Hanover Insurance Group Inc

Good morning, and welcome to the Hanover Insurance first quarter 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Oksana Lukashova. Please go ahead.

Thank you, Operator. Good morning and thank you for joining us for our quarterly conference call. We will begin today's call with prepared remarks from Jack Roach, our President and Chief Executive Officer, and Jeff Farber, our Chief Financial Officer. Available to answer your questions after our prepared remarks are Dick Levy, President of Agency Markets, and Brian Salvatore, President of Specialty Lines. Before I turn the call over to Jack, let me note that our earnings press release, financial supplement, and a complete slide presentation for today's call are available in the Investors section of our website at www.hanover.com. After the presentation, we will answer questions in the Q&A session. Our prepared remarks and responses to your questions today, other than statements of historical fact, include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 regarding, among other things, our outlook and guidance for 2022 and beyond, the ongoing impacts of the COVID-19 pandemic, economic conditions and related impacts, including inflation, and other risks and uncertainties that could affect company performance and or cause actual results to differ materially from those anticipated. We caution you with respect to reliance on forward-looking statements and, in this respect, refer you to the forward-looking statements section in our press release, the presentation deck, and our filings with the SEC. Today's discussion will also reference certain non-GAAP financial measures such as operating income and accident-share loss and combined ratios, excluding catastrophes, among others. A reconciliation of these non-GAAP financial measures to the closest GAAP measure on a historical basis can be found in the press release, the slide presentation, or the financial supplement, which are posted on our website, as I mentioned earlier. With those comments, I will turn the call over to Jack.

