WORCESTER, Mass., Oct. 27, 2021 /PRNewswire/ -- The Hanover
Insurance Group, Inc. (NYSE: THG) today reported net income of
$34.0 million, or $0.94 per diluted share, in the third quarter of
2021, compared to $118.9 million, or
$3.13 per diluted share, in the
prior-year quarter. Operating income (1) was $30.8
million, or $0.85 per diluted share,
for the third quarter of 2021. This compared to operating income of
$93.5 million, or $2.46 per diluted share, in the prior-year
quarter.
Third Quarter Highlights
- Net premiums written increase of 8.4%*, reflecting strong
growth in all segments
- Combined ratio of 102.3%; combined ratio, excluding
catastrophes(2) of 89.4%
- Catastrophe losses of $153.5
million, or 12.9% of net premiums earned, including the
impact of Hurricane Ida of $75.0
million
- Rate increases(3) of 6.9% in Core Commercial
lines(4) and 2.1% in Personal Lines
- Current accident year loss and loss adjustment expense ("LAE")
ratio, excluding catastrophes(5), of 60.1%, an increase
from the third quarter of 2020, driven by auto losses, primarily in
Personal Lines
- Net investment income of $78.8
million, up 16.6% from the prior-year quarter, primarily
from higher partnership income
- Book value per share of $87.04,
down 1.3% from June 30, 2021,
primarily driven by a decrease in net unrealized gains on fixed
maturity investments, net of tax, and ordinary dividends, partially
offset by net income
- Expense ratio(6) of 31.1% improved 0.7 points from
the prior-year quarter
"We are very pleased with our strong, sustained growth in the
quarter, as well as our solid bottom line performance in the face
of considerable catastrophe activity," said John C. Roche, president and chief executive
officer at The Hanover. "We
increased net premiums written by 8.4%, powered by the successful
execution of our agency- and customer-focused strategy, with
important contributions from each segment. Our growth reflects
continued strong rate in Commercial Lines and a more measured
pricing strategy intended to build long-term value in Personal
Lines.
"Our high-quality, diversified business performed well once
again, in spite of the challenges presented in the quarter,
including the severe weather and inflationary pressures that
impacted the industry largely in personal lines. Although some
lines experienced more pressure than others, we delivered an
underlying loss result in line with our third quarter targets, due
largely to the diversification we have managed in our book and the
broad-based profitability we are achieving across our business. Our
losses from Hurricane Ida were in line or better relative to the
industry due to our continued focus on exposure management and data
and analytics. As we look ahead, we remain committed to managing
our business for sustainable long-term, profitable
performance."
"We delivered an ex-CAT combined ratio of 89.4% in the quarter,"
said Jeffrey M. Farber, executive
vice president and chief financial officer. "Our underlying loss
performance was in line with our expectations. Remaining favorable
personal auto loss frequency was offset by the increase in auto
severity, while lower loss experience in specialty(7)
property coverages offset elevated property large loss activity in
commercial multiple peril. The effectiveness and balanced approach
of our prior actions in Personal Lines demonstrate our ability to
react quickly and thoughtfully to environmental changes. We are
pleased with the improvement in our expense ratio, which decreased
0.7 points from the prior-year quarter, and we are confident we
will hit our full-year expense target. As always, we remain
committed to being strong stewards of our capital and driving value
for our shareholders."
|
Three months
ended
|
|
Nine months
ended
|
|
|
September
30
|
|
September
30
|
|
($ in
millions, except per share data)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net premiums
written
|
$1,375.2
|
|
$1,268.5
|
|
$3,778.5
|
|
$3,486.4
|
|
Net income
|
34.0
|
|
118.9
|
|
255.2
|
|
194.1
|
|
per diluted
share
|
0.94
|
|
3.13
|
|
6.98
|
|
5.05
|
|
Operating
income
|
30.8
|
|
93.5
|
|
196.2
|
|
243.0
|
|
per diluted
share
|
0.85
|
|
2.46
|
|
5.37
|
|
6.33
|
|
Net investment
income
|
78.8
|
|
67.6
|
|
231.2
|
|
194.9
|
|
Book value per
share
|
$87.04
|
|
$84.32
|
|
$87.04
|
|
$84.32
|
|
Ending shares
outstanding (in millions)
|
35.6
|
|
37.4
|
|
35.6
|
|
37.4
|
|
Combined
ratio
|
102.3 %
|
|
94.2 %
|
|
98.5 %
|
|
95.2 %
|
|
Prior-year development
ratio
|
(1.8)%
|
|
(0.2)%
|
|
(1.2)%
|
|
(0.3)%
|
|
Catastrophe
ratio
|
12.9 %
|
|
5.8 %
|
|
10.3 %
|
|
7.5 %
|
|
Combined ratio,
excluding catastrophes
|
89.4 %
|
|
88.4 %
|
|
88.2 %
|
|
87.7 %
|
|
Current accident year
combined ratio, excluding
catastrophes(2)
|
91.2 %
|
|
88.6 %
|
|
89.4 %
|
|
88.0 %
|
|
(1)
See information about this and other non-GAAP measures and
definitions used throughout this press release on the final pages
of this document.
|
The Hanover Insurance
Group, Inc. may also be referred to as "The Hanover" or "the
Company" interchangeably throughout this press release.
|
*Unless otherwise
stated, net premiums written growth and other growth comparisons
are to the same period of the prior year.
|
Third Quarter Operating
Highlights
Commercial Lines
Commercial Lines operating income
before taxes was $42.4 million in the
third quarter of 2021, compared to $62.3
million in the third quarter of 2020. The Commercial Lines
combined ratio was 101.2%, compared to 96.9% in the prior-year
quarter. Catastrophe losses in the third quarter of 2021 were
$74.8 million, or 10.7 points of the
combined ratio. This compared to catastrophe losses
of $33.6 million, or 5.1 points of the combined ratio, in the
prior-year quarter, which was net of $8.9
million of favorable prior-year development.
