The Hanover Group Sees Profits Shrink

February 6, 2009

Fourth quarter profits at The Hanover Insurance Group fell 55 percent from $75.8 million a year ago to $34.1 million. Full-year net income dropped nearly 92 percent to $20.6 million, from the $253.1 million the Worcester, Massachusetts-based insurer earned in 2007.

The company said the drop in earnings stemmed from investment losses of $97.8 million, substantially higher catastrophe losses in the company’s property and casualty operations and charges related to the sale of its life insurance business.

Total property and casualty pre-tax segment income was $97.5 million in the fourth quarter of 2008, compared to $98 million in the fourth quarter of the prior year. The pre-tax net impact of catastrophes was $14.1 million in the fourth quarter of 2008, compared to $11.3 million in the fourth quarter of 2007. The fourth quarter of 2007 also included a one time benefit of $11.8 million from a litigation settlement, partially offset by a pension related expense adjustment of $7.4 million in the same period.

Excluding the pre-tax net impact of catastrophes, the litigation benefit and the pension expense, Property and Casualty pre-tax segment income would have been $111.6 million in the fourth quarter of 2008, compared to $104.9 million in the fourth quarter of 2007.

Total property and casualty pre-tax segment income was $302.2 million for the full year of 2008, compared to $382.3 million in the prior year. The pre-tax segment income in 2008 included significantly higher catastrophe losses of $169.7 million pre-tax, compared to $65.2 million pre-tax in 2007. Excluding the pre-tax net impact of catastrophes, the aforementioned litigation settlement in the fourth quarter of 2007 and a pension related expense adjustment of $6.0 million for the full year, property and casualty pre-tax segment income would have been $471.9 million in 2008, $30.2 million higher than the comparable $441.7 million in 2007.

The Hanover had net premiums written of $597.3 million in the fourth quarter, compared to $561.6 million in the prior-year quarter — an increase of 6.4 percent.

For the year, net premiums written were $2.52 billion, compared to $2.42 billion in the prior year, an increase of 4.4 percent

“I am pleased that in a year of very significant weather, including catastrophe and non-catastrophe activity, we generated solid pre-tax segment income,” said Frederick H. Eppinger, chief executive officer at The Hanover. “Excluding the impact of catastrophes, we showed meaningful growth in pre-tax segment income, which is evidence of the increasing earnings power of our business. While our 2008 premium growth of 4 percent continued to outpace the industry, we remain focused on underwriting discipline, as evidenced by improvements in our ex-catastrophe accident year loss ratios for both the quarter and the year.”
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Source: The Hanover Insurance Group

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