Good day, ladies and gentlemen and welcome to The Hanover Insurance Group Third Quarter 2012 Earnings Conference Call. My name is Tony and I’ll be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I’d now like to turn the presentation over to your host for today’s call Ms. Oksana Lukasheva. Please proceed ma’am.

Thank you, Tony. Good morning and thank you for joining us for our third quarter conference call. We will begin today’s call with prepared remarks from Fred Eppinger, our President and Chief Executive Officer, and David Greenfield, our Executive Vice President and CFO. Also in the room and available to answer your questions after our prepared remarks are Marita Zuraitis, President, Property and Casualty Companies and Andrew Robinson, President of Specialty Lines. Bob Stuchbery, President of International Operations and Chief Executive Officer of Chaucer is on the line from London as well. Before I turn the call over to Fred, let me note that our earnings 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. Our prepared remarks and responses to your questions today, other than statements of historical facts, include forward-looking statements such as our guidance for segment income per share for 2012. There are certain factors that could cause actual results to differ materially from those anticipated by the 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, after-tax earnings per share, ex-cat loss and combined ratio and accidental 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 statistical supplements 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. Thank you for joining our call today, especially as many are dealing with the aftermath of hurricane Sandy. Our results this quarter demonstrate an improvement over what was a challenging weather story in last year’s third quarter. Net income per share for the quarter was $0.89, and operating EPS was $0.72 cents, which translates to an annualized operating ROE of 5% through the nine months of this year. Our book value per share increased this quarter to $61, which represents 12% growth over last year and 4% for the quarter. Perhaps most importantly we are continuing to make progress on our strategic initiatives with some notable trends this quarter. Price increases accelerated in all our major lines. As we anticipated, the market and our agents continue to be supportive of our differentiated pricing strategy in both personnel and commercial lines. The quality of our business mix improved to targeted underwriting measures and exposure management activities. Expense ratio declined in commercial lines through growth and operating model efficiencies. And chaser performed well and made another strong contribution, and we believe improving market conditions the team’s strong underwriting acumen and our successful integration efforts provide additional confidence in the success of this franchise going forward. With that said, our industry continues to face some significant headwinds due to the low interest rate environment and still difficult economic conditions in many industry classes. In our business, we recognized some modest loss experience in the areas we discussed last quarter. Auto lines and surety, but we leave we have taken the necessary steps to address these areas and we are confident we are on the right path to improve our underwriting results and overall returns. Before I comment further on progress we are making on our strategic priorities and offer some perspective on the fourth quarter and longer-term prospects, David will provide you with some important context we’re reviewing our third quarter numbers and trends.

Thank you, Fred, and good morning, everyone. Our third quarter results came in largely in line with our expectations. We believe we are making progress on our goals to achieve improved profitability. Net income was $40.4 million or $0.89 per diluted share this quarter compared to a net loss of $10 million or $0.22 per diluted share last year. After tax, segment income was $32.5 million or $0.72 per diluted share. This compares to a segment loss of $18.8 million or $0.41 per diluted share in the prior-year quarter. Through the first nine months of this year, we earned $88.5 million of after-tax segment income compared to a loss of $31 million for the same period last year. Several factors contributed to the improvement. In our domestic businesses, the most notable drivers were milder weather and lower catastrophe losses this quarter. We also made important strides in improving pricing and mix in our property business, which has led to favorable loss trends in the CMP and homeowners lines. Additionally, Chaucer provided the strong contribution to earnings. At the same time, we also noted the continuation of trends in auto severity and surety that was marginally higher than what we discussed last quarter, but still within our overall range of expectations. Let’s review the catastrophe loss activity and prior year reserve development and then I’ll comment on accident year results. Pre-tax, catastrophe losses this quarter were $52 million compared to a $100 million in the third quarter of last year. Cat losses this quarter represented 4.8 points of the combined ratio, five points better than the 9.8 reported last year. The early July storms in the mid-Atlantic and in the Midwest which were a continuation of the late June activity resulted in the largest portion of catastrophe losses in our domestic…

