Hanover Insurance Group Inc

Good day, and welcome to the Hanover Insurance Group's second quarter earnings conference call. My name is Joe, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode, and should you need any assistance today, 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 a question, please press star, then two. Please also note that this event is being recorded today. 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, Chief Operating Officer and 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 2025, economic conditions and related effects, including economic and social inflation, potential recessionary impacts, tariffs, 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 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-year 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. Our excellent second quarter results reflect the extraordinary progress we've made as a company. We're proud of our solid execution and consistent discipline. Our team is energized and focused as we step into the next phase of our growth journey at a time that's both exciting and dynamic for our business. At the core of our performance is a deeply experienced and talented team, a team that is fully aligned on our strategy, delivering a specialized and diversified portfolio of products through a select distribution model that targets the best independent agents in the business. What truly sets us apart is not just our product offering. It's the relationships we built and the way we engage with the top agents in our business. Now more than ever, as agents and brokers across the spectrum are consolidating and actively redefining their business models, our differentiated approach is standing out and demonstrating great value. Today, with strong and broad-based earnings, our balanced and resilient portfolio is enabling us to remain agile and to perform very well through changing market conditions. We are intently focused on the dynamic market environment, which is characterized by significant variability across insurance product lines, industry classes, and even geography. We are seeing a divergence between various lines and segments with property competition rising while liability pressures are building and pricing in these lines is starting to firm. Our business outlook remains very positive. With widespread profitability and target level returns across most segments, we're well positioned to capitalize on emerging opportunities and to continue delivering high quality results going forward. Turning to our second quarter highlights. Operating ROE was 18.7%, a record for the second quarter. Additionally, we delivered operating earnings of $4.35 per diluted share and earnings growth of approximately 25% on an ex-cap basis. Top line growth started to accelerate in the second quarter, and we expect that to strengthen as we progress through the second half of the year and into 2026. Our overall combined ratio and XCAT combined ratio both outperformed our expectations, improving by approximately 7 points and 3 points respectively compared to the second quarter of last year. Our personalized business performed very well in the quarter as we achieved more balanced growth and strong profitability with high-quality execution across the board. Our net written premium growth trajectory continues to build, driven by renewal price increases, improving retention, and rising new business activity. Notably, we delivered approximately 8% growth in our targeted diversification states, highlighting the effectiveness of our strategic focus. We're achieving quarter-over-quarter PIF growth in key geographies, where we're targeting profitable expansion that aligns with our margin objectives and enhances diversification across our business. We remain encouraged by the quality of PersonalLine's new business, with nearly all of it concentrated in account business. Our full account strategy continues to serve us well, enabling us to deliver holistic, long-term solutions to customers and meet their needs with products that are more resilient to the competitiveness of the monoline auto market. With approximately 89% of our purse lines business written on an account basis, we experience higher customer retention and loyalty. Additionally, with ongoing challenges and complexities around coverage in many states, homeowners is gradually becoming a lead line, further emphasizing the effectiveness of our account approach. Profitability continues to improve in personal lines, supported by rate and terms earning in, and lower frequency of auto collision in homeowners' claims. The cumulative impact of pricing, as well as improved terms and conditions, have significantly strengthened the underlying economics of our home book of business. That said, we still intend to maintain significant price increases, given the higher severity and unpredictable nature of CAT losses. In terms of tariffs, while we have not yet seen a material impact, we do anticipate some minor loss cost increases emerging in the back half of the year. For this reason, we're not in a hurry to decelerate auto pricing significantly. We are actively monitoring market conditions for any tariff impacts, and we are ready to adjust pricing swiftly and precisely if and when tariff-related pressures materialize. Overall, our first lines book is exceptionally strong and the progress we've made puts us in an opportune position to capitalize on a complex and dynamic marketplace. We believe we are well equipped to sustain profit margins while executing on our