WORCESTER, Mass., Oct. 20, 2022 /PRNewswire/
-- The Hanover Insurance Group, Inc. (NYSE: THG) today
announced a preliminary estimate for third quarter catastrophe
losses of approximately $90 million,
before taxes, or 6.8 points of net earned premiums. The estimate is
approximately $22 million above the
company's pre-tax third quarter catastrophe assumption, driven
primarily by the effects of Hurricane Ian. Estimated catastrophe
losses from Hurricane Ian are approximately $28 million, before taxes, primarily in the
company's Commercial Lines book in Florida.
"Our thoughts are with all those affected by Hurricane Ian. We
are committed to resolving all insured claims expeditiously and
providing the most positive claims experience for our policyholders
and agents," said John C. Roche,
president and chief executive officer at The Hanover. "The strategic actions we have taken
in the past reduced our exposure in coastal areas and helped
mitigate the loss impact on our company from this storm."
The Hanover's third quarter
results were also impacted by elevated ex-CAT loss activity in the
company's Personal and commercial multiple peril ("CMP") property
lines, largely stemming from ongoing inflationary pressures, as
well as property large losses in CMP. As a result, the company
expects its third quarter current accident year loss and LAE ratio,
excluding catastrophes(1), and its combined ratio,
excluding catastrophes(2), to be 64.1% and 94.2%,
respectively. Taking this and other currently available information
into account, The Hanover expects
its third quarter operating income per share(3) to be in
the range of $0.95 to $1.00.
"In the third quarter, inflationary and supply chain pressures
surpassed our expectations, and as such we are accelerating
property price increases to improve margins in this unprecedented
industry environment," said Roche. "We are supplementing price
increases with a robust plan of action, parts of which are already
in place. We have the utmost confidence in our high-quality
diversified book of business and our team's ability to execute this
plan and bring the business to target profitability. We look
forward to providing a detailed update on our actions and progress
during our third quarter earnings call on November 2."
About The Hanover
The
Hanover Insurance Group, Inc. is the holding company for several
property and casualty insurance companies, which together
constitute one of the largest insurance businesses in the United States. The company provides
exceptional insurance solutions through a select group of
independent agents and brokers. Together with its agent partners,
The Hanover offers standard and
specialized insurance protection for small and mid-sized
businesses, as well as for homes, automobiles, and other personal
items. For more information, please visit hanover.com.
Contacts:
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Investors:
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Media:
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Oksana
Lukasheva
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Emily P.
Trevallion
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(508)
525-6081
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508)
855-3263
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Email:
olukasheva@hanover.com
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Email:
etrevallion@hanover.com
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Forward-Looking Statements
The Hanover Insurance
Group, Inc.'s ("the company") estimate of catastrophe losses, and
preliminary third quarter 2022 results, including, but not limited
to, combined ratio, excluding catastrophes, current accident year
loss and LAE ratio, excluding catastrophes, and operating income
per share are based on estimates and projections that are subject
to revision and uncertainty. Certain statements made in this
document may be forward-looking statements. All statements, other
than statements of historical facts, may be forward-looking
statements. Such estimates and statements are forward-looking
statements as defined by the Private Securities Litigation Reform
Act of 1995. Words such as, but not limited to, "believes,"
"anticipates," "expects," "may," "projects," "projections," "plan,"
"likely," "potential," "targeted," "forecasts," "utmost
confidence," "should," "could," "continue," "outlook," "guidance,"
"target profitability", "modeling," "moving forward" and other
similar expressions are intended to identify forward-looking
statements. Forward-looking statements by their nature address
matters that are, to different degrees, uncertain. The company
cautions investors that any such forward-looking statements are
estimates, beliefs, expectations and/or projections that involve
significant judgment, and that historical results, trends and
forward-looking statements are not guarantees and are not
necessarily indicative of future performance. Actual results could
differ materially from those anticipated.
