Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - HANOVER INSURANCE GROUP, INC. | d8k.htm |
| EX-99.1 - PRESS RELEASE - HANOVER INSURANCE GROUP, INC. | dex991.htm |
Exhibit 99.2
| THE HANOVER INSURANCE GROUP
STATISTICAL SUPPLEMENT
TABLE OF CONTENTS
|
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| Financial Highlights |
1-3 | |||
| Consolidated Financial Statements |
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| Income Statements |
4 | |||
| Balance Sheets |
5 | |||
| Property and Casualty |
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| Condensed Income Statements |
6 | |||
| GAAP Underwriting Results |
7-10 | |||
| Investments |
||||
| Net Investment Income |
11 | |||
| Net Realized Investment Gains |
12 | |||
| Investment Portfolio |
13 | |||
| Unrealized Losses |
14 | |||
| Credit Quality of Fixed Maturities |
15 | |||
| Top 25 Corporate Holdings |
16 | |||
| Historical Financial Highlights |
17-18 | |||
| Other Information |
||||
| Non-GAAP Financial Measures |
19 | |||
| Corporate Information |
20 | |||
| Market and Dividend Information |
20 | |||
| Industry Ratings |
20 | |||
THE HANOVER INSURANCE GROUP
FINANCIAL HIGHLIGHTS
| Quarter ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| (In millions) |
2010 | 2009 | % Change | 2010 | 2009 | % Change | ||||||||||||||||||
| SEGMENT INCOME |
||||||||||||||||||||||||
| Property and Casualty |
||||||||||||||||||||||||
| Commercial Lines |
$ | 36.4 | $ | 52.5 | (30.7 | ) | $ | 111.2 | $ | 189.7 | (41.4 | ) | ||||||||||||
| Personal Lines |
39.0 | 20.3 | 92.1 | 113.0 | 76.4 | 47.9 | ||||||||||||||||||
| Other |
0.8 | (2.5 | ) | (132.0 | ) | 3.5 | 4.0 | (12.5 | ) | |||||||||||||||
| Total Property and Casualty |
76.2 | 70.3 | 8.4 | 227.7 | 270.1 | (15.7 | ) | |||||||||||||||||
| Interest expense on debt |
(11.5 | ) | (7.9 | ) | 45.6 | (44.3 | ) | (35.1 | ) | 26.2 | ||||||||||||||
| Total segment income |
64.7 | 62.4 | 3.7 | 183.4 | 235.0 | (22.0 | ) | |||||||||||||||||
| Federal income tax expense on P&C segment income |
(25.0 | ) | (23.4 | ) | 6.8 | (76.7 | ) | (89.8 | ) | (14.6 | ) | |||||||||||||
| Federal income tax benefit on interest expense |
4.0 | 2.8 | 42.9 | 15.5 | 12.3 | 26.0 | ||||||||||||||||||
| Total federal income tax expense on segment income |
(21.0 | ) | (20.6 | ) | 1.9 | (61.2 | ) | (77.5 | ) | (21.0 | ) | |||||||||||||
| Total segment income after taxes |
$ | 43.7 | $ | 41.8 | 4.5 | $ | 122.2 | $ | 157.5 | (22.4 | ) | |||||||||||||
| RECONCILIATION FROM SEGMENT INCOME TO NET INCOME |
||||||||||||||||||||||||
| Total segment income after taxes |
$ | 43.7 | $ | 41.8 | 4.5 | $ | 122.2 | $ | 157.5 | (22.4 | ) | |||||||||||||
| Net realized investment gains |
12.9 | 11.1 | 16.2 | 29.7 | 1.4 | N/M | ||||||||||||||||||
| (Loss) gain from retirement of debt |
(2.0 | ) | — | N/M | (2.0 | ) | 34.5 | (105.8 | ) | |||||||||||||||
| Federal income tax benefit (expense) on non-segment income (1) |
2.8 | 3.0 | (6.7 | ) | 3.3 | (5.6 | ) | (158.9 | ) | |||||||||||||||
| Income from continuing operations |
57.4 | 55.9 | 2.7 | 153.2 | 187.8 | (18.4 | ) | |||||||||||||||||
| Discontinued operations (net of taxes): |
||||||||||||||||||||||||
| Gain from discontinued FAFLIC business |
0.1 | 0.8 | N/M | 0.5 | 7.1 | N/M | ||||||||||||||||||
| Gain (loss) from discontinued accident and health business |
0.6 | (0.2 | ) | N/M | (0.3 | ) | (2.6 | ) | N/M | |||||||||||||||
| Gain on disposal of variable life and annuity business |
0.3 | 0.8 | N/M | 1.3 | 4.9 | N/M | ||||||||||||||||||
| Other discontinued operations |
— | — | N/M | 0.1 | — | N/M | ||||||||||||||||||
| Net income |
$ | 58.4 | $ | 57.3 | 1.9 | $ | 154.8 | $ | 197.2 | (21.5 | ) | |||||||||||||
| (1) | The fourth quarter of 2010 includes a tax benefit from decreases in the tax valuation allowance of $6.7 million and a benefit from losses related to the retirement of debt of $0.7 million, partially offset by a tax expense of $4.6 million related to sales of securities. The fourth quarter of 2009 primarily reflects a benefit from decreases in the tax valuation allowance of $6.9 million, partially offset by a tax expense of $3.9 million related to sales of securities. |
The year ended December 31, 2010 includes a tax benefit from decreases in the tax valuation allowance of $13.0 million and a benefit from losses related to the retirement of debt of $0.7 million, partially offset by a tax expense of $10.4 million related to sales of securities. The year ended December 31, 2009 reflects a tax expense of $12.0 million related to the gain from the retirement of debt, partially offset by a benefit from decreases in the tax valuation allowance of $6.9 million.
1
THE HANOVER INSURANCE GROUP
FINANCIAL HIGHLIGHTS
| Quarter ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| 2010 | 2009 | % Change | 2010 | 2009 | % Change | |||||||||||||||||||
| PER SHARE DATA (DILUTED) |
||||||||||||||||||||||||
| Total segment income |
$ | 1.41 | $ | 1.24 | 13.7 | $ | 3.96 | $ | 4.60 | (13.9 | ) | |||||||||||||
| Federal income tax expense on segment income |
(0.46 | ) | (0.41 | ) | 12.2 | (1.32 | ) | (1.52 | ) | (13.2 | ) | |||||||||||||
| Total segment income after taxes |
0.95 | 0.83 | 14.5 | 2.64 | 3.08 | (14.3 | ) | |||||||||||||||||
| Net realized investment gains |
0.28 | 0.22 | 27.3 | 0.64 | 0.03 | N/M | ||||||||||||||||||
| (Loss) gain from retirement of debt |
(0.04 | ) | — | N/M | (0.04 | ) | 0.68 | (105.9 | ) | |||||||||||||||
| Federal income tax benefit (expense) on non-segment income |
0.06 | 0.06 | — | 0.07 | (0.11 | ) | (163.6 | ) | ||||||||||||||||
| Income from continuing operations |
1.25 | 1.11 | 12.6 | 3.31 | 3.68 | (10.1 | ) | |||||||||||||||||
| Discontinued operations (net of taxes): |
||||||||||||||||||||||||
| Gain from discontinued FAFLIC business |
— | 0.01 | N/M | 0.01 | 0.14 | N/M | ||||||||||||||||||
| Gain (loss) from discontinued accident and health business |
0.01 | — | N/M | (0.01 | ) | (0.05 | ) | N/M | ||||||||||||||||
| Gain on disposal of variable life and annuity business |
0.01 | 0.02 | N/M | 0.03 | 0.09 | N/M | ||||||||||||||||||
| Net income (1) |
$ | 1.27 | $ | 1.14 | 11.4 | $ | 3.34 | $ | 3.86 | (13.5 | ) | |||||||||||||
| Weighted average shares outstanding |
45.9 | 50.2 | 46.3 | 51.1 | ||||||||||||||||||||
| (1) | Basic income per share was $1.29 and $1.16 for the quarters ended December 31, 2010 and 2009, respectively, and $3.39 and $3.90 for the years ended December 31, 2010 and 2009, respectively. |
2
THE HANOVER INSURANCE GROUP
FINANCIAL HIGHLIGHTS
| (In millions, except per share data) |
December 31 2010 |
December 31 2009 |
% Change | |||||||||
| BALANCE SHEET |
||||||||||||
| Total assets |
$ | 8,569.9 | $ | 8,042.7 | 6.6 | |||||||
| Total shareholders’ equity |
$ | 2,460.5 | $ | 2,358.6 | 4.3 | |||||||
| Property and Casualty Companies (1) |
||||||||||||
| Statutory surplus |
$ | 1,747.3 | $ | 1,741.6 | 0.3 | |||||||
