Good day, ladies and gentlemen and welcome to the Second Quarter 2015 The Hanover Insurance Group Earnings Conference Call. My name is Jasmine and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today. Ms. Oksana Lukasheva. Please proceed.

Thank you, Jasmine. Good morning and thank you for joining us for our second quarter conference call. We will begin this call with prepared remarks from Fred Eppinger, our President and Chief Executive Officer and David Greenfield, our Executive Vice President and CFO. Available to answer your questions after our prepared remarks are Jack Roche, President of Business Insurance; Andrew Robinson, President of Specialty Lines; Dick Leiby, President of Personal Lines and Bob Stuchbery, President of International Operations and Chief Executive Officer of Chaucer. Before I turn the call over to Fred, let me note that our earnings press release, financial supplement and a complete slide presentation for today's call are available in the Investors section of our website at www.hanover.com. After the presentation, we will answer questions in the Q&A session. Our prepared remarks and responses to your questions today, other than statements of historical facts, include forward-looking statements, including our earnings guidance for 2015. There are certain factors that could cause actual results to differ materially from those anticipated by this press release, slide presentation and conference call. We caution you with respect to reliance on forward-looking statements and in this respect refer you to the Forward-Looking Statements section in our press release, Slide 2 of the presentation deck and our filings with the SEC. Today's discussion will also reference certain non-GAAP financial measures such as operating income, operating results excluding the impact of catastrophes and accident year loss and combined ratios, excluding catastrophes, among others. A reconciliation of these non-GAAP financial measures to the closest GAAP measure on a historical basis can be found in the press release or the financial supplement, which are posted on our website as I mentioned earlier. With those comments, I will turn the call over to Fred.

Thanks, Oksana. Good morning, everyone and thank you for joining our second quarter earnings call. We are very pleased to report another quarter of strong and improving financial performance. We delivered an operating income per share of $1.56 and an operating return on equity of 10.7%. We produced robust bottom line results in line with our expectations, strength and the quality of our book and business and made progress across our organization. We feel good about our financial achievements in the current market position. Our strategic investments to improve our portfolio in market position have strong traction that is demonstrated by 10 consecutive quarters of improvement in our domestic businesses. Additionally, we believe our franchise is well positioned to the current environment. Our target markets or distribution strength in our underwriting leadership and preferred segments should allow us to effectively compete in today's environment and continue to create market opportunities. Progress on all our strategic initiatives gives us confidence in our ability to continue to generate strong earnings growth through 2016. As we generate earnings accretion in our improving portfolio and grow the top line. I'll touch in some of these points as I comment on our second quarter achievements and business initiatives. But first, I'll let David review our financial performance. David?

Thank you, Fred and good morning, everyone. We reported a very strong quarter in line with our overall expectations and based on our year-to-date position, we remain confident we can achieve the full year financial targets we have set. Net income for the quarter was $121 million or $2.68 per diluted share compared to $83 million or $1.84 per share in the second quarter of last year. Operating income showed good improvement and was $70 million or $1.56 per diluted share compare to $58 million or $1.30 per diluted share in the second quarter of last year. The larger the normal difference between net and operating income in the current quarter is primarily due to the $40 million realized gain or $0.91 per share from the transfer of our UK Motor business that we successfully closed on June, 30th. I will discuss this transaction in more detail in a few moments. But it's worth mentioning now that our team worked hard to close the transaction ahead of our anticipated third quarter schedule. The overall combined ratio was 96% in the quarter compared to 97% in the prior year quarter. Catastrophe losses added 4 points to the combined ratio. Down close to a 1 point from the prior year quarter. Favorable reserve development remained largely unchanged at about 2.5 points for both periods with some movements between the lines. The ex-cat accident year combined ratio was in line with the prior period with an improved expense ratio and a slightly higher loss ratio, as underlying improvements in domestic business were overshadowed by large loss activity in the energy line at Chaucer. Catastrophe losses for the quarter were $46.5 million mostly driven by the domestic lines. Chaucer catastrophe losses were again very low less than 1 point of the combined ratio. Moving…

