Q1 2023 Results: The Hanover’s Catastrophe Losses Impact Earnings Despite Premium Growth
Q1-2023: The Hanover Insurance Company
The Hanover Insurance Group (“The Hanover” or “Company”) has reported a net loss of $12.0 million, or $(0.34) per share, for the first quarter of 2023, c Compared to a net income of $104.9 million or $2.90 per share in the prior year’s first quarter.
In commenting on the quarter’s results, John C. Roche, President and CEO of The Hanover, noted the Company’s efforts to mitigate the impact of volatile weather, citing the significant weather-related catastrophe losses experienced in the quarter. In addition, he emphasized the performance of the Specialty Lines, Core Commercial Lines, and Personal Lines segments, where robust price increases drove top-line growth and advanced the Company’s plan to recapture profit margins.
Overall, the Company’s combined ratio was 104.4 percent; catastrophe losses totaling $175.0 million, or 12.7 points of the combined ratio, were primarily attributable to severe freeze events in the Northeast and Midwest and widespread wind and tornado activity across the United States.
Each of the three segments: Commercial Lines, Personal Lines, and Specialty Lines contributed to the quarter’s 8.3% increase in net premiums written, including:
Core Commercial renewal price changes of 11.5 percent
Specialty renewal price changes of 12.6 percent, and
Personal Lines renewal price changes of 12.7 percent were driven by the 18.9 percent renewal price change for homeowners.
Overall, Core Commercial, Specialty, and Personal Lines rates increased by 7.8 percent, 7.4 percent, and 7.6 percent, respectively.
Quarterly results for Personal Lines
Selected highlights of The Hanover’s Personal Lines segment report for Q1 2023 include:
Combined ratio of 112.2%, compared to 97.1% in the prior-year quarter.
Operating loss before income taxes of $46.6 million, compared to operating income before income taxes of $36.3 million in Q1 2022.
The current accident year loss and LAE ratio, excluding catastrophes, increased 4.4 points to 68.0%, driven by inflationary pressure on personal auto and homeowners property lines, as well as higher loss frequency in personal auto.
Net premiums written of $531.9 million, up 10.1% from Q1 2022, were driven primarily by renewal price changes.
Personal Lines renewal price increases averaged 12.7%, while average rate increases were 7.6% in Q1 2023.
Relative to the Company’s expectations, the underlying loss ratio in Personal Lines was approximately one point higher, mainly reflecting the higher cost of parts and labor in auto repairs and large fire losses in homes.
Operating Highlights for Core Commercial Lines
The quarterly results from The Hanover’s Core Commercial segment included the following highlights:
A combined ratio of 104.7%, compared to 93.0% in the prior-year quarter.
Operating income before income taxes of $11.2 million, compared to $67.5 million in Q1 2022.
The current accident year loss and LAE ratio, excluding catastrophes, of 58.5%, increased 1.1 points from Q1 2022, primarily driven by higher property loss severity in commercial auto policies.
Net premiums written during the quarter of $565.3 million, up 7.3% from Q1 2022, were driven by the growth of 9.9% in small commercial policies and 4.3% in middle market writings.
Core Commercial renewal price increases averaged 11.5%, while average rate increases were 7.8% in Q1 2023.
The Core Commercial underlying loss ratio was in line with the Company’s expectations for the first quarter of 2023.
Selected first-quarter results for Specialty lines
In Q1 2023, The Hanover Insurance Group’s Specialty Lines segment had results that included:
The combined ratio for the segment of 89.9% in this quarter, compared to 87.7% in the previous year’s quarter.
Operating income before income taxes was $48.3 million, compared to $50.0 million in Q1 2022.
The current accident year loss and LAE ratio, excluding catastrophes, decreased by 0.8 points to 53.5%, primarily driven by lower-than-expected losses in marine and the benefit of rate increases.
Net premiums written were $324.3 million, up 7.1% from the prior-year quarter, driven primarily by price changes at renewal.
The Specialty Lines segment’s renewal prices increased by 12.6%., while average rate increases were 7.4%.
Q1 2023 investment results
The Hanover’s investments and shareholders’ equity results showed for the quarter:
The Company’s net investment income of $78.7 million showed a $1.8 million increase from the prior year’s quarter due to higher bond reinvestment rates and continued investment of operational cashflows.
The Company held $8.9 billion in cash and invested assets on March 31, 2023, with fixed maturities and cash representing approximately 88% of the investment portfolio.
Statutory capital and surplus were $2.7 billion on March 31, 2023, in line with December 31, 2022.
Net unrealized losses on the fixed maturity portfolio as of March 31, 2023, were $695.0 million before income taxes, with an increase in fair value of $117.7 million since December 31, 2022.
The Company’s book value was $66.89 per share as of March 31, 2023, up 2.0% from December 31, 2022.