Investors should consider the risks and uncertainties in the
company's business that may affect such estimates, including (i)
the inherent difficulties in arriving at such estimates; (ii)
variation in the company's current estimates that may change as the
company finalizes its financial results; (iii) the impact of the
COVID-19 global pandemic and related economic conditions, as well
as the significant inflationary environment, on the company's
financial and operating results; (iv) legislative and regulatory
actions, as well as litigation and the possibility of adverse
judicial decisions; and (v) other risks and uncertainties that are
discussed in readily available documents, including the company's
latest annual report on Form 10-K, quarterly reports on Form 10-Q,
and other documents filed by the company with the Securities and
Exchange Commission, which are also available on hanover.com under
"Investors – Financials." The difficulties at arriving at estimates
with regard to catastrophes related to rain, wind, flooding, hail
and other losses may be caused by several factor, including
difficulties policyholders may experience when reporting claims,
The Hanover's ability to adjust
claims because of the devastation encountered or late discovery of
damages; difficulties accessing loss locations; the challenge of
making final estimates to repair or replace properties during the
early stages of examining damaged properties; applicable cause of
loss for certain policies; the effect of higher cost of repairs due
to, among other things, "demand surge" and supply chain
disruptions; potential latent damages, which are not discovered
until later; potential business interruption claims, the extent of
which cannot be known at the time, especially for customers who
have not fully resumed their operations; the inherent uncertainty
of estimating loss and loss adjustment reserves; uncertainties
related to litigation and policy interpretation; and other
factors.
Non-GAAP Financial Measures
As discussed on page 37 of the company's Annual Report on Form 10-K
for the year ended December 31, 2021,
the company uses non-GAAP financial measures as important measures
of its operating performance, including operating income, operating
income before interest expense and income taxes, operating income
per share, and components of the combined ratio, both excluding
and/or including, catastrophe losses, prior-year reserve
development and the expense ratio. Management believes these
non-GAAP financial measures are important indications of the
company's operating performance. The definition of other non-GAAP
financial measures and terms can be found in the 2021 Annual Report
on pages 63-66.
The company has provided an estimate of third quarter 2022
operating income per share, which is a non-GAAP financial measure.
The company has not reconciled this non-GAAP financial measure to
the most directly comparable GAAP financial measure because the
information is not available to do so as the company does not
provide estimates for the various reconciling items. These
financial figures reflect the company's preliminary estimates with
respect to such information, based on information currently
available to management, and are subject to completion, including
the completion of customary financial statement closing and review
procedures as of and for the quarter ended September 30, 2022. The company will provide a
reconciliation of non-GAAP measures to the most directly comparable
GAAP measure in its third quarter 2022 earnings release to be
published on Tuesday, November 1,
2022.
Operating income and operating income per share are non-GAAP
measures. They are defined as net income excluding the after-tax
impact of net realized and unrealized investment gains (losses),
gains and/or losses on the repayment of debt, other non-operating
items, and results from discontinued operations. Net realized and
unrealized investment gains (losses), which include changes in the
fair value of equity securities still held, are excluded for
purposes of presenting operating income, as they are, to a certain
extent, determined by interest rates, financial markets and the
timing of sales. Operating income also excludes net gains and
losses from disposals of businesses, gains and losses related to
the repayment of debt, costs to acquire businesses, restructuring
costs, the cumulative effect of accounting changes, and certain
other items. Operating income is the sum of the segment income
from: Core Commercial, Specialty, Personal Lines, and Other, after
interest expense and income taxes. In reference to one of the
company's four segments, "operating income" is the segment income
before both interest expense and income taxes. The company also
uses "operating income per share" (which is after both interest
expense and income taxes). It is calculated by dividing operating
income by the weighted average number of diluted shares of common
stock. The company believes that metrics of operating income and
operating income in relation to its four segments provide investors
with a valuable measure of the performance of the company's
continuing businesses because they highlight the portion of net
income attributable to the core operations of the business. Income
from continuing operations is the most directly comparable GAAP
measure for operating income (and operating income before income
taxes) and measures of operating income that exclude the effects of
catastrophe losses and/or reserve development should not be
misconstrued as substitutes for income from continuing operations
or net income determined in accordance with GAAP.
