Oksana Lukasheva - IR Fred Eppinger - President and CEO David Greenfield - EVP and CFO Bob Stuchbery - President of International Operations and CEO, Chaucer

Vincent DeAugustino - KBW Matthew Carletti - JMP Securities Dan Farrell - Sterne Agee Vincent DeAugustino - KBW Larry Greenberg - Janney Capital Sarah DeWitt - Barclays Robert Paun - Sidoti & Company

Good day, ladies and gentlemen, and welcome to The Hanover Insurance Group, 2013 Fourth Quarter Earnings Conference Call. My name is Cilia 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. I would now like to turn the conference over to your host for today, Oksana Lukasheva, AVP, Investor Relations. Please proceed.

Thank you Cilia. 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 David Greenfield, our Executive Vice President and CFO. Available to answer your questions after our prepared remarks are Jack Roche, President of Business Insurance; Andrew Robinson, President of Specialty Lines; Mark Desrochers, President of Personal Lines and Bob Stuchbery, President of International Operations and Chief Executive Officer of Chaucer. Before I turn the call over to Fred, let me note that our earnings press release, financial supplements 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 fact include forward-looking statements, including our earnings guidance for 2013. 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 statement 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 operating income, operating income per share, operating results excluding the impact of catastrophes and development, 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 supplements which are posted on our website, as I mentioned earlier. With those comments, I will turn the call over to Fred.

Good morning everyone and thank you for joining our fourth quarter earnings call. I am very pleased with our strong performance in the quarter and for the year. Our net income per share of $5.59 was the strongest bottom-line results we have delivered since becoming a public company in 1995. Operating income per share was $5.06 in 2013 yielding operating ROE of 10%. Results for the fourth quarter were also solid with an operating income of $1.33 and ROE of 10%. The underline earnings mentioned in our organization is evident. Our ex-cat earnings before taxes were 533 million, which is 20% higher than 2012 and the highest results we produced so far. Equally as important we delivered our expectation of a 94% ex-cat combined ratio for 2013 an improvement of more than two points over 2012. Our financial progress for the year was strong but we are equally pleased with the progress we made on our strategic priorities that position us for further margin expansion in 2014. We entered 2014 with momentum in the market with our partners and solid pricing trends in a strong well diversified and improving portfolio. I will now turn the call over to David to review our financials but I will come back to discuss our outlook and thoughts on the current market. David?

Thank you Fred and good morning everyone. The fourth quarter results were excellent and capital record year for us. Net income in the fourth quarter was $70 million or $1.57 for diluted share compared to a net loss of $55 million or $1.24 per diluted share in the prior year quarter. Operating income was $60 million in the quarter or $1.33 per diluted share, compared to an operating loss of $73 million or $1.65 per diluted share in the fourth quarter of last year. The fourth quarter of 2012 was marked by losses from Sandy which totaled a $129 million after taxes. Because Sandy losses and certain other underwriting items impacted the fourth quarter of 2012 results, direct quarter-over-quarter comparisons are less meaningful, but I reason our current quarter and full year results in context by comparison to our full year 2012 performance and will reference fourth quarter of 2012 were appropriate. Our 2013 combined ratio of 96.7% compared to 104.4% in 2012. The lower level of catastrophe losses in 2013 contributed more than five points to the improved underwriting results. The remaining two points of improvement are attributable to an increase in the ex-cat underwriting margin in our domestic business while Chaucer continued to deliver very strong results in 2013 in line with the prior year. In our domestic business the accident year loss ratio excluding catastrophe losses improved from 64% to 62%. We also reported an improvement in unfavorable prior year loss reserve development, which was 0.5 point for the year compared to 1.7 points in 2012. These items drove a meaningful increase in our ex-cat underwriting loss margin of over $100 million compared to 2012 with both personal and commercial lines contributing to this improvement. In commercial lines, virtually all businesses noted improved accident year loss trends…

