HANOVER INSURANCE GROUP, INC. Q4 FY2024 earnings call

• The company had exceptional fourth-quarter performance with a record operating return on equity of 24.4%, improved ex-cat combined ratio by 2.7 points to 87.5%, and net written premiums grew by 7.4%. • Specialty performed well with 8.8% growth in Q4, driven by various lines and completion of profitability improvement actions. • Core commercial had strong performance with small commercial and middle market growth, supported by technology and third-party data. • Personal lines had a turnaround, with margin improvement for six consecutive quarters, and focused on diversifying geographic mix. • The company made investments in tech innovation, including TAP sales platform, digital workflow automation, and AI initiatives. • Implemented cat mitigation actions, adjusted pricing and terms, and diversified geographic mix across business segments.

Specialty: Had a $1.4 billion net written premiums specialty portfolio. In the fourth quarter, accelerated top-line growth to 8.8% after completing profitability improvement actions. Several profitable lines like E&S, HSI, healthcare, and marine achieved double-digit growth. Core commercial: Delivered strong performance in the quarter with small commercial premiums up 9.3% and middle market premiums up 5% in the quarter. Premium growth driven by small commercial and middle market momentum. Personal lines: Delivered an outstanding turnaround in 2024, growing premiums by over 4% for the year. Saw margin improvement for the sixth consecutive quarter. Fourth-quarter personal lines premium growth was 6.6%, and full-year growth was 4.3%.

• Overall consolidated net written premium growth expected to be in the 6 to 7% range in 2025, with specialty and small commercial growth exceeding this range and personal lines and middle market growth below. • Net investment income expected to increase by 12 to 14% from 2024. • Expense ratio expected to return to traditional pacing and decrease to 30.5%. • Combined ratio excluding catastrophes projected to be in the 88.5 to 89.5% range, an improvement from the prior year's guide. • Cat load for 2025 is 6.5%, with the first-quarter cat load at 6%. The financial impact of January 2025 natural catastrophes is expected to be less than $10 million above the $30 million monthly cat plan.

• Economic conditions and related effects including economic and social inflation, potential recessionary impacts, and tariffs. • Severe weather and catastrophes that could affect the company's performance and cause actual results to differ materially from anticipations. • Casualty trends with social inflation and potential concerns regarding severity and frequency of claims.

Q: Good morning. So my first question is around the core commercial. Going forward, are there any lines of business within the middle market that you feel could be a great opportunity for growth?

A: Jack Roche mentioned being excited about small commercial continuing high single-digit growth, and Dick Lavey mentioned work comp, classic main street industries, tech, life sciences, and human services as opportunities.

Q: Understand that you are adding a little bit to the IBNR, specifically on the commercial umbrella side. Can you maybe help us think about the rationale behind that a little bit more obviously, social inflation and then being just a little bit more conservative on reserving?

A: Jeff Farber said they have seen favorability in all segments, but are being prudent and conservative on reserving due to casualty trends, but are well prepared.

Q: Last quarter, you guys mentioned how for core commercial line, the core loss ratio could improve somewhat from 2024 levels given what you are seeing in pricing and loss trend. I guess, does the action that you just talked about, albeit a small action, does that give you any pause for those comments?

A: Jeff Farber said they are still very comfortable with the comments, expecting liability pricing to accelerate in 2025 and core commercial loss ratio improvement driven by property.

Q: Good morning. Thanks for the call. Want to ask a big picture question on personalized. Now that you have kind of gone through, I think, the whole social perspective, the recovery. Are there some lessons learned or maybe some strategy changes that you are thinking about as you now that the book is all been so on back to profitability?

A: Jack Roche said they are thinking about diversification for personal lines, having accelerated diversification efforts, and are making progress in property aggregations across the enterprise.

Q: Hi. Good morning. It is Dan on for Mike. Maybe just on personal lines, specifically homeowners. What percentage of your loss ratio is maybe hail or SCS related? And just how much do you think the, you know, the average deductible has gone up throughout the remediation cycle or throughout March and know, just the impact that deductibles have had to your go-forward expectation on the loss ratio.

A: Dick Lavey said deductibles have gone up between three to three and a half to five times depending on the state, having a meaningful effect on loss ratio frequency, and Jack Roche mentioned imposed minimum all perils deductibles and wind/hail deductibles in certain areas.

Q: Great. Thanks. I had one minor question and one big picture question. But starting with the minor, I guess, we saw premium growth in specialty for professional and executive lines pick up with the highest growth rate we have seen in a while. And I guess the sense we have is that pricing is not getting better for a lot of the lines there. So something that you talked to, what just what drove the growth in the quarter?

A: Jack Roche mentioned specialty book is retail-driven and lower end, Bryan Salvatore said 9.5% pricing in the quarter, five years of rate in excess of trend, and new business was highest in five years in 2024.

Q: Hey there. Good morning. A couple of questions. First, for Bryan, I just want to talk about the excess and surplus lines business specifically, just how submission trends are looking there and in 2025, are you looking are you leaning more towards property risks or casualty risks?

A: Bryan Salvatore said E&S submission activity is growing, portfolio is balanced between property and casualty, with property in E&S being less cat sensitive.

Q: Alright, so how do you respond to investors that may just take a look at the P&C sector overall and say, hey, look, rate increases are decelerating. We are kind of past the hard market peak. Maybe the story has played out, you know, if they are kind of getting down and the market how do you respond to that?

A: Jack Roche said does not see the market at the top of the cycle, liability trends are deteriorating, weather is challenging, and the company has a balanced portfolio with four major businesses producing double-digit ROEs, providing resilience and opportunity.