Good day, ladies and gentlemen and welcome to the fourth quarter 2007 The Hanover Insurance Group earnings conference call. My name is Maria and I will be your audio coordinator for today. At this time, all participants are in listen-only mode and we will be facilitating a question-and-answer session towards the end of today's conference. [Operator Instructions] At this time, I would now turn the presentation over to Ms. Sujata Mutalik, Vice President of Investor Relations. Please proceed.

Thank you, Maria. Good morning and thank you for joining our fourth quarter conference call. Participating in today's call are Fred Eppinger; our President and Chief Executive Officer, Gene Bullis, our Executive Vice President and CFO and Marita Zuraitis, President of Property & Casualty Companies. Before I turn the call over to Fred for a discussion of our results, let me note that our earnings press release and our current report on Form 8-K were issued last night. Our press release, statistical 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. After prepared remarks today and responses to your questions today other than statements of historical fact may include forward-looking statements. There are certain factors that could cause actual results to differ materially from those anticipated by the press release, the slide presentation, and the conference call. We caution you with respect to reliance on forward-looking statements and in this respect we refer you to the forward-looking statement section of our press release and slide two of the presentation deck. Today's discussion will also reference some non-GAAP financial measures such as total segment income, segment results excluding the impact of catastrophes, ex-catalogs ratios and accident-year loss ratio among others. A reconciliation of these non-GAAP financial measures to the close of GAAP measure on our historical basis can be found in the press release of the statistical supplement, which are posted on our website as I mentioned earlier. Before I turn the call over to Fred, I wanted to remind you that we have scheduled an Investor Day for February 27 to be held in New York. So mark your calendars and we hope to see you there. With that, I will turn the call over to Fred.

Good morning. And thanks everybody for joining the fourth quarter earnings call. I'm very pleased with our performance in 2007. It was a record year for our Property and Casualty Company. Full-year earnings were 395 million for 2007, up over 20% versus the prior year. Net income per share was $4.83 per share for the year, up 48% from $3.27 in the prior-year and results for the fourth quarter were also strong with net income of $1.44 per share for the quarter, up 64% compared to prior-year quarter. Book value per share was up 13.5%, ending the year at $44.37, up from $39.10 at year-end 2006. At the same time, our P&C leverage or return-on-equity for 2007 was 14.3%, up from 13.5% in 2006. These improvements were supported principally by the strong performance of our Property and Casualty segment, which consistently delivered strong results in each quarter in 2007. Our Property and Casualty pretax segment income was $103 million for the fourth quarter of 2007, up 6% compared to the fourth quarter of 2006. At the same time, we successfully improved our market position, growing net written premium by 5% for the year clearly above industry average. Several factors favorably affected our earnings for the year. Catastrophes were low helped by the weather and the lack of any major hurricane activity in the United States. Additionally, our business portfolio has matured very favorably and we released reserves related to prior accident years across most of our lines. Our balance sheet continues to remain very strong and we continue to reserve for our current accident year prudently giving careful thought to pricing environment, introduction of new product enhancements, and entry into new markets, all of which could potentially affect our current accident year's performance. Furthermore, our earnings benefited from a litigation…

Thank you Fred. Good morning everyone and thank you for joining our call. This is my first conference call with The Hanover and I'm very pleased to be here. I'm sure that overtime I will get to know you all better and I look forward to that in seeing many of you at Investor Day next month. Today, I will be reviewing the company's financial results using the slide presentation that you're familiar with. Turning to slide 5 for a discussion of our net income. Net income for the fourth quarter of 2007 was $76 million or $1.44 per share, up 65% compared to $46 million or $0.88 a share in the fourth quarter of 2006. Contributing to this increase was first, a tax benefit of $13 million or $0.24 per share in the fourth quarter of 2007 related to our discontinued life operations. This tax benefit resulted from a settlement of an IRS audit related to the 2002 through 2004 tax years. Net income for the fourth quarter of 2006 on the other hand included an after-tax net realized loss on investments of 14.3 million or $0.28 per share. For the full-year 2007, our net income was 253 million or $4.83 per share compared to net income of $170 million or $3.27 per share in 2006, an increase of 49%. The principal factors contributing to this increase were the items already discussed for the quarter. Additionally, in 2006 we incurred an after-tax loss of $22 million or $0.42 a share related to expenses associated with the sale of our variable life and annuity business. Net income for 2007 reflects a 20% increase in pretax Property and Casualty segment income. Now let's turn to slide 6 for a discussion of segment earnings. Segment income after taxes was $61 million for…

Thanks Marita. Operator, we will now open the floor up to questions. Question and Answer

[Operator Instructions] Your first question comes from the line of Dan Farrell with FPK. Please proceed.

