Fourth Quarter Highlights
- Combined ratio of 94.2%; combined ratio, excluding
catastrophes(1), of 90.2%
- Catastrophe losses of $57.7
million, or 4.0 points of the combined ratio
- Net premiums written increase of 1.5%*
- Renewal price increases(2) of 20.6% in Personal
Lines, including 29.1% in homeowners, as well as increases of 12.4%
in Core Commercial and 11.6% in Specialty
- Rate increases(2) of 13.2% in Personal Lines, 9.3%
in Core Commercial and 9.0% in Specialty
- Loss and loss adjustment expense ("LAE") ratio of 63.6%, 13.5
points below the prior-year quarter, driven by both lower
catastrophe and non-catastrophe losses
- Current accident year loss and LAE ratio, excluding
catastrophes(3), of 60.2%, 3.1 points below the
prior-year quarter
- Net investment income of $81.6
million, up 7.5% from the prior-year quarter, primarily due
to higher bond reinvestment rates and the continued investment of
operational cashflows, partially offset by lower partnership
income
- Book value per share of $68.93,
up 16.4% from September 30, 2023,
primarily due to an increase in the fair value of fixed maturity
investments and strong earnings in the quarter
- On December 4, 2023, the Board of
Directors approved an increase of 5% to the regular quarterly
dividend
Full Year Highlights
- Combined ratio of 103.5%; combined ratio, excluding
catastrophes, of 91.3%
- Catastrophe losses of $690.1
million, or 12.2 points of the combined ratio, driven
primarily by severe convective storms across multiple states,
particularly in the Midwestern United States in the first three
quarters of the year
- Net premiums written of $5.8
billion, an increase of 6.1%* from the prior year
- Loss and LAE ratio of 73.0%, 4.0 points above the prior
year, driven by higher catastrophe losses
- Current accident year loss and LAE ratio, excluding
catastrophes, improved from the prior year, reflecting the benefit
of rate increases in each segment and loss ratio improvements in
Core Commercial and Specialty, partially offset by a higher loss
ratio in Personal Lines in the first half of the year
- Net investment income of $332.1
million, up 12.1% from 2022, driven primarily by
higher-than-expected bond reinvestment rates and higher
cashflows
WORCESTER, Mass., Jan. 31,
2024 /PRNewswire/ -- The Hanover Insurance Group,
Inc. (NYSE: THG) today reported net income of $107.9 million, or $2.98 per diluted share, in the fourth quarter of
2023, compared to a net loss of $12.1
million, or $0.34 per basic
share, in the prior-year quarter. Operating income(4)
was $113.1 million, or $3.13 per diluted share, in the fourth quarter of
2023, compared to an operating loss of $37.4
million, or $1.05 per basic
share, in the prior-year quarter.
Net income was $35.3 million, or
$0.98 per diluted share, in the full
year 2023. This compared to net income of $116.0 million, or $3.21 per diluted share, in the prior year.
Operating income was $56.2 million,
or $1.56 per diluted share, in 2023,
compared to operating income of $199.9
million, or $5.53 per diluted
share, in the prior year, primary attributable to elevated
catastrophe losses through the first three quarters of the year
compared to 2022.
"The fourth quarter represented a strong finish to a very
productive year, as we delivered operating return on
equity(5) of 15.7% and a combined ratio of 94.2%,
demonstrating meaningful improvement in each of our business
segments and validating the strong execution of our margin
recapture program," said John C.
Roche, president and chief executive officer at The
Hanover. "We achieved double digit
renewal pricing across all three of our business segments, executed
underwriting initiatives and product changes in property lines, and
implemented new loss control and preventive measures, taking
meaningful steps to reposition our property business to address
inflation and changing weather patterns. While topline growth
decelerated at the tail end of the year as a result of our
proactive actions, we have positioned ourselves to reaccelerate
production and take advantage of robust opportunities in 2024 in
multiple segments and geographies, where profitability profiles are
very attractive."
"Having delivered on our most critical underlying operating and
financial targets for 2023, including ex-CAT combined ratio, we
enter 2024 with an increased confidence in our profitability and
growth trajectory, with the foundation of our proven strategy,
capabilities and distribution distinctiveness, as well as our
talented and determined team focused on delivering strong and
sustainable value for our shareholders and all of our
stakeholders," Roche concluded.
"Our fourth quarter current accident year loss and LAE ratio,
excluding catastrophes, of approximately 60% improved over 3 points
compared to the prior-year quarter," said Jeffrey M. Farber, executive vice president and
chief financial officer at The Hanover. "Fourth quarter catastrophe losses of
4.0% included 2.8 points from fourth quarter events and 1.2 points
from prior-quarter reserve re-estimates. We achieved renewal price
increases of 20.6% in Personal Lines, 12.4% in Core Commercial and
11.6% in Specialty. We grew net investment income significantly in
the quarter and the year, primarily due to higher bond reinvestment
rates and the continued investment of operational cashflows. We
expect investment income to continue to meaningfully augment
operating results in the years ahead. We are very optimistic about
our position and confident in our strong outlook for 2024,
including further enhancement of our ex-CAT combined ratio,
supported by robust improvement in Personal Lines, continued strong
profitability in Specialty and Core Commercial, and overall solid
growth for the enterprise, led by Specialty."
Fourth Quarter and Full Year 2023 Highlights
|
|
Three months
ended
|
|
|
|
Year ended
|
|
|
|
|
December 31
|
|
|
|
December 31
|
|
|
($ in millions,
except per share data)
|
|
2023
|
|
|
|
2022
|
|
|
|
2023
|
|
|
|
2022
|
|
|
Net premiums
written
|
$
|
1,345.5
|
|
|
$
|
1,326.0
|
|
|
$
|
5,810.2
|
|
|
$
|
5,476.5
|
|
|
Growth
|
|
1.5
|
%
|
|
|
9.1
|
%
|
|
|
6.1
|
%
|
|
|
9.7
|
%
|
|
Net premiums
earned
|
$
|
1,440.3
|
|
|
$
|
1,363.5
|
|
|
$
|
5,663.1
|
|
|
$
|
5,252.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accident year
loss and
LAE ratio, excluding catastrophes
|
|
60.2
|
%
|
|
|
63.3
|
%
|
|
|
61.1
|
%
|
|
|
61.7
|
%
|
|
Prior year development
ratio
|
|
(0.6)
|
%
|
|
|
(0.1)
|
%
|
|
|
(0.3)
|
%
|
|
|
(0.4)
|
%
|
|
Catastrophe
ratio
|
|
4.0
|
%
|
|
|
13.9
|
%
|
|
|
12.2
|
%
|
|
|
7.7
|
%
|
|
Expense
ratio(6)
|
|
30.6
|
%
|
|
|
30.9
|
%
|
|
|
30.5
|
%
|
|
|
30.8
|
%
|
|
Combined
ratio
|
|
94.2
|
%
|
|
|
108.0
|
%
|
|
|
103.5
|
%
|
|
|
99.8
|
%
|
|
Combined ratio,
excluding catastrophes
|
|
90.2
|
%
|
|
|
94.1
|
%
|
|
|
91.3
|
%
|
|
|
92.1
|
%
|
|
Current accident year
combined ratio,
excluding catastrophes
|
|
90.8
|
%
|
|
|
94.2
|
%
|
|
|
91.6
|
%
|
|
|
92.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
|
107.9
|
|
|
$
|
(12.1)
|
|
|
$
|
35.3
|
|
|
$
|
116.0
|
|
|
per diluted (basic)
share
|
|
2.98
|
|
|
|
(0.34)
|
|
|
|
0.98
|
|
|
|
3.21
|
|
|
Operating income
(loss)
|
|
113.1
|
|
|
|
(37.4)
|
|
|
|
56.2
|
|
|
|
199.9
|
|
|
per diluted (basic)
share
|
|
3.13
|
|
|
|
(1.05)
|
|
|
|
1.56
|
|
|
|
5.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$
|
68.93
|
|
|
$
|
65.61
|
|
|
$
|
68.93
|
|
|
$
|
65.61
|
|
|
Ending shares
outstanding (in millions)
|
|
35.8
|
|
|
|
35.6
|
|
|
|
35.8
|
|
|
|
35.6
|
|
|
|
*Unless otherwise
stated, net premiums written growth and other growth comparisons
are to the same period of the prior year
|
(1) See information
about this and other non-GAAP measures and definitions used
throughout this press release on the final pages of this
document.
|
The Hanover Insurance
Group, Inc. may also be referred to as "The Hanover" or "the
company" interchangeably throughout this press release.
|
Fourth Quarter Operating Highlights
Core Commercial
Core Commercial operating income
before income taxes was $52.8 million
in the fourth quarter of 2023, compared to an operating loss before
income taxes of $52.7 million in the
fourth quarter of 2022. The Core Commercial combined ratio was
96.7%, compared to 117.2% in the prior-year quarter. Catastrophe
losses in the fourth quarter of 2023 were $29.5 million, or 5.7 points of the combined
ratio. This compared to catastrophe losses of $123.5 million, or 24.6 points, in the prior-year
quarter.