| Premium to surplus ratio |
1.75:1 | 1.50:1 | 16.7 | |||||||||
| Total book value per share |
$ | 54.74 | $ | 49.72 | 10.1 | |||||||
| Total book value per share, excluding net unrealized gains and losses related to investments, net of tax |
$ | 51.92 | $ | 48.05 | 8.1 | |||||||
| Tangible book value per share (total book value excluding goodwill) |
$ | 50.75 | $ | 46.11 | 10.1 | |||||||
| Shares outstanding (2) |
44.9 | 47.4 | ||||||||||
| Total debt/equity |
24.6 | % | 18.4 | % | 6.2 | pts | ||||||
| Total debt/total capital |
19.8 | % | 15.5 | % | 4.3 | pts | ||||||
| (1) | Property and Casualty Companies include The Hanover Insurance Company, Citizens Insurance Company of America, and all other insurance subsidiaries. |
| (2) | Shares outstanding do not include common stock equivalents. |
3
THE HANOVER INSURANCE GROUP
CONSOLIDATED INCOME STATEMENTS
| Quarter ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| (In millions) |
2010 | 2009 | % Change | 2010 | 2009 | % Change | ||||||||||||||||||
| REVENUES |
||||||||||||||||||||||||
| Premiums earned |
$ | 748.7 | $ | 647.0 | 15.7 | $ | 2,841.0 | $ | 2,546.4 | 11.6 | ||||||||||||||
| Net investment income |
63.0 | 63.8 | (1.3 | ) | 247.2 | 252.1 | (1.9 | ) | ||||||||||||||||
| Net realized investment gains: |
||||||||||||||||||||||||
| Realized gains from sales and other |
19.3 | 14.7 | 31.3 | 43.6 | 34.3 | 27.1 | ||||||||||||||||||
| Total other-than-temporary impairment losses on investments |
(5.9 | ) | (3.1 | ) | 90.3 | (9.4 | ) | (42.2 | ) | (77.7 | ) | |||||||||||||
| Portion of loss transferred (from) to other comprehensive income |
(0.5 | ) | (0.5 | ) | — | (4.5 | ) | 9.3 | (148.4 | ) | ||||||||||||||
| Net other-than-temporary impairment losses on investments recognized in earnings |
(6.4 | ) | (3.6 | ) | 77.8 | (13.9 | ) | (32.9 | ) | (57.8 | ) | |||||||||||||
| Total net realized investment gains |
12.9 | 11.1 | 16.2 | 29.7 | 1.4 | N/M | ||||||||||||||||||
| Fees and other income |
8.7 | 8.4 | 3.6 | 34.3 | 34.2 | 0.3 | ||||||||||||||||||
| Total revenues |
833.3 | 730.3 | 14.1 | 3,152.2 | 2,834.1 | 11.2 | ||||||||||||||||||
| LOSSES AND EXPENSES |
||||||||||||||||||||||||
| Losses and loss adjustment expenses |
471.7 | 414.1 | 13.9 | 1,856.3 | 1,639.2 | 13.2 | ||||||||||||||||||
| Policy acquisition expenses |
178.2 | 146.6 | 21.6 | 669.0 | 581.3 | 15.1 | ||||||||||||||||||
| Loss (gain) from retirement of debt |
2.0 | — | N/M | 2.0 | (34.5 | ) | (105.8 | ) | ||||||||||||||||
| Other operating expenses |
105.8 | 96.1 | 10.1 | 413.8 | 377.2 | 9.7 | ||||||||||||||||||
| Total losses and expenses |
757.7 | 656.8 | 15.4 | 2,941.1 | 2,563.2 | 14.7 | ||||||||||||||||||
| Income from continuing operations before federal income taxes |
75.6 | 73.5 | 2.9 | 211.1 | 270.9 | (22.1 | ) | |||||||||||||||||
| Federal income tax expense |
18.2 | 17.6 | 3.4 | 57.9 | 83.1 | (30.3 | ) | |||||||||||||||||
| Income from continuing operations |
57.4 | 55.9 | 2.7 | 153.2 | 187.8 | (18.4 | ) | |||||||||||||||||
| Discontinued operations (net of taxes): |
||||||||||||||||||||||||
| Gain from discontinued FAFLIC business |
0.1 | 0.8 | N/M | 0.5 | 7.1 | N/M | ||||||||||||||||||
| Gain (loss) from discontinued accident and health business |
0.6 | (0.2 | ) | N/M | (0.3 | ) | (2.6 | ) | N/M | |||||||||||||||
| Gain on disposal of variable life and annuity business |
0.3 | 0.8 | N/M | 1.3 | 4.9 | N/M | ||||||||||||||||||
| Other discontinued operations |
— | — | N/M | 0.1 | — | N/M | ||||||||||||||||||
| Net income |
$ | 58.4 | $ | 57.3 | 1.9 | $ | 154.8 | $ | 197.2 | (21.5 | ) | |||||||||||||
4
THE HANOVER INSURANCE GROUP
CONSOLIDATED BALANCE SHEETS
| (In millions, except per share data) |
December 31 2010 |
December 31 2009 |
% Change | |||||||||
| ASSETS |
||||||||||||
| Investments: |
||||||||||||
| Fixed maturities, at fair value (amortized cost of $4,598.8 and $4,520.3) |
$ | 4,797.9 | $ | 4,615.6 | 3.9 | |||||||
| Equity securities, at fair value (cost of $120.7 and $57.3) |
128.6 | 69.2 | 85.8 | |||||||||
| Other long-term investments |
39.4 | 32.3 | 22.0 | |||||||||
| Total investments |
4,965.9 | 4,717.1 | 5.3 | |||||||||
| Cash and cash equivalents |
290.4 | 316.5 | (8.2 | ) | ||||||||
| Accrued investment income |
53.8 | 52.3 | 2.9 | |||||||||
| Premiums, accounts and notes receivable, net |
772.0 | 590.8 | 30.7 | |||||||||
| Reinsurance receivable on paid and unpaid losses and ceded unearned premiums |
1,254.2 | 1,197.9 | 4.7 | |||||||||
| Deferred policy acquistion costs |
345.3 | 286.3 | 20.6 | |||||||||
| Deferred federal income taxes |
177.4 | 228.6 | (22.4 | ) | ||||||||
| Goodwill |
179.2 | 171.4 | 4.6 | |||||||||
| Other assets |
398.1 | 351.2 | 13.4 | |||||||||
| Assets of discontinued operations |
133.6 | 130.6 | 2.3 | |||||||||
| Total assets |
$ | 8,569.9 | $ | 8,042.7 | 6.6 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
| LIABILITIES |
||||||||||||
| Policy liabilities and accruals: |
||||||||||||
| Losses and loss adjustment expenses |
$ | 3,277.7 | $ | 3,153.9 | 3.9 | |||||||
| Unearned premiums |
1,520.3 | 1,300.5 | 16.9 | |||||||||
| Total policy liabilities and accruals |
4,798.0 | 4,454.4 | 7.7 | |||||||||
| Expenses and taxes payable |
541.7 | 603.2 | (10.2 | ) | ||||||||
| Reinsurance premiums payable |
34.4 | 58.5 | (41.2 | ) | ||||||||
| Long-term debt |
605.9 | 433.9 | 39.6 | |||||||||
| Liabilities of discontinued operations |
129.4 | 134.1 | (3.5 | ) | ||||||||
| Total liabilities |
6,109.4 | 5,684.1 | 7.5 | |||||||||
| 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 |
1,796.5 | 1,808.5 | (0.7 | ) | ||||||||
| Accumulated other comprehensive income |
136.7 | 28.8 | 374.7 | |||||||||
| Retained earnings |
1,246.8 | 1,141.1 | 9.3 | |||||||||
| Treasury stock at cost (15.6 and 13.0 million shares) |
(720.1 | ) | (620.4 | ) | 16.1 | |||||||
| Total shareholders’ equity |
2,460.5 | 2,358.6 | 4.3 | |||||||||
| Total liabilities and shareholders’ equity |
$ | 8,569.9 | $ | 8,042.7 | 6.6 | |||||||
5
PROPERTY & CASUALTY
THE HANOVER INSURANCE GROUP
PROPERTY AND CASUALTY
CONDENSED INCOME STATEMENTS
| Quarter ended December 31 | Year ended December 31 | |||||||||||||||||||||||
| (In millions) |
2010 | 2009 | % Change | 2010 | 2009 | % Change | ||||||||||||||||||
| REVENUES |
||||||||||||||||||||||||
| Net premiums written |
$ | 717.1 | $ | 626.9 | 14.4 | $ | 3,048.0 | $ | 2,608.7 | 16.8 | ||||||||||||||
| Change in unearned premiums, net of prepaid reinsurance premiums |
31.6 | 20.1 | 57.2 | (207.0 | ) | (62.3 | ) | 232.3 | ||||||||||||||||
| Net premiums earned |
748.7 | 647.0 | 15.7 | 2,841.0 | 2,546.4 | 11.6 | ||||||||||||||||||
| Net investment income |
63.0 | 63.8 | (1.3 | ) | 247.2 | 251.7 | (1.8 | ) | ||||||||||||||||
| Other income |
9.9 | 9.5 | 4.2 | 38.9 | 38.6 | 0.8 | ||||||||||||||||||
| Total segment revenue |
821.6 | 720.3 | 14.1 | 3,127.1 | 2,836.7 | 10.2 | ||||||||||||||||||
| LOSSES AND OPERATING EXPENSES |
