Form 8-K

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EXKRSUCZZzLmPZLyOJl9k879qxQYADo9PMCssBzkSkOFgRcAG6qtQFg3VlJw2uJ7 vpjKRQcovfZneUqM4VtAUQ== 0001193125-07-096351.txt : 20070501 0001193125-07-096351.hdr.sgml : 20070501 20070430173808 ACCESSION NUMBER: 0001193125-07-096351 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20070430 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070501 DATE AS OF CHANGE: 20070430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANOVER INSURANCE GROUP, INC. CENTRAL INDEX KEY: 0000944695 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 043263626 STATE OF INCORPORATION: DE FISCAL YEAR END: 1106 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13754 FILM NUMBER: 07802304 BUSINESS ADDRESS: STREET 1: 440 LINCOLN ST CITY: WORCESTER STATE: MA ZIP: 01653 BUSINESS PHONE: 5088551000 MAIL ADDRESS: STREET 1: 440 LINCOLN ST CITY: WORCESTER STATE: MA ZIP: 01653 FORMER COMPANY: FORMER CONFORMED NAME: ALLMERICA FINANCIAL CORP DATE OF NAME CHANGE: 19950501 8-K 1 d8k.htm FORM 8-K Form 8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 30, 2007

THE HANOVER INSURANCE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

1-13754

04-3263626

(State or other jurisdiction

of incorporation)

(Commission File Number)

(I.R.S. Employer

Identification No.)

440 Lincoln Street, Worcester, Massachusetts 01653

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (508) 855-1000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02

Results of Operations and Financial Condition.

The following information is being furnished under Item 2.02 – Results of Operations and Financial Condition. Such information, including the exhibits attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.

On April 30, 2007, The Hanover Insurance Group, Inc. issued a press release announcing its financial results for the quarter ended March 31, 2007. The release is furnished as Exhibit 99.1 hereto. Additionally, on April 30, 2007, the Company made available on its website financial information contained in its Statistical Supplement for the period ended March 31, 2007. The supplement is furnished as Exhibit 99.2 hereto.

Item 9.01

Financial Statements and Exhibits.

(a)	Not applicable.

(b)	Not applicable.

(c)	Not applicable.

(d)

Exhibits.

The following exhibits are furnished herewith.


Exhibit 99.1		Press Release, dated April 30, 2007, announcing the Company’s financial results for the quarter ended March 31, 2007.

Exhibit 99.2		The Hanover Insurance Group, Inc. Statistical Supplement for the period ended March 31, 2007.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		The Hanover Insurance Group, Inc.
		(Registrant)

April 30, 2007	By:	/s/ Edward J. Parry, III
Date		Edward J. Parry, III
		Chief Financial Officer,
		Executive Vice President,
		Principal Accounting Officer and Director


Exhibit Index
Exhibit 99.1		Press Release, dated April 30, 2007, announcing the Company’s financial results for the quarter ended March 31, 2007.

Exhibit 99.2		The Hanover Insurance Group, Inc. Statistical Supplement for the period ended March 31, 2007.

EX-99.1 2 dex991.htm PRESS RELEASE, DATED APRIL 30, 2007 Press Release, dated April 30, 2007

Exhibit 99.1

LOGO

THE HANOVER INSURANCE GROUP, INC. REPORTS INCREASE IN 2007 FIRST QUARTER EARNINGS:

NET INCOME OF $1.22 PER SHARE COMPARED TO $0.75 PER SHARE LAST YEAR; INCOME FROM CONTINUING OPERATIONS OF $1.23 PER SHARE COMPARED TO $1.12 PER SHARE LAST YEAR

WORCESTER, Mass., April 30, 2007—The Hanover Insurance Group, Inc. (NYSE: THG) today reported net income for the first quarter of $63.6 million, or $1.22 per share, compared to $40.5 million, or $0.75 per share, in the first quarter of last year. Net income in the first quarter of 2006 was primarily impacted by an additional recorded loss on the prior disposal of our variable life insurance and annuity business in the amount of $20.1 million or $0.38 per share. In the first quarter of 2007, the impact from this transaction was only $0.2 million. Income from continuing operations was $63.8 million for the first quarter, or $1.23 per share, compared to $60.0 million, or $1.12 per share, in the first quarter of last year.

Total Property and Casualty pre-tax segment income was $100.9 million in the quarter, compared to $91.7 million in the first quarter of last year. The Personal Lines segment reported pre-tax segment earnings of $47.4 million in the first quarter of 2007, compared to $49.0 million in the first quarter of 2006, while the Commercial Lines segment reported pre-tax segment earnings of $49.0 million in the quarter, versus $39.0 million in 2006.

“We are off to a strong start with solid earnings growth,” said Frederick H. Eppinger, chief executive officer of The Hanover Insurance Group, Inc. “Market conditions were more challenging than we expected, but we continued to grow net written premium at almost 7% for the quarter while maintaining solid margins.”

Segment Results

The Hanover conducts its business in four operating segments. Property and casualty operations consist of three operating segments: Personal Lines, Commercial Lines, and Other Property and Casualty. The Personal Lines segment markets automobile, homeowners and ancillary coverages to individuals and families. The Commercial Lines segment offers a suite of products targeted at the small to mid-size business markets, which include commercial multiple peril, commercial automobile, workers’ compensation and other commercial coverages. The Other Property and Casualty segment includes a block of run-off voluntary pools business in which we have not actively participated since 1995; AMGRO, Inc., a premium financing business; Opus Investment Management, Inc., which provides investment management services to institutions, pension funds and other organizations; and earnings on holding company assets. The Life Companies, our fourth operating segment, include the run-off business of First Allmerica Financial Life Insurance Company (FAFLIC), principally consisting of traditional life insurance and retirement businesses.

LOGO

The following table shows pre-tax segment income. It is presented in a manner consistent with the way management evaluates results and is set forth in accordance with Statement of Financial Accounting Standards No. 131, “Disclosures About Segments of an Enterprise and Related Information.”


	Quarter ended March 31 (In millions)
	2007			2006
Property and Casualty:
Personal Lines⁽¹⁾	$	47.4		$	49.0
Commercial Lines⁽²⁾	$	49.0		$	39.0
Other Property and Casualty	$	4.5		$	3.7
Total Property & Casualty	$	100.9		$	91.7
Life Companies	($	0.9	)	($	1.9	)
Interest expense on corporate debt	($	10.0	)	($	10.0	)
Total pre-tax segment income	$	90.0		$	79.8
Federal income tax expense	$	29.8		$	23.6
Total segment income after taxes⁽³⁾	$	60.2		$	56.2

⁽¹⁾	Includes Personal Lines pre-tax net impact of catastrophes of $7.2 million and $3.7 million for the first quarter of 2007 and 2006, respectively.

⁽²⁾	Includes Commercial Lines pre-tax net impact of catastrophes of $7.1 million and $3.6 million for the first quarter of 2007 and 2006, respectively.

⁽³⁾	See reconciliation from segment income to net income at the end of this document.

Property and Casualty

Property and Casualty segment income was $100.9 million in the first quarter of 2007, up from $91.7 million in the first quarter of 2006. Earnings were higher in the quarter due primarily to favorable development of prior-year loss reserves and growth, partially offset by higher underwriting and loss adjustment expenses and higher current accident year losses.

Property and Casualty highlights:

•

Net premiums written were $612.0 million in the first quarter of 2007, compared to $574.0 million in the first quarter of 2006, up 6.6%.

•

Net premiums earned were $584.4 million in the first quarter of 2007, compared to $540.9 million in the first quarter of 2006.

•

New business net premiums written were $154.8 million in the first quarter of 2007, representing an increase of 15.4% over the $134.2 million in the first quarter of 2006.

•

Favorable development of prior-year reserves was $52.0 million in the first quarter of 2007, compared to favorable development of $26.5 million in the first quarter of 2006, driven primarily by our Personal Auto and Workers’ Compensation Lines.

The following tables summarize the components of the GAAP combined ratio for the Property and Casualty segment:


	Quarter ended March 31
	2007		2006
Personal Lines losses (excluding catastrophes)	53.0	%	53.5	%
Personal Lines catastrophe-related losses	1.7	%	1.1	%
Total Personal Lines losses	54.7	%	54.6	%
Commercial Lines losses (excluding catastrophes)	37.7	%	41.6	%
Commercial Lines catastrophe-related losses	2.5	%	1.8	%
Total Commercial Lines losses	40.2	%	43.4	%
Total P&C Losses	49.1	%	50.4	%
Loss adjustment expenses	11.3	%	10.1	%
Policy acquisition and other underwriting expenses	33.4	%	33.9	%
Combined Ratio	93.8	%	94.4	%

Personal Lines

Personal Lines pre-tax segment income was $47.4 million in the quarter, compared to $49.0 million in the first quarter of 2006.