Third quarter 2021 results included $11.4
million, or 1.6 points, of net favorable prior-year reserve
development, excluding catastrophes, driven primarily by other
commercial lines, which primarily represent The Hanover's specialty(7) business.
This compared to net favorable prior-year reserve development,
excluding catastrophes, of $3.9
million, or 0.6 points, in the third quarter of 2020.
Commercial Lines current accident year combined ratio, excluding
catastrophes, decreased 0.3 points to 92.1% in the
third quarter of 2021, from 92.4% in the prior-year quarter.
The current accident year loss and LAE ratio, excluding
catastrophes, increased by 0.4 points to 58.3%, primarily
reflecting an increase in property large loss activity in
commercial multiple peril, partially offset by a decrease in
property large loss activity in other commercial lines, as well as
favorability in workers' compensation from premium adjustments
pertaining to prior period policies.
The expense ratio decreased by 0.7 points to 33.8% in the third
quarter of 2021, primarily due to the leverage benefit from earned
premium growth.
Net premiums written were $826.8
million in the quarter, up 8.7% from the prior-year quarter.
The Core Commercial average base rate increased 6.9% in the third
quarter, while pricing(3) increases averaged 9.4%.
The following table summarizes premiums and the components of
the combined ratio for Commercial Lines:
|
Three months
ended
|
|
Nine months
ended
|
|
|
September
30
|
|
September
30
|
|
($ in
millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net premiums
written
|
$826.8
|
|
$760.5
|
|
$2,271.0
|
|
$2,083.0
|
|
Net premiums
earned
|
698.6
|
|
665.1
|
|
2,094.9
|
|
1,999.6
|
|
Operating income
before taxes
|
42.4
|
|
62.3
|
|
149.0
|
|
172.2
|
|
Loss and LAE
ratio
|
67.4%
|
|
62.4%
|
|
66.3%
|
|
62.9%
|
|
Expense
ratio
|
33.8%
|
|
34.5%
|
|
33.7%
|
|
34.3%
|
|
Combined
ratio
|
101.2%
|
|
96.9%
|
|
100.0%
|
|
97.2%
|
|
Prior-year development
ratio
|
(1.6)%
|
|
(0.6)%
|
|
(1.1)%
|
|
(0.6)%
|
|
Catastrophe
ratio
|
10.7 %
|
|
5.1 %
|
|
10.1 %
|
|
6.1 %
|
|
Combined ratio,
excluding catastrophes
|
90.5 %
|
|
91.8 %
|
|
89.9 %
|
|
91.1 %
|
|
Current accident year
combined ratio, excluding catastrophes
|
92.1 %
|
|
92.4 %
|
|
91.0 %
|
|
91.7 %
|
|
Personal Lines
Personal Lines operating income before
taxes was $3.6 million in the third
quarter of 2021, compared to $64.2
million in the third quarter of 2020. The Personal Lines
combined ratio was 103.8%, compared to 90.4% in the prior-year
quarter. Catastrophe losses in the third quarter of 2021 were
$78.7 million, or 16.1 points of the
combined ratio, driven primarily by Hurricane Ida. This compared to
catastrophe losses of $32.3 million,
or 6.9 points of the combined ratio, in the prior-year quarter.
Third quarter 2021 results included $9.9
million, or 2.0 points, of net favorable prior-year reserve
development, excluding catastrophes, primarily in the personal auto
line. The auto development included favorable adjustments related
to the Michigan personal injury
protection reform, and related loss control and other measures,
which came into effect on July 1. This compared to
$1.0 million, or 0.2 points, of net
unfavorable prior-year development in the third quarter of
2020.
Personal Lines current accident year combined ratio, excluding
catastrophe losses, increased by 6.4 points to 89.7% in
the third quarter of 2021, from 83.3% in the prior-year
quarter. The current accident year loss and LAE ratio, excluding
catastrophes, was 62.4% in the third quarter of 2021, up from 55.4%
in the third quarter 2020, which primarily reflected unusually low
frequency of auto losses in the midst of the COVID-19 pandemic.
Additionally, the auto loss ratio in the third quarter of 2021
reflected an increase in property severity associated with supply
chain issues and limited availability of new vehicles due to a
computer chip shortage, higher used vehicle prices and higher cost
of parts.
The expense ratio decreased by 0.6 points to 27.3% in the third
quarter of 2021, primarily reflective of lower variable
compensation due to lower-than-expected performance.
Net premiums written were $548.4
million in the quarter, up 8.0% from the prior-year quarter.
The growth was driven by an increase in new business and retention.