||||||||||||||||||||||||
| Losses and loss adjustment expenses |
471.7 | 414.1 | 13.9 | 1,856.3 | 1,639.2 | 13.2 | ||||||||||||||||||
| Policy acquisition expenses |
178.2 | 146.6 | 21.6 | 669.0 | 581.3 | 15.1 | ||||||||||||||||||
| Other operating expenses |
95.5 | 89.3 | 6.9 | 374.1 | 346.1 | 8.1 | ||||||||||||||||||
| Total losses and operating expenses |
745.4 | 650.0 | 14.7 | 2,899.4 | 2,566.6 | 13.0 | ||||||||||||||||||
| Segment income before federal income taxes |
$ | 76.2 | $ | 70.3 | 8.4 | $ | 227.7 | $ | 270.1 | (15.7 | ) | |||||||||||||
6
THE HANOVER INSURANCE GROUP
PROPERTY AND CASUALTY
GAAP UNDERWRITING PROFIT (LOSS) RECONCILED TO SEGMENT INCOME
| Quarter ended December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial Lines | Personal Lines | |||||||||||||||||||||||||||||||||||||||||||
| (In millions) |
Workers’ Comp |
Auto | Multiple Peril |
Other(1) | Total | Auto | Home | Other | Total | Other P&C |
Total P&C |
|||||||||||||||||||||||||||||||||
| Net premiums written |
$ | 34.3 | $ | 53.8 | $ | 119.8 | $ | 161.2 | $ | 369.1 | (2) | $ | 217.7 | $ | 120.2 | $ | 10.1 | $ | 348.0 | $ | — | $ | 717.1 | |||||||||||||||||||||
| Net premiums earned |
$ | 39.4 | $ | 60.9 | $ | 133.1 | $ | 151.3 | $ | 384.7 | $ | 233.0 | $ | 120.4 | $ | 10.6 | $ | 364.0 | $ | — | $ | 748.7 | ||||||||||||||||||||||
| Losses excluding prior year loss reserve development and catastrophe losses |
27.3 | 31.6 | 60.9 | 60.9 | 180.7 | 153.6 | 56.1 | 4.8 | 214.5 | — | 395.2 | |||||||||||||||||||||||||||||||||
| Prior year loss reserve (favorable) unfavorable development |
(4.4 | ) | 0.6 | (3.8 | ) | (1.2 | ) | (8.8 | ) | (10.0 | ) | (1.0 | ) | (0.7 | ) | (11.7 | ) | (0.2 | ) | (20.7 | ) | |||||||||||||||||||||||
| Pre-tax catastrophe losses |
— | — | 7.9 | 1.2 | 9.1 | 0.3 | 7.2 | 0.2 | 7.7 | — | 16.8 | |||||||||||||||||||||||||||||||||
| Loss adjustment expenses (3) |
4.5 | 5.0 | 12.9 | 20.1 | 42.5 | 27.9 | 9.3 | 0.5 | 37.7 | 0.1 | 80.3 | |||||||||||||||||||||||||||||||||
| Policy acquisition and other underwriting expenses |
159.2 | 105.5 | — | 264.7 | ||||||||||||||||||||||||||||||||||||||||
| Policyholders’ dividends |
0.1 | — | — | 0.1 | ||||||||||||||||||||||||||||||||||||||||
| GAAP underwriting profit |
1.9 | 10.3 | 0.1 | 12.3 | ||||||||||||||||||||||||||||||||||||||||
| Net investment income |
33.3 | 26.3 | 3.4 | 63.0 | ||||||||||||||||||||||||||||||||||||||||
| Other income |
5.0 | 3.2 | 1.7 | 9.9 | ||||||||||||||||||||||||||||||||||||||||
| Other operating expenses |
(3.8 | ) | (0.8 | ) | (4.4 | ) | (9.0 | ) | ||||||||||||||||||||||||||||||||||||
| Segment income before federal income taxes |
$ | 36.4 | $ | 39.0 | $ | 0.8 | $ | 76.2 | ||||||||||||||||||||||||||||||||||||
| Quarter ended December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial Lines | Personal Lines | |||||||||||||||||||||||||||||||||||||||||||
| Workers’ Comp |
Auto | Multiple Peril |
Other(1) | Total | Auto | Home | Other | Total | Other P&C |
Total P&C |
||||||||||||||||||||||||||||||||||
| Net premiums written |
$ | 21.4 | $ | 39.5 | $ | 77.3 | $ | 132.2 | $ | 270.4 | $ | 227.3 | $ | 119.5 | $ | 9.7 | $ | 356.5 | $ | — | $ | 626.9 | ||||||||||||||||||||||
| Net premiums earned |
$ | 26.4 | $ | 47.3 | $ | 89.4 | $ | 116.4 | $ | 279.5 | $ | 243.1 | $ | 114.5 | $ | 9.9 | $ | 367.5 | $ | — | $ | 647.0 | ||||||||||||||||||||||
| Losses excluding prior year loss reserve development and catastrophe losses |
18.3 | 26.0 | 45.4 | 46.7 | 136.4 | 165.9 | 57.0 | 3.4 | 226.3 | — | 362.7 | |||||||||||||||||||||||||||||||||
| Prior year loss reserve (favorable) unfavorable development |
(11.1 | ) | (2.4 | ) | (12.7 | ) | 2.9 | (23.3 | ) | (0.4 | ) | (1.8 | ) | 0.4 | (1.8 | ) | (1.4 | ) | (26.5 | ) | ||||||||||||||||||||||||
| Pre-tax catastrophe losses (income) |
— | — | 1.0 | (0.6 | ) | 0.4 | 0.1 | 5.9 | 0.2 | 6.2 | — | 6.6 | ||||||||||||||||||||||||||||||||
| Loss adjustment expenses (3) |
0.7 | 2.9 | 10.6 | 14.0 | 28.2 | 32.6 | 9.1 | 0.5 | 42.2 | 0.3 | 70.7 | |||||||||||||||||||||||||||||||||
| Policy acquisition and other underwriting expenses |
117.6 | 104.8 | — | 222.4 | ||||||||||||||||||||||||||||||||||||||||
| Policyholders’ dividends |
0.6 | — | — | 0.6 | ||||||||||||||||||||||||||||||||||||||||
| GAAP underwriting profit (loss) |
19.6 | (10.2 | ) | 1.1 | 10.5 | |||||||||||||||||||||||||||||||||||||||
| Net investment income |
32.4 | 28.2 | 3.2 | 63.8 | ||||||||||||||||||||||||||||||||||||||||
| Other income |
4.4 | 3.6 | 1.5 | 9.5 | ||||||||||||||||||||||||||||||||||||||||
| Other operating expenses |
(3.9 | ) | (1.3 | ) | (8.3 | ) | (13.5 | ) | ||||||||||||||||||||||||||||||||||||
| Segment income (loss) before federal income taxes |
$ | 52.5 | $ | 20.3 | $ | (2.5 | ) | $ | 70.3 | |||||||||||||||||||||||||||||||||||
| (1) | Other Commercial Lines includes coverages such as program business, inland marine, bonds and professional liability. |
| (2) | Total Commercial Lines Net premiums written includes $62.2 million related to our OneBeacon renewal rights transaction. |
| (3) | Loss adjustment expenses include (favorable) unfavorable development of $(2.5) million and $(2.8) million in Commercial Lines, $(0.5) million and $2.2 million in Personal Lines, and $(3.0) million and $(0.6) million in Total P&C for the quarters ended December 31, 2010 and 2009, respectively. |
7
THE HANOVER INSURANCE GROUP
PROPERTY AND CASUALTY
GAAP UNDERWRITING PROFIT (LOSS) RECONCILED TO SEGMENT INCOME
| Year ended December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial Lines | Personal Lines | |||||||||||||||||||||||||||||||||||||||||||
| (In millions) |
Workers’ Comp |
Auto | Multiple Peril |
Other(1) | Total | Auto | Home | Other | Total | Other P&C |
Total P&C |
|||||||||||||||||||||||||||||||||
| Net premiums written |
$ | 161.3 | $ | 246.1 | $ | 559.8 | $ | 617.6 | $ | 1,584.8 | (2) | $ | 935.1 | $ | 485.5 | $ | 42.3 | $ | 1,462.9 | $ | 0.3 | $ | 3,048.0 | |||||||||||||||||||||
| Net premiums earned |
$ | 136.7 | $ | 220.0 | $ | 462.9 | $ | 553.8 | $ | 1,373.4 | $ | 946.3 | $ | 478.9 | $ | 42.1 | $ | 1,467.3 | $ | 0.3 | $ | 2,841.0 | ||||||||||||||||||||||
| Losses excluding prior year loss reserve development and catastrophe losses |
92.4 | 116.8 | 214.0 | 230.7 | 653.9 | 601.6 | 217.3 | 16.1 | 835.0 | — | 1,488.9 | |||||||||||||||||||||||||||||||||
| Prior year loss reserve favorable development |
(21.2 | ) | (4.0 | ) | (20.6 | ) | (0.5 | ) | (46.3 | ) | (37.8 | ) | (2.0 | ) | (1.6 | ) | (41.4 | ) | (0.8 | ) | (88.5 | ) | ||||||||||||||||||||||
| Pre-tax catastrophe losses |
— | 0.6 | 45.1 | 15.9 | 61.6 | 9.2 | 88.1 | 1.4 | 98.7 | — | 160.3 | |||||||||||||||||||||||||||||||||
| Loss adjustment expenses (3) |
10.8 | 16.6 | 48.0 | 65.1 | 140.5 | 109.0 | 42.9 | 1.9 | 153.8 | 0.3 | 294.6 | |||||||||||||||||||||||||||||||||
| Policy acquisition and other underwriting expenses |
583.3 | 419.6 | — | 1,002.9 | ||||||||||||||||||||||||||||||||||||||||
