Hanover Insurance Group Swings to Q4 Profit a Year After Sandy

The Hanover Insurance Group Inc. in Worcester, Mass., reported net income of $70.1 million for its 2013 fourth quarter, improving from a net loss of $55.0 million during the 2012 fourth quarter. Prior-year loss results included the impact of $129 million losses, after tax, related to Superstorm Sandy.

Net premiums written for the 2013 fourth quarter were $1.052 billion, up 1.7 percent from $1.034 billion during the prior-year fourth quarter. The combined ratio for the 2013 fourth quarter was 96.5 percent (94.1 percent excluding Cat losses), improving from 115.7 percent (96.9 percent excluding Cat losses) a year ago.

Net income for the full year 2013 surged to $251.0 million, up from net income of $55.9 million for 2012. Net premiums written for the full year 2013 were $4.553 billion, up 4.2 percent from $ 4.368 billion for 2012. The combined ratio for the full year 2013 was 96.7 percent (93.6 percent excluding Cat losses), improving from 104.4 percent (95.7 percent excluding Cat losses) for 2012.

Net investment income fell slightly on both quarterly and full-year basis. Net investment income for the 2013 fourth quarter was $68.1 million, down 2.9 percent from the prior-year fourth quarter. The full-year 2013 net investment income was $269.0 million, down 2.7 percent from 2012. The company said the decrease in both periods was mostly due to the impact of lower new money yields, partially offset by the investment of higher operating cash flows.

The company also said strong price increases in both commercial and personal lines continued in the 2013 fourth quarter.

“I am very pleased with our strong performance in the fourth quarter and for the year,” said Frederick H. Eppinger, president and chief executive officer, during Thursday’s earnings conference call.

Eppinger said The Hanover’s full-year combined ratio, excluding catastrophe losses, improved by more than two points from 2012 to 2013. He commented that the underwriting margin expansion on an ex-Cat basis reflects improved combined ratios in both commercial and personal Lines, while its Chaucer division in the U.K. continued to deliver positive results in 2013.

“We achieved pricing increases in Core Commercial Lines in line with the third quarter at 9 percent, with improved retention,” Eppinger said. “In Personal Lines, we continued to drive strong rate increases of 8 percent, while managing our book to higher-quality accounts and a more diversified mix.”

“For the year, we increased book value by 1.4 percent and delivered an operating ROE of 10 percent,” he said.

Commenting on the continued strong price increase, he noted that when looking at some of the national accounts and the large accounts, particularly in the property area and comp, “my guess is you are seeing some moderation in price increases,” he said. “My guess is you will have pockets where you are going to see some change but we have not seen any kind of what I would say material change.”

“I fully expect that there will be pockets that will moderate through the year but we feel very good about our assumptions and being able to achieve rate this year.”

“As we reflect on our progress, we believe we have taken a strong step forward as a company in 2013,” Eppinger said.

“At the fourth quarter call last year, we emphasized that taken together our 2013 priorities were about leveraging a more distinctive and balanced portfolio to achieve higher and more consistent earnings and returns. Today, as we look back on the year, we are pleased with our progress and we have built a solid foundation for 2014 and beyond.”

Preliminary Estimate From Winter Storms

The Hanover also provided a preliminary estimate of $30-to-35 million in losses from the two declared catastrophes related to January’s severe winter storms.

“These losses reflect severe winter weather and unusually low temperatures over a wide geographic area,” Eppinger said. The losses are mostly commercial losses, he noted.

With two months still left in the 2014 first quarter, it is likely the company’s first quarter catastrophe loss ratio would be higher than in recent years, Eppinger said. “However,” he added, “we see no reason to change our overall catastrophe loss assumption for the year at this time.”

Commercial, Personal Lines Operating Results

For The Hanover’s Commercial Lines, pre-tax operating income was $34.7 million for the 2013 fourth quarter, compared to an operating loss of $112.9 million in the prior-year quarter. The Commercial Lines combined ratio was 100.1 percent in the latest fourth quarter, compared to 131.8 percent in the prior-year quarter. Cat losses were $7.7 million for the 2013 fourth quarter, compared to $126.9 million in the prior-year quarter. Net premiums written were $471.6 million for the latest fourth quarter, up 8.1 percent from a year ago.

For the full-year 2013, Commercial Lines pre-tax operating income was $132.4 million, compared to an operating loss of $80.3 million. The combined ratio for the full year was 100.4 percent, improving from 112.2 percent for 2012. Net premiums written for the full year were $2.007 billion, up 5.5 percent from 2012.

In Personal Lines, pre-tax operating income was $30.5 million for the latest fourth quarter, compared to an operating loss of $29.0 million in the prior-year fourth quarter. The Personal Lines combined ratio was 96.5 percent in the fourth quarter, compared to 113.6 percent in the prior-year fourth quarter. Cat losses were $12.7 million in the 2013 fourth quarter, compared to $51.7 million in the prior-year fourth quarter. Net premiums written were $342.9 million for the latest fourth quarter, down 5.6 percent from a year ago.

For the full year 2013, Personal Lines pre-tax operating income was $118.6 million, up from $25.5 million in 2012. The combined ratio for the full year was 96.7 percent, compared to 103.8 percent in the prior year. Net premiums written for the full year were $1.428 billion, down 3.2 percent from the prior year.

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Topics Profit Loss