Thank you, David. And as we assess potential financial impact of this event, I want to comment on the mobilization of the company as engaged and to ensure that all those impacted receive prompt and professional response from the Hanover. With millions of people in hurricane Sandy’s path beginning to assess the damage they’ve sustained and to reach out for help, our claims team is there to ensure all those impacted receive prompt and professional response from the Hanover. Turning now to the quarter. As I mentioned earlier, and as David just reiterated, we remain focused on making progress toward target returns. We continue to see positive signs across our businesses and in the current markets. Of course, there are some challenges. However, we believe we have taken and will continue to take the appropriate actions to revise improved underwriting results going forward. Creating a distinctive portfolio that can sustain returns through the cycle remains our overarching priority. Our pricing, profit improvement initiatives and improving quality of our business mix is evident across all of our businesses. With this in mind, I’d like to review the business initiatives we continue to implement this quarter as well as discuss our prospects in each of our business segments given the prevailing market conditions. Beginning in core commercial lines, we had a strong quarter from a top-line perspective. Net written premiums continue their positive trend up 12% year-over-year driven primarily by increases in pricing, new business growth in targeted areas and strong retention levels. Looking at pricing, the momentum we saw in the beginning of the year accelerated during the third quarter. Our renewal pricing was up over 7% compared to 6% of positive pricing in the second quarter of 2012, and up over the 3% achieved in the third quarter in 2011.…

Operator we are ready for the Q&A session.

Thank you. (Operator Instructions) Your first question comes from the line of Dan Farrell of Sterne, Agee. Please proceed.

Good morning, Dan.

Good morning Dan. Dan Farrell – Sterne Agee: Hi good morning. Couple questions, first in the auto lines where you still had some reserves additions coming through, can you talk about your underlying assumptions there at that point? I know you’ve highlighted the uptick in loss cost trend, are you assuming a further acceleration of that within your reserving, right now they are leveling off at some point? I just want to try and understand how far ahead of that you think you might be at this point?

Yeah. I mean, let me start off by – I think, as we talked about last quarter, Dan, and some of the remarks I made, we saw an uptick in the severity in the line. We took action in the second quarter, a little bit more in this quarter, including as you know, we added to our loss picks for the line. We think it’s going to be past us pretty quickly. It’s a fairly short tail or short time for us to determine the impact and the rating effects of it. And so as Fred kind of commented at the end of his remarks when we look at `13, I think we think it will be a much more positive story in `13. Dan Farrell – Sterne Agee: Okay. And then if I could just ask a question on surety as well, and I think probably – but do you still have the same level of confidence that by the end of this year you get past a lot of these troubles lines because you did obviously say there’s some uncertainty around that area? And then also if you can just update us on where the combined ratio is running year-to-date right now on a GAAP basis for surety and a ballpark number would be fine?

Sure. Well let me start with the first item. There was nothing in the quarter that caused us to have any substantive change in our position or view on the line. Most things occurred as we expected they would occur. The activity was what was anticipated, and we still feel just as good as we did at the end of last quarter about where we are. As we said, there are still some things that have to work through the system here; but effectively, we feel as positive about it as we did last quarter, and that’s what I tried to convey in my commentary. In terms of combined ratio, we don’t talk about it on an individual line. We don’t usually give that out on an individual line basis. I haven’t really disclosed a current year combined ratio there. Last quarter, I gave you a cumulative multiyear number, and I would just simply tell you that we’re still – we are certainly below that number now; but we’re still in the same vicinity. So we had a good quarter, but I wouldn’t want to talk about a one-year combined ratio on that line. Dan Farrell – Sterne Agee: Okay. Thank you very much.

Okay.

The next question comes from the line of Ray Iardella of Macquarie. Please proceed Ray Iardella – Macquarie: Thanks, and good morning.

