.3 million, net premiums
earned were $783.7 million for the full year 2005.
* New business net premiums written were $70.8 million in the fourth
quarter of 2006, representing an increase of 39.1% over $50.9 million in
the fourth quarter of 2005. New business net premiums written for the
full year were $306.2 million in 2006, representing an increase of 43.1%
compared to $214.0 million in 2005.
* The Commercial Lines GAAP combined ratio was 93.5% in the fourth quarter
of 2006, versus 106.6% in the prior year quarter. The full year
Commercial Lines GAAP combined ratio was 98.9% in 2006. Excluding the
effect of reinsurance reinstatement premiums, the Commercial Lines GAAP
combined ratio was 116.9% for the full year 2005.
* The pre-tax net impact of catastrophes was $11.4 million, or 5.3 points
of the combined ratio, for the fourth quarter of 2006, compared to $41.3
million, or 20.6 points of the combined ratio, for the fourth quarter of
2005. The full year pre-tax net impact of catastrophes was $70.6 million
or 8.5 points of the combined ratio in 2006, versus $193.2 million, or
24.9 points of the combined ratio in 2005.
* Favorable development of prior-year loss and LAE reserves was $28.2
million in the fourth quarter of 2006, compared to favorable development
of $18.3 million in the fourth quarter of 2005; improving the Commercial
Lines combined ratio by 13.1 points and 9.1 points, respectively. The
full-year favorable development of prior-year reserves was $81.9 million
in 2006, compared to adverse development of $41.2 million in 2005.
Other Property & Casualty
Other Property & Casualty pre-tax segment income was $5.0 million in
the fourth quarter of 2006, compared to $0.6 million in the prior-year
quarter. Other Property & Casualty pre-tax segment income was $21.1 million
for the full-year 2006, compared to $5.5 million in 2005. The increase in
Other Property & Casualty segment income for the quarter and the full year
is due to higher investment income, driven by the proceeds on the sale of
the variable life insurance and annuity business, held at the holding
company. Additionally, income in the quarter includes $2.1 million in
interest income associated with the deferred purchase price from the sale
of the variable life insurance and annuity business to Goldman Sachs.
Income for the full year of 2006 also includes a $7.0 million litigation
settlement in the third quarter. Other Property & Casualty includes the
companys premium financing business, investment management operations,
earnings on holding company assets, as well as run-off voluntary pools.
Life Companies
Continuing Operations:
The Life Companies continuing operations reported pre-tax segment
income of $0.1 million in the fourth quarter of 2006, compared to a loss of
$1.0 million in the fourth quarter of 2005. For the full year 2006, the
Life Companies continuing operations reported a pre-tax segment loss of
$3.9 million in 2006, compared to a loss of $18.7 million in 2005.
Loss on Disposal of the Variable Life Insurance and Annuity Business:
For the fourth quarter of 2006, the company recorded a loss on the sale
of the variable life insurance and annuity business of $4.0 million, net of
tax, relating primarily to net transition service expenses. This compares
to a gain of $30.2 million, net of tax, in the fourth quarter of 2005,
which was a favorable adjustment to the actual purchase price on closing.
For the full year of 2006, the company recorded a loss of $29.8 million,
net of tax, compared to a loss of $444.4 million, net of tax, resulting
from the sale of the variable life insurance and annuity business.
Investment Results
Net investment income was $81.1 million for the fourth quarter of 2006,
compared to $83.4 million in the same period of 2005. For the full year of
2006, net investment income was $318.9 million compared to $321.4 million
in 2005.
Net investment income for the property and casualty segment was $59.0
million for the fourth quarter of 2006, which is an increase of $4.3
million over the fourth quarter of 2005. For the full year 2006, property
and casualty net investment income was $227.4 million, which is an increase
of $18.3 million over 2005. This increase in property and casualty segment
net investment income for the quarter and the full year were driven
primarily by increased operating cash flows and from the proceeds on the
sale of the variable life insurance and annuity business.
