The Hanover Insurance Group, Inc Q2 2010 Earnings Conference Call Transcript

The Hanover Insurance Group, Inc Q2 2010 Earnings Conference Call Transcript
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The Hanover Insurance Group, Inc (THG)

Q2 2010 Earnings Conference Call

August 5, 2010, 11:00 AM ET

Executives

Oksana Lukasheva - Investor Relations

Fred Eppinger - President, CEO

Marita Zuraitis - EVP, President of Property & Casualty

Steve Bensinger - CFO, Executive Vice President

Analysts

Cliff Gallant - KBW

Sam Hoffman - Lincoln Square Capital

Vincent DeAugustino - Stifel Nicolaus

Presentation

Operator

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» The Hanover Insurance Group Inc. Q1 2010 Earnings Call Transcript
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» The Hanover Insurance Group, Inc. Q1 2009Earnings Call Transcript

Good morning and thank you for joining us for our second quarter conference call. Participating in today's call are Fred Eppinger, our President and Chief Executive Officer; Marita Zuraitis, President of Property and Casualty Companies; and Steve Bensinger, our Executive Vice President and CFO.

Before I turn the call over to Fred for a discussion of our results, let me note that our earnings press release, statistical supplement and a complete Slide presentation for today's call are available in the Investors section of our website at www.hanover.com. After the presentation we will answer questions in the Q&A session.

Our prepared remarks and responses to your questions today, other than statements of historical facts, include forward-looking statements. These include statements regarding expectations of after-tax operating earnings per share, segment earnings, pricing, accident year results, premiums, expenses, development of loss and LAE reserves, returns on equity and other projections for 2010 or beyond.

There are certain factors that could cause actual results to differ materially from those anticipated by this press release, Slide presentation and conference call. We caution you with respect to reliance on forward-looking statements and in this respect refer you to the forward-looking statement section in our press release, Slide 2 of the presentation deck, and our filings with the SEC.

Today’s discussion will also reference certain non-GAAP financial measures, such as total segment income, after-tax earnings per share, segment results excluding the impact of catastrophes and development, ex-CAT loss ratios and accident year loss ratios among others.

A reconciliation of these non-GAAP financial measures to the closest GAAP measure on a historical basis can be found in the press release or the statistical supplement, which are posted on our website as I mentioned earlier.

With those comments, I will turn the call over to Fred.

Fred

Eppinger

Good morning, everybody, and thanks for joining us this morning. As usual, I will begin our discussion by providing some context for our second quarter results and update you on our progress towards meeting our long-term financial objectives and marketplace positioning. Then I'll turn the call over to Marita and Steve who will provide additional insight into our performance and relevant trends.

A significant number of severe weather events during the second quarter were challenging for both our industry and our company. As we noted in our July 13 press release, we incurred $85 million of catastrophe losses, the highest second quarter level of catastrophe activity in our history.

Even with the high level of catastrophe losses, however, we generated positive earnings in the quarter and further increased book value per share. Our book value per share grew 20% from the prior year period and 6% from the year end 2009. On an ex-CAT basis, the underlying trends we see across most areas of our business are continuing to show good progress as evidenced by a 2.8 point improvement in our ex-CAT current tax end year loss ratio.

While this was a challenging quarter, we made excellent progress on the critical strategic initiatives that are positioning our company for strong long-term financial results. We continue to focus on a journey to create a world class property and casualty company, one that achieves attractive financial results with an 11% to 13% ROE through the cycle and deliver distinctive products to winning independent agents.

Since we began our journey, we have significantly improved all our core capabilities in the financial strength of the company. As you know, in most recent quarters, we have made significant investments to enhance our product portfolio and competitive position. Particularly since our latest AM Best upgrade in May of last year, we have accelerated the repositioning of the company.

In the last 15 months we have acquired and built a number of product capabilities and launched our geographic expansion, significantly improving our competitive position with some of the most important independent agents in the country.

Today I want to focus my comments on the levers we believe are the most important as we work to achieve our long-term financial goals and market position. First, we continue to establish strong momentum in growing our commercial lines and specialty businesses, leveraging the investments we have made in those areas.

During the second quarter we grew our commercial lines business by 46%. The growth in this business is an increase over the first quarter where we grew 33% continued to be driven by our renewal rates agreement with OneBeacon Insurance Group and the continued growth of our specialty and niche businesses.

We continue to be very pleased with the OneBeacon transaction. While it's still too early to tell just how much of this business we will ultimately renew and how much new business we will write with the new partners we appointed in connection with the transaction, we are certainly encouraged by the trends that have developed so far.

We also are very pleased with the excitement and enthusiasm the new partner agents have expressed about forming deeper partnerships with our company as evidenced by the amount of business we are writing with these partners.

In addition to generating strong growth, their enthusiasm is further confirmation that our value proposition delivering product innovation, franchise value, and responsiveness is resonating with winning agents. During the second quarter alone we renewed just over $80 million of high quality small and middle market business, bringing our total for the year-to-date to $150 million with the vast majority in segmented and niche business.

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