1 May 2014 Insurance

Chaucer boosts The Hanover’s falling profits

A strong performance from The Hanover Insurance Group’s Lloyd’s platform, Chaucer, and growth in The Hanover’s commercial lines, helped to boost the company’s falling profits, despite heavy US winter weather losses.

The group’s net income fell to $54.6 million, or $1.22 per share, in the first quarter, compared with $66.2 million, or $1.46 per share, in the same period last year.

Operating income also fell to $47 million this quarter, or $1.05 per share, compared to $59.9 million, or $1.32 million, in the first quarter of last year.

The combined ratio increased by 2 percentage points to 98.3 percent this quarter, compared with 96.1 percent in the first quarter of 2013.

However, net premiums written grew 8.9 percent to $1,172.3 million this quarter compared with $1,076.7 million in the period ending March 2013. The growth was primarily driven by Chaucer and The Hanover’s commercial lines.

Chaucer achieved operating income before taxes of $49.2 million, compared to $40.9 million in the prior-year quarter. The combined ratio fell to 87.8 percent, compared to 86.7% in the first quarter of 2013.

Net premiums written were $313.8 million in the first quarter of 2014, up 24.8 percent over the prior-year quarter.

Nearly half of the growth was driven by increased casualty opportunities at the January 1 renewal, following the expansion of the casualty underwriting team in late 2013. The balance was attributed to other items associated with quarterly seasonality, an increase in syndicate participation and a foreign exchange benefit.

"Our first quarter operating income per share of $1.05 was strong, and we are on track to deliver improved underlying profitability in 2014," said Frederick Eppinger, president and chief executive officer at The Hanover.

"Despite the impact of extreme winter weather conditions early in the quarter, including prolonged sub-freezing temperatures and heavy snowfall in some areas, our underlying margins grew in line with expectations.  Our performance reflects the progress we continue to make across our organization, as we strengthen our overall financial position and competitive standing in the marketplace, setting the stage for future earnings growth.

"The confidence we have in our ability to deliver sustained earnings accretion is based largely on the underwriting margin expansion we are generating across our book and the solid growth potential within our franchise, in particular in Commercial Lines," he said.

"In fact, first quarter operating income, before taxes, excluding catastrophes, increased by 15 percent over the first quarter of last year.  Chaucer once again demonstrated the strength of its underwriting capabilities, making another strong earnings contribution.  Overall, we grew net premiums written by 9 percent, while continuing to achieve pricing increases in Core Commercial and Personal Lines, at 8 percent and 7 percent, respectively."

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