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, MG6DiCUWZqn0JkA8+bzmP4nf2N4Em/RVjwD78ajxhptrBtT2ppDvKri5GWEH1Y+6 uXsRQUnSWKkmBpCETpNftA== 0001193125-08-093198.txt : 20080428 0001193125-08-093198.hdr.sgml : 20080428 20080428172839 ACCESSION NUMBER: 0001193125-08-093198 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20080428 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20080428 DATE AS OF CHANGE: 20080428 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: 08782316 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 28, 2008

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 28, 2008, The Hanover Insurance Group, Inc. issued a press release announcing its financial results for the quarter ended March 31, 2008. The release is furnished as Exhibit 99.1 hereto. Additionally, on April 28, 2008, the Company made available on its website financial information contained in its Statistical Supplement for the period ended March 31, 2008. 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 28, 2008, announcing the Company’s financial results for the quarter ended March 31, 2008.

Exhibit 99.2

The Hanover Insurance Group, Inc. Statistical Supplement for the period ended March 31, 2008.

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)

Date April 28, 2008

By: /s/ Eugene M. Bullis

Eugene M. Bullis

Executive Vice President,

Chief Financial Officer and

Principal Accounting Officer

Exhibit Index

Exhibit 99.1

Press Release, dated April 28, 2008, announcing the Company’s financial results for the quarter ended March 31, 2008.

Exhibit 99.2

The Hanover Insurance Group, Inc. Statistical Supplement for the period ended March 31, 2008.

EX-99.1 2 dex991.htm PRESS RELEASE Press Release

Exhibit 99.1

LOGO

WORCESTER, Mass., April 28, 2008 –

The Hanover Insurance Group reports strong

first quarter results

First Quarter 2008 Financial Highlights

•

Net income of $1.12 per share, compared to $1.22 per share in the prior-year quarter.

•

Property and Casualty pre-tax segment income of $98.0 million, compared to $100.9 million in the prior-year quarter.

•

Higher catastrophes and non-catastrophe weather related losses in the first quarter of 2008 resulted in unfavorable comparison with first quarter 2007 earnings.

•

Net premiums written of $628.5 million, compared to $612.0 million in the prior-year quarter.

•

Book value per share of $45.23 per share at March 31, 2008, from $44.37 per share at December 31, 2007.

Financial Highlights


in millions, except per share amounts	Quarter ended March 31
	2008			2007
Total Segment Income after taxes	$	57.3		$	60.2
Net realized investment (losses) gains		(5.1	)		1.9
Federal income tax settlement		—			2.4
Gains on derivative instruments		0.1			—
Income tax benefit (expense) on non-segment income		1.2			(0.7	)

Income from Continuing Operations		53.5			63.8
Discontinued Operations		5.0			(0.2	)

Net Income	$	58.5		$	63.6

Net Income per share (Diluted)	$	1.12		$	1.22

The Hanover Insurance Group, Inc. (NYSE: THG) today reported net income for the first quarter of 2008 of $58.5 million, or $1.12 per share, compared to $63.6 million, or $1.22 per share, in the first quarter of the prior year. Net income for the first quarter of 2008 included an after-tax net realized loss on investments of $5.1 million, or $0.09 per share, compared to a gain of $1.9 million, or $0.04 per share in the prior-year quarter. Net income for the first quarter of 2008 included $5.0 million, or $0.09 per share, resulting from adjustments to after-tax net gains on previously sold

LOGO

businesses. This benefit compares to a $0.2 million loss on disposal of variable life insurance and annuity business in the prior-year quarter.

Total Property and Casualty pre-tax segment income was $98.0 million in the first quarter of 2008, compared to $100.9 million in the first quarter of the prior year.

“I am very pleased with the strength of our performance and quality of our earnings in the first quarter of 2008,” said Frederick H. Eppinger, chief executive officer of The Hanover Insurance Group, Inc. “Our P&C business remains solid and reflects a 13.7% return on P&C levered equity ⁽¹⁾. At the same time, our underwriting practices remain disciplined, as we continue to maintain our ex-catastrophe accident year margins and generate favorable prior-year reserve development even in today’s challenging market environment.” Eppinger continued, “Although our first quarter growth in written premium reflects actions we have taken to reduce coastal exposures in homeowners and a difficult prior-year comparison in personal lines, we remain confident we can achieve full year growth in written premium and earnings.”

The following table details pre-tax segment income (loss).


in millions	Quarter ended March 31
	2008			2007
Property and Casualty:
Personal Lines⁽²⁾	$	27.6		$	47.4
Commercial Lines⁽³⁾		68.3			49.0
Other Property and Casualty		2.1			4.5

Total Property & Casualty		98.0			100.9
Life Companies		(2.5	)		(0.9	)
Interest expense on corporate debt		(10.0	)		(10.0	)

Total pre-tax segment income		85.5			90.0
Federal income tax expense		(28.2	)		(29.8	)

Total segment income after taxes ⁽⁴⁾	$	57.3		$	60.2

⁽¹⁾	Calculated based on trailing four quarters.

⁽²⁾	Includes Personal Lines pre-tax net impact of catastrophes of $11.0 million and $7.2 million for the first quarters of 2008 and 2007, respectively.

⁽³⁾	Includes Commercial Lines pre-tax net impact of catastrophes of $8.3 million and $7.1 million for the first quarters of 2008 and 2007, respectively.

⁽⁴⁾	See reconciliation from segment income to net income at the end of this document.

Property and Casualty

Property and Casualty pre-tax segment income was $98.0 million in the first quarter of 2008, compared to $100.9 million in the first quarter of 2007, representing a decrease of $2.9 million. The pre-tax net impact of catastrophes was $19.3 million in the first quarter of 2008, compared to $14.3 million in the first quarter of 2007. Excluding the pre-tax net impact of catastrophes, property and casualty pre-tax segment income would have been $117.3 million in the first quarter of 2008, up $2.1 million, compared to $115.2 million in the first quarter of 2007.

