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Summary of The Hanover Insurance Group Conference Call Company Overview - The Hanover Insurance Group is a property and casualty underwriter with approximately $6.5 billion in revenue, distinguished by its unique agency partnership model and a diverse set of specialized products [2][4] - The company has a workforce of around 5,000 and operates nationally in Commercial Lines and regionally in Personal Lines [2] Financial Performance - The company reported record earnings and is optimistic about entering 2026 with strong earnings potential [2] - The net investment income (NII) has become a significant driver of earnings, with a return on equity (ROE) exceeding 20% in 2025 [25][26] - The company anticipates mid to upper single-digit growth in NII, which provides stability to the income statement [26] Market Conditions and Growth Strategy - The insurance market is experiencing growth pressures due to soft market cyclicality, but Hanover aims to leverage its profitability to pursue growth opportunities, particularly in specialty and small commercial lines [3][4][5] - The company is focused on expanding its agent relationships, with plans to court around 200 new agents in 2026, particularly in small and personal lines [15] - Hanover has a selective approach to partnerships, ensuring that they work with agents that align with their risk appetite and business model [11][12] Agency Market Dynamics - There are approximately 35,000 insurance agents in the U.S., with ongoing consolidation in the industry [10] - Hanover has strong relationships with both large consolidators and smaller independent agents, allowing for a diverse distribution strategy [12][13] - The company is adapting to the evolving agency landscape, including engaging with networks of independent agents [12] Technology and Innovation - The company sees significant opportunities in leveraging technology, such as large language models, to enhance agency operations and customer service [17][18] - There is a recognition of the complexity in replacing existing agency infrastructure with new technology, which may take time [19] Risk Management and Claims - The company has implemented a $2,500 all-peril deductible for most homeowners, which has affected the nature of claims being filed [40] - The average claim size has increased, indicating a shift in the types of claims being processed [43] - Hanover is cautious about its exposure to catastrophic risks and is focused on managing its portfolio to avoid significant losses [54][55] Industry Outlook - The commercial lines market is currently experiencing high margins, but there is skepticism about sustainability [28][29] - The company emphasizes the importance of a diversified product offering to navigate market fluctuations and avoid being overly reliant on any single segment [34][35] - Legal system abuse and social inflation remain concerns for the industry, impacting claims severity [48][49] Conclusion - The Hanover Insurance Group is positioned to capitalize on growth opportunities in a challenging market environment, leveraging its strong agency relationships, technological advancements, and disciplined risk management strategies to sustain profitability and navigate future challenges [4][5][25][54]

Core Insights - The Hanover Insurance Group, Inc. raised over $1.5 million through its annual employee giving campaign to support various nonprofit organizations across the United States [1][2] - In 2025, 82% of the company's employees participated in the campaign, contributing to over 2,000 nonprofits in 2026 [2][3] - The campaign reflects the company's culture of community support and commitment to making a meaningful difference in the lives of individuals and families [3] Company Overview - The Hanover Insurance Group, Inc. is a holding company for several property and casualty insurance companies, making it one of the largest insurance businesses in the United States [4] - The company provides insurance solutions through a network of independent agents and brokers, offering both standard and specialized insurance protection for small and mid-sized businesses, as well as personal items [4]

Financial Data and Key Metrics Changes - The company achieved a record fourth quarter with an operating return on equity of 23.1%, and a full-year combined ratio of 91.6%, improving over three points year-over-year [21][22] - The full-year operating return on equity reached an all-time high of 20%, with record annual operating earnings per share [8][21] - The expense ratio for the year improved by 20 basis points to 31.1%, driven by higher variable agency and employee compensation [22][32] Business Line Data and Key Metrics Changes - Personal Lines net written premium growth increased to 4.4% in the fourth quarter, with full-year growth of 3.7%, primarily driven by pricing [10][24] - Core Commercial net written premiums grew 3.6% for the year and 2.5% in the quarter, led by Small Commercial with double-digit new business growth [28][30] - Specialty segment premium growth moderated to approximately 4% in the fourth quarter, reflecting competitive pressure across property lines [17][30] Market Data and Key Metrics