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HANOVER INSURANCE GROUP, INC. (THG)·Q4 2024 Earnings Summary

Executive Summary

  • Record Q4 performance: operating EPS $5.32 and GAAP EPS $4.59; consolidated combined ratio 89.2% with ex‑cat 87.5% as Personal Lines margins recovered sharply; net premiums written grew 7.4% YoY .
  • 2025 outlook points to continued margin expansion and earnings power: ex‑cat combined ratio guided to 88.5–89.5%, expense ratio to 30.5%, NWP growth 6–7%, and NII +12–14%; cat load 6.5% for FY and 6% in Q1; effective tax ~21% .
  • Strategic drivers: pricing remained firm (Q4 renewal price increases: Personal 14.2%, Core Commercial 11.8%, Specialty 9.5%) and deductibles/terms changes reduced frequency and CAT exposure; NII tailwind from higher yields and portfolio repositioning (Q4 NII +23% YoY) .
  • Capital return and balance sheet: dividend raised 5.9% to $0.90 (20th consecutive annual increase); Q4 buybacks $26.7M with $303M capacity remaining; book value/share $79.18 (ex‑AOCI $90.35) .
  • Estimate context: S&P Global consensus data was unavailable at time of analysis due to request limits; we cannot quantify beats/misses vs Street for Q4 2024 (S&P Global data unavailable).

What Went Well and What Went Wrong

  • What Went Well

    • Personal Lines turnaround: Q4 combined ratio improved to 88.1% (from 97.6% LY) as current accident-year loss ratio ex‑cat fell 8.2 pts to 59.8% on earned rate and lower frequency; operating income before tax rose to $101.1M (from $36.8M) .
    • Specialty strength: Q4 combined ratio 81.6% with 7.0 pts favorable PYD, strong performance in marine, E&S and pro/executive lines; operating income before tax $83.3M (+18% YoY) .
    • Investment income and ROE: Q4 NII $100.7M (+23% YoY) and operating ROE annualized at 24.4%, reflecting higher earned yields and cash flows .
    • CEO: “We delivered record operating return on equity… and exceeded $6 billion in annual net written premiums… and made significant progress in catastrophe mitigation and margin recapture” .

  • What Went Wrong

    • Core Commercial underlying loss prudence: current accident‑year loss ratio ex‑cat increased 1.1 pts YoY to 58.9% due to prudently increased IBNR in certain liability coverages; expense ratio up 1.5 pts on variable comp; combined ratio 95.0% (ex‑cat 93.5%) .
    • Expense ratio elevated: consolidated expense ratio rose to 32.3% in Q4 (31.3% FY) on higher variable compensation and strategic investments, expected to normalize to 30.5% in 2025 .
    • Market valuation exposure: unrealized losses on fixed maturities widened in Q4 given rates (net unrealized loss $509.3M pre‑tax as of Dec 31 vs $316.5M at Sep 30), modestly lowering sequential book value/share to $79.18 .

Financial Results

Overall financials (consolidated)

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Total Revenues ($M)$1,528.8 $1,536.7 $1,565.3 $1,584.3
Premiums Earned ($M)$1,440.3 $1,473.2 $1,479.2 $1,511.6
Net Investment Income ($M)$81.6 $90.4 $91.8 $100.7
Diluted EPS (GAAP)$2.98 $1.12 $2.80 $4.59
Operating EPS$3.13 $1.88 $3.05 $5.32
Net Premiums Written ($M)$1,345.5 $1,521.1 $1,663.4 $1,445.1
Combined Ratio (%)94.2% 99.2% 95.5% 89.2%
Combined Ratio ex‑Cat (%)90.2% 88.5% 88.3% 87.5%
Loss & LAE Ratio (%)63.6% 68.4% 64.5% 56.9%
Cat Ratio (%)4.0% 10.7% 7.2% 1.7%
Expense Ratio (%)30.6% 30.8% 31.0% 32.3%
Book Value/Share ($)$68.93 $70.96 $79.90 $79.18

Segment performance (Q4 snapshot and trends)

