Worcester, MA – The Hanover Insurance Group, Inc. (NYSE: THG) recently reported net income of $78.4 million, or $1.83 per diluted share, for the second quarter of 2017, compared to net income of $2.0 million, or $0.05 per diluted share, in the prior-year quarter, which included a non-operating charge of $56.0 million, net of tax, on the retirement of debt. Operating income was $72.3 million, or $1.69 per diluted share, for the second quarter of 2017, compared to $54.0 million, or $1.24 per diluted share, in the prior-year quarter.
Second Quarter Highlights
- Combined ratio, excluding catastrophes (3), of 90.8%, an improvement of 2.0 points over the prior-year quarter
- Catastrophe losses of $57.1 million before taxes, or 4.8% of earned premiums, primarily in Commercial Lines
- Net premiums written of $1.3 billion; up 4.4%, driven primarily by growth in Personal Lines
- Continued price increases in Commercial and Personal Lines
- Net investment income of $72.3 million, up 4.6% compared to the prior-year quarter
- Book value per share of $70.18, up 2.5% from the first quarter of 2017; book value per share, excluding net unrealized gains on investments (4), of $64.87, up 2.0%
- Repurchased approximately 275,000 shares of common stock for $23.4 million
- Initiated expense actions to generate annualized pre-tax savings of approximately $50 million to accelerate strategic expense leverage initiative and to reinvest in the business
“We are very pleased with our performance in the quarter,” said Joseph M. Zubretsky, president and chief executive officer at The Hanover. “Our results continue to be in line with our long-term strategic plan. We delivered a 95.6% combined ratio, mid-single digit growth in most of our segments, and a solid 10.6 percent operating return on equity. We continued to demonstrate excellent underwriting discipline, while leveraging our deep agency relationships, growing our market share with our partners and delivering solid top-line growth.”
“We also advanced our Hanover 2021 strategy in the quarter,” Zubretsky said, “We realigned our leadership team, expanded Chaucer’s capabilities globally, and accelerated our margin expansion strategy through announced cost actions. These initiatives are critical to our success. They sharpen our organizational focus, broaden our business capabilities, and create financial flexibility that enables us to reinvest in our business and increase shareholder returns.”
“Our combined ratio of 95.6% in the quarter was a notable improvement over the prior-year quarter, on comparable catastrophe losses,” said Jeffrey M. Farber, executive vice president and chief financial officer. “All our businesses produced solid results in both current and prior-year loss performance. We are also pleased with top-line growth, which is coming from segments in which we achieved price adequacy and strong profitability, particularly Small Commercial and Personal Lines. Book value per share was up 2.5% in the quarter, as we remained focused on delivering shareholder value.”
Second Quarter Operating Highlights
Commercial Lines operating income before taxes was $43.2 million, compared to $44.0 million in the second quarter of 2016. The Commercial Lines combined ratio was 99.4%, compared to 98.9% in the prior-year quarter. Catastrophe losses were $42.6 million, or 7.2 points of the combined ratio, compared to $25.9 million, or 4.5 points, in the prior-year quarter. Second quarter 2017 results included no impact from prior-year loss reserve development, compared to net unfavorable prior-year loss reserve development of $22.1 million, or 3.8 points, in the second quarter of 2016.
Commercial Lines current accident year combined ratio, excluding catastrophe losses(5), increased by 1.6 points to 92.2%, compared to 90.6% in the prior-year quarter. The increase was primarily due to large loss activity and related ratio impact of reinstatement premiums, in particular due to one large fire loss in the inland marine line within Other Commercial. The expense ratio improved by 0.7 points in the second quarter of 2017. This improvement was driven by growth leverage and operating efficiencies.
Net premiums written were $591.6 million in the quarter, up 2.0% from the prior-year quarter and 3.4% excluding the adverse impact of the aforementioned reinstatement premiums. The increase in net premiums written was driven by continued pricing increases and strong retention. Core commercial(6) business pricing increases averaged 3.7% for the second quarter.
The complete results release is available here: The Hanover Second Quarter 2017 Results