The following table summarizes the components of the GAAP combined ratio for the Property and Casualty segment:


	Quarter ended March 31
	2008		2007
Personal Lines losses (excluding catastrophes)	57.8	%	53.0	%
Personal Lines catastrophe-related losses	3.0	%	1.7	%
Total Personal Lines losses	60.8	%	54.7	%
Commercial Lines losses (excluding catastrophes)	32.5	%	37.7	%
Commercial Lines catastrophe-related losses	3.3	%	2.5	%
Total Commercial Lines losses	35.8	%	40.2	%
Total P&C Losses	51.0	%	49.1	%
Loss adjustment expenses	10.5	%	10.8	%
Hurricane Katrina-related loss adjustment expenses	—		0.5	%
Policy acquisition and other underwriting expenses	33.5	%	33.4	%
Combined Ratio	95.0	%	93.8	%

Personal Lines

Personal Lines pre-tax segment income was $27.6 million in the first quarter of 2008, compared to $47.4 million in the prior-year quarter. The pre-tax net impact of catastrophes was $11.0 million in the first quarter of 2008, compared to $7.2 million in the first quarter of 2007. Excluding the pre-tax net impact of catastrophes, Personal Lines pre-tax segment income would have been $38.6 million in the first quarter of 2008, compared to $54.6 million in the prior-year quarter.

Favorable development of prior-year loss and LAE reserves was $12.0 million in the first quarter of 2008, compared to $21.5 million in the prior-year quarter. The reduction in the first quarter of 2008 in favorable development occurred primarily in personal auto.

Current ex-catastrophe accident year losses were higher in the quarter compared to the prior-year quarter, principally due to higher non-catastrophe weather related losses, principally in homeowners, resulting from a more severe winter in the Midwest and in the Northeast.

Personal Lines highlights:

•

Net premiums written were $351.7 million in the first quarter of 2008, compared to $366.3 million in the first quarter of 2007, a decrease of 4.0%.

•

Net premiums earned were $369.3 million in the first quarter of 2008, compared to $360.3 million in the first quarter of 2007, an increase of 2.5%.

•

New business net premiums written were $58.8 million in the first quarter of 2008, compared to $75.2 million in the first quarter of 2007 and $59.8 million in the fourth quarter of 2007.

•

The Personal Lines GAAP combined ratio was 101.2% in the first quarter of 2008, compared to 95.9% in the prior-year quarter. Catastrophe related losses were $11.0 million, or 3.0 points of the first quarter combined ratio in 2008, compared to $7.2 million, or 2.0 points in the prior-year quarter.

•

Favorable development of prior-year loss and LAE reserves was $12.0 million in the first quarter of 2008, compared to $21.5 million in the first quarter of 2007, improving the Personal Lines combined ratio by 3.2 points and 6.0 points, respectively.

Commercial Lines

Commercial Lines pre-tax segment income was $68.3 million in the first quarter of 2008, compared to $49.0 million in the first quarter of 2007. The pre-tax net impact of catastrophes was $8.3 million in the first quarter of 2008, compared to $7.1 million in the first quarter of 2007. Excluding the pre-tax net impact of catastrophes, Commercial Lines pre-tax segment income would have been $76.6 million in the first quarter of 2008, compared to $56.1 million in the prior-year quarter, an increase of $20.5 million. This increase was primarily due to higher favorable development of loss and LAE reserves, and improvement in current accident year losses.

Commercial Lines highlights:

•

Net premiums written were $276.8 million in the first quarter of 2008, compared to $245.7 million in the first quarter of 2007, representing an increase of 12.7%.

•

Net premiums earned were $248.4 million in the first quarter of 2008, compared to $224.1 million in the first quarter of 2007, an increase of 10.8%.

•

New business net premiums written were $78.7 million in the first quarter of 2008, compared to $79.6 million in the first quarter of 2007, and $77.0 million in the fourth quarter of 2007.

•

The Commercial Lines GAAP combined ratio was 85.3% in the first quarter of 2008, compared to 90.8% in the prior-year quarter. Catastrophe related losses were $8.3 million, or 3.3 points of the first quarter combined ratio in 2008, compared to $7.1 million, or 3.2 points in the prior-year quarter.

•

Favorable development of prior-year loss and LAE reserves was $44.6 million in the first quarter of 2008, compared to favorable development of $30.5 million in the first quarter of 2007, improving the Commercial Lines combined ratio by 18.0 points and 13.6 points, respectively.

Other Property & Casualty

Other Property & Casualty’s pre-tax segment income was $2.1 million in the first quarter of 2008, compared to $4.5 million in the prior-year quarter, a decrease of $2.4 million driven primarily by adverse development of $1.3 million in our run-off voluntary pools business, and increased expenses in our premium financing business, the sale of which, as previously announced, is anticipated to close in the second quarter.

Life Segment

Continuing Operations:

The Life segment continuing operations reported a pre-tax loss of $2.5 million in the first quarter of 2008, compared to a loss of $0.9 million in the first quarter of 2007. The segment loss in the current quarter was $1.0 million higher than expected, primarily due to unfavorable mortality experience in our run off traditional Life business.

Discontinued Operations:

For the first quarter of 2008, the company recorded an after-tax gain of $5.0 million resulting from adjustments to after-tax net gains on previously sold businesses, principally from a favorable litigation outcome. In 2007, we reported a loss of $0.2 million in the first quarter, resulting from the disposal of the variable life insurance and annuity business.

Investment Results

Net investment income was $80.7 million for the first quarter of 2008, compared to $80.2 million in the same period of 2007.

Net investment income for the Property and Casualty segment increased by $3.6 million, to $64.3 million for the first quarter of 2008, compared to $60.7 million in the first quarter of 2007. Partially offsetting the increase in Property and Casualty was a decrease in the Life Companies’ net investment income of $3.1 million, to $16.2 million in the first quarter 2008, compared to $19.3 million in the first quarter of 2007.

These changes were primarily the result of an intercompany transfer of assets. Effective January 1, 2008, certain employee benefit related assets and liabilities were transferred from our life insurance subsidiary, First Allmerica Life Insurance Company, to Hanover Insurance. These asset transfers resulted in a first quarter $2.5 million increase to investment income in the Property and Casualty segment, offset by an equal decrease in the Life segment. The increase in Property and Casualty net investment income in 2008 also was driven primarily by positive operating cash flows from the business, while the decrease in the Life Companies’ net investment income was driven by lower average invested assets, resulting from continued cash outflows from the run-off of life operations.

First quarter 2008 pre-tax net realized investment losses were $5.0 million, compared to a gain of $2.3 million in the same period of 2007. In the first quarter of 2008, the company recognized impairments of $7.5 million on certain fixed maturity securities, partially offset by pre-tax net investment gains of $2.5 million, primarily from sales of fixed maturities. The increase in impairments in the current quarter was attributable to credit market conditions not directly associated with financial institution losses. In the first quarter of 2007, pre-tax net realized gains on sales of invested assets were $2.8 million, partially offset by $0.5 million from impairments.