Thanks, David. We're very pleased with our financial accomplishments and strategic indicatives we executed in the first half of 2015. Which should enable us to achieve good growth and target returns in the quarters ahead? In commercial lines we delivered solid growth of 5% with premium increases in all our segments. We continue to focus on areas where we can grow profitably, capitalizing on the momentum, the franchise value and the strong positions we've earned with our partner agents. We are pleased with the tractions we made in small commercial. We further leveraged our local operating model and the flexibility of our point of sale and non-point of sale operating that make us unique in the market place. In middle market, we remain focused on building and investing in the industry solutions that will maximize profitability and allow us to gain additional shelf space with our partners. Pricing increases in core commercial were 5.5% down approximately a 1 point from the first quarter. As some of the more significant pricing we were achieving in segments where we needed it, has normalized. Our pricing remains above loss cause and retentions remain stable. We're satisfied with our pricing and retention trends, which continue to run in line with our expectations and feel we'll continue to improve our margins. Our target markets primarily made up of smaller accounts, are stable and still present us with significant opportunities. New business was robust, both small and middle market showing continued momentum. We have never been more optimistic and confident in the quality of our new business we're writing. We continue to benefit from the close collaboration with our partner agents as we grow and gain share with them. Our access to attractive business has benefitted our speciality lines. Where we experienced 5% growth in the…

Operator, we're ready for the questions.

[Operator Instructions] and our first question comes from the line of Matt Carletti from JMP Securities. Please proceed

Just a few questions, couple a little more high level and a couple just quick numbers questions. First one is, there's been a lot of M&A out there a few that, would be viewed as at least in some business competitors of yours. I'm just curious, thinking ACE Chubb specifically and maybe some others. What's your feedback been from agents in terms of your positioning with what's going on or have you seen anything yet more tangible in terms of any changes or benefits you might expect from that shifting landscape?

I think it's probably too early to say anything specific. But I would say that, typically in any of the M&A activities that you see there is, there is often some disruption in opportunity and I think, we as a company are very well positioned right now in the market place and if some occurs, I think it could create some opportunity for us. We don't expect it per se, we don't plan for it. But as you know, we've had some nice success in shifting share with our agents and if there were opportunities, we'll able to capitalize on those.

Okay and then the next kind of market related question, I had was it relates to Chaucer specifically energy just kind of lot of market noise and scuttle about how much rates are down and a lot of that oil price driven. What is your kind of guide's view of the landscape and then specifically, can you kind of remind us where, how your book fits versus that because my understanding is, it's only - certain pockets of the energy market or more or less than others.

Exactly, so Bob do you want to run with that or? He's not on, so okay.

Well, he should be on. Operator, can you open his line?

Operator, can you please open Bob Stuchbery's line.

Yes, I'm opening that line now. Thank you. Your line is now open.

Yes, as you know. We're market leading in energy business. We've got an established and what we call, a good quality book of business and even recently, we've changed that leadership position with Katelyn Hunt [ph] joining us within the last month. Yes it is a difficult market and our book tends to be more offshore less Gulf of Mexico and write-off and business opportunities are down, due to as you mentioned the oil price reduced activity and also the lack of construction opportunity, as well, just as that's drying up. And we have seen and will see, our income reduced but, really it's just a matter of, this is a market cycle. There is nothing particularly different in the way that we underwrite our book and it's reasonably defensive position at the moment.

Yes, Matt in total, we feel pretty good about our portfolio Chaucer [ph]. So we've guided to about flat you know there, that is B segment. I think that is kind of most affected by the economic trends in that business and so that, there will be some shrinkage in that business. But as far as I told profitability in position and some opportunities that we see, will hold our own. I think, we feel pretty good about that right now.

Great. Thanks and just a quick numbers questions. Both the Chaucer acts to your loss ratio which had some energy impact and then the personal lines which had some pulled over Q1 weather impact. Are you able to quantify the impact of each of those on those numbers to kind of get a little more run rate or ex noise?

