The Hanover Barely Ekes Out Q2 Profit, Thanks to Losses at Lloyd’s Chaucer Arm

The Hanover Insurance Group barely eked out a profit in the 2016 second quarter; large losses and catastrophe hits sustained by its Chaucer division are generally to blame.

Net income came in at $2 million, or $0.05 per diluted share for Q2, a plunge from the $120.7 million, or $2.68 per diluted share, generated in the 2015 second quarter.

Beyond those results, however, The Hanover had a relatively stable Q2. Net premiums written surpassed $1.22 billion, down from $1.29 billion over the same period last year, a drop driven by the sale of the Chaucer U.K. motor business. (U.S. net premiums written, on the other hand, grew 2.9 percent.)

Net investment income was just above $69 million in the 2016 second quarter, compared to $70.7 million in Q2 2015.

The Hanover’s overall combined ratio was 97.3, an uptick from 95.7 during the 2015 second quarter.

Chaucer, a specialist at Lloyd’s focused on reinsurance/insurance in areas including global marine, energy, casualty and property, reported a 103.2 combined ratio for the 2016 second quarter, compared to a 90.6 combined ratio in the 2015 second quarter.

Chaucer’s catastrophe losses nearly hit $14 million in Q2, or 6.7 points of the combined ratio, versus $2.4 million, or 0.8 points over the same period last year. The Hanover blames Canadian wildfires, and earthquakes in Ecuador and Japan for some of the impact, though it was partially offset by $12.1 million in favorable development on prior-year catastrophe losses. Foreign exchange rates also hurt.

Chaucer’s net premiums written came in at $246.4 million during the second quarter, versus $346 million in the 2015 second quarter. Net premiums earned were $206.1 million, but that’s down from $292.1 million in Q2 2015.
“The underlying fundamentals of the business remain very strong despite some specific but isolated operating challenges in the U.S. and global loss volatility at Chaucer, The Hanover President and CEO Joseph Subretsky said in prepared remarks.

The Hanover, based in Worcester, Mass., acquired Chaucer in 2011 for $474 million in a bid to achieve greater scale, diversification and expanded market presence

Other result highlights:

• Net realized investment losses came in at $700,000 during Q2, versus net realized investment gains of $12.6 million including $1.9 million of impairment charges

• Commercial lines net premiums written came in at nearly $580 million, versus $569 million in the 2015 second quarter. Net premiums earned were at $574.7 million, up from $557 million over the same period a year ago. The combined ratio was 98.9, up slightly from 98.3 in Q2 2015.

• Personal lines net premiums written are booked at $395.3 million, compared to $378.3 million in the 2015 third quarter. Net premiums earned are at $364.7 million, up from $356.7 million in the 2015 third quarter. The combined ratio for the quarter was at 91.3, an improvement over the 95.7 combined ratio in Q2 2015.

• The Hanover said that it continued to achieve price increases in both commercial and personal lines.

• During the quarter, The Hanover repurchased 230,000 shares of common stock for $19.1 million, for an average price of $83.19 per share.

Source: The Hanover