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HANOVER INSURANCE GROUP, INC. (THG)·Q3 2025 Earnings Summary

Executive Summary

  • Strong quarter with record operating EPS ($5.09) and GAAP EPS ($4.90); combined ratio improved to 91.1% on light CATs (3.0 pts) and higher net investment income ($117.0M) .
  • EPS beat Street while revenue missed: Primary EPS $5.09 vs $4.22*; total revenue $1.665B vs $1.725B*; profitability benefited from benign weather and investment income despite slightly lower top-line vs consensus .
  • Personal Lines drove the upside: combined ratio 89.2% (vs 100.6% LY), current accident year ex-CAT 85.8% on earned price and lower frequency; Core Commercial margins pressured by higher commercial auto severity (CAE ex-CAT 94.3%) .
  • Management highlighted accelerating growth into 2026, AI-enabled underwriting workflows, and Q4 cat load assumption of 5.2% (from 6.8% guided for Q3 last quarter), with long-term 20 bps/yr expense ratio improvement target reaffirmed .

Note: Items with * are from S&P Global consensus estimates.

What Went Well and What Went Wrong

What Went Well

  • Record profitability on benign CATs and higher yields: combined ratio 91.1% (ex-CAT 88.1%) and NII up 27.5% to $117.0M; CEO: “outstanding execution, disciplined underwriting, and relatively quiet weather” .
  • Personal Lines margin reset continuing: combined ratio 89.2% (–11.4 pts YoY) with CAE loss ratio ex-CAT down 4.1 pts to 59.8% on earned price and lower frequency; operating income before tax rose to $101.1M (from $21.7M) .
  • Specialty strength and growth: NPW +8.3% YoY; combined ratio 84.9%; favorable PYD (2.8 pts) and stable pricing (+8.3% renewal) while rolling out AI-powered underwriting triage to speed submissions .

What Went Wrong

  • Core Commercial underlying margin softer: CAE combined ratio ex-CAT rose 2.5 pts to 94.3% on higher commercial auto severity and a few large workers’ comp claims; combined ratio 97.3% (97.0% LY) .
  • Expense ratio ticked up QoQ to 31.3% (from 30.6% in Q2) on higher variable agency comp tied to better results and lower CATs .
  • Revenue light vs consensus, indicating top-line softer than modeled even as earnings power exceeded estimates (EPS beat), likely reflecting underwriting discipline and portfolio mix (Street rev $1.725B* vs actual $1.665B) .

Note: Items with * are from S&P Global consensus estimates.

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Total Revenues ($USD Millions)$1,565.3 $1,654.4 $1,665.0
Operating EPS (Diluted, non-GAAP)$3.05 $4.35 $5.09
GAAP EPS (Diluted)$2.80 $4.30 $4.90
Combined Ratio (%)95.5% 92.5% 91.1%
Combined Ratio ex-CAT (%)88.3% 85.5% 88.1%
Loss & LAE Ratio (%)64.5% 61.9% 59.8%
Expense Ratio (%)31.0% 30.6% 31.3%
Net Investment Income ($USD Millions)$91.8 $105.5 $117.0

Surprises vs S&P Global consensus (Q3 2025):

  • Primary EPS: $5.09 actual vs $4.22 consensus* (beat).
  • Revenue: $1.665B actual vs $1.725B consensus* (miss).
  • EPS estimates (n=7); Revenue estimates (n=3)*.
    Note: Values retrieved from S&P Global.

Segment Performance (Q3 2025 vs Q3 2024)

Segment (Metric)Q3 2024Q3 2025
Core Commercial – Net Premiums Written ($M)$599.2 $620.3
Core Commercial – Combined Ratio (%)97.0% 97.3%
Core Commercial – CAE Combined Ratio ex-CAT (%)91.8% 94.3%
Core Commercial – Catastrophe Ratio (%)5.9% 3.2%
Core Commercial – Operating Income BT ($M)$55.9 $65.1
Specialty – Net Premiums Written ($M)$350.2 $379.2
Specialty – Combined Ratio (%)83.9% 84.9%
Specialty – CAE Combined Ratio ex-CAT (%)85.7% 86.0%
Specialty – Catastrophe Ratio (%)1.3% 1.7%
Specialty – Operating Income BT ($M)$73.0 $78.2
Personal Lines – Net Premiums Written ($M)$714.0 $739.4
Personal Lines – Combined Ratio (%)100.6% 89.2%
Personal Lines – CAE Combined Ratio ex-CAT (%)89.2% 85.8%
Personal Lines – Catastrophe Ratio (%)11.4% 3.5%
Personal Lines – Operating Income BT ($M)$21.7 $101.1

KPIs (Q3 2025)

