HANOVER INSURANCE GROUP, INC. Q1 FY2025 earnings call

• Strong Start: Operating return on equity 17.2% in Q1 despite catastrophes, with catastrophe experience manageable.
• Segment Strategies:
  • Personal Lines: Targeted state-specific strategies, growth excluding Midwest, favorable margin improvement.
  • Core Commercial: Middle market growth, small commercial adjusting pricing, focus on high opportunity sectors.
  • Specialty: Disciplined execution, new business growth, sustained pricing strength.
• Investment: Net investment income up 18.3% due to higher earned yields in fixed-income portfolio. Portfolio diversified, 95% investment grade.
• Share Repurchases: Repurchased ~178,000 shares YTD, $274M remaining under share repurchase program

Personal Lines

• Net written premium growth of 3.0%, with excluding the Midwest showing a 7.1% increase. Ex-CAT combined ratio was 84.1%, a 7 point improvement from the prior year period. Personal auto ex-CAT current accident year loss ratio was 66.9%, improving 6.7 points y-o-y due to earned pricing and lower physical damage claims frequency. Homeowners ex-CAT current accident year loss ratio down 5.8 points, driven by strong earned pricing and lower frequency. Umbrella pricing was up 22.8% in Q1, with similar expected in Q2.

Core Commercial

• Net written premium growth of 3.8% driven by middle market momentum. Ex-CAT combined ratio was 94.9%, with loss ratio 61.7% higher than expectations due to large property losses. Liability pricing up ~13%, with expectation of accelerating pricing in casualty lines.

Specialty

• Premium growth at 5.4%, excluding programs 7.3% growth. Ex-CAT loss ratio 51.1% in the quarter, within target range. Renewal pricing 8.4%, with high single-digit to double-digit gains in key lines like surety, excess and surplus lines, marine, and healthcare

• Full-year expense ratio expected at 30.5%.
• Q2 CAT load expected at 7.9%.
• Premium growth expected to increase from recent quarter, driven by pricing exceeding loss trends.
• Higher net investment income anticipated from reinvestment yields and increased cash flow

• Economic uncertainties including tariffs, potential recession, economic and social inflation.
• Severe weather and catastrophes that could impact performance

Q: Michael Phillips asked about small commercial pricing adjustments, liability pricing, and commercial auto reserve actions.

A: Jack Roche and Dick Lavey discussed small commercial pricing tweaks to snap back growth, Jeff Farber confirmed liability pricing applies to all casualty lines and long-term loss trend assumptions. Jeff also noted minor commercial auto reserve actions were prudent and not indicative of broader issues.

Q: Paul Newsome inquired about competitive environment in Personal and Commercial Lines, expansion in Personal Lines, and casualty loss trend assumptions.

A: Jack Roche and Dick Lavey talked about Personal Lines growth strategy and competitiveness, Bryan Salvatore discussed Commercial Lines competition and positioning. Jeff Farber mentioned casualty loss trend assumptions have been raised consistently but specific numbers not shared due to line-of-business differences.

Q: Mike Zaremski asked about home insurance frequency, casualty loss trend assumptions, and CAT load guidance.

A: Dick Lavey explained frequency benefit from higher deductibles and customer reticence to submit small claims. John Roche noted casualty loss trend assumptions have moved higher over years but specific numbers not shared. John confirmed Q2 CAT load guide doesn't include prior year development (PYD).

Q: Meyer Shields asked about small commercial pricing percentage and sustainability of Personal Lines frequency benefit.

A: Dick Lavey said small commercial pricing adjustments vary by class, geography, and not dramatic. John Roche and Jeff Farber discussed that Personal Lines frequency benefit is sustainable due to factors like higher deductibles, customer behavior, and technology benefits, expected to continue contributing to performance