Third Quarter Highlights
- Combined ratio of 101.0%; combined ratio, excluding
catastrophes(1), of 94.2%
- Catastrophe losses of $90.1
million, or 6.8 points of the combined ratio, including the
impact from Hurricane Ian of $28.0
million
- Net premiums written increase of 9.5%*, with contributions from
each segment
- Renewal price change(2) of 11.2% in Core Commercial,
12.4% in Specialty and 7.3% in Personal Lines, driven by homeowners
renewal price change of 12.1%
- Rate increases(2) of 7.3% in Core Commercial, 8.0%
in Specialty and 4.0% in Personal Lines
- Current accident year loss and loss adjustment expense ("LAE")
ratio, excluding catastrophes(3), of 64.1% reflecting
higher-than-expected inflation, primarily impacting personal auto,
homeowners, and commercial multiple peril ("CMP") property lines,
as well as property large loss activity in CMP
- Net investment income of $73.0
million, above expectations and helped by higher operational
cashflows and bond reinvestment rates, but below the prior-year
quarter result due to the elevated level of partnership income in
the third quarter of 2021
- Book value per share of $64.59,
down 10.5% from June 30, 2022,
primarily driven by a decrease in the fair value of fixed maturity
investments due to the higher interest rate environment
WORCESTER, Mass., Nov. 1, 2022
/PRNewswire/ -- The Hanover Insurance Group, Inc. (NYSE: THG)
today reported net income of $0.2
million, or $0.01 per diluted
share, in the third quarter of 2022, compared to $34.0 million, or $0.94 per diluted share, in the prior-year
quarter. Operating income(4) was $35.7 million, or $0.99 per diluted share, for the third quarter of
2022. This compared to operating income of $30.8 million, or $0.85 per diluted share, in the prior-year
quarter. The difference between net and operating income in the
third quarter of 2022 was primarily due to the after-tax decrease
in the fair value of equity securities of $23.0 million, or $0.64 per fully diluted share, and after-tax
losses on intent to sell fixed income securities of $11.3 million, or $0.31 per fully diluted share.
"In light of the prevailing inflationary environment and
devastating damage from Hurricane Ian for the industry, we
delivered solid underwriting results, very strong investment
performance and year-to-date operating ROE(5) of 10.5%,"
said John C. Roche, president and
chief executive officer at The Hanover. "We are accelerating our robust
action plans to recapture target margins in property lines affected
by inflation, through a step up in pricing increases and targeted
underwriting actions. We have full confidence that, with the
support of our talented team and a strong market and agency
position, we will bring these lines to target profitability and
generate superior performance as a company."
"We continued to successfully advance our differentiated
business and customer strategies, delivering strong growth of
nearly 10%, driven by pricing and exposure increases, and the
execution of our long-term priorities. We are particularly pleased
with the exceptional performance of our Specialty business, which
continued to make great progress, achieving a second sequential
quarter of double-digit top-line growth and sub-90 combined ratio.
I look forward to updating our shareholders on our company's
progress in the coming quarters as we address the macro pressures
head-on and return to top tier margins."
"Inflationary impacts and supply chain delays drove the third
quarter current accident year loss ratio, excluding catastrophes,
to 64.1%, which was approximately three and a half points above our
original 2022 outlook, putting aside non-recurring items. It is our
top priority, and we are focused on it intently," said Jeffrey M. Farber, executive vice president and
chief financial officer at The Hanover. "We are leaning on our financial
discipline, underwriting expertise and analytics to regain the
underwriting margins our business is built to deliver. We are
pleased with the 0.5 point improvement in the year-to-date expense
ratio from the prior-year period, reflecting a beat to our expense
ratio target. We are also encouraged by the steady increase in our
investment income, which should continue to accumulate as interest
rates remain elevated. Our investment portfolio is well positioned,
and our capital, liquidity and reserves are strong. As we look
ahead, we continue to focus on our long-term target for operating
ROE and responsible capital management for the benefit of our
valued shareholders."
|
Three months
ended
|
|
Nine months
ended
|
|
|
September 30
|
|
September 30
|
|
($ in
millions, except per share data)
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Net premiums
written
|
$1,505.4
|
|
$1,375.2
|
|
$4,150.5
|
|
$3,778.5
|
|
Growth
|
9.5 %
|
|
8.4 %
|
|
9.8 %
|
|
8.4 %
|
|
Net premiums
earned
|
$1,331.2
|
|
$1,186.0
|
|
$3,888.8
|
|
$3,527.6
|
|
|
|
|
|
|
|
|
|
|
Current accident year
loss and LAE ratio,
excluding catastrophes(3)
|
64.1 %
|
|
60.1 %
|
|
61.2 %
|
|
58.1 %
|
|
Prior year development
ratio
|
(0.3) %
|
|
(1.8) %
|
|
(0.5) %
|
|
(1.2) %
|
|
Catastrophe
ratio
|
6.8 %
|
|
12.9 %
|
|
5.5 %
|
|
10.3 %
|
|
Expense
ratio(6)
|
30.4 %
|
|
31.1 %
|
|
30.8 %
|
|
31.3 %
|
|
Combined
ratio
|
101.0 %
|
|
102.3 %
|
|
97.0 %
|
|
98.5 %
|
|
Combined ratio,
excluding catastrophes
|
94.2 %
|
|
89.4 %
|
|
91.5 %
|
|
88.2 %
|
|
Current accident year
combined ratio,
excluding
catastrophes(1)
|
94.5 %
|
|
91.2 %
|
|
92.0 %
|
|
89.4 %
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$0.2
|
|
$34.0
|
|
$127.6
|
|
$255.2
|
|
per diluted
share
|
0.01
|
|
0.94
|
|
3.53
|
|
6.98
|
|
Operating
income
|
35.7
|
|
30.8
|
|
237.3
|
|
196.2
|
|
per diluted
share
|
0.99
|
|
0.85
|
|
6.57
|
|
5.37
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$64.59
|
|
$87.04
|
|
$64.59
|
|
$87.04
|
|
Ending shares
outstanding (in millions)
|
35.6
|
|
35.6
|
|
35.6
|
|
35.6
|
|
|
|
|
|
|
|
|
|
|
|
*Unless otherwise
stated, net premiums written growth and other growth comparisons
are to the same period of the prior year
|
(1) See
information about this and other non-GAAP measures and definitions
used throughout this press release on the final pages of this
document.
|
|
The Hanover
Insurance Group, Inc. may also be referred to as "The Hanover" or
"the company" interchangeably throughout this press
release.
|
Third Quarter Operating Highlights
Core Commercial
Core Commercial operating income before income taxes was
$25.2 million in the
third quarter of 2022, compared to $11.0 million in the third quarter of 2021.
