Full Year Highlights
- Combined ratio of 99.8%; Combined ratio, excluding
catastrophes(1), of 92.1%
- Net premiums written of $5.5
billion, an increase of 9.7%* from the prior year
- Current accident year loss and loss adjustment expense ("LAE")
ratio, excluding catastrophes(2), increased from the
prior year reflecting the impact of inflation on property coverages
in Personal Lines and Core Commercial, partially offset by the
benefit of rate increases earning in within Specialty and Core
Commercial
- Net investment income of $296.3
million, above original guidance by approximately
$25 million, driven primarily by
higher-than-expected bond reinvestment rates
Fourth Quarter Highlights
- Combined ratio of 108.0%, and 94.1% excluding catastrophes
- Catastrophe losses of $189.6
million, or 13.9 points, including the impact from
Winter Storm Elliott of $165 million
- Net premiums written increase of 9.1%, with strong
contributions from each segment
- Renewal price change(3) of 10.2% in Core Commercial,
13.2% in Specialty and 10.1% in Personal Lines, driven by
homeowners renewal price change of 15.5%
- Rate increases(3) of 7.2% in Core Commercial, 8.2%
in Specialty and 5.4% in Personal Lines
- Current accident year loss and LAE ratio, excluding
catastrophes, was in line with the outlook provided on the third
quarter 2022 earnings call, but higher than the prior-year quarter
driven by the impact of inflation, primarily on personal lines
property
- Net investment income of $75.9
million, above expectations and helped by higher bond
reinvestment rates, while below the prior-year quarter due to the
elevated level of partnership income in the fourth quarter of
2021
- On December 5, 2022, the Board of
Directors approved an increase of 8% to the regular quarterly
dividend
- Book value per share of $65.38,
up 1.2% from September 30, 2022,
primarily driven by an increase in the fair value of
investments
WORCESTER, Mass., Feb. 1, 2023 /PRNewswire/ -- The Hanover
Insurance Group, Inc. (NYSE: THG) today reported a net loss of
$11.6 million, or $0.33 per basic share**, in the fourth quarter of
2022, compared to net income of $163.5
million, or $4.53 per diluted
share, in the prior-year quarter. Operating loss(4) was
$37.4 million, or $1.05 per basic share, for the fourth quarter of
2022. This compared to operating income of $122.1 million, or $3.38 per diluted share, in the prior-year
quarter.
Net income was $116.0 million, or
$3.21 per diluted share, in the full
year 2022. This compared to net income of $418.7 million, or $11.49 per diluted share, in the prior year.
Operating income was $199.9 million,
or $5.53 per diluted share, in 2022.
This compared to operating income of $318.3
million, or $8.73 per diluted
share, in the prior year.
"Despite the disappointing impact of Winter Storm Elliott, we are pleased with the
progress we made in the fourth quarter toward recapturing margins
in property lines and we are proud of the advancements we made in
2022 on our long-term strategic and business priorities," said
John C. Roche, president and chief
executive officer at The Hanover.
"In the quarter, we increased Personal Lines pricing by 10.1%, up
2.8 points over the third quarter, while sustaining excellent
retention, which is a testament to the effectiveness of our agency
distribution approach and distinctive product offering.
Furthermore, pricing in Core Commercial remained relatively stable
as we continued to increase insured values and implement selected
property underwriting actions. We are once again delighted with the
exceptional performance and progress of our Specialty business,
which delivered double-digit net premiums written growth and a
sub-90s combined ratio for the year. As we move forward, we remain
focused on addressing the challenges at hand in this dynamic and
rapidly changing environment. I have every confidence we have the
team, the strategy, and the capabilities to effectively navigate
what lies ahead. We remain committed to generating superior value
for our shareholders and all of our stakeholders."
"Considering the magnitude of recent catastrophe activity and
the current economic environment, we delivered solid results, with
operating income per share of $5.53
and operating return on equity(5) of 6.7% in 2022," said
Jeffrey M. Farber, executive vice
president and chief financial officer at The Hanover. "We generated net premiums written
growth of 9.7%, with strong contributions across all segments, and
a combined ratio, excluding catastrophes, of 92.1%, in line with
the guidance we provided on our third quarter call in
November. A confluence of factors made Winter Storm Elliott a unique and very
destructive storm, from its timing to its widespread impact. We
have an established track record of effectively addressing
hurricanes and other catastrophe perils in the past, and we are
confident in our ability to do so again. We continued to
demonstrate our expense rigor, as we achieved a 50-basis point
improvement in the full-year expense ratio(6) over the
prior-year period due to continued expense discipline, growth
leverage, and some one-time favorability. Our diversified
investment portfolio is well positioned, and we are pleased with
the substantial improvement in the investment income from our fixed
assets portfolio. We believe the current interest rate environment
will continue to provide an accumulating benefit. We have entered
2023 in a robust financial position and have strong visibility into
improved margins and investment income, as we deliver comprehensive
and innovative insurance solutions to our agent partners and
customers, which should drive sustainable, profitable growth in the
year ahead."