Fourth quarter 2023 results included net favorable prior-year
reserve development, excluding catastrophes, of $2.2 million, or 0.4 points, driven by continued
favorability in workers' compensation. This compared to
$2.4 million, or 0.5 points, in the
fourth quarter of 2022.
Core Commercial current accident year combined ratio, excluding
catastrophes, improved 1.7 points to 91.4% in the
fourth quarter of 2023, from 93.1% in the prior-year quarter.
The current accident year loss and LAE ratio, excluding
catastrophes, of 57.8%, decreased 2.4 points from the prior-year
quarter, driven by the benefit of earned pricing above loss trends
and consistently lower large losses in commercial multiple peril,
primarily in middle market, following the execution of underwriting
actions.
The expense ratio increased by 0.7 points to 33.6% in the fourth
quarter of 2023, compared to the prior-year quarter, primarily due
to continued strategic business and talent investments, which were
partially offset by fixed cost leverage from earned premium
growth.
Net premiums written were $465.5
million in the quarter, up 2.7% from the prior-year quarter,
consisting of 6.0% growth in small commercial and a decline of 1.7%
in middle market. In the fourth quarter, Core Commercial renewal
price increases averaged 12.4%, while average rate increases were
9.3%.
The following table summarizes premiums and the components of
the combined ratio for Core Commercial:
|
|
Three months
ended
|
|
|
|
Year ended
|
|
|
|
|
December 31
|
|
|
|
December 31
|
|
|
($ in
millions)
|
|
2023
|
|
|
|
2022
|
|
|
|
2023
|
|
|
|
2022
|
|
|
Net premiums
written
|
$
|
465.5
|
|
|
$
|
453.2
|
|
|
$
|
2,107.0
|
|
|
$
|
1,999.9
|
|
|
Growth
|
|
2.7
|
%
|
|
|
5.9
|
%
|
|
|
5.4
|
%
|
|
|
7.2
|
%
|
|
Net premiums
earned
|
|
519.9
|
|
|
|
503.0
|
|
|
|
2,060.3
|
|
|
|
1,950.5
|
|
|
Operating income
(loss) before taxes
|
|
52.8
|
|
|
|
(52.7)
|
|
|
|
167.2
|
|
|
|
106.9
|
|
|
Loss and LAE
ratio
|
|
63.1
|
%
|
|
|
84.3
|
%
|
|
|
65.8
|
%
|
|
|
68.5
|
%
|
|
Expense
ratio
|
|
33.6
|
%
|
|
|
32.9
|
%
|
|
|
33.2
|
%
|
|
|
32.7
|
%
|
|
Combined
ratio
|
|
96.7
|
%
|
|
|
117.2
|
%
|
|
|
99.0
|
%
|
|
|
101.2
|
%
|
|
Prior-year development
ratio
|
|
(0.4)
|
%
|
|
|
(0.5)
|
%
|
|
|
0.2
|
%
|
|
|
(0.5)
|
%
|
|
Catastrophe
ratio
|
|
5.7
|
%
|
|
|
24.6
|
%
|
|
|
8.3
|
%
|
|
|
9.9
|
%
|
|
Combined ratio,
excluding catastrophes
|
|
91.0
|
%
|
|
|
92.6
|
%
|
|
|
90.7
|
%
|
|
|
91.3
|
%
|
|
Current accident year
combined ratio,
excluding catastrophes
|
|
91.4
|
%
|
|
|
93.1
|
%
|
|
|
90.5
|
%
|
|
|
91.8
|
%
|
|
Specialty
Specialty operating income before income
taxes was $70.5 million in the fourth
quarter of 2023, compared to $43.9
million in the fourth quarter of 2022. The Specialty
combined ratio was 83.2%, compared to 90.5% in the prior-year
quarter. Catastrophe losses in the fourth quarter of 2023 were
$5.6 million, or 1.7 points of the
combined ratio, compared to $9.9
million, or 3.2 points, in the prior-year quarter.
Fourth quarter 2023 results included net favorable prior-year
reserve development, excluding catastrophes, of $14.0 million, or 4.4 points, driven primarily by
lower-than-expected losses in our professional and executive lines
claims-made business. This compared to immaterial prior-year
reserve development, excluding catastrophes, in the prior-year
quarter.
Specialty current accident year combined ratio, excluding
catastrophes, decreased 1.4 points to 85.9% in the fourth quarter
of 2023, from 87.3% in the prior-year quarter. The current accident
year loss and LAE ratio, excluding catastrophes, decreased 2.0
points to 49.5% in the fourth quarter of 2023, primarily driven by
the benefit of earned pricing above loss trends and
lower-than-expected losses in Marine.
The expense ratio increased by 0.6 points to 36.4% in the fourth
quarter of 2023, compared to the prior-year quarter, primarily due
to continued strategic business and talent investments, which were
partially offset by fixed cost leverage from earned premium
growth.
Net premiums written were $304.9
million in the quarter, down 1.5% from the prior-year
quarter, primarily from the continued impact of non-renewal of
certain programs in Specialty Property and Casualty. In the fourth
quarter, Specialty renewal price increases averaged 11.6%, while
average rate increases were 9.0%.
The following table summarizes premiums and the components of
the combined ratio for Specialty:
|
|
Three months
ended
|
|
|
|
Year ended
|
|
|
|
|
December 31
|
|
|
|
December 31
|
|
|
($ in
millions)
|
|
2023
|
|
|
|
2022
|
|
|
|
2023
|
|
|
|
2022
|
|
|
Net premiums
written
|
$
|
304.9
|
|
|
$
|
309.5
|
|
|
$
|
1,293.3
|
|
|
$
|
1,243.7
|
|
|
Growth
|
|
(1.5)
|
%
|
|
|
8.7
|
%
|
|
|
4.0
|
%
|
|
|
11.2
|
%
|
|
Net premiums
earned
|
|
321.0
|
|
|
|
308.4
|
|
|
|
1,274.2
|
|
|
|
1,189.0
|
|
|
Operating income
before taxes
|
|
70.5
|
|
|
|
43.9
|
|
|
|
243.5
|
|
|
|
186.0
|
|
|
Loss and LAE
ratio
|
|
46.8
|
%
|
|
|
54.7
|
%
|
|
|
50.7
|
%
|
|
|
54.0
|
%
|
|
Expense
ratio
|
|
36.4
|
%
|
|
|
35.8
|
%
|
|
|
35.5
|
%
|
|
|
35.3
|
%
|
|
Combined
ratio
|
|
83.2
|
%
|
|
|
90.5
|
%
|
|
|
86.2
|
%
|
|
|
89.3
|
%
|
|
Prior-year development
ratio
|
|
(4.4)
|
%
|
|
|
-
|
|
|
|
(3.8)
|
%
|
|
|
(1.6)
|
%
|
|
Catastrophe
ratio
|
|
1.7
|
%
|
|
|
3.2
|
%
|
|
|
3.4
|
%
|
|
|
2.8
|
%
|
|
Combined ratio,
excluding catastrophes
|
|
81.5
|
%
|
|
|
87.3
|
%
|
|
|
82.8
|
%
|
|
|
86.5
|
%
|
|
Current accident year
combined ratio,
excluding catastrophes
|
|
85.9
|
%
|
|
|
87.3
|
%
|
|
|
86.6
|
%
|
|
|
88.1
|
%
|
|
Personal Lines
Personal Lines operating income before
income taxes was $36.8 million in the
fourth quarter of 2023, compared to an operating loss before income
taxes of $29.1 million in the fourth
quarter of 2022. The Personal Lines combined ratio was 97.6%,
compared to 109.1% in the prior-year quarter. Catastrophe losses in
the fourth quarter of 2023 were $22.6
million, or 3.8 points of the combined ratio. This compared
to catastrophe losses of $56.2
million, or 10.2 points of the combined ratio, in the
prior-year quarter.