Offsetting the increase in the property and casualty segment net
investment income was a decrease in the Life Companies net investment
income. Net investment income in the Life Companies decreased by $6.7
million in the fourth quarter of 2006 to $22.0 million and for the full
year 2006, net investment income decreased by $21.2 million to $90.9
million. This decrease in net investment income for the quarter and for the
year were driven by lower average invested assets, resulting from the
maturities of long-term funding agreements and continued cash outflows from
life operations since the business is in run-off.
Fourth quarter 2006 pre-tax net realized investment losses were $14.9
million, compared to $5.7 million of pre-tax net realized investment gains
in the same period of 2005. In the fourth quarter of 2006, the company
realized pre-tax net investment losses of $11.8 million primarily from
sales of fixed maturities and $3.1 million of losses from impairments on
certain fixed maturities. In the fourth quarter of 2005, the company
realized pre-tax net investment gains of $6.7 million, primarily from sales
of investments. These gains were partially offset by $1.0 million of
realized losses resulting from impairments on certain fixed maturity and
equity securities.
Full-year 2006 pre-tax net realized investment losses were $4.3
million, compared to $23.8 million of pre-tax net realized investment gains
in 2005. In 2006, the company experienced pre-tax net realized investment
losses of $11.3 million primarily from impairments on certain fixed
maturity securities. These losses were partially offset by $7.0 million of
capital gains resulting primarily from the sale of fixed maturities. In
2005, the company experienced pre-tax net realized investment gains of
$33.1 million, primarily from the sales of investments. These gains were
partially offset by $9.3 million of capital losses resulting from
impairments on certain fixed maturity and equity securities.
Balance Sheet
Shareholders equity was $1,999.2 million, or $39.10 per share at
December 31, 2006, compared to $1,951.3 million or $36.30 per share at
December 31, 2005. Excluding accumulated other comprehensive income, book
value was $39.88 per share at the close of the fourth quarter of 2006,
compared to $37.33 per share at December 31, 2005.
Earnings Conference Call
The Hanover will host a conference call to discuss the companys fourth
quarter results on Tuesday, January 30th 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 Hanovers web site,
located at http://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 two hours after the call.
Statistical Supplement
The Hanovers fourth quarter earnings press release and statistical
supplement are also available in the Investors section at http://www.hanover.com.
Forward-Looking Statements and Non-GAAP Financial Measures
Certain statements in this release or in the above referenced
conference call may be considered to 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" and similar expressions is intended to
identify forward- looking statements. The company cautions investors that
any such forward- looking statements are not guarantees of future
performance, and actual results could differ materially. Investors are
directed to consider the risks and uncertainties in our business that may
affect future performance and that are discussed in readily available
documents, including the companys annual report and other documents filed
by The Hanover with the Securities and Exchange Commission and which are
also available at http://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 Katrina and
Rita), the possibility of adverse judicial decisions, which expand policy
coverage beyond its intended scope (such as recent decisions in Louisiana
involving the so-called "flood" exclusions), the ability to increase or
maintain certain property and casualty insurance rates, the impact of new
product introductions (such as the multi- variate personal auto product),
adverse loss development and adverse trends in mortality and morbidity and
medical costs, change in the current favorable frequency and loss trends
generally being experienced industry-wide, the ability to improve renewal
rates and increase new property and casualty policy counts, investment
impairments, heightened competition (including rate pressure), adverse
state and federal legislation or regulation or regulatory actions, (such as
recent mandated decrease in rates for Massachusetts private passenger
automobile insurance and Florida homeowners policies) financial ratings
actions, uncertainties in estimating the FIN 45 liability recorded in
conjunction with certain indemnity obligations to Goldman Sachs in
connection with the sale of the variable life insurance and annuity
business (including with respect to existing and potential litigation and
regulatory actions and the remediation of certain processing errors in
connection with tax reporting), and various other factors.
The Hanover uses non-GAAP financial measures as important measures of
the companys operating performance, including total segment income,
property and casualty segment income, and measures of segment income and
loss ratios excluding catastrophe losses (and with respect to 2005,
reinsurance reinstatement premiums).