Personal Lines average rate increases in the third quarter of 2021
were 2.1% (the rate definition does not include premium increases
from exposure growth and/or inflation).
The following table summarizes premiums and components of the
combined ratio for Personal
Lines:
|
Three months
ended
|
|
Nine months
ended
|
|
|
September
30
|
|
September
30
|
|
($ in
millions)
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Net premiums
written
|
$548.4
|
|
$508.0
|
|
$1,507.5
|
|
$1,403.4
|
|
Net premiums
earned
|
487.4
|
|
470.3
|
|
1,432.7
|
|
1,373.8
|
|
Operating income
before taxes
|
3.6
|
|
64.2
|
|
117.6
|
|
161.7
|
|
Loss and LAE
ratio
|
76.5%
|
|
62.5%
|
|
68.4%
|
|
64.6%
|
|
Expense
ratio
|
27.3%
|
|
27.9%
|
|
27.8%
|
|
27.4%
|
|
Combined
ratio
|
103.8%
|
|
90.4%
|
|
96.2%
|
|
92.0%
|
|
Prior-year development
ratio
|
(2.0)%
|
|
0.2 %
|
|
(1.4)%
|
|
(0.1)%
|
|
Catastrophe
ratio
|
16.1 %
|
|
6.9 %
|
|
10.6 %
|
|
9.4 %
|
|
Combined ratio,
excluding catastrophes
|
87.7 %
|
|
83.5 %
|
|
85.6 %
|
|
82.6 %
|
|
Current accident year
combined ratio, excluding catastrophes
|
89.7 %
|
|
83.3 %
|
|
87.0 %
|
|
82.7 %
|
|
Investments
Net investment income was $78.8 million for the third quarter of
2021, compared to $67.6 million
in the prior-year quarter. The increase was driven primarily by
unusually high income from limited partnerships. Net investment
income growth from partnerships was partially offset by lower new
money yields. The average pre-tax earned yield on fixed maturities
was 2.96% and 3.26% for the quarters ended September 30, 2021, and 2020, respectively. Total
pre-tax earned yield on the investment portfolio for the quarter
ended September 30, 2021, was 3.72%,
up from 3.37% in the prior-year quarter.
Net realized and unrealized investment gains recognized in
net income were $4.0 million,
pre-tax, in the third quarter of 2021, primarily due to gains
on sales of fixed maturities. This compared to net realized and
unrealized investment gains of $37.7 million, pre-tax, in the
third quarter of 2020.
The company held $9.3 billion
in cash and invested assets on September 30,
2021. Fixed maturities and cash represented approximately
85% of the investment portfolio. Approximately 96% of the company's
fixed maturity portfolio is rated investment grade. Net unrealized
gains on the fixed maturity portfolio as of September 30, 2021, were $298.8 million before taxes, a decrease in fair
value of $210.0 million since
December 31, 2020, primarily due
to higher interest rates, partially offset by tighter
spreads.
Shareholders' Equity and Capital Actions
On
September 30, 2021, book value per
share was $87.04, down 1.3% from
June 30, 2021, primarily driven by a
decrease in net unrealized gains on fixed maturity investments, net
of tax and by ordinary dividends, partially offset by net
income.
During the quarter, the company repurchased approximately
175,000 shares of common stock in the open market for $24.0 million. Additionally, through October 27, the company repurchased approximately
75,000 shares for $10.0 million. The
company has approximately $371.0
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 28, at 10:00
a.m. E.T. A PowerPoint slide 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 at www.hanover.com,
in the "Investors" section. Investors may access the conference
call by dialing 1-844-413-3975 in the U.S. and 1-412-317-5458
internationally. Web-cast 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
|
|
|
|
Investors:
|
Media:
|
|
Oksana
Lukasheva
|
Michael F.
Buckley
|
Abby M.
Clark
|
Email:
olukasheva@hanover.com
|
Email:
mibuckley@hanover.com
|
Email:
abclark@hanover.com
|
1-508-525-6081
|
1-508-855-3099
|
1-508-855-3549
|
|
|
|
Definition of Reported Segments
Continuing operations include three operating segments: Commercial
Lines, Personal Lines and Other. The Commercial Lines segment
offers a suite of products targeted at the small to mid-size
business markets, which include commercial multiple peril,
commercial automobile, workers' compensation and other commercial
coverages such as management and professional liability, marine,
Hanover Programs, specialty industrial and commercial property,
monoline general liability, surety and other commercial lines. The
Personal Lines segment markets automobile, homeowners and ancillary
coverages to individuals and families. The "Other" segment
includes Opus Investment Management, Inc., which provides
investment management services to institutions, pension funds and
other organizations, the operations of the holding company, as well
as a block of run-off voluntary property and casualty pools
business in which the company has not actively participated since
1995.
Financial Supplement
The Hanover's third quarter earnings news release
and financial supplement are available in the "Investors" section
of the company's website at hanover.com.
Condensed
Financial Statements and Reconciliations
|
|
The Hanover
Insurance Group, Inc.
