Hanover Insurance Group Inc

Good day and welcome to Hanover Insurance Second Quarter Earnings Conference Call. My name is Nick and I'll be your operator for today's call. This time all participants are 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 1 on your touch-tone phone. To withdraw a question, please press star then 2. Please note that this event is being recorded. I'd like to turn the call 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 on the investor 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, economic conditions and related impacts, including inflation, and other risks and uncertainties that could affect companies' performance and or cause actual results to differ maturely 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 was the SCC Today's discussion will also reference certain non-GAAP financial measures, such as operating income and 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. Good morning, everyone, and thank you for joining us. I'll begin by discussing our second quarter financial highlights in the context of the current business and economic environment. I'll then provide an update on each of our business segments and put our results in perspective for you. Jeff will review our financial results in more detail, provide an update to our 2022 guidance, and then we'll open the line to take your questions. We are pleased to report a strong second quarter, highlighted by an 11.1% operating return on equity and 10.4% net written premium growth. Year to date, we have achieved an operating return on equity of 13.4%, while operating earnings per share increased 24% from the prior year. These results underscore the effectiveness of our business strategy and the strength of our agency partnerships. While our business is subject to a wide range of variable and challenging conditions, including the continuing macroeconomic pressures we experienced in our personal lines business this quarter, our well-balanced portfolio and disciplined underwriting minimizes the adverse impact of volatility in any one area of the business. With another strong quarter to our credit, we continue to drive our business forward. Confident we have the financial wherewithal, business strategy, products and services, distribution capability, and team necessary to achieve our long-term financial and strategic goals. I'm excited to share our results with you today, starting with a review of our core commercial business. This segment delivered top-line growth of 7.7% in the quarter with a combined ratio of 92.6%. We continued to drive healthy rate increases of 6.9% across our core commercial book, up 60 basis points from the first quarter, and backed by solid retention. The increase in economic activity and increases in insured values continue to provide a meaningful lift to the exposure component of renewal premiums, driving the core commercial renewal pricing increase to 11%. Within the core commercial business, our small commercial book generated excellent results, delivering 10.5% growth with strong retention, rate, and premium audit activity. New business, which increased relative to the prior year quarter, remains an important focus area for small commercial, particularly given the talent strain impact on agent capacity in the current environment. We're committed to helping our agent partners in the small commercial market by providing innovative tools such as our market-leading TAP sales platform, which further expanded during the quarter and is now available in 44 states. The value of this platform to agents is underscored by the year-over-year increase of approximately 20% in business owners policy new business submissions, as well as approximately 15% in additional registered users, exceeding our initial expectations. The increased utilization of our tap platform spurred strong new business generation in the second quarter. And going forward, we expect that it will continue to be a critical driver of growth. Strong pricing was the key metric for the middle market portion of core commercial, with positive exposure activity being a meaningful driver of performance. We're leveraging enhanced pricing tools and analytics to optimize rate and retention. with an emphasis on improving transactional pricing, ease of use, and portfolio mix in view of rising property loss costs. Our granular pricing capabilities, combined with the continued lift from exposures, should support ongoing price increases in core commercial. Advanced technology, underwriting discipline, and talent management are all key levers we are working to our advantage to drive growth and augment profitability. Our specialty segment delivered exceptional underwriting profitability and high single digit normalized growth, which was highlighted by continued strong renewals and robust rate. The momentum we've established in specialty over the past year further underscores the potential of this business to be a pivotal growth driver in the quarters and years ahead. The rate environment and specialty remains firm. Renewal price changes continued on a positive trajectory coming in at 12% in Q2, closely in line with the first quarter. We're also making great progress in developing and further enhancing our growing specialty portfolio and capabilities. Following a successful launch of our specialty general liability product in 2021, we expect to complete the nationwide rollout in the fourth quarter. Strong growth in other new products, including retail E&S and financial institutions, combined with very positive feedback from our agent partners, highlights the successful investments we've made in our specialty capabilities and our enhanced relevancy. This is one of the many ways in which we have further diversified our specialty capabilities as we strive to achieve an optimal balance between property and casualty risks. Turning to personal lines, in the second quarter, we took extensive action to temper the impact of environmental headwinds facing the personal lines industry. In response, we implemented more robust rate increases than initially planned and achieved increased renewal price changes in both auto and homeowners. In personal auto, we've observed the market firming in response to continued inflationary pressure. Consistent with that, we're accelerating rate filings with a clear line of sight into additional increases in the next couple of quarters. Furthermore, the persistence of our auto frequency benefit continues to track favorably to pre-pandemic levels and slightly ahead of expectations, helping to offset severity. In homeowners, we experienced an increase of large loss activity, non-CAT weather, and increased inflationary impact during the quarter. While a portion of the large loss experience appears to be aberrant, we believe further inflationary pressure and the impact of weather have longer-term implications and need to be priced for. Growth in the homeowners line was primarily a product of the significant pricing increases we have implemented and achieved, over 9%, as well as high retention of 89% based on market firming. We expect new business accounts to likely decline in the second half of the year as we adjust our tiered pricing and execute on margin improvement in this business. At the same time, we'll continue to manage our homeowners' business with rigorous focus as we drive appropriate initiatives across the various territories. This includes implementing further pricing increases through multiple levers that Jeff will discuss in more detail shortly. While we anticipate a certain level of short-term pressure, we have line of sight and confidence in our ability to bring this book of business back to target profitability relatively quickly. Overall, our personal lines business has a long track record of delivering very strong above industry returns. Additionally, we maintain prudent pricing discipline through the pandemic, giving us a favorable starting point in this challenging environment. With our account mix and our high quality book, we're certain we can appropriately align pricing to recent loss dynamics and grow in desired segments that leverage our differentiated product offerings. This strategy should continue to drive our superior performance, regardless of market conditions. Today's macro environment is the most dynamic I've seen in the 36 years I've been in this business. It is an environment that presents both challenges and opportunities. And while many uncertainties remain, we have the experienced team, deep analytical skills, and sophisticated technology tools to navigate the complexities of the current landscape. In reflecting on our performance over the past several quarters, an important key takeaway is the increasing role talent and by extension innovation have played in contributing to the Hanover's sustained profitable growth. One of my most critical priorities is to ensure that we continue to apply these strengths so that Hanover is positioned to win in the future market environment. Attracting and retaining talent have long been core to our mission. As analytics-driven processes and digital tools continue to transform our industry, we're focused on making our talent strategy an even stronger advantage. We're achieving that goal in several ways. First, by helping our employees broaden their skills beyond their immediate areas of responsibility through interactive seminars, education, and peer mentoring, with a key focus on the capabilities needed to thrive in our rapidly transforming industry. Second, by training a new generation of leaders within our organization, empowering them to help transform our business models and shape the long-term direction of our company. And third, by leveraging the strong culture we've built to create a vibrant and progressive work environment. Together, these strategies culminate to create a workplace where innovation can continue to flourish. With most of our systems replatformed, we are directing even more technology investment resources to improve efficiency and provide a superior customer experience. Our agility and proficiency to develop new, innovative products and services based on customer preferences and demands has proven to be the smart way to win market share with our best agents, and going forward will continue to be a vital ingredient for long-term profitable growth. Overall, we're very pleased with the strong results delivered in the first half of 2022. Backed by our experienced team and exceptional agency partnerships, we are equipped with all the right tools to embrace new opportunities and navigate the complexities of our industry. We head into the second half of the year with tremendous momentum and excitement about our prospects. With that, I will turn the call over to Jeff.