In the first quarter of 2007, pre-tax net impact of catastrophes was $7.2 million, compared to $3.7 million of pre-tax catastrophe losses in the first quarter of 2006. Excluding catastrophes, segment income was $54.6 million in the current quarter, compared to $52.7 million in the prior-year quarter, an increase of $1.9 million, primarily due to higher favorable development of prior-year loss reserves and higher net investment income partially offset by higher current accident year losses and higher underwriting and loss adjustment expenses. Prior-year reserves developed favorably by $21.5 million in 2007 compared to $7.3 million in the first quarter of 2006. The improvement in prior-year reserve development is driven by personal auto liability and relates primarily to our more recent accident years.

Net investment income was $29.5 million in the first quarter of 2007, up $2.9 million compared to the first quarter of last year, driven primarily by increased operating cash flows.

Current accident year loss ratios were higher in the first quarter of 2007 compared to the prior-year quarter. The increase in the current accident year loss ratio is due to an increase in non-catastrophe, weather related claims frequency in 2007, as well as the growth related expected increase in the current accident year loss ratio.

Additionally, underwriting and loss adjustment expenses were $5.3 million higher in the current quarter as compared to the prior year, primarily due to higher employee related expenses.

Personal Lines highlights:

•

Net premiums written were $366.3 million in the first quarter of 2007, compared to $341.6 million in the first quarter of 2006, up 7.2%.

•

Net premiums earned were $360.3 million in the first quarter of 2007, compared to $339.8 million in the first quarter of 2006.

•

New business net premiums written were $75.2 million in the first quarter of 2007, representing an increase of 25.3% compared to $60.0 million in the first quarter of 2006.

•

The Personal Lines GAAP combined ratio was 95.9% in the first quarter, versus 94.6% in the prior-year quarter.

•

The pre-tax net impact of catastrophes was $7.2 million, or 2.0 points of the combined ratio for the first quarter of 2007 compared to $3.7 million or 1.1 points of the combined ratio for the first quarter of 2006.

•

Favorable development of prior-year reserves was $21.5 million in the current quarter, compared to favorable development of $7.3 million in the first quarter of 2006; improving the personal lines combined ratio by 6.0 points and 2.1 points, respectively.

Commercial Lines

Commercial Lines pre-tax segment income was $49.0 million in the first quarter of this year, compared to $39.0 million in the first quarter of 2006.

The pre-tax net impact of catastrophes in the first quarter of 2007 was $7.1 million, compared to $3.6 million for the first quarter of 2006. Excluding catastrophes, segment income was $56.1 million in the current quarter, compared to $42.6 million in the prior-year quarter, an increase of $13.5 million. This increase is primarily due to the favorable development of prior-year reserves and net earned premium growth partially offset by higher underwriting and loss adjustment expenses. The favorable development of prior-year reserves was $30.5 million in the first quarter of 2007, compared to $19.5 million in the prior-year quarter. The increase in favorable development of prior year reserves was most significant in workers’ compensation and commercial auto.

Net earned premium growth of 11% in the quarter also contributed to the increase in first quarter earnings.

Additionally, underwriting and loss adjustment expenses were $1.8 million higher in the current quarter, as compared to the prior-year quarter, due to higher employee-related expenses.

Commercial Lines highlights:

•

Net premiums written were $245.7 million in the first quarter of 2007, compared to $232.4 million in the first quarter of 2006, up 5.7%.

•

Net premiums earned were $224.1 million in the current quarter, compared to $201.1 million in the prior-year quarter.

•

New business net premiums written were $79.6 million in the first quarter of 2007, representing an increase of 7.3% compared to $74.2 million in the first quarter of 2006.

•

The Commercial Lines GAAP combined ratio was 90.8% in the first quarter, compared to 94.1% in the prior-year quarter.

•

The pre-tax net impact of catastrophes was $7.1 million, or 3.2 points of the combined ratio for the first quarter of 2007, compared to $3.6 million, or 1.8 points of the combined ratio for the first quarter of 2006.

•

Favorable development of prior-year reserves was $30.5 million in the first quarter of 2007, compared to favorable development of $19.5 million in the first quarter of 2006, improving the Commercial Lines combined ratio by 13.6 points and 9.7 points, respectively.

Other Property & Casualty

Other Property & Casualty pre-tax segment income was $4.5 million in the quarter, compared to $3.7 million in the prior-year quarter. Other Property & Casualty includes our run-off voluntary pools, premium financing and investment management operations.

Life Companies

Continuing Operations:

The continuing operations of the Life Companies consists of the FAFLIC retained business. The retained business primarily includes various blocks of traditional life insurance, group retirement business, guaranteed investment contract (GIC) businesses, and our discontinued group life and health business, including group life and health voluntary pools, which are all in run-off.

The Life Companies continuing operations reported a segment loss of $0.9 million in the first quarter of 2007, compared to a loss of $1.9 million in the first quarter of 2006, primarily attributable to lower expenses.

Investment Results

Net investment income was $80.2 million for the first quarter of 2007, compared to $80.3 million in the same period of 2006. Net investment income for the property and casualty segment increased by $4.2 million, to $60.7 million, for the first quarter of 2007, compared to the first quarter of 2006. This increase in property and casualty net investment income for the quarter was driven primarily by increased operating cash flows and a fixed maturity call premium payment. Offsetting the increase in property and casualty net investment income was a decrease in net investment income in the Life Companies of $4.4 million to $19.3 million. The decrease in Life Companies net investment income was driven by lower average invested assets, resulting from the maturities of long-term funding agreements and continued cash outflows from the run-off of the life operations.

First quarter 2007 pre-tax net realized investment gains were $2.3 million, compared to $5.6 million in the same period of 2006. In the first quarter 2007, pre-tax net realized gains on sales of fixed maturities of $2.8 million were partially offset by $0.5 million of capital losses resulting from impairments on certain fixed maturity securities. In the first quarter of 2006, pre-tax net realized investment gains of $10.4 million were primarily from sales of investments. These gains were partially offset by $4.8 million of capital losses resulting from impairments on certain fixed maturity securities.

Balance Sheet

Shareholders’ equity was $2.1 billion, or $40.92 per share at March 31, 2007, compared to $2.0 billion, or $39.10 per share, at December 31, 2006. Accumulated other comprehensive income book value was $41.33 per share at the close of the current quarter, compared to $39.88 per share at December 31, 2006.

Earnings Conference Call

The Hanover will host a conference call to discuss the Company’s first quarter results on Tuesday, May 1 at 10:00 a.m. Eastern Time. A PowerPoint slide presentation will accompany our prepared remarks and has been posted on our web site. Interested investors and others can listen to the call and access the presentation through The Hanover’s web site, located at www.hanover.com. Web-cast participants should go to the web site 15 minutes early to register, download, and install any necessary audio software. A re-broadcast of the conference call will be available on this web site two hours after the call.

Statistical Supplement

The Hanover’s first quarter earnings press release and statistical supplement are also available in the Investors section at www.hanover.com.

Forward-Looking Statements and Non-GAAP Financial Measures

Certain statements in this release or in the above referenced conference call may be considered to be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Use of the words “believes,” “anticipates,” “expects,” “projections,” “outlook,” “should,” “plan,” “guidance” and similar expressions is intended to identify forward-looking statements. The Company cautions investors that any such forward-looking statements are not guarantees of future performance, and actual results could differ materially. Investors are directed to consider the risks and uncertainties in its business that may affect future performance and that are discussed in readily available documents, including the Company’s annual report and other documents filed by The Hanover with the Securities and Exchange Commission and which are also available at www.hanover.com under “Investors”. These uncertainties include the possibility of adverse catastrophe experiences (including terrorism) and severe weather, the uncertainties in estimating property and casualty losses (particularly with respect to products with longer tails and with respect to losses incurred as the result of Hurricanes Katrina and Rita), the possibility of adverse judicial decisions, which expand policy coverage beyond its intended scope (such as recent decisions in Louisiana involving the so-called “flood” exclusions and so-called “Valued Policy Law”), the ability to increase or maintain certain property and casualty insurance rates, the impact of new product introductions (such as the multivariate personal auto product and the homeowners tiered product), adverse loss development and adverse trends in mortality and morbidity and medical costs, change in the current favorable frequency and loss trends generally being experienced industry-wide, the ability to improve renewal rates and increase new property and casualty policy counts, investment impairments, heightened competition (including rate pressure), adverse state and federal legislation or regulation or regulatory actions (such as recent mandated decrease in rates for Massachusetts personal automobile insurance and Florida homeowners policies), financial ratings actions, uncertainties in estimating the FIN 45 liability recorded in conjunction with certain indemnity obligations to Goldman Sachs in connection with the sale of the variable life insurance and annuity business (including with respect to existing and potential litigation and regulatory actions and the remediation of certain processing errors in connection with tax reporting), and various other factors.