The Core Commercial combined ratio was 101.3%, compared to 105.4%
in the prior-year quarter. Catastrophe losses in the
third quarter of 2022 were $32.7
million, or 6.6 points of the combined ratio, compared to
$56.4 million, or 12.3 points, in the
prior-year quarter.
Third quarter 2022 results included $1.3 million, or 0.3 points, of net unfavorable
prior-year reserve development, excluding catastrophes, compared to
net favorable prior-year reserve development, excluding
catastrophes, of $3.3 million, or 0.7
points, in the third quarter of 2021.
Core Commercial current accident year combined ratio, excluding
catastrophes, increased 0.6 points to 94.4% in the
third quarter of 2022, from 93.8% in the prior-year quarter.
The current accident year loss and LAE ratio, excluding
catastrophes, of 61.7%, reflected higher property large loss
activity in CMP, which impacted both the current quarter and the
prior-year quarter. Additionally, the underlying loss ratio in the
third quarter of 2022 also reflected the impact of higher inflation
and continued supply chain delays on overall claims costs,
including the business interruption component of CMP.
Net premiums written were $565.9
million in the quarter, up 5.9% from the prior-year quarter,
driven by growth of 6.7% in small commercial and 5.1% in middle
market. In the third quarter, Core Commercial renewal price
increases averaged 11.2%, while average rate increases were
7.3%.
The following table summarizes premiums and the components of
the combined ratio for Core Commercial:
|
Three months
ended
|
|
Nine months
ended
|
|
|
September 30
|
|
September 30
|
|
($ in
millions)
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Net premiums
written
|
$565.9
|
|
$534.6
|
|
$1,546.7
|
|
$1,436.9
|
|
Growth
|
5.9 %
|
|
9.9 %
|
|
7.6 %
|
|
8.4 %
|
|
Net premiums
earned
|
492.7
|
|
459.7
|
|
1,447.5
|
|
1,342.5
|
|
Operating income
before income taxes
|
25.2
|
|
11.0
|
|
159.6
|
|
66.1
|
|
Loss and LAE
ratio
|
68.6 %
|
|
72.8 %
|
|
63.1 %
|
|
70.4 %
|
|
Expense
ratio
|
32.7 %
|
|
32.6 %
|
|
32.7 %
|
|
32.6 %
|
|
Combined
ratio
|
101.3 %
|
|
105.4 %
|
|
95.8 %
|
|
103.0 %
|
|
Prior-year development
ratio
|
0.3 %
|
|
(0.7) %
|
|
(0.5) %
|
|
(0.8) %
|
|
Catastrophe
ratio
|
6.6 %
|
|
12.3 %
|
|
4.8 %
|
|
12.3 %
|
|
Combined ratio,
excluding catastrophes
|
94.7 %
|
|
93.1 %
|
|
91.0 %
|
|
90.7 %
|
|
Combined ratio,
excluding catastrophes
and
prior year development
|
94.4 %
|
|
93.8 %
|
|
91.5 %
|
|
91.5 %
|
|
Specialty
Specialty operating income before income taxes was $46.9 million in the third quarter of 2022,
compared to $31.4 million in the
third quarter of 2021. The Specialty combined ratio was 89.2%,
compared to 93.2% in the prior-year quarter. Catastrophe losses in
the third quarter of 2022 were $8.6
million, or 2.8 points of the combined ratio, compared to
$18.4 million, or 7.7 points, in the
prior-year quarter.
Third quarter 2022 results included $5.1
million, or 1.7 points, of net favorable prior-year reserve
development, excluding catastrophes. This compared to $8.1 million, or 3.4 points, in the third quarter
of 2021.
Specialty current accident year combined ratio, excluding
catastrophes, decreased 0.8 points to 88.1% in the third quarter of
2022, from 88.9% in the prior-year quarter. The current accident
year loss and LAE ratio, excluding catastrophes, increased by 0.9
points to 53.6% due to the comparison to the unusually low property
loss experience in the third quarter of 2021, partially offset by
the benefit of earned rate increases above loss trends.
The expense ratio decreased by 1.7 points to 34.5% in the third
quarter of 2022, compared to the prior-year quarter, primarily
attributable to fixed cost leverage from premium growth.
Net premiums written were $329.1
million in the quarter, up 12.6% from the prior-year
quarter, driven primarily by rate and exposure increases. In the
third quarter, Specialty renewal price increases averaged 12.4%,
while average rate increased 8.0%.
The following table summarizes premiums and the components of
the combined ratio for Specialty:
|
Three months
ended
|
|
Nine months
ended
|
|
|
September 30
|
|
September 30
|
|
($ in
millions)
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Net premiums
written
|
$329.1
|
|
$292.2
|
|
$934.2
|
|
$834.1
|
|
Growth
|
12.6 %
|
|
6.6 %
|
|
12.0 %
|
|
10.1 %
|
|
Net premiums
earned
|
303.3
|
|
238.9
|
|
880.6
|
|
752.4
|
|
Operating income
before income taxes
|
46.9
|
|
31.4
|
|
142.1
|
|
82.9
|
|
Loss and LAE
ratio
|
54.7 %
|
|
57.0 %
|
|
53.7 %
|
|
59.1 %
|
|
Expense
ratio
|
34.5 %
|
|
36.2 %
|
|
35.1 %
|
|
35.7 %
|
|
Combined
ratio
|
89.2 %
|
|
93.2 %
|
|
88.8 %
|
|
94.8 %
|
|
Prior-year development
ratio
|
(1.7) %
|
|
(3.4) %
|
|
(2.2) %
|
|
(1.6) %
|
|
Catastrophe
ratio
|
2.8 %
|
|
7.7 %
|
|
2.6 %
|
|
6.3 %
|
|
Combined ratio,
excluding catastrophes
|
86.4 %
|
|
85.5 %
|
|
86.2 %
|
|
88.5 %
|
|
Combined ratio,
excluding catastrophes
and
prior year development
|
88.1 %
|
|
88.9 %
|
|
88.4 %
|
|
90.1 %
|
|
Personal Lines
Personal Lines operating loss before income taxes was
$18.8 million in the third quarter of
2022, compared to operating income before income taxes of
$3.6 million in the third quarter of
2021. The Personal Lines combined ratio was 107.3%, compared to
103.8% in the prior-year quarter. Catastrophe losses in the third
quarter of 2022 were $48.8 million,
or 9.1 points of the combined ratio, which includes $3.0 million of unfavorable prior-year
catastrophe development. This compared to catastrophe losses of
$78.7 million, or 16.1 points of the
combined ratio, in the prior-year quarter. Prior-year reserve
development, excluding catastrophes, was immaterial in the third
quarter of 2022. This compared to net favorable prior-year reserve
development, excluding catastrophes, of $9.9
million, or 2.0 points, in the third quarter of 2021.