Fourth quarter 2023 results included net unfavorable prior-year
reserve development, excluding catastrophes, of $4.8 million, or 0.8 points, driven primarily by
umbrella, which is reported in homeowners and other. This compared
to immaterial prior-year reserve development, excluding
catastrophes, in the prior-year quarter.
Personal Lines current accident year combined ratio, excluding
catastrophe losses, decreased 5.9 points to 93.0% in the
fourth quarter of 2023, from 98.9% in the prior-year quarter.
The current accident year loss and LAE ratio, excluding
catastrophes, decreased 4.6 points from the prior-year quarter to
68.0%, driven by the benefit of earned pricing outpacing loss
trends in both personal auto and homeowners, as well as improved
loss trends in auto collision coverage, and lower loss frequency
due to benign weather conditions.
The expense ratio decreased by 1.3 points to 25.0% in the fourth
quarter of 2023, compared to the prior-year quarter, primarily due
to lower variable agency compensation and fixed cost leverage from
earned premium growth.
Net premiums written were $575.1
million in the quarter, up 2.1% from the prior-year quarter,
driven primarily by renewal price change. Personal Lines renewal
price increases averaged 20.6%, while average rate increases were
13.2%. Policies in force in the fourth quarter decreased
2.3% compared to the third quarter of 2023, including a 3.3%
decrease in the Midwest.
The following table summarizes premiums and components of the
combined ratio for Personal Lines:
|
|
Three months
ended
|
|
|
|
Year ended
|
|
|
|
|
December 31
|
|
|
|
December 31
|
|
|
($ in
millions)
|
|
2023
|
|
|
|
2022
|
|
|
|
2023
|
|
|
|
2022
|
|
|
Net premiums
written
|
$
|
575.1
|
|
|
$
|
563.3
|
|
|
$
|
2,409.9
|
|
|
$
|
2,232.9
|
|
|
Growth
|
|
2.1
|
%
|
|
|
12.2
|
%
|
|
|
7.9
|
%
|
|
|
11.1
|
%
|
|
Net premiums
earned
|
|
599.4
|
|
|
|
552.1
|
|
|
|
2,328.6
|
|
|
|
2,112.8
|
|
|
Operating income
(loss) before taxes
|
|
36.8
|
|
|
|
(29.1)
|
|
|
|
(304.3)
|
|
|
|
(8.8)
|
|
|
Loss and LAE
ratio
|
|
72.6
|
%
|
|
|
82.8
|
%
|
|
|
91.6
|
%
|
|
|
77.8
|
%
|
|
Expense
ratio
|
|
25.0
|
%
|
|
|
26.3
|
%
|
|
|
25.5
|
%
|
|
|
26.5
|
%
|
|
Combined
ratio
|
|
97.6
|
%
|
|
|
109.1
|
%
|
|
|
117.1
|
%
|
|
|
104.3
|
%
|
|
Prior-year development
ratio
|
|
0.8
|
%
|
|
|
-
|
|
|
|
1.1
|
%
|
|
|
0.4
|
%
|
|
Catastrophe
ratio
|
|
3.8
|
%
|
|
|
10.2
|
%
|
|
|
20.4
|
%
|
|
|
8.3
|
%
|
|
Combined ratio,
excluding catastrophes
|
|
93.8
|
%
|
|
|
98.9
|
%
|
|
|
96.7
|
%
|
|
|
96.0
|
%
|
|
Current accident year
combined ratio,
excluding catastrophes
|
|
93.0
|
%
|
|
|
98.9
|
%
|
|
|
95.6
|
%
|
|
|
95.6
|
%
|
|
Full Year Underwriting Highlights
The company's combined ratio was 103.5% in the full year of
2023, compared to 99.8% in the prior year. Catastrophe losses were
$690.1 million, or 12.2 points of the
combined ratio, in 2023, driven by severe convective storms in the
first three quarters of 2023, primarily in the Midwestern United
States, mostly impacting Personal Lines. This compared to
$402.6 million, or 7.7 points, in the
prior year. Net favorable prior-year reserve development, excluding
catastrophes, was $15.9 million, or
0.3 points, in 2023, compared to $20.6
million, or 0.4 points in the prior year.
The current accident year combined ratio, excluding catastrophe
losses, was 91.6% in 2023, compared to 92.5% in the prior year,
driven by an improvement in the current accident year loss and LAE
ratio, excluding catastrophes, and the expense ratio. The current
accident year loss and LAE ratio, excluding catastrophes, improved
0.6 points primarily due to the benefit of earned pricing in each
segment. The expense ratio improved 0.3 points in the full year of
2023, compared to the prior year, driven primarily by the benefit
of fixed cost leverage.
Total net premiums written were $5.8
billion in 2023, up 6.1% from 2022, reflecting growth of
7.9% in Personal Lines, 5.4% in Core Commercial and 4.0% in
Specialty, slowed by the non-renewal of certain programs in
Specialty Property and Casualty in the third and fourth quarters.
Core Commercial operating income before taxes was $167.2 million in 2023, which included
$171.3 million, or 8.3 points,
of catastrophe losses, and $4.7
million, or 0.2 points, of net unfavorable prior-year
reserve development. In 2022, Core Commercial operating income
before taxes was $106.9 million,
which included $193.7 million, or 9.9
points, of catastrophe losses, and $10.3
million, or 0.5 points, of net favorable prior-year reserve
development. The Core Commercial current accident year combined
ratio, excluding catastrophe losses, was 90.5%, compared to 91.8%
in the prior year, driven by improvement in the current accident
year loss and LAE ratio, excluding catastrophes, primarily due to
lower large losses in commercial multiple peril, partially offset
by an increase of 0.5 points in the expense ratio.
Specialty operating income before taxes was $243.5 million in 2023, which included
$43.1 million, or 3.4 points, of
catastrophe losses, and $48.8
million, or 3.8 points, of net favorable prior-year
reserve development. In 2022, Specialty operating income before
taxes was $186.0 million, which
included $32.7 million, or 2.8
points, of catastrophe losses, and $19.5
million, or 1.6 points, of net favorable prior-year reserve
development. The Specialty current accident year combined ratio,
excluding catastrophe losses, was 86.6%, compared to 88.1% in the
prior year, driven by an improvement in the current accident year
loss and LAE ratio, excluding catastrophes, primarily due to the
benefit from rate increases earning-in and lower-than-expected
losses in Marine, partially offset by an increase of 0.2 points in
the expense ratio.
Personal Lines operating loss before taxes was $304.3 million in 2023, which included
$475.7 million, or 20.4 points, of
catastrophe losses, and $25.9
million, or 1.1 points, of net unfavorable prior-year
reserve development. In 2022, Personal Lines operating loss before
taxes was $8.8 million, which
included $176.2 million, or 8.3
points, of catastrophe losses, and $8.0
million, or 0.4 points, of net unfavorable prior-year
reserve development. The Personal Lines current accident year
combined ratio, excluding catastrophes, was 95.6%, in line with the
prior year, reflecting a decrease of 1.0 point in the expense
ratio, offset by a higher current accident year loss ratio,
excluding catastrophes, in the first half of 2023.