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated
Income Statements
|
|
Three months
ended
|
|
Nine months
ended
|
|
|
|
September
30
|
|
September
30
|
|
($ in
millions)
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Premiums
earned
|
|
$1,186.0
|
|
$1,135.4
|
|
$3,527.6
|
|
$3,373.4
|
|
Net investment
income
|
|
78.8
|
|
67.6
|
|
231.2
|
|
194.9
|
|
Net realized and
unrealized investment gains (losses):
|
|
|
|
|
|
|
|
|
|
Net realized
gains from sales and other
|
|
3.6
|
|
8.2
|
|
6.8
|
|
12.1
|
|
Net change in
fair value of equity securities
|
|
0.3
|
|
30.3
|
|
65.9
|
|
(44.4)
|
|
Impairment recoveries (losses) on investments
|
|
0.1
|
|
(0.8)
|
|
(0.1)
|
|
(27.9)
|
|
Total net realized and
unrealized investment gains (losses)
|
|
4.0
|
|
37.7
|
|
72.6
|
|
(60.2)
|
|
Fees and other
income
|
|
7.6
|
|
9.1
|
|
21.7
|
|
22.2
|
|
Total
revenues
|
|
1,276.4
|
|
1,249.8
|
|
3,853.1
|
|
3,530.3
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
|
Losses and loss
adjustment expenses
|
|
844.0
|
|
709.7
|
|
2,370.4
|
|
2,149.9
|
|
Amortization of
deferred acquisition costs
|
|
244.0
|
|
237.7
|
|
728.5
|
|
711.9
|
|
Interest
expense
|
|
8.5
|
|
9.8
|
|
25.5
|
|
28.6
|
|
Loss from repayment of
debt
|
|
-
|
|
6.1
|
|
-
|
|
6.2
|
|
Other operating
expenses
|
|
137.4
|
|
137.9
|
|
412.2
|
|
395.9
|
|
Total losses and
expenses
|
|
1,233.9
|
|
1,101.2
|
|
3,536.6
|
|
3,292.5
|
|
Income from continuing
operations before income taxes
|
|
42.5
|
|
148.6
|
|
316.5
|
|
237.8
|
|
Income tax
expense
|
|
7.7
|
|
29.1
|
|
59.3
|
|
41.7
|
|
Income from continuing
operations
|
|
34.8
|
|
119.5
|
|
257.2
|
|
196.1
|
|
Discontinued
operations (net of taxes):
|
|
|
|
|
|
|
|
|
|
Loss from discontinued
life businesses
|
|
(0.8)
|
|
(0.6)
|
|
(2.0)
|
|
(2.0)
|
|
Net income
|
|
$34.0
|
|
$118.9
|
|
$255.2
|
|
$194.1
|
|
The Hanover
Insurance Group, Inc.
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
September
30
|
|
December
31
|
|
($ in
millions)
|
|
2021
|
|
2020
|
|
Assets
|
|
|
|
|
|
Total
investments
|
|
$9,103.0
|
|
$8,846.1
|
|
Cash and cash
equivalents
|
|
171.2
|
|
120.6
|
|
Premiums and accounts
receivable, net
|
|
1,503.0
|
|
1,339.3
|
|
Reinsurance
recoverable on paid and unpaid losses and unearned
premiums
|
|
2,002.8
|
|
1,874.3
|
|
Other
assets
|
|
1,217.9
|
|
1,153.2
|
|
Assets of discontinued
businesses
|
|
107.4
|
|
110.2
|
|
Total
assets
|
|
$14,105.3
|
|
$13,443.7
|
|
Liabilities
|
|
|
|
|
|
Loss and loss
adjustment expense reserves
|
|
$6,540.1
|
|
$6,024.0
|
|
Unearned
premiums
|
|
2,742.0
|
|
2,482.7
|
|
Debt
|
|
781.4
|
|
780.8
|
|
Other
liabilities
|
|
817.5
|
|
833.2
|
|
Liabilities of
discontinued businesses
|
|
122.0
|
|
120.8
|
|
Total
liabilities
|
|
11,003.0
|
|
10,241.5
|
|
Total shareholders'
equity
|
|
3,102.3
|
|
3,202.2
|
|
Total liabilities
and shareholders' equity
|
|
$14,105.3
|
|
$13,443.7
|
|
The following is a reconciliation from operating income to net
income(8):
|
|
|
|
|
|
|
|
|
|
|
|
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The Hanover
Insurance Group, Inc.
