Good day, ladies and gentlemen and welcome to The Hanover Insurance Group Fourth Quarter 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. And I will now like to turn the conference over to your host for today Oksana Lukasheva. Please proceed.

Thank you, Jasmine. Good morning and thank you for joining us for our fourth quarter conference call. We will begin today's call with prepared remarks from Fred Eppinger, our President and Chief Executive Officer and our Chief Financial Officer, Gene Bullis. Available to answer your questions after our prepared remarks are Dick Leiby, President of Personal Lines; Andrew Robinson, President of Specialty Lines, Jack Roche, President of Business Insurance, Johan Slabbert, Chief Executive Officer of Chaucer and Bob Stuchbery, President of International Operations. 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 Investor 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 2016. 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 share loss and combined ratios 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.

Thank you, Oksana, and good morning everyone and thank you for joining our fourth quarter earnings call. 2015 was a strong year for our company. We are pleased with our result for the quarter which rounded out another year of solid progress towards both our financial and strategic goals. For the full year we delivered net income per share of $7.40, the highest annual income in our history as a public company. Operating income per share was $6.25 in 2015 another all-time record yielding an operating ROE of 11%. Our success during the quarter and the year was driven by underlying earnings improvements and increased in net investment income and relatively favourable weather. Our combined ratio excluding catastrophes was 91.8% an improvement over the prior year. Results for the fourth quarter were also solid with operating income of $1.82 per share and an ROE of 12%. Throughout the year we continue to gain momentum in our efforts to achieve target returns. We leveraged our strong market position to improve our financial results and we have a solid foundation to continue to grow and improve earnings in 2016. I will now turn the call over to Gene to discuss our financials in further detail, and then I will return with an update of our strategic progress and our outlook for 2016.

Thank you, Fred and good morning everyone. It’s a pleasure to be back and to share another quarter of strong results with all of you. Net income for the fourth quarter was $78 million or $1.76 per diluted share compared to $90 million or $2 per diluted share in the prior year quarter. Operating income was $80 million or $1.82 per diluted share compared to $80 million or $1.77 per diluted share in the fourth quarter of last year. For the full year net income was $332 million or $7.40 per diluted share compared to $282 million or $6.28 per diluted share in 2014. Operating income was $280 million in 2015 or $625 per diluted share compared to $233 million or $519 per diluted share last year which represents a 20% increase on a per share basis. Turning to underwriting results, I will focus on full year performance and highlight quarterly details as appropriate. Our 2015 combined ratio improved by more than a point to 95.7% compared to 96.9% in the prior year. Catastrophe losses added four points to the combined ratio down close to a point from a year ago. Favourable reserve development remained largely unchanged at about two points for both years with highly favourable development and Personal Lines and Chaucer, partially offset by unfavourable development in commercial lines, which I will comment on in a moment. Our ex-cat accident year combined ratio improved by half a point to 93.8% with reductions in the overall expense ratio driven by commercial lines. The underlying loss ratio also improved in both our commercial and personal segments which was partially offset by higher current accident year losses at Chaucer. I like to now review our results by segment starting with commercial lines. Results for the quarter and the year reflect improvement…

Thanks, Gene. In 2015 we took another important step towards strengthening our long term insurance making strong progress on our priorities and positioning the company for another successful year in 2016. We continue to develop a more attractive business mix that will lead to more resilient earnings, we continue to grow prudently in targeted segments to improve our position with partner agents on maintaining solid pricing and strong retention and finally we effectively managed the capital and other resources to improve shareholder returns. While we remained focus on continued improvement, we feel very good about our market position and the fundamentals of our business as it stands today. Our success that’s far coupled with strong momentum and the earnings collaborators at work in our business gives us confidence as we look forward into 2016. With that said, I will now review our accomplishments and outlook by business starting with commercial line. Net written premiums grew 3% for the quarter and 6% for the year lead by strong pricing, retention and new business momentum. We maintained discipline in our pricing strategies and capitalized on our agency focused approach and as evidenced by strong rate increases and high retention levels. Overall, price increases and core commercial were 5.2% in the fourth quarter, slightly down from the third quarter although still well above industry pricing trends. Retention in core lines continued at the historic highs of 83% for the full year reflecting strong levels of age and in customer satisfaction with our value added products can now focus on small sized accounts where pricing remains fairly rational. Retention ticked down slightly in middle market in the fourth quarter however, as a result of some increased competition in the large accounts base. While the market remains challenging particularly in the large account market we…

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

Good morning, Matt.

Hey, good morning. How are you?

Very well, thanks.

Okay. Congrats on a nice quarter and year.

Thank you.

