Worcester, MA -(PRNewswire)- The Hanover Insurance Group, Inc. (NYSE: THG) recently reported net income of $53.4 million, or $1.19 per diluted share, for the second quarter of 2013, compared to $20.8 million, or $0.46 per diluted share, in the second quarter of 2012. Operating income was $46.8 million, or $1.05 per diluted share, in the second quarter of 2013, compared to $10.0 million, or $0.22 per diluted share, in the second quarter last year.
Second Quarter Highlights
- Combined ratio of 98.4%, including 5.5 points of catastrophe losses and 2.5 points of net favorable prior-year reserve development
- Net premiums written of $1.24 billion, up 3.8%, primarily driven by growth in Commercial Lines and higher share of premiums retained at Chaucer
- Continued strong price increases in both Commercial and Personal Lines
- Net investment income of $67.9 million
- Repurchased approximately 960,000 shares of common stock for $47 million in the quarter; year-to-date repurchased approximately 1.5 million shares of common stock for $72 million at an average cost of $48.03 per share
- Book value per share, excluding net unrealized gains(2), was $53.62 at June 30, 2013, an increase of 3.4% from December 31, 2012; including net unrealized gains, book value per share decreased 2.0% in the same period to $57.41
“We are pleased with our earnings this quarter as each of our businesses generated improved results. We have made substantial progress on all of our key priorities, and we remain on target to deliver on our strategic and financial goals for the year,” said Frederick H. Eppinger, chief executive officer at The Hanover.
“We continued to operate in a strong pricing environment, yielding increases of 8% in Core Commercial and 9% in Personal Lines this quarter.
“We are also effectively executing on the other levers of our profitability improvement. In a quarter marked by an elevated level of industry catastrophe activity, we believe our exposure management efforts helped moderate our overall catastrophe losses. At the same time, we continue to leverage our broad and diversified product portfolio and agency distribution strategy to generate high quality growth in targeted segments,” Eppinger said.
“Chaucer delivered strong earnings this quarter. We continue to be pleased with the earnings diversification Chaucer provides, along with its ability to navigate the current market environment and capture market opportunities as they emerge.
“Our operating income this quarter translated to an annualized ROE of 8% and growth in book value of 2%, excluding net unrealized investment gains. Our business momentum gives us confidence as we advance toward improved shareholder returns,” Eppinger said.
Operating Highlights
Commercial Lines
Commercial Lines operating income before taxes was $26.2 million in the second quarter of this year, compared to a loss of $9.4 million in the prior-year quarter. The Commercial Lines combined ratio was 101.8% in the second quarter of this year, compared to 109.7% in the prior-year quarter. Catastrophe losses were $15.1 million, or 3.1 points of the current quarter combined ratio, compared to $38.4 million, or 8.5 points, in the prior-year quarter. Second quarter 2013 results also reflected net unfavorable prior-year reserve development of $0.5 million, or 0.1 points of the combined ratio, compared to net unfavorable development of $14.5 million, or 3.2 points, in the second quarter of 2012.
Commercial Lines current accident year underwriting, excluding catastrophes,(4) generated a combined ratio of 98.6%, compared to 98.0% in the prior-year quarter. Rate and underwriting actions drove a current-quarter loss ratio improvement of 0.6 points over the prior-year quarter and an improvement of 1.2 points over full-year 2012. The improvement in the loss ratio in the second quarter of 2013 was offset by a higher expense ratio when compared to the second quarter of 2012. The prior-year quarter included a lower level of certain performance-based expenses.
Net premiums written were $521.5 million in the second quarter of 2013, up 5.0% from the prior-year quarter, driven by growth in Core Commercial Lines, including continued renewal price gains.