Investments
Net investment income was
$81.6 million for the fourth quarter
and $332.1 million for the full year
2023, above prior-year periods primarily due to higher bond
reinvestment rates and continued investment of operational
cashflows, partially offset by lower partnership income. Total
pre-tax earned yield on the investment portfolio for the fourth
quarter 2023 was 3.40%, up from 3.26% in the prior-year quarter.
The average pre-tax earned yield on fixed maturities was 3.46% for
the fourth quarter of 2023, up from 3.20% in the prior-year
quarter. Total pre-tax earned yield on the investment portfolio for
the full year 2023 was 3.50%, up from 3.29% in the prior year. The
average pre-tax earned yield on fixed maturities was 3.36% for the
full year 2023, up from 3.04% in the prior year.
Net realized and unrealized investment losses recognized in
earnings were $0.7 million in the
fourth quarter of 2023, compared to net realized and unrealized
investment gains recognized in earnings of $32.2 million in the fourth quarter of 2022. Net
realized and unrealized investment losses recognized in earnings
were $32.5 million in 2023, primarily
driven by intent to sell fixed maturity securities and
credit-related impairments, as well as losses on the sale of fixed
maturity securities. This compared to net realized and unrealized
investment losses recognized in earnings of $106.5 million in 2022.
The company held $9.2 billion in
cash and invested assets on December 31,
2023. Fixed maturities and cash represented approximately
90% of the investment portfolio. Approximately 95% of the company's
fixed maturity portfolio is rated investment grade. As of
December 31, 2023, net unrealized
losses on the fixed maturity portfolio were $588.6 million before income taxes, an increase
in fair value of $328.6 million since
September 30, 2023, and $224.1 million since December 31, 2022.
Shareholders' Equity and Capital
Actions
On December 31, 2023, book value per
share was $68.93, up 16.4% from
September 30, 2023, primarily due to
an increase in the fair value of fixed maturity investments, as
well as retained earnings. Book value per share, excluding net
unrealized depreciation on fixed maturity investments, net of
tax(7), was $81.86 at
December 31, 2023, compared to
$79.38 at September 30, 2023. During the quarter, the
company did not repurchase any shares of common stock. The company
has approximately $330 million of
remaining capacity under its existing share repurchase program.
On December 31, 2023, operating
subsidiary's statutory capital and surplus was $2.64 billion. This compared to statutory capital
and surplus of $2.50 billion on
September 30, 2023.
Additionally, in the fourth quarter, the Board of Directors
approved an increase to the quarterly dividend of 5% to
$0.85 per common share. The company
paid ordinary dividends of $30.3
million in the fourth quarter and $117.2 million in the year.
Earnings Conference Call
The company will host a
conference call to discuss its fourth quarter results on
Thursday, February 1, at 10:00 a.m.
E.T. A presentation will accompany the prepared remarks
and has been posted on The Hanover's website. Interested
investors and others can listen to the call and access the
presentation through The Hanover's
website, located in the "Investors" section at www.hanover.com.
Investors may access the conference call by dialing 1-844-413-3975
in the U.S. and 1-412-317-5458 internationally. Webcast
participants should go to the website 15 minutes early to register,
download and install any necessary audio software. A re-broadcast
of the conference call will be available on The Hanover's website approximately two hours
after the call.
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 company 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.
Contact Information
Investors:
|
Media:
|
|
|
Oksana
Lukasheva
|
Michael F.
Buckley
|
Emily P.
Trevallion
|
|
olukasheva@hanover.com
|
mibuckley@hanover.com
|
etrevallion@hanover.com
|
|
1-508-525-6081
|
|
1-508-855-3099
|
|
1-508-855-3263
|
|
|
Definition of Reported Segments
Continuing operations
include four operating segments: Core Commercial, Specialty,
Personal Lines and Other. The Core Commercial segment includes
commercial multiple peril, commercial automobile, workers'
compensation and other commercial lines coverages provided to small
and mid-sized businesses. The Specialty segment includes four
divisions of business: professional and executive lines, specialty
property and casualty ("Specialty P&C"), marine, and surety and
other. Specialty P&C includes coverages such as program
business (provides commercial insurance to markets with specialized
coverage or risk management needs related to groups of similar
businesses), specialty industrial and commercial property, excess
and surplus lines, and specialty general liability coverage. The
Personal Lines segment markets automobile, homeowners and ancillary
coverages to individuals and families. The "Other" segment includes
Opus Investment Management, Inc., which provides investment
management services to institutions, pension funds and other
organizations, and the operations of the holding company, as well
as a block of run-off voluntary assumed property and casualty pools
business in which the company has not actively participated since
1995, and run-off direct asbestos and environmental business and
product liability businesses.
Financial Supplement
The Hanover's fourth quarter and full year news
release and financial supplement are available in the "Investors"
section of the company's website at hanover.com.
The Hanover
Insurance Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Income Statements
|
|
|
Three months
ended
|
|
Year ended
|
|
|
|
|
December 31
|
|
December 31
|
|
($ in
millions)
|
|
|
2023
|
|
2022
|
|
2023
|
|
2022
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
Premiums
earned
|
|
$
|
1,440.3
|
$
|
1,363.5
|
$
|
5,663.1
|
$
|
5,252.3
|
|
Net investment
income
|
|
|
81.6
|
|
75.9
|
|
332.1
|
|
296.3
|
|
Net realized and
unrealized investment gains (losses):
|
|
|
|
|
|
|
|
|
|
|
Net realized losses
from sales and other
|
|
|
(7.0)
|
|
(10.2)
|
|
(8.9)
|
|
(26.5)
|
|
Net change in fair
value of equity securities
|
|
|
7.8
|
|
42.8
|
|
(5.6)
|
|
(63.3)
|
|
Impairments on
investments:
|
|
|
|
|
|
|
|
|
|
|
Credit-related
impairments
|
|
|
(1.5)
|
|
(0.4)
|
|
(7.7)
|
|
(1.9)
|
|
Losses on intent to
sell securities
|
|
|
-
|
|
-
|
|
(10.3)
|
|
(14.8)
|
|
|
|
|
(1.5)
|
|
(0.4)
|
|
(18.0)
|
|
(16.7)
|
|
Total net realized and
unrealized investment gains (losses)
|
|
|
(0.7)
|
|
32.2
|
|
(32.5)
|
|
(106.5)
|
|
Fees and other
income
|
|
|
7.6
|
|
7.1
|
|
30.8
|
|
26.5
|
|
Total
revenues
|
|
|
1,528.8
|
|
1,478.7
|
|
5,993.5
|
|
5,468.6
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
|
|
Losses and loss
adjustment expenses
|
|
|
915.8
|
|
1,050.8
|
|
4,134.6
|
|
3,623.4
|
|
Amortization of
deferred acquisition costs
|
|
|
297.9
|
|
283.9
|
|
1,176.0
|
|
1,093.2
|
|
Interest
expense
|
|
|
8.5
|
|
8.6
|
|
34.1
|
|
34.1
|
|
Other operating
expenses
|
|
|
156.4
|
|
150.1
|
|
607.7
|
|
573.9
|
|
Total losses and
expenses
|
|
|
1,378.6
|
|
1,493.4
|
|
5,952.4
|
|
5,324.6
|
|
Income (loss) from
continuing operations before income taxes
|
|
|
150.2
|
|
(14.7)
|
|
41.1
|
|
144.0
|
|
Income tax expense
(benefit)
|
|
|
42.9
|
|
(2.8)
|
|
7.6
|
|
27.2
|
|
Income (loss) from
continuing operations
|
|
|
107.3
|
|
(11.9)
|
|
33.5
|
|
116.8
|
|
Discontinued
operations (net of taxes):
|
|
|
|
|
|
|
|
|
|
|
Income from
discontinued Chaucer business
|
|
|
-
|
|
-
|
|
1.2
|
|
-
|
|
Income (loss) from
discontinued life businesses
|
|
|
0.6
|
|
(0.2)
|
|
0.6
|
|
(0.8)
|
|
Net income
(loss)
|
|
$
|
107.9
|
$
|
(12.1)
|
$
|
35.3
|
$
|
116.0
|
|
|
|
|
|
|
|
|
|
|
|
|
The Hanover
Insurance Group, Inc.