Fourth Quarter and Full Year 2022 Financial
Highlights
|
Three months
ended
|
|
Year ended
|
|
|
December
31
|
|
December
31
|
|
($ in
millions, except per share data)
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Net premiums
written
|
$1,326.0
|
|
$1,214.9
|
|
$5,476.5
|
|
$4,993.4
|
|
Growth
|
9.1%
|
|
9.2%
|
|
9.7%
|
|
8.6%
|
|
Net premiums
earned
|
$1,363.5
|
|
$1,242.6
|
|
$5,252.3
|
|
$4,770.2
|
|
|
|
|
|
|
|
|
|
|
Current accident year
loss and LAE ratio,
excluding catastrophes(2)
|
63.3 %
|
|
59.6 %
|
|
61.7 %
|
|
58.5 %
|
|
Prior year development
ratio
|
(0.1)%
|
|
(1.2)%
|
|
(0.4)%
|
|
(1.2)%
|
|
Catastrophe
ratio
|
13.9 %
|
|
3.1 %
|
|
7.7 %
|
|
8.4 %
|
|
Loss and LAE
ratio
|
77.1%
|
|
61.5%
|
|
69.0%
|
|
65.7%
|
|
Expense
ratio
|
30.9 %
|
|
31.4 %
|
|
30.8 %
|
|
31.3 %
|
|
Combined
ratio
|
108.0 %
|
|
92.9 %
|
|
99.8 %
|
|
97.0 %
|
|
Combined ratio,
excluding catastrophes(1)
|
94.1 %
|
|
89.8 %
|
|
92.1 %
|
|
88.6 %
|
|
Current accident year
combined ratio,
excluding
catastrophes(1)
|
94.2 %
|
|
91.0 %
|
|
92.5 %
|
|
89.8 %
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
$(11.6)
|
|
$163.5
|
|
$116.0
|
|
$418.7
|
|
per diluted/(basic)
share
|
(0.33)
|
|
4.53
|
|
3.21
|
|
11.49
|
|
Operating income
(loss)
|
(37.4)
|
|
122.1
|
|
199.9
|
|
318.3
|
|
per diluted/(basic)
share
|
(1.05)
|
|
3.38
|
|
5.53
|
|
8.73
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
$65.38
|
|
$88.59
|
|
$65.38
|
|
$88.59
|
|
Ending shares
outstanding (in millions)
|
35.6
|
|
35.5
|
|
35.6
|
|
35.5
|
|
|
* Unless otherwise
stated, net premiums written growth and other growth comparisons
are to the same period of the prior year
|
** Operating loss
before and after income taxes, non-operating items, loss from
continuing operations, net of taxes and net loss metrics are
calculated using basic shares outstanding due to
antidilution
|
(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.
|
Fourth Quarter Operating
Highlights
Core Commercial
Core Commercial operating loss before
taxes was $52.7 million in the fourth
quarter of 2022, compared to operating income before taxes of
$71.9 million in the fourth quarter
of 2021. The Core Commercial combined ratio was 117.2%, compared to
92.4% in the prior-year quarter.
Catastrophe losses in the fourth quarter of 2022 were
$123.5 million, or 24.6 points of the
combined ratio, driven by the significant and widespread impact of
Winter Storm Elliott. Elliott
impacted the majority of the U.S. over several days in late
December and occurred during a heavy travel and low occupancy
period, which resulted in delayed recognition and increased damage
to commercial properties. This compared to catastrophe losses of
$10.9 million, or 2.3 points, in the
prior-year quarter.
Net favorable prior-year reserve development, excluding
catastrophes, was $2.4 million, or
0.5 points, in the fourth quarter of 2022, compared to $7.2 million, or 1.5 points, in the fourth
quarter of 2021.
Core Commercial current accident year combined ratio, excluding
catastrophes, increased 1.5 points to 93.1% in the fourth quarter
of 2022, from 91.6% in the prior-year quarter. The current accident
year loss and LAE ratio, excluding catastrophes, of 60.2%,
increased 2.2 points from the prior-year quarter, primarily due to
increased loss cost inflation on property coverages, as well as
higher property large loss activity in the commercial multiple
peril ("CMP") line.
The expense ratio decreased by 0.7 points to 32.9% in the fourth
quarter of 2022, compared to the prior-year quarter, primarily
attributable to fixed cost leverage from premium growth and lower
performance-based compensation.
Net premiums written were $453.2
million in the quarter, up 5.9% from the prior-year quarter,
consisting of 7.0% growth in small commercial and 4.5% growth in
middle market. In the fourth quarter, Core Commercial renewal price
increases averaged 10.2%, while average rate increases were
7.2%.
The following table summarizes premiums and the components of
the combined ratio for Core Commercial:
|
Three months
ended
|
|
Year ended
|
|
|
December
31
|
|
December
31
|
|
($ in
millions)
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Net premiums
written
|
$453.2
|
|
$427.9
|
|
$1,999.9
|
|
$1,864.8
|
|
Growth
|
5.9%
|
|
6.8%
|
|
7.2%
|
|
8.0%
|
|
Net premiums
earned
|
503.0
|
|
468.4
|
|
1,950.5
|
|
1,810.9
|
|
Operating income
(loss) before taxes
|
(52.7)
|
|
71.9
|
|
106.9
|
|
138.0
|
|
Loss and LAE
ratio
|
84.3%
|
|
58.8%
|
|
68.5%
|
|
67.4%
|
|
Expense
ratio
|
32.9%
|
|
33.6%
|
|
32.7%
|
|
32.9%
|
|
Combined
ratio
|
117.2%
|
|
92.4%
|
|
101.2%
|
|
100.3%
|
|
Prior-year development
ratio
|
(0.5)%
|
|
(1.5)%
|
|
(0.5)%
|
|
(1.0)%
|
|
Catastrophe
ratio
|
24.6 %
|
|
2.3 %
|
|
9.9 %
|
|
9.7 %
|
|
Combined ratio,
excluding catastrophes
|
92.6 %
|
|
90.1 %
|
|
91.3 %
|
|
90.6 %
|
|
Current accident year
combined ratio,
excluding
catastrophes
|
93.1 %
|
|
91.6 %
|
|
91.8 %
|
|
91.6 %
|
|
|
|
|
|
|
|
|
|
|
Specialty
Specialty operating income before taxes was
$43.9 million in the fourth quarter
of 2022, compared to $49.0 million in
the fourth quarter of 2021. The Specialty combined ratio was 90.5%,
compared to 87.7% in the prior-year quarter. Catastrophe losses in
the fourth quarter of 2022 were $9.9
million, or 3.2 points of the combined ratio, compared to
$4.6 million, or 1.7 points, in the
prior-year quarter.
Prior-year reserve development, excluding catastrophes, was
immaterial in the fourth quarter of 2022. This compared to net
favorable prior-year reserve development, excluding catastrophes,
of $4.2 million, or 1.5 points, in
the fourth quarter of 2021.
Specialty current accident year combined ratio, excluding
catastrophes, was 87.3% in the fourth quarter of 2022. The current
accident year loss and LAE ratio, excluding catastrophes, decreased
by 0.9 points to 51.5%, driven primarily by the benefit of earned
rate increases above loss trends.
The expense ratio increased by 0.7 points to 35.8% in the fourth
quarter of 2022, compared to the prior-year quarter, primarily
driven by the timing of technology investments, partially offset by
fixed cost leverage from premium growth.
