The Hanover Insurance Group (NYSE:THG) reported third-quarter operating earnings per share of $5.15, its best third-quarter operating EPS result, as underwriting performance improved across its Personal Lines, Core Commercial and Specialty businesses.
Chief Financial Officer Jeff Farber said the company posted a combined ratio of 92.3% for the quarter and an 85.5% combined ratio excluding catastrophes, representing a 2.6-point improvement from the prior-year quarter. The current accident-year loss ratio excluding catastrophes was 55.7%, nearly two points better year over year.
“Each of our business segments delivered excellent results, bolstered by another quarter of strong returns in our investment portfolio,” Farber said. Operating return on equity was approximately 19%, according to President and Chief Executive Officer Jack Roche.
Specialty Growth Accelerates in Key Lines
Net written premium increased 3.1% companywide, with management emphasizing that growth remained selective as it maintained return thresholds in a competitive market environment.
Specialty Lines continued to be a central contributor to results. Roche said growth excluding Hanover Specialty Industrial and Hanover Programs was 6.7%. Hanover Specialty Industrial faces greater competition in larger property markets, while the company is continuing to restrict expansion in Hanover Programs.
Within Specialty, surety premiums grew 8.8%, while excess and surplus growth accelerated to 11.7% from 6.5% in the second quarter. Management liability grew 15.5%, and Marine and Hanover Professional Liability also posted faster growth than in the prior quarter.
Specialty retention improved sequentially to 83.2%, while renewal price change rose modestly to 4.3%. Roche said liability pricing continued to accelerate. The segment’s current accident-year combined ratio excluding catastrophes was 84.6%, improving 1.4 points from the prior-year period, while its ex-catastrophe current accident-year loss ratio was 47.7%.
During the question-and-answer session, Specialty Lines President Bryan Salvatore said the insurer’s focus on small and middle-market accounts offers comparatively less competition and more pricing power across much of its portfolio. He also cited the segment’s diversification as a factor supporting its ability to manage competitive pricing conditions.
Personal Lines Strategy Focuses on Higher-Value Customers
Personal Lines net written premium grew 1.7% in the third quarter. CEO-elect Dick Lavey said the company has deliberately shifted the business toward bundled, higher-value accounts, particularly those with dwelling coverage limits above $500,000.
In that higher-value segment, retention was 86%, about two percentage points above the remainder of the Personal Lines book. Premium increased 4%, new business grew 5%, and submission flow increased 21%. The company’s Prestige product posted double-digit growth for both the third quarter and year to date, Lavey said.
Farber said Personal Lines delivered an 81.9% current accident-year combined ratio excluding catastrophes, a 3.9-point improvement from a year earlier. Homeowners’ ex-catastrophe current accident-year loss ratio was 40.6%, improving 6.6 points, while personal auto’s ratio was 67.9%, an improvement of 1.2 points.
The company attributed homeowners results to earned pricing, favorable attritional claim frequency and lower-than-usual large losses. Farber also said deductible changes appeared to be reducing the number and size of both catastrophe and non-catastrophe claims.
Personal auto renewal pricing increased 7.1%, homeowners renewal pricing rose 10.9%, and umbrella pricing also remained strong. Lavey said policy-in-force trends reflected the company’s strategic shift toward larger-premium accounts and geographic diversification, as well as competition in lower-end market segments.
Core Commercial Performance and Technology Investments
Core Commercial net written premium increased 4.6%, with renewal pricing change holding at 7.4%. Middle-market business grew 6.7%, aided by retention that improved more than three points year over year, according to Lavey.
The Core Commercial current accident-year combined ratio excluding catastrophes was 93.2%, a 1.1-point improvement from the prior-year period. Its ex-catastrophe current accident-year loss ratio improved slightly to 60.5%.
Farber said the segment’s reported combined ratio was affected by catastrophe losses, while seasonal property losses also tend to be higher during the third quarter. He said the company’s liability loss assumptions had not changed during the year and remained prudent.
Lavey highlighted ongoing automation initiatives, including expanded straight-through processing and the planned fourth-quarter completion of a workers’ compensation TAP Sales rollout. The company also launched an Adjuster Workbench platform intended to provide claims professionals with data, decision support and claims context in a single workflow.
Other technology developments included enhanced surety workflow and credit certification capabilities, additional E&S submission intake and triage tools, and an AI-enabled commercial-lines data exchange platform. Lavey said the data exchange system was developed from concept to production in three months and is designed to automate data extraction, appetite and eligibility reviews, and rating.
Investment Income, Reserves and Capital Returns
Net investment income rose 12.7% to $131.9 million. Farber said the increase reflected greater investable cash generated by underwriting results and elevated reinvestment rates. About 88% of invested assets were held in cash and investment-grade fixed income, while the fixed-maturity portfolio carried a weighted average rating of A+ and was 95% investment grade.
Earned yields on fixed maturities reached 4.58%, compared with 4.33% a year earlier. Farber said the company continued to reinvest at yields above those of maturing securities.
The company reported $18.3 million of favorable prior-year reserve development excluding catastrophes, including $14.8 million in Specialty and $3 million in Core Commercial. Farber said reserves remained strong and that the company continued to add incurred-but-not-reported reserves, particularly as it maintained a cautious approach to liability lines.
During the quarter, Hanover repurchased approximately 386,000 shares for $86 million. Through Oct. 26, it had repurchased more than 1.3 million shares at an average price of about $197 per share. The company had approximately $546 million remaining under its repurchase authorization.
Farber said the company expects its full-year combined ratio to “clearly beat” its original guidance, even after accounting for higher agent profit-sharing and employee incentive expenses tied to stronger-than-expected performance. The company’s fourth-quarter catastrophe load assumption is 5.2%.
About The Hanover Insurance Group (NYSE:THG)
The Hanover Insurance Group, Inc is a holding company that provides property and casualty insurance products and services through a network of independent agents. Its principal operating subsidiary is The Hanover Insurance Company, which traces its roots to 1852 and is headquartered in Worcester, Massachusetts.
The company offers personal insurance products such as automobile, homeowners, condominium, renters and umbrella coverage. Its commercial insurance business serves small and midsize businesses with products that include commercial property, general liability, commercial automobile, workers’ compensation and other specialized coverages.
The Hanover also provides specialty insurance solutions for select industries and risks, including professional liability, management liability, marine and other niche commercial exposures.