Changes - The company reported strong retention rates in Personal Lines, with retention remaining stable, indicating strong customer loyalty [10][24] - In the Core Commercial segment, overall retention improved to 85.3%, up nearly a point from the previous quarter [30] - The competitive environment in Middle Market is heating up, particularly in larger property schedules, but opportunities remain in sectors like human services [62] Company Strategy and Development Direction - The company is focused on disciplined execution and strong engagement across the enterprise, prioritizing profitability and quality risk selection [6][7] - Investments are being made to enhance product and service capabilities, technology, and agency partnerships to sharpen competitive edge [8][19] - The company aims to achieve mid-single-digit growth in net written premiums for 2026, with a combined ratio excluding catastrophes expected to be in the range of 88%-89% [35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to sustain strong margins despite competitive pressures and changing market conditions [10][19] - The company is well-positioned to capitalize on opportunities in any market environment, driving sustainable growth and profitability [8][19] - Management noted that liability severity trends are stabilizing, and they are being prudent with reserving strategies in a litigious environment [58][59] Other Important Information - The company raised its quarterly dividend by 5.6% to $0.95 per share, marking the 21st consecutive year of dividend increases [34] - The investment portfolio saw a 24.9% increase in net investment income in the fourth quarter, reflecting growth in the asset base and higher reinvestment yields [32][33] - The company repurchased approximately 307,000 shares totaling $55 million in the fourth quarter, continuing its commitment to responsible capital management [34][73] Q&A Session Summary Question: Adjustments to auto liability severity - Management confirmed that adjustments were made to personal auto liability reserves due to increased severity [40] Question: Changes in agency partner approach in a softer pricing environment - Management indicated that dialogue with top agents is increasing, focusing on strategic partnerships and operational efficiency [41][42] Question: Non-CAT property benefits in homeowners - Management noted that favorable weather and pricing above loss trends contributed to improved margins, but specific benefits were difficult to quantify [50] Question: Competitive dynamics in Middle Market commercial - Management acknowledged heightened competition in larger property schedules but emphasized opportunities in specific sectors like human services [62] Question: Future CAT load management - Management stated that while they aim to reduce CAT exposure, they will remain conservative in their approach to modeling and managing CAT loads [64][66]

Financial Data and Key Metrics Changes - The company achieved a record fourth quarter with operating return on equity of 23.1% and a combined ratio of 89%, marking significant improvements from previous periods [21][22] - Full-year combined ratio improved over 3 points year-over-year to 91.6%, with a notable ex-catastrophe combined ratio of 87.1% [21][22] - Net investment income increased by 24.9% in the fourth quarter and 22% for the year, totaling $454.4 million [31][32] Business Line Data and Key Metrics Changes - Personal Lines net written premium growth increased to 4.4% in the fourth quarter and 3.7% for the full year, driven primarily by pricing [10][24] - Core Commercial segment net written premiums grew 3.6% for the year and 2.5% in the quarter, with small commercial showing double-digit new business growth [28][12] - Specialty segment premium growth moderated to approximately 4% in the fourth quarter, impacted by competitive pressure across property lines [17][30] Market Data and Key Metrics Changes - The company reported strong retention rates across its business lines, with Personal Lines retention remaining stable and Core Commercial retention at 85.3% [10][30] - The competitive environment in the middle market is heating up, particularly in liability lines, while certain sectors like human services face challenges in market access [62] Company Strategy and Development Direction - The company is focused on disciplined execution and operational excellence, prioritizing profitability and quality risk selection in competitive markets [6][7] - Investments are being made to enhance product and service capabilities, technology, and agency partnerships to sharpen competitive edge and drive sustainable growth [8][19] - The company aims to achieve mid-single-digit net written premium growth in 2026, with a combined ratio excluding catastrophes targeted between 88%-89% [35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to sustain strong margins despite competitive pressures and changing market conditions [10][11] - The outlook for 2026 includes expectations for continued growth momentum in small commercial and a focus on high-margin segments in the middle market [15][19] - Management noted that liability severity trends are stabilizing, with a focus on prudent reserving