Net premiums written were $309.5
million in the quarter, up 8.7% from the prior-year quarter,
driven primarily by rate and exposure increases. In the fourth
quarter, Specialty renewal price increases averaged 13.2%, while
average rate increases were 8.2%.
The following table summarizes premiums and the components of
the combined ratio for Specialty:
|
Three months
ended
|
|
Year ended
|
|
|
December
31
|
|
December
31
|
|
($ in
millions)
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Net premiums
written
|
$309.5
|
|
$284.8
|
|
$1,243.7
|
|
$1,118.9
|
|
Growth
|
8.7%
|
|
14.1%
|
|
11.2%
|
|
11.1%
|
|
Net premiums
earned
|
308.4
|
|
277.5
|
|
1,189.0
|
|
1,029.9
|
|
Operating income
before taxes
|
43.9
|
|
49.0
|
|
186.0
|
|
131.9
|
|
Loss and LAE
ratio
|
54.7%
|
|
52.6%
|
|
54.0%
|
|
57.4%
|
|
Expense
ratio
|
35.8%
|
|
35.1%
|
|
35.3%
|
|
35.5%
|
|
Combined
ratio
|
90.5%
|
|
87.7%
|
|
89.3%
|
|
92.9%
|
|
Prior-year development
ratio
|
-
|
|
(1.5)%
|
|
(1.6)%
|
|
(1.6)%
|
|
Catastrophe
ratio
|
3.2 %
|
|
1.7 %
|
|
2.8 %
|
|
5.0 %
|
|
Combined ratio,
excluding catastrophes
|
87.3 %
|
|
86.0 %
|
|
86.5 %
|
|
87.9 %
|
|
Current accident year
combined ratio,
excluding
catastrophes
|
87.3 %
|
|
87.5 %
|
|
88.1 %
|
|
89.5 %
|
|
|
|
|
|
|
|
|
|
|
Personal Lines
Personal Lines operating loss before
taxes was $29.1 million in the fourth
quarter of 2022, compared to operating income before taxes of
$40.9 million in the fourth quarter
of 2021. The Personal Lines combined ratio was 109.1%, compared to
96.2% in the prior-year quarter. Catastrophe losses in the fourth
quarter of 2022 were $56.2 million,
or 10.2 points of the combined ratio, compared to $23.5 million, or 4.7 points, in the prior-year
quarter.
Prior-year reserve development, excluding catastrophes, was
immaterial in the fourth quarter of 2022. This compared to net
favorable prior-year reserve development, excluding catastrophes,
of $3.0 million, or 0.6 points, in
the fourth quarter of 2021.
Personal Lines current accident year combined ratio, excluding
catastrophe losses, increased 6.8 points to 98.9% in the fourth
quarter of 2022, from 92.1% in the prior-year quarter. The current
accident year loss and LAE ratio, excluding catastrophes, increased
7.8 points to 72.6%, driven primarily by the impact of inflation
and supply chain delays on personal auto and homeowners property
lines. More specifically in auto, the increase in the underlying
loss ratio from the prior-year quarter reflects higher inflationary
pressure on car prices and costs of parts and labor, as well as an
increase in animal hits affecting the comprehensive auto coverage.
Excluding the effect of comprehensive coverage losses, underlying
auto loss cost trends in the fourth quarter were in line with the
company's expectations. In home, the increase in the underlying
loss ratio from the prior-year quarter was primarily due to higher
inflation and, to a lesser extent, property large losses. The
underlying loss ratio in home remained in line with the company's
most recent expectations.
The expense ratio decreased by 1.0 point to 26.3% in the fourth
quarter of 2022, compared to the prior-year quarter, primarily
attributable to fixed cost leverage from premium growth and lower
performance-based compensation.
Net premiums written were $563.3
million in the quarter, up 12.2% from the prior-year
quarter, driven by continued strong renewal price changes. In the
fourth quarter, Personal Lines renewal price increases averaged
10.1%, while average rate increases were 5.4%.
The following table summarizes premiums and components of the
combined ratio for Personal Lines:
|
Three months
ended
|
|
Year ended
|
|
|
December
31
|
|
December
31
|
|
($ in
millions)
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
Net premiums
written
|
$563.3
|
|
$502.2
|
|
$2,232.9
|
|
$2,009.7
|
|
Growth
|
12.2%
|
|
8.7%
|
|
11.1%
|
|
7.7%
|
|
Net premiums
earned
|
552.1
|
|
496.7
|
|
2,112.8
|
|
1,929.4
|
|
Operating income
(loss) before taxes
|
(29.1)
|
|
40.9
|
|
(8.8)
|
|
158.5
|
|
Loss and LAE
ratio
|
82.8%
|
|
68.9%
|
|
77.8%
|
|
68.5%
|
Expense
ratio
|
26.3%
|
|
27.3%
|
|
26.5%
|
|
27.7%
|
|
Combined
ratio
|
109.1%
|
|
96.2%
|
|
104.3%
|
|
96.2%
|
|
Prior-year development
ratio
|
-
|
|
(0.6)%
|
|
0.4 %
|
|
(1.2)%
|
|
Catastrophe
ratio
|
10.2 %
|
|
4.7 %
|
|
8.3 %
|
|
9.1 %
|
|
Combined ratio,
excluding catastrophes
|
98.9 %
|
|
91.5 %
|
|
96.0 %
|
|
87.1 %
|
|
Current accident year
combined ratio,
excluding
catastrophes
|
98.9 %
|
|
92.1 %
|
|
95.6 %
|
|
88.3 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year Operating Highlights
Net income was $116.0 million in
2022, compared to $418.7 million in
the prior year. Operating income was $199.9
million in 2022, compared to $318.3
million in the prior year. Operating income before interest
expense and taxes was $285.1 million
in 2022, compared to $432.3 million
in the prior year.
Catastrophe losses were $402.6
million, or 7.7 points of the combined ratio, in 2022,
compared to $402.6 million, or 8.4
points, in the prior year. Net favorable prior-year reserve
development, excluding catastrophes, was $20.6 million, or 0.4 points, in 2022,
compared to $56.1 million, or
1.2 points in the prior year.
