The Hanover Insurance Group, Inc. Q4 FY2025 earnings call

• Our outstanding fourth quarter results capped a record year for The Hanover, with record quarterly operating earnings per share and all-time high operating return on equity of 20% for the full year.
• Personal Lines team delivered outstanding profitability, with net written premium growth and improved resiliency of portfolio through pricing and deconcentration actions.
• Core Commercial business delivered solid profitability, Small Commercial franchise had strong performance on top and bottom lines, expanded distribution capability.
• Middle market experienced softening property market conditions but underlying growth accelerated, focuses on granular management and high-margin segments.
• Specialty segment delivered consistent and strong profitability through expertise-based underwriting, took targeted rate actions and deployed margin selectively

Personal Lines

• Fourth quarter net written premium growth increased to 4.4%, full year growth 3.7%, primarily driven by pricing. Annual current accident year ex-CAT combined ratio was 85.3%, fourth quarter was 85.4%. Personal auto ex-CAT current accident year loss ratio was 69.5% for the year, 75.7% in the fourth quarter. Homeowners ex-CAT current accident year loss ratio was 45.8% for the year, 36.6% in the fourth quarter.

Core Commercial

• Fourth quarter current accident year ex-CAT combined ratio was 91.6%, full year was 92.6%. Fourth quarter ex-CAT current accident year loss ratio was 57.4%, full year was 59.1%. Net written premiums grew 3.6% in the year and 2.5% in the quarter, led by Small Commercial.

middle market

• Underlying growth accelerated sequentially to 2.6% in the fourth quarter. Focuses on high-margin expertise-driven segments, deploys enhanced underwriting work bench and transitions to enhanced field underwriting model.

Specialty

• Continues to deliver consistent and strong profitability. Premium growth in Specialty moderated to approximately 4% in the fourth quarter adjusted for reinstatement premium. Excess and surplus lines continued to deliver strong double-digit growth, management liability growth accelerated in the fourth quarter

• Expect overall consolidated net written premium growth to accelerate in 2026 to mid-single-digit growth.
• Expect net investment income growth in the mid- to upper single digits compared to 2025.
• Expense ratio for 2026 is expected to be 30.3%, but will not give specific expense ratio guidance in future years.
• Combined ratio, excluding catastrophes, should be in the range of 88% to 89%, improvement from 2025 guidance.
• CAT load for the year is 6.5%, consistent with 2025 guidance, first quarter CAT load is 6.1%

• Economic conditions and related effects, including economic and social inflation, tariffs.
• Severe weather and catastrophes that could impact the company's performance and cause actual results to differ materially from those anticipated

Q: Congrats on a nice year and quarter. Jeff, in your opening comments, you talked about adjusting the current year for auto BI severity. I assume you're referring to personal auto there given what we see in the quarter. And you also, of course, mentioned the Core Commercial accident loss ratio up a bit given the activity you took earlier in the year. We didn't see that activity for Core Commercial this quarter. I don't think we did. And I guess, does that mean that the pressure you felt from those casualty lines and Core Commercial, you felt less of a need to do so and maybe things are kind of easing there?

A: So your first question, yes, it was PL auto liability that we were raising picks in the fourth quarter. With respect to Core Commercial auto, yes, we didn't see a whole heck of a lot this particular quarter. It's been a relatively quiet quarter there. But we've been mentioning it all year long, and we've been increasing our IBNR reserves for auto largely for -- solely really for 2023 and '24 and '25. Years before that are quite mature. And I think we leave 2025 with the strongest balance sheet that we've ever had Q: Maybe on Personal Lines specifically, if you can kind of just tease out directionally what the non-CAT property benefit was in home? I think there was a benefit for the year, just so we kind of can better understand the run rate. You guys have obviously done an excellent job improving margins there. And just maybe higher level overall Personal Lines, kind of like I see the comment in your deck about expecting policy count to grow a bit. But I guess what's kind of the North Star in the current competitive environment? Would it be kind of very low single-digit PIF growth? Or any comment there would be helpful?

A: Thanks, Mike. It's Jeff. I'll start on the loss ratio. A lot of moving pieces with respect to home. First off, we're getting price above loss trend, which is really earning in and being very powerful for us. But you also have issues like the benefit of the deductibles and even some consumer behavior. Clearly, favorable weather in 2025 and even particularly in the fourth quarter is having a healthy benefit. So it's -- I'm reluctant to spike that out, even though we've tried to estimate it because it's just -- it's too raw. I don't have enough confidence in it. But I think it would be wise to assume that the 47.5% that we did for the year will need to come up a little bit because of that particular benefit. All right. And I'll take the question on the North Star Personal Lines. So thanks for that. We've really been maniacally focused on our North Star in Personal Lines, which is to be the best market in the IA channel for preferred accounts. So I do think of our future as like strengthening that strength, growing thoughtfully while achieving our diversification objectives, not only across states, but even within states where we have a lot of market share, pushing ourselves continuously upstream into that prestige account space, the $750 million to $3 million space. And then as you've seen, importantly, continue to invest in that account solution. So classic cars, schedule items and things like that. So we are -- we continue to be focused on that. I like a mid-single-digit growth objective kind of into the future. I think that's a good place to be. And as prices come down to more rational levels, that's always been our objective