strategies to navigate the litigious environment [58][59] Other Important Information - The company raised its quarterly dividend by 5.6% to $0.95 per share, marking the 21st consecutive year of dividend increases [34] - Share buybacks totaled approximately $130 million during 2025, with continued commitment to responsible capital management [34][73] Q&A Session Summary Question: Adjustments to current year for auto BI severity - Management confirmed that adjustments were made for personal auto liability, with a strong balance sheet maintained [40] Question: Changes in approach to agency partners in a softer pricing environment - Management indicated that dialogue with top agents is increasing, focusing on strategic partnerships and operational efficiency [41][42] Question: Non-cat property benefits in homeowners - Management noted that various factors, including pricing and favorable weather, contributed to improvements, but specific quantification was challenging [50] Question: Competitive dynamics in middle market commercial - Management acknowledged heightened competition in certain sectors but emphasized their strong positioning and focus on low to mid-size accounts [62] Question: Future capital management and stock buybacks - Management expressed a balanced approach to capital allocation, with continued stock buybacks playing a significant role [73]

Financial Data and Key Metrics Changes - The company achieved a record fourth quarter with an operating return on equity of 23.1% and a combined ratio of 89%, improving over 3 points year-over-year [19][20] - Full-year combined ratio was 91.6%, with an underlying loss ratio improving to 57.1% [19][23] - Net investment income increased by 24.9% in the fourth quarter and 22% for the year, totaling $454.4 million [30] Business Line Data and Key Metrics Changes - Personal Lines net written premium growth increased to 4.4% in the fourth quarter, with full-year growth of 3.7% driven primarily by pricing [9][25] - Core Commercial net written premiums grew by 3.6% for the year and 2.5% in the quarter, with small commercial showing double-digit new business growth [27] - Specialty segment premium growth moderated to approximately 4% in the fourth quarter, reflecting competitive pressure across property lines [16][28] Market Data and Key Metrics Changes - The company focused on 11 key states for expansion, where premiums grew approximately 8% in the fourth quarter compared to 3% in other states [9] - The competitive environment in the middle market is heating up, particularly in liability lines, while the property market is expected to stabilize [60] Company Strategy and Development Direction - The company is investing in technology, agency partnerships, and talent development to enhance competitive edge and drive sustainable growth [6][18] - The strategy emphasizes disciplined execution and prioritizing profitability over market share in competitive environments [5][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining strong margins despite competitive pressures and anticipated a mid-single-digit growth in net written premiums for 2026 [34] - The company is well-positioned to manage catastrophe loads and maintain profitability through disciplined underwriting and operational excellence [35][62] Other Important Information - The company raised its quarterly dividend by 5.6% to $0.95 per share, marking the 21st consecutive year of dividend increases [33] - The book value increased approximately 27% in 2025, ending the year at $100.90 [32] Q&A Session Summary Question: Adjustments to auto liability severity - Management confirmed that adjustments were made to personal auto liability reserves in response to higher severity [38] Question: Changes in agency partner approach in a softer pricing environment - Management indicated that dialogue with top agents is increasing, focusing on strategic partnerships and data-driven insights [40][42] Question: Non-cat property benefits in homeowners - Management noted that favorable weather and pricing above loss trends contributed to improved margins, but specific benefits were difficult to quantify [47] Question: Competitive dynamics in middle market commercial - Management acknowledged heightened competition in larger property schedules but noted opportunities in specific sectors like human services [60] Question: Future catastrophe management strategies - Management emphasized a focus on earnings volatility and prudent management of catastrophe loads, with ongoing efforts to reduce exposure [61] Question: Stock buyback strategy - Management confirmed a balanced approach to capital allocation, including stock buybacks, dividends, and growth investments [72]

The Hanover Insurance Group, Inc. Fourth Quarter and Full-Year 2025 Results February 3, 2026 Excellent Fourth Quarter and Full-Year 2025 Operating Results Fourth quarter highlights Full-year highlights tax(7), book value per share increased 15.3% (1) See information about this and other non-GAAP measures and definitions used throughout this presentation on the final pages of this document. 2 *Unless otherwise stated, net premiums written growth and other growth comparisons are to the same period of the prio ...