The Hanover uses non-GAAP financial measures as important measures of the Company’s operating performance, including total segment income, property and casualty segment income, and measures of segment income and loss ratios excluding catastrophe losses or reserve development.

Segment income is net income excluding federal income taxes and net realized investment gains and losses, including gains or losses on certain derivative instruments, because fluctuations in these gains and losses are determined by interest rates, financial markets and the timing of sales. Segment income also excludes net gains and losses on disposals of businesses, discontinued operations, restructuring costs, extraordinary items, the cumulative effect of accounting changes and certain other items. Property and Casualty segment income is the sum of the segment income of the three operating segments of The Hanover’s property and casualty operations: Personal Lines, Commercial Lines and Other Property and Casualty. The Hanover believes that measures of total segment income and Property and Casualty segment income provide investors with a valuable measure of the performance of the Company’s ongoing businesses because they highlight net income attributable to the core operations of the business.

The Hanover also provides measures of segment income and loss ratios that exclude the effects of catastrophe losses. A catastrophe is a severe loss, resulting from natural or manmade events, including risks such as fire, hurricane, earthquake, windstorm, explosion, terrorism or other similar events. Each catastrophe has unique characteristics. Catastrophes are not predictable as to timing or loss amount in advance. The Hanover believes that a discussion of the effect of catastrophes is meaningful for investors to understand the variability of periodic earnings and loss ratios.

Net income is the most directly comparable GAAP measure for total segment income, Property and Casualty segment income and measures of segment income that exclude the effects of catastrophe losses or reserve development. Segment income, Property and Casualty segment income and measures of segment income that exclude the effects of catastrophe losses or reserve development should not be construed as a substitute for net income determined in accordance with GAAP. A reconciliation of net income to segment income and Property and Casualty segment income for the quarters ended March 31, 2007 and 2006 is set forth in the table at the end of this document and in the statistical supplement. Loss ratios calculated in accordance with GAAP are the most directly comparable GAAP measure for loss ratios calculated excluding the effects of catastrophe losses. The presentation of loss ratios calculated excluding the effects of catastrophe losses should not be construed as a substitute for loss ratios determined in accordance with GAAP.

The Hanover Insurance Group, Inc., based in Worcester, Mass., is the holding company for a group of insurers that includes The Hanover Insurance Company, also based in Worcester, Citizens Insurance Company of America, headquartered in Howell, Michigan, and their affiliates. The Hanover offers a wide range of property and casualty products and services to individuals, families and businesses through an extensive network of independent agents, and has been meeting its obligations to its agent partners and their customers for more than 150 years. Taken as a group, The Hanover ranks among the top 35 property and casualty insurers in the United States.

Contact Information

Investors:

Sujata Mutalik

E-mail: smutalik@hanover.com

1-508-855-3457

Media:

Michael F. Buckley

E-mail: mibuckley@hanover.com

1-508-855-3099

THE HANOVER INSURANCE GROUP, INC.

(In millions, except per share data)


	Quarter ended March 31
	2007		2006
Net income	$	63.6	$	40.5
Net income per share⁽¹⁾	$	1.22	$	0.75
Weighted average shares (diluted)		51.9		53.6

The following is a reconciliation from segment income to net income⁽²⁾:


PER SHARE DATA (DILUTED)⁽¹⁾	Quarter ended March 31
	2007						2006
	$			Per Share			$			Per Share
Property and Casualty
Personal Lines	$	47.4			—		$	49.0			—
Commercial Lines		49.0			—			39.0			—
Other Property & Casualty		4.5			—			3.7			—
Total Property and Casualty		100.9			—			91.7			—
Life Companies		(0.9	)		—			(1.9	)		—
Interest expense on corporate debt		(10.0	)		—			(10.0	)		—
Total segment income		90.0		$	1.73			79.8		$	1.49
Federal income tax expense on P&C segment income		(34.1	)		—			(28.9	)		—
Federal income tax benefit on other segment income		4.3			—			5.3			—
Federal income tax expense on segment income		(29.8	)		(0.57	)		(23.6	)		(0.44	)
Total segment income after federal income taxes		60.2			1.16			56.2			1.05
Federal income tax settlement		2.4			0.04			—			—
Net realized investment gains, net of amortization		1.9			0.04			5.8			0.11
Restructuring costs		(—	)		(—	)		(0.3	)		(0.01	)
Federal income tax expense on non-segment income		(0.7	)		(0.01	)		(1.7	)		(0.03	)
Income from continuing operations, net of taxes		63.8			1.23			60.0			1.12
Loss on disposal of variable life insurance and annuity business, net of taxes		(0.2	)		(0.01	)		(20.1	)		(0.38	)
Income before cumulative effect of accounting change		63.6			1.22			39.9			0.74
Cumulative effect of change in accounting principle, net of taxes		—			—			0.6			0.01
Net income	$	63.6		$	1.22		$	40.5		$	0.75

(1)	Basic net income per share was $1.24 and $0.76 for the quarters ended March 31, 2007 and 2006, respectively.

(2)

In accordance with Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information, the separate financial information of each segment is presented consistent with the way results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Management evaluates the results of the aforementioned segments on a pre-tax basis. Segment income is determined by adjusting net income for net realized investment gains and losses including certain gains or losses on derivative instruments, because fluctuations in these gains and losses are determined by interest rates, financial markets and the timing of sales. Also, segment income excludes net gains and losses on disposals of businesses, discontinued operations, restructuring and reorganization costs, extraordinary items, the cumulative effect of accounting changes and certain other items.

Net income includes the following items by segment:


	Quarter ended March 31, 2007
	Personal Lines		Commercial Lines		Other Property & Casualty⁽²⁾	Life Companies		Total
Net realized investment gains (losses)⁽¹⁾	(0.4	)	(0.3	)	1.0	1.6		1.9
Loss on disposal of variable life insurance and annuity business, net of taxes	—		—		—	(0.2	)	(0.2	)
Federal Income Tax Settlement	—		—		—	2.4		2.4


	Quarter ended March 31, 2006
	Personal Lines		Commercial Lines		Other Property & Casualty⁽²⁾	Life Companies		Total
Net realized investment gains (losses)⁽¹⁾	2.2		2.2		5.2	(3.8	)	5.8
Loss on disposal of variable life insurance and annuity business, net of taxes	—		—		—	(20.1	)	(20.1	)
Restructuring costs	—		—		—	(0.3	)	(0.3	)
Cumulative effect of change in accounting principle, net of taxes	0.2		0.3		—	0.1		0.6

(1)

We manage investment assets for our property and casualty business based on the requirements of the entire property and casualty group. We allocate the investment income, expenses and realized gains (losses) to our Personal Lines, Commercial Lines and Other Property and Casualty segments based on actuarial information related to the underlying business.

(2)	Includes corporate eliminations.

All figures are unaudited.

EX-99.2 3 dex992.htm THE HANOVER INSURANCE GROUP, INC. STATISTICAL SUPPLEMENT The Hanover Insurance Group, Inc. Statistical Supplement

Exhibit 99.2

THE HANOVER INSURANCE GROUP

STATISTICAL SUPPLEMENT

TABLE OF CONTENTS


Financial Highlights		1-3
Consolidated Financial Statements
Income Statements		4-5
Balance Sheets		6

Property and Casualty
Condensed Income Statements		7
Property and Casualty Consolidated Balance Sheets		8
GAAP Underwriting Results		9-10

Life Companies
Condensed Income Statements		11
Life Companies Consolidated Balance Sheets		12
Future Policy Benefits and Account Balances		13

Investments
Net Investment Income		14
Net Realized Investment Gains (Losses)		15
Unrealized Losses		16
Credit Quality of Fixed Maturities		17

Property and Casualty Statutory Ratios		18
Historical Financial Highlights		19-20
Other Information		21
Corporate Information
Market and Dividend Information
Industry Ratings

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS


	Quarter ended March 31
(In millions)	2007			2006			% Change
SEGMENT INCOME
Property and Casualty
Personal Lines	$	47.4		$	49.0		(3.3	)
Commercial Lines		49.0			39.0		25.6
Other		4.5			3.7		21.6

Total Property and Casualty		100.9			91.7		10.0

Life Companies		(0.9	)		(1.9	)	(52.6	)
Interest expense on corporate debt		(10.0	)		(10.0	)	—

Total segment income		90.0			79.8		12.8

Federal income tax expense on P&C segment income		(34.1	)		(28.9	)	18.0
Federal income tax benefit on other segment income		4.3			5.3		(18.9	)

