Hanover Insurance Group (THG) Tops Q2 EPS by 51c, Revenues Beat

Hanover Insurance Group (NYSE: THG) reported Q2 EPS of $1.63, $0.51 better than the analyst estimate of $1.12. Revenue for the quarter came in at $1.22 billion versus the consensus estimate of $1.13 billion.

Second Quarter Operating Highlights

• Current accident year loss and loss adjustment expense ("LAE") ratio, excluding catastrophes(2), of 51.8%, which included favorable loss frequency in short-tail coverages, primarily Personal Auto, while prudently reserving for uncertainty in longer-tail lines
• Limited COVID-19-related loss activity experienced to date; increased COVID-19 loss reserves by $6 million to now include Workers' Compensation, bringing the total ultimate loss expectation to $19 million
• Catastrophe losses of $147.8 million, or 13.5 points, including favorable development on prior-year catastrophes of $7.0 million
• Net premiums written decrease of 5.0%**, primarily due to the impact of the Personal Auto premium returns, lower new business, and exposure reductions within Commercial Lines
• Core Commercial Lines rate increases (3) of 5.1% and 4.8% in Personal Lines (4)
• Net investment income decreased to $57.7 million primarily due to the decrease in the fair value of limited partnerships, which are reported on a quarter lag
• Book value per share of $81.10, up 12.6% from March 31, 2020, driven primarily by increases in the fair value of fixed income securities and net income
• Company updated full-year 2020 outlook, including an improved combined ratio, excluding catastrophes, between 89.5% and 90.5%, compared to the prior outlook of 91% to 92%

"We're very pleased with our performance in the second quarter, particularly in light of the elevated catastrophe loss experience for us and across the industry," said John C. Roche, president and chief executive officer at The Hanover. "We delivered operating earnings per share of $1.63 and a solid operating ROE(5) of 9.5%, demonstrating our ability to operate successfully even in the most challenging of environments. In light of our diverse and high-quality underwriting mix, COVID-19-related loss activity remains limited and we believe future exposure is manageable. Although our second quarter net premiums written were down 5%, impacted by the significant and sudden slowdown in economic activity and premium returns, we saw flat premium growth in the month of June, and we began to see growth resume in July. Our underlying production metrics are strong, with rate increases of 5.1% and 4.8% in Core Commercial and Personal Lines, respectively. We are confident we will reestablish and even ultimately improve upon our strong, pre-pandemic growth trajectory, driving our company forward in this dynamic, rapidly changing environment, creating value for our agents and customers, while delivering improved underwriting performance, top-quartile growth and superior returns in the long term."

"We reported an all-in combined ratio of 96.2% and 82.7%, excluding catastrophes(6) in the second quarter," said Jeffrey M. Farber, executive vice president and chief financial officer. "Our underlying loss performance reflected the temporary benefit of lower frequency, particularly in short-tail lines, while we maintained a prudent reserving approach to liability coverages in light of potential future uncertainty. At the same time, we continue to maintain a rigorous focus on our expenses, delivering an expense ratio(7) of 31.3%, as we further optimize operating expenses to yield efficiencies and invest in strategic and innovative capabilities."

"Our book value per share increased 12.6% to $81.10 during the quarter, as a result of net income and the increase in unrealized gains on our fixed income portfolio. We believe our carefully constructed and diversified book of business, strong financial foundation, and high-quality investment portfolio position us well moving forward."

For earnings history and earnings-related data on Hanover Insurance Group (THG) click here.

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