Segment / MetricQ4 2023Q3 2024Q4 2024
Core Commercial – NPW ($M)$465.5 $599.2 $500.5
Core Commercial – Combined Ratio (%)96.7% 97.0% 95.0%
Core Commercial – Op Income BT ($M)$52.8 $55.9 $71.0
Specialty – NPW ($M)$304.9 $350.2 $331.8
Specialty – Combined Ratio (%)83.2% 83.9% 81.6%
Specialty – Op Income BT ($M)$70.5 $73.0 $83.3
Personal Lines – NPW ($M)$575.1 $714.0 $612.8
Personal Lines – Combined Ratio (%)97.6% 100.6% 88.1%
Personal Lines – Op Income BT ($M)$36.8 $21.7 $101.1

KPIs and operating drivers

KPIQ2 2024Q3 2024Q4 2024
Renewal Price Increase – Personal Lines18.5% 15.4% 14.2%
Renewal Price Increase – Core Commercial11.7% 12.9% 11.8%
Renewal Price Increase – Specialty11.7% 10.1% 9.5%
Current Accident‑Year Loss & LAE ex‑Cat (Consol.)58.9% 58.2% 56.9%
Cat Losses ($M)$157.1 $105.9 $26.0
Cat Ratio (pts)10.7 7.2 1.7
Net Investment Income ($M)$90.4 $91.8 $100.7
Book Value/Share ($)$70.96 $79.90 $79.18

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Premiums Written growthFY 2025N/A6–7%New guide
Net Investment Income growthFY 2025N/A+12–14% vs 2024New guide
Expense RatioFY 2025N/A30.5%New guide; normalization from 2024
Combined Ratio ex‑CatFY 202590–91% (guide provided a year ago for 2024)88.5–89.5%Improved vs prior year’s target
Effective Tax RateFY 2025N/A~21%New guide
Catastrophe LoadFY 2025N/A6.5% FY; Q1 6%New guide
January 2025 CatsQ1 2025N/A< $10M above $30M monthly planInformational
DividendOngoingRaised to $0.90 on Dec 2, 2024$0.90/quarter+5.9% (Dec 2024)
Share RepurchasesQ4 2024 / CapacityN/A$26.7M repurchased; $303M remainingCapital returns

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2, Q3 2024)Current Period (Q4 2024)Trend
AI/technology and distribution toolsContinued investments; APIs to agents; using analytics; Opus transition; TAP platforms noted . Q3: momentum in underwriting/claims, deductible rollout .Emphasis on TAP Sales platforms across Personal/Small Commercial/Specialty; APIs into agent systems; automation to reduce manual intake; 80% virtual appraisals for auto PD; expanding AI data extraction/triage with governance .Increasing deployment and scale of digital/AI tools.
Cat mitigation/terms & deductiblesRolled out updated PL terms and conditions; notable deductibles, commercial property cat exposure reductions . Q3: ~half PL under new/enhanced deductibles .Deductibles now broadly implemented; lower small-claim frequency; CAT ratio reduced to 1.7 pts; PL ex‑cat loss ratio down 8.2 pts YoY .Strong follow‑through; benefits visible in results.
Liability severity and reservingPrudence on casualty picks; robust reserving process . Q3: maintained prudence; favorable PYD in all segments .Added IBNR in certain liability coverages; still favorable PYD across segments; monitoring umbrella severity; accelerating liability pricing in 2025 .Continued caution with modest strengthening; pricing to offset.
Pricing and mixQ2 renewal price: PL 18.5%, Core 11.7%, Specialty 11.7% . Q3: PL 15.4%, Core 12.9%, Specialty 10.1% .Q4: PL 14.2%, Core 11.8%, Specialty 9.5%; earned rates above trend in PL and Specialty .Still firm, modest deceleration.
Specialty growth driversStrong profitability with expense investments; growth in E&S, marine, pro/executive lines .Double‑digit growth in several lines; claims‑made pro/executive favorable; E&S platform driving efficiency .Reaccelerating post-profit actions.
Core Commercial momentumQ2 stable underlying; Q3 small commercial +6.2%, middle market −2.8% on underwriting actions .Q4 small commercial +9.3%, middle market +5.0% (sequential acceleration); watchful stance on mid‑market growth into 2025 .Improving growth trajectory.
Personal Lines geographic diversificationQ2: PIF declines in Midwest to manage cat exposure . Q3: continued PIF reduction Midwest; retention stable .Further PIF drop in Midwest; targeting growth in WI/MD/PA/TN; PL retention 83.2% in homeowners in Q4 .Portfolio mix improving, growth to re‑accelerate regionally.
Reinsurance—Jan 1 multiline casualty renewal completed; rates up as expected; attachment at $2.5M retained .Stable protection; cost up as expected.
Investment portfolioQ2: shifted management, higher yields; some realized losses to utilize tax gains . Q3: duration extension; unrealized improved vs Q2 .Duration extended to 4.4; Q4 NII +23% YoY; unrealized losses rose QoQ with rates .NII tailwind intact; marks volatile with rates.