Investment Portfolio

The company held $6.1 billion in cash and investment assets at March 31, 2008. Fixed maturities represented 92% of our investment portfolio, with a carrying value of $5.6 billion. 95% of our fixed maturity portfolio is rated investment grade.

We have little to no exposure to investment in sub-prime mortgages or sub-prime mortgage-backed securities, or the secondary credit risk presented by financial guarantors. Residential mortgage backed securities constitute $1.1 billion of our invested assets, with less than 15% held in non-agency securities. We have no sub-prime exposure. Commercial mortgage backed securities constitute $468.3 million of our invested assets. Approximately 95% of our CMBS holdings were from pre-2005 vintages, with 5% from the 2006 vintage and no 2005 vintage. The entire CMBS portfolio had a weighted average loan-to-value ratio of 67.2%. As of March 31, 2008, we hold $824.7 million of municipal

bonds in our portfolio, with an overall rating of AA. Financial guarantor insurance enhanced municipal bonds represent $365.8 million, or 44% of this portfolio. The overall credit rating of our insured municipal bond portfolio, giving no effect to the insurance enhancement, was A-.

Earnings Conference Call

The Hanover will host a conference call to discuss the company’s first quarter results on Tuesday, April 29^th, at 11:00 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 sit approximately two hours after the call.

Statistical Supplement

The Hanover’s first quarter earnings news release and statistical supplement are 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 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, including those which expand policy coverage beyond its intended scope (such as decisions in Louisiana involving the so-called “Valued Policy Law,” which is pending before the Louisiana Supreme Court), 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) and expansion in geographic areas, the impact of the company’s acquisitions of Professionals Direct, Inc. and of Verlan Holdings, Inc., adverse loss development and adverse trends in mortality and morbidity and medical costs,

changes in frequency and loss trends, the ability to improve renewal rates and increase new property and casualty policy counts, investment impairments, heightened competition (including increasing rate pressure, particularly in Commercial Lines), the recent change in the Massachusetts private passenger automobile regulatory environment from the “fix-and-establish” system to “managed competition,” adverse state and federal legislation or regulation or regulatory actions, financial ratings actions, uncertainties in estimating FIN 45 liabilities recorded in conjunction with indemnity obligations undertaken in connection with the sale various businesses and increased uncertainties in general economic conditions and in investment and financial markets, which, among other things, could result in increased impairments of fixed income investments, 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, catastrophe losses relating to Hurricane Katrina 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 (including development related to Hurricane Katrina) 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, 2008 and 2007 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 40 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

Definition of Reported Segments

The Hanover conducts its business in four operating segments. Three of these operating segments, Personal Lines, Commercial Lines, and Other Property and Casualty, are included in our Property and Casualty operations. 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, such as fidelity and surety bonds, and inland marine. The Other Property and Casualty segment includes Opus Investment Management, Inc., which provides investment management services to institutions, pension funds and other organizations; earnings on holding company assets; AMGRO, Inc., a premium financing business, as well as a block of run-off voluntary pools business in which we have not actively participated since 1995. The Life Companies, the company’s fourth operating segment, include the run-off business of First Allmerica Financial Life Insurance Company (FAFLIC), principally consisting of traditional life insurance and group retirement businesses.

THE HANOVER INSURANCE GROUP, INC.


in millions, except per share amounts	Quarter ended March 31
	2008		2007
Net income	$	58.5	$	63.6
Net income per share⁽¹⁾	$	1.12	$	1.22
Weighted average shares		52.3		51.9

(1)	Net income per share (diluted)

The following is a reconciliation from segment income to net income ⁽¹⁾:


	Quarter ended March 31
in millions, except per share amount	2008						2007
	$			Per Share⁽²⁾			$			Per Share⁽²⁾
Property and Casualty
Personal Lines	$	27.6		$	—		$	47.4		$	—
Commercial Lines		68.3			—			49.0			—
Other Property & Casualty		2.1			—			4.5			—

Total Property and Casualty		98.0			—			100.9			—
Life Companies		(2.5	)		—			(0.9	)		—
Interest expense on corporate debt		(10.0	)		—			(10.0	)		—

Total segment income		85.5			1.63			90.0			1.73
Federal income tax expense on segment income		(28.2	)		(0.54	)		(29.8	)		(0.57	)

Total segment income after federal income taxes		57.3			1.09			60.2			1.16
Federal income tax settlement		—			—			2.4			0.04
Net realized investment (losses) gains, net of amortization		(5.1	)		(0.09	)		1.9			0.04
Gains on derivatives		0.1			—			—			—
Federal income tax benefit (expense) on non-segment income		1.2			0.02			(0.7	)		(0.01	)

Income from continuing operations, net of taxes		53.5			1.02			63.8			1.23
Gain (loss) on disposal of variable life insurance and annuity business, net of taxes		6.2			0.12			(0.2	)		(0.01	)
Loss on sale of Financial Profiles Inc., net of tax		(1.2	)		(0.02	)		—			—

Net income⁽³⁾	$	58.5		$	1.12		$	63.6		$	1.22

(1)

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 costs, extraordinary items, the cumulative effect of accounting changes and certain other items.

(2)	Per Share data is per diluted share of common stock.

(3)	Basic net income per share was $1.13 and $1.24 for quarters ended March 31, 2008 and 2007, respectively.

Net income includes the following items by segment:


in millions	Quarter ended March 31, 2008
	Personal Lines		Commercial Lines		Other Property & Casualty (2)	Life Companies		Total
Net realized investment (losses) gains (1)	(2.0	)	(1.4	)	3.1	(4.8	)	(5.1	)
Gains on derivatives	—		—		—	0.1		0.1
Gain on disposal of variable life insurance and annuity business, net of taxes	—		—		—	6.2		6.2
Loss on sale of Financial Profiles, Inc.	—		—		—	(1.2	)	(1.2	)

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

(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 reported 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)	2008			2007			% Change
SEGMENT INCOME
Property and Casualty
Personal Lines	$	27.6		$	47.4		(41.8	)
Commercial Lines		68.3			49.0		39.4
Other		2.1			4.5		(53.3	)

Total Property and Casualty		98.0			100.9		(2.9	)

Life Companies		(2.5	)		(0.9	)	N/M
Interest expense on corporate debt		(10.0	)		(10.0	)	—

Total segment income		85.5			90.0		(5.0	)
Federal income tax expense on P&C segment income		(33.3	)		(34.1	)	(2.3	)
Federal income tax benefit on other segment income		5.1			4.3		18.6

