Hanover Insurance Group's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Hanover Insurance Group, Inc. (THG)

Q1 2012 Earnings Call

May 1, 2012 10:00 AM ET

Executives

Oksana Lukasheva – Assistant VP

Frederick Eppinger – President and CEO

David Greenfield – EVP and CFO

Marita Zuraitis – President, Property & Casualty Companies

Analysts

Vincent D’Agostino – Stifel Nicolaus

Dan Farrell – Sterne Agee

Ray Iardella – Macquarie

Larry Greenberg – Langen McAlenney

Matt Carletti – JMP Securities

Ray Iardella – Macquarie

Presentation

Operator

Good day and welcome to the Hanover Insurance Group First Quarter Conference Call and Webcast. All participants will be in listen-only mode. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Oksana Lukasheva, AVP Investor Relations. Please go ahead.

Oksana Lukasheva

Thank you, Andrew. Good morning and thank you for joining us on our first quarter conference call. We’ll begin today’s call with prepared remarks from Fred Eppinger, our President and Chief Executive Officer and David Greenfield, our Executive Vice President and CFO. Also in the room and available to answer your questions after our prepared remarks are Marita Zuraitis, President, Property and Casualty Companies; Andrew Robinson, President of Specialty Lines; and Bob Stuchbery, President of International Operations and Chief Executive Officer of Chaucer.

Before I turn the call over to Fred, let me note that our earnings press release, statistical supplements 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 the responses to your questions today, other than statements of historical fact, include forward-looking statements such as our outlook for segment income per share for 2012.

There are certain factors that could cause actual results to differ materially from those anticipated by the 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 statements section in our press release, slide two 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, ex-cat loss and combined ratio and accident share loss of combined 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 supplements, which are posted on our website, as I mentioned earlier.

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

Frederick Eppinger

Thank you, Oksana, and good morning everyone, and thank you for joining our call today. I’m pleased with our results for the first quarter as we continue to see favorable trends in our business and overall results were in line with the outlook we shared with you earlier in the year. Net income per share for the quarter was $1.09 and operating EPS was $1.01, which translates into an annualized operating ROE of 8%. Our book value per share increased 3.6% during the quarter and 5.7% over the last 12 months after adjusting for the adoption of the accounting change for deferred acquisition costs.

Before I comment on our results by segment, I would like to touch on our strategic priorities for 2012. They should be helpful as we review our quarterly results and evaluate our progress throughout the year. As we discussed at Investor Day we have accomplished a lot in the last several years to reposition the company for better long-term performance. We transformed our company from a regional insurance company with a challenging geographic and product mix into a national player with global reach and an attractive business mix and strong and growing position with some of the best distributors in the industry. While we have improved our performance from the early days of the journey, our goal is to build a company that can deliver 11% to 13% ROE through the cycle.

In 2012, we believe we are now well-positioned to both capitalize on the current market opportunities and position our company for improving profitability and sustainable attractive returns. Each of our businesses is focused on three critical value leverage to improve our performance in 2012 and set up continuing financial improvement in 2013.

The three levers are, first, improving the quality and attractiveness of our current mix through targeted underwriting activities and growing higher margin businesses. Second, further strengthening our position and alignment with winning agents. And third, improving our underwriting and financial performance through a disciplined focus on pricing and operating models efficiencies.

Our first quarter results provide evidence that our focus on these three levers is working. In personal lines, our three main priorities translate into implementing rate and non-rate actions to improve profitability and refining our business mix by managing pockets of property concentration and reducing lower return business.

We continue to achieve rate increases during the quarter. The filed rate increases were well over 4% auto and over 7% in homeowners. We also achieved strong retention, which at 81% was a two point improvement from prior year quarter. At the same time, our strong market position and our account-focused strategy enables us to successfully adjust our business mix without sacrificing retention or our position with the best partners. And we expect rate increases to be greater in both lines of business in the second quarter.

The relatively mild winter was a welcome change this year. However, the very early and unusual tornado season which impacted many of the states and territories we do businesses, including Michigan, Tennessee and Indiana offset some of the benefits of the benign winter.

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