Management Commentary

  • CEO (prepared remarks): “We delivered record operating return on equity… and exceeded $6 billion in annual net written premiums… we made significant progress in executing our catastrophe mitigation initiatives and delivering on our margin recapture plan” .
  • CEO on Personal Lines: deductibles and terms changes “have had a positive impact on our ex‑cat performance… lower frequency on our ex‑cat loss ratio” .
  • CFO: “Our fourth quarter overall combined ratio 89.2% set a new quarterly record… favorable prior-year development across each segment… expense ratio spike is temporary due to higher variable expenses; clear visibility to a 30.5% expense ratio in 2025” .
  • CFO on 2025: “NWP growth 6–7%, NII +12–14%, ex‑cat combined 88.5–89.5%, tax ~21%, cat load 6.5% (Q1 6%); expect repurchases in 2025” .

Q&A Highlights

  • Core Commercial growth: Management sees small commercial driving high single‑digit growth with middle market mid‑single‑digit as underwriting adjustments largely behind them; sector opportunities in workers’ comp and targeted industries (tech, life sciences, human services) .
  • Reserving/IBNR: Increased IBNR in commercial umbrella was prudential; broad PYD favorable across segments; no specific deterioration observed beyond industry caution on severity and social inflation .
  • Commercial umbrella: No monoline umbrella; tight limits; umbrella ~7% of commercial portfolio; pushing ~14% rate in Q4 with plans to increase further in 2025 .
  • Personal Lines Midwest exposure: Using growth levers and micro‑concentration guardrails to rebalance; PIF reductions largely via lower new business; targeted growth to resume in balanced geographies by 2026 .
  • E&S submissions/mix: Elevated submission/quote activity; balanced property/casualty E&S mix and mid‑market skew; property E&S less cat‑sensitive aids enterprise aggregations .
  • Cycle debate: Management rejects “peak hard market” narrative; sees persistent liability and weather pressures; enumerates margin levers (PL improvement, property in core commercial, NII growth, expense normalization) .

Estimates Context

  • We could not retrieve S&P Global consensus EPS/revenue for Q4 2024 due to an API daily request limit, so we cannot present beats/misses versus Street for this quarter (S&P Global data unavailable).
  • Directionally, record operating EPS ($5.32) and sub‑90 combined ratio suggest Street may revisit assumptions for PL margins, NII trajectory, and expense ratio pacing into 2025 given company guidance .

Key Takeaways for Investors

  • Personal Lines margin recapture is real and accelerating, with Q4 PL combined ratio 88.1% and current accident‑year loss ratio ex‑cat 59.8% on earned pricing and frequency moderation; this is the pivotal driver of consolidated ex‑cat improvement to 87.5% .
  • Specialty remains a compounding profit engine (81.6% CR; strong PYD), and should be a 2025 top‑line driver as portfolio actions are complete and rate remains above trend .
  • Core Commercial is positioned for better growth with small commercial momentum and middle‑market adjustments largely behind; prudential IBNR and rising liability pricing should manage severity risk .
  • Earnings power benefits from NII tailwinds (higher earned yields, duration extension) and a re‑based expense ratio set to normalize to ~30.5% in 2025, supporting ROE expansion even if pricing decelerates modestly .
  • Capital return and balance sheet resilience (dividend hike, resumed buybacks, statutory surplus up to ~$2.97B) provide flexibility to support growth and offset market‑value volatility in fixed maturities .
  • 2025 guide (ex‑cat CR 88.5–89.5%, NII +12–14%) frames a constructive setup for estimate revisions and multiple support, with near‑term catalysts including ongoing PL margin earns‑in and Specialty growth .
  • Watch items: liability severity/social inflation and reinsurance cost; management is proactively adding IBNR, pushing umbrella pricing, and maintaining robust cat loads and protection structures .

Additional Relevant Press Releases for Q4 2024

  • Dividend increase to $0.90 per share announced Dec 2, 2024 (20th consecutive annual raise) .
  • Q4 earnings press release with full financial supplement (record EPS, sub‑90 CR, pricing, NII, capital actions) .