Good day ladies and gentlemen and welcome to the Fourth Quarter The Hanover Insurance Group Incorporated Earnings Conference Call. My name is Wayne and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this call. (Operator Instructions). I would now like to turn this presentation over to your host for today's call, Mr. Bob Myron, Treasurer of The Hanover Insurance Group. You may proceed, sir.

Thank you, operator. Good morning and thank you for joining us for 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 a 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 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 fact, include forward-looking statements. These include statements regarding expectations of earnings, pricing, accident year results, premiums, expenses and other projections for 2009. 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 two of the presentation deck and our filings with the SEC. Today's discussion will also reference certain non-GAAP financial measures, such as total segment income, segment results excluding the impact of catastrophes, X count loss ratios, book value excluding accumulated other comprehensive income and accident year loss 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 statistical supplement which are posted on our website as I mentioned earlier. With those comments, I will now turn the call over to Fred.

Good morning, everyone and thank you very much for joining the call. 2008 obviously was a challenging year for all financial services companies and that continued into the fourth quarter. But given the ongoing turmoil in the financial markets and the severe weather we all experienced this year, I'm very pleased with our operating results. I'm even more pleased with the progress we've made in our efforts to position our company to create shareholder value by capitalizing on the growing turmoil and likely shake-out in our industry. Given the ongoing disruption in the insurance and financial markets, I plan to take a few minutes this morning to comment on industry conditions in general as well as our own current position and prospects. While our 2008 results were impacted by unusual weather and greater than expected write-downs in our investment portfolio, our core business fared very well as we continued to steadily increase the overall earnings power of our company. Even with difficult fourth quarter weather, we've generated a very solid segment earnings of 60 million compared to 61 million in 2007. For the full year, segment income was 176 million compared to 229 million in the prior year, a decrease caused by significant increase in catastrophe losses. We generated P&C pretax ex-cat operating earnings of 471 million compared to 448 million in 2007, an increase of 5%. We also were one of the very few companies to improve our accident year results in 2008. It's important to note that our catastrophe losses were in line with our market share and our pricing models reflecting the work we've done in recent years to strengthen our cat management program. In addition, we continue to generate strong net premium growth for the year at 4.3%, and for the quarter at 6.4% in contrast…

Thanks, Fred. Good morning everybody and thanks for joining the call. I am also very satisfied with the company's top and bottom line performance in 2008, especially given where we are in the cycle as well as everything else that has occurred in the P&C insurance market and credit markets as Fred just discussed. Although our overall results were somewhat hampered by the economic environment, our underlying underwriting performance is very strong. Our partner agent strategy and our laser focus on disciplined underwriting and pricing allowed us to produce results consistent with our expectations, with our 2008 investor guidance and with our objective of growing profitably. I'd like to review our underwriting operations in that context, starting with a discussions of our overall P&C results. Today, I'll use the presentation deck that's published on the website and I trust that everyone has that available. So please refer to slide five. For fourth quarter 2008, our P&C operations generated 97 million in pre-tax income, down from 98 million in the prior year quarter, primarily due to higher catastrophe losses in the fourth quarter of 2008. The comparison is also impacted by a one-time litigation benefit in the fourth quarter of 2007, offset by a pension related item in the same quarter. Note that our catastrophe losses for the current quarter include approximately 5 million of an increase in our reserve estimate pertaining to Hurricane Ike. Excluding catastrophes and the litigation benefit and pension item, pre-tax earnings were 111 million, compared to 105 million in the prior year quarter. As you can see from the slide, similar trends existed for the full year, which was marked by high catastrophe losses from numerous hurricanes and storms, the largest of course, being Ike and Gustav in the third quarter of 2008. Excluding the impact…

Thank you Marita and good morning everyone. Please turn to slide 14 which presents our consolidated results for the quarter. For the quarter we reported net income of $34 million or $0.66 per share compared to $76 million or $1.44 per share in the fourth quarter of 2007. Net income in the fourth quarter of 2008 reflects net realized losses on investments from our continuing operations of $37 million. Included in this investment loss is a loss of $8 million that was reported in the third quarter of 2008 in discontinued operations, but was reclassified to continuing operations as a result of the underlying securities being purchased by Hanover Insurance Company from FAFLIC prior to the completion of the sale of FAFLIC on January 2nd. We believe that these securities are likely to ultimately recover their value and thus we purchased them from FAFLIC to avoid the economic loss that would have resulted if they had been sold along with FAFLIC. Offsetting the $8 million loss in continuing operations is an $8 million gain in our FAFLIC discontinued operations On slide 15, you can see our net income and segment results for the full year. Net income for the full year of 2008 was 21 million or $0.40 per share compared to net income of 253 million or $4.83 per share in 2007. Net income for the full year 2008 was impacted by substantially higher catastrophe losses than our property and casualty operations compared to the prior year; net realized investment loses of 98 million or $1.89 per share, and a loss of 85 million, or $1.64 per share related to the discontinued FAFLIC business. Let's now turn to slide 16 for some information on the completion of the FAFLIC sale. On January 2, 2009 we completed the sale of…

Thank you, Gene. Operator that concludes our prepared remarks. Could you please open the line to questions.

