• Operating Return on Equity (ROE): Record 24.4% for Q4 2024; 15.8% for the full year.
• Ex-Cat Combined Ratio: Improved by 2.7 points year-over-year to 87.5% in Q4.
• Net Written Premiums: Grew by 7.4% in Q4; over $6 billion for the full year.
• Operating Income Growth: Increased by 29% excluding catastrophes.
• Combined Ratio: 94.8% for the full year; 89.2% for Q4, a 5-point improvement year-over-year.
• Specialty Segment Growth: Net written premium growth of 8.8% in Q4.
• Small Commercial Premiums: Increased by 9.3% in Q4.
• Middle Market Premiums: Increased by 5% in Q4.
• Personal Lines Premium Growth: Over 4% for the year; 6.6% in Q4.
• Expense Ratio: 31.3% for the year, with a temporary spike due to higher variable expenses.
• Net Investment Income: Increased by 23.4% in Q4; 12.2% for the year.
• Book Value Increase: 14.9% throughout 2024.
• Dividend Increase: Raised by 5.9% to $0.90 per share.
• Share Repurchases: 170,000 shares repurchased in Q4.
• 2025 Guidance: Net written premium growth expected to be 6% to 7%; net investment income to increase by 12% to 14%.

• Warning! GuruFocus has detected 7 Warning Sign with THG.

Release Date: February 05, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• The Hanover Insurance Group Inc (NYSE:THG) reported a record operating return on equity of 24.4% for the fourth quarter of 2024.
• Net written premiums grew by 7.4% in the fourth quarter, indicating strong top-line growth.
• The company achieved a significant improvement in its ex-cat combined ratio, which improved by 2.7 points year-over-year to 87.5%.
• THG successfully implemented catastrophe mitigation actions, which positively impacted their 2024 performance and are expected to benefit future results.
• The Specialty segment performed exceptionally well, with net written premium growth of 8.8% in the fourth quarter, driven by targeted investments in talent and technology.

Negative Points

• The expense ratio for the year was 31.3%, which was above expectations due to higher variable expenses such as employee and agency compensation.
• There is a cautious approach to reserving, with increased IBNR reserves in commercial umbrella due to uncertainty around claim severities.
• The company is facing challenges in the liability trends, with increased severity and more aggressive legal actions being noted.
• Personal Lines saw a deliberate reduction in policy count in select states to manage catastrophe exposure, impacting net written premium growth.
• The company is experiencing a temporary spike in expenses, which is expected to normalize in 2025.

Q & A Highlights

Q: Can you elaborate on the growth opportunities within the middle market for core commercial lines in 2025? A: John Roche, President and CEO, explained that Hanover is well-positioned for growth in the middle market, having addressed volatility and cat loads. The company aims for mid-single-digit growth in middle market while maintaining high single-digit growth in small commercial. Richard Lavey, President of Agency Markets, added that Hanover is focusing on industries like manufacturing, professional services, and specialized areas such as Tech and Life Sciences.

Q: What is the rationale behind increasing IBNR reserves, particularly for commercial umbrella lines? A: Jeffrey Farber, CFO, stated that the increase in IBNR reserves is a precautionary measure due to more severe casualty trends and increased legal involvement. Despite favorable reserving trends, Hanover is being prudent to ensure preparedness for potential future claims.

Q: Does the recent action on commercial umbrella reserves affect your outlook for core commercial loss ratios? A: Jeffrey Farber confirmed that the company remains comfortable with its outlook. They expect liability pricing to accelerate in 2025 and anticipate improvements in core commercial loss ratios, primarily driven by property.

Q: How has Hanover adjusted its strategy in Personal Lines following recent profitability improvements? A: John Roche highlighted that Hanover is focusing on diversification across its portfolio, particularly in geographic areas. The company is reducing its outsized exposure in the Midwest and is not planning significant expansion into new states for Personal Lines in the short term.

Q: How does Hanover respond to concerns about decelerating rate increases in the P&C sector? A: John Roche expressed confidence in Hanover's balanced portfolio and the ongoing need for pricing adjustments due to stable to increasing loss trends. He emphasized the company's strong position across its four major business segments, all producing double-digit ROEs, which supports resilience and growth opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.