Release Date: October 31, 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 operating income of $3.5 per diluted share, with an operating return on equity of 14.4%.
- The ex-cat combined ratio improved by 2.4 points compared to the previous year, indicating successful margin recapture initiatives.
- Personal lines showed substantial improvements, with premium growth of 6.8% driven by pricing, and auto reaching target returns.
- The specialty segment achieved exceptional bottom-line results, with sustainable profitability and robust margins.
- The company is well-positioned to navigate social inflation trends, with healthy reserves and ongoing advancements in margin recapture and catastrophe mitigation plans.
Negative Points
- Catastrophe losses from hurricanes and weather events impacted the quarter, with losses primarily in personal lines and core commercial.
- The consolidated expense ratio increased by 0.8 points due to higher agency and employee compensation, reflecting ongoing investments in talent and technology.
- Core commercial growth slowed to 1.7% in the quarter, driven by premium reduction in middle market due to property actions and lower new business.
- Specialty growth moderated to 3.4% in the quarter, impacted by higher than expected premium attrition in specific segments.
- The company faces challenges in liability lines, with increased pricing needed to address industry trends and pressures.
Q & A Highlights
Q: Can you provide an update on the progression of returning to growth in the personal lines segment, particularly for auto and home?
A: John Roche, President and CEO, explained that they are at an inflection point and are moving forward with more offensive strategies, especially in states where they have surpassed target returns. Jeff Farber, CFO, added that they are making good progress on their strategic objectives, with some states already showing positive growth. They expect modest positive growth by the end of 2025.
Q: How are the non-rate actions, like deductible changes, impacting your portfolio, especially in the Midwest?
A: John Roche noted that by April next year, they will have completed the renewal cycle for deductible changes, particularly in the Midwest. These changes, along with pricing and insurance-to-value enhancements, will significantly improve their portfolio's resilience against severe convective storms.
Q: Can you elaborate on the decision to set higher liability picks in core commercial and its impact on the loss ratio?
A: Jeff Farber stated that the higher loss ratio in core commercial was mainly due to lower large losses in the previous year. They believe a 57-58% loss ratio is appropriate for 2024, with potential improvement next year due to strong renewal price changes.
Q: What are the key factors influencing the competitive environment and pricing trends in core commercial and specialty lines?
A: John Roche mentioned that while property pricing is flattening, liability pricing is increasing, which is appropriate given the current environment. Brian Salvatore added that while some areas like professional lines are competitive, they continue to achieve necessary rate increases in other areas like E&S.
Q: With the improvements in personal lines and core commercial, how do you view capital management and potential share repurchases?
A: Jeff Farber expressed optimism about their opportunities for improvement and indicated support for regular dividend growth and share buybacks. They have not repurchased shares recently but are likely to resume capital management activities soon.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
