Hanover ratings unaffected by multi-million charge

Standard & Poor’s Ratings Services will not take any ratings action following the pre-announcement by The Hanover Insurance Group Inc. (NYSE:THG) that it would be taking a US$52 million charge (US$34 million after-tax) in third-quarter 2006 to strengthen its reserves for claims related to Hurricane Katrina. S&P’s says the magnitude of this charge, which comes a full year after the storm losses occurred, is a surprise. However, S&P’s continues to say the charge is not large enough to materially change our expectation for full-year 2006 earnings. Through the first six months of 2006, Hanover posted pretax earnings from continuing operations of US$163.7 million, up 27% from those of the prior year. The combined ratio for the first six months of 2006 improved to 94.8% from 96.3% in the 2005 period, according to S&P’s. Although the ratings agency says Hanover’s third-quarter earnings will be adversely affected by this charge, it is mitigated by the very low level of current catastrophe losses, reported by the company at US$12 million for the quarter. S&P’s says it continues to expect that the full-year combined ratio, adjusted for catastrophe losses, will be flat or slightly better than it was in 2005.