Total federal income tax expense on segment income		(28.2	)		(29.8	)	(5.4	)

Total segment income after taxes	$	57.3		$	60.2		(4.8	)


RECONCILIATION FROM SEGMENT INCOME TO NET INCOME
Total segment income after taxes	$	57.3		$	60.2		(4.8	)
Federal income tax settlement		—			2.4		N/M
Net realized investment (losses) gains, net of amortization		(5.1	)		1.9		N/M
Gains on derivative instruments		0.1			—		N/M
Federal income tax benefit (expense) on non-segment income		1.2			(0.7	)	N/M

Income from continuing operations		53.5			63.8		(16.1	)
Gain (loss) on disposal of variable life insurance and annuity business, net of taxes		6.2			(0.2	)	N/M
Loss on sale of Financial Profiles Inc., net of taxes		(1.2	)		—		N/M

Net income	$	58.5		$	63.6		(8.0	)

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS


	Quarter ended March 31
	2008			2007			% Change
PER SHARE DATA (DILUTED)
Total segment income	$	1.63		$	1.73		(5.8	)
Federal income tax expense on segment income		(0.54	)		(0.57	)	(5.3	)

Total segment income after taxes		1.09			1.16		(6.0	)
Federal income tax settlement		—			0.04		N/M
Net realized investment (losses) gains, net of amortization		(0.09	)		0.04		N/M
Federal income tax benefit (expense) on non-segment income		0.02			(0.01	)	N/M

Income from continuing operations		1.02			1.23		(17.1	)
Gain (loss) on disposal of variable life insurance and annuity business, net of taxes		0.12			(0.01	)	N/M
Loss on sale of Financial Profiles Inc., net of taxes		(0.02	)		—		N/M

Net income	$	1.12		$	1.22		(8.2	)

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS


(In millions, except per share data)	March 31 2008			December 31 2007			% Change
BALANCE SHEET
Shareholders’ equity
The Hanover Insurance Company (consolidated)	$	2,252.7		$	2,188.0		3.0
First Allmerica Financial Life Insurance Company (consolidated)		308.3			328.3		(6.1	)
THG Holding Company debt (1)		(499.5	)		(499.5	)	—
THG Holding Company and other		259.2			282.2		(8.2	)

Total shareholders’ equity	$	2,320.7		$	2,299.0		0.9

Total adjusted statutory capital
The Hanover Insurance Company (consolidated)	$	1,742.4		$	1,666.4		4.6
First Allmerica Financial Life Insurance Company	$	174.0		$	188.9		(7.9	)
The Hanover Insurance Company (consolidated) premium to surplus ratio		1.4:1			1.4:1		—
First Allmerica Financial Life Insurance Company estimated risk based capital ratio		487	%		509	%	(22.0	)
Book value per share
The Hanover Insurance Company (consolidated)	$	43.91		$	42.23		4.0
First Allmerica Financial Life Insurance Company (consolidated)		6.01			6.34		(5.2	)
THG Holding Company debt (1)		(9.74	)		(9.64	)	1.0
THG Holding Company and other		5.05			5.44		(7.2	)

Total book value per share	$	45.23		$	44.37		1.9

THG book value per share, excluding accumulated other comprehensive income	$	45.70		$	44.77		2.1

The Hanover Insurance Company (consolidated) book value per share, excluding accumulated other comprehensive income	$	43.59		$	41.85		4.2

Shares outstanding (2)		51.3			51.8

Stock price	$	41.14		$	45.80		(10.2	)
Price/book value per share		0.9			1.0	x	(0.1	)
Debt/equity		22.1	%		22.3	%	(0.2	)
Debt/total capital		18.1	%		18.2	%	(0.1	)

(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)	2008			2007			% Change
REVENUES
Premiums	$	630.6		$	602.2		4.7
Net investment income		80.7			80.2		0.6
Net realized investment (losses) gains		(5.0	)		2.3		N/M
Fees and other income		11.1			13.4		(17.2	)

Total revenues		717.4			698.1		2.8

BENEFITS, LOSSES AND EXPENSES
Policy benefits, claims, losses and loss adjustment expenses		406.4			385.5		5.4
Policy acquisition expenses		137.6			127.2		8.2
Other operating expenses		92.9			93.5		(0.6	)

Total benefits, losses and expenses		636.9			606.2		5.1

Income from continuing operations before federal income taxes		80.5			91.9		(12.4	)
Federal income tax expense		27.0			28.1		(3.9	)

Income from continuing operations		53.5			63.8		(16.1	)
Gain (loss) on disposal of variable life insurance and annuity business, net of taxes		6.2			(0.2	)	N/M
Loss on sale of Financial Profiles Inc., net of taxes		(1.2	)		—		N/M

Net income	$	58.5		$	63.6		(8.0	)

THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME STATEMENTS


	Quarter ended March 31
	2008			2007			% Change
PER SHARE DATA (DILUTED)
Income from continuing operations	$	1.02		$	1.23		(17.1	)
Gain (loss) on disposal of variable life insurance and annuity business, net of taxes		0.12			(0.01	)	N/M
Gain on sale of Financial Profiles Inc., net of taxes		(0.02	)		—		N/M

Net income (1)	$	1.12		$	1.22		(8.2	)

Weighted average shares outstanding		52.3			51.9

(1)

Basic income per share was $1.13 and $1.24 for the quarters ended March 31, 2008 and 2007, respectively

THE HANOVER INSURANCE GROUP

CONSOLIDATED BALANCE SHEETS


(In millions, except per share data)	March 31 2008			December 31 2007			% Change
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $5,654.8 and $5,723.1)	$	5,646.6		$	5,722.0		(1.3	)
Equity securities, at fair value (cost of $45.2 and $37.6)		49.1			44.9		9.4
Mortgage loans		38.3			41.2		(7.0	)
Policy loans		111.9			116.0		(3.5	)
Other long-term investments		30.1			30.7		(2.0	)

Total investments		5,876.0			5,954.8		(1.3	)

Cash and cash equivalents		233.3			262.8		(11.2	)
Accrued investment income		73.5			70.9		3.7
Premiums, accounts and notes receivable, net		557.5			540.8		3.1
Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums		1,353.2			1,378.9		(1.9	)
Deferred policy acquistion costs		254.5			250.5		1.6
Deferred federal income taxes		316.5			330.5		(4.2	)
Goodwill		131.9			126.0		4.7
Other assets		479.8			419.1		14.5
Separate account assets		424.4			481.3		(11.8	)