The combined ratio was 99.8% in the full year of 2022, compared
to 97.0% in the prior year. The current accident year combined
ratio, excluding catastrophe losses, was 92.5% in 2022, compared to
89.8% in 2021, driven by an increase in the current accident year
loss and LAE ratio, primarily due to higher property severity
primarily in Personal Lines. Partially offsetting the increase
in the underlying loss ratio was an improvement of 0.5 points in
the expense ratio, primarily driven by fixed cost leverage from
premium growth and lower incentive compensation.
Total net premiums written were $5.5
billion in 2022, up 9.7% from 2021, reflecting growth
of 11.2% in Specialty, 11.1% in Personal Lines and 7.2% in Core
Commercial.
Core Commercial operating income before taxes was $106.9 million in 2022, which included
$193.7 million, or 9.9 points,
of catastrophe losses, and $10.3
million, or 0.5 points, of net favorable prior-year
reserve development. In 2021, Core Commercial operating income
before taxes was $138.0 million,
which included $175.5 million,
or 9.7 points, of catastrophe losses, and $17.8 million, or 1.0 point, of net favorable
prior-year reserve development. The Core Commercial current
accident year combined ratio, excluding catastrophe losses, was
91.8%, compared to 91.6% in the prior year, driven by an increase
in the current accident year loss and LAE ratio, primarily due to
higher inflation and an increase in property large losses,
partially offset by an improvement in the expense
ratio.
Specialty operating income before taxes was $186.0 million in 2022, which included
$32.7 million, or 2.8 points, of
catastrophe losses, and $19.5
million, or 1.6 points, of net favorable prior-year
reserve development. In 2021, Specialty operating income before
taxes was $131.9 million, which
included $51.8 million, or 5.0
points, of catastrophe losses, and $16.2
million, or 1.6 points, of net favorable prior-year reserve
development. The Specialty current accident year combined ratio,
excluding catastrophe losses, was 88.1%, compared to 89.5% in the
prior year, driven by an improvement in the current accident year
loss and LAE ratio primarily due to the benefit from rate increases
earning-in, as well as an improvement in the expense ratio.
Personal Lines operating loss before taxes was $8.8 million in 2022, which included $176.2 million, or 8.3 points, of
catastrophe losses, and $8.0 million,
or 0.4 points, of net unfavorable prior-year reserve
development. In 2021, Personal Lines operating income before taxes
was $158.5 million, which included
$175.3 million,
or 9.1 points, of catastrophe losses, and $23.1 million, or 1.2 points, of net favorable
prior-year reserve development. The Personal Lines current accident
year combined ratio, excluding catastrophes, was 95.6%, compared to
88.3% in the prior year, driven primarily by the impact of loss
cost inflation on personal auto and homeowners property
lines.
Investments
Net investment income was $75.9 million for the fourth quarter and
$296.3 million for the full year
2022, below prior-year periods primarily due to elevated
partnership income in the prior-year periods, partially offset by
the investment of operational cashflows and higher bond
reinvestment rates. Total pre-tax earned yield on the investment
portfolio for the quarter ended December 31,
2022, was 3.26%, down from 3.69% in the prior-year quarter.
The average pre-tax earned yield on fixed maturities was 3.20% and
2.90% for the quarters ended December 31,
2022, and 2021, respectively. Total pre-tax earned yield on
the investment portfolio for the year ended December 31, 2022, was 3.29%, down from 3.70% in
the prior year. The average pre-tax earned yield on fixed
maturities was 3.04% and 2.99% for years ended December 31, 2022, and 2021, respectively.
Net realized and unrealized investment gains recognized in
earnings were $32.2 million in the
fourth quarter of 2022, primarily driven by the change in fair
value of equity securities. This compared to net realized and
unrealized investment gains recognized in earnings of $50.4 million in the fourth quarter of 2021. Net
realized and unrealized investment losses recognized in earnings
were $106.5 million in 2022,
primarily driven by the change in fair value of equity securities
and, to a lesser extent, losses on intent to sell fixed income
securities due to a planned transfer of certain fixed income assets
to an external portfolio manager. This compared to net realized and
unrealized investment gains recognized in earnings of $123.0 million in 2021.
The company held $8.8 billion in
cash and invested assets on December 31,
2022. Fixed maturities and cash represented approximately
88% of the investment portfolio. Approximately 96% of the company's
fixed maturity portfolio is rated investment grade. Net unrealized
losses on the fixed maturity portfolio as of December 31, 2022, were $812.7 million before income taxes, an increase
in fair value of $80.3 million since
September 30, 2022.
Shareholders' Equity
On December 31, 2022, book value per share was
$65.38, up 1.2% from September 30, 2022, primarily driven by an
increase in the fair value of fixed maturity investments. During
the quarter, the company did not repurchase any shares of common
stock in the open market. The company has approximately
$330 million of remaining capacity
under its existing share repurchase program.
On December 31, 2022, statutory
capital and surplus was $2.7 billion,
in line with December 31, 2021.
Additionally, in the fourth quarter, the Board of Directors
approved an increase to the quarterly dividend of 8.0% to
$0.81 per common share. The company
paid ordinary dividends of $28.8
million in the fourth quarter and $108.9 million in the year.
Earnings Conference Call
The company will host a
conference call to discuss its fourth quarter and full year results
on Thursday, February 2, at 10:00
a.m. E.T. A 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 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
Investors: Oksana Lukasheva olukasheva@hanover.com 1-508-525-6081
|
Media: Michael F. Buckley mibuckley@hanover.com 1-508-855-3099
|
Abby M.
Clark abclark@hanover.com 1-508-855-3549
|
Definition of Reported Segments
Continuing operations
include four operating 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
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 Opus Investment
Management, Inc., which provides investment management services to
institutions, pension funds and other organizations, and the
operations of the holding company, as well as 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 business.