targeted growth strategy. Turning to core commercial. We're pleased with our overall performance, having diligently maintained healthy margins in the second quarter, despite an evolving market environment. Core commercial profitability remains solid, and our sub-90s XCAT combined ratio underscores the effectiveness of our strategic portfolio actions in prior quarters. Net written premium growth improves sequentially in Q2, fueled by accelerated top line momentum in small commercial, where our more targeted pricing strategy is beginning to produce the desired results. We're encouraged by the growth acceleration we achieved in the quarter, and we have visibility for improved growth through the year as we grow new business and as we strike the proper balance between pricing and retention in our renewal book. We have multiple small commercial initiatives underway to drive even stronger new business activity, including expansion of our TAP sales platform into workers' compensation, bringing our business owners advantage offering to life sciences organizations, and multiple other sales initiatives. We also appointed new agents, further expanding distribution to improve our relevancy and access to additional market opportunities. We are pleased with our improved performance and continued stability of our middle market business, particularly in the property-oriented segments. This progress reflects the significant underwriting actions we've taken over the past several quarters. Most recently, we have witnessed some elevated competition in some areas of the middle market sector, and we have selectively passed on certain new business opportunities where pricing was below our thresholds or where terms and conditions did not meet our underwriting guidelines. At the same time, we're sharpening our focus on high-opportunity middle market sectors like technology, life sciences, and professional services, and positioning for future opportunities as the liability market shows signs of firming. In these targeted industry segments, we are benefiting from strong brand recognition with our agents and a steady flow of submissions. Moving on to specialty, net written premium growth was 4.6%, and we achieved an impressive mid-80s combined ratio. Importantly, our continued exceptional profitability allows us the flexibility to adjust pricing strategically to support our growth objectives. We continue to remain conservative on programs business, and we're not chasing underpriced accounts in certain property-focused lines. At the same time, we delivered upper single digit to double digit growth across E&S, which grew 22%, surety up 13%, and healthcare, which increased 8%. In E&S, the environment is favorable in the lower mid-market and smaller size account space, which is our sweet spot, and we continue to gain momentum in this area. We have also delivered a solid 7% growth in our industry-leading marine business. We're especially pleased with the growth we are achieving in these lines, as they are among our most profitable. Looking forward, we continue to see many opportunities across specialty, particularly in the smaller size retail agency market, where pricing remains solid and growth is achievable at target or above target returns. Backed by deep expertise, our team is well positioned to seize these opportunities, further establishing specialty as a strong and accelerating growth engine. Before I close, I want to highlight a critical pillar of our overall strategy, our investments in data and analytics and technology for the future. We're making deliberate strategic investments that are fueling smarter, more scalable growth. These investments are positioning us to win in a rapidly evolving industry landscape. For example, while we continue to focus on point of sale platforms to support business generation, we are also leveraging generative AI and AI capabilities to automate account submission ingestion, build triage functionality, and streamline workflow automation. These technologies are unlocking broader value creation across the enterprise. For instance, In E&S, we are developing workflow automation and AI-powered triage functions intended to double throughput on high-quality submissions and speed up the quote turnaround with our best agents. Workflow transformation in underwriting, claims, and service functions is a top priority, and we are excited about the value creation that comes from operational efficiency, enhanced decision-making, and a more seamless customer experience across these functions. Our underwriting claims and service professionals are very excited about the ways in which these technologies can enhance their effectiveness and their job satisfaction. We remain highly disciplined in our investment approach, directing resources toward the areas with the greatest potential impact. Notably, more than 40% of our employees interact with customers and agents daily, processing millions of calls, emails, and transactions. This underscores the significant opportunity we have to streamline and elevate these critical touchpoints. Ultimately, our focus is on empowering our people and partners with tools that make us faster, sharper, and more connected, charting a course for long-term success. We delivered outstanding second quarter results, surpassing our target returns and accelerating growth, which demonstrate the strong positive momentum we are carrying into the second half of the year. we couldn't be more excited about our prospects moving forward. With that, I will now turn the call over to Jeff.