July 31, 2008 / 9:59 PM / in 10 years

UPDATE 2-Hanover posts Q2 loss on charges

(Recasts; adds details, analyst and company comments)

By Supantha Mukherjee

BANGALORE, July 31 (Reuters) - Hanover Insurance Group Inc (THG.N) posted a second-quarter loss due to a charge related to the sale of its life business unit.

However, the company’s earnings before charges beat analysts’ expectations.

“Solid underwriting performance in our property and casualty business enabled us to withstand the losses resulting from high catastrophe activity observed industry wide in the second quarter,” said Chief Executive Frederick Eppinger.

Analyst Clifford Gallant of Keefe, Bruyette & Woods said quarterly results were boosted by a better-than-expected combined ratio — a measure of how much is spent for every dollar of premium earned.

Combined ratio in the second quarter rose to 95.5 percent from 94.4 percent in the prior-year quarter. The analyst was looking for a combined ratio of 98 percent.

Net premiums earned rose 1.4 percent to $369.5 million.

“In the insurance business prices are declining in the industry, so the fact that the company was able to show some growth was a positive,” said Gallant, who has an “outperform” rating on the stock.

The insurance holding company posted a quarterly loss of $10.2 million, or 20 cents a share, compared with earnings of $59.8 million, or $1.14 a share, last year.

Excluding items, the company earned $1.07 a share.

Analysts on average had expected the company to earn 96 cents a share, before special items, according to Reuters Estimates.

“I would expect the company to continue to improve margins through expense cutting, capital management and producing a topline growth,” Gallant said.


Earlier in the day, Hanover said it agreed to sell its remaining life insurance business to a unit of Goldman Sachs Group Inc (GS.N).

“This transaction follows the sale of our much larger variable life insurance business three years ago, and completes the divestiture of our legacy life insurance business,” the company said in an e-mail.

The company said it was seeking approval from the Massachusetts Division of Insurance for a pre-close dividend from its unit, First Allmerica Financial Life Insurance Co (FAFLIC), of various assets valued at about $160 million.

“We had excess capital in FAFLIC, to support policyholders. This sale enables us to take assets out of the company — in the form of dividends - before we sell it,” the company said.

Hanover sees total proceeds of about $220 million, including the dividend, and has recorded a charge of $66 million, or $1.27 a share, in the second quarter related to the sale.

Shares of the company closed up $1.40 at $42.92 Thursday on the New York Stock Exchange. (Editing by Anil D’Silva, Deepak Kannan)

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