| Policyholders’ dividends |
1.0 | — | — | 1.0 | ||||||||||||||||||||||||||||||||||||||||
| GAAP underwriting (loss) profit |
(20.6 | ) | 1.6 | 0.8 | (18.2 | ) | ||||||||||||||||||||||||||||||||||||||
| Net investment income |
129.9 | 102.9 | 14.4 | 247.2 | ||||||||||||||||||||||||||||||||||||||||
| Other income |
19.0 | 13.6 | 6.3 | 38.9 | ||||||||||||||||||||||||||||||||||||||||
| Other operating expenses |
(17.1 | ) | (5.1 | ) | (18.0 | ) | (40.2 | ) | ||||||||||||||||||||||||||||||||||||
| Segment income before federal income taxes |
$ | 111.2 | $ | 113.0 | $ | 3.5 | $ | 227.7 | ||||||||||||||||||||||||||||||||||||
| Year ended December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial Lines | Personal Lines | |||||||||||||||||||||||||||||||||||||||||||
| Workers’ Comp |
Auto | Multiple Peril |
Other(1) | Total | Auto | Home | Other | Total | Other P&C |
Total P&C |
||||||||||||||||||||||||||||||||||
| Net premiums written |
$ | 109.7 | $ | 187.3 | $ | 366.7 | $ | 472.6 | $ | 1,136.3 | $ | 967.9 | $ | 464.3 | $ | 40.0 | $ | 1,472.2 | $ | 0.2 | $ | 2,608.7 | ||||||||||||||||||||||
| Net premiums earned |
$ | 112.0 | $ | 186.9 | $ | 360.7 | $ | 425.2 | $ | 1,084.8 | $ | 978.0 | $ | 444.1 | $ | 39.2 | $ | 1,461.3 | $ | 0.3 | $ | 2,546.4 | ||||||||||||||||||||||
| Losses excluding prior year loss reserve development and catastrophe losses |
76.4 | 100.6 | 174.2 | 179.4 | 530.6 | 643.4 | 229.2 | 13.9 | 886.5 | — | 1,417.1 | |||||||||||||||||||||||||||||||||
| Prior year loss reserve (favorable) unfavorable development |
(28.2 | ) | (7.1 | ) | (28.8 | ) | (17.1 | ) | (81.2 | ) | (44.9 | ) | 6.0 | (1.2 | ) | (40.1 | ) | (11.8 | ) | (133.1 | ) | |||||||||||||||||||||||
| Pre-tax catastrophe losses (income) |
— | 1.1 | 23.3 | 4.2 | 28.6 | 4.2 | 65.2 | 0.9 | 70.3 | — | 98.9 | |||||||||||||||||||||||||||||||||
| Loss adjustment expenses (3) |
1.2 | 10.5 | 41.6 | 40.1 | 93.4 | 122.1 | 37.8 | 1.1 | 161.0 | 0.9 | 255.3 | |||||||||||||||||||||||||||||||||
| Policy acquisition and other underwriting expenses (income) |
451.5 | 427.2 | (0.5 | ) | 878.2 | |||||||||||||||||||||||||||||||||||||||
| Policyholders’ dividends |
1.0 | — | — | 1.0 | ||||||||||||||||||||||||||||||||||||||||
| GAAP underwriting profit (loss) |
60.9 | (43.6 | ) | 11.7 | 29.0 | |||||||||||||||||||||||||||||||||||||||
| Net investment income |
125.6 | 109.6 | 16.5 | 251.7 | ||||||||||||||||||||||||||||||||||||||||
| Other income |
18.4 | 14.4 | 5.8 | 38.6 | ||||||||||||||||||||||||||||||||||||||||
| Other operating expenses |
(15.2 | ) | (4.0 | ) | (30.0 | ) | (49.2 | ) | ||||||||||||||||||||||||||||||||||||
| Segment income before federal income taxes |
$ | 189.7 | $ | 76.4 | $ | 4.0 | $ | 270.1 | ||||||||||||||||||||||||||||||||||||
| (1) | Other Commercial Lines includes coverages such as program business, inland marine, bonds and professional liability. |
| (2) | Total Commercial Lines Net premiums written includes $289.1 million related to our OneBeacon renewal rights transaction. |
| (3) | Loss adjustment expenses include (favorable) unfavorable development of $(15.2) million and $(22.9) million in Commercial Lines, $(7.4) million and $0.7 million in Personal Lines, and $(22.6) million and $(22.2) million in Total P&C for the years ended December 30, 2010 and 2009, respectively. |
8
THE HANOVER INSURANCE GROUP
PROPERTY AND CASUALTY
GAAP UNDERWRITING RATIOS
| Quarter ended December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial Lines | Personal Lines | |||||||||||||||||||||||||||||||||||||||||||
| Workers’ Comp |
Auto | Multiple Peril |
Other(1) | Total | Auto | Home | Other | Total | Other P&C |
Total P&C |
||||||||||||||||||||||||||||||||||
| Losses, excluding catastrophe losses and development |
69.3 | % | 51.8 | % | 45.9 | % | 40.2 | % | 47.1 | % | 65.9 | % | 46.5 | % | 45.3 | % | 58.9 | % | N/M | 52.9 | % | |||||||||||||||||||||||
| Catastrophe losses |
N/M | N/M | 5.9 | % | 0.8 | % | 2.4 | % | 0.1 | % | 6.0 | % | 1.9 | % | 2.1 | % | N/M | 2.2 | % | |||||||||||||||||||||||||
| Prior year loss reserve development |
(11.2 | )% | 1.0 | % | (2.9 | )% | (0.8 | )% | (2.3 | )% | (4.3 | )% | (0.8 | )% | (6.6 | )% | (3.2 | )% | N/M | (2.8 | )% | |||||||||||||||||||||||
| Total losses |
58.1 | % | 52.8 | % | 48.9 | % | 40.2 | % | 47.2 | % | 61.7 | % | 51.7 | % | 40.6 | % | 57.8 | % | N/M | 52.3 | % | |||||||||||||||||||||||
| Loss adjustment expenses (2) |
11.4 | % | 8.2 | % | 9.7 | % | 13.3 | % | 11.0 | % | 12.0 | % | 7.7 | % | 4.7 | % | 10.4 | % | N/M | 10.7 | % | |||||||||||||||||||||||
| Policy acquisition and other underwriting expenses (3) |
41.1 | % | 28.2 | % | N/M | 34.8 | % | |||||||||||||||||||||||||||||||||||||
| Policyholders’ dividends |
N/M | N/M | N/M | N/M | ||||||||||||||||||||||||||||||||||||||||
| Combined |
99.3 | % | 96.4 | % | N/M | 97.8 | % | |||||||||||||||||||||||||||||||||||||
| Policies in force (4) |
20.6 | % | 9.5 | % | 9.5 | % | 3.7 | % | 8.2 | % | (6.7 | )% | 0.2 | % | (6.8 | )% | (3.6 | )% | — | (2.0 | )% | |||||||||||||||||||||||
| Retention (4), (5) |
78.8 | % | 78.6 | % | 83.2 | % | N/M | 81.3 | % | 76.3 | % | 80.8 | % | N/M | 78.7 | % | ||||||||||||||||||||||||||||
| Quarter ended December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial Lines | Personal Lines | |||||||||||||||||||||||||||||||||||||||||||
| Workers’ Comp |
Auto | Multiple Peril |
Other(1) | Total | Auto | Home | Other | Total | Other P&C |
Total P&C |
||||||||||||||||||||||||||||||||||
| Losses, excluding catastrophe losses and development |
69.2 | % | 55.0 | % | 50.8 | % | 40.1 | % | 48.8 | % | 68.3 | % | 49.8 | % | 34.3 | % | 61.6 | % | N/M | 56.1 | % | |||||||||||||||||||||||
| Catastrophe losses |
N/M | N/M | 1.1 | % | (0.5 | )% | 0.1 | % | N/M | 5.2 | % | 2.0 | % | 1.7 | % | N/M | 1.0 | % | ||||||||||||||||||||||||||
| Prior year loss reserve development |
(42.0 | )% | (5.1 | )% | (14.2 | )% | 2.5 | % | (8.3 | )% | (0.1 | )% | (1.6 | )% | 4.0 | % | (0.5 | )% | N/M | (4.1 | )% | |||||||||||||||||||||||
| Total losses |
27.2 | % | 49.9 | % | 37.7 | % | 42.1 | % | 40.6 | % | 68.2 | % | 53.4 | % | 40.3 | % | 62.8 | % | N/M | 53.0 | % | |||||||||||||||||||||||
| Loss adjustment expenses (2) |
2.7 | % | 6.1 | % | 11.9 | % | 12.0 | % | 10.1 | % | 13.4 | % | 7.9 | % | 5.1 | % | 11.5 | % | N/M | 10.9 | % | |||||||||||||||||||||||
| Policy acquisition and other underwriting expenses (3) |
41.8 | % | 27.6 | % | N/M | 33.7 | % | |||||||||||||||||||||||||||||||||||||
| Policyholders’ dividends |
0.2 | % | N/M | N/M | 0.1 | % | ||||||||||||||||||||||||||||||||||||||
| Combined |
92.7 | % | 101.9 | % | N/M | 97.7 | % | |||||||||||||||||||||||||||||||||||||
| Policies in force (4) |
(0.3 | )% | (2.4 | )% | 3.5 | % | (2.0 | )% | 0.2 | % | (2.4 | )% | 5.3 | % | (4.4 | )% | 0.8 | % | — | 0.7 | % | |||||||||||||||||||||||
| Retention (4), (5) |
77.3 | % | 79.0 | % | 79.3 | % | N/M | 78.5 | % | 74.5 | % | 82.2 | % | N/M | 78.4 | % | ||||||||||||||||||||||||||||