Total federal income tax expense on segment income		(29.8	)		(23.6	)	26.3

Total segment income after taxes	$	60.2		$	56.2		7.1


RECONCILIATION FROM SEGMENT INCOME TO NET INCOME
Total segment income after taxes	$	60.2		$	56.2		7.1
Federal income tax settlement		2.4			—		N/M
Net realized investment gains, net of amortization		1.9			5.8		(67.2	)
Restructuring costs		—			(0.3	)	N/M
Federal income tax expense on non-segment income		( 0.7	)		(1.7	)	(58.8	)

Income from continuing operations		63.8			60.0		6.3
Loss on disposal of variable life insurance and annuity business, net of taxes		(0.2	)		(20.1	)	(99.0	)

Income before cumulative effect of accounting change		63.6			39.9		59.4
Cumulative effect of change in accounting principle, net of taxes		—			0.6		N/M

Net income	$	63.6		$	40.5		57.0

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS


	Quarter ended March 31
	2007			2006			% Change
PER SHARE DATA (DILUTED)
Total segment income	$	1.73		$	1.49		16.1
Federal income tax expense on segment income		(0.57	)		(0.44	)	29.5

Total segment income after taxes		1.16			1.05		10.5
Federal income tax settlement		0.04			—		N/M
Net realized investment gains, net of amortization		0.04			0.11		(63.6	)
Restructuring costs		—			(0.01	)	N/M
Federal income tax expense on non-segment income		(0.01	)		(0.03	)	(66.7	)

Income from continuing operations		1.23			1.12		9.8
Loss on disposal of variable life insurance and annuity business, net of taxes		(0.01	)		(0.38	)	(97.4	)

Income before cumulative effect of accounting change		1.22			0.74		64.9
Cumulative effect of change in accounting principle, net of taxes		—			0.01		N/M

Net income	$	1.22		$	0.75		62.7

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS


(In millions, except per share data)	March 31 2007			December 31 2006			% Change
BALANCE SHEET

Shareholders' equity
The Hanover Insurance Company (consolidated)	$	2,005.3		$	1,929.7		3.9
First Allmerica Financial Life Insurance Company (consolidated)		325.7			318.0		2.4
THG Holding Company debt (1)		(499.5	)		(499.5	)	—
THG Holding Company and other		269.2			251.0		7.3

Total shareholders' equity	$	2,100.7		$	1,999.2		5.1


Total adjusted statutory capital
The Hanover Insurance Company (consolidated)	$	1,516.1		$	1,463.6		3.6
First Allmerica Financial Life Insurance Company	$	174.3		$	179.9		(3.1	)

The Hanover Insurance Company (consolidated) premium to surplus ratio		1.5:1			1.6:1		N/M
First Allmerica Financial Life Insurance Company estimated risk based capital ratio		436	%		431	%	5.0

Book value per share
The Hanover Insurance Company (consolidated)	$	39.06		$	37.74		3.5
First Allmerica Financial Life Insurance Company (consolidated)		6.35			6.22		2.1
THG Holding Company debt (1)		(9.73	)		(9.77	)	(0.4	)
THG Holding Company and other		5.24			4.91		6.7

Total book value per share	$	40.92		$	39.10		4.7


THG book value per share, excluding accumulated other comprehensive income	$	41.33		$	39.88		3.6


The Hanover Insurance Company (consolidated) book value per share, excluding accumulated other comprehensive income	$	38.65		$	37.59		2.8


Shares outstanding (2)		51.3			51.1

Stock price	$	46.12		$	48.80		(5.5	)
Price/book value per share		1.1 x			1.2 x		(0.1	) x
Debt/equity		24.2	%		25.5	%	(1.3	) pts
Debt/total capital		19.5	%		20.3	%	(0.8	) pts

(1)

Excludes $9.3 million of holding company debt related to its affiliate, AFC Capital Trust I.

(2)

Shares outstanding do not include common stock equivalents.

THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME STATEMENTS


	Quarter ended March 31
(In millions, except per share data)	2007			2006			% Change
REVENUES
Premiums	$	602.2		$	559.4		7.7
Fees and other income		13.4			19.3		(30.6	)
Net investment income		80.2			80.3		(0.1	)
Net realized investment gains		2.3			5.6		(58.9	)

Total revenues		698.1			664.6		5.0

BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss adjustment expenses		385.5			359.8		7.1
Policy acquisition expenses		127.2			113.6		12.0
Other operating expenses		93.5			105.9		(11.7	)

Total benefits, losses and expenses		606.2			579.3		4.6

Income from continuing operations before federal income taxes		91.9			85.3		7.7
Federal income tax expense		28.1			25.3		11.1

Income from continuing operations		63.8			60.0		6.3
Loss on disposal of variable life insurance and annuity business, net of taxes		(0.2	)		(20.1	)	(99.0	)

Income before cumulative effect of change in accounting principle		63.6			39.9		59.4
Cumulative effect of change in accounting principle, net of taxes		—			0.6		N/M

Net income	$	63.6		$	40.5		57.0

THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME STATEMENTS


	Quarter ended March 31
	2007			2006			% Change
PER SHARE DATA (DILUTED)
Income from continuing operations	$	1.23		$	1.12		9.8
Loss on disposal of variable life insurance and annuity business, net of taxes		(0.01	)		(0.38	)	(97.4	)

Income before cumulative effect of change in accounting principle		1.22			0.74		64.9
Cumulative effect of change in accounting principle, net of taxes		—			0.01		N/M

Net income (1)	$	1.22		$	0.75		62.7

Weighted average shares outstanding		51.9			53.6

(1)

Basic income per share was $1.24 and $0.76 for the quarters ended March 31, 2007 and 2006, respectively.

THE HANOVER INSURANCE GROUP

CONSOLIDATED BALANCE SHEETS


(In millions, except per share data)	March 31 2007			December 31 2006			% Change
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $5,663.5 and $5,643.2)	$	5,671.4		$	5,629.0		0.8
Equity securities, at fair value (cost of $11.6)		18.6			17.2		8.1
Mortgage loans		56.3			57.1		(1.4	)
Policy loans		122.0			125.7		(2.9	)
Other long-term investments		33.3			35.4		(5.9	)

Total investments		5,901.6			5,864.4		0.6

Cash and cash equivalents		218.5			372.7		(41.4	)
Accrued investment income		74.9			72.3		3.6
Premiums, accounts and notes receivable, net		620.7			584.7		6.2
Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums		1,341.9			1,350.5		(0.6	)
Deferred policy acquistion costs		239.5			233.5		2.6
Deferred federal income taxes		415.8			385.0		8.0
Goodwill		121.4			121.4		—
Other assets		324.5			328.5		(1.2	)
Separate account assets		517.4			543.6		(4.8	)

Total assets	$	9,776.2		$	9,856.6		(0.8	)

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES
Policy liabilities and accruals:
Future policy benefits	$	1,227.0		$	1,242.3		(1.2	)
Outstanding claims, losses and loss adjustment expenses		3,237.6			3,247.2		(0.3	)
Unearned premiums		1,134.1			1,101.4		3.0
Contractholder deposit funds and other policy liabilities		182.5			194.9		(6.4	)

Total policy liabilities and accruals		5,781.2			5,785.8		(0.1	)

Expenses and taxes payable		773.0			928.0		(16.7	)
Reinsurance premiums payable		55.7			52.7		5.7
Trust instruments supported by funding obligations		39.4			38.5		2.3
Long-term debt		508.8			508.8		—
Separate account liabilities		517.4			543.6		(4.8	)

Total liabilities		7,675.5			7,857.4		(2.3	)


SHAREHOLDERS’ EQUITY
Preferred stock, par value $.01 per share; authorized 20.0 million shares; issued none		—			—		—
Common stock, par value $.01 per share; authorized 300.0 million shares; issued 60.5 million shares		0.6			0.6		—
Additional paid-in capital		1,814.7			1,814.3		NM
Accumulated other comprehensive loss		(21.1	)		(39.9	)	(47.1	)
Retained earnings		782.8			712.0		9.9
Treasury stock at cost (9.2 and 9.4 million shares)		(476.3	)		(487.8	)	(2.4	)

Total shareholders’ equity		2,100.7			1,999.2		5.1

Total liabilities and shareholders’ equity	$	9,776.2		$	9,856.6		(0.8	)

PROPERTY & CASUALTY

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

CONDENSED INCOME STATEMENTS


	Quarter ended March 31
(In millions)	2007			2006			% Change
REVENUES
Net premiums written	$	612.0		$	574.0		6.6
Change in unearned premiums, net of prepaid reinsurance premiums		(27.6	)		(33.1	)	(16.6	)

Net premiums earned		584.4			540.9		8.0
Net investment income		60.7			56.5		7.4
Other income		15.0			14.7		2.0

Total segment revenue		660.1			612.1		7.8


LOSSES AND OPERATING EXPENSES
Policy benefits, claims, losses and loss adjustment expenses		353.1			327.8		7.7
Policy acquisition expenses		127.0			113.4		12.0
Other operating expenses		79.1			79.2		(0.1	)