Hi, good morning.

Good morning, Dan.

Fred, I think you've mentioned that you thought you could grow earnings next year at a single-digit pace. Can you give a little more color around some of the other assumptions in terms of reserve development, some of your accident year picks, which were pretty conservative this year and may not have to be up that much next year and then also just assumptions for what the Life business can do in the run-up?

Yes, we are going to spend a lot of time on that at the meeting on 27th of February so I won't go in a lot of details but we have a lot of confidence that unlike others that are going to have decay in their accidents in the industry we don't think we're going to have that situation. And as we have said in the past, well, I think that the reserve releases will moderate they will continue. So in my view, I mean… and so it is going to be a similar story that we have had for last two or three years. One big difference this year is the maturity of our product set. I mean, we had a lot less certainty in the last couple of years, we revamped Personal Lines autos and Personal Lines [inaudible] and for Commercial and comp and we have a lot more transparency. So what I would like to do on the 27th is actually is go to that in a lot detail. But the story is not a lot different, the magnitude of the different pieces are a little bit different but we feel pretty confident that we still have improvement left. In addition for instance, I think I had still haven't improved our expenses as I've have said to you in the past. So the story hasn't really changed but I want to make sure we have the time to go through all the specifics. So because it is somewhat complicated because of the mix change in the business.

Okay, that's helpful. And then just an additional question on the Life segment. Can you just expand a little more on what you think, some of the strategic options could be for that and then also you're getting… you said you can realize most of the tax attributes in 2008, does that imply that you can get more than say, $20 million, $25 million in '08 that you can accelerate that versus what you pulled out this year already?

Yeah. So, as you know, the difference from stat and gap essentially one of the biggest differences is the tax attribute, there’s other things but that is one of the biggest one. And then as we have always said, what we try to do is assess the value of the Life company every year and the net present value and said some of these tax carry forwards, we would have lost if we had done anything like sell the remaining business. So we decided to maintain it and as I look forward, one of the tax attributes we would lose are used up this year… this calendar year. So because of that it is important for us to now start to thinking about alternatives for the Life company which includes selling some of the run-off businesses and my belief is that they are a lot less risky obviously, a lot less volatile to what we had before and so that there is a market for those and so we have to be thoughtful and make sure we get the right kind of value. But we don't give up as much as we did couple of years ago when we had over $100 million of these tax carry forwards that we would have lost if we have sold it. And as you know, I think from the tax accruals as long as we own portion we get this year's credit for that as along as the P&C company continues to earn money, which we expected to do. So if you know, we as again, we will go over some more detail of that at the meeting but I believe that essentially that is if we pursue strategic options around liquidating some of that… those assets during their week of free up additional capital. I mean it’s obvious I think to all of you that growing concern would not having an RBC that we have. I mean, our RBC is at an incredible high level because it’s a run-off business. Any other entity that would hold that would have a normal RBC, which obviously would treat as an arbitrage opportunity there between the capital we would have to carry to run it and they would run it. So there is obviously an opportunity to free off some capital, which is exactly what we want to pursue.

Great. Thank you very much.

Your next question comes from the line of Cliff Gallant with KBW. Please proceed.

Good morning. Good quarter.

Thanks, Chris.

Just a quick question, on the buyback, could you talk a little bit more about the strategy how going forward and I think, I heard that you said you bought back $10 million worth of stock in the quarter?

Actually, we programmed the date of $10 million where I think we had about $1.5 million in '07 and a little bit more activity in January. We have a 10b-5, we did put a cap on it because we went through a quite period and didn't have any control over what happened. So that just kind of ran it's course up to the cap.

Okay.

So that's what happened in the month. We want to be careful. We have certainly some strategic competitors for growth. So we want to make sure we have the capital to support that. On the other hand we think that buying back collectively and prudently is smart, and that's why we have the program in place. But we don't expect to… we will be using it in a week or a month. We want to be cautious about the pace at which we consume a $100 million.

Okay. And Marita, you mentioned that the… I think you already said that the partner agent growth was twice that of the overall company does that mean the partner agents are growing in the mid-teen range? Marita Zuraitis - President, Property & Casualty Companies: Yes, it does. In Personal Lines it’s about 1.5 times and in Commercial Lines it’s twice the growth of the other agency plan. I mean we continue to add agents to that list as we go through a pretty robust planning process with those agents.

