The Hanover Reports Excellent Third Quarter Net Income and

Operating Income of $2.80 and $3.05 per Diluted Share, Respectively;

Net and Operating Return on Equity of 15.0% and 14.4%, Respectively

Third Quarter Highlights

WORCESTER, Mass., October 30, 2024 - The Hanover Insurance Group, Inc. (NYSE: THG) today reported net income of $102.1 million, or $2.80 per diluted share, in the third quarter of 2024, compared to net income of $8.6 million, or $0.24 per diluted share, in the prior-year quarter. Operating income(4) was $111.3 million, or $3.05 per diluted share, in the third quarter of 2024, compared to operating income of $6.8 million, or $0.19 per diluted share, in the prior-year quarter. The company reported net and operating return on equity(5) of 15.0% and 14.4% for the third quarter of 2024, and 13.2% and 12.8% for the first nine months of 2024, respectively.

“We are pleased to report excellent results for the third quarter, marked by outstanding execution, including 14.4% operating return on equity in the quarter and 12.8% year-to-date,” said John C. Roche, president and chief executive officer at The Hanover. “In addition to driving strong underlying results, we continue to prioritize reducing the impact from weather-related volatility, with approximately half of our Personal Lines portfolio now under new or enhanced deductible levels. We achieved Personal Lines topline growth of 6.8% driven by strong pricing, and we are on track to return to our target profitability on an earned basis next year.”

“In Core Commercial and Specialty, we achieved robust pricing increases of approximately 13% and 10%, respectively, while meeting our profitability expectations,” said Roche. “We’re positioned exceptionally well to capitalize on the opportunities in our targeted growth areas, as we leverage our strong market presence, specialized product portfolio, extraordinary talent, and dynamic team culture. Through our disciplined focus on balancing profitability and growth, our third quarter results build on our solid momentum, showcasing our resilience and paving the way for a prosperous future.”

“Excluding catastrophes, our third quarter combined ratio was 88.3%, the best in several years, and an improvement of over two points compared to the prior-year quarter,” said Jeffrey M. Farber, executive vice president and chief financial officer at The Hanover. “In addition, our year-to-date ex-CAT combined ratio stands at 88.7%, besting our original guidance range for the year. Our reserves are strong, and we continue to believe we are well positioned to navigate liability trends, as evidenced by the favorable prior-year development experienced across all three of our segments. Our high-quality investment portfolio delivered increases in net investment income of 9%, and 15% excluding partnerships(6), propelled by higher earned yields and increased cashflows. A combination of earnings and an improved unrealized position in the quarter drove a sequential increase in book value per share, up 12.6%. Looking ahead, we remain committed to improving our superior returns even more and driving enhanced shareholder value.”

Third Quarter Operating Highlights

Core Commercial

Core Commercial operating income before income taxes was $55.9 million in the third quarter of 2024, compared to $43.1 million in the third quarter of 2023. The Core Commercial combined ratio was 97.0%, compared to 98.7% in the prior-year quarter. Catastrophe losses in the third quarter of 2024 were $31.7 million, or 5.9 points of the combined ratio. This compared to catastrophe losses of $44.6 million, or 8.6 points, in the prior-year quarter.

Third quarter 2024 results included net favorable prior-year reserve development, excluding catastrophes, of $3.6 million, or 0.7 points, with favorability in each major line of business. This compared to net unfavorable prior-year reserve development, excluding catastrophes, of $2.7 million, or 0.5 points, in the third quarter of 2023.

Core Commercial current accident year combined ratio, excluding catastrophes, increased 2.2 points to 91.8% in the third quarter of 2024, compared to 89.6% in the prior-year quarter, driven by an increase in the loss ratio. The current accident year loss and LAE ratio, excluding catastrophes, was 58.2%, 1.9 points higher than the prior-year quarter, primarily driven by lower-than-expected property large losses in the prior-year quarter, as well as prudently increased loss selections in certain liability coverages in the third quarter of 2024. The loss ratio remained relatively in line with the company’s expectations, benefitting from favorable property results and earned rate above loss trend.

The expense ratio increased slightly to 33.6% in the third quarter of 2024, compared to 33.3% in the prior-year quarter, primarily due to an increase in variable compensation expenses.

Net premiums written were $599.2 million in the quarter, up 1.7% from the prior-year quarter, consisting of 6.2% growth in small commercial and a decline of 2.8% in middle market, which continues to be driven by targeted underwriting actions. In the third quarter, Core Commercial renewal price increases averaged 12.9%, including average rate increases of 10.0%.