Total assets	$	9,700.6		$	9,815.6		(1.2	)


LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES
Policy liabilities and accruals:
Future policy benefits	$	1,157.3		$	1,164.9		(0.7	)
Outstanding claims, losses and loss adjustment expenses		3,194.5			3,239.5		(1.4	)
Unearned premiums		1,163.2			1,157.1		0.5
Contractholder deposit funds and other policy liabilities		163.3			179.2		(8.9	)

Total policy liabilities and accruals		5,678.3			5,740.7		(1.1	)

Expenses and taxes payable		677.0			696.4		(2.8	)
Reinsurance premiums payable		48.5			47.2		2.8
Trust instruments supported by funding obligations		39.8			39.1		1.8
Long-term debt		511.9			511.9		—
Separate account liabilities		424.4			481.3		(11.8	)

Total liabilities		7,379.9			7,516.6		(1.8	)

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		1,798.4			1,822.6		(1.3	)
Accumulated other comprehensive loss		(23.7	)		(20.4	)	16.2
Retained earnings		1,012.6			946.9		6.9
Treasury stock at cost (9.2 and 8.7 million shares)		(467.2	)		(450.7	)	3.7

Total shareholders’ equity		2,320.7			2,299.0		0.9

Total liabilities and shareholders’ equity	$	9,700.6		$	9,815.6		(1.2	)

PROPERTY & CASUALTY

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

CONDENSED INCOME STATEMENTS


	Quarter ended March 31
(In millions)	2008			2007			% Change
REVENUES
Net premiums written	$	628.5		$	612.0		2.7
Change in unearned premiums, net of prepaid reinsurance premiums		(10.8	)		(27.6	)	(60.9	)

Net premiums earned		617.7			584.4		5.7
Net investment income		64.3			60.7		5.9
Other income		15.5			15.0		3.3

Total segment revenue		697.5			660.1		5.7

LOSSES AND OPERATING EXPENSES
Policy benefits, claims, losses and loss adjustment expenses		379.7			353.1		7.5
Policy acquisition expenses		137.4			127.0		8.2
Other operating expenses		82.4			79.1		4.2

Total losses and operating expenses		599.5			559.2		7.2

Segment income before federal income taxes	$	98.0		$	100.9		(2.9	)

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

CONSOLIDATED BALANCE SHEETS (1)


(In millions, except per share data)	March 31 2008		December 31 2007		% Change
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $4,314.9 and $4,197.4)	$	4,311.2	$	4,193.5	2.8
Equity securities, at fair value (cost of $37.5 and $29.9)		39.6		35.3	12.2
Mortgage loans		8.5		10.9	(22.0	)
Other long-term investments		5.7		5.8	(1.7	)

Total investments		4,365.0		4,245.5	2.8

Cash and cash equivalents		201.4		168.1	19.8
Accrued investment income		52.6		47.9	9.8
Premiums, accounts, and notes receivable, net		555.5		538.0	3.3
Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums		1,043.8		1,067.3	(2.2	)
Deferred policy acquistion costs		251.0		246.8	1.7
Deferred federal income tax asset		190.9		195.6	(2.4	)
Goodwill		127.9		126.0	1.5
Other assets		368.9		314.1	17.4

Total assets	$	7,157.0	$	6,949.3	3.0


LIABILITIES AND SHAREHOLDER’S EQUITY

LIABILITIES
Policy liabilities and accruals:
Outstanding claims, losses and loss adjustment expenses	$	3,124.0	$	3,165.8	(1.3	)
Unearned premiums		1,162.0		1,155.9	0.5
Contractholder deposit funds and other policy liabilities		2.0		1.9	5.3

Total policy liabilities and accruals		4,288.0		4,323.6	(0.8	)

Expenses and taxes payable		566.7		389.6	45.5
Reinsurance premiums payable		46.5		45.0	3.3
Long-term debt		3.1		3.1	—

Total liabilities		4,904.3		4,761.3	3.0


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		177.8		169.2	5.1
Accumulated other comprehensive income		16.4		19.4	(15.5	)
Retained earnings		2,053.5		1,994.4	3.0

Total shareholder’s equity		2,252.7		2,188.0	3.0

Total liabilities and shareholder’s equity	$	7,157.0	$	6,949.3	3.0

(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, 2008
	Personal Lines											Commercial Lines															Other P&C			Total P&C
(In millions)	Auto			Home		Other			Total			Workers’ Comp			Auto			Multiple Peril			Other			Total			Other P&C			Total P&C
Net premiums written	$	259.3		$	83.3	$	9.1		$	351.7		$	38.2		$	53.5		$	94.3		$	90.8		$	276.8		$	—		$	628.5

Net premiums earned	$	251.4		$	108.1	$	9.8		$	369.3		$	31.4		$	50.8		$	88.7		$	77.5		$	248.4		$	—		$	617.7
Policy benefits, claims, losses excluding prior year reserve development and catastrophe losses		166.0			57.1		3.0			226.1			21.6			27.2			42.7			30.8			122.3			—			348.4
Prior year loss and LAE reserve development (favorable) unfavorable		(15.4	)		4.0		(0.6	)		(12.0	)		(10.1	)		(5.9	)		(19.2	)		(9.4	)		(44.6	)		1.0			(55.6	)
Pre-tax catastrophe losses		0.5			9.8		0.7			11.0			—			—			6.7			1.6			8.3			—			19.3
Pre-tax catastrophe LAE		—			—		—			—			—			—			—			—			—			—			—
Loss adjustment expenses excluding prior year reserve development		32.1			7.9		0.5			40.5			4.0			4.8			11.3			6.5			26.6			0.3			67.4
Policy acquisition expenses and other underwriting expenses										108.3															99.2			(0.3	)		207.2
Policyholders’ dividends										—															0.2			—			0.2

GAAP underwriting (loss) profit										(4.6	)														36.4			(1.0	)		30.8
Net investment income										29.7															30.9			3.7			64.3
Other income										4.2															4.3			7.0			15.5
Other operating expenses										(1.7	)														(3.3	)		(7.6	)		(12.6	)

Segment income before federal income taxes									$	27.6														$	68.3		$	2.1		$	98.0


	Quarter ended March 31, 2007
	Personal Lines											Commercial Lines															Other P&C			Total P&C
	Auto			Home		Other			Total			Workers’ Comp			Auto			Multiple Peril			Other			Total			Other P&C			Total P&C
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