Sure. (Operator Instructions). Your first question that comes from the line of Mr. Michael Phillips from Stifel Nicolaus. You may proceed, sir. Michael Phillips - Stifel Nicolaus & Company, Inc.: Thank you. Good morning everybody.

Hey Michael. Michael Phillips - Stifel Nicolaus & Company, Inc.: Hey, couple of questions. I guess first and this is something I Marita passed on in her remarks and I would say that is going to hit on us a little bit with Michigan. I think a lot of your... a good amount of your growth I think in auto, I am talking personal auto now, has come from your pretty consistent rate stance. You guys always talk about trying to take rate changes a little bit ahead of inflation and you have done that pretty consistently. And you got some good growth this quarter again. I guess I want to hear you talk a little bit more about how concerned you might be about that regulatory environment there and what that might mean for future actions in terms of rate increases given the significance you have in that state for personal auto?

Yeah, I mean, obviously we anticipated some of the conversations that are going in Michigan for a long time because we were involved, we have conversations with the Commissioner's Office there obviously and the administration. I actually feel relatively good about where I think it's going to unfold. I mean I believe that there is some issues in Michigan given the economy. But because we anticipated it... a lot of the rate increases we took just recently went in. So we basically just put in a number of rate increases in the last few weeks. So financially it's fine. But more importantly I think that I believe that we can constructively work with Michigan on some issues. One of the interesting things about Michigan as you know is that it's had a recession for last two or three years. It's not something that just happened. So a lot of these issues we have been wrestling with them for a number of quarters. And one of the things obviously is the affordability there. And there are things about Michigan for instance, it's the only state of the union that mandates some limited medical projection. That makes policies more expensive there which I think we can now have the real conversation to change some of these. So as we look at the proposals, they've made it already. We were working with them. But we're actually... we feel pretty good about where we think it's going to come out. I actually am not that worried that it's going to be too corny (ph) or anything like that. I think it's always been a difficult state, which you have to be working closely with the administration and I think it will continue that way. I feel pretty confident that we will get to some resolution about some of these issues and we'll be able to continue to get adequate rate to cover the loss cuts, although I am not overtly concerned. Our strategy in Michigan has been since I've been here that we manage profitability carefully because again it's not something that just occurred and so, if that means that we'll continue to shrink a little bit there, we will. But I don't see anything that dramatic coming out of these latest proposals and I feel pretty confident in being able to address the ten items that the consumer advocate is proposing. I think most of those are things that we think we can work with or work with them to change a little bit to get where we need to go.

And also keep in mind that we outlined in our comments that our growth isn't currently coming from Michigan now and the fact that we've positioned ourselves so well outside of Michigan with new product and new expertise. We feel good about our growth prospects outside of Michigan.

Yeah, the ironically thing ... the ironic thing about Michigan by the way is that Michigan has the highest percentage of probably of all the major states of regional companies. I think it is over 70,000 regional company employees for instance in the economy. I mean, it's a little bit ironic about what's happening there because it's an important part of economy. The other thing that's interesting is that a lot of little regional companies are in deep trouble there, because of both; the economy and because of weather. We've had some very severe weather there. And so we actually see... we're pretty optimistic about our competitive position; our retention has gone up consistently, our ability to grow has gone up consistently in the last couple of quarter. What we see is the real have and have nots thing happening in Michigan. So, I'm actually more optimistic, frankly to say given your question about Michigan today then I've been in two years. A lot of the regional companies have not taken rate for a long time, they got killed by weather and the economy. And what're seeing is agents are going to quality. They're going to consistency, they're going to quality, they're going to balance sheet strength and again... so, I'm pretty darn optimistic about where we are in Michigan right now.

Especially when you're considering the economy; over the last three years we've been able to hold steady, a lot of these issues aren't new for us. And we know the state level. Michael Phillips - Stifel Nicolaus & Company, Inc.: Thank you. That's all very, very helpful. Last question centers around the expense ratio. This quarter it seems like it ticked up a bit, I guess, I wonder, overall, it ticked up a bit year-over-year. How much of that was the pension is that in there? And then secondly on the expense ratio, Gene's comments about the guidance. I guess to say it again, I didn't quite catch it, increase from a half point up to one point up, I think kind of .....