| (1) | Other Commercial Lines includes coverages such as program business, inland marine, bonds and professional liability. |
| (2) | Loss adjustment expenses include (favorable) unfavorable development of $(2.5) million and $(2.8) million in Commercial Lines, $(0.5) million and $2.2 million in Personal Lines, and $(3.0) million and $(0.6) million in Total P&C for the quarters ended December 31, 2010 and 2009, respectively. |
| (3) | Policy acquisition and other underwriting expenses are reduced by installment fee revenues for purposes of the ratio calculation. |
| (4) | Policies in force and total Commercial Lines retention rates do not include acquisitions of Professionals Direct, Inc., Verlan Fire Insurance Company, AIX, Inc., Campania Holding Company, Inc. and OneBeacon assumed business. |
| (5) | The retention rate for Commercial Lines is direct voluntary written premiums, based on renewed policies in the current period versus those available to renew; the retention rate for Personal Lines is a twelve month rolling average calculation based on policies in force. |
9
THE HANOVER INSURANCE GROUP
PROPERTY AND CASUALTY
GAAP UNDERWRITING RATIOS
| Year ended December 31, 2010 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial Lines | Personal Lines | |||||||||||||||||||||||||||||||||||||||||||
| Workers’ Comp |
Auto | Multiple Peril |
Other(1) | Total | Auto | Home | Other | Total | Other P&C |
Total P&C |
||||||||||||||||||||||||||||||||||
| Losses, excluding catastrophe losses and development |
67.5 | % | 53.0 | % | 46.3 | % | 41.6 | % | 47.7 | % | 63.6 | % | 45.3 | % | 38.3 | % | 56.9 | % | N/M | 52.4 | % | |||||||||||||||||||||||
| Catastrophe losses |
N/M | 0.3 | % | 9.7 | % | 2.9 | % | 4.5 | % | 1.0 | % | 18.4 | % | 3.3 | % | 6.7 | % | N/M | 5.6 | % | ||||||||||||||||||||||||
| Prior year loss reserve development |
(15.5 | )% | (1.8 | )% | (4.5 | )% | (0.1 | )% | (3.4 | )% | (4.0 | )% | (0.4 | )% | (3.8 | )% | (2.8 | )% | N/M | (3.1 | )% | |||||||||||||||||||||||
| Total losses |
52.0 | % | 51.5 | % | 51.5 | % | 44.4 | % | 48.8 | % | 60.6 | % | 63.3 | % | 37.8 | % | 60.8 | % | N/M | 54.9 | % | |||||||||||||||||||||||
| Loss adjustment expenses (2) |
7.9 | % | 7.5 | % | 10.4 | % | 11.8 | % | 10.2 | % | 11.5 | % | 9.0 | % | 4.5 | % | 10.5 | % | N/M | 10.4 | % | |||||||||||||||||||||||
| Policy acquisition and other underwriting expenses (3) |
42.2 | % | 27.8 | % | N/M | 34.8 | % | |||||||||||||||||||||||||||||||||||||
| Policyholders’ dividends |
0.1 | % | N/M | N/M | N/M | |||||||||||||||||||||||||||||||||||||||
| Combined |
101.3 | % | 99.1 | % | N/M | 100.1 | % | |||||||||||||||||||||||||||||||||||||
| Policies in force (4) |
20.6 | % | 9.5 | % | 9.5 | % | 3.7 | % | 8.2 | % | (6.7 | )% | 0.2 | % | (6.8 | )% | (3.6 | )% | — | (2.0 | )% | |||||||||||||||||||||||
| Retention (4), (5) |
76.7 | % | 78.4 | % | 81.7 | % | N/M | 80.1 | % | 76.3 | % | 80.8 | % | N/M | 78.7 | % | ||||||||||||||||||||||||||||
| Year ended December 31, 2009 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial Lines | Personal Lines | |||||||||||||||||||||||||||||||||||||||||||
| Workers’ Comp |
Auto | Multiple Peril |
Other(1) | Total | Auto | Home | Other | Total | Other P&C |
Total P&C |
||||||||||||||||||||||||||||||||||
| Losses, excluding catastrophe losses and development |
68.2 | % | 53.8 | % | 48.3 | % | 42.2 | % | 49.0 | % | 65.8 | % | 51.5 | % | 35.5 | % | 60.7 | % | N/M | 55.7 | % | |||||||||||||||||||||||
| Catastrophe losses |
N/M | 0.6 | % | 6.5 | % | 1.0 | % | 2.6 | % | 0.4 | % | 14.7 | % | 2.3 | % | 4.8 | % | N/M | 3.9 | % | ||||||||||||||||||||||||
| Prior year loss reserve development |
(25.2 | )% | (3.8 | )% | (8.0 | )% | (4.0 | )% | (7.5 | )% | (4.6 | )% | 1.4 | % | (3.1 | )% | (2.7 | )% | N/M | (5.2 | )% | |||||||||||||||||||||||
| Total losses |
43.0 | % | 50.6 | % | 46.8 | % | 39.2 | % | 44.1 | % | 61.6 | % | 67.6 | % | 34.7 | % | 62.8 | % | N/M | 54.4 | % | |||||||||||||||||||||||
| Loss adjustment expenses (2) |
1.1 | % | 5.6 | % | 11.5 | % | 9.4 | % | 8.6 | % | 12.5 | % | 8.5 | % | 2.8 | % | 11.0 | % | N/M | 10.0 | % | |||||||||||||||||||||||
| Policy acquisition and other underwriting expenses (3) |
41.3 | % | 28.3 | % | N/M | 33.8 | % | |||||||||||||||||||||||||||||||||||||
| Policyholders’ dividends |
0.1 | % | N/M | N/M | N/M | |||||||||||||||||||||||||||||||||||||||
| Combined |
94.1 | % | 102.1 | % | N/M | 98.2 | % | |||||||||||||||||||||||||||||||||||||
| Policies in force (4) |
(0.3 | )% | (2.4 | )% | 3.5 | % | (2.0 | )% | 0.2 | % | (2.4 | )% | 5.3 | % | (4.4 | )% | 0.8 | % | — | 0.7 | % | |||||||||||||||||||||||
| Retention (4), (5) |
78.1 | % | 79.6 | % | 80.6 | % | N/M | 79.8 | % | 74.5 | % | 82.2 | % | N/M | 78.4 | % | ||||||||||||||||||||||||||||
| (1) | Other Commercial Lines includes coverages such as program business, inland marine, bonds and professional liability. |
| (2) | Loss adjustment expenses include (favorable) unfavorable development of $(15.2) million and $(22.9) million in Commercial Lines, $(7.4) million and $0.7 million in Personal Lines, and $(22.6) million and $(22.2) million in Total P&C for the years ended December 31, 2010 and 2009, respectively. |
| (3) | Policy acquisition and other underwriting expenses are reduced by installment fee revenues for purposes of the ratio calculation. |
| (4) | Policies in force and total Commercial Lines retention rates do not include acquisitions of Professionals Direct, Inc., Verlan Fire Insurance Company, AIX, Inc., Campania Holding Company, Inc. and OneBeacon assumed business. |
| (5) | The retention rate for Commercial Lines is direct voluntary written premiums, based on renewed policies in the current period versus those available to renew; the retention rate for Personal Lines is a twelve month rolling average calculation based on policies in force. |
10
INVESTMENTS
THE HANOVER INSURANCE GROUP
NET INVESTMENT INCOME
| Quarter ended December 31 | Year ended December 31 | |||||||||||||||||||||||||||||||
| (In millions, except yields) |
2010 | 2009 | 2010 | 2009 | ||||||||||||||||||||||||||||
| Yield | Yield | Yield | Yield | |||||||||||||||||||||||||||||
| Fixed maturities (1) |
$ | 61.5 | 5.37% | $ | 62.9 | 5.43% | $ | 248.6 | 5.46% | $ | 249.3 | 5.53% | ||||||||||||||||||||
| Equity securities |
2.2 | 5.53% | 1.9 | 5.05% | 4.5 | 6.13% | 5.2 | 5.25% | ||||||||||||||||||||||||
| Mortgages (2) |
0.1 | 7.98% | 0.5 | 9.58% | 0.7 | 8.05% | 2.3 | 8.78% | ||||||||||||||||||||||||
| All other |
1.2 | — | 0.1 | — | 0.3 | — | 1.9 | — | ||||||||||||||||||||||||
| Investment expenses |
(2.0 | ) | — | (1.6 | ) | — | (6.9 | ) | — | (6.6 | ) | — | ||||||||||||||||||||
| Total (3) |
$ | 63.0 | 5.13% | $ | 63.8 | 5.17% | $ | 247.2 | 5.16% | $ | 252.1 | 5.19% | ||||||||||||||||||||