Financial Supplement
The Hanover's fourth quarter and full year 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
|
|
Year ended
|
|
|
|
December
31
|
|
December
31
|
|
($ in
millions)
|
|
2022
|
2021
|
|
2022
|
2021
|
|
Revenues
|
|
|
|
|
|
|
|
Premiums
earned
|
|
$1,363.5
|
$1,242.6
|
|
$5,252.3
|
$4,770.2
|
|
Net investment
income
|
|
75.9
|
79.5
|
|
296.3
|
310.7
|
|
Net realized and
unrealized investment gains (losses):
|
|
|
|
|
|
|
|
Net realized gains
(losses) from sales and other
|
|
(10.2)
|
(2.2)
|
|
(26.5)
|
4.6
|
|
Net change in fair
value of equity securities
|
|
42.8
|
53.2
|
|
(63.3)
|
119.1
|
|
Recoveries
(impairments) on investments:
|
|
|
|
|
|
|
|
Credit-related
recoveries (impairments)
|
|
(0.4)
|
(0.3)
|
|
(1.9)
|
0.3
|
|
Losses on intent to
sell securities
|
|
-
|
(0.3)
|
|
(14.8)
|
(1.0)
|
|
|
|
(0.4)
|
(0.6)
|
|
(16.7)
|
(0.7)
|
|
Total net realized and
unrealized investment gains (losses)
|
|
32.2
|
50.4
|
|
(106.5)
|
123.0
|
|
Fees and other
income
|
|
7.1
|
6.0
|
|
26.5
|
23.9
|
|
Total
revenues
|
|
1,478.7
|
1,378.5
|
|
5,468.6
|
5,227.8
|
|
|
|
|
|
|
|
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
Losses and loss
adjustment expenses
|
|
1,050.8
|
763.8
|
|
3,623.4
|
3,134.2
|
|
Amortization of
deferred acquisition costs
|
|
283.9
|
254.2
|
|
1,093.2
|
982.7
|
|
Interest
expense
|
|
8.6
|
8.5
|
|
34.1
|
34.0
|
|
Other operating
expenses
|
|
150.1
|
147.2
|
|
573.9
|
555.6
|
|
Total losses and
expenses
|
|
1,493.4
|
1,173.7
|
|
5,324.6
|
4,706.5
|
|
Income (loss) from
continuing operations before income taxes
|
|
(14.7)
|
204.8
|
|
144.0
|
521.3
|
|
Income tax expense
(benefit)
|
|
(2.8)
|
42.0
|
|
27.2
|
101.3
|
|
Income (loss) from
continuing operations
|
|
(11.9)
|
162.8
|
|
116.8
|
420.0
|
|
Discontinued
operations (net of taxes):
|
|
|
|
|
|
|
|
Income from Chaucer
business
|
|
-
|
1.2
|
|
-
|
1.2
|
|
Income (loss) from
discontinued life businesses
|
|
0.3
|
(0.5)
|
|
(0.8)
|
(2.5)
|
|
Net income
(loss)
|
|
$(11.6)
|
$163.5
|
|
$116.0
|
$418.7
|
|
|
|
|
|
|
|
|
|
The Hanover
Insurance Group, Inc.
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
December
31
|
|
December
31
|
|
($ in
millions)
|
|
2022
|
|
2021
|
|
Assets
|
|
|
|
|
|
Total
investments
|
|
$8,509.8
|
|
$9,152.6
|
|
Cash and cash
equivalents
|
|
305.0
|
|
230.9
|
|
Premiums and accounts
receivable, net
|
|
1,601.4
|
|
1,469.5
|
|
Reinsurance
recoverable on paid and unpaid losses and unearned
premiums
|
|
1,964.5
|
|
1,907.3
|
|
Other
assets
|
|
1,530.3
|
|
1,386.9
|
|
Assets of discontinued
businesses
|
|
86.2
|
|
107.1
|
|
Total
assets
|
|
$13,997.2
|
|
$14,254.3
|
|
Liabilities
|
|
|
|
|
|
Loss and loss
adjustment expense reserves
|
|
$7,012.6
|
|
$6,447.6
|
|
Unearned
premiums
|
|
2,954.2
|
|
2,734.9
|
|
Debt
|
|
782.4
|
|
781.6
|
|
Other
liabilities
|
|
802.0
|
|
1,023.6
|
|
Liabilities of
discontinued businesses
|
|
120.4
|
|
121.7
|
|
Total
liabilities
|
|
11,671.6
|
|
11,109.4
|
|
Total
shareholders' equity
|
|
2,325.6
|
|
3,144.9
|
|
Total liabilities
and shareholders' equity
|
|
$13,997.2
|
|
$14,254.3
|
|
The following is a reconciliation from operating income (loss)
to net income (loss)(7):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Hanover
Insurance Group, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
December 31
|
|
|
Year ended December
31
|
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
($ in millions,
except per share data)
|
|
$
Amount
|
|
Per Share*
|
|
$
Amount
|
|
Per Share
(Diluted)
|
|
$
Amount
|
|
Per Share
(Diluted)
|
|
$
Amount
|
|
Per Share
(Diluted)
|
|
Operating income
(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
Commercial
|
|
$
|
(52.7)
|
|
|
|
|
$
|
71.9
|
|
|
|
|
$
|
106.9
|
|
|
|
|
$
|
138.0
|
|
|
|
|
Specialty
|
|
|
43.9
|
|
|
|
|
|
49.0
|
|
|
|
|
|
186.0
|
|
|
|
|
|
131.9
|
|
|
|
|
Personal
Lines
|
|
|
(29.1)
|
|
|
|
|
|
40.9
|
|
|
|
|
|
(8.8)
|
|
|
|
|
|
158.5
|
|
|
|
|
Other
|
|
|
(0.3)
|
|
|
|
|
|
1.1
|
|
|
|
|
|
1.0
|
|
|
|
|
|
3.9
|
|
|
|
|
Total
|
|
|
(38.2)
|
|
|
|
|
|
162.9
|
|
|
|
|
|
285.1
|
|
|
|
|
|
432.3
|
|
|
|
|
Interest
expense
|
|
|
(8.6)
|
|
|
|
|
|
(8.5)
|
|
|
|
|
|
(34.1)
|
|
|
|
|
|
(34.0)
|
|
|
|
|
Operating income
(loss) before income taxes
|
|
|
(46.8)
|
|
$
|
(1.31)
|
|
|
154.4
|
|
$
|
4.27
|
|
|
251.0
|
|
$
|
6.95
|
|
|
398.3
|
|
$
|
10.93
|
|
Income tax benefit
(expense) on operating income
(loss)
|
|
|
9.4
|
|
|
0.26
|
|
|
(32.3)
|
|
|
(0.89)
|
|
|
(51.1)
|
|
|
(1.42)
|
|
|
(80.0)
|
|
|
(2.20)
|
|
Operating income
(loss) after income taxes
|
|
|
(37.4)
|
|
|
(1.05)
|
|
|
122.1
|
|
|
3.38
|
|
|
199.9
|
|
|
5.53
|
|
|
318.3
|
|
|
8.73
|
|
Non-operating
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains
(losses) from sales and other
|
|
|
(10.2)
|
|
|
(0.29)
|
|
|
(2.2)
|
|
|
(0.06)
|
|
|
(26.5)
|
|
|
(0.73)
|
|
|
4.6
|
|
|
0.13
|
|
Net change in fair
value of equity securities
|
|
|
42.8
|
|
|
1.20
|
|
|
53.2
|
|
|
1.47
|
|
|
(63.3)
|
|
|
(1.75)
|
|
|
119.1
|
|
|
3.27
|
|
Recoveries
(impairments) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related
recoveries (impairments)
|
|
|
(0.4)
|
|
|
(0.01)
|
|
|
(0.3)
|
|
|
(0.01)
|
|
|
(1.9)
|
|
|
(0.05)
|
|
|
0.3
|
|
|
0.01
|
|
Losses on intent to
sell securities
|
|
|
-
|
|
|
-
|
|
|
(0.3)
|
|
|
(0.01)
|
|
|
(14.8)
|
|
|
(0.41)
|
|
|
(1.0)
|
|
|
(0.03)
|
|
|
|
|
(0.4)
|
|
|
(0.01)
|
|
|
(0.6)
|
|
|
(0.02)
|
|
|
(16.7)
|
|
|
(0.46)
|
|
|
(0.7)
|
|
|
(0.02)
|
|
Other non-operating
items
|
|
|
(0.1)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(0.5)
|
|
|
(0.02)
|
|
|
-
|
|
|
-
|
|
Income tax benefit
