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HANOVER INSURANCE GROUP, INC. (THG)·Q1 2025 Earnings Summary

Executive Summary

  • THG delivered a strong Q1 2025 with operating EPS of $3.87 and a GAAP combined ratio of 94.1%, supported by 18% growth in net investment income and continued margin recapture; ex-cat combined ratio improved 1.7 pts YoY to 87.8 .
  • Results beat Wall Street consensus: EPS $3.87 vs $3.51* and revenue $1.60B vs $1.55B*, aided by favorable prior-year reserve development and Personal Lines underlying loss ratio improvements (auto and home) .
  • Segment performance was mixed: Personal Lines delivered an 89.7% combined ratio (ex-cat 84.1%) while Core Commercial was pressured by large property losses (103.4% combined ratio); Specialty remained disciplined with an 87.7% combined ratio and 5.4% NPW growth .
  • Management guided Q2 catastrophe load of 7.9% and reaffirmed FY expense ratio ~30.5%; they expect premium growth acceleration and sustained pricing ahead of loss trend, particularly in Personal Lines and Specialty .
  • Key stock reaction catalysts: durable PL margin recovery, rising net investment income, and clarity on Core Commercial property volatility vs. pricing trajectory; share repurchases continued with ~$275M capacity remaining .

What Went Well and What Went Wrong

What Went Well

  • Personal Lines margin recovery: Combined ratio 89.7% with a 6.6-pt improvement in current accident-year ex-cat combined ratio driven by earned pricing and lower frequency in auto physical damage and homeowners .
  • Net investment income strength: NII rose to $106.1M (+18.3% YoY) with portfolio earned yield up to 4.14% and fixed maturity yield to 4.08%, supporting bottom-line growth .
  • Specialty discipline and favorable reserve development: 87.7% combined ratio with $15.9M favorable PYD (4.7 pts), broad-based across marine and professional/executive lines .
    Quote: “Our results reflect record first quarter operating EPS of $3.87… clear evidence that our strategy is driving strong performance in all key areas” — CFO Jeffrey M. Farber .
    Quote: “Excluding cats, we achieved a 1 point improvement… driven by Personal Lines” — CEO Jack Roche .

What Went Wrong

  • Core Commercial volatility: Combined ratio rose to 103.4% on elevated property large losses; current accident-year loss ratio ex-cat increased 3.2 pts YoY to 61.7% .
  • Higher catastrophe load: Cat ratio 6.3 pts (vs 1.7 pts in Q4 2024), reflecting California wildfires and convective storms .
  • Small Commercial growth slower than plan: Leadership acknowledged conservative new business pricing and heightened competition; pricing dials being adjusted to restore growth trajectory .

Financial Results

Consolidated Performance vs Prior Periods and Estimates

MetricQ3 2024Q4 2024Q1 2025
Total Revenues ($USD Millions)$1,565.3 $1,584.3 $1,603.2
Diluted EPS (GAAP)$2.80 $4.59 $3.50
Operating EPS (Non-GAAP)$3.05 $5.32 $3.87
Combined Ratio (GAAP)95.5% 89.2% 94.1%
Combined Ratio ex-Cat (Non-GAAP)88.3% 87.5% 87.8%
Catastrophe Ratio7.2% 1.7% 6.3%
Expense Ratio31.0% 32.3% 30.8%
Net Investment Income ($USD Millions)$91.8 $100.7 $106.1

Estimates vs Actuals (S&P Global consensus)

MetricQ1 2025 ConsensusQ1 2025 Actual
Primary EPS Consensus Mean$3.51*$3.87
Revenue Consensus Mean ($USD)$1,549.4M*$1,603.2M
Primary EPS - # of Estimates7*—
Revenue - # of Estimates3*—
Target Price Consensus Mean$199.71*—

Values retrieved from S&P Global.*

Segment Breakdown – Q1 2025

SegmentNet Premiums Written ($M)Net Premiums Earned ($M)Combined Ratio (GAAP)Combined ex-Cat (Non-GAAP)Cat RatioOperating Income Before Taxes ($M)
Core Commercial$604.6 $541.0 103.4% 94.9% 8.5% $26.8
Specialty$358.3 $339.6 87.7% 83.4% 4.3% $64.6
Personal Lines$547.9 $627.9 89.7% 84.1% 5.6% $94.2

KPIs (Pricing, Book Value, Yields)

KPIQ1 2025
Renewal Price Increase – Personal Lines13.1%
Renewal Price Increase – Core Commercial11.1%
Renewal Price Increase – Specialty8.4%
Rate Increases – Personal Lines11.8%
Rate Increases – Core Commercial9.1%
Rate Increases – Specialty5.9%
Book Value per Share$84.56
Book Value per Share ex Unrealized$92.64
Portfolio Earned Yield (Pre-tax)4.14%
Fixed Maturity Earned Yield (Pre-tax)4.08%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Expense RatioFY 2025~30.5% (reiterated) ~30.5% Maintained
Catastrophe LoadQ2 2025Not disclosed7.9% New
Umbrella Pricing (Personal Lines)Q2 2025Not disclosed~22.8% (similar to Q1) New
Premium Growth TrajectoryQ2 2025Expect acceleration (qualitative) Acceleration expected in Q2 Maintained/clarified
Share Repurchase CapacityCurrent~$303M at 12/31/24 ~$274–$275M remaining (end of April) Lower (usage)
DividendCurrent$0.90 declared Feb 24, 2025 $0.90 per share Maintained