The following table summarizes premiums and the components of the combined ratio for Core Commercial:

Specialty

Specialty operating income before income taxes was $73.0 million in the third quarter of 2024, compared to $70.3 million in the third quarter of 2023. The Specialty combined ratio was 83.9%, compared to 83.4% in the prior-year quarter. Catastrophe losses in the third quarter of 2024 were $4.4 million, or 1.3 points of the combined ratio, compared to $6.9 million, or 2.1 points, in the prior-year quarter.

Third quarter 2024 results included net favorable prior-year reserve development, excluding catastrophes, of $10.2 million, or 3.1 points, primarily driven by lower-than-expected losses in professional and executive lines claims-made business. Net favorable prior-year reserve development, excluding catastrophes, was $5.0 million, or 1.6 points, in the prior-year quarter.

Specialty current accident year combined ratio, excluding catastrophes, increased 2.8 points to 85.7% in the third quarter of 2024, from 82.9% in the prior-year quarter, primarily due to an increase in the expense ratio. The expense ratio increased by 2.6 points to 37.7% in the third quarter of 2024, compared to the prior-year quarter, primarily due to strategic business investments, including in talent and technology, as well as an increase in variable compensation expenses.

The current accident year loss and LAE ratio, excluding catastrophes, of 48.0% in the third quarter of 2024 was relatively consistent with the prior-year quarter and favorable to the company’s expectations driven by lower-than-expected large losses in property businesses in both comparable periods.

Net premiums written were $350.2 million in the quarter, up 3.4% from the prior-year quarter, which were impacted by profitability actions, most notably in program business. In the third quarter, Specialty renewal price increases averaged 10.1%, including average rate increases of 7.6%.

The following table summarizes premiums and the components of the combined ratio for Specialty:

Personal Lines

Personal Lines operating income before income taxes was $21.7 million in the third quarter of 2024, compared to an operating loss before income taxes of $100.4 million in the third quarter of 2023. The Personal Lines combined ratio was 100.6%, compared to 120.8% in the prior-year quarter. Catastrophe losses in the third quarter of 2024 were $69.8 million, or 11.4 points of the combined ratio. This compared to catastrophe losses of $144.3 million, or 24.4 points of the combined ratio, in the prior-year quarter.

Prior-year reserve development, excluding catastrophes, was immaterial in the third quarter of both the current and prior years.

Personal Lines current accident year combined ratio, excluding catastrophe losses, decreased 7.2 points to 89.2% in the third quarter of 2024, from 96.4% in the prior-year quarter. The current accident year loss and LAE ratio, excluding catastrophes, decreased 7.6 points from the prior-year quarter to 63.9%, driven by the benefit of earned pricing outpacing loss trends in both personal auto and homeowners, as well as moderated loss trends, particularly in auto collision coverages.

The expense ratio increased by 0.4 points to 25.3% in the third quarter of 2024, compared to the prior-year quarter, primarily due to an increase in variable compensation expenses.

Net premiums written were $714.0 million in the quarter, up 6.8% compared to the prior-year quarter. The increase was due to the impact of renewal pricing increases, partially offset by lower new business and, to a lesser extent, lower retention. Personal Lines renewal price increases averaged 15.4%, including average rate increases of 14.4%. Policies in force in the third quarter of 2024 decreased 1.1% compared to the second quarter of 2024, with a 1.9% decline in the Midwestern United States, while the rest of the country was essentially flat.

The following table summarizes premiums and components of the combined ratio for Personal Lines:

Investments

Net investment income was $91.8 million for the third quarter of 2024, a 9.0% increase from the prior-year quarter, primarily due to the impact of higher earned yields on the fixed maturity investment portfolio, and the continued investment of operational cashflows, partially offset by lower partnership income. Total pre-tax earned yield on the investment portfolio for the third quarter of 2024 was 3.70%, up from 3.55% in the prior-year quarter. The average pre-tax earned yield on fixed maturities was 3.73% for the third quarter of 2024, up from 3.37% in the prior-year quarter.

Net realized investment losses from sales of securities recognized in earnings were $23.5 million, before taxes, in the third quarter of 2024, driven by the sale of certain lower yield fixed income securities, in consideration of expiring tax gains from 2021. This was partially offset by an increase in the fair value of equity securities of $11.7 million.

