Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Hanover Insurance Group Inc (THG, Financial) reported a strong operating return on equity of 9% for the second quarter and 12% for the first half of the year.
- The company achieved significant improvement in underlying margins for personal lines, with an ex-cat combined ratio of 88.5% compared to 92.8% year over year.
- Specialty segment experienced top-line growth of 8.2%, driven by strong retention and double-digit new business growth.
- Core commercial segment delivered solid net written premium growth of 5.5%, with an 8.5% increase in small commercial.
- The company successfully renewed its property reinsurance treaties with favorable market responses, maintaining a consistent structure and securing full capacity across its catastrophe reinsurance program.
Negative Points
- The Hanover Insurance Group Inc (THG) faced significant catastrophe losses, with a combined ratio of 99.2% including 10.7 points of catastrophe losses.
- Personal lines experienced pressure from elevated personal umbrella losses stemming from auto bodily injury coverage.
- The company noted a slowdown in claims emergence in workers' compensation, which merits caution in current year loss selections.
- The expense ratio increased by 20 basis points year-over-year, reflecting talent and technology investments as well as increased variable compensation.
- The company continues to face challenges from social inflation and evolving liability trends, requiring ongoing vigilance and proactive management.
Q & A Highlights
Q: Given your core margins in Personal Lines, specifically homeowners, are doing well, do you expect your rates to accelerate from here, or have they peaked?
A: John Roche, President and CEO, explained that they are coming off the peak of significant insurance to value enhancement and increased rates. The company is pleased with its ability to meet and lead the market. Rates are expected to remain stable, but they will continue to monitor weather patterns and market conditions. Jeffrey Farber, CFO, added that while written rates will be consistent, earned rates will increase due to higher written rates in recent quarters.
Q: You mentioned a slowdown in claims emergence in workers' compensation. Can you elaborate on what's driving that?
A: Jeffrey Farber, CFO, noted that the slowdown relates to the indemnity portion, with some people being out for longer periods. However, increased payrolls over the last few years offset this. The company remains prudent with its workers' comp releases and loss picks, feeling comfortable with the current situation.
Q: In Core Commercial, there was mention of property favorability and being more defensive in casualty lines. Can you clarify this?
A: John Roche, President and CEO, explained that property favorability in Core Commercial allowed them to be more prudent in casualty lines, generally through increased IBNR (Incurred But Not Reported) reserves, as these claims haven't shown themselves yet.
Q: Regarding social inflation, is there a particular area of commercial liability that deserves more attention, or is the pressure widespread?
A: John Roche, President and CEO, stated that social inflation affects liability trends broadly, especially in business-to-consumer exposures. The differences observed among companies depend on portfolio susceptibility, geographic focus, and proactive measures taken. Hanover has made portfolio adjustments that provide advantages against these trends.
Q: Can you discuss the impact of terms and conditions changes in Personal Lines on catastrophe loads?
A: John Roche, President and CEO, emphasized that the company is confident in moving CAT loads in the right direction through diversification and enhanced modeling. Jeffrey Farber, CFO, added that the impact of additional deductibles was limited in Q2 but is expected to be significant by the next severe convective storm season.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