| (1) | Includes purchase accounting adjustments of $(0.2) million and $(0.3) million for the quarters ended December 31, 2010 and 2009, respectively, and $(1.1) million and $(1.9) million for the years ended December 31, 2010 and 2009, respectively. Average book value of fixed maturities was $4,593.5 million and $4,658.0 million for the quarters ended December 31, 2010 and 2009, respectively, and $4,577.0 million and $4,541.5 million for the years ended December 31, 2010 and 2009, respectively. |
| (2) | Excluding mortgage prepayment fees of $0.1 million for the year ended December 31, 2009, mortgage yields were 8.45%. There were no mortgage prepayment fees in 2010 or for the quarter ended December 31, 2009. |
| (3) | Excludes net investment income related to discontinued operations of $0.5 million and $0.4 million for the quarters ended December 31, 2010 and 2009, respectively, and $2.0 million and $1.7 million for the years ended December 31, 2010 and 2009, respectively. |
11
THE HANOVER INSURANCE GROUP
COMPONENTS OF NET REALIZED INVESTMENT GAINS
| Quarter ended December 31 | Year ended December 31 | |||||||||||||||
| (In millions) |
2010 | 2009 | 2010 | 2009 | ||||||||||||
| Net realized gains from sales and other |
$ | 19.3 | $ | 14.7 | $ | 43.6 | $ | 34.3 | ||||||||
| Total other-than-temporary impairment losses |
(5.9 | ) | (3.1 | ) | (9.4 | ) | (42.2 | ) | ||||||||
| Portion of loss transferred (from) to other comprehensive income |
(0.5 | ) | (0.5 | ) | (4.5 | ) | 9.3 | |||||||||
| Net other-than-temporary losses on investments recognized in earnings |
(6.4 | ) | (3.6 | ) | (13.9 | ) | (32.9 | ) | ||||||||
| Net realized investment gains (1) |
$ | 12.9 | $ | 11.1 | $ | 29.7 | $ | 1.4 | ||||||||
| (1) | Excludes net realized investment losses related to discontinued operations of $0.4 and $3.2 million for the years ended December 31, 2010 and 2009, respectively. There were no realized investment gains or losses from discontinued operations for the quarters ended December 31, 2010 and 2009, respectively. |
12
THE HANOVER INSURANCE GROUP
INVESTMENT PORTFOLIO
| (in millions) |
December 31, 2010 | |||||||||||||||||||||
| Investment Type |
Weighted |
Amortized Cost |
Fair Value |
Net Unrealized Gain (Loss) |
Change in Net Unrealized During Q4 2010 |
Change
in Net Unrealized YTD |
||||||||||||||||
| Fixed Maturities: |
||||||||||||||||||||||
| Corporate: |
||||||||||||||||||||||
| NAIC 1 |
A | $ | 1,002.2 | $ | 1,058.6 | $ | 56.4 | $ | (30.2 | ) | $ | 24.1 | ||||||||||
| NAIC 2 |
BBB | 1,012.6 | 1,082.5 | 69.9 | (32.2 | ) | 21.4 | |||||||||||||||
| NAIC 3 and below |
B+ | 341.4 | 360.8 | 19.4 | 2.1 | 15.5 | ||||||||||||||||
| Total corporate |
BBB+ | 2,356.2 | 2,501.9 | 145.7 | (60.3 | ) | 61.0 | |||||||||||||||
| Asset backed: |
||||||||||||||||||||||
| Residential mortgage backed securities |
AA+ | 725.4 | 755.3 | 29.9 | (9.5 | ) | 14.3 | |||||||||||||||
| Commercial mortgage backed securities |
AA+ | 350.7 | 368.1 | 17.4 | (2.7 | ) | 14.7 | |||||||||||||||
| Asset backed securities |
A+ | 57.5 | 61.2 | 3.7 | (1.4 | ) | 1.2 | |||||||||||||||
| Municipals: |
||||||||||||||||||||||
| Taxable |
AA | 813.7 | 812.8 | (0.9 | ) | (35.8 | ) | 15.7 | ||||||||||||||
| Tax exempt |
A+ | 149.7 | 152.7 | 3.0 | (2.6 | ) | (1.1 | ) | ||||||||||||||
| U.S. government |
AAA | 261.4 | 263.2 | 1.8 | (6.0 | ) | 2.3 | |||||||||||||||
| Total fixed maturities |
A+ | 4,714.6 | 4,915.2 | 200.6 | (118.3 | ) | 108.1 | |||||||||||||||
| Equity securities: |
||||||||||||||||||||||
| Perpetual preferred securities |
10.1 | 16.9 | 6.8 | (0.4 | ) | 0.8 | ||||||||||||||||
| Common equity securities |
110.6 | 111.7 | 1.1 | (5.1 | ) | (4.8 | ) | |||||||||||||||
| Total fixed maturities and equity securities (1) |
4,835.3 | 5,043.8 | 208.5 | (123.8 | ) | 104.1 | ||||||||||||||||
| Cash and cash equivalents (2) |
292.9 | 292.9 | — | — | — | |||||||||||||||||
| Other long-term investments |
36.7 | 39.4 | 2.7 | 1.2 | 0.7 | |||||||||||||||||
| Total |
$ | 5,164.9 | $ | 5,376.1 | $ | 211.2 | $ | (122.6 | ) | $ | 104.8 | |||||||||||
| (1) | Includes investments of discontinued accident and health business of $115.8 million in amortized cost and $117.3 million in fair value at December 31, 2010. Net unrealized gain (loss) associated with the discontinued accident and health business has declined $1.6 million during the fourth quarter of 2010 and improved $4.3 million since year-end 2009. |
| (2) | Includes investments of discontinued accident and health business of $2.5 million in amortized cost and in fair value at December 31, 2010. |
13
THE HANOVER INSURANCE GROUP
AGING OF GROSS UNREALIZED LOSSES ON SECURITIES AVAILABLE FOR SALE
| (In millions) |
December 31, 2010 | December 31, 2009 | ||||||||||||||
| Gross Unrealized Losses and OTTI |
Fair Value |
Gross Unrealized Losses and OTTI |
Fair Value |
|||||||||||||
| INVESTMENT GRADE FIXED MATURITIES: |
||||||||||||||||
| 12 months or less |
$ | 23.1 | $ | 751.2 | $ | 23.1 | $ | 664.4 | ||||||||
| Greater than 12 months |
33.2 | 219.7 | 43.4 | 421.8 | ||||||||||||
| Total investment grade fixed maturities |
56.3 | 970.9 | 66.5 | 1,086.2 | ||||||||||||
| BELOW INVESTMENT GRADE FIXED MATURITIES: |
||||||||||||||||
| 12 months or less |
1.1 | 56.8 | 10.8 | 92.8 | ||||||||||||
| Greater than 12 months (1) |
14.8 | 102.5 | 17.7 | 158.3 | ||||||||||||
| Total below investment grade fixed maturities |
15.9 | 159.3 | 28.5 | 251.1 | ||||||||||||
| EQUITY SECURITIES: |
||||||||||||||||
| 12 months or less |
1.9 | 45.8 | — | — | ||||||||||||
| Greater than 12 months |
— | — | 0.3 | 1.4 | ||||||||||||
| Total equity securities |
1.9 | 45.8 | 0.3 | 1.4 | ||||||||||||
| Total (2) |
$ | 74.1 | $ | 1,176.0 | $ | 95.3 | $ | 1,338.7 | ||||||||
| (1) | Gross Unrealized Losses and OTTI includes $14.8 million of OTTI at December 31, 2010 and 2009. |
| (2) | Includes gross unrealized losses related to discontinued accident and health business of $6.6 million and $8.8 million with $48.6 million and $55.0 million in fair value at December 31, 2010 and 2009, respectively. |
14
THE HANOVER INSURANCE GROUP
CREDIT QUALITY OF FIXED MATURITIES
| (In millions) |
December 31, 2010 | December 31, 2009 | ||||||||||||||||||||||||
| NAIC Designation |
Rating Agency Equivalent Designation |
Amortized Cost |
Fair Value |
% of
Total Fair Value |
Amortized Cost |
Fair Value |
% of
Total Fair Value |
|||||||||||||||||||
| 1 | Aaa/Aa/A | $ | 3,178.8 | $ | 3,292.9 | 67.0 | % | $ | 3,120.8 | $ | 3,168.0 | 66.9 | % | |||||||||||||
| 2 | Baa | 1,168.1 | 1,234.6 | 25.1 | % | 1,198.0 | 1,240.3 | 26.2 | % | |||||||||||||||||
| 3 | Ba | 173.8 | 182.6 | 3.7 | % | 138.2 | 130.5 | 2.8 | % | |||||||||||||||||
| 4 | B | 139.5 | 144.2 | 3.0 | % | 93.1 | 98.0 | 2.1 | % | |||||||||||||||||
| 5 | Caa and lower | 42.0 | 45.2 | 0.9 | % | 84.0 | 88.0 | 1.9 | % | |||||||||||||||||
| 6 | In or near default | 12.4 | 15.7 | 0.3 | % | 5.8 | 7.6 | 0.1 | % | |||||||||||||||||
| Total fixed maturities (1) | $ | 4,714.6 | $ | 4,915.2 | 100.0 | % | $ | 4,639.9 | $ | 4,732.4 | 100.0 | % | ||||||||||||||