Personal Lines current accident year combined ratio, excluding
catastrophe losses, increased 8.5 points to 98.2% in the third
quarter of 2022, from 89.7% in the prior-year quarter. The current
accident year loss and LAE ratio, excluding catastrophes, increased
9.9 points to 72.3%, driven primarily by the impact of
higher-than-expected inflation and supply chain delays on personal
auto and homeowners property lines. More specifically in auto, the
increase in the underlying loss ratio reflects higher inflationary
pressure on the cost of parts and labor, as well as a change in
salvage and subrogation recoveries, primarily driven by a shift in
the mix of claims towards single vehicle accidents. The increase in
the underlying loss ratio in homeowners reflects higher property
severity as a result of higher inflation, higher large fire loss
activity as compared to lower-than-usual loss experience in the
third quarter of 2021, and an increase in frequency of
water-related losses. Almost three points of the Personal Lines
loss ratio in the third quarter of 2022 relates to the
re-estimation of loss severity from the first and second quarters
of 2022.
The expense ratio decreased by 1.4 points to 25.9% in the
third quarter of 2022, compared to the prior-year quarter,
primarily attributable to fixed cost leverage from premium growth
and lower performance-based agency compensation.
Net premiums written were $610.4
million in the quarter, up 11.3% from the prior-year
quarter, driven by continued strong retention and renewal price
changes. In the third quarter, Personal Lines renewal price
increases averaged 7.3%, while average rate increases were
4.0%.
The following table summarizes premiums and components of the
combined ratio for Personal Lines:
|
Three months
ended
|
|
Nine months
ended
|
|
|
September 30
|
|
September 30
|
|
($ in
millions)
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Net premiums
written
|
$610.4
|
|
$548.4
|
|
$1,669.6
|
|
$1,507.5
|
|
Growth
|
11.3 %
|
|
8.0 %
|
|
10.8 %
|
|
7.4 %
|
|
Net premiums
earned
|
535.2
|
|
487.4
|
|
1,560.7
|
|
1,432.7
|
|
Operating income
(loss) before income taxes
|
(18.8)
|
|
3.6
|
|
20.3
|
|
117.6
|
|
Loss and LAE
ratio
|
81.4 %
|
|
76.5 %
|
|
76.0 %
|
|
68.4 %
|
|
Expense
ratio
|
25.9 %
|
|
27.3 %
|
|
26.6 %
|
|
27.8 %
|
|
Combined
ratio
|
107.3 %
|
|
103.8 %
|
|
102.6 %
|
|
96.2 %
|
|
Prior-year development
ratio
|
-
|
|
(2.0) %
|
|
0.5 %
|
|
(1.4) %
|
|
Catastrophe
ratio
|
9.1 %
|
|
16.1 %
|
|
7.7 %
|
|
10.6 %
|
|
Combined ratio,
excluding catastrophes
|
98.2 %
|
|
87.7 %
|
|
94.9 %
|
|
85.6 %
|
|
Combined ratio,
excluding catastrophes
and
prior year development
|
98.2 %
|
|
89.7 %
|
|
94.4 %
|
|
87.0 %
|
|
Investments
Net investment income was $73.0
million for the third quarter of 2022, below the prior-year
quarter of $78.8 million, primarily
due to elevated partnership income in the prior-year quarter,
partially offset by the investment of higher operational cashflows
and higher bond reinvestment rates in the third quarter of 2022.
Total pre-tax earned yield on the investment portfolio for the
quarter ended September 30, 2022, was
3.21%, down from 3.72% in the prior-year quarter. The average
pre-tax earned yield on fixed maturities was 3.02% and 2.96% for
the quarters ended September 30,
2022, and 2021, respectively.
Net realized and unrealized investment losses recognized in
earnings were $44.9 million in the
third quarter of 2022, primarily driven by the change in fair value
of equity securities and losses on intent to sell fixed income
securities due to a planned transfer of certain fixed income assets
to an external portfolio manager. This compared to net realized and
unrealized investment gains recognized in earnings of $4.0 million in the third quarter of 2021.
The company held $8.6 billion in
cash and invested assets on September 30,
2022. Fixed maturities and cash represented approximately
86% of the investment portfolio. Approximately 95% of the company's
fixed maturity portfolio is rated investment grade. Net unrealized
losses on the fixed maturity portfolio as of September 30, 2022, were $893.0 million before income taxes, a decrease in
fair value of $306.0 million since
June 30, 2022, primarily due to
higher interest rates.
Shareholders' Equity and Capital
Actions
On September 30, 2022, book value
per share was $64.59, down 10.5% from
June 30, 2022, primarily driven by a
decrease in the fair value of fixed maturity investments. During
the quarter, the company repurchased approximately 79,000 shares of
common stock in the open market for $10.4
million. The company has approximately $330 million of remaining capacity under its
existing share repurchase program.
On September 30, 2022, statutory
capital and surplus was $2.7 billion,
down 1.4% from December 31, 2021,
primarily driven by unrealized investment losses due to changes in
the fair value of equity securities as well as a dividend payment
of $100 million to its parent
company, nearly fully offset by year-to-date earnings.
Earnings Conference Call
The company will host a conference call to discuss its third
quarter results on Wednesday, November
2, at 10:00 a.m. E.T. A PowerPoint slide
presentation will accompany the prepared remarks and has been
posted on The Hanover's
website. Interested investors and others can listen to
the call and access the presentation through The Hanover's website, located in the "Investors"
section at www.hanover.com. Investors may access the conference
call by dialing 1-844-413-3975 in the U.S. and 1-412-317-5458
internationally. Webcast participants should go to the website 15
minutes early to register, download and install any necessary audio
software. A re-broadcast of the conference call will be available
on The Hanover's website
approximately two hours after the call.
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 company 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.
Contact Information
Investors:
|
Media:
|
|
|
Oksana
Lukasheva
|
Michael F.
Buckley
|
Emily P.
