The Hanover Insurance Group, Inc. (THG) Earnings Call Transcript & Summary

I declare that the polls are closed for voting. Please allow us a moment to determine the voting results. I have been informed by the inspector that each of the nominees for election to the Board of Directors has been duly elected, and all other proposals have been approved by the requisite shareholder vote. Now before we close the formal part of the meeting and move to management's presentation and session for questions, is there any other business to properly come before the meeting? Again, there will be time for questions in just a few minutes. Before closing out the formal meeting, I would like to take a moment to note the retirement of Marty Hughes, an integral and dedicated Board member. Marty has been a member of our Board since 2020 and most recently served as a member of the Audit Committee. He enjoyed tremendous success in his field and leveraged his business experiences, particularly in property and casualty insurance and agency distribution to provide unique and valuable insights to the Hanover. On a personal level, I know that I speak for the entire Board and management when I say that his guidance and wisdom will be deeply missed along with his collegiality and candor. Marty, thank you, and you will be missed. Since there is no further business on the agenda, the formal portion of the meeting is adjourned, and we will now turn to management's presentation, followed by questions or comments. I'd like to introduce Jack Roche, our President and CEO. And I now will note that other members of the Board of [indiscernible] PwC will be available to answer questions from shareholders following Jack's comments. Jack, turn it over to you.