Thanks David. As we reflect on our progress, we believe we have taken a strong step forward as a Company in 2013. At fourth quarter call last year we emphasized that taken together our 2013 priorities were about leveraging a more distinctive and balanced portfolio to achieve higher and more consistent earnings and returns. Today as we look back on the year, we are pleased with our progress and we have built a solid foundation for 2014 and beyond. Every major business in our franchise improved broadly. We achieved expanded margins each quarter throughout the year in virtually all segments, and we substantially improved our portfolio mix. Although we made significant financial progress in 2013, there is no doubt that the further margin expansion is required and available to us. And we believe the actions we took in 2013 and are continuing to take into 2014 will help us capture it. As a reminder, we had three major priorities for this year; first, continue to improve our portfolio mix and property concentration; second, increasing pricing in our domestic businesses; and finally to continue to realize the benefit of our Chaucer franchise. I would like to briefly update you on the progress with these goals and discuss why are we confident they will continue to improve into 2014. As far as our portfolio work is concerned, we continue to pursue targeted actions to reduce property concentration, in particular, in the southeast, northeast and Midwest regions. To respond to the more volatile weather patterns experienced recently and to better balance our portfolio. The magnitude of the work we have done over the past two years has been substantial. In aggregate our various exposure management initiatives reduce domestic premiums by about 40 million or 5% in the fourth quarter and approximately 200 million…

Thank you. [Operator Instructions] The question comes from the line of Vincent DeAugustino, KBW. Please proceed.

The conversation around some of the portfolio mix changes and the exposure management actions was really helpful and just I guess kind of frame that both looking forward and looking kind of backwards. If I am looking at the 4Q, ’13 year-over-year domestic personal and commercial lines core loss ratio improvement. I was hoping that you guys might be able to call out, how much of that improvement roughly would have come from some of these non-REIT oriented initiatives [back from the things] you have gone through?

Yes, I think it’s a little bit tricky to identify exactly how much is REIT versus non-REIT because one of the interesting things is that there was some good improvement from underwriting actions but a lot of the stuff that we are getting offered for concentration of volatility purpose has actually has a drag for a couple of quarters because of the marginal contribution that you get from that are too expensive. So, what I would tell you is that the mix improvement to me is something that’s going to linger and continue to help in ‘14 actually more than ’13 but it’s meaningful. And I would also say that the volatility aspects of that, well it’s hard to pinpoint to me as why you saw some improvement like in the second quarter this year from the tornadoes et cetera. We are going to have less volatility in the book because of that as well. So, I think it’s going to be meaningful but I think it’s more in the out kind of in the future than it was this year.

Okay. And then you has mentioned that as far as just seeing pricing resiliency, it's kind of interesting this quarter because we have some insurers having a similar message and then you also have some insurers telling us that there is a deceleration. The rates were increase competition. Do you have any thoughts on what kind of might be the defining characteristics that ensures your point?

It’s a great question. I mean obviously if you look at some of the national accounts and the large accounts particularly in the property area and comp, my guess is you are seeing some moderation in price increases. What's happening in our book because of our small average policy size and how we play the game with accounts and personal lines et cetera, we haven’t seen any really dramatic shift yet. My guess is you will have pockets where you are going to see some change but we have not seen any kind of what I would say material change. Now the small accounts are a lot less and come down less, so I mean you don’t, we also don’t, you don’t get the spikes as much. But for us both the fourth quarter and January have performed pretty nicely as far as getting rate increases. But I fully expect that there will be pockets that we'll moderate through the year but we feel very good about our assumptions and being able to get, achieve rate this year.

Okay, good. And one for David, just last one and you had mentioned just some of the repurchase activity year-to-date and I am just kind of curious what 2014 and ’15 looking to be more on track, I am just curious with the kind of repurchases this year and kind of just looking forward, if we should maybe start to think about Hanover returning to a more normal capital management environment here in ’14 and in 2015?