(expense) on non-operating
items
|
|
|
(6.6)
|
|
|
(0.18)
|
|
|
(9.7)
|
|
|
(0.26)
|
|
|
23.9
|
|
|
0.66
|
|
|
(21.3)
|
|
|
(0.59)
|
|
Income (loss) from
continuing operations, net of
taxes
|
|
|
(11.9)
|
|
|
(0.33)
|
|
|
162.8
|
|
|
4.51
|
|
|
116.8
|
|
|
3.23
|
|
|
420.0
|
|
|
11.52
|
|
Discontinued
operations (net of taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Chaucer
business
|
|
|
-
|
|
|
-
|
|
|
1.2
|
|
|
0.03
|
|
|
-
|
|
|
-
|
|
|
1.2
|
|
|
0.03
|
|
Income (loss) from
discontinued life businesses
|
|
|
0.3
|
|
|
-
|
|
|
(0.5)
|
|
|
(0.01)
|
|
|
(0.8)
|
|
|
(0.02)
|
|
|
(2.5)
|
|
|
(0.06)
|
|
Net income
(loss)
|
|
$
|
(11.6)
|
|
$
|
(0.33)
|
|
$
|
163.5
|
|
$
|
4.53
|
|
$
|
116.0
|
|
$
|
3.21
|
|
$
|
418.7
|
|
$
|
11.49
|
|
Dilutive weighted
average shares outstanding
|
|
|
|
|
|
36.1
|
|
|
|
|
|
36.1
|
|
|
|
|
|
36.1
|
|
|
|
|
|
36.4
|
|
Basic weighted average
shares outstanding
|
|
|
|
|
|
35.6
|
|
|
|
|
|
35.5
|
|
|
|
|
|
35.6
|
|
|
|
|
|
35.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Operating loss
before and after income taxes, non-operating items, loss from
continuing operations, net of taxes, and net loss metrics are
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," "may," "projects," "projections," "plan,"
"likely," "potential," "targeted," "forecasts," "should," "could,"
"continue," "outlook," "guidance," "modeling," "target
profitability", "target margins", "moving forward", "confident",
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 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; interest rate
assumptions, renewal price change, rate, and/or the effective tax
rate;
- The company's ability to deliver on expectations set forth
related to target margins, target returns and/or return to target
profitability in total or by line of business;
- The company's ability to deliver on its long-term targets,
including but not limited to, return on equity;
- The continued and residual impacts 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, changes in claims
frequency as a result of fluctuations in economic activity,
severity from higher cost of repairs due to, among other things,
supply chain disruptions, inflation, 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, recession, 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, and severe
weather including wildfires, hurricanes, terrorism, civil unrest,
winter storms, 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 in Core
Commercial, Specialty and/or Personal Lines;
- Ability to manage the impact of inflationary pressures, as a
result of and following the Pandemic, global market disruptions,
geopolitical events or otherwise, including, but not limited to,
supply chain disruptions, labor shortages, and increases in cost of
goods, services, labor, 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;
- Risks and uncertainties with respect to our ability to retain
profitable policies in force and attract profitable policies and to
increase rates commensurate with, or in excess of, loss
trends;
- Mix improvement, underwriting initiatives, coverage
restrictions, non-renewals, and pricing segmentation, 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, inflationary pressures and
corresponding governmental and/or central banking initiatives taken
in response thereto, 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:
- Changes in regulatory, legislative, economic, market and
political conditions, particularly with respect to rates, the use
of data, technology and artificial intelligence, policy terms and
conditions, payment flexibility, and regions where the company has
geographical concentrations;
- Heightened volatility, fluctuations in interest rates (which
have a significant impact on the market value of our investment
portfolio and thus our book value), inflationary pressures, default
rates and other factors that affect investment returns from the
investment portfolio;
- Recessionary economic periods that may inhibit the company's
ability to increase pricing or renew business, or otherwise impact
the company's results, and which may be accompanied by higher
claims activity in certain lines;
- Data security incidents, including, but not limited to, those
resulting from a malicious cyber security attack on the company or
its business partners and service providers, or intrusions into the
company's systems, including cloud-based data storage, or data
sources;
- Adverse claims experience, including those driven by large or
increased frequency and/or severity of catastrophe events,
including those related to wildfires, winter storms, hurricanes,
terrorism, civil unrest, riots or other severe weather;
- The limitations and assumptions used to model non-catastrophe
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;
- Changes in weather patterns and severity, whether as a result
of global climate change, or otherwise, causing a higher level of
losses from weather events to persist;
- 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, recessionary effects,
global trade disputes, war, 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;
- 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);
and,
- Continuing risks and uncertainties associated with the impact
of the Pandemic and related general economic conditions
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 37 of the company's Annual Report on Form 10-K
for the year ended December 31, 2021,
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 2021 Annual Report
on pages 63-66.