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Three months ended
September 30
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Nine months ended
September 30
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2021
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2020
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2021
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2020
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($ In millions,
except per share data)
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$
Amount
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|
Per Share
(Diluted)
|
$
Amount
|
|
Per Share
(Diluted)
|
|
$
Amount
|
|
Per Share
(Diluted)
|
|
$
Amount
|
|
Per Share
(Diluted)
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|
Operating
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
Commercial
Lines
|
|
$42.4
|
|
|
|
$62.3
|
|
|
|
$149.0
|
|
|
|
$172.2
|
|
|
|
Personal
Lines
|
|
3.6
|
|
|
|
64.2
|
|
|
|
117.6
|
|
|
|
161.7
|
|
|
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Other
|
|
1.0
|
|
|
|
1.9
|
|
|
|
2.8
|
|
|
|
0.5
|
|
|
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Total
|
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47.0
|
|
|
|
128.4
|
|
|
|
269.4
|
|
|
|
334.4
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|
|
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Interest
expense
|
|
(8.5)
|
|
|
|
(9.8)
|
|
|
|
(25.5)
|
|
|
|
(28.6)
|
|
|
|
Operating income
before income
taxes
|
|
38.5
|
|
$1.06
|
|
118.6
|
|
$3.12
|
|
243.9
|
|
$6.68
|
|
305.8
|
|
$7.96
|
|
Income tax expense on
operating
income
|
|
(7.7)
|
|
(0.21)
|
|
(25.1)
|
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(0.66)
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(47.7)
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|
(1.31)
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|
(62.8)
|
|
(1.63)
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Operating income after
income taxes
|
|
30.8
|
|
0.85
|
|
93.5
|
|
2.46
|
|
196.2
|
|
5.37
|
|
243.0
|
|
6.33
|
|
Non-operating
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net realized gains
from sales and other
|
|
3.6
|
|
0.10
|
|
8.2
|
|
0.21
|
|
6.8
|
|
0.19
|
|
12.1
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|
0.31
|
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Net change in fair
value of equity
securities
|
|
0.3
|
|
0.01
|
|
30.3
|
|
0.80
|
|
65.9
|
|
1.80
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(44.4)
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(1.15)
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Impairment recoveries
(losses) on investments
|
|
0.1
|
|
-
|
|
(0.8)
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|
(0.02)
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|
(0.1)
|
|
-
|
|
(27.9)
|
|
(0.73)
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|
Loss from repayment of
borrowings
|
|
-
|
|
-
|
|
(6.1)
|
|
(0.16)
|
|
-
|
|
-
|
|
(6.2)
|
|
(0.16)
|
|
Other non-operating
items
|
|
-
|
|
-
|
|
(1.6)
|
|
(0.04)
|
|
-
|
|
-
|
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(1.6)
|
|
(0.04)
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Income tax benefit
(expense) on
non-operating items
|
|
-
|
|
-
|
|
(4.0)
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|
(0.11)
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(11.6)
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|
(0.32)
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21.1
|
|
0.55
|
|
Income from
continuing
operations, net of taxes
|
|
34.8
|
|
0.96
|
|
119.5
|
|
3.14
|
|
257.2
|
|
7.04
|
|
196.1
|
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5.11
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Discontinued
operations (net of
taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Loss from discontinued
life
businesses
|
|
(0.8)
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|
(0.02)
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(0.6)
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(0.01)
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(2.0)
|
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(0.06)
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(2.0)
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|
(0.06)
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|
Net income
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|
$34.0
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$0.94
|
|
$118.9
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$3.13
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$255.2
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|
$6.98
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|
$194.1
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|
$5.05
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|
Dilutive weighted
average shares
outstanding
|
|
|
|
36.3
|
|
|
|
38.0
|
|
|
|
36.6
|
|
|
|
38.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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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," "may," "projects," "projections," "plan,"
"likely," "potential," "targeted," "forecasts," "should," "could,"
"continue," "outlook," "guidance," "modeling," "moving forward" 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:
- The company's outlook and its ability to achieve components or
the sum of the respective period guidance on its future results of
operations including: the combined ratio, excluding or including
both prior-year reserve development and/or catastrophe losses;
catastrophe losses; net investment income; growth of net premiums
written and/or net premiums earned in total or by line of business;
expense ratio; operating return on equity; and/or the effective tax
rate;
- The impact of the global pandemic ("Pandemic") and related
economic conditions on the company's operating and financial
results, including, but not limited to, the impact on the company's
investment portfolio, declining claims frequency as a result of
reduced economic activity, severity from higher cost of repairs due
to, among other things, supply chain disruptions, declines in
premium as a result of, among other things, credits or returns to
the company's customers, lower submissions, changes in renewals and
policy endorsements, public health guidance, and the impact of
government orders and restrictions in the states and jurisdictions
in which the company operates;
- Uses of capital for share repurchases, special or ordinary cash
dividends, business investments or growth, or otherwise, and
outstanding shares in future periods as a result of various share
repurchase mechanisms, capital management framework, especially in
the current environment, and overall comfort with liquidity and
capital levels;
- Variability of catastrophe losses due to risk concentrations,
changes in weather patterns including climate change, wildfires,
severe storms, hurricanes, terrorism, civil unrest, riots or other
events, as well as the complexity in estimating losses from large
catastrophe events due to delayed reporting of the existence,
nature or extent of losses or where "demand surge," regulatory
assessments, litigation, coverage and technical complexities or
other factors may significantly impact the ultimate amount of such
losses;
- Current accident year losses and loss selections ("picks"),
excluding catastrophes, and prior accident year loss reserve
development patterns, particularly in complex "longer-tail"
liability lines, as well as the inherent variability in short-tail
property and non-catastrophe weather losses;
- Changes in frequency and loss severity trends;
- Ability to manage the impact of inflationary pressures,
including, but not limited to, supply chain disruptions, labor
shortages, and increases in cost of goods, services, and
materials;
- The confidence or concern that the current level of reserves is
adequate and/or sufficient for future claim payments, whether due
to losses that have been incurred but not reported, circumstances
that delay the reporting of losses, business complexity, adverse
judgments or developments with respect to case reserves, the
difficulties and uncertainties inherent in projecting future losses
from historical data, changes in replacement and medical costs, as
well as complexities related to the Pandemic, including
legislative, regulatory or judicial actions that expand the
intended scope of coverages, or other factors;
- Characterization of some business as being "more profitable" in
light of inherent uncertainty of ultimate losses incurred,
especially for "longer-tail" liability businesses;
- Efforts to manage expenses, including the company's long-term
expense savings targets, while allocating capital to business
investment, which is at management's discretion;
- Mix improvement, underwriting initiatives, coverage
restrictions and pricing segmentation actions, among others, to
grow businesses believed to be more profitable or reduce premiums
attributable to products or lines of business believed to be less
profitable; balance rate actions and retention; offset long-term
and/or short-term loss trends due to increased frequency; increased
"social inflation" from a more litigious environment and higher
average cost of resolution, increased property replacement costs,
and/or social movements;
- The ability to generate growth in targeted segments through new
agency appointments; rate increases (as a result of its market
position, agency relationships or otherwise), retention
improvements or new business; expansion into new geographies; new
product introductions; or otherwise; and
- Investment returns and the effect of macro-economic interest
rate trends and overall security yields, including the
macro-economic impact of the Pandemic and corresponding
governmental and/or central banking initiatives taken in response
threreto, and geopolitical circumstances on new money yields and
overall investment returns.