Yes, I mean I would just tell you on the personal line side it's relatively small. Less than a point. On Chaucer, I just would continue to come back to you. You've seen the results have been very well over the last many quarters and we always try to guide back to a 95. Energy did affect us, obviously there was some other losses in the book this quarter, but we don't quantify the amount because I don't want you to take the current run rate as their go forward rate. We still would go back to the 95 as the rate that we used on that book.

Okay, fair enough. Thanks very much for the answers.

And our next question comes from the line of Dan Farrell from Piper Jaffray. Please proceed.

I was wondering, if we can spend a little time on personal lines. Your PIF count change continues to gradually improve it's still a little bit negative. I'm curious, how long you think before that can inflect the positive and then, your comments on the platinum product still being in relatively early stages. And once again, a little more how much more benefit you think that can provide, if you can talk about that [indiscernible] retention at growth?

Yes, so let me just comment on the PIF count because what's happening is, we still have some monoline that is just dropping off. Well, we don't talk about it as much because the big numbers are down. We're still working on some thinning, so that's what you really think is, particularly a monoline property business is decreasing a tad.

Right, if you look at our account business year-over-year we're up 1.7 and our sequential account growth about is about 0.3, so we're seeing every quarter improvement growth in our account business and on the platinum side that business is performing really terrific. The retentions of our account businesses is in the high 80s, almost reaching 86 and so some of the quality indicators. Fred that was referencing that will lead to improved performance in the future. I think, I referenced it some of it on the last call, but just the limit profiles, the percentage of the accounts that have an umbrella hatched is nearing 40% to 20. Better number of accounts with limits of 100, 300 on liability side. So it is early, so it's hard to say, what the precise improvement will be in our loss ratio. But we're optimistic, absolutely with that kind of profile of the business that it will turn to that results.

And again, what we would argue is that, the agents. These are, the agents have a significant portion of the book, that really they bet at book are these types of accounts. And the product is the best out there as far as the experience for the customers with a self-service and a dedicated service in claims etc. And so, what we believe is as they experience it, we will see a shift of some of their best business to us. So we'll both growth them organically, but we'll also better serve some of their existing customers and that's why what we're seeing is, as these things get rolled and kind of be embedded with the agents. Our experience is going to be that we will share shift to us overtime. Our total growth as we've signal, we do see in the two slightly higher range for the remaining of the year. So it will be into 60, when we see PIF year-over-year growth.

That's helpful. Thank you and then just a question on investment portfolio and investment income. David, you mentioned in your remarks a little bit about some of the movements you're making into non-fixed income assets. I was just wondering, if you could expand a little more on that and then as we think about the path of investment yield. Can these ongoing shifts that you're doing is, can that help offset some of the yield pressure we're seeing. And I forget if you also just mentioned what new money yield is on the portfolio versus the overall existing mixed income portfolio. Thank you.

Yes, sure. So there's a lot of questions wrapped up in there, that's a lot of them. But just in terms of the new areas or well they're not so new. We've been kind of pushing money into some of these categories over the last probably 1 year to 2 years. But we have about 7% of the portfolio in funds, either hedge funds or partnership or other strategies that are outside of the core fixed income portfolio. We make very modest investments on a per partnership basis. So we feel pretty good about that in the risk spread of that portfolio and it's obviously been helping us, tremendously. We did start a commercial mortgage participation portfolio, a little over 1 year ago and that's obviously growing a little bit. You can see that roughly about 16% of our other asset portfolio at this point and growing nicely and obviously we're careful in that regard. So we're really happy with that and obviously the main component of the assets of the equities, where we're investing in high dividend yield strategies or funds, market based funds or index based funds, which are obviously doing well as the market is increasing. In terms of kind of new money yields. We're seeing somewhere around 3.5% in terms of the earned yield, sorry new money yields couldn't be little bit lower than that. But I think when you look, some charts we put out. We are feeling like we're kind of at that the lower end of the curve and we've been holding, the rates haven't come down much, in terms of our earned yields over the last few quarters. And we think as we move forward with some of the strategies we're employing, we'll be able to start to see that tick up and obviously the big question will be, what the fed does with interest rates in the future and how quickly those start to move up for the whole sector. And so I'll new money yield, I don't have it front of me, but I'll give it for you. It is 2.8%.