The company may also provide measures of operating income and
combined ratios that exclude the impact of catastrophe losses
(which in all respects include prior accident year catastrophe loss
development). A catastrophe is a severe loss, resulting from
natural or manmade events, including, but is not limited to,
hurricanes, tornadoes, windstorms, earthquakes, hail, severe winter
weather, freeze events, fire, explosions, civil unrest and
terrorism. Due to the unique characteristics of each catastrophe
loss, there is an inherent inability to reasonably estimate the
timing or loss amount in advance. The company believes a separate
discussion excluding the effects of catastrophe losses is
meaningful to understand the underlying trends and variability of
earnings, loss and combined ratio results, among others.
Prior accident year reserve development, which can either be
favorable or unfavorable, represents changes in the company's
estimate of costs related to claims from prior years. Calendar year
loss and loss adjustment expense ("LAE") ratios determined in
accordance with GAAP, excluding prior accident year reserve
development, are sometimes referred to as "current accident year
loss ratios." The company believes a discussion of loss and
combined ratios, excluding prior accident year reserve development,
is helpful since it provides insight into both estimates of current
accident year results and the accuracy of prior-year estimates.
The loss and combined ratios in accordance with GAAP are the
most directly comparable GAAP measures for the loss and combined
ratios calculated excluding the effects of catastrophe losses
and/or reserve development. The presentation of loss and combined
ratios calculated excluding the effects of catastrophe losses
and/or reserve development should not be misconstrued as
substitutes for the loss and/or combined ratios determined in
accordance with GAAP.
Endnotes
(1)
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Current accident year
loss and LAE ratio, excluding catastrophes, is a non-GAAP measure,
which is equal to the loss and LAE ratio ("loss ratio"), excluding
prior-year reserve development and catastrophe losses. The loss
ratio (which includes losses, LAE, catastrophe losses and
prior-year loss reserve development) is the most directly
comparable GAAP measure. A reconciliation of the GAAP loss ratio to
the current accident year loss ratio, excluding catastrophes, is
shown below.
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Three months ended
September 30, 2022
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Total
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Total loss and LAE
ratio (GAAP)
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70.6 %
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Less:
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Prior-year reserve
development ratio
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(0.3) %
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Catastrophe
ratio
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6.8 %
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Current accident year
loss and LAE ratio, excluding catastrophes (non-GAAP)
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64.1 %
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(2)
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Combined ratio,
excluding catastrophes, is a non-GAAP measure. The combined ratio
(which includes catastrophe losses and prior-year loss reserve
development) is the most directly comparable GAAP measure. A
reconciliation of the GAAP combined ratio to the combined ratio,
excluding catastrophes, is shown below.
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Three months ended
September 30, 2022
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Total
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Total combined ratio
(GAAP)
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101.0 %
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Less: Catastrophe
ratio
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6.8 %
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Combined ratio,
excluding catastrophe losses (non-GAAP)
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94.2 %
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(3)
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Operating income and
operating income per share are non-GAAP measures. They are defined
as net income excluding the after-tax impact of net realized and
unrealized investment gains (losses), gains and/or losses on the
repayment of debt, other non-operating items, and results from
discontinued operations. Net realized and unrealized investment
gains (losses), which include changes in the fair value of equity
securities still held, are excluded for purposes of presenting
operating income, as they are, to a certain extent, determined by
interest rates, financial markets and the timing of sales.
Operating income also excludes net gains and losses from disposals
of businesses, gains and losses related to the repayment of debt,
costs to acquire businesses, restructuring costs, the cumulative
effect of accounting changes, and certain other items. Operating
income is the sum of the segment income from: Core Commercial,
Specialty, Personal Lines, and Other, after interest expense and
income taxes. In reference to one of the company's four segments,
"operating income" is the segment income before both interest
expense and income taxes. The company also uses "operating income
per share" (which is after both interest expense and income taxes).
It is calculated by dividing operating income by the weighted
average number of diluted shares of common stock. The company
believes that metrics of operating income and operating income in
relation to its four segments provide investors with a valuable
measure of the performance of the company's continuing businesses
because they highlight the portion of net income attributable to
the core operations of the business. Income from continuing
operations is the most directly comparable GAAP measure for
operating income (and operating income before income taxes) and
measures of operating income that exclude the effects of
catastrophe losses and/or reserve development should not be
misconstrued as substitutes for income from continuing operations
or net income determined in accordance with GAAP.
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SOURCE The Hanover Insurance Group, Inc.