Hanover Insurance Group Inc

Good day, and welcome to the Hanover Insurance Group's third quarter earnings conference call. My name is MJ, and I'll be your operator for today's call. At 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 one on your touchtone phone. And to withdraw your question, please press star, then 2. 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 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. These statements can relate to, among other things, our outlook and guidance for 2024, economic conditions and related effects, including economic and social inflation, potential recessionary impacts, as well as other risks and uncertainties, such as severe weather and catastrophes that could affect the company's 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 statement 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 year loss and combined ratio 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 I 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. We delivered exceptional results in the third quarter, driven by outstanding execution across our organization. The significant profitability improvements we delivered in the third quarter are the direct result of the strategic initiatives we have been discussing with you for the past 18 months, including enhanced pricing, significant insurance-to-value adjustments, terms and conditions changes, and targeted underwriting actions. Before we get into the details of the quarter, I want to acknowledge the people and communities affected by the recent hurricanes in Florida, the Southeast, and the Mid-Atlantic. Hurricanes Helene and Milton caused tragic loss of life and tremendous destruction. While only a small portion of our business is written in those regions, we are committed to providing our insureds with much-needed assistance and claim support. Our experienced, committed team is working around the clock to ensure that claims are processed as quickly and efficiently as possible. Now turning to our results. We generated operating income of $3.05 per diluted share, yielding an operating return on equity of 14.4%. Our XCAT combined ratio improved by 2.4 points compared to last year's quarter, further validating the impact of our margin recapture initiatives. We delivered substantial improvements in personal lines, outstanding underwriting results in specialty, and strong performance in core commercial, despite prudent loss selections resulting from industry liability trends. As evidenced by the favorable prior year development across all three of our major segments, our reserves remain healthy, and we believe we are well positioned to navigate social inflation trends. And we continue to make notable advancements in our margin recapture and cap mitigation plans, demonstrating our agility and resilience, and enabling our strong and improving profitability trends. Next, I'll discuss our segment performance at a high level, starting with personal lines. We're very pleased with the progress we're making in this business on both the top and bottom lines. Excluding catastrophe losses, we made significant year-over-year improvements in both auto and home as a result of underwriting actions we have taken and the benefits of price increases. Auto is now at target returns on both a written and earned rate basis. Home is at target on a written basis. Our personal lines team generated premium growth of 6.8% in the quarter, driven entirely by pricing, with policies in force still declining year over year and sequentially as expected. The decline in policies in force reflects our continued efforts to carefully balance our geographic exposures in certain areas of the Midwest. Pricing continues to be very robust in personal lines. Despite PIF reductions, we generated net written premium growth of approximately 3.5% in Midwest states and over 10% in the rest of our personal lines footprint. As we continue to see rapidly improving margins, we are focused on accelerating growth in states with attractive profitability and geographic profiles. We expect this trend to continue in the fourth quarter, as we gradually lean into more states for new business growth. At the same time, we are continuing to mitigate our overall catastrophe risk exposures, with more than half of our personal lines portfolio now under new or enhanced deductibles. The benefit of these actions has been evident in the wake of some of the convective storms in the Midwest this year. Our higher deductibles not only have improved cost sharing on claims, but these terms and conditions have the additional benefit of encouraging policyholders to be more discriminating on full roof replacements, when storm damage is more cosmetic, and helping counteract aggressive roofing company marketing tactics. Also, we continue to broaden our account product capabilities in Purcellines, adding collector car protection via a partnership with a leading classic car franchise. This will be critical for meeting the evolving needs of our customers as we maintain our competitive edge in the market. Turning to core commercial. Our solid financial performance underscores our prudent growth strategy in small commercial and effective margin improvement actions in middle market. We are positioning our core commercial portfolio to be even more resilient, while thoughtfully capitalizing on attractive growth opportunities. We are very pleased with our ongoing execution and excited about the prospects of reaching our full potential in this business. As we have guided, middle market premiums were