Earnings Call Themes & Trends

TopicQ3 2024 (Prev-2)Q4 2024 (Prev-1)Q1 2025 (Current)Trend
Personal Lines margin recoveryEx-cat combined ratio 89.2%; deductible initiatives expanded; pricing 15.4% Combined ratio 88.1%; strong earned pricing; PL operating income up; pricing 14.2% Combined ratio 89.7%; current accident-year loss ratio ex-cat down 6.4 pts; pricing 13.1% Improving margins, sustained pricing
Core Commercial property volatilityLoss ratio ex-cat 58.2%; favorable property results; pricing 12.9% CAE loss ratio ex-cat 58.9%; expense uptick; pricing 11.8% CAE loss ratio ex-cat 61.7% on large property losses; pricing 11.1% Near-term pressure; management expects normalization
Specialty discipline and PYDCombined ratio 83.9%; PYD 3.1 pts favorable Combined ratio 81.6%; PYD 7.0 pts favorable Combined ratio 87.7%; PYD 4.7 pts favorable Consistent favorability; modest ex-cat loss ratio variance
Net investment income momentumNII $91.8; yield 3.70% NII $100.7; yield 3.97% NII $106.1; yield 4.14% Rising yields and NII
Catastrophe exposure/mitigationCat ratio 7.2 pts; mitigation initiatives underway Cat ratio 1.7 pts Cat ratio 6.3 pts; Q2 cat load guide 7.9% Variable; guided load higher in Q2
Small Commercial pricing & competitionGrowth 6.2%; targeted underwriting actions Growth 9.3% in Q4; pricing rational Slower Q1 growth; pricing dials being tweaked to win new business Adjusting to competition

Management Commentary

  • Strategic focus: “Our diversified product offering, broad-based profitability, pricing agility and thoughtful approach to investment management continue to position us well” — CEO Jack Roche .
  • Personal Lines outlook: “We continue to price ahead of loss trend and should achieve target profitability on an earned basis for personal lines this year” — CFO Jeff Farber .
  • Tariff impact preparedness: “Assuming the tariffs go into effect as announced… we anticipate a mid-single-digit one-time increase in auto severity… very manageable” — CFO Jeff Farber .
  • Core Commercial confidence: “This quarterly spike does not diminish our confidence… liability results remain well within expectations” — CFO Jeff Farber .
  • Capital returns: “Repurchasing 173,000 shares… remaining capacity ~$275M” — CFO Jeff Farber / 8-K .

Q&A Highlights

  • Small Commercial growth: Management acknowledged slower Q1 new business due to conservative pricing; dials are being adjusted to improve win rates without sacrificing price-over-trend economics .
  • Casualty pricing: Expect pricing increases across casualty lines, staying at or above rising loss trend assumptions over the long term; umbrella up ~13% in middle market .
  • Tariffs and auto severity: Potential mid-single-digit one-time severity increase if tariffs enacted; pricing infrastructure and observed frequency tailwinds provide lead time to adjust .
  • Frequency dynamics: Home and auto frequency benefits tied to higher deductibles and vehicle technology; expected to persist .
  • Cat load guidance: Q2 cat load 7.9%; guidance excludes PYD effects .

Estimates Context

  • Q1 2025 EPS beat and revenue beat vs consensus: EPS $3.87 vs $3.51*; revenue $1,603.2M vs $1,549.4M* .
  • Implications: Street may raise FY EPS and NII assumptions on higher earned yields and continuing cash flow; PL margin trajectory supports higher ex-cat profitability assumptions; Core Commercial property volatility warrants caution in ex-cat assumptions despite strong liability trends .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Personal Lines margin recovery is durable, driven by earned rate and lower frequency in auto/home; expect continued ex-cat improvement and pricing ahead of trend in 2025 .
  • Specialty remains a high-quality earnings contributor with consistent favorable PYD, disciplined underwriting, and targeted growth (surety, E&S, marine, healthcare) .
  • Core Commercial near-term headwinds from property large losses should normalize; watch pricing momentum and liability firmness (umbrella +13%) through 2025 .
  • Rising NII and portfolio yields are a structural tailwind; fixed maturity yield at 4.08% supports multi-quarter EPS resilience even with cat seasonality .
  • Q2 cat load guide (7.9%) suggests near-term volatility; traders should factor seasonality and potential wildfire/convective storm exposure into short-term positioning .
  • Capital return remains active (buybacks, $0.90 dividend); remaining repurchase capacity ~$274–$275M provides flexibility amid strong book value growth .
  • Stock narrative hinges on sustained PL margin recapture and Specialty discipline offsetting Core Commercial variability; monitor execution on small commercial pricing adjustments and April growth acceleration .

Additional Reference Materials (Q1 2025)

  • Earnings press release: headline financials, segment KPIs, NII and book value .
  • Form 8-K 2.02: exhibits (press release and financial supplement), detailed reconciliations .
  • Dividend announcement: $0.90 per share declared Feb 24, 2025 .