Good morning, Ray. Ray Iardella – Macquarie: Good morning. So I guess not to kind of peg you guys on any numbers – number for Sandy, because I know it’s still really early; but maybe I’ll approach it a little bit of a different way. Can you maybe talk a little bit about the property cat reinsurance program, where it currently stands? And then secondly, when that would renew, and I guess if there is any thought in terms of appetite in terms of reinsurance purchasing in 2013.

Well, I’ll take the first one, and then I’m going to ask Andrew Robinson to also talk a little bit about kind of our going-forward strategy, which is still early. But we have a $200 million-retention on our property cat program. So that’s in play or in effect now. You’ll find that information in our 10-K from last year. And then the program renews on January 1st, obviously we’re in the midst of thinking about that and strategy around that. Andrew, I don’t know if you want to add anything more to it.

No what I was going to say is that the very top level, the top 400 million renews July 1st. So the first 500 is as of January 1st. Every year we reevaluate it and see if there’s an opportunity for us to buy differently and look at that in the context of our PMOs and our plans to manage our exposures. Ray Iardella – Macquarie: Okay. That’s helpful. And I know you guys or I don’t think you guys have talked about sort of PMOs in the past; but has that number significantly changed over time? Has there been sort of an increase or decrease in any particular region?

Yeah. I think – this is Andrew again. We have increased PMOs when we executed the OneBeacon transaction, and obviously, as we’ve gone west, we’ve had some diversification in our portfolio or not, an earthquake weigh it on a primary basis. So there’s some change in sort of the overall mix, but the northeast continues really to drive our cat purchase and really drives our PMOs and our tales predominantly, which I think then runs right into what we’ve been talking about quarter after quarter after quarter, which is, you know, our property exposure management actions is all about obviously managing that number, Ray. Ray Iardella – Macquarie: Okay. Now, that’s certainly helpful. Another question, I guess, you know, workers’ competition just looking sort of at the loss ratio improvement year-over-year. Just maybe can you talk about sort of the rate increases you’re getting in that business and in particular, also something along the lines in terms of audit trends and then maybe just comment on loss cost trends as well if you could?

Yes. I’ll be glad to take that question. This is Marita. In the workers’ comp line in the quarter, we saw eight points in new money, and actually 8.2 points of that was pure rate. We have been shifting our portfolio in workers’ comp over some time, and we talked about that. We are decreasing our PIPs in middle market while we’re increasing our PIPs slightly in small commercial writing less complex smaller workers’ comp policies that have a much better profit potential for the future. We feel good about the workers’ comp business. We are writing. As far as premium audit, we saw $4 million of additional premium in the quarter. That benefited our overall Commercial Lines growth youth by about a point. So we are seeing some positive additional premium, and we’re comfortable that the majority of the workers’ comp growth is coming from either rate, as I mentioned, or some minor PIP growth in the small commercial arena. Ray Iardella – Macquarie: Okay. That’s certainly helpful and last one and I’ll requeue after this. In terms of – and I know, Fred you talked a little bit about sort of the mix shift of the business and how that’s going to improve underlying results; but just – I mean maybe there’s a little bit of noise in the numbers; but looking year-to-date results and the other commercial, looks like the accidental loss ratio is up a little bit. Maybe can you talk about sort of the trends you’re seeing there? I think surety is in that line of business. But maybe just give us a sense of where the specialty business, if you will, is trending?

Yeah. I think we talk a little bit about the last call. Actually feel very good about the maturing of all of our specialty businesses. As you know we did a number of small acquisitions and some start-ups, and if you look at that portfolio of business, they are getting to the point where they’re at the size and the operating models where they’ve matured and should contribute nicely to 2013. That other category obviously is dominated by the activities you’ve seen in that surety line to date. I think there was a little bit last year because of – some of the weather related losses in marine that runs through that line as well, but it really – that is what you’re seeing in that. Now that category, that mix, it’s a mix adjusted loss ratio, which is hard to see, because obviously we’ve shrunk our contract surety business pretty dramatically and increased our commercial surety as well as some of our marine and some of our program business. So part of what you’re seeing the loss result is actually the result of mix of lines of business, because contract surety even with these difficulties has a lower loss ratio, higher expense ratio component than some of those other lines, so – but if you look at our specialty, I’m quite pleased. They’re young and have been matured, and so I look to them to be very helpful in ‘13. Let me go back to – somebody asked about exposure management. You know, our whole string in the last seven years has been about this balance in the portfolio. We’ve gone from 70% property and 70% northeast as a company to a much balanced, more 50-50 between property and casualty and a much different geographic spread. So we feel…