Great. Thank you very much.

[Operator Instructions] and our next question comes from the line of Meyer Shields from KBW

Starting off from personal lines [indiscernible] wing. Obviously progressive is a making a very concerted push to increase its attractive as a sort of bundled personal line insurer. Are you seeing the level of marketplace competition focused on that changing?

There is a lot of discussion about it, I would tell you. I think that, in the agency channel, the vast majority of this account business is controlled by frankly smaller regional companies. And so, right now, right you've seen number of folks mention that they're going to do more. They're going to try to invest in it. But currently, we're kind of, we feel like we have kind of industry leading solution there. But we're obviously not taking that for granted, as we mentioned. We're continuing to enhance and invest in it. But lots of discussion, we'd say that it's a dominant.

And I would just add that, for our target customer segment, not seeing that progressive announcement of moving into the home business is going to and sort of eat into that segment. Their auto business tends to be in different segment than ours. So as they move into home, the arguably the home business attached to that auto customer is what will be targeted initially. In our target mass of affluent market segment. Right now we're not dealing that increased competition. But as Fred said, we're, we love good healthy competition and we'll keep ours.

Yes, it's one of these things in my view, that a lot of our competition has kind of neglected the service aspects for it. Shockingly as an example, most of the account oriented business in the regional companies, they don't even have service centers. So it is a big gap in how some of that business is serviced and how much self-service capability they have and that's why, we're enjoying kind of interesting opportunity here because structurally a lot of these folks, whether they have the coverage is at one point. But whether they can actually service the business is kind of the bigger point.

Yes and also maybe final comment, this is where our distribution strategy. It really comes to help us, secure a solid position in this market segment. Our deeper relationships with the narrow number of select number of agents and so all the work that we've done to kind of so, went over the CSR, the Accounts Manager that is will pay dividends. Progressive even has stated publicly, you know that they're challenged in that segment and they're working hard to improve their shelf space with an agency. So this is where our distribution strategy really comes and pays dividends for us.

Okay, that's very helpful. Thanks. And then shifting gears, obviously tons of consolidation at least that are out there. Are you seeing an uptick in maybe smaller call them not high profile companies that are thinking that they might need to affiliate with a larger company?

You mean on the underwriting site, are you talking about?

Yes, in other words. Are smaller companies knocking on your doors, more saying, hey, it's time to talk.

No, I mean I think there is, obviously we've done roughly 10 or 12 depending how you think what right deals we've done, transactions. And we're always kind of being thoughtful about what helps [indiscernible] value and positioning our franchise. And so we're always having conversations, I don't, in my view I haven't seen a material uptick in interest and or conversations. I think it's one of those constant things because what's interesting is a lot of things that are happening in our industry. Frankly, not just because of some of the announcements recently but if you look at the last 5 years, whether it's the weather volatility or regulatory lead around risk management and capital. The need for spread of risk and scale and the technology investments, these folks are all wrestling with. There's always a number of people that are being thoughtful about it. But I would caution, people to think there is going to be a big way. I mean, an enormous amount of these small companies are mutual's, that have a very different motivation philosophy and I had mentioned this in like at our Investor Day. If you look at the share of the smaller the $100 billion, if it's controlled by the smaller companies, that is shrunk materially in the last 15 years, maybe $30 billion. So they're slowly shrinking a lot of them, but I don't see some massive movements of consolidation. I just think it's one of those things that, the business itself will find, there will be some consolidation to better equipped or targeted solutions. So again, lots of conversations but I would say nothing earth shattering change in the trends there.

Okay, fantastic. Thanks so much.

And there are no remaining questions at this time. I would now like to turn the call back over to Oksana Lukasheva. Please proceed.

Thank you, everybody for your participation today and we're looking forward to speaking to you next quarter.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may disconnect. So you all have a great day.