And Chris, one of the most important points we tried to make is that in this kind of market you are seeing tons of people… earnings growth are shrinking of earnings, because the new business pricing is quite different from renewal pricing and many other segments. And one of the things we tried to do with partner agents obviously is that we give them a robust portfolio of special kind of products and offerings. We get them to shift share to us without that same kind of new business penalty. I mean, that's the whole game we play, right. That's… the partner agents are incredibly important to us. We give them some of these distinctive things to sell, to compete in a marketplace and then they help us with some of our growth that doesn't come with the same kind of new business penalty you have in this kind of market. It's competitive, we have good prices, but we don't have that same kind of seven people competing crazily for some of this business. And that's a big part of what we see happening in the next two years. The other thing that I would like to tell you about partner agents, you will see in my view the next three quarters and a number of these regional companies have real problems. They have run out of balance sheet flexibility. And if you look at their mix of comp and their mix of long-term liabilities that they went into may be 4,5,6 months or six quarters ago, to make up for their lack of growth that stuff come in home to roost. So what you're going to see is some re-underwriting at these regional companies which again forces that business into the marketplace for our partner agents, they need to find a home and stable home and we think it basically bodes well for us to be able to grow without an enormous new business penalty. So, we see this beginning of some of that and we think the next three, four quarters you are going to start seeing some real activity among the weaker regional companies. Marita Zuraitis - President, Property & Casualty Companies: And for these partner agents we look pretty unique on their shelf space for a regional company with the capabilities we've built and the operating models that we've put in place, we really sit there as a pretty strong super regional company with a lot of these agents. We will give you a lot more transparency around the partner agencies at Investor Day there will be a big part of what we talk about with you then.

Okay. Thank you very much

Thank you.

Your next question comes from the line of Ron Pai [ph] with Banc of America Securities. Please proceed.

Hey, good morning.

Good morning, Ron.

Hi, the first question is for Fred I guess. I think you've made your second acquisition now with Verlan, how do you envision operating these companies. Are they going to be run independently under The Hanover umbrella or do you see them as becoming more integrated into your overall business?

Yes, that’s a great question Ron and everyone is a little different. I mean what you see is that since I have joined the company four years ago, we started trying to pursue teams. And at the beginning it was more teams without balance sheets and now… because the pricing has come down and some of the smaller companies reinsurance costs are such that it’s real value for us to be able to buy the team and the balance sheet. But what we try to do is that for a lot of these, it is about professionals, right. I mean what we're trying to assemble is distinctive professionals that have a specific confidence. So in the example of PDI that is really our platform now for professional liability. So you'll see that team be able to help us acquire other professionals to go into architects and engineers etcetera. So it is separate from a professional team point of view but our reinsurance purchasing and financial management is one, risk management is one, much of our operating model they have been brought in because of most of these companies are small face value. So one of the big value creators we are doing is a lot of these companies with small face value policies have a lot of manual work. So our imaging processes, our back office processes make them a hell of a lot more efficient and keep their professional focus. But if you think about what we do, we keep the professional underwriting often together. So you will do… there are some of companies that have a philosophy of being a holding company, keeping these things separate. We will not do that. We will have professionals act as professionals but you will see our financial controls, our operating model…

Thanks, Fred, Marita for the details. I'll save any follow-ups may be for Feb. 27. I guess, Marita just or may be Fred too, just one thing what is the profile of your bond book of business and then I guess I am -- the concern would be if we do head into an economic slow down, is that exposure say that we need to be concerned about? Marita Zuraitis - President, Property & Casualty Companies: You know like the rest of our portfolio, our bond business, I won't call it boring, but that is probably an appropriate word. It matches the small to mid size mix of the rest of our business, it is not significantly heavily weighted in contract surety. It is a nice mix, it is just the size of our agents and the size of our portfolio. It certainly has some economic trends that you watch, but it is not as significantly impacted as the book of business that would be heavily weighted in large contract surety. We don't write P&C business for large contractors. Our percentage of P&C business in the whole contracting segment is extremely small and actually quite different than the majority of our regional counterparts. So we watch it carefully. We have very high underwriting standards from a financial underwriting perspective. We have a very seasoned group of professionals running this business and we feel very confident that we got a good handle on what it is, and its a nice solid mix for who we are and what we do.