I think it’s the combination of all of those things. What we’ve commented on the last quarter, I think one of the big – we’ve got a couple of issues that we’re getting behind us this year on the auto – getting behind on the auto liability side as well as the surety. But it’s also the other things we’ve mentioned. So that other category into `13, in our view, is a much improved story for us. Ray Iardella – Macquarie: Okay. Thanks again.

Thanks, Greg.

Your next question comes from the line of Vincent D’Agostino from Stifel Nicolaus. Please proceed. Vincent D’Agostino – Stifel Nicolaus: Hi. Thanks.

Good morning.

Good morning. Vincent D’Agostino – Stifel Nicolaus: Good morning. Just want to apologize in advance in case I missed anything after joining a few minutes late, but joining the conference call this morning but just a –

That’s a pretty good sign, specifically your time. Vincent D’Agostino – Stifel Nicolaus: Just to clarify on an earlier point on auto. If I’m understanding your earlier commentary, if loss cost trends stay where they are, where they’re currently running, we should basically expect the adverse reserve development on those two lines to taper-off in the next quarter or so?

Yes. Now, we should probably comment, and you all know – everybody who follows us knows this. But let me just comment on the accident years in the fourth quarter. Because we are a Midwest, Northeast company that has drive time snowstorm, et cetera, traditionally our accident year, loss ratio goes up in auto in the fourth quarter, and you could look at our patterns over the last whatever years. And we have taken a higher pick, as you know, in the accident year, which will also continue to the fourth quarter. But we do believe that your question, have we taken the actions to get after the ‘11 development? Absolutely. So we feel like we’ve taken good aggressive action there, both on the ‘11, which is – and you’ve seen this – you saw this quarter, this shrinking impact of that, but also on just making our pick different or the go forward years. David is there anything...

That’s exactly right, Fred, and I would describe it the same way. So you’ll see a little bit higher accident years in the fourth quarter, which is a normal trend for us. On top of that, you’ll see the higher picks we’ve been talking about last quarter, and this quarter affect us in the fourth quarter similarly to where we are now. And then I think, as I said earlier, we’re taking actions, rate actions, other actions that I think most of this, if not all of it will wear-off fairly quickly. Vincent D’Agostino – Stifel Nicolaus: Okay. That’s really helpful.

Yeah. Other thing about rate actions, just to be – because it’s an industry – not only have we seen retention, because this is an industry phenomenon, the rates have been well received. I mean, we’ve been able to get them out there quickly and hold retention and do the actions we need, because it is a broader action than just us. It’s an industry phenomenon that people are seeing. So we’re – confident. Vincent D’Agostino – Stifel Nicolaus: Great. And then on the commercial line side, are you finding that national carriers maybe can’t be as account specific as they maybe should be with renewals right now? And does that open up any opportunity for you to win some business that maybe say getting an across the board rate increase when – maybe that’s not warranted?

No. I think that’s absolutely well said. Our differentiated pricing strategy really starts with being able to take an individual account approach and being able to get out early with the communication of our rate need with our partner agents. So you said it well. We’re clearly seeing that differentiate and help us get the price that we’re pushing in the marketplace, absolutely.

And what happens at 1/1, is that the system gets clogged. So some of the best accounts that have high margin accounts get clogged in across the board actions around 1/1. And so for us, this is a period where cherry picking is very much available to us with our partner agents. And we – as you know, we focus as a company on the (inaudible) business. And that is prevalent in that $25,000 to $75,000 account range, where we’re getting really nice price increases, and getting very attractive profiles of new business, right.