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
($ in
millions)
|
|
|
2023
|
|
|
2022
|
|
Assets
|
|
|
|
|
|
|
|
Total
investments
|
|
$
|
8,913.1
|
|
$
|
8,509.8
|
|
Cash and cash
equivalents
|
|
|
316.1
|
|
|
305.0
|
|
Premiums and accounts
receivable, net
|
|
|
1,705.6
|
|
|
1,601.4
|
|
Reinsurance
recoverable on paid and unpaid losses and unearned
premiums
|
|
|
2,056.1
|
|
|
1,964.5
|
|
Other
assets
|
|
|
1,535.1
|
|
|
1,530.3
|
|
Assets of discontinued
businesses
|
|
|
86.6
|
|
|
84.1
|
|
Total
assets
|
|
$
|
14,612.6
|
|
$
|
13,995.1
|
|
Liabilities
|
|
|
|
|
|
|
|
Loss and loss
adjustment expense reserves
|
|
$
|
7,308.1
|
|
$
|
7,012.6
|
|
Unearned
premiums
|
|
|
3,102.5
|
|
|
2,954.2
|
|
Debt
|
|
|
783.2
|
|
|
782.4
|
|
Other
liabilities
|
|
|
840.2
|
|
|
802.0
|
|
Liabilities of
discontinued businesses
|
|
|
113.0
|
|
|
110.2
|
|
Total
liabilities
|
|
|
12,147.0
|
|
|
11,661.4
|
|
Total shareholders'
equity
|
|
|
2,465.6
|
|
|
2,333.7
|
|
Total liabilities
and shareholders' equity
|
|
$
|
14,612.6
|
|
$
|
13,995.1
|
|
The following is a reconciliation from operating income (loss)
to net income (loss)(4)(8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Hanover
Insurance Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
December 31
|
|
|
Year ended December
31
|
|
|
|
|
2023
|
|
|
2022
|
|
|
2023
|
|
|
2022
|
|
($ in millions,
except per share data)
|
|
$
Amount
|
|
Per Share
(Diluted)
|
|
$
Amount
|
|
Per Share*
|
|
$
Amount
|
|
Per Share
(Diluted)
|
|
$
Amount
|
|
Per Share
(Diluted)
|
|
Operating income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
Commercial
|
|
$
|
52.8
|
|
|
|
|
$
|
(52.7)
|
|
|
|
|
$
|
167.2
|
|
|
|
|
$
|
106.9
|
|
|
|
|
Specialty
|
|
|
70.5
|
|
|
|
|
|
43.9
|
|
|
|
|
|
243.5
|
|
|
|
|
|
186.0
|
|
|
|
|
Personal
Lines
|
|
|
36.8
|
|
|
|
|
|
(29.1)
|
|
|
|
|
|
(304.3)
|
|
|
|
|
|
(8.8)
|
|
|
|
|
Other
|
|
|
(2.0)
|
|
|
|
|
|
(0.3)
|
|
|
|
|
|
(0.8)
|
|
|
|
|
|
1.0
|
|
|
|
|
Total
|
|
|
158.1
|
|
|
|
|
|
(38.2)
|
|
|
|
|
|
105.6
|
|
|
|
|
|
285.1
|
|
|
|
|
Interest
expense
|
|
|
(8.5)
|
|
|
|
|
|
(8.6)
|
|
|
|
|
|
(34.1)
|
|
|
|
|
|
(34.1)
|
|
|
|
|
Operating income
(loss) before income taxes
|
|
|
149.6
|
|
$
|
4.14
|
|
|
(46.8)
|
|
$
|
(1.31)
|
|
|
71.5
|
|
$
|
1.98
|
|
|
251.0
|
|
$
|
6.95
|
|
Income tax benefit
(expense) on operating income (loss)
|
|
|
(36.5)
|
|
|
(1.01)
|
|
|
9.4
|
|
|
0.26
|
|
|
(15.3)
|
|
|
(0.42)
|
|
|
(51.1)
|
|
|
(1.42)
|
|
Operating income
(loss) after income taxes
|
|
|
113.1
|
|
|
3.13
|
|
|
(37.4)
|
|
|
(1.05)
|
|
|
56.2
|
|
|
1.56
|
|
|
199.9
|
|
|
5.53
|
|
Non-operating
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized losses
from sales and other
|
|
|
(7.0)
|
|
|
(0.19)
|
|
|
(10.2)
|
|
|
(0.29)
|
|
|
(8.9)
|
|
|
(0.25)
|
|
|
(26.5)
|
|
|
(0.73)
|
|
Net change in fair
value of equity securities
|
|
|
7.8
|
|
|
0.21
|
|
|
42.8
|
|
|
1.20
|
|
|
(5.6)
|
|
|
(0.16)
|
|
|
(63.3)
|
|
|
(1.75)
|
|
Impairments on
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
impairments
|
|
|
(1.5)
|
|
|
(0.04)
|
|
|
(0.4)
|
|
|
(0.01)
|
|
|
(7.7)
|
|
|
(0.21)
|
|
|
(1.9)
|
|
|
(0.05)
|
|
Losses on intent to
sell securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(10.3)
|
|
|
(0.29)
|
|
|
(14.8)
|
|
|
(0.41)
|
|
|
|
|
(1.5)
|
|
|
(0.04)
|
|
|
(0.4)
|
|
|
(0.01)
|
|
|
(18.0)
|
|
|
(0.50)
|
|
|
(16.7)
|
|
|
(0.46)
|
|
Other non-operating
items
|
|
|
1.3
|
|
|
0.04
|
|
|
(0.1)
|
|
|
-
|
|
|
2.1
|
|
|
0.06
|
|
|
(0.5)
|
|
|
(0.02)
|
|
Income tax benefit
(expense) on non-operating items
|
|
|
(6.4)
|
|
|
(0.18)
|
|
|
(6.6)
|
|
|
(0.18)
|
|
|
7.7
|
|
|
0.22
|
|
|
23.9
|
|
|
0.66
|
|
Income (loss) from
continuing operations, net of taxes
|
|
|
107.3
|
|
|
2.97
|
|
|
(11.9)
|
|
|
(0.33)
|
|
|
33.5
|
|
|
0.93
|
|
|
116.8
|
|
|
3.23
|
|
Discontinued
operations (net of taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
discontinued Chaucer business
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1.2
|
|
|
0.03
|
|
|
-
|
|
|
-
|
|
Income (loss) from
discontinued life businesses
|
|
|
0.6
|
|
|
0.01
|
|
|
(0.2)
|
|
|
(0.01)
|
|
|
0.6
|
|
|
0.02
|
|
|
(0.8)
|
|
|
(0.02)
|
|
Net income
(loss)
|
|
$
|
107.9
|
|
$
|
2.98
|
|
$
|
(12.1)
|
|
$
|
(0.34)
|
|
$
|
35.3
|
|
$
|
0.98
|
|
$
|
116.0
|
|
$
|
3.21
|
|
Dilutive weighted
average shares outstanding
|
|
|
|
|
|
36.2
|
|
|
|
|
|
36.1
|
|
|
|
|
|
36.1
|
|
|
|
|
|
36.1
|
|
Basic weighted average
shares outstanding
|
|
|
|
|
|
35.8
|
|
|
|
|
|
35.6
|
|
|
|
|
|
35.7
|
|
|
|
|
|
35.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Per share data is
calculated using basic shares outstanding due to
antidilution.
|
Forward-Looking Statements and Non-GAAP Financial
Measures
Forward-Looking Statements
Certain statements in this document and comments made by management
may be "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. All statements, other
than statements of historical facts, may be forward-looking
statements. Words such as, but not limited to, "believes,"
"anticipates," "expects," "intends," "may," "projects,"
"projections," "plan," "likely," "potential," "targeted,"
"forecasts," "should," "could," "continue," "outlook," "guidance,"
"modeling," "target profitability," "target margins," "confident,"
"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.