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

GAAP UNDERWRITING RATIOS


	Quarter ended March 31, 2008
	Personal Lines								Commercial Lines										Other P&C	Total P&C
	Auto		Home		Other		Total		Workers’ Comp		Auto		Multiple Peril		Other		Total		Other P&C	Total P&C
Losses, excluding catastrophe losses and development	66.0	%	52.8	%	30.6	%	61.2	%	68.8	%	53.5	%	48.1	%	39.7	%	49.2	%	N/M	56.5	%
Catastrophe losses	0.2	%	9.1	%	7.1	%	3.0	%	—		—		7.6	%	2.1	%	3.3	%	N/M	3.1	%
Loss development	(6.4	)%	3.8	%	(5.1	)%	(3.4	)%	(30.6	)%	(11.6	)%	(18.8	)%	(12.2	)%	(16.7	)%	N/M	(8.6	)%

Total losses	59.8	%	65.7	%	32.6	%	60.8	%	38.2	%	41.9	%	36.9	%	29.6	%	35.8	%	N/M	51.0	%
Loss adjustment expenses	13.1	%	7.2	%	4.1	%	11.1	%	11.1	%	9.4	%	9.9	%	8.5	%	9.5	%	N/M	10.5	%
Pre-tax catastrophe LAE	—		—		—		—		—		—		—		—		—		N/M	—
Policy acquisition and other underwriting expenses							29.3	%									39.9	%	N/M	33.5	%
Policyholders’ dividends							—										0.1	%	N/M	—

Combined							101.2	%									85.3	%	N/M	95.0	%

Policies in force	0.2	%	(2.5	)%	(4.4	)%	(1.3	)%	1.2	%	3.1	%	(2.1	)%	6.3	%	2.1	%	—	(0.9	)%
Retention (1)	72.9	%	82.0	%	N/M		77.6	%	82.3	%	81.3	%	82.4	%	76.4	%	81.7	%

	Quarter ended March 31, 2007
	Personal Lines								Commercial Lines										Other P&C	Total P&C
	Auto		Home		Other		Total		Workers’ Comp		Auto		Multiple Peril		Other		Total		Other P&C	Total P&C
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	%	77.9	%	81.4	%	78.9	%	88.7	%	79.8	%

(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)	2008			2007			% Change
REVENUES
Premiums	$	12.9		$	17.8		(27.5	)
Fees and other income		—			0.4		N/M
Net investment income		16.2			19.3		(16.1	)

Total segment revenue		29.1			37.5		(22.4	)


POLICY BENEFITS, CLAIMS AND OPERATING EXPENSES
Policy benefits, claims and losses		26.6			32.0		(16.9	)
Policy acquisition expenses		0.2			0.2		—
Other operating expenses		4.8			6.2		(22.6	)

Total policy benefits, claims and operating expenses		31.6			38.4		(17.7	)

Segment loss before federal income taxes	$	(2.5	)	$	(0.9	)	N/M

THE HANOVER INSURANCE GROUP

LIFE COMPANIES

CONSOLIDATED BALANCE SHEETS


(In millions, except per share data)	March 31 2008			December 31 2007			% Change
ASSETS
Investments:
Fixed maturities, at fair value (amortized cost of $1,067.8 and $1,222.0)	$	1,061.2		$	1,221.0		(13.1	)
Equity securities, at fair value (cost of $0.1)		0.2			0.3		(33.3	)
Mortgage loans		29.5			29.9		(1.3	)
Policy loans		111.9			116.0		(3.5	)
Other long-term investments		24.4			24.9		(2.0	)

Total investments		1,227.2			1,392.1		(11.8	)

Cash and cash equivalents		13.1			76.5		(82.9	)
Accrued investment income		17.5			19.9		(12.1	)
Premiums, accounts, and notes receivable, net		2.0			2.8		(28.6	)
Reinsurance receivable on paid and unpaid losses, benefits and unearned premiums		309.4			311.6		(0.7	)
Deferred policy acquistion costs		3.5			3.7		(5.4	)
Deferred federal income tax asset		123.2			132.1		(6.7	)
Other assets		88.1			80.5		9.4
Separate account assets		424.4			481.3		(11.8	)

Total assets	$	2,208.4		$	2,500.5		(11.7	)


LIABILITIES AND SHAREHOLDER’S EQUITY

LIABILITIES
Policy liabilities and accruals:
Future policy benefits	$	1,157.3		$	1,164.9		(0.7	)
Outstanding claims, losses and loss adjustment expenses		70.5			73.7		(4.3	)
Unearned premiums		1.2			1.2		—
Contractholder deposit funds and other policy liabilities		161.3			177.3		(9.0	)

Total policy liabilities and accruals		1,390.3			1,417.1		(1.9	)

Expenses and taxes payable		43.6			232.5		(81.2	)
Reinsurance premiums payable		2.0			2.2		(9.1	)
Trust instruments supported by funding obligations		39.8			39.1		1.8
Separate account liabilities		424.4			481.3		(11.8	)

Total liabilities		1,900.1			2,172.2		(12.5	)


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		(20.9	)		(21.7	)	(3.7	)
Retained deficit		(360.7	)		(339.9	)	6.1

Total shareholder’s equity		308.3			328.3		(6.1	)

Total liabilities and shareholder’s equity	$	2,208.4		$	2,500.5		(11.7	)

THE HANOVER INSURANCE GROUP

LIFE COMPANIES

FUTURE POLICY BENEFITS AND ACCOUNT BALANCES


	Gross						Net of Reinsurance Recoverables
(In millions)	March 31 2008		December 31 2007		% Change		March 31 2008		December 31 2007		% Change
Insurance
Traditional life	$	690.4	$	705.3	(2.1	)	$	690.2	$	705.1	(2.1	)
Group life and health		255.3		262.4	(2.7	)		63.1		62.8	0.5
Other life and health		37.4		30.6	22.2			0.7		0.7	—

Total insurance		983.1		998.3	(1.5	)		754.0		768.6	(1.9	)


Annuities
Individual annuities		80.2		82.2	(2.4	)		3.7		3.8	(2.6	)
Group annuities		327.0		334.0	(2.1	)		323.2		330.5	(2.2	)

Total annuities		407.2		416.2	(2.2	)		326.9		334.3	(2.2	)

Total general account reserves	$	1,390.3	$	1,414.5	(1.7	)	$	1,080.9	$	1,102.9	(2.0	)


Trust instruments supported by funding obligations	$	39.8	$	39.1	1.8		$	39.8	$	39.1	1.8


SEPARATE ACCOUNT LIABILITIES
Insurance - Variable universal life	$	68.4	$	83.9	(18.5	)	$	68.4	$	83.9	(18.5	)
Annuities
Variable individual annuities		258.6		300.5	(13.9	)		258.6		300.5	(13.9	)
Group annuities		97.4		96.9	0.5			97.4		96.9	0.5

Total annuities		356.0		397.4	(10.4	)		356.0		397.4	(10.4	)

Total separate account liabilities (1)	$	424.4	$	481.3	(11.8	)	$	424.4	$	481.3	(11.8	)

(1)

Includes separate account liabilities subject to a modified coinsurance agreement with a former subsidiary, AFLIAC, of $323.0 million and $380.2 million as of March 31, 2008 and December 31, 2007, respectively.