| (1) | Includes investments of discontinued accident and health business of $115.8 million and $119.6 million in amortized cost and $117.3 million and $116.8 million in fair value at December 31, 2010 and 2009, respectively. |
15
THE HANOVER INSURANCE GROUP
TOP 25 CORPORATE FIXED MATURITY HOLDINGS
| (In millions, except percentage data) |
As of December 31, 2010 | |||||||||||||||
| Issuer |
Amortized Cost | Fair Value | As a percent of Invested Assets |
S&P Ratings | ||||||||||||
| Wells Fargo |
$ | 22.2 | $ | 23.8 | 0.44 | % | AA- | |||||||||
| Bank of America |
22.1 | 19.6 | 0.36 | % | A- | |||||||||||
| Kellogg |
21.3 | 21.9 | 0.41 | % | BBB+ | |||||||||||
| CVS |
20.6 | 22.2 | 0.41 | % | BBB+ | |||||||||||
| PNC Bank |
19.9 | 20.7 | 0.39 | % | A | |||||||||||
| American Express |
18.7 | 20.2 | 0.38 | % | BBB+ | |||||||||||
| Dominion Resources |
18.2 | 19.9 | 0.37 | % | A- | |||||||||||
| GE Capital |
17.9 | 18.7 | 0.35 | % | AA+ | |||||||||||
| Kroger |
17.1 | 17.6 | 0.33 | % | BBB | |||||||||||
| Home Depot |
17.0 | 19.2 | 0.36 | % | BBB+ | |||||||||||
| AT&T |
16.9 | 17.7 | 0.33 | % | A- | |||||||||||
| Safeway |
16.7 | 17.4 | 0.32 | % | BBB | |||||||||||
| Miller Brewing |
16.4 | 18.2 | 0.34 | % | BBB+ | |||||||||||
| Pacific Gas & Electric |
16.1 | 17.6 | 0.33 | % | BBB+ | |||||||||||
| Merck & Co |
15.7 | 17.9 | 0.33 | % | AA | |||||||||||
| Morgan Stanley |
15.5 | 17.0 | 0.32 | % | A | |||||||||||
| Coca Cola |
15.2 | 15.8 | 0.29 | % | A+ | |||||||||||
| Manufacturers & Traders Bank |
15.1 | 14.5 | 0.27 | % | A- | |||||||||||
| Canadian National Railways |
15.0 | 15.8 | 0.29 | % | A- | |||||||||||
| Fifth Third Bancorp |
15.0 | 15.3 | 0.29 | % | BBB- | |||||||||||
| Vodafone |
15.0 | 16.1 | 0.30 | % | A- | |||||||||||
| Atmos Energy |
14.9 | 16.3 | 0.30 | % | BBB+ | |||||||||||
| Telefonica Emisiones |
14.8 | 15.2 | 0.28 | % | A- | |||||||||||
| Pfizer |
14.7 | 16.8 | 0.31 | % | AA | |||||||||||
| Lowe’s |
14.5 | 16.5 | 0.31 | % | A | |||||||||||
| Top 25 Corporate |
426.5 | 451.9 | 8.41 | % | ||||||||||||
| Other Corporate |
1,929.7 | 2,050.0 | 38.13 | % | ||||||||||||
| Total Corporate |
$ | 2,356.2 | $ | 2,501.9 | 46.54 | % | ||||||||||
16
Historical Highlights
THE HANOVER INSURANCE GROUP
HISTORICAL FINANCIAL HIGHLIGHTS
| (In millions, except per share data) |
2010 | Q4 10 | Q3 10 | Q2 10 | Q1 10 | 2009 | Q4 09 | Q3 09 | Q2 09 | Q1 09 | ||||||||||||||||||||||||||||||
| SEGMENT INCOME (1) |
||||||||||||||||||||||||||||||||||||||||
| Property and Casualty |
||||||||||||||||||||||||||||||||||||||||
| Commercial Lines |
$ | 111.2 | $ | 36.4 | $ | 35.1 | $ | 16.9 | $ | 22.8 | $ | 189.7 | $ | 52.5 | $ | 38.7 | $ | 50.9 | $ | 47.6 | ||||||||||||||||||||
| Personal Lines |
113.0 | 39.0 | 43.0 | (3.5 | ) | 34.5 | 76.4 | 20.3 | 27.4 | 25.6 | 3.1 | |||||||||||||||||||||||||||||
| Other Property and Casualty |
3.5 | 0.8 | 1.1 | 1.2 | 0.4 | 4.0 | (2.5 | ) | 7.5 | (0.2 | ) | (0.8 | ) | |||||||||||||||||||||||||||
| Total Property and Casualty |
227.7 | 76.2 | 79.2 | 14.6 | 57.7 | 270.1 | 70.3 | 73.6 | 76.3 | 49.9 | ||||||||||||||||||||||||||||||
| Interest expense on debt |
(44.3 | ) | (11.5 | ) | (11.8 | ) | (11.7 | ) | (9.3 | ) | (35.1 | ) | (7.9 | ) | (6.3 | ) | (10.5 | ) | (10.4 | ) | ||||||||||||||||||||
| Total segment income before federal income taxes |
$ | 183.4 | $ | 64.7 | $ | 67.4 | $ | 2.9 | $ | 48.4 | $ | 235.0 | $ | 62.4 | $ | 67.3 | $ | 65.8 | $ | 39.5 | ||||||||||||||||||||
| Federal income tax expense on segment income |
(61.2 | ) | (21.0 | ) | (22.7 | ) | (1.1 | ) | (16.4 | ) | (77.5 | ) | (20.6 | ) | (22.0 | ) | (21.8 | ) | (13.1 | ) | ||||||||||||||||||||
| Total segment income after federal income taxes |
$ | 122.2 | $ | 43.7 | $ | 44.7 | $ | 1.8 | $ | 32.0 | $ | 157.5 | $ | 41.8 | $ | 45.3 | $ | 44.0 | $ | 26.4 | ||||||||||||||||||||
| Net realized investment gains (losses) |
29.7 | 12.9 | 5.7 | 0.2 | 10.9 | 1.4 | 11.1 | — | (3.6 | ) | (6.1 | ) | ||||||||||||||||||||||||||||
| (Loss) gain from retirement of debt |
(2.0 | ) | (2.0 | ) | — | — | — | 34.5 | — | 0.2 | 34.3 | — | ||||||||||||||||||||||||||||
| Other non-segment items |
— | — | — | — | — | — | — | — | 0.1 | (0.1 | ) | |||||||||||||||||||||||||||||
| Federal income tax (expense) benefit on non-segment income |
3.3 | 2.8 | 1.0 | 0.2 | (0.7 | ) | (5.6 | ) | 3.0 | 3.1 | (11.7 | ) | — | |||||||||||||||||||||||||||
| Income from continuing operations |
153.2 | 57.4 | 51.4 | 2.2 | 42.2 | 187.8 | 55.9 | 48.6 | 63.1 | 20.2 | ||||||||||||||||||||||||||||||
| Discontinued operations (net of taxes): |
||||||||||||||||||||||||||||||||||||||||
| Gain (loss) from discontinued FAFLIC business |
0.5 | 0.1 | 0.5 | (0.1 | ) | — | 7.1 | 0.8 | 0.4 | 0.9 | 5.0 | |||||||||||||||||||||||||||||
| (Loss) gain from discontinued accident and health business |
(0.3 | ) | 0.6 | 0.2 | (0.5 | ) | (0.6 | ) | (2.6 | ) | (0.2 | ) | 0.7 | 0.2 | (3.3 | ) | ||||||||||||||||||||||||
| Gain on disposal of discontinued variable life and annuity business |
1.3 | 0.3 | 0.1 | 0.7 | 0.2 | 4.9 | 0.8 | — | 0.2 | 3.9 | ||||||||||||||||||||||||||||||
| Other discontinued operations |
0.1 | — | 0.1 | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| NET INCOME |
$ | 154.8 | $ | 58.4 | $ | 52.3 | $ | 2.3 | $ | 41.8 | $ | 197.2 | $ | 57.3 | $ | 49.7 | $ | 64.4 | $ | 25.8 | ||||||||||||||||||||
| PER SHARE DATA (DILUTED) |
||||||||||||||||||||||||||||||||||||||||
| INCOME FROM CONTINUING OPERATIONS |
$ | 3.31 | $ | 1.25 | $ | 1.12 | $ | 0.05 | $ | 0.88 | $ | 3.68 | $ | 1.11 | $ | 0.95 | $ | 1.23 | $ | 0.39 | ||||||||||||||||||||
| INCOME (LOSS) FROM DISCONTINUED OPERATIONS |
$ | 0.03 | $ | 0.02 | $ | 0.03 | $ | — | $ | (0.01 | ) | $ | 0.18 | $ | 0.03 | $ | 0.02 | $ | 0.02 | $ | 0.11 | |||||||||||||||||||
| NET INCOME |
$ | 3.34 | $ | 1.27 | $ | 1.15 | $ | 0.05 | $ | 0.87 | $ | 3.86 | $ | 1.14 | $ | 0.97 | $ | 1.25 | $ | 0.50 | ||||||||||||||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED) |
46.3 | 45.9 | 45.7 | 45.5 | 48.2 | 51.1 | 50.2 | 51.2 | 51.4 | 51.4 | ||||||||||||||||||||||||||||||
| BALANCE SHEET |
||||||||||||||||||||||||||||||||||||||||
| Total assets |
$ | 8,569.9 | $ | 8,596.7 | $ | 8,373.4 | $ | 8,068.5 | $ | 8,042.7 | $ | 8,088.6 | $ | 7,747.7 | $ | 7,698.1 | ||||||||||||||||||||||||
| Total shareholders’ equity |
$ | 2,460.5 | $ | 2,478.8 | $ | 2,351.6 | $ | 2,302.2 | $ | 2,358.6 | $ | 2,407.1 | $ | 2,221.1 | $ | 1,967.6 | ||||||||||||||||||||||||
| Book value per share |
$ | 54.74 | $ | 55.25 | $ | 52.61 | $ | 51.59 | $ | 49.72 | $ | 48.06 | $ | 43.75 | $ | 38.62 | ||||||||||||||||||||||||
| Book value per share, excluding accumulated other comprehensive income (loss) |
$ | 51.70 | $ | 50.72 | $ | 49.79 | $ | 50.07 | $ | 49.11 | $ | 48.28 | $ | 47.15 | $ | 45.16 | ||||||||||||||||||||||||