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 Hanovers 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 companys ongoing businesses because they
highlight net income attributable to the normal 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. Segment
income, Property and Casualty segment income and measures of segment income
that exclude the effects of catastrophe losses should not be construed as a
substitute for net income determined in accordance with GAAP. A
reconciliation of net income to segment income and Property and Casualty
segment income for the quarters ended December 31, 2006 and 2005 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 or reinsurance reinstatement premiums. 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 provides measures of net premiums written, net premiums
earned and loss ratios that exclude the effects of catastrophe reinsurance
reinstatement premiums. Catastrophe reinsurance reinstatement premiums are
a reduction to net written and earned premiums, and represent the cost to
reinstate the amount of catastrophe reinsurance coverage that the Company
has used as the result of a reinsurance loss payment under the terms of the
reinsurance contract. The company believes that the loss ratios excluding
the effects of catastrophe reinsurance reinstatement premiums represent a
better measure of underlying loss trends. The presentation of loss ratios
calculated excluding the effects of catastrophe reinstatement premiums
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 35 property and casualty insurers in the United States.
Contact Information
Investors: Media:
Sujata Mutalik Michael F. Buckley
E-mail: smutalik@hanover.com E-mail: mibuckley@hanover.com
1-508-855-3457 1-508-855-3099
THE HANOVER INSURANCE GROUP, INC.
(In millions, except per share data)
Quarter ended Year ended
December 31 December 31
2006 2005 2006 2005
Net income (loss) $45.5 $118.7 $170.3 $(325.2)
Net income (loss) per share(1) $0.88 $2.19 $3.27 $(6.02)
Weighted average shares 51.7 54.2 52.2 54.0
The following is a reconciliation from segment income (loss) to net income
(loss) (2):
PER SHARE DATA (DILUTED) Quarter ended December 31
(1)
2006 2005
$ Per $ Per
Share Share
Property and Casualty
Personal Lines $49.0 -- $74.4 --
Commercial Lines 43.4 -- 14.5 --
Other Property &
Casualty 5.0 -- 0.6 --
Total Property and
Casualty 97.4 -- 89.5 --
Life Companies 0.1 -- (1.0) --
Interest expense on
corporate debt(3) (10.0) -- (10.0) --
Total segment income 87.5 $1.69 78.5 $1.44
Federal income tax expense
on segment income (26.9) (0.52) (1.3) (0.02)
Total segment income after
federal income taxes 60.6 1.17 77.2 1.42
Change in prior years tax
reserves 3.3 0.07 -- --
Federal income tax
settlement -- -- 9.5 0.18
Net realized investment
(losses) gains, net of
amortization (14.9) (0.29) 5.7 0.11
Gain (loss) on derivatives -- -- -- --
Restructuring costs (0.2) -- (0.8) (0.02)
Federal income tax benefit
(expense) on non-segment
income 0.7 0.01 (7.2) (0.13)
Income from continuing
operations, net of taxes 49.5 0.96 84.4 1.56
Income from discontinued
variable life and annuity
business, net of taxes -- -- 4.1 0.08
(Loss) income on disposal
of variable life insurance
and annuity business, net
of taxes (4.0) (0.08) 30.2 0.55
Gain on sale of Financial
Profiles Inc., net of tax -- -- -- --
Income (loss) before
cumulative effect of
accounting change 45.5 0.88 118.7 2.19
Cumulative effect of
change in accounting
principle, net of taxes -- -- -- --
Net income (loss) $45.5 $0.88 $118.7 $2.19
PER SHARE DATA (DILUTED) Year ended December 31
(1)
2006 2005
Per Per
$ Share $ Share
Property and Casualty
Personal Lines $186.7 -- $143.2 --
Commercial Lines 120.3 -- (35.0) --
Other Property &
Casualty 21.1 -- 5.5 --
Total Property and
Casualty 328.1 -- 113.7 --
Life Companies (3.9) -- (18.7) --
Interest expense on
corporate debt(3) (39.9) -- (39.9) --
Total segment income 284.3 $5.45 55.1 $1.02
Federal income tax expense
on segment income (88.2) (1.69) (1.0) (0.02)
Total segment income after
federal income taxes 196.1 3.76 54.1 1.00
Change in prior years tax
reserves 3.3 0.07 2.3 0.04
Federal income tax
settlement -- -- 9.5 0.18
Net realized investment
(losses) gains, net of
amortization (3.5) (0.07) 18.6 0.35
Gain (loss) on derivatives 0.2 -- (0.3) --
Restructuring costs (1.6) (0.03) (2.1) (0.04)
Federal income tax benefit
(expense) on non-segment
income (2.8) (0.05) (5.6) (0.11)
Income from continuing
operations, net of taxes 191.7 3.68 76.5 1.42
Income from discontinued
variable life and annuity
business, net of taxes -- -- 42.7 0.79
(Loss) income on disposal
of variable life insurance
and annuity business, net
of taxes (29.8) (0.57) (444.4) (8.23)
Gain on sale of Financial
Profiles Inc., net of tax 7.8 0.15 -- --
Income (loss) before
cumulative effect of
accounting change 169.7 3.26 (325.2) (6.02)
Cumulative effect of
change in accounting
principle, net of taxes 0.6 0.01 -- --
Net income (loss) $170.3 $3.27 $(325.2) $(6.02)
(1) Basic net income per share was $0.89 and $2.21 for quarters ended
December 31, 2006 and 2005, respectively. For the year ended December
31, 2006 and 2005, basic net income (loss) per share was $3.31 and
$(6.08), respectively.