Personal Lines
Personal Lines operating income before taxes was $19.9 million in the second quarter of 2013, compared to $12.3 million in the prior-year quarter. The Personal Lines combined ratio was 99.3% in the second quarter of this year, compared to 102.0% in the prior-year quarter. Catastrophe losses were $32.2 million, or 8.8 points of the second quarter combined ratio in 2013, compared to $32.4 million, or 8.9 points, in the prior-year quarter. Current quarter results also reflected net unfavorable prior-year reserve development of $2.8 million, or 0.8 points of the combined ratio, compared to net unfavorable reserve development of $7.8 million, or 2.1 points, in the second quarter of 2012.
Personal Lines current accident year underwriting, excluding catastrophes, produced a combined ratio of 89.7%, compared to 91.0% in the prior-year quarter, as a result of rate and other underwriting actions.
Net written premiums were $370.6 million in the second quarter of 2013, consistent with the prior-year quarter. Continuing rate increases in the auto and homeowners lines were offset by continued and planned exposure management actions related to certain geographic areas.
Chaucer
Chaucer’s operating income before taxes was $36.9 million in the second quarter of 2013, compared to $29.8 million in the prior-year quarter. The Chaucer combined ratio was 89.6%, compared to 91.9% in the second quarter of 2012. Catastrophe losses were $12.5 million, or 5.2 points of the combined ratio, compared to $3.3 million, or 1.4 points, in the same period last year. Current quarter results also reflected net favorable prior-year reserve development of $30.7 million, or 12.9 points of the combined ratio, compared to net favorable reserve development of $5.1 million, or 2.2 points, in the second quarter of 2012. Favorable reserve development in the current quarter was primarily driven by favorable resolution of certain Energy claims, better-than-expected experience in the Casualty and Property lines, and a favorable impact of foreign currency movements.
Chaucer’s current accident year underwriting, excluding catastrophes, resulted in a combined ratio of 97.3%, compared to 92.7% in the prior-year quarter. This was primarily driven by more than four points of expense ratio increase due to foreign currency movements.
Net premiums written were $350.5 million in the second quarter of 2013, up 6.3% over the prior-year quarter, primarily due to additional retained premiums at Syndicate 1084, partially offset by a reduction in estimated premiums in the Energy line.
Investments
Net investment income was $67.9 million for the second quarter of 2013, compared to $68.5 million in the prior year period. The decrease was primarily due to the impact of lower new money yields, partially offset by higher dividend income. The average pre-tax earned yield on fixed maturities was 3.98% and 4.31% for the quarters ended June 30, 2013 and 2012, respectively.
Net realized investment gains were $13.7 million in the second quarter of 2013, including $1.1 million of impairment charges. In the second quarter of 2012, net realized investment losses were $3.4 million, including $1.6 million of impairment charges.
The company held $7.8 billion in cash and invested assets at June 30, 2013.
Fixed maturities and cash represented 92% of the investment portfolio. Approximately 94% of the company’s fixed maturity portfolio is rated investment grade. Net unrealized investment gains on the portfolio decreased $201.0 million during the second quarter of 2013, to $258.9 million at June 30, 2013, from $459.9 million at March 31, 2013. During the first six months of 2013, net unrealized investment gains decreased $183.8 million. The decline in net unrealized investment gains for the quarter and the year resulted from the impact of higher prevailing market interest rates.
Capitalization and Shareholders’ Equity
Book value per share, excluding net unrealized gains, was $53.62 at June 30, 2013, an increase of 3.4% from December 31, 2012; including net unrealized gains, book value per share decreased 2.0% in the same period to $57.41.
During the second quarter of 2013, the company repurchased 960,000 of common shares for approximately $47 million. Year-to-date, the company has repurchased approximately 1.5 million common shares for $72 million, at an average price of $48.03 per share. On July 31, 2013, the company had approximately $143 million of capacity remaining under its $600 million stock repurchase program.
During the quarter, the company also repurchased $40 million par value of 7.625% debt. The company’s total capital at June 30, 2013 was $3.4 billion.
The complete earnings release is available here: Hanover Second Quarter 2013 Results
Source: PRNewswire