INVESTMENTS

THE HANOVER INSURANCE GROUP

NET INVESTMENT INCOME


(In millions, except yields)	Quarter ended March 31, 2008
	Property and Casualty (1)			Yield		Life Companies			Yield		Total			Yield
Fixed maturities	$	63.6		5.65	%	$	13.9		5.44	%	$	77.5		5.62	%
Equity securities		0.3		—			—		—			0.3		—
Mortgages (2)		0.3		10.56	%		0.6		8.06	%		0.9		8.72	%
All other		1.6		—			2.1		—			3.7		—
Investment expenses		(1.3	)	—			(0.4	)	—			(1.7	)	—

Total	$	64.5		5.47	%	$	16.2		5.31	%	$	80.7		5.43	%


	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	%

(1)

Includes purchase accounting adjustments of $0.8 million for the quarters ended March 31, 2008 and 2007, respectively.

(2)

Excluding Property and Casualty mortgage prepayment fees of $0.1 million for the quarter ended March 31, 2008, mortgage yields are 8.34% for Property and Casualty and 8.14% in total.

THE HANOVER INSURANCE GROUP

COMPONENTS OF NET REALIZED INVESTMENT GAINS (LOSSES)


	Quarter ended March 31
(In millions)	2008									2007
	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	$	4.8		$	(2.5	)	$	2.3		$	0.8		$	2.0	$	2.8
Other than temporary impairments		(5.3	)		(2.2	)		(7.5	)		(0.5	)		—		(0.5	)
Other		0.2			—			0.2			—			—		—

Net realized investment (losses) gains	$	(0.3	)	$	(4.7	)	$	(5.0	)	$	0.3		$	2.0	$	2.3

(1)

Includes corporate eliminations of $3.2 million and $1.0 million for the quarters ended March 31, 2008 and 2007, respectively.

THE HANOVER INSURANCE GROUP

AGING OF GROSS UNREALIZED LOSSES ON SECURITIES AVAILABLE FOR SALE


(In millions)	March 31, 2008
	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	$	29.5	$	12.6	$	42.1	$	755.4	$	239.7	$	995.1
Greater than 12 months		34.0		11.7		45.7		450.5		195.8		646.3

Total investment grade fixed maturities		63.5		24.3		87.8		1,205.9		435.5		1,641.4

BELOW INVESTMENT GRADE FIXED MATURITIES:
12 months or less		14.5		2.1		16.6		158.9		24.4		183.3
Greater than 12 months		—		—		—		—		—		—

Total below investment grade fixed maturities		14.5		2.1		16.6		158.9		24.4		183.3
Equity securities		2.4		—		2.4		31.3		—		31.3

Total fixed maturities and equity securities	$	80.4	$	26.4	$	106.8	$	1,396.1	$	459.9	$	1,856.0


	December 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	$	18.6	$	8.5	$	27.1	$	557.4	$	182.6	$	740.0
Greater than 12 months		23.0		11.3		34.3		878.1		336.6		1,214.7

Total investment grade fixed maturities		41.6		19.8		61.4		1,435.5		519.2		1,954.7

BELOW INVESTMENT GRADE FIXED MATURITIES:
12 months or less		6.9		1.4		8.3		144.6		26.4		171.0
Greater than 12 months		—		—		—		—		—		—

Total below investment grade fixed maturities		6.9		1.4		8.3		144.6		26.4		171.0
Equity securities		0.5		—		0.5		17.8		—		17.8

Total fixed maturities and equity securities	$	49.0	$	21.2	$	70.2	$	1,597.9	$	545.6	$	2,143.5

THE HANOVER INSURANCE GROUP

CREDIT QUALITY OF FIXED MATURITIES


(In millions)		March 31, 2008
		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	$	3,352.9	$	717.9	$	4,070.8	$	3,369.7	$	714.6	$	4,084.3
2	Baa		988.4		301.7		1,290.1		983.2		298.8		1,282.0
3	Ba		92.3		20.0		112.3		87.0		20.0		107.0
4	B		124.5		22.3		146.8		118.8		21.6		140.4
5	Caa and lower		28.9		4.9		33.8		26.7		4.5		31.2
6	In or near default		—		1.0		1.0		—		1.7		1.7

Total fixed maturities		$	4,587.0	$	1,067.8	$	5,654.8	$	4,585.4	$	1,061.2	$	5,646.6


		December 31, 2007
		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	$	3,328.3	$	821.2	$	4,149.5	$	3,341.4	$	822.7	$	4,164.1
2	Baa		917.0		340.6		1,257.6		907.7		336.5		1,244.2
3	Ba		101.6		29.1		130.7		100.1		29.5		129.6
4	B		126.5		25.4		151.9		125.6		25.5		151.1
5	Caa and lower		27.7		4.7		32.4		26.2		4.4		30.6
6	In or near default		—		1.0		1.0		—		2.4		2.4

Total fixed maturities		$	4,501.1	$	1,222.0	$	5,723.1	$	4,501.0	$	1,221.0	$	5,722.0

PROPERTY & CASUALTY STATUTORY RATIOS

THE HANOVER INSURANCE GROUP

PROPERTY AND CASUALTY

STATUTORY UNDERWRITING RATIOS


	Quarter ended March 31, 2008
	Personal Lines								Commercial Lines
	Auto		Home		Other		Total		Workers’ Comp		Auto		Multiple Peril		Other		Total		Other P&C	Total P&C
Losses, excluding catastrophe losses and development	66.0	%	52.7	%	30.3	%	61.2	%	68.1	%	53.5	%	48.3	%	40.9	%	49.6	%	N/M	56.5	%
Catastrophe losses	0.2	%	9.2	%	7.1	%	3.0	%	—		—		7.6	%	1.9	%	3.3	%	N/M	3.1	%
Loss development	(6.4	)%	3.8	%	(5.1	)%	(3.4	)%	(30.3	)%	(11.6	)%	(18.9	)%	(12.2	)%	(16.8	)%	N/M	(8.6	)%