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:
- The severity, duration and long-term impact related to the
Pandemic, including, but not limited to, actual and possible
government responses, legislative, regulatory and judicial actions,
changes in frequency and severity of claims in both Commercial and
Personal Lines, impacts to distributors (including agent partners),
and the possibility of additional premium adjustments, including
credits and returns, for the benefit of insureds;
- Changes in regulatory, legislative, economic, market and
political conditions, particularly in response to COVID-19 and the
Pandemic (such as legislative or regulatory actions that would
retroactively require insurers to cover business interruption or
other types of claims irrespective of terms, exclusions or other
conditions included in the contractual terms of the policies that
would otherwise preclude coverage, mandatory returns and other
rate-related actions, as well as presumption legislation in regards
to workers' compensation);
- Heightened investment market volatility, fluctuations in
interest rates (which have a significant impact on the market value
of the investment portfolio and thus book value), U.S. Federal
Reserve actions, inflationary pressures, default rates, prolonged
global market conditions and other factors that affect investment
returns from the investment portfolio;
- Adverse claims experience, including those driven by large or
increased frequency of catastrophe events (including those related
to terrorism, riots and civil unrest), and severe weather;
- The uncertainty in estimating weather-related losses or the
long-term impacts of the Pandemic, and the limitations and
assumptions used to model other property and casualty losses
(particularly with respect to products with longer-tail liability
lines, such as casualty and bodily injury claims, or involving
emerging issues related to losses incurred as the result of new
lines of business, such as cyber or financial institutions
coverage, or reinsurance contracts and reinsurance recoverables),
leading to potential adverse development of loss and loss
adjustment expense reserves;
- Litigation and the possibility of adverse judicial decisions,
including those which expand policy coverage beyond its intended
scope and/or award "bad faith" or other non-contractual damages,
and the impact of "social inflation" affecting judicial awards and
settlements;
- The ability to increase or maintain insurance rates in line
with anticipated loss costs and/or governmental action, including
mandates by state departments of insurance to either raise or lower
rates or provide credits or return premium to insureds;
- Investment impairments, which may be affected by, among other
things, the company's ability and willingness to hold investment
assets until they recover in value, as well as credit and interest
rate risk and general financial and economic conditions;
- Disruption of the independent agency channel, including the
impact of competition and consolidation in the industry and among
agents and brokers;
- Competition, particularly from competitors who have resource
and capability advantages;
- The global macroeconomic environment, including actions taken
in response to the Pandemic, inflation, global trade wars, energy
market disruptions, equity price risk, and interest rate
fluctuations, which, among other things, could result in reductions
in market values of fixed maturities and other investments;
- Adverse state and federal regulation, legislative and/or
regulatory actions (including recent significant revisions to
Michigan's automobile personal
injury protection system and related litigation, and various
regulations, orders and proposed legislation related to business
interruption and workers' compensation coverages, premium grace
periods and returns, and rate actions);
- Financial ratings actions, in particular, downgrades to the
company's ratings;
- Operational and technology risks and evolving technological and
product innovation, including risks created by remote work
environments, and the risk of cyber-security attacks on or breaches
of the company's systems and/or impacting our outsourcing
relationships and third-party operations, or resulting in claim
payments (including from products not intended to provide cyber
coverage);
- Uncertainties in estimating indemnification liabilities
recorded in conjunction with obligations undertaken in connection
with the sale of various businesses and discontinued operations;
and
- The ability to collect from reinsurers, reinsurance pricing,
reinsurance terms and conditions, and the performance of the
run-off voluntary property and casualty pools business (including
those in the Other segment or in Discontinued operations).
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.
Non-GAAP Financial Measures
As discussed on page 38 of the company's Annual Report on Form 10-K
for the year ended December 31, 2020,
the company uses non-GAAP financial measures as important measures
of its operating performance, including operating income, operating
income before interest expense and income taxes, operating income
per 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 2020 Annual Report
on pages 67-70.
