Worcester, MA -(PRNewswire)- The Hanover Insurance Group, Inc. (NYSE: THG) recently reported net income of $70.1 million, or $1.57 per diluted share, for the fourth quarter of 2013, compared to a net loss of $55.0 million, or $1.24 per diluted share, in the fourth quarter of 2012. Operating income was $59.6 million, or $1.33 per diluted share, in the fourth quarter of 2013, compared to an operating loss of $73.4 million, or $1.65 per diluted share, in the fourth quarter last year. Prior-year results included the impact of $129 million, after tax, related to Superstorm Sandy losses.
Net income for the full year 2013 was $251.0 million, or $5.59 per diluted share, compared to net income of $55.9 million, or $1.23 per diluted share, in 2012. Operating income was $227.2 million, or $5.06 per diluted share, in 2013, compared to operating income of $15.1 million, or $0.33 per diluted share, last year.
Fourth Quarter and Full Year Highlights
- Combined ratio of 96.5% in the fourth quarter and 96.7% for the full year, including 2.4 and 3.1 points of catastrophe losses, respectively
- Net premiums written of $1.05 billion in the fourth quarter, up 1.7%; Net premiums written of $4.55 billion in 2013, up 4.2%
- Strong price increases in both Commercial and Personal Lines continued in the fourth quarter
- Net investment income of $68.1 million in the fourth quarter and $269.0 million for the full-year 2013
- For the year, repurchased 1.6 million common shares for $78 million, at an average price of $48.26 per share
- Book value per share was $59.43, up 1.4% from December 31, 2012, and up 1.7% from September 30, 2013, as growth in book value from earnings was partially offset by a decline in net unrealized gains from higher prevailing interest rates
- On December 6, the Board of Directors increased the quarterly dividend on common shares by 12%, to $0.37 per share
“We are pleased with our strong results in the quarter, which cap a successful year,” said Frederick H. Eppinger, president and chief executive officer at The Hanover. “We achieved record full-year net income of $5.59 per share, and the highest pre-tax earnings, excluding catastrophe losses, since becoming a public company in 1995. The combined ratio, excluding catastrophe losses, of 93.6% in 2013 improved by more than two points from 2012. The underwriting margin expansion on an ex-cat basis reflects improved combined ratios in both Commercial and Personal Lines, while Chaucer continued to deliver positive results in 2013.
“We achieved pricing increases in Core Commercial Lines in line with the third quarter at 9%, with improved retention. In Personal Lines, we continued to drive strong rate increases of 8%, while managing our book to higher-quality accounts and a more diversified mix.
“While our financial achievements for the year were significant, we are equally pleased with the progress we made on our strategic priorities and how well this positions us for further success in 2014. At the same time, we have strong growth momentum in the market, as the breadth of our innovative product offerings, our underwriting expertise, thoughtful pricing, and our selective distribution strategy continue to resonate with our partners,” he said.
“For the year, we increased book value by 1.4% and delivered an operating ROE of 10%. Excluding net unrealized investment gains, book value increased 8%, reflecting earnings growth throughout the year. As importantly, our strategic progress has laid the foundation to deliver continued improvement in earnings in 2014,” Eppinger said.
Operating Highlights
Commercial Lines
Commercial Lines operating income before taxes was $34.7 million this quarter, compared to an operating loss of $112.9 million in the prior-year quarter. The Commercial Lines combined ratio was 100.1% in the current quarter, compared to 131.8% in the prior-year quarter. Catastrophe losses were $7.7 million, or 1.5 points of the current quarter combined ratio, compared to $126.9 million, or 27.2 points, in the prior-year quarter. Fourth quarter 2013 results also reflected net unfavorable prior-year reserve development of $0.3 million, or 0.1 points of the combined ratio, compared to net unfavorable development of $9.6 million, or 2.1 points, in the fourth quarter of 2012.
Commercial Lines current accident year combined ratio, excluding catastrophe losses(3), was 98.5% in the current quarter, compared to 102.5% in the prior-year quarter and 99.9% for the full-year 2012. The 4-point improvement in the loss ratio was driven by rate and other underwriting actions. This was partially offset by a higher level of performance-based compensation incurred in the quarter, reflecting improved overall results for the year.
Net premiums written were $471.6 million in the current quarter, up 8.1% from the prior-year quarter, driven by growth in Core Commercial Lines, including continued renewal price gains and increased new business.
Personal Lines
Personal Lines operating income before taxes was $30.5 million this quarter, compared to an operating loss of $29.0 million in the prior-year quarter. The Personal Lines combined ratio was 96.5% in the current quarter, compared to 113.6% in the prior-year quarter. Catastrophe losses were $12.7 million, or 3.6 points of the current quarter combined ratio, compared to $51.7 million, or 14.1 points, in the prior-year quarter. Current quarter results also reflected net unfavorable prior-year reserve development of $3.2 million, or 0.9 points of the combined ratio, compared to net unfavorable reserve development of $11.3 million, or 3.1 points, in the fourth quarter of 2012.
Personal Lines current accident year combined ratio, excluding catastrophe losses, was 92.0%, compared to 96.4% in the prior-year quarter. Rate and other underwriting actions drove loss ratio improvement of 6 points over the prior-year quarter and 3 points over the full-year 2012. Substantial improvement in the loss ratio was partially offset by a higher level of performance-based compensation incurred in the quarter reflecting improved overall results for the year.