Yeah, also the pension increase did not increase this year. So, of the uptick that we are experiencing right now is almost exclusively trying to capitalize on the market disruption. Mike, I mentioned this in our third quarter. And I'm ready to talk about this social services program. We have hired a number of people, around some of our specialty areas because of the disruption. And we've also invested in some product development and accelerated some product development because of the availability of people. So, as we look at guidance, the vast majority of the guidance that we're taking about from this half point to a point and the reason why it varies in my mind, is about how aggressive and when we would hire additional resources. But it's a 100% certain that we will continue to do this. Everyday, we find more opportunities to accelerate and expand what we're doing. And so, I just wanted to be... I feel good about our earnings. We're going to manage the earnings as we said. But I also like always, I'm going to tell you, this is the time when I'm going to try to be very thoughtful while making sure that we invest in some talent and some areas of the expertise, because it's really there for us. I'll give an example; our segment, the niche business in commercial that Marita talked about was essentially zero, two year ago. It's $75 million of very profitable business for us today. That kind of opportunity is emerging all over the place, because it's not just the big companies that are struggling. A lot of these regional companies are very good at these niches. And, when they get in trouble, this is the place, they'd rather have that in their flow business, right? So, it got them in trouble. So, for me, there is going to be an opportunity. And so, if you look at our expenses next year, that's really where the increase is. Now, we have efficiency in our core line that we talked about, that is a part of this. And so what you see is some increases in things like that in the pension et cetera, but decreases in core business. So, I would describe so much of the increase in personnel. I mean, it's ... you look at it down (ph) the technology and product that goes along with our decision to accelerate the social services, the private company P&L initiative we've got. There is a number of these things that we've accelerated all that development because we see opportunity that we think can fund it. That's just... it's always tricky because you don't know when the revenue is going to come and that's why we're being conservative about our forecast.

Another thing, you mentioned that quarter-over-quarter comparisons, you have to remember that last year's litigation settlement drove two points of expense reduction in that quarter. So, it made the comparison a little wide. Actually, without that, the quarter-over-quarter comparison we actually improved by about a point. Michael Phillips - Stifel Nicolaus & Company, Inc.: Yeah. Perfect. Thank you. Just clarification, the guidance for '09 was one point above '08, was that... is that what you said?

Half a point 2008 (ph). Michael Phillips - Stifel Nicolaus & Company, Inc.: Okay. Perfect, thank you.

As I said... credit margin and what we'll do like we always do is we'll be very clear every quarter of about what's happening and what we see. That's one of those that's is going to be kind of what we give in the market. Michael Phillips - Stifel Nicolaus & Company, Inc.: Great. Thank you very much and congrats on a great quarter.

Thank you.

(Operator Instructions). Our next question is coming from the line of Jay Gelb from Barclays Capital. You may proceed, sir.

Thanks. Good morning. I had a question on... actually couple of questions on guidance. First, I think there was a mention of one metric versus consensus that one passed me a little quickly. What was that again?

Well, as we look at what's published in First Call today and we look at the underlying models, the average pretax segment income is 360 million. That's based on the published estimates that are out there. And we think that we can meet and/or modestly exceed that.

Okay. And that's driven by what versus the models?

I'm not sure, I understand the question.

Is it underwriting income, investment income?

Well, as we've said, we expect to improve accident year performance. I'm not sure what you are comparing it to.

Okay. So, just so I can square things out. What do you think is a reasonable expectation for investment income for the year?

I think it will model very well off of this year. And given the fact that we have a portfolio rate that's slightly higher than our earned yield for the year, I think you can project that out, so it will be up a bit.

Up a bit in investment income. Okay. And, on the catastrophe loss expectation three points?

3.5.

3.5. Okay. Is that a little light compared to what's -- what the results have been for the past few years?

Very close to our five year average.

I see. Okay. And then Fed, I don't know if you can comment on the potential benefits for Hanover from Hartford's dislocation on the property casualty side?

I mean, I don't want to specifically talk to any competitor Jay. But what obviously is happening now is and again I would say that it's due to our some of the smaller companies. But obviously what we are seeing is that, there is almost all the major players that we compete against day-to-day are really managing expenses and capital pretty aggressively and therefore not investing. And so their portfolio, what I see is that here we are agents worried about one or two companies that are struggling and they're trying to replace or move that business and a lot of the people on their shelf space are growing. They're doing the opposite, they're contracting there. And so they need some good partners to help them through the transition. And so what we're trying to do as I say is invest relatively aggressively to broaden our capabilities in some areas so that we can help the agents and take some of those profit pools for them. Because it's really again, it's a combination of things, if you look at the number of companies that have been downgraded in the last 12 months, it's over the top right. And so what that maybe... it's not about them all going out of business, it's about the fact that they're not investing and growing. They're actually trying to shrink. You've seen people -- you'll start seeing a lot of co-share (ph) now. So now you can see that they're trying to preserve capital. That tells me that the likelihood that they can solve the problems of the couple obvious ones that are in trouble is limited. And so I think the opportunity is for us. Now we don't play, as you know our mix is small commercial, and even our specialty business we…

Thanks very much.