Trevallion
|
|
olukasheva@hanover.com
|
mibuckley@hanover.com
|
etrevallion@hanover.com
|
|
1-508-525-6081
|
|
1-508-855-3099
|
|
1-508-855-3263
|
|
|
|
|
|
|
|
|
|
|
Definition of Reported Segments
Continuing operations include four operating segments: Core
Commercial, Specialty, Personal Lines and Other. The Core
Commercial segment includes commercial multiple peril, commercial
automobile, workers' compensation and other commercial lines
coverages provided to small and mid-sized businesses. The Specialty
segment includes four divisions of business: professional and
executive lines, specialty P&C, marine, and surety and other.
Specialty P&C includes coverages such as program business
(provides commercial insurance to markets with specialized coverage
or risk management needs related to groups of similar businesses),
specialty industrial and commercial property, and excess and
surplus lines. The Personal Lines segment markets automobile,
homeowners and ancillary coverages to individuals and
families. The "Other" segment includes Opus Investment
Management, Inc., which provides investment management services to
institutions, pension funds and other organizations, and the
operations of the holding company, as well as a block of run-off
voluntary assumed property and casualty pools business in which the
company has not actively participated since 1995, and run-off
direct asbestos and environmental business.
Financial Supplement
The Hanover's third quarter
news release and financial supplement are available in the
"Investors" section of the company's website at hanover.com.
Condensed Financial Statements and
Reconciliations
The Hanover
Insurance Group, Inc.
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Income Statements
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
|
September 30
|
|
September 30
|
|
($ in
millions)
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Premiums
earned
|
|
$1,331.2
|
|
$1,186.0
|
|
$3,888.8
|
|
$3,527.6
|
|
Net investment
income
|
|
73.0
|
|
78.8
|
|
220.4
|
|
231.2
|
|
Net realized and
unrealized investment gains (losses):
|
|
|
|
|
|
|
|
|
|
Net realized gains
(losses) from sales and other
|
|
(0.1)
|
|
3.6
|
|
(16.3)
|
|
6.8
|
|
Net change in fair
value of equity securities
|
|
(29.1)
|
|
0.3
|
|
(106.1)
|
|
65.9
|
|
Recoveries
(impairments) on investments:
|
|
|
|
|
|
|
|
|
|
Credit-related
recoveries (impairments)
|
|
(1.4)
|
|
0.7
|
|
(1.5)
|
|
0.6
|
|
Losses on intent to
sell securities
|
|
(14.3)
|
|
(0.6)
|
|
(14.8)
|
|
(0.7)
|
|
|
|
(15.7)
|
|
0.1
|
|
(16.3)
|
|
(0.1)
|
|
Total net realized and
unrealized investment gains (losses)
|
|
(44.9)
|
|
4.0
|
|
(138.7)
|
|
72.6
|
|
Fees and other
income
|
|
7.0
|
|
6.1
|
|
19.4
|
|
17.9
|
|
Total
revenues
|
|
1,366.3
|
|
1,274.9
|
|
3,989.9
|
|
3,849.3
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
|
Losses and loss
adjustment expenses
|
|
939.6
|
|
844.0
|
|
2,572.6
|
|
2,370.4
|
|
Amortization of
deferred acquisition costs
|
|
277.1
|
|
244.0
|
|
809.3
|
|
728.5
|
|
Interest
expense
|
|
8.5
|
|
8.5
|
|
25.5
|
|
25.5
|
|
Other operating
expenses
|
|
140.6
|
|
135.9
|
|
423.8
|
|
408.4
|
|
Total losses and
expenses
|
|
1,365.8
|
|
1,232.4
|
|
3,831.2
|
|
3,532.8
|
|
Income from continuing
operations before income taxes
|
|
0.5
|
|
42.5
|
|
158.7
|
|
316.5
|
|
Income tax expense
(benefit)
|
|
(0.1)
|
|
7.7
|
|
30.0
|
|
59.3
|
|
Income from continuing
operations
|
|
0.6
|
|
34.8
|
|
128.7
|
|
257.2
|
|
Discontinued
operations (net of taxes):
|
|
|
|
|
|
|
|
|
|
Loss from discontinued
life businesses
|
|
(0.4)
|
|
(0.8)
|
|
(1.1)
|
|
(2.0)
|
|
Net income
|
|
$0.2
|
|
$34.0
|
|
$127.6
|
|
$255.2
|
|
The Hanover Insurance Group,
Inc.
|
|
|
|
|
|
Condensed Consolidated Balance
Sheets
|
|
|
|
|
|
|
|
September 30
|
|
December 31
|
|
($ in millions)
|
|
2022
|
|
2021
|
|
Assets
|
|
|
|
|
|
Total
investments
|
|
$8,394.1
|
|
$9,152.6
|
|
Cash and cash
equivalents
|
|
164.8
|
|
230.9
|
|
Premiums and accounts
receivable, net
|
|
1,623.8
|
|
1,469.5
|
|
Reinsurance
recoverable on paid and unpaid losses and unearned
premiums
|
|
1,945.8
|
|
1,907.3
|
|
Other
assets
|
|
1,521.2
|
|
1,386.9
|
|
Assets of discontinued
businesses
|
|
96.2
|
|
107.1
|
|
Total
assets
|
|
$13,745.9
|
|
$14,254.3
|
|
Liabilities
|
|
|
|
|
|
Loss and loss
adjustment expense reserves
|
|
$6,774.0
|
|
$6,447.6
|
|
Unearned
premiums
|
|
2,971.5
|
|
2,734.9
|
|
Debt
|
|
782.2
|
|
781.6
|
|
Other
liabilities
|
|
801.8
|
|
1,023.6
|
|
Liabilities of
discontinued businesses
|
|
120.5
|
|
121.7
|
|
Total
liabilities
|
|
11,450.0
|
|
11,109.4
|
|
Total shareholders' equity
|
|
2,295.9
|
|
3,144.9
|
|
Total liabilities and shareholders'
equity
|
|
$13,745.9
|
|
$14,254.3
|
|
The following is a reconciliation from operating income to net
income(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Hanover
Insurance Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30
|
|
Nine months ended
September 30
|
|
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
($ in millions,
except per share data)
|
|
$
Amount
|
|
Per Share
(Diluted)
|
$
Amount
|
|
Per Share
(Diluted)
|
|
$
Amount
|
|
Per Share
(Diluted)
|
|
$
Amount
|
|
Per Share
(Diluted)
|
|
Operating income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
Commercial
|
|
$25.2
|
|
|
|
$11.0
|
|
|
|
$159.6
|
|
|
|
$66.1
|
|
|
|
Specialty
|
|
46.9
|
|
|
|
31.4
|
|
|
|
142.1
|
|
|
|
82.9
|
|
|
|
Personal
Lines
|
|
(18.8)
|
|
|
|
3.6
|
|
|
|
20.3
|
|
|
|
117.6
|
|
|
|
Other
|
|
0.6
|
|
|
|
1.0
|
|
|
|
1.3
|
|
|
|
2.8
|
|
|
|
Total
|
|
53.9
|
|
|
|
47.0
|
|
|
|
323.3
|
|
|
|
269.4
|
|
|
|
Interest
expense
|
|
(8.5)
|
|
|
|
(8.5)
|
|
|
|
(25.5)
|
|
|
|
(25.5)
|
|
|
|
Operating income
before income taxes
|
|
45.4
|
|
$1.26
|
|
38.5
|
|
$1.06
|
|
297.8
|
|
$8.24
|
|
243.9
|
|
$6.68
|
|
Income tax expense on
operating income
|
|
(9.7)
|
|
(0.27)
|
|
(7.7)
|
|
(0.21)
|
|
(60.5)
|
|
(1.67)
|
|
(47.7)
|
|
(1.31)
|
|
Operating income after
income taxes
|
|
35.7
|
|
0.99
|
|
30.8
|
|
0.85
|
|
237.3
|
|
6.57
|
|
196.2
|
|
5.37
|
|
Non-operating
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains
(losses) from sales and
other
|
|
(0.1)
|
|
-
|
|
3.6
|
|
0.10
|
|
(16.3)
|
|
(0.45)
|
|
6.8
|
|
0.19
|
|
Net change in fair
value of equity securities
|
|
(29.1)
|
|
(0.81)
|
|
0.3
|
|
0.01
|
|
(106.1)
|
|
(2.93)
|
|
65.9
|
|
1.80
|
|
Recoveries
(impairments) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
recoveries (impairments)
|
|
(1.4)
|
|
(0.04)
|
|
0.7
|
|
0.02
|
|
(1.5)
|
|
(0.04)
|
|
0.6
|
|
0.02
|
|
Losses on intent to
sell securities
|
|
(14.3)
|
|
(0.39)
|
|
(0.6)
|
|
(0.02)
|