Core Insights - The Hanover Insurance Group reported a record net income of $198.5 million in Q4 2025, an 18.2% increase from $167.9 million in Q4 2024 [1] - For the full year 2025, net income reached $662.5 million, a significant 55.5% increase from $426 million in 2024 [3] Financial Performance - Operating income for Q4 2025 was $210.1 million, an 8% increase from $194.6 million in Q4 2024 [2] - The company generated net premiums written of $1.49 billion in Q4 2025, up 3% from $1.45 billion [2] - Net premiums earned totaled $1.56 billion in Q4 2025, marking a 3% increase from $1.51 billion [2] - For the full year, net premiums written increased 3.9% to $6.32 billion from $6.1 billion, while net premiums earned rose 4.2% to $6.16 billion from $5.91 billion [4] Combined Ratio and Loss Ratios - The combined ratio improved to 89% in Q4 2025 from 89.2%, supported by a lower expense ratio of 31.8% compared to 32.3% [3] - The current accident year loss and loss adjustment expense (LAE) ratio was 56.8% in Q4 2025, slightly down from 56.9% [3] - For the full year, the combined ratio improved to 91.6% from 94.8%, with a loss and LAE ratio of 60.5%, 3.0 points below the prior year [5] Investment Income - Net investment income rose 24.9% to $125.8 million in Q4 2025 and increased 22% to $454.4 million for the full year [3][5] Strategic Positioning - The company achieved a record annual operating return on equity of 20.1% and 23.1% in Q4 2025 [6] - The Hanover's market position in Personal Lines is strong, with approximately 89% of customers holding multiple policies, enhancing retention [6] - The company continues to see attractive opportunities in the small-to-middle-market account segment in Core Commercial [6] Shareholder Returns - The company raised its quarterly dividend by 5.6% to $0.95 per share, marking the 21st consecutive annual increase [7] - A total of $130 million in shares was repurchased over the year, reflecting a balanced, shareholder-focused capital management strategy [7]

Financial Performance - Hanover Insurance Group reported revenue of $1.69 billion for the quarter ended December 2025, reflecting a 4.3% increase year-over-year [1] - The earnings per share (EPS) was $5.79, up from $5.32 in the same quarter last year, representing an EPS surprise of +11.28% against a consensus estimate of $5.20 [1] - The reported revenue was slightly below the Zacks Consensus Estimate of $1.71 billion, resulting in a surprise of -1.46% [1] Key Metrics - Core Commercial Loss and LAE Ratio was 61.9%, better than the three-analyst average estimate of 63.4% [4] - Core Commercial Expense Ratio stood at 34.2%, slightly above the three-analyst average estimate of 33.7% [4] - Core Commercial Combined Ratio was reported at 96.1%, compared to the average estimate of 97% [4] - Specialty Loss and LAE Ratio was 45.8%, outperforming the three-analyst average estimate of 49.7% [4] Revenue Breakdown - Net investment income was $125.8 million, exceeding the average estimate of $116 million, marking a year-over-year increase of +24.9% [4] - Premiums earned totaled $1.56 billion, slightly below the three-analyst average estimate of $1.59 billion, with a year-over-year change of +3% [4] - Core Commercial Net Premiums Earned was $561.5 million, compared to the average estimate of $573.24 million, reflecting a +2.2% year-over-year change [4] - Specialty Net Premiums Earned reached $348.9 million, below the average estimate of $363.58 million, with a +2.8% year-over-year change [4] - Personal Lines Net Premiums Earned was $646.2 million, slightly below the estimated $651 million, representing a +3.7% change year-over-year [4] Investment Performance - Shares of Hanover Insurance have returned -3.3% over the past month, while the Zacks S&P 500 composite increased by +1.8% [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]

