Segment Information

3 Months Ended

Mar. 31, 2013

Segment Information

9. Segment Information

The Company’s primary business operations include insurance products and services provided through four operating segments. These operating segments are Commercial Lines, Personal Lines, Chaucer and Other. Commercial Lines includes commercial multiple peril, commercial automobile, workers’ compensation, and other commercial coverages, such as specialty program business, inland marine, management and professional liability and surety. Personal Lines includes personal automobile, homeowners and other personal coverages. Chaucer includes marine and aviation, energy, property, U.K. motor, and casualty and other coverages (which includes international liability, specialist coverages, and syndicate participations). Included in Other are Opus Investment Management, Inc., which markets investment management services to institutions, pension funds and other organizations; earnings on holding company assets; and, a voluntary pools business which is in run-off. The separate financial information 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.

The Company reports interest expense related to its debt separately from the earnings of its operating segments. This consists of interest on the Company’s senior debentures, subordinated debentures, collateralized borrowings with the Federal Home Loan Bank of Boston, and letter of credit facility. Management evaluates the results of the aforementioned segments based on operating income before taxes (formerly referred to as segment income) which also excludes interest expense on debt. Operating income (loss) before taxes excludes certain items which are included in net income (loss), such as net realized investment gains and losses, including gains and losses from certain derivative instruments. Such gains and losses are excluded since they are determined by interest rates, financial markets and the timing of sales. Also, operating income (loss) before taxes excludes net gains and losses on disposals of businesses, discontinued operations, costs to acquire businesses, restructuring costs, extraordinary items, the cumulative effect of accounting changes and certain other items. Although the items excluded from operating income (loss) before taxes may be significant components in understanding and assessing the Company’s financial performance, management believes that the presentation of operating income (loss) before taxes enhances an investor’s understanding of the Company’s results of operations by highlighting net income (loss) attributable to the core operations of the business. However, operating income (loss) before taxes should not be construed as a substitute for income (loss) before income taxes and operating income (loss) should not be construed as a substitute for net income (loss).

Summarized below is financial information with respect to the Company’s business segments.

	Three Months Ended
	March 31,
(in millions)	2013			2012
Operating revenues:
Commercial Lines	$	514.7		$	475.7
Personal Lines		391.1			388.4
Chaucer		263.9			251.7
Other		2.5			2.9
Total		1,172.2			1,118.7
Net realized investment gains		8.1			3.1
Total revenues	$	1,180.3		$	1,121.8
Operating income (loss) before income taxes:
Commercial Lines:
GAAP underwriting loss	$	(3.1	)	$	(2.5	)
Net investment income		36.1			35.7
Other income		—			0.7
Commercial Lines operating income		33.0			33.9
Personal Lines:
GAAP underwriting income		10.1			4.2
Net investment income		19.0			21.6
Other income		1.4			1.7
Personal Lines operating income		30.5			27.5
Chaucer:
GAAP underwriting income		33.0			14.7
Net investment income		10.5			9.4
Other income (loss)		(2.6	)		1.4
Chaucer operating income		40.9			25.5
Other:
GAAP underwriting loss		(1.1	)		(0.4	)
Net investment income		1.7			2.1
Other net expenses		(2.8	)		(2.9	)
Other operating loss		(2.2	)		(1.2	)
Operating income before interest expense and income taxes		102.2			85.7
Interest on debt		(14.7	)		(16.2	)
Operating income before income taxes		87.5			69.5
Adjustments to operating income:
Net realized investment gains		8.1			3.1
Net loss from repayment of advances		(7.8	)		—
Net benefit (costs) related to acquired businesses		0.4			(1.5	)
Net foreign exchange gains (losses)		0.7			(0.3	)
Income before income taxes	$	88.9		$	70.8

The Company recognized $2.1 million in net foreign currency transaction losses in the Statement of Income during the three months ended March 31, 2013 compared to $2.9 million in net foreign currency gains during the three months ended March 31, 2012.

The following table provides identifiable assets for the Company’s business segments and discontinued operations:

	March 31,		December 31,
(in millions)	2013		2012
	Identifiable Assets
U.S. Companies	$	8,908.5	$	8,909.6
Chaucer		4,413.0		4,444.8
Discontinued operations		120.6		130.5
Total	$	13,442.1	$	13,484.9

The Company reviews the assets of its U.S. Companies collectively and does not allocate them between the Commercial Lines, Personal Lines and Other segments.