|
(14.8)
|
|
(0.42)
|
|
(0.7)
|
|
(0.02)
|
|
|
|
(15.7)
|
|
(0.43)
|
|
0.1
|
|
-
|
|
(16.3)
|
|
(0.46)
|
|
(0.1)
|
|
-
|
|
Other non-operating
items
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(0.4)
|
|
(0.01)
|
|
-
|
|
-
|
|
Income tax benefit
(expense) on non-
operating items
|
|
9.8
|
|
0.27
|
|
-
|
|
-
|
|
30.5
|
|
0.84
|
|
(11.6)
|
|
(0.32)
|
|
Income from continuing
operations, net of taxes
|
|
0.6
|
|
0.02
|
|
34.8
|
|
0.96
|
|
128.7
|
|
3.56
|
|
257.2
|
|
7.04
|
|
Discontinued
operations (net of taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued
life businesses
|
|
(0.4)
|
|
(0.01)
|
|
(0.8)
|
|
(0.02)
|
|
(1.1)
|
|
(0.03)
|
|
(2.0)
|
|
(0.06)
|
|
Net income
|
|
$0.2
|
|
$0.01
|
|
$34.0
|
|
$0.94
|
|
$127.6
|
|
$3.53
|
|
$255.2
|
|
$6.98
|
|
Dilutive weighted
average shares outstanding
|
|
|
|
36.1
|
|
|
|
36.3
|
|
|
|
36.1
|
|
|
|
36.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-Looking Statements and Non-GAAP Financial
Measures
Forward-Looking Statements
Certain statements in this document and comments made by
management may be "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995. All statements,
other than statements of historical facts, may be forward-looking
statements. Words such as, but not limited to, "believes,"
"anticipates," "expects," "may," "projects," "projections," "plan,"
"likely," "potential," "targeted," "forecasts," "should," "could,"
"continue," "outlook," "guidance," "modeling," "target
profitability", "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.
These statements include, but are not limited to, the company's
statements regarding:
- The company's outlook and its ability to achieve components or
the sum of the respective period guidance on its future results of
operations including: the combined ratio, excluding catastrophe
losses; catastrophe losses; net investment income; growth of net
premiums written and/or net premiums earned in total or by line of
business; expense ratio; operating return on equity; and/or the
effective tax rate;
- The continued impacts of the global pandemic ("Pandemic") and
related economic conditions on the company's operating and
financial results, including, but not limited to, the impact on the
company's investment portfolio, changes in claims frequency as a
result of fluctuations in economic activity, severity from
higher cost of repairs due to, among other things, supply chain
disruptions, inflation, declines in premium as a result of, among
other things, credits or returns to the company's customers, lower
submissions, changes in renewals and policy endorsements, public
health guidance, recession, and the impact of government orders and
restrictions in the states and jurisdictions in which the company
operates;
- Uses of capital for share repurchases, special or ordinary cash
dividends, business investments or growth, or otherwise, and
outstanding shares in future periods as a result of various share
repurchase mechanisms, capital management framework, especially in
the current environment, and overall comfort with liquidity and
capital levels;
- Variability of catastrophe losses due to risk concentrations,
changes in weather patterns including climate change, wildfires,
severe storms, hurricanes, terrorism, civil unrest, riots or other
events, as well as the complexity in estimating losses from large
catastrophe events due to delayed reporting of the existence,
nature or extent of losses or where "demand surge," regulatory
assessments, litigation, coverage and technical complexities or
other factors may significantly impact the ultimate amount of such
losses;
- Current accident year losses and loss selections ("picks"),
excluding catastrophes, and prior accident year loss reserve
development patterns, particularly in complex "longer-tail"
liability lines, as well as the inherent variability in short-tail
property and non-catastrophe weather losses;
- Changes in frequency and loss severity trends;
- Ability to manage the impact of inflationary pressures, as a
result of the Pandemic, global market disruptions, geopolitical
events or otherwise, including, but not limited to, supply chain
disruptions, labor shortages, and increases in cost of goods,
services, labor, and materials;
- The confidence or concern that the current level of reserves is
adequate and/or sufficient for future claim payments, whether due
to losses that have been incurred but not reported, circumstances
that delay the reporting of losses, business complexity, adverse
judgments or developments with respect to case reserves, the
difficulties and uncertainties inherent in projecting future losses
from historical data, changes in replacement and medical costs, as
well as complexities related to the Pandemic, including
legislative, regulatory or judicial actions that expand the
intended scope of coverages, or other factors;
- Characterization of some business as being "more profitable" in
light of inherent uncertainty of ultimate losses incurred,
especially for "longer-tail" liability businesses;
- Efforts to manage expenses, including the company's long-term
expense savings targets, while allocating capital to business
investment, which is at management's discretion;
- Risks and uncertainties with respect to our ability to retain
profitable policies in force and attract profitable policies and to
increase rates commensurate with, or in excess of, loss
trends;
- Mix improvement, underwriting initiatives, coverage
restrictions and pricing segmentation actions, among others, to
grow businesses believed to be more profitable or reduce premiums
attributable to products or lines of business believed to be less
profitable; balance rate actions and retention; offset long-term
and/or short-term loss trends due to increased frequency; increased
"social inflation" from a more litigious environment and higher
average cost of resolution, increased property replacement costs,
and/or social movements;
- The ability to generate growth in targeted segments through new
agency appointments; rate increases (as a result of its market
position, agency relationships or otherwise), retention
improvements or new business; expansion into new geographies; new
product introductions; or otherwise; and
- Investment returns and the effect of macro-economic interest
rate trends and overall security yields, including the
macro-economic impact of the Pandemic, inflationary pressures and
corresponding governmental and/or central banking initiatives taken
in response thereto, and geopolitical circumstances on new money
yields and overall investment returns.
