WORCESTER, Mass., Oct. 18,
2023 /PRNewswire/ -- The Hanover Insurance Group,
Inc. (NYSE: THG) today announced a preliminary estimate for third
quarter 2023 catastrophe losses of $195.8
million, before taxes, or 13.7 points of net earned premium.
The losses resulted from multiple convective storms across the
Midwestern United States. Hail and wind damage represented the
majority of reported losses, which primarily impacted the company's
Personal Lines business.
"Severe weather represented a formidable challenge in the third
quarter for us and the industry, generating significant catastrophe
losses and adversely impacting bottom line results," said
John C. Roche, president and chief
executive officer at The Hanover.
"We have taken decisive action across our Personal and Core
Commercial businesses, which will enable us to more effectively
manage catastrophe risks while continuing to deliver comprehensive
and innovative insurance solutions for our agent partners and
customers. Among other actions, we are implementing multiple
initiatives to increase catastrophe resiliency in our homeowners
business, including strengthening terms and conditions, increasing
all-peril deductibles, introducing wind and hail deductibles in
additional states, applying aged roof amortization schedules in
certain geographies, and reinforcing our emphasis on risk
prevention measures."
"During the quarter we continued to successfully build on our
margin recapture plan, implementing double-digit price increases
and executing underwriting actions in property lines," Roche said.
"We are encouraged by the early progress reflected in our
underlying performance. Excluding catastrophes, we achieved very
strong results, delivering meaningful improvement in our Core
Commercial and Specialty segments, as well as in personal auto. We
increased homeowners renewal prices by 23.4% in the quarter and
expect increases of 27% in the fourth quarter. These results
underscore the effectiveness of our profitability enhancement
program, and give us even greater confidence in our ability to
further improve performance in our personal auto and homeowners
books, and to deliver on our long-term profitability targets."
Taking catastrophe loss estimates and other currently available
information into account, the company expects to report a third
quarter 2023 combined ratio of 104.4%, and a combined ratio,
excluding catastrophes (1), of 90.7%. The company also
expects to generate after-tax net income of $0.24 per diluted share and operating income of
$0.19 per diluted
share(2) for the third quarter.
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Three months
ended
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September 30,
2023*
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Combined ratio
(GAAP)
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104.4 %
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Less: Catastrophe
ratio
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13.7 %
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Combined ratio,
excluding catastrophes(1)(non-GAAP)
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90.7 %
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Three months
ended
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September 30,
2023*
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Loss and LAE ratio
(GAAP)
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74.2 %
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Less: Catastrophe
ratio
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13.7 %
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Less: Prior-year
development ratio
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(0.1) %
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Current accident year
loss and LAE ratio, excluding
catastrophes (non-GAAP)(3)
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60.6 %
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*Results The Hanover
expects to report for three months ended September 30, 2023, taking
catastrophe loss estimates and other currently available
information into account.
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About The Hanover
The
Hanover Insurance Group, Inc. is the holding company for several
property and casualty insurance companies, which together
constitute one of the largest insurance businesses in the United States. The company provides
exceptional insurance solutions through a select group of
independent agents and brokers. Together with its agent partners,
The Hanover offers standard and
specialized insurance protection for small and mid-sized
businesses, as well as for homes, automobiles, and other personal
items. For more information, please visit hanover.com.
Contacts:
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Investors:
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Media:
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Oksana
Lukasheva
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Emily P.
Trevallion
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(508)
525-6081
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(508)
855-3263
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Email:
olukasheva@hanover.com
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Email:
etrevallion@hanover.com
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Forward-Looking Statements
The Hanover Insurance
Group, Inc.'s ("the company") estimate of catastrophe losses and
preliminary third quarter 2023 results, including, but not limited
to, combined ratio, combined ratio excluding catastrophes and/or
prior-year reserve development, current accident year loss and LAE
ratio, excluding catastrophes, catastrophe ratio, prior-year
reserve development ratio, net income per diluted share, operating
income per diluted share, renewal price change, improvements in
personal auto and the company's Core Commercial and Specialty
segments, as well as other items in the reconciliations from
non-GAAP to GAAP measures, are based on estimates and projections
that are subject to revision and uncertainty. Certain statements
made in this document, including with respect to the company's
ability to deliver on expectations regarding effective management
of catastrophe risk, improved profitability, and successful
implementation of its margin recapture plan, may be forward-looking
statements. All statements, other than statements of historical
facts, may be forward-looking statements. Such estimates and
statements are forward-looking statements as defined by the Private
Securities Litigation Reform Act of 1995. Words such as, but not
limited to, "believes," "anticipates," "expects," "may,"
"projects," "projections," "plan," "likely," "potential,"
"targeted," "forecasts," "confident," "should," "could,"
"continue," "outlook," "guidance," "target profitability,"
"modeling," "moving forward," "will," and other similar expressions
are intended to identify forward-looking statements.