Net premiums written were $342.9 million this quarter, down 5.6% compared to the prior-year quarter. Rate increases in the auto and homeowners lines were more than offset by continuing exposure and mix management initiatives.
Chaucer
Chaucer’s operating income before taxes was $40.2 million this quarter, compared to $39.5 million in the prior-year quarter. Chaucer’s combined ratio was 89.6%, compared to 88.5% in the fourth quarter of 2012. Catastrophe losses were $7.5 million, or 2.7 points of the combined ratio, compared to $24.7 million, or 9.9 points, in the same period last year. Current quarter results also reflected net favorable prior-year reserve development of $22.8 million, or 8.1 points of the combined ratio, compared to net favorable reserve development of $28.7 million, or 11.5 points, in the fourth quarter of 2012. Favorable reserve development in the current quarter was primarily driven by better-than-expected loss experience in marine, as well as a favorable impact due to foreign currency movements.
Chaucer’s current accident year combined ratio, excluding catastrophe losses, was 95.0%, compared to 90.1% in the prior-year quarter. The increase was primarily due to an unusually low level of non-catastrophe large loss events in the fourth quarter of 2012 compared to a more historically normal level of losses in the current quarter.
Net premiums written were $237.0 million in the fourth quarter of 2013, up 1.2% over the prior-year quarter. Higher premiums retained at Chaucer from its non-renewal of a quota share arrangement were partially offset by a reduction in estimated premiums in the Energy line.
Full Year 2013 Operating Results
Operating income before taxes was $393.4 million for the full year of 2013, resulting in a combined ratio of 96.7%. In 2012, operating income before taxes was $75.1 million and the combined ratio was 104.4%.
Commercial and Personal Lines operating income before taxes was $251.0 million for the full year of 2013, compared to an operating loss of $54.8 million in the prior year, which translated into combined ratios of 98.8% and 108.4%, respectively. The current-year operating results reflected substantially lower catastrophe losses, lower unfavorable development on prior year loss reserves, as well as significant improvement in accident-year loss ratios, excluding catastrophe losses.
The Commercial and Personal Lines current accident year combined ratio, excluding catastrophe losses, was 95.2% in 2013, an improvement of 1.5 points from 96.7% in 2012. Loss ratios declined by 2 points in both Commercial and Personal Lines. The expense ratio increased by 0.6 points in 2013, reflecting a higher level of performance-based compensation due to overall improved earnings compared to 2012.
Chaucer produced operating income before taxes of $150.4 million, which included $34.4 million, or 3.3 points, of catastrophe losses, and $94.6 million, or 9.1 points, of net favorable development of prior-year loss reserves. In 2012, Chaucer produced operating income before taxes of $136.8 million, which included $41.7 million, or 4.3 points, of catastrophe losses, and $72.6 million, or 7.5 points, of net favorable development on prior-year loss reserves.
Net premiums written were $4.55 billion in 2013, up 4% from $4.37 billion in 2012. The increase in net premiums written reflected growth in Commercial Lines, as well as higher premiums retained by Chaucer, partially offset by reductions as the result of the previously mentioned exposure and mix management initiatives, particularly in Personal Lines.
Investments
Net investment income was $68.1 million this quarter, compared to $70.1 million in the prior-year period. For the full year, net investment income was $269.0 million, compared to $276.6 million in 2012. The decrease in both periods was due primarily to the impact of lower new money yields, partially offset by the investment of higher operating cash flows. The average pre-tax earned yield on fixed maturities was 3.86% and 4.10% for the quarters ended December 31, 2013 and 2012, respectively, and 3.95% and 4.26% for the full years 2013 and 2012, respectively.
Net realized investment gains were $10.7 million in the fourth quarter of 2013, including $2.3 million of impairment charges. In the fourth quarter of 2012, net realized investment gains were $18.9 million, including $2.1 million of impairment charges.
For the full year 2013, net realized investment gains were $33.5 million, including $6.0 million of impairment charges. For the full year of 2012, net realized investment gains were $23.6 million, including $7.8 million of impairment charges.
The company held $8.1 billion in cash and invested assets at December 31, 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 $220.4 million during 2013, to $222.3 million at December 31, 2013, from $442.7 million at December 31, 2012. During the fourth quarter, net unrealized investment gains decreased $28.2 million. The decline in net unrealized investment gains for the quarter and the year primarily resulted from the impact of higher prevailing market interest rates, partially offset by continued improvement in the equity markets.
Capitalization and Shareholders’ Equity
Book value per share was $59.43, an increase of 1.4% from December 31, 2012, and 1.7% from September 30, 2013, as growth in book value from earnings was partially offset by a decline in net unrealized gains from higher prevailing interest rates.
During the quarter, the company repurchased $34.9 million par value of outstanding 7.5% senior debt. The company’s total capital at December 31, 2013 was $3.5 billion.
In 2013, the company repurchased approximately 1.6 million common shares for $78 million, at an average price of $48.26 per share. The company did not repurchase any shares in the fourth quarter of 2013. On February 5, the company had approximately $132 million of capacity remaining under its $600 million stock repurchase program.
The complete earnings release is available here: The Hanover Fourth Quarter 2013 Results
Source: PRNewswire