A clear place where the fact that we have a lot less agents than the big national companies is very helpful to us in that regard as well. Vincent D’Agostino – Stifel Nicolaus: Okay. That’s great. And then one last one if I may. Would you perhaps be able to maybe if you already did, just update me would be good. But would you be maybe quantify the impact of non-cat weather on the quarters combined ratio, would you say that non-cat weather was basically normal in 3Q?

Yeah. I think it was – this was a much more normal. I think what we said in the script is exactly right. If the third quarter of last year was odd both because of cat and because of non-cat weather, and some if our property improvement was exactly that. I would characterize this third quarter as –

More normal.

More normal. We – we had a little bit of activity at the beginning of the quarter. But it was much more normal, and I think you’re seeing that for everybody. It was a much more reduced level. Vincent D’Agostino – Stifel Nicolaus: Perfect. All right. With that I look forward to talk to you guys again soon.

Thank you very much.

Thanks, Vince.

Your next question comes from the line of Sarah DeWitt of Barclays. Please proceed, ma’am. Sarah DeWitt – Barclays: Hi. Good morning.

Good morning, Sarah.

Good morning, Sarah. Sarah DeWitt – Barclays: My first question, is just to clarify on the reserve strengthening, surety and commercial auto. What has changed versus the second quarter? Or is this just a continuation of the same trend? And then secondly, on workers’ compensation, the accident year loss ratio improved their pretty dramatically. Does that just reflect rate increases and excessive loss trend, or was there anything else unusual there, and to what extent is that sustainable?

Let me take the first one, Sarah, and then Marita, I think, will elaborate some more on workers’ comp. But the trends are essentially a continuation of what we discussed in the second quarter. Some of the severity trends in commercial auto just continued as we moved into the third quarter, and we made some adjustments to prior reserves as a result of it albeit at a much lower level than we saw the previous quarter. And I think that that’s working its way through, and my hope is it won’t continue for much longer as we’re getting a lot of rate in the book now, and we’re making other adjustments. On surety, I got to go back to my comment there. The activity in the quarter was pretty much in line with where we anticipated. The split between current and prior year is a much more complex decision that goes into when was it reported, when did it fail, when did we get notified, and or when did we take action on our own. And so I give less credibility to the current and prior year there; but effectively, the underlying activity in surety is very much in line with what we discussed last quarter, and again I’ll say we feel pretty positive about the position we’re in right now overall with that book of business.

Right. And on your second question, as far as workers’ comp, I think you hit the first point, and that is we have been getting rate in excess the lost costs on that line, and with 8.8 points of new money in the quarter, that obviously continues. The second big thing is what I mentioned before, and that’s the mix shift in this line over the years. It’s something we’ve been talking about for some time now, where right now, our workers’ comp book is predominantly small and shmittle and less complex as I mentioned. So it is pricing in the mix shift. Sarah DeWitt – Barclays: Great. Thank you.

Thank you, Sarah.

Next question, please?

We have a follow up question from Dan Farrell from Sterne, Agee. Dan Farrell – Sterne Agee: Hi thanks again. Just a couple things with regard to Sandy, on Chaucer, you clearly it looks like you’ve shrunk some of the property lines there. Can you talk about how you think about exposure in that business given some of the stuff that you’ve done?

Yeah. Dan, let me start off, and then I think if Bob wants to elaborate he can certainly do so. As it relates to Chaucer, we’ve talked about over the course of the last year, making sure from our combined books perspective, that we didn’t want to double up our exposure locations and the like. And so a lot has been done over the course over the past year to reduce property exposures where we have a greater exposure on the Hanover side to make sure that we’re managing our overall companywide exposure. So that’s part of what you see in terms of property reduction. And then I think the rest is just normal portfolio management, which I think Bob can comment on if he would like to.

Yeah David that’s exactly right. I mean the first thing was just to measure some of our exposures and adjust those backwards. And the other thing is just genuine sort of management of coming out of certain lines, where we don’t think the price is right. Dan Farrell – Sterne Agee: Okay. Thank you very much.

