The Hanover Posts $20.8 million Q2 Profit

August 3, 2012

The Hanover Insurance Group, a Worcester, Mass.-based property/casualty insurer, reported $20.8 million profit for the 2012 second quarter, improving from a loss of $32.2 million reported a year earlier. Smaller catastrophe losses and a strong contribution from U.K.-based Chaucer — which Hanover acquired a little more than a year ago — boosted the bottom line.

Overall net premiums written for the quarter were $1.198 billion, rising from $815.4 million reported during the prior-year period. The company got a boost from the addition of $329.8 million in net premiums written by Chaucer, as well as commercial lines growth of 12.8 percent, driven by both core commercial and specialty businesses.

Overall underwriting loss for the quarter was $36.7 million, compared with an underwriting loss of $107.1 million one year ago. CAT losses were $74.1 million, down from $156.7 million during the same period one year ago. The second-quarter total combined ratio was 103.1 percent, improving from 113.4 percent a year earlier.

In commercial lines, the combined ratio was 109.7 percent, hurt by catastrophes and unfavorable reserve development in surety and commercial auto lines. Hanover said it saw pricing increases of around 6 percent in core commercial. Net written premiums for the commercial lines were $497 million, up from $441 million one year ago.

In personal lines, the combined ratio was 102.0 percent, which included almost 9 points in catastrophe losses and it was also affected by unfavorable reserve development, Hanover noted. Net written premiums for personal lines declined slightly to $371 million from $375 million one year ago. Hanover noted rate increases of 5 percent in auto and 9 percent in homeowners.

At Chaucer, segment income before interest and taxes was $29.8 million. It had a combined ratio of 91.9 percent, which included 1.4 points of catastrophe losses and 2.2 points of prior-year favorable reserve development. Net written premiums were $329.8 million.

The company’s overall net investment income for the second quarter was $68.5 million, up from $61 million a year earlier.

“Though our earnings for the quarter were disappointing due to some specific challenges we faced, we continue to seek favorable trends in our businesses and progress on our strategic priorities that positions us well for continued earnings improvement. Despite these challenges, we produced a profitable quarter.” said Fred Eppinger, CEO of the insurance company that is celebrating its 160-year anniversary this year.

Weather once again affected domestic results, Eppinger noted during the company’s conference call Thursday to discuss quarterly earnings results.

Catastrophe losses in the U.S. made up nine points of the combined ratio. Additionally, in response to some emerging loss trends in auto lines, the company raised its loss estimates, most notably for 2011. It also increased loss estimates on the contract surety book, the CEO said.

Eppinger said Hanover has also been improving the quality of its business mix with targeted pricing and underwriting activities and increased share of the higher-margin business in the mix.

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