Total losses and operating expenses		559.2			520.4		7.5

Segment income before federal income taxes	$	100.9		$	91.7		10.0

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

CONSOLIDATED BALANCE SHEETS (1)



(In millions, except per share data)	March 31 2007		December 31 2006		% Change
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $4,077.8 and $3,999.1)	$	4,085.3	$	3,989.0	2.4
Equity securities, at fair value (cost of $3.9)		8.7		7.3	19.2
Mortgage loans		23.4		23.7	(1.3	)
Other long-term investments		8.6		10.2	(15.7	)

Total investments		4,126.0		4,030.2	2.4

Cash and cash equivalents		160.1		230.5	(30.5	)
Accrued investment income		51.2		48.0	6.7
Premiums, accounts, and notes receivable, net		619.2		581.8	6.4
Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums		1,015.1		1,012.2	0.3
Deferred policy acquisition costs		234.7		228.4	2.8
Deferred federal income tax asset		244.8		206.2	18.7
Goodwill		121.4		121.4	—
Other assets		191.7		194.9	(1.6	)

Total assets	$	6,764.2	$	6,653.6	1.7


LIABILITIES AND SHAREHOLDER’S EQUITY

LIABILITIES
Policy liabilities and accruals:
Outstanding claims, losses and loss adjustment expenses	$	3,157.1	$	3,163.9	(0.2	)
Unearned premiums		1,132.5		1,099.9	3.0
Contractholder deposit funds and other policy liabilities		2.1		2.1	—

Total policy liabilities and accruals		4,291.7		4,265.9	0.6

Expenses and taxes payable		414.5		408.8	1.4
Reinsurance premiums payable		52.7		49.2	7.1

Total liabilities		4,758.9		4,723.9	0.7


SHAREHOLDER’S EQUITY
Common stock, par value $1.00 per share; authorized 20.9 million shares; issued 5.0 million shares		5.0		5.0	—
Additional paid-in capital		169.2		169.2	—
Accumulated other comprehensive income		20.8		7.3	N/M
Retained earnings		1,810.3		1,748.2	3.6

Total shareholder’s equity		2,005.3		1,929.7	3.9

Total liabilities and shareholder’s equity	$	6,764.2	$	6,653.6	1.7

(1)

Property and Casualty Companies includes The Hanover Insurance Company and Citizens Insurance Company of America, and their subsidiaries.

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

GAAP UNDERWRITING PROFIT (LOSS) RECONCILED TO SEGMENT INCOME


	Quarter ended March 31, 2007
	Personal Lines										Commercial Lines
(In millions)	Personal Automobile			Homeowners		Other Personal Lines		Total Personal Lines			Workers' Compensation			Commercial Automobile			Commercial Multiple Peril			Other Commercial Lines			Total Commercial Lines			Other Property and Casualty			Total Property and Casualty
Net premiums written	$	273.5		$	84.5	$	8.3	$	366.3		$	34.5		$	51.6		$	91.8		$	67.8		$	245.7		$	—		$	612.0

Net premiums earned	$	247.8		$	102.7	$	9.8	$	360.3		$	27.4		$	48.2		$	87.2		$	61.3		$	224.1		$	—		$	584.4
Policy benefits, claims, losses excluding prior year reserve development and catastrophe losses		165.5			45.9		2.3		213.7			19.0			25.6			42.7			25.0			112.3			—			326.0
Prior year loss and LAE reserve development (favorable) unfavorable		(23.7	)		1.3		0.9		(21.5	)		(11.0	)		(4.4	)		(8.5	)		(6.6	)		(30.5	)		—			(52.0	)
Pre-tax catastrophe losses		0.3			5.4		0.4		6.1			—			—			4.9			0.6			5.5			—			11.6
Pre-tax catastrophe LAE		—			1.1		—		1.1			—			—			0.8			0.8			1.6			—			2.7
Loss adjustment expenses excluding prior year reserve development		30.9			7.9		0.6		39.4			5.0			4.0			11.8			4.4			25.2			—			64.6
Policy acquisition expenses and other underwriting expenses									106.6															88.9			(0.3	)		195.2
Policyholders' dividends									—															0.2			—			0.2

GAAP underwriting profit									14.9															20.9			0.3			36.1
Net investment income									29.5															27.3			3.9			60.7
Other income									3.8															4.1			7.1			15.0
Other operating expenses									(0.8	)														(3.3	)		(6.8	)		(10.9	)

Segment income before federal income taxes								$	47.4														$	49.0		$	4.5		$	100.9


	Quarter ended March 31, 2006
	Personal Lines											Commercial Lines
	Personal Automobile			Homeowners		Other Personal Lines			Total Personal Lines			Workers' Compensation			Commercial Automobile			Commercial Multiple Peril			Other Commercial Lines			Total Commercial Lines			Other Property and Casualty			Total Property and Casualty
Net premiums written	$	252.0		$	81.2	$	8.4		$	341.6		$	35.5		$	52.0		$	92.9		$	52.0		$	232.4		$	—		$	574.0

Net premiums earned	$	232.0		$	98.0	$	9.8		$	339.8		$	28.3		$	47.7		$	83.2		$	41.9		$	201.1		$	—		$	540.9
Policy benefits, claims, losses excluding prior year reserve development and catastrophe losses		144.9			41.6		2.5			189.0			21.9			23.8			40.0			14.4			100.1			—			289.1
Prior year loss and LAE reserve development (favorable) unfavorable		(7.4	)		1.7		(1.6	)		(7.3	)		(2.4	)		(1.4	)		(12.6	)		(3.1	)		(19.5	)		0.3			(26.5	)
Pre-tax catastrophe losses		0.1			3.6		—			3.7			—			0.3			1.2			2.1			3.6			—			7.3
Pre-tax catastrophe LAE		—			—		—			—			—			—			—			—			—			—			—
Loss adjustment expenses excluding prior year reserve development		26.5			8.2		0.7			35.4			4.1			3.2			11.9			2.8			22.0			0.3			57.7
Policy acquisition expenses and other underwriting expenses										100.6															82.9			(0.3	)		183.2
Policyholders' dividends										—															0.2			—			0.2

GAAP underwriting profit (loss)										18.4															11.8			(0.3	)		29.9
Net investment income										26.6															26.1			3.8			56.5
Other income										4.9															3.9			5.9			14.7
Other operating expenses										(0.9	)														(2.8	)		(5.7	)		(9.4	)

Segment income before federal income taxes									$	49.0														$	39.0		$	3.7		$	91.7

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

GAAP UNDERWRITING RATIOS


	Quarter ended March 31, 2007
	Personal Lines								Commercial Lines
	Personal Automobile		Homeowners		Other Personal Lines		Total Personal Lines		Workers' Compensation		Commercial Automobile		Commercial Multiple Peril		Other Commercial Lines		Total Commercial Lines		Other Property and Casualty	Total Property and Casualty
Losses, excluding catastrophe losses and development	66.8	%	44.7	%	23.5	%	59.3	%	69.3	%	53.1	%	49.0	%	40.8	%	50.1	%	N/M	55.8	%
Catastrophe losses	0.1	%	5.3	%	4.1	%	1.7	%	—		—		5.6	%	1.0	%	2.5	%	N/M	2.0	%
Loss development	(10.3	)%	1.5	%	12.2	%	(6.3	)%	(36.5	)%	(9.3	)%	(7.4	)%	(11.4	)%	(12.4	)%	N/M	(8.7	)%

Total losses	56.6	%	51.5	%	39.8	%	54.7	%	32.8	%	43.8	%	47.2	%	30.4	%	40.2	%	N/M	49.1	%
Loss adjustment expenses	13.2	%	7.5	%	3.1	%	11.3	%	14.6	%	8.5	%	11.1	%	7.8	%	10.1	%	N/M	10.8	%
Pre-tax catastrophe LAE	—		1.1	%	—		0.3	%	—		—		0.9	%	1.3	%	0.7	%	N/M	0.5	%
Policy acquisition and other underwriting expenses							29.6	%									39.7	%	N/M	33.4	%
Policyholders' dividends							—										0.1	%	N/M	—

Combined							95.9	%									90.8	%	N/M	93.8	%

Policies in force	7.8	%	(1.7	)%	(0.3	)%	3.0	%	(0.5	)%	1.7	%	0.2	%	5.6	%	2.3	%	—	2.9	%
Retention (1)	74.5	%	83.4	%	N/M		79.1	%	79.0	%	82.0	%	80.2	%	79.8	%	79.8	%


