HANOVER INSURANCE GROUP, INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strong Third Quarter Results: Generated operating income of $3.5 per diluted share, operating return on equity 14.4%. Ex-cat combined ratio improved 2.4 points y-o-y.
• Personal Lines Progress: Made significant year-over-year improvements in Auto and Home via underwriting actions and price increases. Focused on accelerating growth in states with attractive profitability. Over half of portfolio under new/enhanced deductibles. Broaden account product capabilities with collector car protection partnership.
• Core Commercial: Solid financial performance with prudent growth strategy. Positioning portfolio to be resilient. Increased pricing in third quarter and plan additional increases. Small commercial grew ~6% leveraging TAP Sales platform.
• Specialty Performance: Achieved exceptional bottom line results. Accelerated investments in skilled talent and technology. Specialty growth moderated to 3.4% q-o-q but expects high single-digit growth in fourth quarter and beyond.

Segment Performance

• Personal Lines: Generated premium growth of 6.8% in the quarter. Excluding catastrophe losses, ex-cat combined ratio was 89.2%, down 7.2 points from the prior year quarter. Auto is at target returns on written and earned rate basis, Home is at target on written basis. Over half of Personal Lines portfolio under new or enhanced deductibles.
• Core Commercial: Top line growth slowed to 1.7% in the quarter. Excluding catastrophes, combined ratio was 91.1%, up 1 point from prior year. Current accident year loss ratio excluding catastrophes was 58.2%.
• Specialty: Excluding catastrophes, combined ratio increased 1.3 points to 82.6%. Net written premiums grew 3.4% in the quarter. Excluding programs, specialty grew 5.4% q-o-q and 7.4% year-to-date.

Guidance

• Expect 2024 ex-cat combined ratio to be below original guidance range of 90%-91%.
• Full year 2024 expense ratio expected at or near 30.9%, compared to guided 30.7%. Expect 30.5% expense ratio in 2025.
• Net written premium growth in Q4 expected to be greater than 6%.
• Minimal impact from Hurricane Milton on Q4 results, cat load guide unchanged at 5.7%.

Risks

• Economic and social inflation, potential recessionary impact.
• Severe weather, catastrophes that could affect company performance and cause actual results to differ materially from anticipations.

Q: Matt Carletti asked about progression of pay growth in Personal Lines and impact of deductible changes.

A: Jack Roche and Dick Lavey discussed moving to more offense in states with target returns, enhancing diversification, and that by April 2025, deductible changes will make a meaningful impact on portfolio.

Q: Mike Zaremski inquired about liability picks in Core Commercial and reserve releases.

A: Jeff Farber explained liability loss ratio expectations and that reserve releases were minimal with favorability in multiple lines. Jack Roche added details on favorability in specialty and other segments.

Q: Michael Phillips asked about core commercial premium growth and capital management.

A: Jack Roche noted middle market expected to improve, and Jeff Farber mentioned bullishness on opportunities, supportive of dividend growth and buybacks.

Q: Meyer Shields asked about gap in pricing and deductibles in Personal Lines.

A: Jeff Farber and Jack Roche discussed exposure unit growth in work comp, incremental deductible increases in Personal Auto, and no significant new business penalty anticipated in Personal Lines.