Additional Risks and Uncertainties
Investors are further cautioned and should consider the risks
and uncertainties in the company's business that may affect such
estimates and future performance that are discussed in the
company's most recently filed reports on Form 10-K and Form 10-Q
and other documents filed by The Hanover Insurance Group, Inc. with
the Securities and Exchange Commission ("SEC") and that are also
available at www.hanover.com under "Investors." These risks and
uncertainties include, but are not limited to:
- The severity, duration and long-term impact related to the
Pandemic, including, but not limited to, actual and possible
government responses, legislative, regulatory and judicial actions,
changes in frequency and severity of claims in Core Commercial,
Specialty and/or Personal Lines, impacts to distributors (including
agent partners), and the possibility of additional premium
adjustments, including credits and returns, for the benefit of
insureds;
- Changes in regulatory, legislative, economic, market and
political conditions, particularly with respect to rates, policy
terms and conditions, payment flexibility, and regions where the
company has geographical concentrations;
- Heightened volatility, fluctuations in interest rates (which
have a significant impact on the market value of our investment
portfolio and thus our book value), inflationary pressures, default
rates and other factors that affect investment returns from the
investment portfolio;
- Recessionary economic periods that may inhibit the company's
ability to increase pricing or renew business, or otherwise impact
the company's results, and which may be accompanied by higher
claims activity in certain lines;
- Data security incidents, including, but not limited to, those
resulting from a malicious cyber security attack on the company or
its business partners and service providers, or intrusions into the
company's systems, including cloud-based data storge, or data
sources;
- Adverse claims experience, including those driven by large or
increased frequency of catastrophe events (including those related
to terrorism, riots and civil unrest), and severe weather;
- The uncertainty in estimating weather-related losses or the
long-term impacts of the Pandemic, and the limitations and
assumptions used to model other property and casualty losses
(particularly with respect to products with longer-tail liability
lines, such as casualty and bodily injury claims, or involving
emerging issues related to losses incurred as the result of new
lines of business, such as cyber or financial institutions
coverage, or reinsurance contracts and reinsurance recoverables),
leading to potential adverse development of loss and loss
adjustment expense reserves;
- Changes in weather patterns, whether as a result of global
climate change, or otherwise;
- Litigation and the possibility of adverse judicial decisions,
including those which expand policy coverage beyond its intended
scope and/or award "bad faith" or other non-contractual damages,
and the impact of "social inflation" affecting judicial awards and
settlements;
- The ability to increase or maintain insurance rates in line
with anticipated loss costs and/or governmental action, including
mandates by state departments of insurance to either raise or lower
rates or provide credits or return premium to insureds;
- Investment impairments, which may be affected by, among other
things, the company's ability and willingness to hold investment
assets until they recover in value, as well as credit and interest
rate risk, and general financial and economic conditions;
- Disruption of the independent agency channel, including the
impact of competition and consolidation in the industry and among
agents and brokers;
- Competition, particularly from competitors who have resource
and capability advantages;
- The global macroeconomic environment, including actions taken
in response to the Pandemic, inflation, global trade disputes, war,
energy market disruptions, equity price risk, and interest rate
fluctuations, which, among other things, could result in reductions
in market values of fixed maturities and other investments;
- Adverse state and federal regulation, legislative and/or
regulatory actions (including recent significant revisions to
Michigan's automobile personal
injury protection system and related litigation, and various
regulations, orders and proposed legislation related to business
interruption and workers' compensation coverages, premium grace
periods and returns, and rate actions);
- Financial ratings actions, in particular, downgrades to the
company's ratings;
- Operational and technology risks and evolving technological and
product innovation, including risks created by remote work
environments, and the risk of cyber-security attacks on or breaches
of the company's systems and/or impacting our outsourcing
relationships and third-party operations, or resulting in claim
payments (including from products not intended to provide cyber
coverage);
- Uncertainties in estimating indemnification liabilities
recorded in conjunction with obligations undertaken in connection
with the sale of various businesses and discontinued operations;
and
- The ability to collect from reinsurers, reinsurance pricing,
reinsurance terms and conditions, and the performance of the
run-off voluntary property and casualty pools business (including
those in the Other segment or in discontinued operations).
Investors should not place undue reliance on forward-looking
statements, which speak only as of the date they are made, and
should understand the risks and uncertainties inherent in or
particular to the company's business. The company does not
undertake the responsibility to update or revise such
forward-looking statements, except as required by law.
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.
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 prior-year reserve development should not
be misconstrued as substitutes for income from continuing
operations or net income determined in accordance with GAAP. A
reconciliation of operating income to income from continuing
operations and net income for the relevant periods is included on
page 10 of this news release and in the Financial Supplement.