Forward-looking statements by their nature address matters that
are, to different degrees, uncertain. The company cautions
investors that any such forward-looking statements are estimates,
beliefs, expectations and/or projections that involve significant
judgment, and that historical results, trends and forward-looking
statements are not guarantees and are not necessarily indicative of
future performance. Actual results could differ materially from
those anticipated.
Investors should consider the risks and uncertainties in the
company's business that may affect such estimates, including (i)
the inherent difficulties in arriving at such estimates; (ii)
variation in the company's current estimates that may change as the
company finalizes its financial results; (iii) the lingering
economic effects of the pandemic, as well as the current
inflationary environment, on the company's financial and operating
results; (iv) legislative and regulatory actions, as well as
litigation and the possibility of adverse judicial decisions; and
(v) competitive pressures to moderate the company's margin
recapture plan and (vi) other risks and uncertainties that are
discussed in readily available documents, including the company's
latest annual report on Form 10-K, quarterly reports on Form 10-Q,
and other documents filed by the company with the Securities and
Exchange Commission, which are also available on hanover.com under
"Investors – Financials." The difficulties at arriving at estimates
with regard to catastrophes related to rain, wind, flooding, hail,
tornados, winter storms, and other losses may be caused by several
factors, including difficulties policyholders may experience when
reporting claims, The Hanover's
ability to adjust claims because of the devastation encountered or
late discovery of damages; difficulties accessing loss locations;
the challenge of making final estimates to repair or replace
properties during the early stages of examining damaged properties;
applicable cause of loss for certain policies; the effect of higher
cost of repairs due to, among other things, "demand surge," supply
chain disruptions and economic inflation; potential latent damages,
which are not discovered until later; potential business
interruption claims, the extent of which cannot be known at the
time, especially for customers who have not fully resumed their
operations; the inherent uncertainty of estimating loss and loss
adjustment reserves; uncertainties related to litigation and policy
interpretation; and other factors.
Non-GAAP Financial Measures
As discussed on page 38 of the company's Annual Report on Form 10-K
for the year ended December 31, 2022,
the company uses non-GAAP financial measures as important measures
of its operating performance, including operating income, operating
income before interest expense and income taxes, operating income
per share, and components of the combined ratio, both excluding
and/or including, catastrophe losses, prior-year reserve
development and the expense ratio. Management believes these
non-GAAP financial measures are important indications of the
company's operating performance. The definition of other non-GAAP
financial measures and terms can be found in the 2022 Annual Report
on pages 63-66.
Operating income and operating income per diluted share are
non-GAAP measures. They are defined as net income excluding
the after-tax impact of net realized and unrealized investment
gains (losses), gains and/or losses on the repayment of debt, other
non-operating items, and results from discontinued operations. Net
realized and unrealized investment gains (losses), which include
changes in the fair value of equity securities still held, are
excluded for purposes of presenting operating income, as they are,
to a certain extent, determined by interest rates, financial
markets and the timing of sales. Operating income also excludes net
gains and losses from disposals of businesses, gains and losses
related to the repayment of debt, costs to acquire businesses,
restructuring costs, the cumulative effect of accounting changes,
and certain other items. Operating income is the sum of the segment
income (loss) from: Core Commercial, Specialty, Personal Lines, and
Other, after interest expense and income taxes. In reference to one
of the company's four segments, "operating income (loss)" is the
segment income before both interest expense and income taxes. The
company also uses "operating income per share" (which is after both
interest expense and income taxes). Operating income per share is
calculated by dividing operating income by the weighted average
number of diluted shares of common stock. The company believes that
metrics of operating income and operating income (loss) in relation
to its four segments provide investors with a valuable measure of
the performance of the company's continuing businesses because they
highlight the portion of net income attributable to the core
operations of the business. Income from continuing operations is
the most directly comparable GAAP measure for operating income (and
operating income before income taxes) and measures of operating
income that exclude the effects of catastrophe losses and/or
prior-year reserve development should not be misconstrued as
substitutes for income from continuing operations or net income
determined in accordance with GAAP. A reconciliation of operating
income to income from continuing operations and net income for the
relevant periods is included in the following pages of this news
release.
