The Hanover Reports First Quarter Net Income and Operating Income of $2.97 and $1.96 per Diluted Share, Respectively; Combined Ratio of 95.8%; Combined Ratio, Excluding Catastrophes, of 92.2%.

ENPNewswire-May 2, 2019--The Hanover Reports First Quarter Net Income and Operating Income of $2.97 and $1.96 per Diluted Share, Respectively; Combined Ratio of 95.8%; Combined Ratio, Excluding Catastrophes, of 92.2%

(C)2019 ENPublishing - http://www.enpublishing.co.uk

Release date- 01052019 - The Hanover Insurance Group, Inc. (NYSE: THG) today reported net income of $122.4 million, or $2.97 per diluted share, in the first quarter of 2019, compared to $67.7 million, or $1.57 per diluted share, in the prior-year quarter.

Operating income(1) was $80.7 million, or $1.96 per diluted share, for the first quarter of 2019. This compared to operating income of $66.1 million, or $1.54 per diluted share, in the prior-year quarter. The difference between net and operating income in the first quarter of 2019 is primarily due to an after-tax increase in the fair value of equity securities of $38.4 million, or $0.93 per diluted share.

First Quarter Highlights

Catastrophe losses of $39.4 million, or 3.6 points, including current year losses of $52.9 million, or 4.8 points, and favorable development on prior-year catastrophes of $13.5 million, or 1.2 points

Net premiums written increase of 2.7%, which reflects growth in more profitable segments, partially offset by specific underwriting initiatives

Continued price increases in both Commercial and Personal Lines, with an increase of 5.2% in Core Commercial(2) Lines and 5.0% in Personal Lines(3)

Net investment income of $70.2 million, up 6.4% from the prior-year quarter, driven by the investment of cash flows from operations and deployable equity related to the sale of Chaucer

Book value per share of $71.95, up 3.1% from December 31, 2018

The Hanover Insurance Group, Inc. Logo. (PRNewsFoto/The Hanover Insurance Group, Inc.) (PRNewsfoto/The Hanover Insurance Group, In)

Three months ended

March 31

($ in millions, except per share data)

2019

2018

Net premiums written

$1,098.0

$1,068.7

Net income

122.4

67.7

per diluted share

2.97

1.57

Operating income

80.7

66.1

per diluted share

1.96

1.54

Net investment income

70.2

66.0

Book value per share

$71.95

$68.56

Ending shares outstanding

40.7

42.5

Combined ratio

95.8 %

96.6 %

Catastrophe ratio

3.6 %

6.2 %

Combined ratio, excluding catastrophes(4)

92.2 %

90.4 %

Current accident year combined ratio,

excluding catastrophes(5)

92.2 %

90.4 %

(1) See information about this and other non-GAAP measures and definitions used throughout this press release on the final pages of this document.

'We delivered strong first-quarter results, including operating income of $1.96 per diluted share and an adjusted operating ROE of 13%(6),' said John C. Roche, president and chief executive officer at The Hanover. 'We are very pleased with our performance in the current market, as demonstrated by pricing increases of 5% or more in each of our businesses: Personal, Core Commercial and Specialty lines. We posted an overall written premium growth of 2.7%, delivering on our strategy to focus on our most profitable segments, while executing targeted underwriting initiatives in Commercial Auto and our Program Business. Excluding these two areas, we increased premiums by 4.3%(7), maintaining growth momentum in Personal Lines, Small Commercial and most of our specialty businesses. Our strong agency partnerships and increased investments in innovative product and service solutions give us confidence in our ability to continue to sustain strong profitable growth going forward.'

'Our underwriting results and the combined ratio of 95.8% for the quarter were in line with our expectations.' said Jeffrey M. Farber, executive vice president and chief financial officer. 'We continued to benefit from the leverage on our fixed expenses from growth, while operating efficiencies enabled us to increase business investments. Despite an active catastrophe quarter in our geographic footprint, our catastrophe losses were not significantly elevated - validating the effectiveness of our prior underwriting initiatives. Our loss ratios remain in line with our expectations, as we achieve meaningful price increases and actively manage our business mix. Net investment income increased 6%, driven by increasing operating cash flows and the investment of capital from the Chaucer sale in the fourth quarter of 2018. These results, together with our continued focus on effective capital management, position us well to continue to deliver industry-leading returns.'

