Worcester, MA – The Hanover Insurance Group, Inc. (NYSE: THG) recently 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.”
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
The complete results release is available here: The Hanover Third Quarter 2022 Results
Source: The Hanover