These statements include, but are not limited to, the company's
statements regarding:
- The company's outlook and its ability to achieve components or
the sum of the respective period guidance on its future results of
operations including: the combined ratio, excluding catastrophe
losses; catastrophe losses; net investment income; growth of net
premiums written and/or net premiums earned in total or by line of
business; expense ratio; operating return on equity; interest rate
assumptions and investment portfolio management, renewal price
change, rate, and/or the effective tax rate;
- The company's ability to deliver on expectations set forth
related to target margins, target returns and/or return to target
profitability in total or by line of business;
- The company's ability to deliver on its long-term targets,
including, but not limited to, return on equity;
- The impacts of general economic and sociopolitical conditions
on the company's operating and financial results, including, but
not limited to, the impact on the company's investment portfolio,
changes in claims frequency as a result of fluctuations in economic
activity, the potential impacts of inflation, and/or claims
severity from higher cost of repairs due to, among other things,
supply chain disruptions and inflation;
- Uses of capital for share repurchases, special or ordinary cash
dividends, business investments or growth, or otherwise, and
outstanding shares in future periods as a result of various share
repurchase mechanisms, capital management framework, especially in
the current environment, and overall comfort with liquidity and
capital levels;
- Catastrophe modeling and variability of catastrophe losses due
to risk concentrations, changes in weather patterns, severe weather
including wildfires, hurricanes and other convective storms, winter
storms and freezes, and tornados, or terrorism, civil unrest, riots
or other events, as well as the complexity in estimating losses
from large catastrophe events due to delayed reporting of the
existence, nature or extent of losses or where "demand surge,"
regulatory assessments, litigation, coverage and technical
complexities or other factors may significantly impact the ultimate
amount of such losses;
- Current accident year losses and loss selections ("picks"),
excluding catastrophes, and prior accident year loss reserve
development patterns, particularly in complex "longer-tail"
liability lines, as well as the inherent variability in short-tail
property and non-catastrophe weather losses;
- Changes in frequency and loss severity trends in Core
Commercial, Specialty and/or Personal Lines;
- Ability to manage the impact of inflationary pressures, global
market disruptions, economic conditions, geopolitical events or
otherwise, including, but not limited to, supply chain disruptions,
labor shortages, and increases in cost of goods, services, labor,
and materials;
- The confidence or concern that the current level of reserves is
adequate and/or sufficient for future claim payments, whether due
to losses that have been incurred but not reported, circumstances
that delay the reporting of losses, business complexity, adverse
judgments or developments with respect to case reserves, the
difficulties and uncertainties inherent in projecting future losses
from historical data, changes in replacement and medical costs, as
well as complexities including legislative, regulatory or judicial
actions that expand the intended scope of coverages, or other
factors;
- Characterization of some business as being "more profitable" in
light of inherent uncertainty of ultimate losses incurred,
especially for "longer-tail" liability businesses;
- Efforts to manage expenses, including the company's long-term
expense savings targets, while allocating capital to business
investment, which is at management's discretion;
- Risks and uncertainties with respect to our ability to retain
profitable policies in force and attract profitable policies and to
increase rates commensurate with, or in excess of, loss
trends;
- Mix improvement, underwriting initiatives, coverage
restrictions, non-renewals, changes in terms and conditions, and
pricing segmentation, among others, to grow businesses believed to
be more profitable or reduce premiums attributable to products or
lines of business or geographies believed to be less profitable;
balance rate actions and retention; offset long-term and/or
short-term loss trends due to increased frequency; increased
"social inflation" from a more litigious environment and higher
average cost of resolution; increased property replacement or
repair costs; and/or social movements;
- The ability to generate growth in targeted segments through new
agency appointments; rate increases (as a result of its market
position, agency relationships or otherwise), retention
improvements or new business; expansion into new geographies; new
product introductions; or otherwise; and
- Investment returns and the effect of macro-economic interest
rate trends and overall security yields, including the
macro-economic impact of governmental and/or central banking
initiatives taken in response to inflationary pressures, and
geopolitical circumstances, on new money yields and overall
investment returns.
Additional Risks and Uncertainties
Investors are
further cautioned and should consider the risks and uncertainties
in the company's business that may affect such estimates and future
performance that are discussed in the company's most recently filed
reports on Form 10-K and Form 10-Q and other documents filed by The
Hanover Insurance Group, Inc. with the Securities and Exchange
Commission ("SEC") and that are also available at www.hanover.com
under "Investors." These risks and uncertainties include, but are
not limited to:
- Changes in regulatory, legislative, economic, market and
political conditions, particularly with respect to rates, the use
of data, technology, artificial intelligence, cybersecurity, policy
terms and conditions, restrictions on cancellations and/or
non-renewals, payment flexibility, and regions where the company
has geographical concentrations;
- Heightened financial market volatility, fluctuations in
interest rates (which have a significant impact on the market value
of our investment portfolio and thus our book value), inflationary
pressures, default rates and other factors that affect investment
returns from the investment portfolio;
- Recessionary economic periods that may inhibit the company's
ability to increase pricing or renew business, or otherwise impact
the company's results, and which may be accompanied by higher
claims activity in certain lines;
- Data security and privacy incidents, including, but not limited
to, those resulting from a malicious cyber-security attack on the
company or its business partners and service providers, or
intrusions into the company's systems, including cloud-based data
storage, or data sources;
- Adverse claims experience, including those driven by large or
increased frequency and/or severity of catastrophe events,
including those related to wildfires, winter storms and freezes,
hurricanes, or other severe weather, or due to terrorism, civil
unrest, riots, or cybersecurity events (including from products not
intended to provide cyber coverage);
- The limitations and assumptions used to model non-catastrophe
property and casualty losses (particularly with respect to products
with longer-tail liability lines, such as casualty and bodily
injury claims, or involving emerging issues related to losses
incurred as the result of new lines of business, such as cyber or
financial institutions coverage, or reinsurance contracts and
reinsurance recoverables), leading to potential adverse development
of loss and loss adjustment expense reserves;
- Changes in weather patterns and severity, whether as a result
of global climate change or otherwise, causing a higher level of
losses from weather events to persist;
- Litigation and the possibility of adverse judicial decisions,
including those which expand policy coverage beyond its intended
scope and/or award "bad faith" or other non-contractual damages,
and the impact of "social inflation" and third-party litigation
funding affecting judicial awards and settlements;
- The ability to increase or maintain insurance rates in line
with anticipated loss costs and/or governmental action, including
mandates by state departments of insurance to either raise or lower
rates, or provide credits or return premium to insureds;
- Investment impairments, which may be affected by, among other
things, the company's ability and willingness to hold investment
assets until they recover in value, as well as credit and interest
rate risk, and general financial and economic conditions;
- Disruption of the independent agency channel or its operating
model, including the impact of competition and consolidation in the
industry and among agents and brokers, and the impact of artificial
intelligence tools;
- Competition, particularly from competitors who have resource
and capability advantages;
- The global macroeconomic environment, including inflation,
recessionary effects, global trade disputes, war, energy market
disruptions, equity price risk, and interest rate fluctuations,
which, among other things, could result in reductions in market
values of fixed maturities and other investments, and/or increases
in loss costs;
- Adverse state and federal regulation, legislative and/or
regulatory actions (including significant revisions to Michigan's automobile personal injury
protection system and related litigation, and various regulations,
orders and proposed legislation regarding bad faith, premium grace
periods and returns, changes to terms and conditions, and rate
actions);
- Financial ratings actions, in particular, downgrades to the
company's ratings;
- Operational and technology risks and evolving technological and
product innovation, including risks created by remote work
environments, the evolving use of artificial intelligence, and
cyber-security threats;
- Uncertainties in estimating indemnification liabilities
recorded in conjunction with obligations undertaken in connection
with the sale of various businesses and discontinued operations;
and
- The ability to collect from reinsurers, reinsurance
availability and pricing, reinsurance terms and conditions, and the
performance of the run-off voluntary property and casualty pools
business (including those in the Other segment or in discontinued
operations).