Operating income and operating income per share are non-GAAP
measures. They are defined as net income 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, as they are, to a certain
extent, determined by interest rates, financial markets and the
timing of sales. Operating income 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 is the sum of the segment income
from: Commercial Lines, Personal Lines, and Other, after interest
expense and income taxes. In reference to one of the company's
three segments, "operating income" is the segment income before
both interest expense and income taxes. The company also uses
"operating income per share" (which is after both interest expense
and income taxes). It is calculated by dividing operating income by
the weighted average number of diluted shares of common stock. The
company believes that metrics of operating income and operating
income in relation to its three segments provide investors with a
valuable measure of the performance of the company's continuing
businesses because they highlight the portion of net income
attributable to the core operations of the business. Income from
continuing operations is the most directly comparable GAAP measure
for operating income (and operating income before income taxes) and
measures of operating income that exclude the effects of
catastrophe losses and/or reserve development should not be
misconstrued as substitutes for income from continuing operations
or net income determined in accordance with GAAP. A reconciliation
of operating income (loss) to income from continuing operations and
net income for the relevant periods is included on page 9 of this
news release and in the Financial Supplement.
The company may also provide measures of operating income 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, windstorms, earthquakes, hail, severe winter
weather, freeze events, fire, explosions, civil unrest 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 "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 reserve development. The presentation of loss and combined
ratios calculated excluding the effects of catastrophe losses
and/or reserve development should not be misconstrued as
substitutes for the loss and/or combined ratios determined in
accordance with GAAP.
Endnotes
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|
(1)
|
Operating income and
operating income per diluted share are non-GAAP measures. Operating
income (loss) before income taxes, as referenced in the results of
the business segments, is defined as, with respect to such segment,
operating income (loss) before interest expense and income taxes.
These measures are used throughout this document. The
reconciliation of operating income and operating income per diluted
share to the closest GAAP measures, income from continuing
operations and income from continuing operations per diluted share,
respectively, is provided on the preceding pages of this news
release. See the disclosure on the use of this and other non-GAAP
measures under the heading "Forward-Looking Statements and Non-GAAP
Financial Measures."
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|
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(2)
|
Combined ratio,
excluding catastrophes, and current accident year combined ratio,
excluding catastrophes, are non-GAAP measures. These measures are
used throughout this document. The combined ratio (which includes
catastrophe losses and prior-year loss reserve development) is the
most directly comparable GAAP measure. A reconciliation of the GAAP
combined ratio to the combined ratio, excluding catastrophes, and
to the current accident year combined ratio, excluding
catastrophes, is shown on the following page.
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|
|
|
Three months
ended
|
|
|
|
September 30,
2021
|
|
|
|
Commercial
Lines
|
|
Personal
Lines
|
|
Total
|
|
Total combined ratio
(GAAP)
|
|
101.2 %
|
|
103.8 %
|
|
102.3 %
|
|
Less: Catastrophe
ratio
|
|
10.7 %
|
|
16.1 %
|
|
12.9 %
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
90.5 %
|
|
87.7 %
|
|
89.4 %
|
|
Less: Prior-year
reserve development ratio
|
|
(1.6)%
|
|
(2.0)%
|
|
(1.8)%
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
92.1 %
|
|
89.7 %
|
|
91.2 %
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
Total combined ratio
(GAAP)
|
|
96.9 %
|
|
90.4 %
|
|
94.2 %
|
|
Less: Catastrophe
ratio
|
|
5.1 %
|
|
6.9 %
|
|
5.8 %
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
91.8 %
|
|
83.5 %
|
|
88.4 %
|
|
Less: Prior-year
reserve development ratio
|
|
(0.6)%
|
|
0.2 %
|
|
(0.2)%
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
92.4 %
|
|
83.3 %
|
|
88.6 %
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended
|
|
|
|
September 30,
2021
|
|
Total combined ratio
(GAAP)
|
|
100.0 %
|
|
96.2 %
|
|
98.5 %
|
|
Less: Catastrophe
ratio
|
|
10.1 %
|
|
10.6 %
|
|
10.3 %
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
89.9 %
|
|
85.6 %
|
|
88.2 %
|
|
Less: Prior-year
reserve development ratio
|
|
(1.1)%
|
|
(1.4)%
|
|
(1.2)%
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
91.0 %
|
|
87.0 %
|
|
89.4 %
|
|
|
|
September 30,
2020
|
|
Total combined ratio
(GAAP)
|
|
97.2 %
|
|
92.0 %
|
|
95.2 %
|
|
Less: Catastrophe
ratio
|
|
6.1 %
|
|
9.4 %
|
|
7.5 %
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
91.1 %
|
|
82.6 %
|
|
87.7 %
|
|
Less: Prior-year
reserve development ratio
|
|
(0.6)%
|
|
(0.1)%
|
|
(0.3)%
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
91.7 %
|
|
82.7 %
|
|
88.0 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Price increases in
Commercial Lines represent the average change in premium on renewed
policies caused by the estimated net effect of base rate changes,
discretionary pricing, inflation or changes in policy level
exposure or insured risks. Rate increases in Commercial Lines
represent the average change in premium on renewed policies caused
by the base rate changes, discretionary pricing, and inflation,
excluding the impact of changes in policy level exposure or insured
risks. Rate increases in Personal Lines is the estimated cumulative
premium effect of approved rate actions applied to policies
available for renewal, regardless of whether or not policies are
actually renewed. Accordingly, pricing changes do not represent
actual increases or decreases realized by the company. Personal
Lines rate increases do not include inflation or changes in policy
level exposure or insured risks.