The company may provide measures of operating income and
combined ratios that exclude the impact of catastrophe losses
(which in all respects include prior accident year catastrophe loss
development). A catastrophe is a severe loss, resulting from
natural or manmade events, including, but is not limited to,
hurricanes, tornados, windstorms, earthquakes, hail, severe winter
weather, freeze events, fire, explosions, civil unrest and
terrorism. Due to the unique characteristics of each catastrophe
loss, there is an inherent inability to reasonably estimate the
timing or loss amount in advance. The company believes a separate
discussion excluding the effects of catastrophe losses is
meaningful to understand the underlying trends and variability of
earnings, loss and combined ratio results, among others.
Prior accident year reserve development, which can either be
favorable or unfavorable, represents changes in the company's
estimate of costs related to claims from prior years. Calendar year
loss and loss adjustment expense ("LAE") ratios determined in
accordance with GAAP, excluding prior accident year reserve
development, are sometimes referred to as "current accident year
loss ratios." The company believes a discussion of loss and
combined ratios, excluding prior accident year reserve development,
is helpful since it provides insight into both estimates of current
accident year results and the accuracy of prior-year estimates.
The loss and combined ratios in accordance with GAAP are the
most directly comparable GAAP measures for the loss and combined
ratios calculated excluding the effects of catastrophe losses
and/or prior-year reserve development. The presentation of loss and
combined ratios calculated excluding the effects of catastrophe
losses and/or prior-year reserve development should not be
misconstrued as substitutes for the loss and/or combined ratios
determined in accordance with GAAP.
Endnotes
(1)
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Combined ratio,
excluding catastrophes, and current accident year combined ratio,
excluding catastrophes, are non-GAAP measures. The combined ratio
(which includes catastrophe losses and prior-year loss reserve
development) is the most directly comparable GAAP measure. A
reconciliation of the GAAP combined ratio to the combined ratio,
excluding catastrophes, is shown on the preceding pages of this
news release.
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(2)
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Operating income and
operating income per share are non-GAAP measures. The following
table provides the reconciliation of operating income and operating
income per share to the most directly comparable GAAP measures,
income from continuing operations and income from continuing
operations per share, respectively.
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The Hanover
Insurance Group, Inc.
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Three months
ended
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September 30,
2023*
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($ in millions
except per share data)
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$
Amount
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Per
Diluted
Share
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Net income
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$8.6
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$0.24
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Less: Income from
discontinued Chaucer business
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0.4
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0.01
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Income from continuing
operations, net of taxes
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8.2
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0.23
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Less: Non-operating
items
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Net realized losses
from sales and other
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(0.9)
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(0.03)
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Net change in fair
value of equity securities
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(5.2)
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(0.14)
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Income tax benefit on
non-operating items
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7.5
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0.21
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Operating income after
income taxes
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$6.8
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$0.19
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Diluted weighted
average shares outstanding
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36.1
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*Results The Hanover
expects to report for three months ended September 30, 2023, taking
catastrophe loss estimates and other currently available
information into account.
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(3)
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Current accident year
loss and LAE ratio, excluding catastrophes, is a non-GAAP measure,
which is equal to the loss and LAE ratio ("loss ratio"), excluding
prior-year reserve development and catastrophe losses. The loss
ratio (which includes losses, LAE, catastrophe losses and
prior-year loss reserve development) is the most directly
comparable GAAP measure. A reconciliation of the GAAP loss ratio to
the current accident year loss ratio, excluding catastrophes, is
shown on the preceding pages of this news release.
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SOURCE The Hanover Insurance Group, Inc.