| (1) | Represents income or loss of the Company’s operating segments: Commercial Lines, Personal Lines, Other Property and Casualty and interest expense on corporate debt. In accordance with generally accepted accounting principles, 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. |
17
THE HANOVER INSURANCE GROUP
HISTORICAL FINANCIAL HIGHLIGHTS
| (In millions, except per share data) |
2008 | Q4 08 | Q3 08 | Q2 08 | Q1 08 | |||||||||||||||
| SEGMENT INCOME (1) |
||||||||||||||||||||
| Property and Casualty |
||||||||||||||||||||
| Commercial Lines |
$ | 169.7 | $ | 55.6 | $ | (6.6 | ) | $ | 52.7 | $ | 68.0 | |||||||||
| Personal Lines |
123.5 | 39.7 | 18.1 | 38.6 | 27.1 | |||||||||||||||
| Other Property and Casualty |
9.0 | 2.2 | 2.3 | 2.9 | 1.3 | |||||||||||||||
| Total Property and Casualty |
302.2 | 97.5 | 13.8 | 94.2 | 96.4 | |||||||||||||||
| Interest expense on debt |
(39.9 | ) | (10.0 | ) | (10.0 | ) | (9.9 | ) | (10.0 | ) | ||||||||||
| Total segment income before federal income taxes |
$ | 262.3 | $ | 87.5 | $ | 3.8 | $ | 84.3 | $ | 86.4 | ||||||||||
| Federal income tax expense on segment income |
(86.3 | ) | (27.9 | ) | (0.5 | ) | (28.8 | ) | (29.1 | ) | ||||||||||
| Total segment income after federal income taxes |
$ | 176.0 | $ | 59.6 | $ | 3.3 | $ | 55.5 | $ | 57.3 | ||||||||||
| Federal income tax settlement |
6.4 | — | 6.4 | — | — | |||||||||||||||
| Net realized investment losses |
(97.8 | ) | (37.1 | ) | (52.8 | ) | (7.6 | ) | (0.3 | ) | ||||||||||
| Other non-segment items |
(0.1 | ) | (0.1 | ) | — | — | — | |||||||||||||
| Federal income tax benefit (expense) on non-segment income |
— | 0.4 | (0.4 | ) | — | — | ||||||||||||||
| Income (loss) from continuing operations |
84.5 | 22.8 | (43.5 | ) | 47.9 | 57.0 | ||||||||||||||
| Discontinued operations (net of taxes): |
||||||||||||||||||||
| (Loss) gain from discontinued FAFLIC business |
(84.8 | ) | 8.1 | (21.7 | ) | (67.7 | ) | (3.5 | ) | |||||||||||
| Gain from operations of AMGRO |
10.1 | — | — | 10.4 | — | |||||||||||||||
| Gain (loss) on disposal of discontinued variable life and annuity business |
11.3 | 3.2 | 2.7 | (0.8 | ) | 6.2 | ||||||||||||||
| Other discontinued operations |
(0.5 | ) | — | 0.7 | — | (1.2 | ) | |||||||||||||
| NET INCOME (LOSS) |
$ | 20.6 | $ | 34.1 | $ | (61.8 | ) | $ | (10.2 | ) | $ | 58.5 | ||||||||
| PER SHARE DATA (DILUTED) |
||||||||||||||||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS |
$ | 1.63 | $ | 0.44 | $ | (0.85 | ) | $ | 0.92 | $ | 1.09 | |||||||||
| (LOSS) INCOME FROM DISCONTINUED OPERATIONS |
$ | (1.23 | ) | $ | 0.22 | $ | (0.36 | ) | $ | (1.12 | ) | $ | 0.03 | |||||||
| NET INCOME (LOSS) |
$ | 0.40 | $ | 0.66 | $ | (1.21 | ) | $ | (0.20 | ) | $ | 1.12 | ||||||||
| WEIGHTED AVERAGE SHARES OUTSTANDING (DILUTED) (2) |
51.7 | 51.4 | 51.0 | 51.8 | 52.3 | |||||||||||||||
| BALANCE SHEET |
||||||||||||||||||||
| Total assets |
$ | 9,230.2 | $ | 9,254.8 | $ | 9,463.8 | $ | 9,700.6 | ||||||||||||
| Total shareholders’ equity |
$ | 1,887.2 | $ | 2,040.1 | $ | 2,212.7 | $ | 2,320.7 | ||||||||||||
| Book value per share |
$ | 37.08 | $ | 40.09 | $ | 43.57 | $ | 45.23 | ||||||||||||
| Book value per share, excluding accumulated other comprehensive income (loss) |
$ | 44.64 | $ | 44.37 | $ | 45.55 | $ | 45.70 | ||||||||||||
| (1) | Represents income or loss of the Company’s operating segments: Commercial Lines, Personal Lines, Other Property and Casualty and interest expense on corporate debt. In accordance with generally accepted accounting principles, 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. |
| (2) | Weighted average shares outstanding for the quarter ended September 30, 2008 represents basic shares outstanding due to antidilution. |
18
Other Information
Non-GAAP Financial Measures
The Hanover uses non-GAAP financial measures as important measures of the Company’s operating performance, which we believe provide investors’ with additional information regarding management’s evaluation of our results of operations and financial performance. These metrics include total segment income, segment income after tax, total segment income per share, segment income after-tax per share, book value per share excluding net unrealized gains and losses related to investments, net of tax, tangible book value per share and measures of segment income and loss ratios excluding catastrophe losses and reserve development. After-tax segment income EPS (sometimes referred to as “after-tax segment income per share”) is a non-GAAP measure. It is defined as net income (loss) excluding the after-tax impact of net realized investment gains (losses), as well as results from discontinued operations for a period divided by the average number of diluted shares of common stock.
Segment income (Property and Casualty segment income) is net income, excluding interest expense on debt, federal income taxes and net realized investment gains and losses, 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. Segment income is the sum of the segment income from: Commercial Lines, Personal Lines, and Other Property and Casualty. The Hanover believes that measures of total 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.
Book value per share is total shareholders’ equity divided by the number of common shares outstanding. Book value per share excluding net unrealized gains and losses related to investments, net of tax is total shareholders’ equity excluding the after-tax effect of unrealized investment gains and losses divided by the number of common shares outstanding. Tangible book value per share is total shareholders’ equity, excluding goodwill, divided by the number of common shares outstanding.
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 providing certain financial metrics and trends excluding the effects of catastrophes is meaningful for investors to understand the variability of periodic earnings and loss ratios.
Prior year reserve development, which can be favorable or unfavorable, represents changes in our estimate of the costs to pay claims from prior years. We believe that a discussion of segment income excluding prior year reserve development is helpful to investors since it provides insight into both our estimate of current year accident results and changes to prior-year reserve estimates.
Segment income and measures of segment income that exclude the effects of catastrophe losses or reserve development should not be construed as substitutes for net income determined in accordance with GAAP. A reconciliation of income from continuing operations to segment income and income from continuing operations per share to segment income per share for the quarters and years ended December 31, 2010 and 2009 is set forth on pages 1 and 2, of this document, respectively. The presentation of loss ratios calculated excluding the effects of reserve development and/or catastrophe losses should not be construed as a substitute for loss ratios determined in accordance with GAAP.
19
20