Thank you, Oksana, and good morning, everyone. I'll begin today's call by offering our perspective on the broader insurance and economic environment and how it's impacting the Hanover. I'll then provide a strategic review of each of our business segments. Jeff will review our financial results in more detail, and then we'll open up the line and take your questions. We began 2022 with a very strong first quarter in which we executed against our strategic initiatives and further strengthened our competitive position. we achieved a 15.7% operating return on equity and operating earnings per share of $3.26. At the same time, we grew our top line by 9.7% to $1.3 billion in quarterly net premiums written, fueled by strong growth in each of our business segments. We're very pleased with our exceptional financial performance in the quarter, particularly as the industry encountered macroeconomic challenges, including meaningfully higher interest rates, inflation, and continued supply chain disruptions. Russia's invasion of Ukraine exacerbated those issues, contributing to increased uncertainty in the global economy. The effects of inflation are evident across the P&C industry. Like many of our peers, we felt its impact throughout the first quarter, particularly in our home and auto property-related lines. However, we remain highly confident in our resilience and ability to successfully navigate each of our businesses through this dynamic environment. We are aligning our pricing in recognition of these higher exposures. In addition, we are leaning into our agency partnerships and organizational agility to make the necessary pricing and property valuation adjustments while maintaining stability in our book of business. In the first quarter, we also sustained our auto frequency benefit at a similar level to the fourth quarter of 2021, and we believe this benefit should continue to soften the impact of increased property severity within personal lines, albeit at a potentially lower level as we go through the year. From a historical perspective, insurance has generally performed well in inflationary environments. In particular, the P&C industry has various effective tools at its disposal to help offset the pressure, including rate and exposure increases, and it certainly benefits meaningfully from the higher interest rates over time. Our company is well positioned to respond adeptly to inflation, supported by our sophisticated monitoring tools, data analytics, and advanced technology capabilities. As such, we remain on the trajectory we laid out for you at our investor day in September. Despite increased property costs, we feel good about the near-term outlook we shared with you in January, while we believe our longer-term performance should be augmented by higher investment returns. With that overview, I'll now discuss our first quarter financial highlights and recent business performance, starting with Core Commercial. Our Core Commercial segment delivered profitable top-line growth of 9.6% in the quarter with a combined ratio of 93%. We continued to drive healthy price increases of 9.7% across our Core Commercial book with rate up 6.3% for the quarter and retention near record levels. The improvement in the economic activity and increases in insured values provided meaningful lift to the exposure component of renewal premiums. We expect this trend to continue for at least the duration of the year. Across the industry, new business flow and quality faced increasing challenges during the quarter consistent with record retention levels, due in part to the industry-wide workforce constraints affecting independent agents. However, our differentiated distribution approach enabled us to stay focused on the superior opportunities presented by our product offerings and consolidation efforts. Additionally, we continue to leverage our customer service center capabilities to help our agent partners lock in renewal business at very high levels in spite of their ongoing talent shortages. Our small commercial business delivered substantial growth in the quarter, up 10.3%, driven by strong pricing and retention, as well as the ongoing rollout of our industry-leading tap sales quote and issue platform. This impressive platform, now available in 37 states, generated approximately 20% more new business submissions during the quarter. We couldn't be more thrilled with our agents' positive and enthusiastic response to our tap sales platform. Adoption levels have far exceeded our expectations, with the current number of users increasing 30% over prior year. Based on the tremendous early success we have achieved, we expect that our TAP sales platform will continue to drive strong new business generation in 2022 and beyond. Our middle market business also performed very well in the quarter as we focused on optimizing the portfolio through pricing, new exposure management tools, and analytics to enhance rate, exposures, and profitability of this book. Our previous investments in specific industry niches enables us to attract high quality accounts in a very proactive manner. Now let's turn to our newly presented segment, specialty. Over the years, our specialty book has evolved into a broadly diversified segment that encompasses eight unique businesses and 18 product areas, serving small and mid-sized customers primarily through retail agents. This segment provides one of the most unique and comprehensive product portfolios in the P&C market for retail agents, including professional and executive lines, marine, excess and surplus lines, as well as programs and surety. These capabilities are delivered through highly efficient operating models, including a best-in-class customer service center and coordinated agency relationship management. And importantly, we take a holistic view of our customer, addressing the entirety of their risk management needs wherever appropriate from an underwriting perspective. The information we have gleaned from our proprietary analytic tools indicates that our capabilities and approach open up approximately $45 billion of business opportunities in our targeted markets. We are looking forward to capitalizing on these significant opportunities as we deliberately and profitably grow our business. In the first quarter, we continued to build on our leading position in the small to mid-sized specialty segments. Specialty delivered strong top line growth of 9.4%, propelled by stable rate increases of 8.4% in near record retention. Moreover, we continue to generate strong profitability in this line, delivering a combined ratio of 87.7% in the quarter, which compares nicely versus our target profitability, even adjusting for lower than expected catastrophes in the quarter. Our most profitable businesses, including professional and executive lines, surety, and E&S, achieve double-digit growth and strong market share gains. Looking ahead, we're especially focused on opportunities to increase the casualty mix in our specialty book, in specific lines within professional and executive lines and retail E&S. In addition, following a very successful launch of our specialty general liability product in 2021, we'll continue to expand this line into new territories this year. Over time, we aim to further diversify our earnings stream with a healthy balance of property and casualty business. Now, moving on to personal lines. We delivered a 97.1% combined ratio in the first quarter, and 93.5% excluding catastrophes. This business experienced increased inflation in materials and labor costs on both first and fourth quarter claims. We are addressing that gap through thoughtful and accelerated pricing, which has already started to hit the market, as well as other operational actions such as the broader use of advanced risk management tools. Jeff will cover both in more detail shortly. While the property-related severity trends were elevated in the quarter, overall auto frequency levels remain favorable compared to pre-pandemic levels and are helping to meaningfully offset inflationary impacts. We are very pleased with the quality and performance of our Purcelline's Book of Business. Business generated by our prestige total account offering has grown nearly 70% over the last year and now represents over 8% of our total book. Account business in total now represents 87% of our personal lines book. At the same time, approximately 25% of our customers now have an umbrella coverage, one of the most profitable coverages in personal lines, and this number continues to climb. In this context, we're very pleased with the 10.1% growth and 88.8% retention we achieved in personal lines this quarter. Our positive trajectory demonstrates the quality of our portfolio as well as the robust strength of our enviable agency partnerships. Overall, we are very confident in the ability of our purse lines book to perform exceptionally well over the long term. Before I wrap up, it's important to acknowledge that we believe it's unlikely many of the headwinds stemming from this unpredictable economic environment will subside imminently. And if my three and a half decades of experience in the P&C industry has taught me anything, it's that in times like these, it's more critical than ever to have an experienced, market-focused, agile, and collaborative team to address and overcome challenges and seek the right opportunities. The outstanding work and commitment of our more than 4,400 employees across the U.S. has been instrumental in driving our overall performance and strong start to the year. I'm exceptionally proud of the talent within the Hanover and our employees drive to make a difference in our industry for the benefit of all our stakeholders. Our team is connected by a common set of what we call our care values, collaboration, accountability, respect and empowerment. These values reflect our increasingly diverse, inclusive and equitable culture, which continues to fuel our growth and success. I am particularly pleased that our company continues to deliver value for all of those who depend on us, while being recognized as a leading employer and corporate citizen by Forbes, Newsweek, the Human Rights Campaign Foundation, and others. This recognition underscores an important point. At the intersection of our corporate culture and our business model, we are focused on building a stronger and more resilient organization that will continue to prosper as we deliver on the opportunities for tomorrow. In summary, we are advancing our mission to be the premier P&C company in the independent agency channel for the nation's best agents. We continue to set our company apart from our competition through the combination of specialized products and a customer-centric approach. We're confident in our ability to manage prevailing market conditions supported by our talented team, our market-leading industry insight, and our unparalleled data and analytic capabilities. And we're highly confident that the strong foundation we have built, coupled with the continued execution of our long-term strategy, will result in strong, sustainable financial performance, enabling us to deliver enhanced returns to our shareholders in the quarters and years ahead. And now I'll turn the call over to Jeff.