lower in the third quarter as we finish up the journey on profitability improvement in property and proceed cautiously with the liability lines. At the same time, we are retaining the business we desire to keep and gaining momentum with new business. We are confident we will generate growth in middle market starting in the fourth quarter and expect to see steady improvement moving ahead. In our small commercial business, we leveraged our solid market position and attractive product portfolio in the quarter, delivering growth of approximately 6%. We have every reason to be optimistic about our small commercial prospects. Our meaningfully increased submissions and new business growth reflect the effectiveness of our TAP sales platform, as well as the investments we've made in expanding our sales force and distribution reach. We are particularly excited about the integration of workers' compensation in TAP sales next year, which we believe will further enhance our opportunities. Our small commercial team is dedicated to competing and excelling in the marketplace every day as we continue to set ourselves apart with our underwriting expertise, advanced capabilities, digital tools, and strong product offerings. At the same time, we are intensely focused on profitability, especially given the industry environment relative to social inflation and litigation abuse. we are pleased with the continued increase in average price changes in core commercial lines this quarter, led by liability pricing. Since 2016, we've been monitoring our loss trends and refining our underwriting appetite accordingly. Since that time, we have reduced exposure in high-risk areas, such as industry sectors that are more prone to slip and fall and premises liability losses, particularly in major urban centers. Years ago, we discontinued standalone umbrella and focused on maintaining low liability limits in auto policies. As a result, our growth in liability lines to date has been more measured compared to the industry. This foresight has equipped us to navigate today's market challenges effectively. We believe our portfolio is now more resilient than most, thanks to our business mix, limits profile, and the industries and geographies covered, which is evident in our third quarter results. Our commitment to underwriting excellence and discipline positions us well for the future. Moving on, our specialty business continued to achieve exceptional bottom line results in the third quarter and year to date. delivering sustainable profitability and consistently robust margins. We've accelerated our investments in this area, adding skilled talent and innovative technology to excel in an increasingly digital insurance market. In E&S, for example, we have introduced a new policy quote and issue platform to enhance underwriting, response times, and operating efficiencies. In marine, we have enhanced and further strengthened our team and are deploying new technology and processes to improve ease of use. In surety, we are investing in an additional field talent and ensuring strong market visibility to stay connected with our customers and agents and to seize new business opportunities. Although specialty growth moderated to 3.4% in the quarter, we are very confident in our ability to rebound to strong growth. We continue to develop upper single or double digit growth in our most profitable lines, including E&S, surety, and management liability. At the same time, our prior and ongoing profitability improvement initiatives in specific segments, particularly programs, have led to higher than expected premium attrition in the quarter and have impacted our overall specialty top line performance. Excluding the programs business, specialty grew 5.4% in the quarter and 7.4% year-to-date. And we expect high single-digit growth in the fourth quarter and subsequent quarters. We believe the specialty market remains robust and full of attractive opportunities in our targeted growth areas. We are enthusiastic about maintaining and enhancing significant growth in the E&S sector facilitated by our new platform. In marine, we are growing new business while expanding our portfolio, both geographically and across various business classes, reinforcing our position as a top-tier go-to carrier. We continue to show steady growth and surety while maintaining underwriting discipline in the current market. Conversely, in markets where we witness increased competition, particularly in subsectors of the professional lines market, we exercise the required prudence. Our business is competitively positioned with numerous attractive growth opportunities. We see a wealth of new business prospects and have great confidence in the investments we are making in specialty, as well as in its growth trajectory. Overall, our third quarter results have built on our solid momentum from the first half of the year, providing strong evidence of our ability to navigate a dynamic market environment. The effectiveness of our team's efforts instill profound confidence in our future as we continue to drive growth alongside healthy profitability. We are determined to continue to provide innovative, high-quality insurance solutions for our partners and customers to generate strong, sustainable, profitable growth and to deliver strong results in a market environment that demands diligence and expertise, qualities we possess in abundance. Our execution to date and my confidence in our team reinforces my unwavering conviction in the Hanover's future trajectory. With that, I'll turn the call over to Jeff.