Operating income (loss) and operating income (loss) per 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
segments, "operating income (loss)" is the segment income (loss)
before both interest expense and income taxes. The company also
uses "operating income (loss) per 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 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 reserve development 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 12 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.
The company may also 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, 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 "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
(1)
|
Combined
ratio, excluding catastrophes, and current accident year combined
ratio, excluding catastrophes, are non-GAAP measures. The combined
ratio (which includes catastrophe losses and prior-year loss
reserve development) is the most directly comparable GAAP measure.
This and other non-GAAP measures are used throughout this document.
See the disclosure on the use of this and other non-GAAP measures
under the heading "Forward-Looking Statements and Non-GAAP
Financial Measures." 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
below.
|
|
|
|
Three months
ended
|
|
|
|
|
December 31,
2022
|
|
|
|
|
Core
Commercial
|
|
Specialty
|
|
Personal
Lines
|
|
Total
|
|
|
Total combined ratio
(GAAP)
|
|
117.2 %
|
|
90.5 %
|
|
109.1 %
|
|
108.0 %
|
|
|
Less: Catastrophe
ratio
|
|
24.6 %
|
|
3.2 %
|
|
10.2 %
|
|
13.9 %
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
92.6 %
|
|
87.3 %
|
|
98.9 %
|
|
94.1 %
|
|
|
Less: Prior-year
reserve development ratio
|
|
(0.5)%
|
|
-
|
|
-
|
|
(0.1)%
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
93.1 %
|
|
87.3 %
|
|
98.9 %
|
|
94.2 %
|
|
|
|
|
December 31,
2021
|
|
|
Total combined ratio
(GAAP)
|
|
92.4 %
|
|
87.7 %
|
|
96.2 %
|
|
92.9 %
|
|
|
Less: Catastrophe
ratio
|
|
2.3 %
|
|
1.7 %
|
|
4.7 %
|
|
3.1 %
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
90.1 %
|
|
86.0 %
|
|
91.5 %
|
|
89.8 %
|
|
|
Less: Prior-year
reserve development ratio
|
|
(1.5)%
|
|
(1.5)%
|
|
(0.6)%
|
|
(1.2)%
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
91.6 %
|
|
87.5 %
|
|
92.1 %
|
|
91.0 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
December 31,
2022
|
|
|
Total combined ratio
(GAAP)
|
|
101.2 %
|
|
89.3 %
|
|
104.3 %
|
|
99.8 %
|
|
|
Less: Catastrophe
ratio
|
|
9.9 %
|
|
2.8 %
|
|
8.3 %
|
|
7.7 %
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
91.3 %
|
|
86.5 %
|
|
96.0 %
|
|
92.1 %
|
|
|
Less: Prior-year
reserve development ratio
|
|
(0.5)%
|
|
(1.6)%
|
|
0.4 %
|
|
(0.4)%
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
91.8 %
|
|
88.1 %
|
|
95.6 %
|
|
92.5 %
|
|
|
|
|
December 31,
2021
|
|
|
Total combined ratio
(GAAP)
|
|
100.3 %
|
|
92.9 %
|
|
96.2 %
|
|
97.0 %
|
|
|
Less: Catastrophe
ratio
|
|
9.7 %
|
|
5.0 %
|
|
9.1 %
|
|
8.4 %
|
|
|
Combined ratio,
excluding catastrophe losses (non-GAAP)
|
|
90.6 %
|
|
87.9 %
|
|
87.1 %
|
|
88.6 %
|
|
|
Less: Prior-year
reserve development ratio
|
|
(1.0)%
|
|
(1.6)%
|
|
(1.2)%
|
|
(1.2)%
|
|
|
Current accident year
combined ratio, excluding
catastrophe losses
(non-GAAP)
|
|
91.6 %
|
|
89.5 %
|
|
88.3 %
|
|
89.8 %
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
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 below.
|
|
|
Three months
ended
|
|
|
|
December 31,
2022
|
|
|
|
Core
Commercial
|
|
Specialty
|
|
Personal
Auto
|
|
Home &
Other
|
|
Personal
Lines
|
|
Total
|
|
Total loss and LAE
ratio (GAAP)
|
|
84.3 %
|
|
54.7 %
|
|
85.1 %
|
|
79.5 %
|
|
82.8 %
|
|
77.1 %
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(0.5)%
|
|
-
|
|
(0.2)%
|
|
0.2 %
|
|
-
|
|
(0.1)%
|
|
Catastrophe
ratio
|
|
24.6 %
|
|
3.2 %
|
|
(0.3)%
|
|
25.4 %
|
|
10.2 %
|
|
13.9 %
|
|
Current accident year
loss and LAE ratio, excluding
catastrophes (non-GAAP)
|
|
60.2 %
|
|
51.5 %
|
|
85.6 %
|
|
53.9 %
|
|
72.6 %
|
|
63.3 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021
|
|
Total loss and LAE
ratio (GAAP)
|
|
58.8 %
|
|
52.6 %
|
|
73.4 %
|
|
61.7 %
|
|
68.9 %
|
|
61.5 %
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(1.5)%
|
|
(1.5)%
|
|
(1.4)%
|
|
0.7 %
|
|
(0.6)%
|
|
(1.2)%
|
|
Catastrophe
ratio
|
|
2.3 %
|
|
1.7 %
|
|
0.7 %
|
|
11.2 %
|
|
4.7 %
|
|
3.1 %
|
|
Current accident year
loss and LAE ratio, excluding
catastrophes (non-GAAP)
|
|
58.0 %
|
|
52.4 %
|
|
74.1 %
|
|
49.8 %
|
|
64.8 %
|
|
59.6 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
December 31,
2022
|
|
|
|
Core
Commercial
|
|
Specialty
|
|
Personal
Auto
|
|
Home &
Other
|
|
Personal
Lines
|
|
Total
|
|
Total loss and LAE
ratio (GAAP)
|
|
68.5 %
|
|
54.0 %
|
|
77.3 %
|
|
78.6 %
|
|
77.8 %
|
|
69.0 %
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(0.5)%
|
|
(1.6)%
|
|
(0.3)%
|
|
1.4 %
|
|
0.4 %
|
|
(0.4)%
|
|
Catastrophe
ratio
|
|
9.9 %
|
|
2.8 %
|
|
0.7 %
|
|
19.8 %
|
|
8.3 %
|
|
7.7 %
|
|
Current accident year
loss and LAE ratio, excluding
catastrophes (non-GAAP)
|
|
59.1 %
|
|
52.8 %
|
|
76.9 %
|
|
57.4 %
|
|
69.1 %
|
|
61.7 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2021
|
|
Total loss and LAE
ratio (GAAP)
|
|
67.4 %
|
|
57.4 %
|
|
66.0 %
|
|
72.6 %
|
|
68.5 %
|
|
65.7 %
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior-year reserve