You're welcome.

And our next question then comes from the line of Wayne Archambo from BlackRock. You may proceed, sir.

Thank you. Fred, with the personal lines (ph) dislocation in the markets that you're in, it's clearly a buyers market. Would you expect to do any acquisitions upside that could move the dial in the next five?

It's a good question. I mean one of the obvious things that's happening right now and you guys can all feel is that when people can't get access to capital and have trouble they... it's not only just the sale of companies, it's the sale of divisions, it's the sale of geographies. There is lots of conversations out there right now, of pieces of teams or parts of companies or full companies we are seeing. And I will reiterate my philosophy. Balance sheets are always the risk in our business, right? And companies that have operational troubles typically have them because they don't... they have something wrong with their book. So we're actually quite cautious. What's different today is that some of these problems are investment related. They are not underwriting related. So there will be opportunities. Our strategy is the same, which is I'd must much rather do the small one that we can fold in, that we can leverage our distribution capability and then win at the agent level. And so if we did... some of the most likely scenario is to continue to do smallest capability kind of build-in teams because one of the things you've seen us do... sometimes I really don't care about the premium. I care about the team because we can quickly access to the premium because of our distribution strategy. So I think that's the most likely. Could there be something bigger? I don't know. It may be, I do think you're going to see things move towards better pricing. I think dramatic... people if you remember the last cycle, the biggest prices were always paid just before the crashes. And I think we've seen that here too. And so I think the next deal is going to all be a lot…

Thanks, Fred.

Thanks.

And at this time we have no additional question. Actually, we have our next question from the line of Michael Phillips with Stifel Nicholas. You may proceed, sir. Michael Phillips - Stifel Nicolaus & Company, Inc.: .Hey, thanks. Sorry, if I can just... something real quick.

It's okay. Mike. Michael Phillips - Stifel Nicolaus & Company, Inc.: One thing, it's just one thing. Is any thing up with the workers' comp growth this quarter?

No, two things right, I think you're commenting on the fourth quarter which I think was over 6 million bucks. Which I think was... Michael Phillips - Stifel Nicolaus & Company, Inc.: I know we're on small base there so...

Yeah. And that was actually a reversal with NAP.

That's right.

So it is actually NAP coming through. But we did have a little bit of growth for the year. So let me answer that question, I think it was in the teens a little bit. If you recall what I did in insurance workers' dramatically. Michael Phillips - Stifel Nicolaus & Company, Inc.: Fred, when you say a little growth and it's in the teens, that's pretty nice.

Mike, I'm sorry. Michael Phillips - Stifel Nicolaus & Company, Inc.: Now you're saying a little growth and it's in the teens, that's not a bad little growth.

No, it is not. But we're hoping and I think the workers' comp to 120 million base. Michael Phillips - Stifel Nicolaus & Company, Inc.: Yeah. Sure.

So, we're talking 8, $10 million here. Michael Phillips - Stifel Nicolaus & Company, Inc.: Okay.

What happened is we after re-underwrote the book and kind of focused our team, we brought in the team as you know, we had an effort that started last year. I think we might have mentioned it in the Investor Day, rounding out our small accounts, because we wrote two single policy in our box and stuff. And so what we did this year is worked really hard with our partner agents at rounding out small comp. So what we've got is... we've got growth in kind of that line of business. But it's still a small base value, a small percentage of our book, and we're excited about it.

I mean, absolutely, we are very happy with our current mix. It's going to be a profit for us going forward. We intent to increase it when the price is there. And so we've positioned ourselves as Fred said, rounding accounts with partner agents, we've increased our appetite for small workers comp, we've increased our ease of doing business in our small commercial model and mechanization. So if the price is there and it grows, it will grow, but we'll do it prudently and profitably because we really do understand the line and when the price is there, you'll see it grow. Michael Phillips - Stifel Nicolaus & Company, Inc.: Okay. Thanks, guys. I'll see you at the Investor Day if not sooner.

Thank you. Michael Phillips - Stifel Nicolaus & Company, Inc.: Thanks.

And at this time, we have no additional questions. So Mr. Myron, I'll hand the call back to you.

All right. Thanks very much to everyone we look forward to speaking to you next quarter and at Investor Day in May.

And this concludes today's presentation. You may know disconnect. Thank you for joining us. Enjoy your day.