Well you'd have to define normal for me to be able to answer it that way Vince. But I would tell you is we are very conscious of capital management as part of our strategy. I think I have been fairly clear over the course of last year. Our first effort is to put our capital at work in our growth opportunities which Fred talked to and we have been talking about. Where it makes sense for us and where pricing in the market for example is attractive, we will put more money towards share repurchase or other things like a debt repurchase. Just to maybe give a little more color, we didn’t do any repurchasing in the fourth quarter because the share price was at a pretty nice level and we felt that it was more valuable to put our capital to work in the growth opportunities we see. Obviously in January we have seen a little bit of disruption in the marketplace which created an opportunity for us. I would tell you in our planning, we have a modest amount of repurchases each year that we execute, which I usually refer to as maintenance level type repurchasing. And we're going to continue to do that throughout the year and if we have opportunities like we saw last year where we had a capital markets transaction that allowed us to free up some of our capital to put more towards share repurchase, we'll continue to do things like that as well but you should expect we will have modest amounts of share repurchase in line with kind of the last number of years that we have been executing the strategy.

Next question comes from the line of Matthew Carletti, JMP Securities. Please proceed.

Hey thanks. Good morning. Vincent covered actually two of my questions, so I have one last and that was just, could you provide a little more color on the January losses you mentioned just kind of which states it was more southern and northern and whether it was a bigger impact on auto or home?

Yes, it's actually a commercial losses, its broad based, so the weather the cold and freezes. And it’s mostly commercial, frankly for us and what I would also say in January we didn’t see non cap weather act any was in spite it was really those events that created the losses. So the rest of the month is more normal except for those events the two, and the second one was obviously bigger than the first event.

Right. Okay, that’s really helpful. And congrats on the quarter and the year, and good luck in 2014.

Yes, thanks. And let me just mention quickly on the cat estimates for our company too because I think it’s important. In the last couple of years the first quarter has been lower. But given our company profile typically our first three quarters are pretty similar around our estimate and it’s only the fourth quarter that’s a little less on a cat basis. So we think about cats at this 5% level as being pretty stable in the first, second and third. So I know it's more than on a relative basis the last couple of years that were down but it’s to me having this kind of weather in the first quarter is not unusual at all typically for people that have a mix like we do that is northeast and mid-western.

The next question comes from the line of Dan Farrell, Sterne Agee. Please proceed.

Just another question around the cat, I think you said your sort of full year target or guidance for cat was 5 points but I think you also said that first quarter you thought could be higher. Does that imply that incrementally you think that maybe cat load, normalized cat load, could be coming down slightly given all of the exposure management stuff you’ve done or some of the improvements in --

Yes, I mean obviously Dan we’ve done a lot on our mix over the last few years. We have balanced the commercial cutting to casualty is much different than it was three or four years ago. Our geographic spread is much better. In the same vein though the last five years the cat -- the [indiscernible] of weather has gone up in the world so recent domestically and so we feel very good about the 5% as the right number we think it’s a thoughtful number we think we’re conservative and appropriate but it’s the right number given what we’ve seen activity over the last few years. And my only point on the first quarter is that the last two years have been very low. We had kind of no winter and even last year what was weird about last year we didn’t have really winter what we had is tornados in March. And what in my view is this is a little bit of a return obviously these are big events but this is a return to more normal kind of winter profile of storms albeit just one month. So that’s why I don’t think it's -- the 5% to us for the year is right and there is no reason to adjust it at this point given what one month and to the year.

Great, and then a question in the other commercial segment, the loss ratio over the last few quarters has trended on a core basis between 58, 59, you’ve also continued to have some adverse development there. I was curious is some of that being driven still by any surety? I was just kind of curious what the trends are there, maybe an update on that and just as for any leverage for improvement going forward there as well.