	Quarter ended March 31, 2006
	Personal Lines								Commercial Lines
	Personal Automobile		Homeowners		Other Personal Lines		Total Personal Lines		Workers' Compensation		Commercial Automobile		Commercial Multiple Peril		Other Commercial Lines		Total Commercial Lines		Other Property and Casualty	Total Property and Casualty
Losses, excluding catastrophe losses and development	62.5	%	42.4	%	25.5	%	55.6	%	77.4	%	49.9	%	48.1	%	34.4	%	49.8	%	N/M	53.4	%
Catastrophe losses	—		3.7	%	—		1.1	%	—		0.6	%	1.4	%	5.0	%	1.8	%	N/M	1.3	%
Loss development	(3.3	)%	2.1	%	(16.3	)%	(2.1	)%	(5.7	)%	(3.2	)%	(12.3	)%	(7.4	)%	(8.2	)%	N/M	(4.3	)%

Total losses	59.2	%	48.2	%	9.2	%	54.6	%	71.7	%	47.3	%	37.2	%	32.0	%	43.4	%	N/M	50.4	%
Loss adjustment expenses	11.6	%	8.0	%	7.1	%	10.4	%	11.7	%	6.9	%	11.4	%	6.7	%	9.4	%	N/M	10.1	%
Pre-tax catastrophe LAE	—		—		—		—		—		—		—		—		—		N/M	—
Policy acquisition and other underwriting expenses							29.6	%									41.2	%	N/M	33.9	%
Policyholders' dividends							—										0.1	%	N/M	—

Combined							94.6	%									94.1	%	N/M	94.4	%

Policies in force	(1.7	)%	(3.9	)%	(2.5	)%	(2.8	)%	(6.6	)%	(3.7	)%	(5.0	)%	2.7	%	(2.3	)%	—	(2.7	)%
Retention (1)	79.5	%	83.3	%	N/M		81.5	%	68.4	%	77.1	%	81.9	%	N/M		77.8	%

(1)

The retention rate for personal lines is a twelve month rolling average calculation based on policies in force; the retention rate for commercial lines is based on direct voluntary written premiums, based on processed policies in the current period versus the same period in the prior year. Additionally, the retention rates have been adjusted to exclude the effect of our strategic termination of specialty commercial programs which resulted from an extensive review during the fourth quarter of 2001.

LIFE COMPANIES

THE HANOVER INSURANCE GROUP

LIFE COMPANIES

CONDENSED INCOME STATEMENTS


	Quarter ended March 31
(In millions)	2007			2006			% Change
REVENUES
Premiums	$	17.8		$	18.5		(3.8	)
Fees and other income		0.4			6.0		(93.3	)
Net investment income		19.3			23.7		(18.6	)

Total segment revenue		37.5			48.2		(22.2	)

POLICY BENEFITS, CLAIMS AND OPERATING EXPENSES
Policy benefits, claims and losses		32.0			32.2		(0.6	)
Policy acquisition expenses		0.2			0.2		—
Other operating expenses		6.2			17.7		(65.0	)

Total policy benefits, claims and operating expenses		38.4			50.1		(23.4	)

Segment loss before federal income taxes	$	(0.9	)	$	(1.9	)	(52.6	)

THE HANOVER INSURANCE GROUP

LIFE COMPANIES

CONSOLIDATED BALANCE SHEETS


(In millions, except per share data)	March 31 2007			December 31 2006			% Change
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $1,265.8 and $1,381.7)	$	1,266.3		$	1,377.8		(8.1	)
Equity securities, at fair value (cost of $0.1)		0.6			0.6		—
Mortgage loans		32.9			33.4		(1.5	)
Policy loans		122.0			125.7		(2.9	)
Other long-term investments		24.7			25.2		(2.0	)

Total investments		1,446.5			1,562.7		(7.4	)

Cash and cash equivalents		38.9			104.2		(62.7	)
Accrued investment income		19.6			21.5		(8.8	)
Premiums, accounts, and notes receivable, net		1.5			2.9		(48.3	)
Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums		326.8			338.3		(3.4	)
Deferred policy acquistion costs		4.8			5.1		(5.9	)
Deferred federal income tax asset		168.5			174.3		(3.3	)
Other assets		98.3			98.7		(0.4	)
Separate account assets		517.4			543.6		(4.8	)

Total assets	$	2,622.3		$	2,851.3		(8.0	)

LIABILITIES AND SHAREHOLDER’S EQUITY

LIABILITIES
Policy liabilities and accruals:
Future policy benefits	$	1,227.0		$	1,242.3		(1.2	)
Outstanding claims, losses and loss adjustment expenses		80.5			83.3		(3.4	)
Unearned premiums		1.6			1.5		6.7
Contractholder deposit funds and other policy liabilities		180.4			192.8		(6.4	)

Total policy liabilities and accruals		1,489.5			1,519.9		(2.0	)

Expenses and taxes payable		247.3			427.8		(42.2	)
Reinsurance premiums payable		3.0			3.5		(14.3	)
Trust instruments supported by funding obligations		39.4			38.5		2.3
Separate account liabilities		517.4			543.6		(4.8	)

Total liabilities		2,296.6			2,533.3		(9.3	)

SHAREHOLDER’S EQUITY
Common stock, par value $10 per share; authorized 1 million shares; issued 500,000 shares		5.0			5.0		—
Additional paid-in capital		684.9			684.9		—
Accumulated other comprehensive loss		(21.3	)		(25.7	)	(17.1	)
Retained deficit		(342.9	)		(346.2	)	(1.0	)

Total shareholder’s equity		325.7			318.0		2.4

Total liabilities and shareholder’s equity	$	2,622.3		$	2,851.3		(8.0	)

THE HANOVER INSURANCE GROUP

LIFE COMPANIES

FUTURE POLICY BENEFITS AND ACCOUNT BALANCES


	Gross						Net of Reinsurance Recoverables
(In millions)	March 31 2007		December 31 2006		% Change		March 31 2007		December 31 2006		% Change
Insurance
Traditional life	$	712.5	$	723.8	(1.6	)	$	712.3	$	723.7	(1.6	)
Group life and health		277.8		287.3	(3.3	)		76.5		77.5	(1.3	)
Other life and health		32.1		34.1	(5.9	)		1.1		1.2	(8.3	)

Total insurance		1,022.4		1,045.2	(2.2	)		789.9		802.4	(1.6	)


Annuities
Individual annuities		95.8		97.6	(1.8	)		6.7		7.2	(6.9	)
Group annuities		368.9		374.7	(1.5	)		363.7		369.5	(1.6	)

Total annuities		464.7		472.3	(1.6	)		370.4		376.7	(1.7	)


Total general account reserves	$	1,487.1	$	1,517.5	(2.0	)	$	1,160.3	$	1,179.1	(1.6	)


Trust instruments supported by funding obligations	$	39.4	$	38.5	2.3		$	39.4	$	38.5	2.3


SEPARATE ACCOUNT LIABILITIES
Insurance - Variable universal life	$	84.3	$	85.3	(1.2	)	$	84.3	$	85.3	(1.2	)
Annuities
Variable individual annuities		342.4		362.0	(5.4	)		342.4		362.0	(5.4	)
Group annuities		90.7		96.3	(5.8	)		90.7		96.3	(5.8	)

Total annuities		433.1		458.3	(5.5	)		433.1		458.3	(5.5	)

Total separate account liabilities (1)	$	517.4	$	543.6	(4.8	)	$	517.4	$	543.6	(4.8	)

(1)

Includes separate account liabilities subject to a modified coinsurance agreement with a former subsidiary, AFLIAC, of $421.0 million and $437.3 million as of March 31, 2007 and December 31, 2006, respectively.

INVESTMENTS

THE HANOVER INSURANCE GROUP

NET INVESTMENT INCOME

(In millions, except yields)

Quarter ended March 31, 2007

Property and
Casualty (1)

Yield

Life
Companies

Yield

Total

Yield

Fixed maturities

60.0

5.71

17.2

5.64

77.2

5.70

Equity securities

0.2

—

0.2

—

Mortgages

0.5

7.99

0.8

9.98

1.3

9.15

All other

1.7

—

1.8

—

3.5

—

Investment expenses

(1.5

)

—

(0.5

)

—

(2.0

)

—

Total

60.9

5.53

19.3

5.35

80.2

5.49


	Quarter ended March 31, 2006
	Property and Casualty (1)			Yield		Life Companies			Yield		Total			Yield
Fixed maturities	$	53.2		5.56	%	$	23.0		5.72	%	$	76.2		5.61	%
Equity securities		0.6		—			—		—			0.6		—
Mortgages		0.9		8.55	%		1.0		7.76	%		1.9		8.14	%
All other		3.6		—			0.4		—			4.0		—
Investment expenses		(1.7	)	—			(0.7	)	—			(2.4	)	—

Total	$	56.6		5.33	%	$	23.7		4.98	%	$	80.3		5.23	%

(1)

Includes purchase accounting adjustments of $0.8 million for the quarters ended March 31, 2007 and 2006. Also includes corporate eliminations of $0.1 million for the quarter ended March 31, 2006. There were no corporate eliminations for the quarter ended March 31, 2007.