I just have one question and it relates to capital. I was hoping you could kind of paint the mosaic for us. If we look at the guidance you gave, talking about low, mid single digit topline growth. We’re not at a point where the ROE is that’s called double digit, so your compounding capital kind of faster than you’re eating it up with growth. And between let’s call it, buybacks and dividends you return about $200 million last year, if my math right. And the guidance for this year implies something in the $300 million range of operating earnings. So, I guess my question is your compounding earnings faster than you are eating it up with growth, which is a good problem to have, and at least at this point haven’t even quite returned full earnings back to shareholders. So, how should we think about that going into 2016? Should we see whether it’s through a buyback or increase dividend or pay down of debt, increase in that utilization of capital through those means or am I missing something and there’s something else that’s taking capital?

Matt, I think two points, I think we always said, we think about capital toward profitable growth, but to your point what we’ve also done if you look at our experience is we’re thoughtful about making sure we don’t carry tremendous excess and we’re thoughtful about trying to get it back in the more efficient way. What you seen us do in the most recent couple of quarters is been a lot of volatility in the market and our stock and we’re try to be opportunistic through the share buybacks to do something. In the last few years we played all the leverage you talked about. So, what you can be assured is that we’re going to continue to be pretty thoughtful about how do we make sure we have the right capital base going forward and that you won’t – I don’t see us changing philosophy. We will try to figure out the best way and the most efficient way if we do have excess capital to make sure we return. And as I said, I think that those leverage you mentioned are the leverage that we are considering and thinking about proactively. And as I said at the very beginning of all this is that we obviously wanted to go to a profitable growth when we have it, but we’re also not going be an efficient or not effective with the excess capital.

Right. Is there a preference at the moment, I mean, let’s just say, everything equal to where we stand now and that’s the big assumption because things are changing quickly these days in the world around us. Is there a preference towards given where the stock trading, buyback versus pay down of debt versus dividend or it just some balance of the three?

I would say it’s a balance of all three and we are continuing to try to be opportunistic, interested in perhaps repositioning our leverage a little bit on the debt side, but we will look at that as we proceed through the year. We do have plenty of room in our stock buyback program, so we have some opportunity to deploy that. And we just…

Well, thanks for the color and best of luck in 2016.

Thanks, Matt.

And our next question from the line of Larry Greenberg with Janney. Please proceed.

Hi. Good morning and thank you.

Good morning, Matt.

Hey, Fred, the operating unit kind of guidance or thoughts, you said, I think a half point improvement in commercial lines. I wasn’t sure if you were saying in the underlying loss ratio and the expense ratio each or combined?

Yes. That was just the expense, Larry.

That was just the expense…

So, half a point was just the expense.

Okay.

Yes. And so, obviously in total when you back into it there’ll be other improvements obviously.

Okay. So presumably you’re expecting underlying loss ratio improvement in both commercial and personal?

Yes.

Okay, great. And on the AIX, I hear you these are terminated programs. There is a history of terminated programs being the gift that keeps giving throughout the industry for some time. Just wondering if you can give us some comfort that now you’ve gotten that maybe what the reserve balances are, maybe the paid loss trends on it. Is there anymore you can provide on that?

Yes. So, if you recall two and a half years ago, that is – we were more skewed -- a little bit too skewed actually to wheels-related programs. We saw the trends in commercial auto. And we feel that we couldn’t get enough – I wouldn’t say they were horrible programs, I would just say that the trends were against us and we thought we were little skewed toward auto and we didn’t think we can get it where we were. So we discontinued -- there was probably $55 million to $60 million of handful of programs. And what this is kind of ground up kind of taking a look at that and taking a position to make sure little bit more conservative about what we have there. I would tell you for the whole company, that we’re about strong as I’ve ever seen for our balance sheet since I’ve been here, so I feel very, very good about where we are, what we’ve done and what we’ve been doing. So I feel we’re very good, but we’re going to continue to be conservative and react to things as we see it. But I feel pretty good about it. And that book itself again is a very attractive book of business right now and we feel very good about what we have. I think that’s helpful.

Yes. Fair enough. Thank you.

And our next question comes from the line of Charles Sebaski with BMO Capital Markets. Please proceed.

Good morning and thank you.

Good morning, Chuck.

Wanted to just follow-up on that last question on the AIX and the commercial auto business both, and maybe just ask sort of different way on where that business -- where the reserve strengthening has come from is loss picked. Because if I look at the presentation you have – I don’t know what page, page 8, the auto accident year seems to be improving, right, its going from 71.2 to 70.3, so you have improvement in the current accident year and then strengthening in the back years, so I was wondering to get an idea what are those back years picked at and where is that coming from to get some, I guess prospect or is there some understanding of the movement?