Sure. Dan its David, there is surety that the development you’re seeing there is primarily the surety account and I think I’ve talked in the past its sometimes allocating losses between current and prior accident years is more an art than a science. So as we’re continuing to close down cases and claims, we’ll typically pick up in some cases some prior year development as a result of that. But those numbers are steadily declining and our exposures at the end of 2013 are very-very low going forward. So we don’t really anticipate much activity in the going forward periods there. Fairly nowhere near like we had in ’12 and ’13 performed pretty much in line with what we thought it was.

Yes it's an interesting gel to your question, when I look at the ’14 improvement we’re planning for domestic it’s broad based and so there is -- it's really you're going to see because the actions are pretty much across the businesses that we’re going to improve in each of the business base nicely. So you will get some in that category as well for sure.

Question from the line of Vincent DeAugustino, KBW. Please proceed.

Hi guys. Thanks for taking the follow up. Just one quick one, I was curious if you guys happen to, to seeing any changes in personal auto frequency in the last quarter or two might be noteworthy.

We haven’t really seen anything from a frequency standpoint that’s out of what we’ve been seeing over the last couple of years it’s pretty flat.

Question from the line of Larry Greenberg, Janney Capital, please proceed.

Just a few looking out to 2014, the expected normalization for Chaucer to a 95 combined, is that a combination of attritional caps and reserve development, or how would you weigh those pieces in the normalization process and then when you think about underlying margin improvement domestically, can you just compare personal versus commercial.

When you’re looking at that [indiscernible], when you look at that normalization, it’s really to reflect on market conditions that we’re seeing and that’s on top of a couple of good years where we’ve seen excellent results, so I wouldn’t expect the makeup of that to necessarily change that much. It’s more driven by underlying market conditions that we’re seeing and trends particularly we've seeing around, one that we expect to continue into 2014.

Okay, so that would suggest to me more just attritional losses.

Yes, that’s it.

Okay, thanks.

That's because we do have within our portfolio, there is an exposure to what we would call large losses and attritional, so we’ve got the larger [indiscernible] will go down on some of those specialty lines of business as opposed to just pure attritional, we break it down into three territories. So there is a bit of volatility also around the large losses. But you’re right that the underlying trend would just be driven by market conditions in ’14 versus ’13.

Great thanks.

Larry, I’ll just jump in on that too, because there’s a lot of moving pieces in there and we’re about to -- this is obviously correct, but I would also tell you cats have been lower than expected over the last few years and prior year development has been higher. Those two probably can offset for the most part but as you’re looking at the components there’s a lot of moving parts to get you to the 95.

And on domestically, you asked about personal versus commercial, again what we believe is that we’ll see both improve, personal got a little bit ahead in the improvement because of the way it earned and quickly for them but I think they will both -- you’re going to see significant improvement in all of the different lines this year. There really isn’t any one that strikes out above the others this year.

So if you’re thinking of getting -- you’ve been getting price 8%-9%, so roughly to think about it, loss trend in both are maybe pretty close and your margin, your pricing above loss trend is relatively similar, is that fair. Okay.

Some of the places like home in particular we were catching up to this non-weather phenomenon we talked about as a higher percent, so we had a spike in personal lines that we talked about moderating a little bit, so we spiked all the way up to 10 across the auto and home and that will moderate a little bit quicker because of that spike but our margins against those two factors will be pretty similar to business. Larry Greenberg – Janney Capital: And then anything different on the tax rate for 2014?

No, it should remain relatively consistent going forward.

The next question is from the line of Sarah DeWitt, Barclays, please proceed.

Morning, in your primary issue of guidance of 96 to 97 for 2014, does that include any reserve development?

It includes a little bit of development, positive development in Chaucer in the 95 that we talked about as a much more moderate than where we’ve been over the last few years, but in terms of domestic. We don’t estimate any development in our guidance there.

Okay, so I guess that would imply that excluding cats in prior year development to combine the underlying combined ratio for an improved to say 92-92.5 from 95.5 in 2013, what gives you confidence that you can improve it that significantly, I know you’ve taken exposure actions but they are pretty big improvement.

