Event Brief of Q3 2008 The Hanover Insurance Group, Inc. Earnings Conference Call - Final.(Broadcast transcript)

PARTICIPANTS

. Bob Myron, The Hanover Insurance Group, Inc., VP, Treasurer . Fred Eppinger, The Hanover Insurance Group, Inc., President, CEO . Gene Bullis, The Hanover Insurance Group, Inc., CFO . Marita Zuraitis, The Hanover Insurance Group, Inc., EVP, President of Property & Casualty . Michael Phillips, Stifel Nicolaus, Analyst . Rohan Pai, Banc of America Securities, Analyst

OVERVIEW

THG reported 3Q08 net loss of $62m or $1.21 per share.

FINANCIAL DATA

A. Key Data From Call 1. 3Q08 net loss = $62m. 2. 3Q08 net loss per share = $1.21. 3. Cash and investment securities at Sept. 30 = $260m. 4. YTD share repurchase = 1.4m shares for about $60m.

PRESENTATION SUMMARY

S1. 3Q08 Business Review (F.E.) 1. Economic Downturn & Current Environment: 1. While the qtr. was challenging given the significant level of catastrophes and turmoil in financial markets, Co. likes its current financial position and its ability to take advantage of the market turbulence now and in future. 1. Capital and liquidity position gives the ability to thoughtfully capitalize on business opportunities that are becoming more abundant. 2. Investment portfolio is conservative given Co.'s very limited exposure to equities and alternative investments, which gives it confidence in its ability to successfully manage in today's economic conditions and still focus on possible business growth. 1. Portfolio is transparent. 2. Though market has been competitive, sees real progress and impact from Co.'s strategic initiatives around its: 1. Partner conversion. 2. Specialty business growth. 1. This gives confidence in Co.'s ability to grow profitably even in current economic environment. 3. Significant investments THG has made across Co. over the past five years around attracting and developing talent, uniquely positions Co. vis-a-vis its regional competitors to capitalize on disruption and dislocation in market today. 1. This is particularly critical given that Co. believes it can see: 1. Better pricing environment over the next year. 2. Some significant movement of business. 4. Industry is undergoing significant change, which creates opportunities for strong, nimble companies. 1. Has focused on building a financial, underwriting and product and operating platforms that can capitalize on weakness of other companies in a down market. 2. Pricing cycle puts significant pressure on weaker companies, and just before the turn Co. sees these companies dramatically pull back giving stronger companies with: 1. Solid balance sheet and underwriting capabilities. 2. Opportunity to capture more business at a better margin. 3. Believes: 1. Combination of weak economy, Midwest storms and turmoil in financial markets will accelerate this trend. 2. This will create real opportunities and for winning independent agents as they look for strong stable market health to help them compete, but without becoming overly concentrated with a few large markets. 5. Given the severity of some of the trends Co. has seen, many companies will have to shrink the preserved capital, which could accelerate the hardening of market pricing. 1. Is well positioned to compete and win in this environment. 2. Over the course of past five years, THG has been building a Co. that would be able to deliver on its promise regardless of prevailing market conditions. 6. Has been careful to establish a solid financial foundation to: 1. Maintain a disciplined investment management approach. 2. Create an infrastructure that will help Co.'s agent partners succeed when others struggle. 7. Momentum around financial strength is counter to trend in the market and is apparent to Co.'s agents. 1. In a time of numerous downgrades, THG is one of the few financial companies receiving upgrades. 2. In previous two quarters financial rating has been upgraded by S&P and Moody's. 1. One the few P&C companies with positive outlook from AM Best. 2. Overview: 1. Generating strong core earnings and profitable growth in all lines of business. 1. Has built a strong balance sheet and capital position putting hundreds of millions of statutory capital on P&C books since 2003. 2. [C&L] mix of businesses is focused on attractive industries and lines of business. 3. Reserve position remains strong as Co. continues to retain recorded reserves in excess of 5% over actual indications. 1. Debt is only 20% of total cap. 2. Has managed investments with prudence. 1. Is willing to take expense risk as Co. build its franchise since that represents controllable investment in future, but has to be careful with its investment and underwriting risk. 3. Cash and investment rate bonds represent approx. 96% of invested assets. 4. Impaired assets this qtr. represents only 1% of overall portfolio. 5. Does not have subprime mortgage debt. 1. Has small allocation to: 1. Equities. 2. Commercial mortgages. 3. Alternative strategies. 2. Has negligible derivative exposures. 1. As a result, does not have to make significant adjustments to investment portfolio and drastically reduce investment return. 6. Confident about capital position and liquidity. 1. Expects liquidity at the holding Co. to be enhanced by anticipated closing of sale of FAFLIC later this qtr. 1. Will use a portion of those associated proceeds to close on the purchase of AIX Holdings. 2. Is not in position of having to raise capital in order to continue to meet its current objectives. 3. Board's announcement last week of fourth consecutive increase in annual shareholder dividend is further evidence of Co.'s confidence it has in its capital level and liquidity. 7. Strong capital position creates opportunities. 1. Well positioned to continue to make strategic acquisitions with small balance sheet, teams, books of business in what is quickly becoming a buyer's market. 2. Will continue to seek out opportunities to broaden product capabilities to the extent these opportunities are financially compelling. 8. Making smart investments in business. 1. Has: 1. Increased local market presence with some of the well-respected professionals in industry. 2. Significantly upgrading management team. 3. Added specialty capabilities by building teams and through acquisitions. 4. Invested over $250m in past five years to enhance products and to improve either doing business providing agent partners and their customers, the service and capabilities they expect. 5. As a result, has an outstanding operational foundation and Co. Is seeing its partnership strategy take hold. 9. Product portfolio and service capabilities represent a distinct competitive advantage, enabling Co.'s agent partners to meet a wide range of their customers' needs. 1. Will continue to invest in or acquire new products to enhance product offering. 3. Highlights: 1. Results like those of most of Co.'s peers reflect the unusually high storm activities. 1. Expects that insured industry losses will well exceed $20b and turmoil in financial market. 2. Scope of storm losses were consistent with: 1. Risk models. 2. Market share. 3. Pricing models. 3. Feels good about catastrophe management initiatives Co. has undertaken over past few years. 2. Overall, since credit crisis began some 15 …