Investors should not place undue reliance on forward-looking
statements, which speak only as of the date they are made and
should understand the risks and uncertainties inherent in or
particular to the company's business. The company does not
undertake the responsibility to update or revise such
forward-looking statements, except as required by law.
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 (loss),
operating income (loss) before interest expense and income taxes,
operating income (loss) per diluted (basic) 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 (loss) and operating income (loss) per diluted
(basic) share are non-GAAP measures. They are defined as net income
(loss) 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 (loss), as they are, to a certain extent,
determined by interest rates, financial markets and the timing of
sales. Operating income (loss) 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 (loss) 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 (loss) before both interest expense and income
taxes. The company also uses "operating income (loss) per diluted
(basic) 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. Operating loss per share is calculated by dividing
operating loss by the weighted average number of basic shares of
common stock due to antidilution. The company believes that metrics
of operating income (loss) 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 (loss) attributable to the core
operations of the business. Income (loss) from continuing
operations is the most directly comparable GAAP measure for
operating income (loss) (and operating income (loss) before income
taxes) and measures of operating income (loss) that exclude the
effects of catastrophe losses and/or prior-year reserve development
should not be misconstrued as substitutes for income (loss) from
continuing operations or net income (loss) determined in accordance
with GAAP. A reconciliation of operating income (loss) to income
(loss) from continuing operations and net income (loss) for the
relevant periods is included on page 12 of this news release and in
the Financial Supplement.
Operating return on average equity ("ROE") is a non-GAAP
measure. See end note (5) for a detailed explanation of how this
measure is calculated. Operating ROE is based on non-GAAP operating
income (loss). In addition, the portion of shareholder equity
attributed to unrealized appreciation (depreciation) on fixed
maturity investments, net of tax, is excluded. The company believes
this measure is helpful in that it provides insight to the capital
used by, and results of, the continuing business exclusive of
interest expense, income taxes, and other non-operating items.
These measures should not be misconstrued as substitutes for GAAP
ROE, which is based on net income (loss) and shareholders' equity
of the entire company and without adjustments.
The company may provide measures of operating income (loss) 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.
Book value per share is total shareholders' equity divided by
the number of common shares outstanding. Book value per share
excluding net unrealized gains and losses related to fixed maturity
investments, net of tax, is total shareholders' equity excluding
the after-tax effect of unrealized investment gains and losses on
fixed maturities and market risk divided by the number of common
shares outstanding.
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)
|
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. This and
other non-GAAP measures are used throughout this document. See the
disclosure on the use of this and other non-GAAP measures under the
heading "Forward-Looking Statements and Non-GAAP Financial
Measures." A reconciliation of the GAAP combined ratio to the
combined ratio, excluding catastrophes, and to the current accident
year combined ratio, excluding catastrophes, is shown
below.
|
|
|
|
|
|
Three months
ended
|
|
|
|
|
|
December 31,
2023
|
|
|
|
|
|
Core
Commercial
|
|
Specialty
|
|
Personal
Lines
|
|
Total
|
|
|
Total combined ratio
(GAAP)
|
|
96.7
|
%
|
|
83.2
|
%
|
|
97.6
|
%
|
|
94.2
|
%
|
|
|
Less: Catastrophe
ratio
|
|
5.7
|
%
|
|
1.7
|
%
|
|
3.8
|
%
|
|
4.0
|
%
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
91.0
|
%
|
|
81.5
|
%
|
|
93.8
|
%
|
|
90.2
|
%
|
|
|
Less: Prior-year
reserve development ratio
|
|
(0.4)
|
%
|
|
(4.4)
|
%
|
|
0.8
|
%
|
|
(0.6)
|
%
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
91.4
|
%
|
|
85.9
|
%
|
|
93.0
|
%
|
|
90.8
|
%
|
|
|
|
|
December 31,
2022
|
|
|
|
Total combined ratio
(GAAP)
|
|
117.2
|
%
|
|
90.5
|
%
|
|
109.1
|
%
|
|
108.0
|
%
|
|
|
Less: Catastrophe
ratio
|
|
24.6
|
%
|
|
3.2
|
%
|
|
10.2
|
%
|
|
13.9
|
%
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
92.6
|
%
|
|
87.3
|
%
|
|
98.9
|
%
|
|
94.1
|
%
|
|
|
Less: Prior-year
reserve development ratio
|
|
(0.5)
|
%
|
|
-
|
|
|
-
|
|
|
(0.1)
|
%
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
93.1
|
%
|
|
87.3
|
%
|
|
98.9
|
%
|
|
94.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
December 31,
2023
|
|
|
|
|
|
Core
Commercial
|
|
Specialty
|
|
Personal
Lines
|
|
Total
|
|
|
Total combined ratio
(GAAP)
|
|
99.0
|
%
|
|
86.2
|
%
|
|
117.1
|
%
|
|
103.5
|
%
|
|
|
Less: Catastrophe
ratio
|
|
8.3
|
%
|
|
3.4
|
%
|
|
20.4
|
%
|
|
12.2
|
%
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
90.7
|
%
|
|
82.8
|
%
|
|
96.7
|
%
|
|
91.3
|
%
|
|
|
Less: Prior-year
reserve development ratio
|
|
0.2
|
%
|
|
(3.8)
|
%
|
|
1.1
|
%
|
|
(0.3)
|
%
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
90.5
|
%
|
|
86.6
|
%
|
|
95.6
|
%
|
|
91.6
|
%
|
|
|
|
|
December 31,
2022
|
|
|
|
Total combined ratio
(GAAP)
|
|
101.2
|
%
|
|
89.3
|
%
|
|
104.3
|
%
|
|
99.8
|
%
|
|
|
Less: Catastrophe
ratio
|
|
9.9
|
%
|
|
2.8
|
%
|
|
8.3
|
%
|
|
7.7
|
%
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
91.3
|
%
|
|
86.5
|
%
|
|
96.0
|
%
|
|
92.1
|
%
|
|
|
Less: Prior-year
reserve development ratio
|
|
(0.5)
|
%
|
|
(1.6)
|
%
|
|
0.4
|
%
|
|
(0.4)
|
%
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
91.8
|
%
|
|
88.1
|
%
|
|
95.6
|
%
|
|
92.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Renewal price changes
in Core Commercial and Specialty represent the average change in
premium on renewed policies caused by the estimated net effect of
base rate changes, discretionary pricing, specific inflationary
changes or changes in policy level exposure or insured risks. Rate
increases in Core Commercial and Specialty represent the average
change in premium on renewed policies caused by the base rate
changes, discretionary pricing, and inflation, excluding the impact
of changes in policy level exposure or insured risks. Renewal price
change in Personal Lines represents the average change in premium
on policies charged at renewal caused by the net effects of filed
rate, inflation adjustments or other changes in policy level
exposure or insured risks, regardless of whether or not the
policies are retained for the duration of their contractual terms.
Rate change in Personal Lines is the estimated cumulative premium
effect of approved rate actions applied to policies at renewal,
regardless of whether or not policies are actually renewed.