Next question, please.

Your next question comes from the line of Sam Hoffman with Nomura. Please proceed. Sam Hoffman – Nomura: Good morning.

Good morning Sam. Sam Hoffman – Nomura: I just had two clarifications on what you said about the commercial auto and other loss ratios. So I guess my understanding was that you expect the adverse development to tail off gradually over the next few quarters, especially by the end of the year. But on the accident year loss ratio as to my understanding the commercial auto was reported 70.9%. Ex-cat, accident year, is that kind of the new run rate, which then reduces because you get pricing, or is that also you’re experiencing losses in the quarter that will probably go away by the end of the year?

I think what I would say is we’re getting a lot of pricing in that business. I think I would treat the 70.9 as a slightly elevated loss ratio given what we’ve talked about in the last couple of quarters. Sam, we have increased the pick this year to be a little bit more conservative in that line, and based on what trends we’re seeing; but as we start to earn the pricing that we’re getting on the book, I would expect that the ratio will come down a little bit. Sam Hoffman – Nomura: And what type of pricing are you getting in commercial auto?

I don’t – I don’t know that I have the actual numbers in front of me, Sam; but it’s been pretty – it’s been pretty aggressive...

Well, what I mentioned in my script, right, is 8 plus percent in both commercial auto and in property, particularly in the middle market, where really the activity is and it was accelerating – as I mentioned in my script, it’s accelerating through the quarter, and we’re getting, as I said earlier, the retentions are holding, because it’s not – we’re not the only folks that are seeing it. Just a comment on our mix, too, we’re not in the long haul trucking. This is not – these are not big fleets or anything. This is just small fleets that acts relatively similar to some of the personal lines auto. So, again, we feel very good about getting ahead of it here with the rates that we’re getting. Sam Hoffman – Nomura: Okay. And then my other question was, on commercial lines on the expense ratio, you talked about a 38% level for the year? Fred, whether you adjusted for the commercial line expense ratio overtime to achieve your overall corporate objectives?

Yeah. So again, the trouble with Sam what the overall is that it’s so driven by mix of business, but what we’ve said is, as I look to `14 there is another point, point and a half that we’re going to get out of a commercial line from the efficiency and the – and frankly some of the scale because of the growing into some of the growth initiatives and some of these other investments that we’ve made in lines of business. Now the only caveat I would make to that is, again, what you are going to see is improvement in almost every commercial business; but the number changes dramatically depending on the mix of business, because some of these businesses, particularly the specialty businesses have a much lower loss ratio, much higher expense ratio and LAE ratio. So, again, but we’re very confident that we’re on track. We’re getting improvement in almost every single commercial business now, and, again, a little bit of timing in the fourth quarter as we referred to our scripts; but we’re going to see improvement next year, and we’ll see improvement going from there, too. So we feel good about it, because it’s all the things we measure, we’re getting nice traction on it. Sam Hoffman – Nomura: So you see like a point 2, point and a half of expense ratio improvement by 2014, and therefore the margin improvement will be driven mainly by loss ratio improvement...

Yeah. So if you look exactly – so if you look at within almost every one of our businesses, absolutely you nailed it, right, so the underwriting margin improvement. What you’re seeing in these businesses is coming from the maturing of some of these younger businesses to mix and really importantly pricing. And you’re seeing that across the board in a lot of these businesses, and we feel really good about it. Right. So – and, again, some of these are younger businesses, so it’s just a natural thing where the picks you do in the first year and how you manage them, you’re going to have that maturity, but we’re also getting nice pricing in all of those lines as well. But that is the bulk of the improvement in our business over the next two years. Sam Hoffman – Nomura: Thank you.

Thank you.

(Operator Instructions) There are no further questions at this time. I would like to turn it over to Ms. Lukasheva for closing remarks please.

Thanks to all of you for your participation today and we are looking forward to speaking with you next quarter.

Thank you.

Bye.

Thank for your presentation – for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.