Yes, I think, I mean it’s a combination of all the things we talked about, the exposure actions we’re taking the pricing that we’ve been getting in the book, the underwriting that we’re putting in place in the various lines of business and the waning of some of the issues we talked about in 2012, early part of 2013.

And again for example we recognized the auto issue really early and have tacked it pretty aggressively, built up the balance sheet around it and a lot of that stuff is, the impact of that is as we do seem relatively dramatically. So there is a combination here.

Next question comes from the line of Robert Paun, Sidoti & Company. Please proceed. Robert Paun - Sidoti & Company: I want to follow up on the personal lines business. Fred I believe you said that growth in the top line should start in the second half of this year. So can we expect to see premiums tail off in the first half similar to what we saw in 4Q about 5% to 6% decline?

Let me comment and then Mark should add. We have -- what happened in the fourth quarter we have been fortune to working these [indiscernible] and getting rid of the concentration. Part of our focus has been on some model lines and legacy model line property. And we were able to -- we have an arrangement with a couple of companies where we are -- it's not a literally rights but it very much acts like that where we are transferring business and that accelerated at the tail end of this year and will continue into the first and a little bit less in the second quarter. The actions we’re taking around that is about 80 million bucks between personal line and commercial is a little bit in commercial too but they are mostly into the first half of the year. So you are going to see first quarter similar to the fourth quarter because those things -- those transactions are occurring and are efficiently moving forward, and then they come back after that market. Is there anything that we should…

No I think that’s about all. It will temper I think a little bit in the second quarter then will be in the first quarter and then we should turn the corner again the second half of the year.

Yes, and we are very pleased about these transactions. As you know our legacy books are in regulatory environments where it’s very hard to get out them, legacy business and we created some really nice win-win situations with some partners so that we can move this model line business. And our strategy around really going after the account business has really taken off now, and so most of our businesses with a full account and then it really is -- it makes it look terrific as we look forward for our business, so we're glad to get this behind us. Robert Paun - Sidoti & Company: That was helpful. And just final question as far as the Chaucer business, you spoke about reducing premiums in the energy lines. On the other side of that where are you seeing opportunities to grow in that business? Are there any segments that are showing more favorable conditions?

If you recall, the opportunities that we are seeing around some of the areas that we've got within our marine portfolio, there is good opportunities there where we’re a leader in certain of the classes around [indiscernible]. But across the board and energy is a classic example of where you had a good couple of years now, excellent results people who ride Gulf of Mexico windstorm exposure with a new energy portfolio had a couple of the nine years. So I think it is very, very difficult to get rate and that’s where we’re seeing reductions. But few opportunities the opportunities where we have got specific lines of expertise, good quality under-writing teams here that can just work their way around that marketplace.

On ‘11 we had a really solid ‘11 and what we had is a nice broad portfolio, so as we said we’re very comfortable maintaining the profitability and the margin in that business we just think it’s prudent to think about that as flat to low single-digit growth this year because what we need to do is make sure we maintain our position and maintain our margins and it’s very good. We’re demonstrating the strength of the franchise right now, so we feel good about the overall results. But you won’t see a lot of growth out of that business this year.

The next question comes from the line of [indiscernible] Capital Returns. Please proceed.

I just had a question about the guidance, I was wondering how much favorable development from Chaucer is embedded in the guidance?

We normally plan for them to be in the low end of the single-digits, probably in three or four point range, I don't want to be too precise about it.

But the range is fine enough. So, I am sorry, you said two or three or three or four?

Probably closer to 3% to 4%.

And that’s against a combined ratio, right? Sorry, on their combined ratio or the company -- no on their combined ratio?

On their separate business.

[Operator Instructions]. If no further questions at this time, I will turn the call back over to Oksana Lukasheva for closing comments.

Thank you to all of you for your participation today and we’re looking forward to speaking to you next quarter.

Ladies and gentleman, this concludes our conference. Thank you for your participation, you may now disconnect. Have a great day.