Accordingly, rate changes do not represent actual increases or
decreases realized by the company. Personal Lines rate changes do
not include inflation or changes in policy level exposure or
insured risks.
|
|
|
(3)
|
Current accident year
loss and LAE ratio, excluding catastrophe losses, 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
catastrophe losses, is shown below.
|
|
|
|
|
|
Three months
ended
|
|
|
|
|
|
December 31,
2023
|
|
|
|
|
|
Core
Commercial
|
|
Specialty
|
|
Personal
Lines
|
|
Total
|
|
|
Total loss and LAE
ratio
|
|
63.1
|
%
|
|
46.8
|
%
|
|
72.6
|
%
|
|
63.6
|
%
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(0.4)
|
%
|
|
(4.4)
|
%
|
|
0.8
|
%
|
|
(0.6)
|
%
|
|
|
Catastrophe
ratio
|
|
5.7
|
%
|
|
1.7
|
%
|
|
3.8
|
%
|
|
4.0
|
%
|
|
|
Current accident year
loss and LAE ratio, excluding catastrophes
|
|
57.8
|
%
|
|
49.5
|
%
|
|
68.0
|
%
|
|
60.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2022
|
|
|
|
Total loss and LAE
ratio
|
|
84.3
|
%
|
|
54.7
|
%
|
|
82.8
|
%
|
|
77.1
|
%
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(0.5)
|
%
|
|
-
|
|
|
-
|
|
|
(0.1)
|
%
|
|
|
Catastrophe
ratio
|
|
24.6
|
%
|
|
3.2
|
%
|
|
10.2
|
%
|
|
13.9
|
%
|
|
|
Current accident year
loss and LAE ratio, excluding catastrophes
|
|
60.2
|
%
|
|
51.5
|
%
|
|
72.6
|
%
|
|
63.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
December 31,
2023
|
|
|
|
|
|
Core
Commercial
|
|
Specialty
|
|
Personal
Lines
|
|
Total
|
|
|
Total loss and LAE
ratio
|
|
65.8
|
%
|
|
50.7
|
%
|
|
91.6
|
%
|
|
73.0
|
%
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
0.2
|
%
|
|
(3.8)
|
%
|
|
1.1
|
%
|
|
(0.3)
|
%
|
|
|
Catastrophe
ratio
|
|
8.3
|
%
|
|
3.4
|
%
|
|
20.4
|
%
|
|
12.2
|
%
|
|
|
Current accident year
loss and LAE ratio, excluding catastrophes
|
|
57.3
|
%
|
|
51.1
|
%
|
|
70.1
|
%
|
|
61.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2022
|
|
|
|
Total loss and LAE
ratio
|
|
68.5
|
%
|
|
54.0
|
%
|
|
77.8
|
%
|
|
69.0
|
%
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(0.5)
|
%
|
|
(1.6)
|
%
|
|
0.4
|
%
|
|
(0.4)
|
%
|
|
|
Catastrophe
ratio
|
|
9.9
|
%
|
|
2.8
|
%
|
|
8.3
|
%
|
|
7.7
|
%
|
|
|
Current accident year
loss and LAE ratio, excluding catastrophes
|
|
59.1
|
%
|
|
52.8
|
%
|
|
69.1
|
%
|
|
61.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
Operating income (loss)
and operating income (loss) per diluted (basic) share are non-GAAP
measures. Operating income (loss) before income taxes, as
referenced in the results of the business segments, is defined as,
with respect to such segment, operating income (loss) before
interest expense and income taxes. The reconciliation of operating
income (loss) and operating income (loss) per diluted (basic) share
to the closest GAAP measures, income (loss) from continuing
operations and income (loss) from continuing operations per diluted
(basic) share, respectively, is provided on the preceding pages of
this news release.
|
|
|
(5)
|
Operating return on
average equity ("operating ROE") is a non-GAAP measure. Operating
ROE is calculated by dividing annualized operating income (loss)
after tax for the applicable period (see under the heading in this
news release "Non-GAAP Financial Measures" and end note (4)), by
average shareholders' equity, excluding unrealized appreciation
(depreciation) on fixed maturity investments, net of tax, for the
period presented. Total shareholders' equity, excluding net
unrealized appreciation (depreciation) on fixed maturity
investments, net of tax, is also a non-GAAP measure. Total
shareholders' equity is the most directly comparable GAAP measure
and is reconciled below. For the calculation of operating ROE, the
average of beginning and ending shareholders' equity, excluding net
unrealized appreciation (depreciation) on fixed maturity
investments, net of tax, is used for the period as shown and
reconciled in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended
|
|
|
($ in
millions)
|
|
|
December 31
|
|
|
March 31
|
|
|
June 30
|
|
|
September 30
|
|
|
December 31
|
|
|
|
|
|
|
2022
|
|
|
2023
|
|
|
2023
|
|
|
2023
|
|
|
2023
|
|
|
|
Total shareholders'
equity (GAAP)
|
|
$
|
2,333.7
|
|
$
|
2,389.0
|
|
$
|
2,237.9
|
|
$
|
2,116.3
|
|
$
|
2,465.6
|
|
|
|
Less: net unrealized
appreciation
(depreciation)
on fixed maturity
investments, net of tax
|
|
|
(637.4)
|
|
|
(545.2)
|
|
|
(610.0)
|
|
|
(720.9)
|
|
|
(462.4)
|
|
|
|
Total shareholders'
equity, excluding net
unrealized appreciation
(depreciation)
on fixed maturity
investments, net of tax
|
|
$
|
2,971.1
|
|
$
|
2,934.2
|
|
$
|
2,847.9
|
|
$
|
2,837.2
|
|
$
|
2,928.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Averages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders'
equity (GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,291.0
|
|
|
|
Average shareholders'
equity, excluding net
unrealized appreciation
(depreciation) on
fixed maturity investments,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,882.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date
Averages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders'
equity (GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,308.5
|
|
|
|
Average shareholders'
equity, excluding net
unrealized appreciation
(depreciation) on
fixed maturity investments,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,903.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in
millions)
|
|
Three months
ended
|
|
Year ended
|
|
|
|
|
December 31
|
|
December 31
|
|
|
Net Income
ROE
|
|
2023
|
|
2023
|
|
|
Net income
(GAAP)
|
|
$
|
107.9
|
|
|
$
|
35.3
|
|
|
|
Annualized net
income*
|
|
|
431.6
|
|
|
|
|
|
|
|
Average shareholders'
equity (GAAP)
|
|
$
|
2,291.0
|
|
|
$
|
2,308.5
|
|
|
|
Return on
equity
|
|
|
18.8
|
%
|
|
|
1.5
|
%
|
|
|
Operating Income ROE
(non-GAAP)
|
|
|
|
|
|
|
|
|
|
|
Operating income after
taxes
|
|
$
|
113.1
|
|
|
$
|
56.2
|
|
|
|
Annualized operating
income, net of tax*
|
|
|
452.4
|
|
|
|
|
|
|
|
Average shareholders'
equity, excluding net unrealized appreciation
(depreciation) on fixed maturity investments, net of tax
|
|
$
|
2,882.6
|
|
|
$
|
2,903.7
|
|
|
|
Operating return on
equity
|
|
|
15.7
|
%
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*For three months ended
December 31, 2023, annualized net income and operating income after
income taxes is calculated by multiplying three months ended net
income and operating income after income taxes, respectively, by
4.
|
|
|
(6)
|
Here, and later in this
document, the expense ratio is reduced by installment and other fee
revenues for purposes of the ratio calculation.
|
|
|
(7)
|
Book value per share,
excluding net unrealized appreciation (depreciation) on fixed
maturity investments, net of tax, is a non-GAAP measure. Book value
per share is the most directly comparable GAAP measure and is
reconciled in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended
|
|
|
|
|
|
September 30
|
|
December 31
|
|
|
|
|
|
2023
|
|
2023
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
|
$59.21
|
|
$68.93
|
|
|
Less: Net unrealized
appreciation (depreciation) on fixed
maturity investments,
net of tax, per share
|
|
(20.17)
|
|
(12.93)
|
|
|
Book value per share,
excluding net unrealized appreciation (depreciation) on
fixed maturity investments, net of tax
|
|
$79.38
|
|
$81.86
|
|
|
|
|
|
|
|
|
|
|
Change in book value
per share
|
|
|
|
|
16.4 %
|
|
|
Change in book value
per share, excluding net unrealized appreciation
(depreciation) on fixed maturity investments, net of tax
|
|
|
|
3.1 %
|
|
|
|
(8)
|
The separate financial
information of each operating segment is presented consistent with
the way results are regularly evaluated by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance. Management evaluates the results of the
aforementioned operating segments without consideration of interest
expense on debt and on a pre-tax basis.
|
View original content to download
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SOURCE The Hanover Insurance Group, Inc.