  • Renewal Price Increases: Core Commercial +9.9%, Specialty +8.3%, Personal Lines +10.5% .
  • Rate Increases: Core Commercial +8.7%, Specialty +5.8%, Personal Lines +6.8% .
  • Retention: Core Commercial 84.4% ; Specialty 83.2% ; Personal Lines policy retention total 84.0% .
  • Net Investment Income: $117.0M (+27.5% YoY) .
  • Book Value/Share: $96.00; BVPS ex-AOCI: $100.13 .
  • Operating ROE (quarter annualized): 21.1% .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Catastrophe load assumptionNear-termQ3 cat load expected 6.8% (guided on Q2 call) Q4 cat load expected 5.2% Updated (lower for Q4)
Expense ratio frameworkLong-termTarget ~20 bps improvement per annum (embedded in prior guide) Reaffirmed; details to be updated with FY guide in late Jan/Feb Maintained
Net written premium growth2H 20256–7% growth expected in H2 2025 Growth to continue to accelerate; focus on small commercial, PL diversification Positive bias maintained
Net investment incomeQ4 2025N/A+~$4M benefit from recent debt issuance (offset by higher interest expense) New item
DividendOngoing$0.90 per share declared (Sept 2, 2025) No change disclosed in Q3 release/callMaintained
Share repurchase capacityAs of date~$244M remaining (7/28) ~$210M remaining (10/27) Reduced (activity executed)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1–Q2 2025)Current Period (Q3 2025)Trend
AI/Technology initiativesInvesting in gen-AI and automation across underwriting and workflows; E&S triage expected to double throughput Live AI-powered underwriting triage in E&S; modular architecture to scale across lines; workers comp TAP expansion Accelerating
Pricing/middle market propertyCompetition rising in some middle market areas; disciplined pass on underpriced business Management sees signs of bottoming; remain conservative in upper middle market; focus on small/lower mid accounts Stabilizing
Commercial auto severityCautious picks; seeking double-digit rate; raised loss pick in Q2 Higher severity cited; CAE ex-CAT up to 94.3%; still optimistic on firm-wide margins with ~9.9% price in Core Ongoing vigilance
Personal Lines frequencyHome and auto frequency improving; PL CAE ex-CAT ~84.8% in Q2 Further improvement; PL CAE ex-CAT 85.8%; management assessing durability into 2026 Positive but monitoring
Reinsurance/CAT riskReinsurance tower upsized; cat bond to $200M; cat program to $2.05B; risk-adjusted cost down Q4 cat load assumption 5.2%; portfolio remediation aiding lower cat losses Improving risk posture
Expense ratio30.6% in Q2 (–20 bps YoY); long-term 20 bps/yr target 31.3% in Q3 on variable comp; target reiterated for long term Long-term down, near-term mix/comp headwind

Management Commentary

  • CEO (press release): “With an operating ROE of 21.1% and operating EPS of $5.09… our performance reflects outstanding execution, disciplined underwriting, and relatively quiet weather.”
  • CFO (press release): “Combined ratio of 91.1%, and 88.1% excluding catastrophes… NII climbed 27.5%... increased book value per share by 21.2% YTD while returning ~$171M to shareholders.”
  • CEO (call): AI/automation push: “AI-powered underwriting tool… streamlines intake and triage… scalable across Specialty, middle market, and claims over time.”
  • CFO (call): “Personal Lines posted outstanding CAE ex-CAT 85.8%… Homeowners ex-CAT loss ratio improved 8.5 pts YoY to 47.2%.”

Q&A Highlights

  • Middle market property pricing: Management remains disciplined; expects competitive pressure to stabilize; focus on small/lower mid accounts where value proposition is stronger .
  • Core Commercial margins: Higher CAE loss ratio driven by commercial auto severity and a few large workers comp claims; confidence supported by ~9.9% renewal price in Core vs trend; further detail to come with January guidance .
  • Personal Lines frequency durability: Frequency benefit is “substantial” but uncertain in persistence; management to update with FY guidance in late Jan/Feb .
  • Expense ratio framework: Reaffirmed ambition of ~20 bps annual improvement; near-term mix and profit-sharing can lift expense ratio when CATs are lower .
  • Agency economics/commissions: Strategic partnerships and operating efficiency (ease/speed) help avoid “tug of war” over contingencies; aim for stability with large agents .

Estimates Context

  • Beat on EPS, miss on revenue: Primary EPS $5.09 vs $4.22 consensus*; Revenue $1.665B vs $1.725B consensus*; 7 EPS estimates, 3 revenue estimates*; Profitability aided by 3.0-pt CAT load (below typical and below Q3 assumption) and NII up 27.5% .
  • Implications: Street likely raises FY EPS/ROE on margin trajectory (PL and Specialty) and sustained NII, while trimming near-term revenue where underwriting discipline tempers top-line growth.
    Note: Values retrieved from S&P Global.

Key Takeaways for Investors

  • Profitability inflection intact: combined ratio 91.1% (ex-CAT 88.1%), driven by Personal Lines margin reset and Specialty consistency; NII tailwind persists with portfolio yield >4.3% .
  • Core Commercial is the swing factor: near-term auto severity and large claims pressure CAE ex-CAT (94.3%); pricing still outpacing trend (+9.9%), supporting medium-term margin normalization .
  • PL strength looks durable into 2026 if frequency holds; homeowners ex-CAT loss ratio at 47.2% and account bundling (c. 93% per call) enhance retention economics .
  • Structural advantages: AI-enabled intake/triage, TAP rollout in workers comp, and small-account focus in Core/Specialty create speed and efficiency moats vs peers .
  • Capital returns and balance sheet: BVPS up 21.2% YTD to $96.00; remaining buyback capacity ~$210M; dividend $0.90/share maintained .
  • Near-term modeling: Use Q4 cat load of ~5.2%; expect expense ratio to fluctuate with profit-sharing, but long-term 20 bps improvement remains a management objective .