Worcester, MA -(PRNewswire)- The Hanover Insurance Group, Inc. (NYSE: THG) recently reported net income of $66.2 million, or $1.46 per diluted share, for the first quarter of 2013, compared to $49.7 million, or $1.09 per diluted share, in the first quarter of 2012. Operating income was $59.9 million, or $1.32 per diluted share, in the first quarter of 2013, compared to $46.0 million, or $1.01 per diluted share, in the prior-year quarter.
“We are pleased to start 2013 with strong earnings and positive momentum on all of our strategic priorities,” said Frederick H. Eppinger, chief executive officer at The Hanover.
“Underlying profitability in our domestic operations is expanding. And, while we clearly have more work to do, our results this quarter and the progress we are making provide us with continued confidence in future margin expansion and our ability to execute on our strategic and financial goals for the year.
“We achieved pricing increases of 9% in both core Commercial and Personal Lines during the quarter, and we are seeing even greater increases in our specialty businesses. We also continued to execute on targeted and deliberate profit improvement and exposure management actions. Chaucer made another strong contribution to our earnings, benefitting from lower-than-expected losses, and once again demonstrating its strong underwriting expertise.
“At quarter-end, our book value per share stood at $59.58, and our annualized ROE was 10%, a solid improvement. We remain committed to continue to grow shareholders’ equity and returns,” Eppinger said.
Operating Highlights
Commercial Lines
Commercial Lines operating income before taxes was $33.0 million in the first quarter of this year, compared to $33.9 million in the first quarter of 2012. The Commercial Lines combined ratio was 100.5% in the current quarter, compared to 100.3% in the prior-year quarter. Catastrophe losses were $7.4 million, or 1.6 points of the first quarter combined ratio in 2013, compared to $11.1 million, or 2.6 points, in the prior-year quarter. First quarter 2013 results also reflected unfavorable prior-year loss reserve development of $0.2 million, having no material impact on the first quarter combined ratio, compared to unfavorable development of $0.5 million, or 0.1 points of the first quarter combined ratio in the first quarter of 2012.
Commercial Lines current accident year underwriting, excluding catastrophes,(3) generated a combined ratio of 98.9%, compared to 97.6% in the prior-year quarter. Current quarter results reflect a more typical pattern of non-catastrophe winter weather losses in property coverages, as well as a comparatively higher loss ratio in commercial auto. The current quarter loss ratio, excluding catastrophes, represents an improvement over the fourth quarter and full-year 2012, reflecting an underlying improvement in trends driven by rate and other underwriting actions.
The underwriting results this quarter benefited from a lower expense ratio, driven by earned premium growth and operating efficiencies.
Net written premiums were $483.6 million in the first quarter of 2013, up 3.1% from the prior-year quarter, driven by continued renewal price gains, partially offset by a renewal rights transaction that reduced property program business in Florida.
Personal Lines
Personal Lines operating income before taxes was $30.5 million in the first quarter of 2013, compared to $27.5 million in the prior-year quarter. The Personal Lines combined ratio was 96.5% in the first quarter of this year, compared to 98.0% in the prior-year quarter. Catastrophe losses were $11.7 million, or 3.2 points of the first quarter combined ratio in 2013, compared to $23.0 million, or 6.3 points, in the prior-year quarter. Current quarter results also reflected unfavorable prior-year reserve development of $5.6 million, or 1.5 points of the first quarter combined ratio, compared to unfavorable reserve development of $3.8 million, or 1.0 point, in the first quarter of 2012.
Personal Lines current accident year underwriting, excluding catastrophes, produced a combined ratio of 91.8%, compared to 90.7% in the prior-year quarter. This was driven by the impact of non-catastrophe winter weather in the property coverages, including physical damage and comprehensive coverage in personal auto. The current quarter loss ratio, excluding catastrophes, represents an improvement over the fourth quarter and full year 2012, reflecting an underlying improvement in trends driven by rate and other underwriting actions.
Net premiums written were $341.6 million in the first quarter of 2013, down 1.7% from the first quarter of 2012. Continuing rate increases in all lines were more than offset by continued and planned exposure management actions related to certain geographies.
Chaucer
Chaucer’s operating income before taxes was $40.9 million in the first quarter of 2013, compared to $25.5 million in the prior-year quarter. The Chaucer combined ratio was 86.7%, compared to 93.8% in the first quarter of 2012. Catastrophe losses were $2.6 million, or 1.0 point of the combined ratio, compared to $6.5 million, or 2.7 points, in the same period last year. Prior-year favorable reserve development was $13.3 million, or 5.3 points of the combined ratio, compared to $21.7 million, or 9.2 points in the prior-year quarter. Favorable reserve development in the quarter was driven by better than expected loss experience, primarily in the property line, that was partially offset by the impact of foreign currency movements.
Chaucer’s current accident year underwriting, excluding catastrophes, resulted in a combined ratio of 91.0%, compared to 100.3% in the prior-year quarter. This improvement was primarily due to a lower incidence of losses in most classes in the first quarter of this year. The underwriting results this quarter also benefited from a lower expense ratio driven by foreign currency movements, which partially offset the above-mentioned impact on reserves.
Net premiums written were $251.5 million in the first quarter of 2013, up 25.6% over the prior-year quarter, primarily due to additional retained premiums at Syndicate 1084, as a result of the company’s decision not to renew certain quota-share agreements effective January 1, 2013.
Investments
Net investment income was $67.3 million for the first quarter of 2013, compared to $68.8 million in the prior year period. The decrease is primarily due to the impact of lower new money yields. The average pre-tax earned yield on fixed maturities was 4.03% and 4.38% for the quarters ended March 31, 2013 and 2012, respectively.
Net realized investment gains were $8.1 million in the first quarter of 2013, including $0.5 million of impairment charges. In the first quarter of 2012, net realized investment gains were $3.1 million, including $1.9 million of impairment charges.
The company held $8.1 billion in cash and invested assets at March 31, 2013.
Fixed maturities and cash represented 92% of the investment portfolio. Approximately 95% of the company’s fixed maturity portfolio is rated investment grade. Net unrealized investment gains on the portfolio increased $17.2 million, to $459.9 million at March 31, 2013, from $442.7 million at December 31, 2012.
Capitalization and Shareholders’ Equity
During the quarter, the company issued $175 million of subordinated debentures due in 2053 with a coupon of 6.35%. The company’s total capital at March 31, 2013 was $3.6 billion, including $978.1 million in long-term debt securities.
At March 31, 2013, book value per share was $59.58, up 2% from December 31, 2012, and up 3% from March 31, 2012.
The company repurchased 904,000 of common shares for approximately $42.7 million through April 26, 2013. On April 26, 2013, the company had approximately $72 million of capacity remaining under its $500 million stock repurchase program.
“The subordinated debt issuance was another step in our ongoing approach to optimize the efficiency of our capital,” said David B. Greenfield, chief financial officer of The Hanover. “Over the last several months, we have opportunistically retired certain debt related to prior acquisitions and projects. With this current issuance, we have taken advantage of favorable market conditions to further strengthen and improve our financial flexibility, while improving shareholder returns through share repurchases.”
The complete earnings release is available here: The Hanover Reports First Quarter 2013 Earnings
Source: PRNewswire