First Quarter Operating Highlights

Commercial Lines

Commercial Lines operating income before taxes was $80.2 million, compared to $61.4 million in the first quarter of 2018. The Commercial Lines combined ratio was 94.2%, compared to 97.2% in the prior-year quarter. Catastrophe losses were $10.4 million, or 1.6 points of the combined ratio, compared to $38.0 million, or 6.0 points of the combined ratio, in the prior-year quarter. First quarter 2019 catastrophe losses included $23.9 million, or 3.7 points, of current accident year losses, primarily from winter weather events in the Midwest and Northeast. First quarter 2019 catastrophe losses also included favorable development of $13.5 million, or 2.1 points, primarily reflecting the agreement with a third party to sell the company's subrogation rights related to certain 2017 and 2018 California wildfire losses.

First quarter 2019 results included $7.5 million, or 1.1 points, of net favorable prior-year reserve development, excluding catastrophes, driven primarily by releases in Workers' Compensation and Commercial Multiple Peril ('CMP'), partially offset by reserve increases in the Commercial Auto line as a result of elevated bodily injury severity. This compared to net favorable prior-year reserve development, excluding catastrophes, of $1.6 million, or 0.3 points, in the first quarter of 2018.

Commercial Lines current accident year combined ratio, excluding catastrophes, increased by 2.2 points to 93.7%, from 91.5% in the prior-year quarter. The current accident year loss and loss adjustment expense ('LAE') ratio, excluding catastrophes(8), increased by 2.6 points to 58.8%, driven primarily by Other Commercial Lines and Commercial Auto. The increase in Other Commercial Lines' current accident year loss and LAE ratio was due to large loss activity in the Hanover Specialty Industrial property business, including two significant losses. Variability in this highly profitable line is expected from time to time, given the nature of the risks involved. The higher Commercial Auto current accident year loss and LAE ratio reflects loss selection increases made in the second half of 2018 in response to elevated severity in bodily injury coverage. These increases were partially offset by an improvement in the Workers' Compensation current accident year loss and LAE ratio.

The expense ratio improved by 0.4 points in the first quarter of 2019, attributable to fixed cost leverage from premium growth and the timing of certain expenses. Further expense savings from operating efficiencies achieved were used to fund increased investments in the business.

Net premiums written were $677.4 million in the quarter, up 0.8% from the prior-year quarter, as growth in the more profitable businesses, including Technology, Professional Lines, Marine, and Small Commercial, was partially offset by underwriting initiatives in Commercial Auto and the Hanover Program business. Core Commercial business price increases averaged 5.2% for the first quarter, while retention was stable at 82.7%.

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

Three months ended

March 31

($ in millions)

2019

2018

Net premiums written

$677.4

$671.9

Net premiums earned

652.4

629.0

Operating income before taxes

80.2

61.4

Loss and LAE ratio

59.3%

61.9%

Expense ratio(9)

34.9%

35.3%

Combined ratio

94.2%

97.2%

Prior year development ratio

(1.1)%

(0.3)%

Catastrophe ratio

1.6 %

6.0 %

Combined ratio, excluding catastrophes

92.6 %

91.2 %

Current accident year combined ratio,

excluding catastrophes

93.7 %

91.5 %

Personal Lines

Personal Lines operating income before taxes was $26.8 million in the quarter, compared to $34.3 million in the first quarter of 2018. The Personal Lines combined ratio was 98.2%, compared to 95.8% in the prior-year quarter. Catastrophe losses were $29.0 million, or 6.6 points of the combined ratio, driven by winter weather events in the Midwest and Northeast, which compared to $27.5 million, or 6.7 points, in the prior-year quarter. First quarter 2019 results included $7.5 million, or 1.7 points, of net unfavorable prior-year reserve development, primarily related to elevated bodily injury severity in Personal Auto. This compared to unfavorable prior-year reserve development of $1.6 million, or 0.4 points, in the first quarter of 2018.

Personal Lines current accident year combined ratio, excluding catastrophe losses, increased by 1.2 points to 89.9%, from 88.7% in the prior-year quarter, driven by a higher current accident year loss ratio, partially offset by a lower expense ratio. Higher losses in Homeowners were principally driven by a more typical level of non-catastrophe weather-related loss activity in the first quarter of 2019, compared to lower than usual non-catastrophe weather-related losses in the first quarter of 2018. A higher loss ratio in Personal Auto reflects the recognition of increased severity trends in bodily injury coverage.

The expense ratio improved by 0.3 points in the first quarter of 2019, attributable to fixed cost leverage from premium growth. Further expense savings from operating efficiencies achieved were used to fund increased investments in the business.

Net premiums written were $420.6 million in the quarter, up 6.0% from the prior-year quarter, due to higher renewal premium, primarily attributable to rate increases. Personal Lines average rate increases in the first quarter of 2019 were 5.0%.

The following table summarizes premiums...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT