The Hanover Insurance Group, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Overall Performance: Second quarter results were strong with operating ROE at 18.7%, operating earnings of $4.35 per diluted share, and ex-CAT earnings growth ~25%.
• Personal Lines: Showed strong performance with balanced growth, high-quality execution, and account-based business. Pricing remained strong despite cat losses, and tariffs were being monitored.
• Core Commercial: Maintained healthy margins, with Small Commercial showing growth acceleration from targeted pricing. Focused on high opportunity sectors like technology and life sciences.
• Specialty: Outperformed expectations with strong profitability, growth in E&S, surety, health care, and marine.
• Technology Investments: Strategic investments in data, analytics, and AI to automate processes, improve workflow, and enhance customer experience.

Segment Performance

• Personal Lines: Achieved net written premium growth driven by renewal price increases, improving retention, and rising new business activity. Saw ~8% growth in targeted diversification states. Combined ratio was 92.5%, ex-CAT combined ratio 85.5%. Loss ratio ex-CAT was 56.1%. Growth was 3.7%, with double-digit growth in target diversification states.
• Core Commercial: Combined ratio was 93%, ex-CAT combined ratio 88.9%. Net written premiums grew 4.4%, led by 5.6% growth in Small Commercial.
• Specialty: Net written premium growth was 4.6%, with a mid-80s combined ratio. E&S grew 22%, surety 13%, health care 8%, and marine 7%.

Guidance

• Net Written Premiums: Expect growth of 6% to 7% in the second half of 2025.
• Catastrophe Load: Third quarter cat load expected at 6.8%.
• Share Buybacks: Continued participation in share buybacks, with ~$244 million remaining capacity under the program.

Risks

• Economic and Social Inflation: Potential impact on results.
• Recessionary Impacts: Could affect performance.
• Tariffs: Minor loss cost increases possible in the back half of the year.
• Severe Weather and Catastrophes: Could materially affect performance.

Question and Answer

• Q: About Specialty segment and decelerating rate environment A: Bryan Salvatore mentioned pricing is still resilient and aligned with loss trends, with differentiation in lower middle market and small business.
• Q: Commercial auto charge A: Jeffrey Farber stated commercial auto is a small line, with reserve increase being IBNR and case reserves down.
• Q: Catastrophe load guidance A: Jeffrey Farber explained 6.8% third quarter load, with improvement from personal and commercial lines work.
• Q: Distribution side of personal lines business A: Jack Roche mentioned comfortable with current footprint but diversifying within existing states by adding agents.
• Q: Modeling questions on reserves and reinsurance A: Jeffrey Farber and Jack Roche discussed reserve adjustments in commercial auto and reinsurance's positive impact on homeowners' economics.