Operating return on average equity ("ROE") is a non-GAAP
measure. See end note (5) for a detailed explanation of how this
measure is calculated. Operating ROE is based on non-GAAP operating
income. In addition, the portion of shareholder equity attributed
to unrealized appreciation (depreciation) on fixed maturity
investments, net of tax, is excluded. The company believes this
measure is helpful in that it provides insight to the capital used
by, and results of, the continuing business exclusive of interest
expense, income taxes, and other non-operating items. These
measures should not be misconstrued as substitutes for GAAP ROE,
which is based on net income and shareholders' equity of the entire
company and without adjustments.
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 prior-year reserve development. The presentation of loss and
combined ratios calculated excluding the effects of catastrophe
losses and/or prior-year reserve development should not be
misconstrued as substitutes for the loss and/or combined ratios
determined in accordance with GAAP.
Endnotes
(1)
|
Combined ratio,
excluding catastrophes, and current accident year combined ratio,
excluding catastrophes, are non-GAAP measures. The combined ratio
(which includes catastrophe losses and prior-year loss reserve
development) is the most directly comparable GAAP measure. This and
other non-GAAP measures are used throughout this document. See the
disclosure on the use of this and other non-GAAP measures under the
heading "Forward-Looking Statements and Non-GAAP Financial
Measures." A reconciliation of the GAAP combined ratio to the
combined ratio, excluding catastrophes, and to the current accident
year combined ratio, excluding catastrophes, is shown on the
following page.
|
|
|
|
Three months
ended
|
|
|
|
|
September 30,
2022
|
|
|
|
|
Core
Commercial
|
|
Specialty
|
|
Personal
Lines
|
|
Total
|
|
|
Total combined ratio
(GAAP)
|
|
101.3 %
|
|
89.2 %
|
|
107.3 %
|
|
101.0 %
|
|
|
Less: Catastrophe
ratio
|
|
6.6 %
|
|
2.8 %
|
|
9.1 %
|
|
6.8 %
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
94.7 %
|
|
86.4 %
|
|
98.2 %
|
|
94.2 %
|
|
|
Less: Prior-year
reserve development ratio
|
|
0.3 %
|
|
(1.7) %
|
|
-
|
|
(0.3) %
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
94.4 %
|
|
88.1 %
|
|
98.2 %
|
|
94.5 %
|
|
|
|
|
September 30,
2021
|
|
|
Total combined ratio
(GAAP)
|
|
105.4 %
|
|
93.2 %
|
|
103.8 %
|
|
102.3 %
|
|
|
Less: Catastrophe
ratio
|
|
12.3 %
|
|
7.7 %
|
|
16.1 %
|
|
12.9 %
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
93.1 %
|
|
85.5 %
|
|
87.7 %
|
|
89.4 %
|
|
|
Less: Prior-year
reserve development ratio
|
|
(0.7) %
|
|
(3.4) %
|
|
(2.0) %
|
|
(1.8) %
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
93.8 %
|
|
88.9 %
|
|
89.7 %
|
|
91.2 %
|
|
|
|
|
|
|
|
|
|
Nine months
ended
|
|
|
|
|
September 30,
2022
|
|
|
|
|
Core
Commercial
|
Specialty
|
Personal
Lines
|
Total
|
|
Total combined ratio
(GAAP)
|
|
95.8 %
|
|
88.8 %
|
|
102.6 %
|
|
97.0 %
|
|
|
Less: Catastrophe
ratio
|
|
4.8 %
|
|
2.6 %
|
|
7.7 %
|
|
5.5 %
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
91.0 %
|
|
86.2 %
|
|
94.9 %
|
|
91.5 %
|
|
|
Less: Prior-year
reserve development ratio
|
|
(0.5) %
|
|
(2.2) %
|
|
0.5 %
|
|
(0.5) %
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
91.5 %
|
|
88.4 %
|
|
94.4 %
|
|
92.0 %
|
|
|
|
|
September 30,
2021
|
|
|
Total combined ratio
(GAAP)
|
|
103.0 %
|
|
94.8 %
|
|
96.2 %
|
|
98.5 %
|
|
|
Less: Catastrophe
ratio
|
|
12.3 %
|
|
6.3 %
|
|
10.6 %
|
|
10.3 %
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
90.7 %
|
|
88.5 %
|
|
85.6 %
|
|
88.2 %
|
|
|
Less: Prior-year
reserve development ratio
|
|
(0.8) %
|
|
(1.6) %
|
|
(1.4) %
|
|
(1.2) %
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
91.5 %
|
|
90.1 %
|
|
87.0 %
|
|
89.4 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
Renewal price changes
in Core Commercial and Specialty represent the average change in
premium on renewed policies caused by the estimated net effect of
base rate changes, discretionary pricing, inflation or changes in
policy level exposure or insured risks. Rate increases in Core
Commercial and Specialty represent the average change in premium on
renewed policies caused by the base rate changes, discretionary
pricing, and inflation, excluding the impact of changes in policy
level exposure or insured risks. Renewal price change in Personal
Lines represents the average change in premium on policies
available to renew caused by the net effects of filed rate,
inflation adjustments or other changes in policy level exposure or
insured risks, regardless of whether or not the policies are
retained for the duration of their contractual terms. Rate change
in Personal Lines is the estimated cumulative premium effect of
approved rate actions applied to policies available for renewal,
regardless of whether or not policies are actually renewed.
Accordingly, rate changes do not represent actual increases or
decreases realized by the company. Personal Lines rate changes do
not include inflation or changes in policy level exposure or
insured risks.
|
|
|
(3)
|
Current accident year
loss and LAE ratio, excluding catastrophe losses, 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 catastrophe losses,
is shown on the following page.