development ratio
|
|
(1.0)%
|
|
(1.6)%
|
|
(2.0)%
|
|
0.1 %
|
|
(1.2)%
|
|
(1.2)%
|
|
Catastrophe
ratio
|
|
9.7 %
|
|
5.0 %
|
|
1.6 %
|
|
21.3 %
|
|
9.1 %
|
|
8.4 %
|
|
Current accident year
loss and LAE ratio, excluding
catastrophes (non-GAAP)
|
|
58.7 %
|
|
54.0 %
|
|
66.4 %
|
|
51.2 %
|
|
60.6 %
|
|
58.5 %
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3)
|
Renewal price changes
in Core Commercial and Specialty 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 Core
Commercial and Specialty 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. Renewal price change in Personal
Lines represents the average change in premium on policies
available to renew caused by the net effects of filed rate,
inflation adjustments or other changes in policy level exposure or
insured risks, regardless of whether or not the policies are
retained for the duration of their contractual terms. Rate change
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, rate changes do not represent actual increases or
decreases realized by the company. Personal Lines rate changes do
not include inflation or changes in policy level exposure or
insured risks.
|
(4)
|
Operating income
(loss) and operating income (loss) per diluted (basic) 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. The reconciliation of operating
income (loss) and operating income (loss) per diluted (basic) share
to the closest GAAP measures, income (loss) from continuing
operations and income (loss) from continuing operations per diluted
(basic) share, respectively, is provided on the preceding pages of
this news release.
|
(5)
|
Operating return on
average equity ("operating ROE") is a non-GAAP measure. Operating
ROE is calculated by dividing annualized operating income (loss)
after tax for the applicable period (see under the heading in this
news release "Non-GAAP Financial Measures" and end note (4)), by
average shareholders' equity, excluding unrealized appreciation
(depreciation) on fixed maturity investments, net of tax, for the
period presented. Total shareholders' equity, excluding net
unrealized appreciation (depreciation) on fixed maturity
investments, net of tax, is also a non-GAAP measure. Total
shareholders' equity is the most directly comparable GAAP measure
and is reconciled below. For the calculation of operating ROE, the
average of beginning and ending shareholders' equity, excluding net
unrealized appreciation (depreciation) on fixed maturity
investments, net of tax, is used for the period as shown and
reconciled in the table on the following page.
|
|
|
|
Period
Ended
|
|
|
|
|
|
|
|
|
|
|
($ in
millions)
|
|
|
December
31
|
|
March 31
|
|
|
June 30
|
|
|
September
30
|
|
|
December
31
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
|
2022
|
|
|
2022
|
|
|
2022
|
|
|
|
|
Total shareholders'
equity (GAAP)
|
|
|
$
|
3,144.9
|
|
$
|
2,832.8
|
|
|
$
|
2,571.8
|
|
|
$
|
2,295.9
|
|
|
$
|
2,325.6
|
|
|
|
|
Less: net unrealized
appreciation (depreciation) on
fixed maturity investments, net of
tax
|
|
|
|
184.9
|
|
|
(195.0)
|
|
|
|
(459.4)
|
|
|
|
(706.7)
|
|
|
|
(641.4)
|
|
|
|
|
Total shareholders'
equity, excluding net
unrealized appreciation
(depreciation)
on fixed maturity
investments, net of tax
|
|
|
$
|
2,960.0
|
|
$
|
3,027.8
|
|
|
$
|
3,031.2
|
|
|
$
|
3,002.6
|
|
|
$
|
2,967.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
Averages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders'
equity (GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,310.8
|
|
|
|
|
Average shareholders'
equity, excluding net
unrealized appreciation
(depreciation) on
fixed maturity investments,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,984.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date
Averages
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shareholders'
equity (GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,634.2
|
|
|
|
|
Average shareholders'
equity, excluding net
unrealized appreciation
(depreciation) on
fixed maturity investments,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,997.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in
millions)
|
|
Three months
ended
|
|
Year ended
|
|
|
|
|
|
December
31
|
|
December
31
|
|
|
|
Net Income (Loss)
ROE
|
|
2022
|
|
2022
|
|
|
|
Net income (loss)
(GAAP)
|
|
|
(11.6)
|
|
$116.0
|
|
|
|
Annualized net
loss*
|
|
|
(46.4)
|
|
|
|
|
|
Average shareholders'
equity (GAAP)
|
|
|
$2,310.8
|
|
$2,634.2
|
|
|
|
Return on
equity
|
|
|
(2.0)%
|
|
4.4%
|
|
|
|
Operating Income
(Loss) ROE (non-GAAP)
|
|
|
|
|
|
|
|
|
Operating income
(loss) after taxes
|
|
|
(37.4)
|
|
$199.9
|
|
|
|
Annualized operating
loss, net of tax*
|
|
|
(149.6)
|
|
|
|
|
|
Average shareholders'
equity, excluding net unrealized
appreciation (depreciation) on fixed maturity investments, net of
tax
|
|
|
$2,984.8
|
|
$2,997.7
|
|
|
|
Operating return on
equity
|
|
|
(5.0)%
|
|
6.7%
|
|
|
|
|
|
|
|
|
|
|
|
*For three months
ended December 31, 2022, annualized net loss and operating loss
after income taxes is calculated by multiplying three months ended
net loss and operating loss after income taxes, respectively, by
4.
|
(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)
|
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.