So it is primarily a contract book as opposed to a commercial surety? Marita Zuraitis - President, Property & Casualty Companies: Correct. I mean it is not heavily… it is a nice mix but if you are worried about heavy commercial surety exposures that’s not what this book is.

Okay, okay. That's the only two questions I had. Thank you.

Thank you.

Your next question comes from the line of [inaudible] with Lehman Brothers. Please proceed.

Hi, good morning.

Good morning.

Could you discuss your outlook for continuing to improve the expense ratio about a point a year, given that you have accelerated some of the investment spend in Specialty Lines and in Mass Auto? And then as the book shift more to Specialty Lines, does that put upward pressure on the expense ratio?

Absolutely. I mean what… the way I think about the expense is… it is actually a great question. As I said before this year if you look at our run rate, we clearly were able to take a point out and I would say our run rate in LAE is about 0.5 point from 11 to about 10.5 going forward. So I feel good about our run rate. I think there is another point combined or so coming out probably next year. The issue is just what you said. If Specialty grows nicely for us, if we were able to grow Specialty and things like HPR, the ratio of expenses to losses is different in Specialty businesses. So you have a different mix. That is not… that does not say though when I look at my core businesses, we can't get another point out of our core businesses, we obviously can't. But total number is affected by your mix just like it is math right. So if you are in a business that has a much higher expense ratio because it is engineering oriented while spending is going to change. But that doesn't make you less competitive it just means your mix of business is different. But we are very convinced that we've built this the ability to scale our businesses pretty effectively until we have transparency next year going through the continued efficiency improvements in our business, that’s breakup point. But again I wouldn't also turn away from doubling our Specialty capability and run our business just because it changed my mix and my expense ratio obviously. So we have pretty good transparency that we have more efficiency next year, and I think we have more in ‘09 because as you recall particularly in claims we have another big…

Okay. Great.

Thank you.

And could you provide us with some more color about your discussions with the rating agencies and when you think you could get an upgrade from the other agencies?

I wish I was as smart as I know when they comes, I’ll let Eugene, if he had a lot more intelligence on this, with Gene around I can give this some, but obviously, we have positive outlook from all three and I am thrilled about it. And their written guidance would say, once they give you positive outlook it’s something like a 12 or 18-month period before they go to the next step. So I'm very confident given we keep beating our expectations with them and our financial results are better than we show them every year that is inevitable. We have got Moodys today, which I am thrilled about and I would hope that in the next 12 months, we would get the others to move in that direction given their guidance as they… the proper guidance of how long they have you in positive outlook. How they think about it though is really a [inaudible] for me, clearly the financial sector is an amazing sector right now. They are all scared about the financial sector, investment portfolio, it’s a little amazing that they were getting upgrades and positive outlooks in this kind of environment just because of our financial strength. So I'm confident we will get it. I'm not as clear exactly when it is as you saw from the write-ups from both the rating agencies when they did the positive upgrade it really isn't about capital anymore, we have plenty of capital, we have a very good balance sheet, it really in a lot of ways, in my view I describe as time. At some point they get comfortable in doing it, but I think we have done it, we have done all the right things. I think we have in my view assembled almost excess capital from what we need for that upgrade. So I feel very confident it's going to come. I just can pick the time. Gene, I don’t know if you have a different point of view.

Well, that's exactly… every issuer or company believes that their metrics is strong as per the rating agencies. So we are in that same position but there are… there is the reality that we have there is a necessary passage of time between a few things that have happened in our past and we think we are well beyond that and certainly our business profile and our financial strength will reflect that but we have to address that. As we move forward I think that we will continue, we are in positive outlook and we will expect to on the two that still have a slow investment grade on the debt side and we expect to execute and perform with awareness and visibility to what their expectations are. We have to contemplate that how we run the business, because we do want to get an upgrade but we can't let it drive our strategy because we have to also grow. So…

And we've had terrific conversations with both.

Sure.

To me, it really is just some passage of time I think and I feel great about it and I think it's going to be a big deal. I think it is going to help our business when it happens and it's going to happen. So I feel good about it.

Great, thanks for the answers.

At this time, there are no further questions. I would now turn the call back over to Sujata Mutalik for final remarks.

Thank you Maria and thank you everyone for joining the call and again we look forward to seeing you in a month for our discussions on the Investor Day.

Thank you for your participation in today's conference. Ladies and gentlemen, all parties may now disconnect. Have a great day.