Yes. So the AIX is in the other. So if there auto and other lines [Indiscernible] okay, so those are – there are two different geographies on that page. So, that’s the answer where it is. And again, what I will tell you in general is that we feel very good about where we are with auto and what the action we’ve taken. The issues that we had were in that 2011 to 2013 timeframe and we talked about it in multiple calls. We’ve kind of reacted to it early and aggressively, so…

I guess what I mean is what are those accident years 2011 to 2013 picked that right now. What’s the loss pick on the 2011 to 2013 AIX book today versus relative to where they were before this reserve adjustment? Are they picked at an 80 versus 70 that the rest of the commercial book is for 2015 from the presentation or are they at a 75 or they at a 65 and they’re still potential for them to develop adversely relative to commercial trend in general? That’s what I’m trying to get, is where is the AIX auto book picked at for these back years currently?

Well, as they develop some of those years have picked – have develop out at over 100, I mean, that’s obvious from the outcomes, right, but…

Sure. This is Andrew, the one think I would say is that there were aspects of what made up those programs that are different than what is in our commercial auto business. It was some heavier exposure and then some of the loss trends that we saw were specific to particular plaintiff bar kind of actions that we saw emerging specific to this type of business. So, I think that if in terms of your question if you’re trying to compare it commercial auto and say okay, where do those picks sit versus commercial auto for the comparable years? I don’t think we start there. We’re basically trying to reserve to what we think is a conservative ultimate for that book for those years. And that – so just I’m sure, its comparable as much as we’re really looking at that book into itself.

They are substantially all case reserves at this point. There’s not much IBNR left in those period, so it’s really isn’t a pick, its case reserve.

Okay. But -- so that AIX book though is well over 100 then? Right? Okay, there’s not an IBNR, but the current – for those 2011 to 2013, they blown out, right, they are over 100% combined then?

No, again, these are discontinued programs we put up on these picks, okay.

Okay.

So, its apples and oranges which you’re talking about, we feel that they are fully reserved.

Okay. That’s fair. I guess I had another Chaucer. And I don’t know if this is just a factor of the U.K. book sell. But it seems that the growth -- it seems like the reinsurance cede has gone up, the gross to net for 2015. Is this is a factor of the U.K. and I guess in general given the pricing dynamic and the London market, that’s going on in specialty, is there any changes going to be going on that basis for the reinsurance on that side or other loss mitigation, obviously the performance has been good but from a pricing standpoint, my understand is that’s a more competitive place today.

Yes. Again – go ahead Johan, do you want to take it?

I’ll try and pick the questions out there, Charles. So, from a 2015 perspective, the net gross ratio obviously as you pointed out would be effective by the removal of the motor, which was midyear. What we expect to see in the future, what’s components of the fourth quarter as well as in 2016 is some protection against that competitive markets you were referring to by retaining a lower level, therefore getting better protection from our reinsurance program, so you will see some movements in that going forward as well. As you pointed out, it is a competitive market and that’s fueled by the absence of any massive or significant Cat event as well as the compounded effect of additional capital bring in by new entrance, so again that would drive us to a strategy whereby we would look reinsurance as a mechanism to protect our existing portfolio.

Okay. I don’t think I have any others. I appreciate the answers.

Thank you.

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

Good morning, Dan.

Good morning. Just a question and I was on late, so I apologize if you touched on this, but I was hoping to get a sense of the reserve range, just kind of outlook for some of the areas in commercial lines where you taken actions – obviously there – from the rebalancing you’re taking down workers comp. You added to commercial auto and to other commercial. Where are those – where do the categories reserves now fall within sort of the actuarial ranges on a broad-based perspective?

Again from a broad-based perspective, we feel very confident relative to the strength of the balance sheet and our actuarial expectation relative to carried reserves. And I would say that the tuning that we did at the end of the year where we had very high confidence levels in comp and home. We move some of those reserves into a more liability areas where we had relatively less confidence level, but we still have high confidence levels in all of the lines.

I guess what I’m trying to get at is if I was making a guess, your workers comp reserves were probably towards the high end of the range. You need those other areas. It might have middle or lower or something lower than that. Is everything now at the mid or above mid is what I’m try to understand. Or maybe if you can give that general bid, that would be great?

I wouldn’t want to give a definitive statement as strong as that, but I would say that generally that would be the case.

Okay. And then last question on pricing. You had another good quarter of rate, which seems like it still will be moderately an excess loss trend. This would give you – bake in some of the improvement in accident year on an earned basis hopefully in 2016. And my question is looking ahead how much runway do you see for any further rate in excess of loss trend given in the competitive environment, can you still sort of maintain that for the different mix?

