The Hanover Estimates Second Quarter Catastrophe Losses and Solid Preliminary Results
"The property and casualty insurance industry sustained very significant catastrophe losses in the second quarter, including the highest CAT losses for the month of May in over a decade," said
"We are pleased with our overall bottom-line results, which are close to our second quarter expectations, despite the impact of catastrophe losses. Our results reflect outstanding underlying underwriting performance, including massive year-over-year improvement in our ex-CAT Personal Lines loss ratio, driven by enhanced profitability in our auto and homeowners lines," said
Taking catastrophe loss estimates and other currently available information into account, the company expects to report a second quarter combined ratio of 99.2%, and an ex-CAT combined ratio(2) of 88.5%. The company also expects to generate after-tax net income of
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Preliminary Underwriting Ratios |
Three months ended |
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Combined ratio (GAAP) |
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99.2 % |
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Less: Catastrophe ratio |
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10.7 % |
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Combined ratio, excluding catastrophes(2)(non-GAAP) |
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88.5 % |
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Three months ended |
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Loss and LAE ratio (GAAP) |
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68.4 % |
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Less: Catastrophe ratio |
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10.7 % |
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Less: Prior-year development ratio |
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(1.2) % |
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Current accident year loss and LAE ratio, excluding |
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58.9 % |
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*Results The Hanover expects to report for three months ended |
About The Hanover
Contacts: |
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Investors: |
Media: |
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(508) 525-6081 |
(508) 855-3263 |
Email: olukasheva@hanover.com |
Email: etrevallion@hanover.com |
Forward-Looking Statements
Investors should consider the risks and uncertainties in the company's business that may affect such estimates, including (i) the inherent difficulties in arriving at such estimates; (ii) variation in the company's current estimates that may change as the company finalizes its financial results; (iii) the current economic and political environment, on the company's financial and operating results, including but not limited to an increase in loss costs; (iv) legislative and regulatory actions, as well as litigation and the possibility of adverse judicial decisions; and (v) competitive pressures to moderate the company's margin recapture plan and related initiatives and (vi) other risks and uncertainties that are discussed in readily available documents, including the company's latest annual report on Form 10-K, quarterly reports on Form 10-Q, and other documents filed by the company with the
Non-GAAP Financial Measures
As discussed on page 40 of the company's Annual Report on Form 10-K for the year ended
Operating income and operating income per diluted share are non-GAAP measures. They are defined as net income excluding the after-tax impact of net realized and unrealized investment gains (losses), gains and/or losses on the repayment of debt, other non-operating items, and results from discontinued operations. Net realized and unrealized investment gains (losses), which include changes in the fair value of equity securities still held, are excluded for purposes of presenting operating income, as they are, to a certain extent, determined by interest rates, financial markets and the timing of sales. Operating income also excludes net gains and losses from disposals of businesses, gains and losses related to the repayment of debt, costs to acquire businesses, restructuring costs, the cumulative effect of accounting changes, and certain other items. Operating income is the sum of the segment income (loss) from: Core Commercial, Specialty, Personal Lines, and Other, after interest expense and income taxes. In reference to one of the company's four reporting segments, "operating income (loss)" is the segment income before both interest expense and income taxes. The company also uses "operating income per share" (which is after both interest expense and income taxes). Operating income per share is calculated by dividing operating income by the weighted average number of diluted shares of common stock. The company believes that metrics of operating income and operating income (loss) in relation to its four reporting segments provide investors with a valuable measure of the performance of the company's continuing businesses because they highlight the portion of net income attributable to the core operations of the business. Income from continuing operations is the most directly comparable GAAP measure for operating income (and operating income before income taxes) and measures of operating income that exclude the effects of catastrophe losses and/or prior-year reserve development should not be misconstrued as substitutes for income from continuing operations or net income determined in accordance with GAAP. A reconciliation of operating income to income from continuing operations and net income for the relevant periods is included in the following pages of this news release.
The company may provide measures of operating income and combined ratios that exclude the impact of catastrophe losses (which in all respects include prior accident year catastrophe loss development). A catastrophe is a severe loss, resulting from natural or manmade events, including, but is not limited to hurricanes, tornadoes and other windstorms, hail, flood, earthquakes, fire, explosions, severe winter weather and other convective storms, riots, and terrorism. Due to the unique characteristics of each catastrophe loss, there is an inherent inability to reasonably estimate the timing or loss amount in advance. The company believes a separate discussion excluding the effects of catastrophe losses is meaningful to understand the underlying trends and variability of earnings, loss and combined ratio results, among others.
Prior accident year reserve development, which can either be favorable or unfavorable, represents changes in the company's estimate of costs related to claims from prior years. Calendar year loss and loss adjustment expense (LAE) ratios determined in accordance with GAAP, excluding prior accident year reserve development, are sometimes referred to as "current accident year loss ratios." The company believes a discussion of loss and combined ratios, excluding prior accident year reserve development, is helpful since it provides insight into both estimates of current accident year results and the accuracy of prior-year estimates.
The loss and combined ratios in accordance with GAAP are the most directly comparable GAAP measures for the loss and combined ratios calculated excluding the effects of catastrophe losses and/or prior-year reserve development. The presentation of loss and combined ratios calculated excluding the effects of catastrophe losses and/or prior-year reserve development should not be misconstrued as substitutes for the loss and/or combined ratios determined in accordance with GAAP.
Endnotes
(1) |
Catastrophe losses include current quarter events, as well as reserve re-estimates for prior-period and prior-year events |
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(2) |
Combined ratio, excluding catastrophes, is a non-GAAP measure. The combined ratio (which includes catastrophe losses and prior-year loss reserve development) is the most directly comparable GAAP measure. A reconciliation of the GAAP combined ratio to the combined ratio, excluding catastrophes, is shown on the preceding pages of this news release. |
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(3) |
Operating income and operating income per share are non-GAAP measures. The following table provides the reconciliation of operating income and operating income per share to the most directly comparable GAAP measures, income from continuing operations and income from continuing operations per share, respectively. |
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Three months ended |
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($ in millions except per share data) |
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$ Amount |
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Per |
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Net income |
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Less: Income from discontinued life business |
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0.1 |
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0.01 |
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Income from continuing operations, net of taxes |
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40.4 |
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1.11 |
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Less: Non-operating items |
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Net realized losses from sales and other |
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(30.4) |
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(0.84) |
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Net change in fair value of equity securities |
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1.1 |
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0.03 |
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Impairments on investments: |
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Credit-related impairments |
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(3.5) |
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(0.10) |
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Losses on intent to sell securities |
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(1.7) |
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(0.04) |
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Other non-operating items |
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(1.0) |
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(0.03) |
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Income tax benefit on non-operating items |
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7.8 |
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0.21 |
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Operating income after income taxes |
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Diluted weighted average shares outstanding |
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36.3 |
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*Results The Hanover expects to report for three months ended |
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(4) |
Current accident year loss and LAE ratio, excluding catastrophes, is a non-GAAP measure, which is equal to the loss and LAE ratio ("loss ratio"), excluding prior-year reserve development and catastrophe losses. The loss ratio (which includes losses, LAE, catastrophe losses and prior-year loss reserve development) is the most directly comparable GAAP measure. A reconciliation of the GAAP loss ratio to the current accident year loss ratio, excluding catastrophes, is shown on the preceding pages of this news release. |
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