THE HANOVER INSURANCE GROUP

COMPONENTS OF NET REALIZED INVESTMENT GAINS (LOSSES)


	Quarter ended March 31
(In millions)	2007								2006
	Net Realized Gains (Losses)								Net Realized Gains (Losses)
	Property and Casualty (1)			Life Companies		Total			Property and Casualty (1)			Life Companies			Total
Net gains (losses) on securities transactions	$	0.8		$	2.0	$	2.8		$	11.8		$	(1.4	)	$	10.4
Other than temporary impairments		(0.5	)		—		(0.5	)		(2.2	)		(2.6	)		(4.8	)

Net realized investment gains (losses)	$	0.3		$	2.0	$	2.3		$	9.6		$	(4.0	)	$	5.6

(1)

Includes corporate eliminations of $1.0 million and $5.2 million for the quarters ended March 31, 2007 and 2006, respectively.

THE HANOVER INSURANCE GROUP

AGING OF GROSS UNREALIZED LOSSES ON SECURITIES AVAILABLE FOR SALE

(In millions)

March 31, 2007

Gross Unrealized Losses

Fair Value

Property and
Casualty

Life
Companies

Total

Property and
Casualty

Life
Companies

Total

INVESTMENT GRADE FIXED MATURITIES:

12 months or less

6.2

1.3

7.5

783.8

109.6

893.4

Greater than 12 months

25.9

17.3

43.2

1,420.6

689.2

2,109.8

Total investment grade fixed maturities

32.1

18.6

50.7

2,204.4

798.8

3,003.2

BELOW INVESTMENT GRADE FIXED MATURITIES:

12 months or less

0.3

0.1

0.4

36.7

4.6

41.3

Greater than 12 months

—

6.5

1.1

7.6

Total below investment grade fixed maturities

0.3

0.1

0.4

43.2

5.7

48.9

Total fixed maturities

32.4

18.7

51.1

2,247.6

804.5

3,052.1


	December 31, 2006
	Gross Unrealized Losses						Fair Value
	Property and Casualty		Life Companies		Total		Property and Casualty		Life Companies		Total
INVESTMENT GRADE FIXED MATURITIES:
12 months or less	$	11.1	$	2.1	$	13.2	$	1,163.2	$	158.9	$	1,322.1
Greater than 12 months		32.2		23.2		55.4		1,342.4		747.1		2,089.5

Total investment grade fixed maturities		43.3		25.3		68.6		2,505.6		906.0		3,411.6

BELOW INVESTMENT GRADE FIXED MATURITIES:
12 months or less		1.1		0.2		1.3		60.8		7.5		68.3
Greater than 12 months		—		—		—		—		—		—

Total below investment grade fixed maturities		1.1		0.2		1.3		60.8		7.5		68.3

Total fixed maturities	$	44.4	$	25.5	$	69.9	$	2,566.4	$	913.5	$	3,479.9

THE HANOVER INSURANCE GROUP

CREDIT QUALITY OF FIXED MATURITIES

(In millions)

March 31, 2007

Amortized Cost

Fair Value

NAIC Designation

Rating Agency
Equivalent Designation

Property and
Casualty

Life
Companies

Total

Property and
Casualty

Life
Companies

Total

Aaa/Aa/A

3,233.2

846.5

4,079.7

3,232.5

841.4

4,073.9

Baa

896.3

354.2

1,250.5

894.9

355.1

1,250.0

110.5

25.7

136.2

112.5

26.7

139.2

115.1

31.0

146.1

120.4

32.6

153.0

Caa and lower

42.6

7.2

49.8

44.8

7.6

52.4

In or near default

—

1.2

—

2.9

Total fixed maturities

4,397.7

1,265.8

5,663.5

4,405.1

1,266.3

5,671.4


		December 31, 2006
		Amortized Cost						Fair Value
NAIC Designation	Rating Agency Equivalent Designation	Property and Casualty		Life Companies		Total		Property and Casualty		Life Companies		Total
1	Aaa/Aa/A	$	3,165.6	$	930.1	$	4,095.7	$	3,153.6	$	920.0	$	4,073.6
2	Baa		839.5		381.5		1,221.0		833.6		382.4		1,216.0
3	Ba		101.1		25.9		127.0		102.5		27.1		129.6
4	B		118.0		36.6		154.6		122.9		39.0		161.9
5	Caa and lower		37.3		6.4		43.7		38.5		6.5		45.0
6	In or near default		—		1.2		1.2		—		2.9		2.9

Total fixed maturities		$	4,261.5	$	1,381.7	$	5,643.2	$	4,251.1	$	1,377.9	$	5,629.0

PROPERTY & CASUALTY

STATUTORY RATIOS

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

STATUTORY UNDERWRITING RATIOS

Quarter ended March 31, 2007

Personal Lines

Commercial Lines

Personal
Auto-
mobile

Home-
owners

Other
Personal
Lines

Total
Personal
Lines

Workers'
Compen-
sation

Commercial
Auto-
mobile

Commercial
Multiple
Peril

Other
Commercial
Lines

Total
Commercial
Lines

Other
Property
and
Casualty

Total
Property

and Casualty

Losses, excluding catastrophe losses and development

66.8

44.8

24.5

59.4

68.6

53.1

49.0

41.0

50.1

N/M

55.8

Catastrophe losses

0.1

6.2

4.1

2.0

—

6.0

1.1

2.6

N/M

2.2

Loss development

(10.3

1.5

12.2

(6.4

(36.1

(9.3

(7.3

(11.4

(12.4

N/M

(8.7

Total losses

56.6

52.5

40.8

55.0

32.5

43.8

47.7

30.7

40.3

N/M

49.3

Loss adjustment expenses

13.2

7.5

3.1

11.3

14.4

8.3

11.1

7.8

10.0

N/M

10.8

Pre-tax catastrophe LAE

—

1.1

—

0.3

—

0.9

1.3

0.7

N/M

0.5

Policy acquisition and other underwriting expenses

29.2

37.9

N/M

32.7

Policyholders' dividends

—

0.1

N/M

—

Combined

95.8

89.0

N/M

93.3


	Quarter ended March 31, 2006
	Personal Lines								Commercial Lines
	Personal Auto- mobile		Home- owners		Other Personal Lines		Total Personal Lines		Workers' Compen- sation		Commercial Auto- mobile		Commercial Multiple Peril		Other Commercial Lines		Total Commercial Lines		Other Property and Casualty	Total Property and Casualty
Losses, excluding catastrophe losses and development	62.5	%	42.4	%	25.5	%	55.6	%	79.6	%	49.9	%	47.9	%	34.4	%	49.9	%	N/M	53.5	%
Catastrophe losses	—		3.7	%	—		1.1	%	—		0.6	%	1.4	%	5.0	%	1.8	%	N/M	1.4	%
Loss development	(3.3	)%	2.1	%	(16.3	)%	(2.1	)%	(5.8	)%	(3.2	)%	(12.3	)%	(7.4	)%	(8.2	)%	N/M	(4.3	)%

Total losses	59.2	%	48.2	%	9.2	%	54.6	%	73.8	%	47.3	%	37.0	%	32.0	%	43.5	%	N/M	50.6	%
Loss adjustment expenses	11.6	%	8.0	%	7.1	%	10.4	%	12.0	%	6.9	%	11.4	%	6.7	%	9.4	%	N/M	10.1	%
Pre-tax catastrophe LAE	—		—		—		—		—		—		—		—		—		N/M	—
Policy acquisition and other underwriting expenses							29.9	%									38.0	%	N/M	33.2	%
Policyholders' dividends							—										0.2	%	N/M	—

Combined							94.9	%									91.1	%	N/M	93.9	%

Historical Highlights

THE HANOVER INSURANCE GROUP

HISTORICAL FINANCIAL HIGHLIGHTS


(In millions, except per share data)	Q1 07			2006			Q4 06			Q3 06			Q2 06			Q1 06
SEGMENT INCOME (1)
Property and Casualty
Personal Lines	$	47.4		$	186.7		$	49.0		$	35.0		$	53.7		$	49.0
Commercial Lines		49.0			120.3			43.4			7.7			30.2			39.0
Other Property and Casualty		4.5			21.1			5.0			10.1			2.3			3.7

Total Property and Casualty		100.9			328.1			97.4			52.8			86.2			91.7
Life Companies		(0.9	)		(3.9	)		0.1			(1.1	)		(1.0	)		(1.9	)
Interest expense on corporate debt		(10.0	)		(39.9	)		(10.0	)		(10.0	)		(9.9	)		(10.0	)

Total segment income before federal income taxes	$	90.0		$	284.3		$	87.5		$	41.7		$	75.3		$	79.8