The company held $10.0 billion in cash and invested assets on September 30, 2024. Fixed maturities and cash represented approximately 91% of the investment portfolio. Approximately 95% of the company’s fixed maturity portfolio is rated investment grade. As of September 30, 2024, net unrealized losses on the fixed maturity portfolio were $316.5 million before income taxes, compared to $620.9 million on June 30, 2024.

Shareholders’ Equity and Capital Actions

On September 30, 2024, book value per share was $79.90, up 12.6% from June 30, 2024, primarily driven by unrealized gains on the fixed maturity portfolio in the quarter, as well as strong earnings. Book value per share, excluding net unrealized depreciation on fixed maturity investments, net of tax(8), was $86.81 at September 30, 2024, compared to $84.56 at June 30, 2024.

On September 30, 2024, operating insurance company’s statutory capital and surplus was $2.89 billion. This compared to statutory capital and surplus of $2.81 billion on June 30, 2024.

During the quarter, the company did not repurchase any shares of common stock. The company has approximately $330 million of remaining capacity under its existing share repurchase program.

Earnings Conference Call

The company will host a conference call to discuss its third quarter results on Thursday, October 31, at 10:00 a.m. E.T. A 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

Definition of Segments

Continuing operations include four reporting 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 property and casualty (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, excess and surplus lines, and specialty general liability coverage. The Personal Lines segment markets automobile, homeowners and ancillary coverages to individuals and families. The Other segment includes the operations of the holding company and 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, and product liability businesses. The Other segment also included the operations of Opus Investment Management, Inc. during the first half of 2024 and prior, which provided investment management services to institutions, pension funds and other organizations. During the second and third quarters of 2024, the company exited all of Opus’ business operations serving unaffiliated entities. Investment management services provided by Opus to THG related to its investment-grade fixed maturities portfolio were also transferred to an external manager during the second quarter of 2024.

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.

The following is a reconciliation from operating income (loss) to net income (loss)(4)(9):

*Per share data is calculated using basic shares outstanding due to antidilution.

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,” “intends,” “may,” “projects,” “projections,” “plan,” “likely,” “potential,” “targeted,” “forecasts,” “should,” “could,” “continue,” “outlook,” “guidance,” “modeling,” “target profitability,” “target margins,” “confident,” “will,” “line of sight,” “designed,” 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:

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:

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 40 of the company’s Annual Report on Form 10-K for the year ended December 31, 2023, the company uses non-GAAP financial measures as important measures of its operating performance, including operating income (loss), operating income (loss) before interest expense and income taxes, operating income (loss) per diluted (basic) 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 2023 Annual Report on pages 64-67.

Operating income (loss) and operating income (loss) per diluted (basic) share are non-GAAP measures. They are defined as net income (loss) 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 (loss), as they are, to a certain extent, determined by interest rates, financial markets and the timing of sales. Operating income (loss) 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 (loss) is the sum of the segment income (loss) from: Core Commercial, Specialty, Personal Lines, and Other, after interest expense and income taxes. In reference to one of the company’s four reporting segments, “operating income (loss)” is the segment income (loss) before both interest expense and income taxes. The company also uses “operating income (loss) per diluted (basic) share” (which is after both interest expense and income taxes). Operating income per share is calculated by dividing operating income by the weighted average number of diluted shares of common stock. Operating loss per share is calculated by dividing operating loss by the weighted average number of basic shares of common stock due to antidilution. The company believes that metrics of operating income (loss) and operating income (loss) in relation to its four reporting segments provide investors with a valuable measure of the performance of the company’s continuing businesses because they highlight the portion of net income (loss) attributable to the core operations of the business. Income (loss) from continuing operations is the most directly comparable GAAP measure for operating income (loss) (and operating income (loss) before income taxes) and measures of operating income (loss) that exclude the effects of catastrophe losses and/or prior-year reserve development. These non-GAAP measures should not be misconstrued as substitutes for income (loss) from continuing operations or net income (loss) determined in accordance with GAAP. A reconciliation of operating income (loss) to income (loss) from continuing operations and net income (loss) 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 (loss). 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 (loss) and shareholders’ equity of the entire company and without adjustments.

Book value per share is total shareholders’ equity divided by the number of common shares outstanding. Book value per share excluding net unrealized appreciation (depreciation) on fixed maturity investments, net of tax, is total shareholders’ equity excluding the after-tax effect of unrealized appreciation (depreciation) on fixed maturities and market risk divided by the number of common shares outstanding.

The company may provide measures of operating income (loss) 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 and other windstorms, hail, flood, earthquakes, fire, explosions, severe winter weather and other convective storms, riots, 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