Total losses	59.8	%	65.7	%	32.3	%	60.8	%	37.8	%	41.9	%	37.0	%	30.6	%	36.1	%	N/M	51.0	%
Loss adjustment expenses	13.1	%	7.2	%	4.0	%	11.1	%	11.4	%	9.3	%	9.8	%	8.6	%	9.5	%	N/M	10.5	%
Pre-tax catastrophe LAE	—		—		—		—		—		—		—		—		—		N/M	—
Policy acquisition and other underwriting expenses							29.8	%									38.5	%	N/M	33.6	%
Policyholders’ dividends							—										—		N/M	—

Combined							101.7	%									84.1	%	N/M	95.1	%


	Quarter ended March 31, 2007
	Personal Lines								Commercial Lines
	Auto		Home		Other		Total		Workers’ Comp		Auto		Multiple Peril		Other		Total		Other P&C	Total P&C
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	%

Historical Highlights

THE HANOVER INSURANCE GROUP

HISTORICAL FINANCIAL HIGHLIGHTS


(In millions, except per share data)	Q1 08			2007			Q4 07			Q3 07			Q2 07			Q1 07
SEGMENT INCOME (1)
Property and Casualty
Personal Lines	$	27.6		$	210.9		$	58.4		$	49.4		$	55.7		$	47.4
Commercial Lines		68.3			170.7			43.0			39.4			39.3			49.0
Other Property and Casualty		2.1			13.1			1.5			4.0			3.1			4.5

Total Property and Casualty		98.0			394.7			102.9			92.8			98.1			100.9
Life Companies		(2.5	)		(7.3	)		(3.1	)		(4.1	)		0.8			(0.9	)
Interest expense on corporate debt		(10.0	)		(39.9	)		(10.0	)		(10.0	)		(9.9	)		(10.0	)

Total segment income before federal income taxes	$	85.5		$	347.5		$	89.8		$	78.7		$	89.0		$	90.0

Federal income tax expense on segment income		(28.2	)		(113.8	)		(28.5	)		(25.7	)		(29.8	)		(29.8	)

Total segment income after federal income taxes	$	57.3		$	233.7		$	61.3		$	53.0		$	59.2		$	60.2

Change in prior years tax reserves		—			2.1			2.1			—			—			—
Federal income tax settlement		—			2.6			—			0.2			—			2.4
Net realized investment (losses) gains, net of amortization		(5.1	)		0.6			(0.6	)		(0.9	)		0.2			1.9
Gains on derivative instruments		0.1			0.2			0.1			—			0.1			—
Restructuring costs (benefit)		—			0.1			(0.1	)		—			0.2			—
Federal income tax benefit (expense) on non-segment income		1.2			(0.1	)		0.1			0.7			(0.2	)		(0.7	)

Income from continuing operations		53.5			239.2			62.9			53.0			59.5			63.8
Income from discontinued variable life insurance and annuity business, net of taxes		—			5.2			5.2			—			—			—
Gain (loss) on disposal of variable life insurance and annuity business, net of taxes		6.2			7.9			7.7			0.1			0.3			(0.2	)
(Loss) gain on sale of Financial Profiles Inc., net of taxes		(1.2	)		0.8			—			0.8			—			—

NET INCOME	$	58.5		$	253.1		$	75.8		$	53.9		$	59.8		$	63.6

PER SHARE DATA (DILUTED)

INCOME FROM CONTINUING OPERATIONS	$	1.02		$	4.56		$	1.20		$	1.01		$	1.14		$	1.23
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES	$	0.10		$	0.27		$	0.24		$	0.02		$	—		$	(0.01	)
NET INCOME	$	1.12		$	4.83		$	1.44		$	1.03		$	1.14		$	1.22

WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED)		52.3			52.4			52.6			52.5			52.3			51.9

BALANCE SHEET
Total investments	$	5,876.0					$	5,954.8		$	5,936.6		$	5,827.1		$	5,901.6
Separate account assets	$	424.4					$	481.3		$	507.6		$	519.0		$	517.4
Total assets	$	9,700.6					$	9,815.6		$	9,845.2		$	9,805.7		$	9,776.2
Total shareholders’ equity	$	2,320.7					$	2,299.0		$	2,192.6		$	2,099.4		$	2,100.7
Book value per share	$	45.23					$	44.37		$	42.34		$	40.55		$	40.92
Book value per share, excluding accumulated other comprehensive income	$	45.70					$	44.77		$	43.62		$	42.51		$	41.33

(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)	2006			Q4 06			Q3 06			Q2 06			Q1 06
SEGMENT INCOME (1)
Property and Casualty
Personal Lines	$	186.7		$	49.0		$	35.0		$	53.7		$	49.0
Commercial Lines		120.3			43.4			7.7			30.2			39.0
Other Property and Casualty		21.1			5.0			10.1			2.3			3.7

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

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

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

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

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

Income from continuing operations		191.7			49.5			28.5			53.7			60.0
Loss on disposal of variable life insurance and annuity business, net of taxes		(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		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	$	170.3		$	45.5		$	33.4		$	50.9		$	40.5

PER SHARE DATA (DILUTED)

INCOME FROM CONTINUING OPERATIONS	$	3.68		$	0.96		$	0.56		$	1.04		$	1.12
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAXES	$	(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	$	3.27		$	0.88		$	0.65		$	0.99		$	0.75

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

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

(1)

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	2008
	Price Range				Dividends Per Share
	High		Low		Dividends Per Share
March 31	$	47.17	$	40.14		—
June 30
September 30
December 31

Quarter Ended	2007
	Price Range				Dividends Per Share
	High		Low		Dividends Per Share
March 31	$	49.11	$	44.70		—
June 30	$	49.73	$	44.46		—
September 30	$	49.76	$	41.14		—
December 31	$	46.21	$	42.23	$	0.40

INDUSTRY RATINGS AS OF April 28, 2008


Financial Strength Ratings	A.M. Best	Standard & Poor’s	Moody’s
Property and Casualty Insurance Companies:
The Hanover Insurance Company	A-	BBB+	A3
Citizens Insurance Company of America	A-	BBB+	A3
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+	Baa3
The Hanover Insurance Group, Inc. Capital Securities	bb	B+	Ba1
The Hanover Insurance Company Short Term Debt	—	—	Prime-3

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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