|
|
|
|
Three months
ended
|
|
|
|
|
September 30,
2022
|
|
|
|
|
Core
Commercial
|
|
Specialty
|
|
Personal
Lines
|
|
Total
|
|
|
Total loss and LAE
ratio
|
|
68.6 %
|
|
54.7 %
|
|
81.4 %
|
|
70.6 %
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
0.3 %
|
|
(1.7) %
|
|
-
|
|
(0.3) %
|
|
|
Catastrophe
ratio
|
|
6.6 %
|
|
2.8 %
|
|
9.1 %
|
|
6.8 %
|
|
|
Current accident year
loss and LAE ratio, excluding
catastrophes
|
|
61.7 %
|
|
53.6 %
|
|
72.3 %
|
|
64.1 %
|
|
|
|
|
September 30,
2021
|
|
|
Total loss and LAE
ratio
|
|
72.8 %
|
|
57.0 %
|
|
76.5 %
|
|
71.2 %
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(0.7) %
|
|
(3.4) %
|
|
(2.0) %
|
|
(1.8) %
|
|
|
Catastrophe
ratio
|
|
12.3 %
|
|
7.7 %
|
|
16.1 %
|
|
12.9 %
|
|
|
Current accident year
loss and LAE ratio, excluding
catastrophes
|
|
61.2 %
|
|
52.7 %
|
|
62.4 %
|
|
60.1 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended
|
|
|
|
|
September 30,
2022
|
|
|
|
|
Core
Commercial
|
|
Specialty
|
|
Personal
Lines
|
|
Total
|
|
|
Total loss and LAE
ratio
|
|
63.1 %
|
|
53.7 %
|
|
76.0 %
|
|
66.2 %
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(0.5) %
|
|
(2.2) %
|
|
0.5 %
|
|
(0.5) %
|
|
|
Catastrophe
ratio
|
|
4.8 %
|
|
2.6 %
|
|
7.7 %
|
|
5.5 %
|
|
|
Current accident year
loss and LAE ratio, excluding catastrophes
|
|
58.8 %
|
|
53.3 %
|
|
67.8 %
|
|
61.2 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
Total loss and LAE
ratio
|
|
70.4 %
|
|
59.1 %
|
|
68.4 %
|
|
67.2 %
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(0.8) %
|
|
(1.6) %
|
|
(1.4) %
|
|
(1.2) %
|
|
|
Catastrophe
ratio
|
|
12.3 %
|
|
6.3 %
|
|
10.6 %
|
|
10.3 %
|
|
|
Current accident year
loss and LAE ratio, excluding
catastrophes
|
|
58.9 %
|
|
54.4 %
|
|
59.2 %
|
|
58.1 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4)
|
Operating income and
operating income per diluted share are non-GAAP measures. Operating
income (loss) before income taxes, as referenced in the results of
the business segments, is defined as, with respect to such segment,
operating income (loss) before interest expense and income taxes.
The reconciliation of operating income and operating income per
diluted share to the closest GAAP measures, income from continuing
operations and income from continuing operations per diluted share,
respectively, is provided on the preceding pages of this news
release.
|
|
|
(5)
|
Operating return on
average equity ("operating ROE") is a non-GAAP measure. Operating
ROE is calculated by dividing annualized operating income after tax
for the applicable period (see under the heading in this news
release "Non-GAAP Financial Measures" and end note (4)), by average
shareholders' equity, excluding unrealized appreciation
(depreciation) on fixed maturity investments, net of tax, for the
period presented. Total shareholders' equity, excluding net
unrealized appreciation (depreciation) on fixed maturity
investments, net of tax, is also a non-GAAP measure. Total
shareholders' equity is the most directly comparable GAAP measure,
and is reconciled below. For the calculation of operating ROE, the
average of beginning and ending shareholders' equity, excluding net
unrealized appreciation (depreciation) on fixed maturity
investments, net of tax, is used for the period as shown and
reconciled in the table below.
|
|
|
Period Ended
|
|
|
|
|
|
($ in
millions)
|
|
September 30
|
|
December 31
|
|
March 31
|
|
June 30
|
|
September 30
|
|
|
|
|
2021
|
|
2021
|
|
2022
|
|
2022
|
|
2022
|
|
|
Total shareholders'
equity (GAAP)
|
|
$3,102.3
|
|
$3,144.9
|
|
$2,832.8
|
|
$2,571.8
|
|
$2,295.9
|
|
|
Less: net unrealized
appreciation (depreciation)
on fixed maturity
investments, net of tax
|
|
256.8
|
|
184.9
|
|
(195.0)
|
|
(459.4)
|
|
(706.7)
|
|
|
Total shareholders'
equity, excluding net
unrealized appreciation
(depreciation)
on fixed maturity
investments, net of tax
|
|
$2,845.5
|
|
$2,960.0
|
|
$3,027.8
|
|
$3,031.2
|
|
$3,002.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Averages
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders'
equity (GAAP)
|
|
|
|
|
|
|
|
|
|
$2,433.9
|
|
|
Average shareholders'
equity, excluding net
unrealized appreciation
(depreciation) on
fixed maturity investments,
net of tax
|
|
|
|
|
|
|
|
|
|
$3,016.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date
Averages
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders'
equity (GAAP)
|
|
|
|
|
|
|
|
|
|
$2,711.4
|
|
|
Average shareholders'
equity, excluding net
unrealized appreciation
(depreciation) on
fixed maturity investments,
net of tax
|
|
|
|
|
|
|
|
|
|
$3,005.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in
millions)
|
Three months
ended
|
|
Nine months
ended
|
|
|
|
|
September 30
|
|
|
September 30
|
|
|
Net Income
ROE
|
|
2022
|
|
|
2022
|
|
|
Net income
(GAAP)
|
|
$0.2
|
|
|
$127.6
|
|
Annualized net
income*
|
|
0.8
|
|
|
170.1
|
|
|
Average shareholders'
equity (GAAP)
|
|
$2,433.9
|
|
|
$2,711.4
|
|
|
Return on
equity
|
|
-
|
|
|
6.3 %
|
|
Operating Income ROE
(non-GAAP)
|
|
|
|
|
|
|
Operating income after
income taxes
|
|
$35.7
|
|
|
$237.3
|
|
|
Annualized operating
income, net of tax*
|
|
142.8
|
|
|
316.4
|
|
|
Average shareholders'
equity, excluding net
unrealized appreciation (depreciation) on
fixed
maturity investments, net of tax
|
|
$3,016.9
|
|
|
$3,005.4
|
|
|
Operating return on
equity
|
|
4.7 %
|
|
|
10.5 %
|
|
|
|
|
|
|
|
|
|
|
*For three months ended
September 30, 2022, annualized net income and operating income
after income taxes is calculated by multiplying three months ended
net income and operating income after income taxes, respectively,
by 4. For nine months ended September 30, 2022, annualized net
income and operating income after income taxes is calculated by
dividing nine months ended net income and operating income after
income taxes, respectively, by 3 and multiplying by 4.
|
|
|
(6)
|
Here, and later in this
document, the expense ratio is reduced by installment and other fee
revenues for purposes of the ratio calculation.
|
|
|
(7)
|
The separate financial
information of each operating segment is presented consistent with
the way results are regularly evaluated by the chief operating
decision maker in deciding how to allocate resources and in
assessing performance. Management evaluates the results of the
aforementioned operating segments without consideration of interest
expense on debt and on a pre-tax basis.
|
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SOURCE The Hanover Insurance Group, Inc.