Financial Performance - Gross premiums written for Q4 2025 totaled $1,666.6 million, an increase from $1,596.2 million in Q4 2024, representing a growth of 4.4% year-over-year[8] - Net premiums earned for the full year 2025 reached $6,161.1 million, up from $5,912.6 million in 2024, indicating a year-over-year increase of 4.2%[8] - Operating income after taxes for Q4 2025 was $210.1 million, compared to $194.6 million in Q4 2024, reflecting an increase of 7.8%[8] - Net income for the full year 2025 was $662.5 million, a rise from $426.0 million in 2024, marking a significant increase of 55.5%[8] - Total revenues for Q4 2025 were $1,671.8 million, up 5.5% from $1,584.3 million in Q4 2024, and for the full year, total revenues increased by 5.7% to $6,594.4 million from $6,237.4 million[11] - Net income for Q4 2025 was $198.5 million, an 18.2% increase from $167.9 million in Q4 2024, and for the full year, net income rose by 55.5% to $662.5 million from $426.0 million[11] Assets and Equity - Total assets as of December 31, 2025, were $16,945.9 million, up from $15,274.5 million at the end of 2024, showing a growth of 10.9%[8] - Total shareholders' equity increased to $3,571.5 million in Q4 2025, compared to $2,841.8 million in Q4 2024, representing a growth of 25.8%[8] - The book value per share rose to $100.90 in Q4 2025, up from $79.18 in Q4 2024, indicating a year-over-year increase of 27.4%[8] Liabilities and Debt - Total liabilities increased by 7.6% to $13,374.4 million as of December 31, 2025, compared to $12,432.7 million in 2024[13] - Total debt to equity ratio decreased to 34.1% in Q4 2025 from 27.6% in Q4 2024, indicating a reduction in leverage[8] - The company experienced a 70.6% increase in interest expense for Q4 2025, amounting to $14.5 million compared to $8.5 million in Q4 2024[11] Investment Income - Net investment income for Q4 2025 was $125.8 million, a 24.9% increase from $100.7 million in Q4 2024, and for the full year, it increased by 22.0% to $454.4 million from $372.6 million[11] - Net investment income increased from $372.6 million in 2024 to $454.4 million in 2025, marking a growth of 21.9%[18] - Net investment income for Q1 2024 was $40.8 million, with a year-to-date total of $170.4 million, projected to rise to $202.5 million in 2025[21] Underwriting Performance - The combined ratio for Q4 2025 was 96.1%, compared to 89.0% in Q4 2024, indicating a deterioration in underwriting performance[15] - GAAP underwriting profit improved from $284.5 million in 2024 to $492.5 million in 2025, a significant increase of 73.1%[18] - The combined ratio improved from 94.8% in 2024 to 91.6% in 2025, indicating better operational efficiency[18] - The loss and LAE ratio for the current year, excluding catastrophe losses, was 57.1% in 2025, compared to 58.2% in 2024, indicating improved loss management[18] Catastrophe Losses - Current year catastrophe losses decreased from $417.9 million in 2024 to $302.3 million in 2025, a reduction of 27.6%[18] - Current year catastrophe losses were $139.8 million in 2025, a decrease from $256.2 million in 2024, showing a decline of 45.5%[33] Shareholder Returns - The quarterly cash dividend for December 31, 2025, was increased to $0.950 per share, up from $0.900 in the previous quarter[66] - The diluted earnings per share for the year ended December 31, 2025, was $18.16, compared to $11.70 in 2024, reflecting a 55.5% increase[53] Operational Efficiency - The company aims to maintain a combined ratio below 90% in the upcoming quarters, focusing on operational efficiency and cost management[25] - The expense ratio remained stable, slightly decreasing from 31.3% in 2024 to 31.1% in 2025[18] - The expense ratio remained stable at 25.7% in 2025 compared to 25.6% in 2024[33]