Federal income tax expense on segment income		(29.8	)		(88.2	)		(26.9	)		(14.1	)		(23.6	)		(23.6	)

Total segment income after federal income taxes	$	60.2		$	196.1		$	60.6		$	27.6		$	51.7		$	56.2

Change in prior years tax reserves		—			3.3			3.3			—			—			—
Federal income tax settlement		2.4			—			—			—			—			—
Net realized investment gains (losses), net of amortization		1.9			(3.5	)		(14.9	)		2.0			3.6			5.8
Gains on derivative instruments		—			0.2			—			0.1			0.1			—
Restructuring costs		—			(1.6	)		(0.2	)		(0.5	)		(0.6	)		(0.3	)
Federal income tax (expense) benefit on non-segment income		(0.7	)		(2.8	)		0.7			(0.7	)		(1.1	)		(1.7	)

Income from continuing operations		63.8			191.7			49.5			28.5			53.7			60.0
Loss on disposal of variable life insurance and annuity business, net of taxes		(0.2	)		(29.8	)		(4.0	)		(2.9	)		(2.8	)		(20.1	)
Gain on sale of Financial Profiles Inc., net of taxes		—			7.8			—			7.8			—			—

Income before cumulative effect of accounting change		63.6			169.7			45.5			33.4			50.9			39.9
Cumulative effect of change in accounting principle, net of taxes		—			0.6			—			—			—			0.6

NET INCOME	$	63.6		$	170.3		$	45.5		$	33.4		$	50.9		$	40.5

PER SHARE DATA (DILUTED)
INCOME FROM CONTINUING OPERATIONS	$	1.23		$	3.68		$	0.96		$	0.56		$	1.04		$	1.12
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES	$	(0.01	)	$	(0.42	)	$	(0.08	)	$	0.09		$	(0.05	)	$	(0.38	)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES	$	—		$	0.01		$	—		$	—		$	—		$	0.01
NET INCOME	$	1.22		$	3.27		$	0.88		$	0.65		$	0.99		$	0.75

WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED)		51.9			52.2			51.7			51.3			51.6			53.6

BALANCE SHEET
Total investments	$	5,901.6					$	5,864.4		$	5,719.3		$	5,601.4		$	5,841.8
Separate account assets	$	517.4					$	543.6		$	524.2		$	528.4		$	564.0
Total assets	$	9,776.2					$	9,856.6		$	9,844.0		$	9,689.1		$	10,156.8
Total shareholders’ equity	$	2,100.7					$	1,999.2		$	1,909.3		$	1,770.0		$	1,843.0
Book value per share	$	40.92					$	39.10		$	37.49		$	34.77		$	35.35
Book value per share, excluding accumulated other comprehensive income	$	41.33					$	39.88		$	39.20		$	38.46		$	37.77

(1)

Represents income or loss of the Company’s operating segments: Personal Lines, Commercial Lines, Other Property and Casualty, Life Companies and interest expense on corporate debt. In accordance with Statement of Financial Accounting Standards No.131, the separate financial information of each segment is presented consistent with the manner in which results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

THE HANOVER INSURANCE GROUP

HISTORICAL FINANCIAL HIGHLIGHTS


(In millions, except per share data)	2005			Q4 05			Q3 05			Q2 05			Q1 05
SEGMENT INCOME (1)
Property and Casualty
Personal Lines	$	143.2		$	74.4		$	(27.8	)	$	57.4		$	39.2
Commercial Lines		(35.0	)		14.5			(101.0	)		31.0			20.5
Other Property and Casualty		5.5			0.6			1.1			1.7			2.1

Total Property and Casualty		113.7			89.5			(127.7	)		90.1			61.8
Life Companies		(18.7	)		(1.0	)		(0.9	)		(7.5	)		(9.3	)
Interest expense on corporate debt		(39.9	)		(10.0	)		(10.0	)		(9.9	)		(10.0	)


Total segment income (loss) before federal income taxes	$	55.1		$	78.5		$	(138.6	)	$	72.7		$	42.5


Federal income tax (expense) benefit on segment income		(1.0	)		(1.3	)		29.6			(19.5	)		(9.8	)


Total segment income (loss) after federal income taxes	$	54.1		$	77.2		$	(109.0	)	$	53.2		$	32.7

Change in prior years tax reserves		2.3			—			—			2.3			—
Federal income tax settlement		9.5			9.5			—			—			—
Net realized investment gains (losses), net of amortization		18.6			5.7			(2.0	)		3.6			11.3
(Losses) gains on derivative instruments		(0.3	)		—			0.2			(0.3	)		(0.2	)
Restructuring costs		(2.1	)		(0.8	)		(0.4	)		(0.2	)		(0.7	)
Federal income tax (expense) benefit on non-segment income		(5.6	)		(7.2	)		5.8			(1.5	)		(2.7	)

Income (loss) from continuing operations		76.5			84.4			(105.4	)		57.1			40.4
Income from discontinued variable life insurance and annuity business, net of taxes		42.7			4.1			17.6			14.9			6.1
(Loss) income on disposal of variable life insurance and annuity business, net of taxes		(444.4	)		30.2			(474.6	)		—			—

NET (LOSS) INCOME	$	(325.2	)	$	118.7		$	(562.4	)	$	72.0		$	46.5


PER SHARE DATA (DILUTED)
INCOME (LOSS) FROM CONTINUING OPERATIONS	$	1.42		$	1.56		$	(1.97	)	$	1.06		$	0.75
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES	$	(7.44	)	$	0.63		$	(8.54	)	$	0.28		$	0.11
NET (LOSS) INCOME	$	(6.02	)	$	2.19		$	(10.51	)	$	1.34		$	0.86

WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED) (2)		54.0			54.2			53.5			53.9			53.8

BALANCE SHEET
Total investments				$	6,008.3		$	7,535.0		$	7,678.4		$	7,663.9
Separate account assets				$	571.9		$	9,385.9		$	9,444.6		$	9,726.0
Total assets				$	10,634.0		$	21,647.1		$	21,846.6		$	22,167.8
Total shareholders’ equity				$	1,951.3		$	1,867.7		$	2,490.5		$	2,325.2
Book value per share				$	36.30		$	34.81		$	46.60		$	43.53
Book value per share, excluding accumulated other comprehensive income				$	37.33		$	35.47		$	46.01		$	44.67

(1)

(2)

Weighted average shares outstanding for the quarter ending September 30, 2005 represents basic shares outstanding due to antidilution.

Other Information

CORPORATE OFFICES AND PRINCIPAL SUBSIDIARIES

THE HANOVER INSURANCE GROUP, INC.

440 Lincoln Street

Worcester, MA 01653

The Hanover Insurance Company

440 Lincoln Street

Worcester, MA 01653

Citizens Insurance Company of America

645 West Grand River

Howell, MI 48843

MARKET AND DIVIDEND INFORMATION

The following information shows trading activity for the Company for the periods indicated:


Quarter Ended	2007
	Price Range				Dividends Per Share
	High		Low		Dividends Per Share
March 31	$	49.11	$	44.70		—
June 30
September 30
December 31

Quarter Ended	2006
	Price Range				Dividends Per Share
	High		Low		Dividends Per Share
March 31	$	53.12	$	42.98		—
June 30	$	54.11	$	43.17		—
September 30	$	48.49	$	41.17		—
December 31	$	50.25	$	43.95	$	0.30

INDUSTRY RATINGS AS OF April 30, 2007


Financial Strength Ratings	A.M. Best	Standard & Poor’s	Moody’s
Financial Strength Ratings	A.M. Best	Standard & Poor’s	Moody’s
Property and Casualty Insurance Companies:
The Hanover Insurance Company	A-	BBB+	Baa1
Citizens Insurance Company of America	A-	BBB+	Baa1
Life Insurance Companies:
First Allmerica Financial Life Insurance Company	B+	BBB-	Ba1

Debt Ratings	A.M. Best	Standard & Poor’s	Moody’s
The Hanover Insurance Group, Inc. Senior Debt	bbb-	BB+	Ba1
The Hanover Insurance Group, Inc. Capital Securities	bb	B+	Ba2
The Hanover Insurance Company Short Term Debt	—	—	NP

TRANSFER AGENT

Computershare Limited

PO Box 43076

Providence, RI 02940-3076

1-800-317-4454

COMMON STOCK

Common stock of The Hanover Insurance Group is traded on the New York Stock Exchange under the symbol “THG”.

INQUIRIES

Sujata Mutalik

Vice President, Investor Relations

(508) 855-3457

smutalik@Hanover.com

INVESTOR INFORMATION LINE

Dial 1-800-407-5222 to receive additional printed information, fax-on-demand services or other prerecorded messages.

Please visit our internet site at http://www.Hanover.com

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