(2) 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.
Net income includes the following items by segment:
Quarter ended December 31, 2006
(In millions)
Personal Commercial Other Life
Lines Lines Property & Companies Total
Casualty
Change in prior years
tax reserves $(1.3) $(1.4) $4.1 $1.9 $3.3
Net realized
investment losses (3.4) (3.7) (7.8) -- (14.9)
Restructuring costs -- -- -- (0.2) (0.2)
Loss on disposal of
variable life
insurance and annuity
business, net of taxes -- -- -- (4.0) (4.0)
Quarter ended December 31, 2005
(In millions)
Personal Commercial Other Life Total
Lines Lines Property & Companies
Casualty
Federal income tax
settlement $-- $-- $-- $9.5 $9.5
Net realized
investment gains
(losses) 3.4 3.7 1.6 (3.0) 5.7
Restructuring costs -- -- -- (0.8) (0.8)
Income from
discontinued variable
life insurance and
annuity business, net
of taxes -- -- -- 4.1 4.1
Income on disposal of
variable life
insurance and annuity
business, net of taxes -- -- -- 30.2 30.2
Year ended December 31, 2006
(In millions)
Personal Commercial Other Life Total
Lines Lines Property & Companies
Casualty
Change in prior years
tax reserves $(1.3) $(1.4) $4.1 $1.9 $3.3
Net realized
investment (losses)
gains 1.9 2.0 (4.1) (3.3) (3.5)
Gain on derivatives -- -- -- 0.2 0.2
Restructuring costs -- -- -- (1.6) (1.6)
Loss on disposal of
variable life
insurance and annuity
business, net of taxes -- -- -- (29.8) (29.8)
Gain on sale of
Financial Profiles,
net of taxes -- -- -- 7.8 7.8
Cumulative effect of
change in accounting
principle, net of
taxes 0.2 0.3 -- 0.1 0.6
Year ended December 31, 2005
(In millions)
Personal Commercial Other Life Total
Lines Lines Property & Companies
Casualty
Change in prior years
tax reserves $-- $-- $-- $2.3 $2.3
Federal income tax
settlement -- -- -- 9.5 9.5
Net realized
investment gains 2.6 2.7 2.4 10.9 18.6
Loss on derivatives -- -- -- (0.3) (0.3)
Restructuring costs -- -- -- (2.1) (2.1)
Income from
discontinued variable
life insurance and
annuity business, net
of taxes -- -- -- 42.7 42.7
Loss on disposal of
variable life
insurance and annuity
business, net of taxes -- -- -- (444.4) (444.4)
All figures reported are unaudited.
s.server=server()
s.channel="News Release"
s.pageName="The Hanover Insurance Group, Inc. Reports Fourth Quarter 2006 Earnings: Net Income of $0.88 Per Share Compared to $2.19 Per Share in the Prior Year"
s.prop2="109"
s.prop3="01-29-2007"
s.prop4=""
s.prop5=""
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