By Michael Loney

Feb 6 - (The Insurer) - The CFO of The Hanover has commented that its liability business continues to benefit from lower than historical frequency but warned there is “uncertainty around claim severities”, with the carrier expecting its liability pricing “to accelerate in 2025”.

After markets closed on Tuesday, Worcester, Massachusetts-based The Hanover reported Q4 operating income per diluted share of $5.32, ahead of the $3.36 consensus estimate and up from $3.13 in Q4 2023.

New York-listed The Hanover’s share price closed up 4.8 percent on Wednesday at $160.23 in response to the results.

The combined ratio improved to 89.2 percent in the period from 94.2 percent in the prior-year quarter.

Catastrophes represented 1.7 percentage points of the combined ratio in Q4 2024 versus 4.0 points in the prior-year period, while there was 1.7 points of favourable prior year development compared with 0.6 points in Q4 2023.

Net premiums written increased to $1.45bn in 2024's fourth quarter, up 7.4 percent from $1.35bn in the same period of 2023.

On an investor call on Wednesday, president and CEO John Roche noted that throughout 2024 The Hanover took a number of proactive steps to further mitigate catastrophe exposure, including increasing pricing, modifying terms and conditions and making adjustments to geographic mix.

“To provide some additional context, over the last two years we increased cumulative written renewal pricing by approximately 47 percent in homeowners and by 29 percent in core commercial property. And over the past 12 months, we more evenly spread our risk geographically,” he said.

He continued that The Hanover strategically reduced its personal lines policy count in the Midwest by 10.2 percent and implemented new or enhanced deductibles across the majority of its personal lines book.

“These actions had a positive effect on our 2024 performance, and they are expected to benefit our results in 2025 and in the years ahead,” he said.

The Hanover’s combined ratio excluding catastrophes of 87.5 percent improved 2.7 points from the prior-year quarter.

Liability benefiting from lower frequency

The core commercial ex-cat combined ratio increased 2.5 points from the prior-year quarter to 93.5 percent.

CFO Jeffrey Farber noted that core property continued to perform well in 2024, maintaining the profitability levels achieved in 2023.

“In liability lines, our business continued to benefit from lower than historical frequency because of geographic and industry mix choices we have made in the past,” he said. “And our actuarial estimates for core liability lines remain consistent with our expectations. However, management increased our view of current accident year loss picks due to uncertainty around claim severities.”

Farber noted middle-market umbrella rate increases of approximately 14 percent in the year and double-digit pricing increases in core commercial auto.

“We expect our liability pricing to accelerate in 2025. And we expect to see some improvement to the core commercial loss ratio in 2025 driven by property,” he said.

In the fourth quarter, core commercial renewal price increases averaged 11.8 percent, including average rate increases of 9.2 percent. These were both sequential decelerations from the 12.9 percent renewal price increase and 10.0 percent rate increase in Q3 2024.

The Hanover in an investor presentation commented that the core commercial renewal price increases of 11.8 percent were “driven by strong price increases in both property and liability”.

Discussing specialty, Farber said that all subsegments performed very well with notable outperformance in marine, specialty industrial and E&S.

“Looking ahead, we expect continued strong growth, positioning specialty as a significant driver of enterprise top line expansion in 2025 and beyond,” Farber said.

In the fourth quarter, specialty renewal price increases averaged 9.5 percent (10.1 percent in Q3 2024), including average rate increases of 6.1 percent (7.6 percent in Q3 2024).

Farber noted that the personal auto ex-cat current accident year loss ratio was better than planned for both the quarter and the year because of healthy price increases earning in and a continuing benefit from industry-wide reduced frequency.

“We expect some additional improvement in 2025 as written rate earns in above loss trend, albeit to a lower degree,” he said.

He added: “We expect the personal lines loss ratio to further improve from the 2024 actual as increased pricing continues to earn in, and we benefit from terms and condition changes more fully, particularly in home,” Farber added.

The CFO also noted a slight positive impact from lower-than-usual weather-related claims, primarily in the fourth quarter.

“This said, we continue to closely monitor activity on our PL umbrella line in order to stay on top of evolving trends,” he said. “We are achieving healthy price increases up approximately 20 percent in the fourth quarter,” he said.

Personal lines renewal price increases averaged 14.2 percent (15.2 percent in Q3 2024), including average rate increases of 13.1 percent (14.4 percent in Q3 2024).

The renewal price and rate increases in both personal auto and homeowners were all sequential decelerations from Q3 2024.

“Personal lines pricing is expected to remain healthy in 2025, and as such, the segment remains on track to return to target profitability on an earned basis this year,” Farber said.

Casualty reinsurance rates up at 1.1

The executive also provided details of The Hanover’s reinsurance placement at 1.1.2025.

“On January 1, we successfully completed our multiline casualty reinsurance renewal process, securing a similar structure to expiring agreements,” he said. “We are comfortable with contracted rates, which increased as we expected, driven by industry casualty pressures.

“We remain pleased with our robust casualty reinsurance structure attaching at $2.5mn which is one of the drivers of our resilience against the contemporary liability trends facing the industry,” he added.

The Hanover’s guidance for 2025 includes expected overall consolidated net written premium growth to be in the 6 to 7 percent range.

“Specialty and small commercial growth are expected to exceed this range while personal lines and middle market growth are projected to be below it,” Farber said.

The Hanover also said that its financial impact from natural catastrophes in January 2025 is expected to be less than $10mn above the monthly cat plan of $30mn, with California wildfires representing the “overwhelming majority”.