|
|
|
(4)
|
Core Commercial
business provides commercial property and casualty coverages to
small and mid-sized businesses in the U.S., generally with annual
premiums per policy up to $250,000, primarily through the
commercial multiple peril, commercial auto and workers'
compensation lines of business, as reported on pages 8 and 9 of the
Third Quarter 2021 Financial Supplement.
|
|
|
|
|
Three months
ended
|
|
Three months
ended
|
|
|
|
September 30,
2021
|
|
September 30,
2020
|
|
($ in
millions)
|
|
Core
Commercial
|
|
Other
Commercial
|
|
Total
Commercial
|
|
Core
Commercial
|
|
Other
Commercial
|
|
Total
Commercial
|
|
Net premiums
written
|
|
$478.1
|
|
$348.7
|
|
$826.8
|
|
$441.2
|
|
$319.3
|
|
$760.5
|
|
Net premiums
earned
|
|
$417.6
|
|
$281.0
|
|
$698.6
|
|
$385.9
|
|
$279.2
|
|
$665.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended
|
|
Nine months
ended
|
|
|
|
September 30,
2021
|
|
September 30,
2020
|
|
($ in
millions)
|
|
Core
Commercial
|
|
Other
Commercial
|
|
Total
Commercial
|
|
Core
Commercial
|
|
Other
Commercial
|
|
Total
Commercial
|
|
Net premiums
written
|
|
$1,295.2
|
|
$975.8
|
|
$2,271.0
|
|
$1,210.1
|
|
$872.9
|
|
$2,083.0
|
|
Net premiums
earned
|
|
$1,221.8
|
|
$873.1
|
|
$2,094.9
|
|
$1,163.0
|
|
$836.6
|
|
$1,999.6
|
|
|
|
(5)
|
Current accident year
loss and LAE ratio, excluding catastrophe losses, is a non-GAAP
measure, which is equal to the loss and LAE ratio ("loss ratio"),
excluding prior-year reserve development and catastrophe losses.
The loss ratio (which includes losses, LAE, catastrophe losses and
prior-year loss reserve development) is the most directly
comparable GAAP measure. A reconciliation of the GAAP loss ratio to
the current accident year loss ratio, excluding catastrophe losses,
is shown on the following page.
|
|
|
|
|
Three months
ended
|
|
|
September 30,
2021
|
|
|
|
Commercial
Lines
|
|
Personal
Lines
|
|
Total
|
|
Total loss and LAE
ratio
|
|
67.4 %
|
|
76.5 %
|
|
71.2 %
|
|
Less:
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(1.6)%
|
|
(2.0)%
|
|
(1.8)%
|
|
Catastrophe
ratio
|
|
10.7 %
|
|
16.1 %
|
|
12.9 %
|
|
Current accident year
loss and LAE ratio, excluding catastrophes
|
|
58.3 %
|
|
62.4 %
|
|
60.1 %
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
Total loss and LAE
ratio
|
|
62.4 %
|
|
62.5 %
|
|
62.4 %
|
|
Less:
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(0.6)%
|
|
0.2 %
|
|
(0.2)%
|
|
Catastrophe
ratio
|
|
5.1 %
|
|
6.9 %
|
|
5.8 %
|
|
Current accident year
loss and LAE ratio, excluding catastrophes
|
|
57.9 %
|
|
55.4 %
|
|
56.8 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months
ended
|
|
|
|
September 30,
2021
|
|
|
|
Commercial
Lines
|
|
Personal
Lines
|
|
Total
|
|
Total loss and LAE
ratio
|
|
66.3 %
|
|
68.4 %
|
|
67.2 %
|
|
Less:
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(1.1)%
|
|
(1.4)%
|
|
(1.2)%
|
|
Catastrophe
ratio
|
|
10.1 %
|
|
10.6 %
|
|
10.3 %
|
|
Current accident year
loss and LAE ratio, excluding catastrophes
|
|
57.3 %
|
|
59.2 %
|
|
58.1 %
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
Total loss and LAE
ratio
|
|
62.9 %
|
|
64.6 %
|
|
63.7 %
|
|
Less:
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(0.6)%
|
|
(0.1)%
|
|
(0.3)%
|
|
Catastrophe
ratio
|
|
6.1 %
|
|
9.4 %
|
|
7.5 %
|
|
Current accident year
loss and LAE ratio, excluding catastrophes
|
|
57.4 %
|
|
55.3 %
|
|
56.5 %
|
|
|
|
|
|
|
|
|
|
|
|
(6)
|
Here, and later in
this document, the expense ratio is reduced by installment and
other fee revenues for purposes of the ratio
calculation.
|
|
|
(7)
|
Specialty lines, a
major component of Other Commercial Lines, consist of products such
as marine, surety, specialty industrial property, excess and
surplus, professional liability, management liability and program
business. When discussing net premiums written and other financial
measures of our specialty businesses, we may include non-specialty
premiums that are written as part of the entire account.
|
|
|
(8)
|
The separate
financial information of each operating segment is presented
consistent with the way results are regularly evaluated by the
chief operating decision maker in deciding how to allocate
resources and in assessing performance. Management evaluates the
results of the aforementioned operating segments without
consideration of interest expense on debt and on a pre-tax
basis.
|
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SOURCE The Hanover Insurance Group, Inc.