This is Jack. It’s hard to have a crystal ball. I think we’re encouraged by the fact that we finish the year on a strong note and despite some deceleration in commercial environment we’re holding pretty well, kept our head above loss trend. We go into 2016 with expectations that there may be some further deceleration, although there is certainly a lot of noise with some of the other competitive activity out there that there may be a flattening out of pricing environment and certainly in areas like auto we see sustainable rate increases as there seems to be more players each quarter falling into the auto issue and so that gives us more and more confidence that we’re going to continue to deal with to take advantage of that. When you think about the last three years, we’ve average around 8 points of pricing in the auto line and we’re going into 2016 with expectations that we’re going lease the mid single digit or better. So, it depends on the line of business mix. It depends on how far the property market continues to push down while the casualty lines are tending to hold steady or in some cases push up. But probably the other thing I would say is that we go into 2016 with pretty high confidence that our earned premium would bring some additional pricing into our results. And so far we don’t see anything that suggests a precipitate drop off from where we are today.

That’s very helpful. Thank you very much,

And our next question comes from the line of Meyer Shields from KBW. Please proceed.

Great. Thanks very much.

Good morning, good morning.

Good morning. How are you?

Good.

Talk a little bit about what’s going on the liability side of CMP? Is that like an industry-wide issue or general liability? Is the environment deteriorating?

This is Jack again. I wouldn’t say -- its bit early to start talking about whether its really a trend within our business and certainly within the industry, I think there’s a couple of competitors as we watch that are starting to suggest that they have some severity change in their prior years. But as we said last quarter, right now, the way we’re looking at is there is some small subset of cases that are having additional severity, there is some heighten litigation on certain types of claims that tend to not only push up the indemnity outlook but also are dragging along some legal expense. And I think what we suggested in the past is that we’re committed based on what we learned through commercial auto and what we see as far as our philosophy, to stay on top of even smaller bumps in the road that we’re trying to avoid big surprises, we’re trying to capture particularly on the casualty lines things that are slightly outsized to our trend analysis. So, you’re going to see us -- this is a second quarter where we’ve decided to recognize some prior year development in the CMP liability, but it would be premature for us to call that a trend based on being relatively small subset of cases that we’re watching.

Okay. Thanks. Second, can you talk a little bit, I guess, only thing the really surprised me this quarter was slowdown of commercial net written premium growth on a sequential basis?

Yes. This is Jack. I think what I would – if you look at some of the more detail, predominantly what you saw was two things. We had a middle market retention dip of roughly five points that was predominantly made up of one large account that was acquired. We’re not a big large player, so when one large account is acquired that shows up in our numbers. But also there was some heighten competition on the larger or the upper middle market business and we elected to not let our book deteriorate over the pricing. We have a very small portion of our book that’s in accounts over $500,000 and we intend to stay very discipline if that market is going to continue to be hyper aggressive. So, I say that we go into the first quarter with a better outlook. We don’t see – we certainly don’t anticipate one of our largest accounts being acquired, but we also got out of the block nicely in January and so we’re hoping that will be kind of more of an aberration. Also the last point, on new business, we get to the end of the year it does occasionally get aggressive when some people are behind. And I hope what you’ll see in our results is that we’re focused on profit and making sure that we don’t just grow for growth sake. That said, we have confidence that we can generate the appropriate level of growth in 2016 and we’ll stay diligent on that.

Okay, fantastic. Thank you very much.

And our next question comes from the line of James Ellman with Seacliff. Please proceed.

Good morning, James.

Good morning. Thanks for taking my question. I just wanted – was hoping to get a little bit color on the energy holdings in your investment portfolio and of course you don’t have to mark them to market, but I was hoping you might be able to give us a little bit of color as to where that portfolio is trading in the market today to the extent that they are bonds that actually do trade?

Well, our market at the end of the year was at around 91 overall for the total portfolio and I think its drifted down a bit in the month of January about 20 million. Our overall market actually went up about 30 million from the whole portfolio. So, we believe it’s very manageable. We obviously mark to market through the balance sheet and then we do a ground up credit analysis for everything that we think is appropriate for us to recognize and impairment on. We went through that exercise. We continue to monitor it. We monitored the activity since the end of the year. We don’t see anything that we need to react to and we’ll just continue to stay close. But we thing overall [Indiscernible] it a very high quality portfolio, there’s very little in equity or ETFs or anything like that, that’s energy related and we’re quite confident that we can write it out. We’ve done stress testing on the portfolio as well to see what happen relative to oil prices staying low and we feel confident that we’re in a strong position and it’s a good portfolio.

Very good. Thanks so much for the time.

There are no further questions at this time. I will now like to turn the call back over to Oksana Lukasheva for closing remarks.

Thank you all for you participation today, and we are looking forward to speaking to you next quarter.