Thank you, Cynthia, and good morning. Welcome, everybody, to our Annual Shareholders Meeting. Today, I am very pleased to share an update on our company's continued progress, growth momentum, unique culture and competitive position; reflect on our recent financial performance and highlight the steps we are taking to execute on our winning strategy. To say the least, we are in exciting and unprecedented times as the world around us goes through systemic changes, presenting new challenges and opportunities for our industry and for our company. The risk landscape is clearly changing, requiring all of us to elevate our games and think of new and better ways to analyze risk, manage our portfolios, understand new customer demands and preferences and embrace new capabilities to mitigate and prevent risk. I am proud of all of our team has accomplished over the past several quarters in the face of these challenges. And I'm more confident than ever that we have what it takes to be successful well into the future. 2023 was an extraordinarily dynamic year with our company and our industry impacted by persistent property inflation, severe weather and increased signs of social inflation and legal system abuse. While 2023 proved to be a challenging year financially, it was also a productive one for our company and enabled us to demonstrate real agility and resilience. We continue to invest in our business while taking prompt and decisive action to further implement a multifaceted margin recapture plan, significantly increasing our pricing, adjusting product terms and conditions to respond to changing market trends and further diversifying our business to address catastrophic risks. The hard work we undertook during the course of the year, implementing our margin recapture plan and continuing to invest in our underlying business and proven strategy, paid its initial dividend in the second half of 2023, which marked a critical turning point in our journey to regain positive momentum and drive stronger, sustainable, profitable growth. All in, our financial performance in 2023 was defined by the highest single year of catastrophe losses on record for our company, but also by our disciplined approach to underwriting and exposure management, the strength and commitment of our team and prudent capital management. Weather-related challenges aside, our ex-cat results were strong, exceeding expectations. For the year, we delivered pretax operating income of $795.7 million excluding catastrophes, representing 16% year-over-year growth, a 91.3% ex-cat combined ratio, an expense ratio of 30.5% and $5.8 billion in net premiums written, representing growth of 6.1%. We grew net investment income to $332.1 million and increased pricing across our major lines of business. At the same time, we continue to increase shareholder dividends, boosting our quarterly dividend by 5% in December and returning $117 million to our shareholders over the course of the year. With a strong underlying 2023 at our backs, we're off to an excellent start in 2024. For the first quarter, we reported growth as expected with net premiums written up 2.3% and renewal price increases of 22.8% in Personal Lines, 11.5% in Core Commercial and 11% in Specialty. Net investment income of $89.7 million, up 14% from the prior year quarter and a further improved underwriting performance as evidenced by our ex-cat combined ratio of 89.5% and 95.5% combined ratio all in. The work we have done and continue to do every day in partnership with our agents is having its intended effect, advancing us along a path to deliver value to our shareholders and to all of our stakeholders and that expect and deserve. In the face of unprecedented market challenges, we remain focused on our vision to be the premier property and casualty franchise in the independent agency channel, investing heavily in the key tenants of our strategy, distinctive agency partnerships, specialized products and capabilities and a customer-driven approach. The unmatched relationships we have with our independent agents provided an important competitive advantage during the year, helping us effectively manage our businesses despite the market forces we faced. We enhanced our in-person, virtual and [indiscernible] [Audio Gap] Consumer education and customer interactions, particularly in Personal Lines, where unprecedented price increases across the industry disrupted the market, producing a surge in quoting and remarketing activities. Meanwhile, we continue to expand our distribution, selectively adding new agent partner relationships, most often in new or underrepresented markets for us, and we increased the number of agents who write more than $5 million in annual premiums in multiple lines of business with us. In addition to more fully leveraging our distribution capability, we also delivered on our commitment to expand our product and service offerings, driving increased profitable growth while making our company even more relevant to our agent partners and customers. Our Specialty business today is a key element of our value proposition. This business represents a robust and profitable growth engine for us and also adds to the diversification of our overall business mix. Our Specialty team delivered excellent results in 2023, capitalizing on growth opportunities in our most profitable businesses. At the same time, the team broadened its product and service portfolio, making enhancements in our general liability and E&S lines while expanding our penetration in the wholesale channel. With 8 different businesses and 17 distinct product areas, our specialty business is well positioned to drive continued profitable growth going forward. In Core Commercial, we continue to offer our partner agents a highly valued set of products and services, helping them meet their customers' evolving needs in both small commercial and middle market. Our Core Commercial business generated solid results in 2023, demonstrating the effectiveness of our margin recapture plan, reducing our ex-cat loss ratio while reporting fewer large losses. The team drove strong growth in Small Commercial while implementing additional catastrophe mitigation and risk prevention measures, primarily in middle market. With the progress made in recent quarters, our Core Commercial business is well positioned to continue to deliver strong returns in Small Commercial and to continue to improve profitability and ultimately growth in middle market. And our Personal Lines business today is a leading player in the total account market within the independent agency channel. Given the impact of catastrophe activity and property inflation over the last couple of years, we leaned into the hard market in 2023 to substantially reposition and reprice this business. As a result, this business turned the corner during the fourth quarter, significantly improving profitability and setting the stage for a strong 2024. As we continue to strengthen our business during 2023, we also put considerable investment behind our technology and innovation efforts, helping us to predict and address emerging risks. We significantly increased the use of technology to assist with large property assessments. Infrared thermography, advanced AI risk evaluation tools and drone programs are helping us better recognize and minimize potential hazards and vulnerability to weather-related risks. To date, across all of our business lines, we have deployed over 10,000 water and temperature sensors. Our IoT sensor program has already resulted in numerous instances of loss prevention and mitigation. We believe we have achieved scale and have enough sensors deployed to collect data and recognize trends, geographic risk profiles, types of system failures and more. We believe this data will enable us to work even more effectively with our policyholders, providing guidance on how best to build resiliency in the years ahead. As we transformed our business over the past 10 years or more, we have invested heavily to attract and retain outstanding talent and to build a unique and special culture. These efforts have not gone unnoticed. Over the past year, our company has been recognized by Forbes, Time Magazine, the Human Rights Campaign Foundation, Newsweek and many others for our unique culture and outstanding reputation. As we continue to evolve and further develop our culture, we remain fully committed to our core values of collaboration, accountability, respect and empowerment as well as to our goal to ensure inclusion, diversity and equity across the organization. During 2023, we continued to drive IDE principles across our businesses and throughout our unique company culture. These principles are evident in many ways throughout our company from our recruiting process, to our learning and development programs, and in the goals we established for our leadership team. For example, we continue to invest in our employee-led business resource groups, including the newly launched neurodiverse employee group, ABLE. We also expanded our successful mentorship program, The Grid, to enhance employee development, engagement, retention and cross-functional information sharing. These efforts have brought positive momentum to our organization as we strive to attract and retain the talented team required to drive sustainable, profitable growth in a rapidly changing environment. Once again, our employees and our company came together in our annual employee giving campaign, benefiting hundreds of local nonprofit organizations and countless individuals and families across the country, contributing approximately $1.5 million to the United Way and hundreds of nonprofits across the country. We also made numerous contributions through our charitable foundation, providing support for public education, after-school and summer programs, shelters and food pantries, family health and safety and disaster relief. In addition, we continued our focus on being a sustainable company. At the beginning of 2023, we published our inaugural sustainability report, and we'll publish our 2024 report very soon highlighting the progress we have made to develop and support important environmental, social and governance endeavors for our company. Over the course of 2023, we took many important steps to capitalize on the opportunities in front of us. With our distinct business strategy, broad and innovative capabilities, well-managed balance sheet, deep relationships with the best agents in the business and an experienced and committed team, we have what it takes to succeed. Through enhanced products and technology offerings, disciplined pricing and risk prevention measures, we have fundamentally reshaped our business, adapting to the rapidly changing dynamics of our industry as well as economic, social and weather changes. We are seeing the results of our actions, and we are poised to accelerate growth in many of our businesses moving forward. I am confident the actions we have taken and those we will continue to take will serve our business well, enabling us to continue to drive strong, sustainable profitability and deliver outstanding value for our shareholders and other stakeholders over the long term. Thank you very much. As Cynthia said, I think we'll take any questions that people might have or any comments or reactions. If not, I'll turn it back to Cynthia.

Jack, thank you. And thank you to management and thank you to every associate at the Hanover. As Jack just mentioned, and we're all very aware, as you noted, 2023 was a year of extraordinary headwinds, but yet all of you applied your knowledge, your talent, your energy to continue to serve and create value and pave the way for a strong and healthy Hanover for the future. On behalf of the Board of Directors, I closed this meeting with deep and heartfelt gratitude for all that you have done.

And everyone with that, we'll disconnect the lines. Thank you for joining.