Q3 2024 The Hanover Insurance Group Inc Earnings Call
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Speaker Change: It's day and welcome to the Hanova Insurance Group's third quarter earnings conference call.
MJ: My name is MJ and I'll be your operator for today's call.
MJ: At this time, all participants are in listen-only mode.
Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone, and to withdraw your question, please press star, then two.
Speaker Change: Please note, this event is being recorded. I would now like to turn the conference over to Oksana Lukasheva. Please go ahead.
Thank you, operator. Good morning and thank you for joining us for our quarterly conference call. We will begin today's call with prepared remarks from Jack Roche, our President and Chief Executive Officer, and Jeff Farber, our Chief Financial Officer. Available to answer your questions after our prepared remarks are Dick Levy, President of Agency Markets, and Brian Salvatore, President of Specialty Lines. Before I turn the call over to Jack, let me note that our earnings press release, financial supplement, and a complete slide presentation for today's call are available in the investor section of our website at www.hanover.com. After the presentation, we will answer questions in the Q&A session. Our prepared remarks and responses to your questions today
will also reference certain non-GAAP financial measures, such as operating income and accident year loss and combined ratio, excluding catastrophes, among others. A reconciliation of these non-GAAP financial measures to the closest GAAP measure on a historical basis can be found in the press release, the slide presentation, or the financial supplement, which are posted on our website, as I mentioned earlier. With those comments, I will turn the call over to Jack.
The significant profitability improvements we delivered in the third quarter are the direct result of the strategic initiatives we have been discussing with you for the past 18 months.
including enhanced pricing, significant insurance to value adjustments, terms and condition changes, and targeted underwriting actions.
While only a small portion of our business is written in those regions, we are committed to providing our insureds with much-needed assistance and claim support. Our experienced, committed team is working around the clock to ensure that claims are processed as quickly and efficiently as possible.
Now turning to our results. We generated operating income of $3.05 per diluted share, yielding an operating return on equity of 14.4%.
Our XCAT combined ratio improved by 2.4 points compared to last year's quarter, further validating the impact of our margin recapture initiatives.
We delivered substantial improvements in personal lines, outstanding underwriting results in specialty, and strong performance in core commercial, despite prudent loss selections resulting from industry liability trends.
As evidenced by the favorable prior year development across all three of our major segments, our reserves remain healthy, and we believe we are well positioned to navigate social inflation trends.
Speaker Change: And we continue to make notable advancements in our margin recapture and cap mitigation plans, demonstrating our agility and resilience, and enabling our strong and improving profitability trends.
MJ: Next, I'll discuss our segment performance at a high level, starting with personal lines.
We're very pleased with the progress we're making in this business, on both the top and bottom lines.
Excluding catastrophe losses, we made significant year-over-year improvements in both auto and home as a result of underwriting actions we have taken and the benefits of price increases.
MJ: Auto is now at target returns on both a written and earned rate basis.
Home is at target on a written basis.
Our personal lines team generated premium growth of 6.8% in the quarter, driven entirely by pricing, with policies in force still declining year-over-year and sequentially, as expected.
The decline in policies in forests reflects our continued efforts to carefully balance our geographic exposures in certain areas of the Midwest.
Pricing continues to be very robust in Persolines. Despite PIF reductions, we generated net written premium growth of approximately 3.5% in Midwest states and over 10% in the rest of our Persolines footprint.
As we continue to see rapidly improving margins, we are focused on accelerating growth in states with attractive profitability and geographic profiles. We expect this trend to continue into the fourth quarter as we gradually lean into more states for new business growth.
MJ: At the same time, we are continuing to mitigate our overall catastrophe risk exposures.
MJ: with more than half of our purse lines portfolio now under new or enhanced deductibles. The benefit of these actions has been evident in the wake of some of the convective storms in the Midwest this year.
Our higher deductibles not only have improved cost-sharing on claims, but these terms and conditions have the additional benefit of encouraging policyholders to be more discriminating on full roof replacements.
MJ: when storm damage is more cosmetic and helping counteract aggressive roofing company marketing tactics.
MJ: Also, we continue to broaden our account product capabilities in PurseLines, adding collector car protection via a partnership with a leading classic car franchise.
This will be critical for meeting the evolving needs of our customers as we maintain our competitive edge in the market.
MJ: Turning to CORE Commercial.
Our solid financial performance underscores our prudent growth strategy in small commercial and effective margin improvement actions in middle market. We are positioning our core commercial portfolio to be even more resilient while thoughtfully capitalizing on attractive growth opportunities.
We are very pleased with our ongoing execution and excited about the prospects of reaching our full potential in this business.
At the same time, we are retaining the business we desire to keep and gaining momentum with new business.
MJ: We are confident we will generate growth in middle market starting in the fourth quarter and expect to see steady improvement moving ahead.
In our small commercial business, we leveraged our solid market position and attractive product portfolio in the quarter, delivering growth of approximately 6%. We have every reason to be optimistic about our small commercial prospects.
Our meaningfully increased submissions and new business growth reflect the effectiveness of our TAP sales platform, as well as the investments we've made in expanding our sales force and distribution reach.
We are particularly excited about the integration of workers' compensation in TAP sales next year, which we believe will further enhance our opportunities.
Our small commercial team is dedicated to competing and excelling in the marketplace every day as we continue to set ourselves apart with our underwriting expertise, advanced capabilities, digital tools, and strong product offerings.
We are pleased with the continued increase in average price changes in core commercial lines this quarter, led by liability pricing.
Since 2016, we've been monitoring our loss trends and refining our underwriting appetite accordingly.
Years ago, we discontinued standalone umbrella and focused on maintaining low liability limits in auto policies. As a result, our growth in liability lines to date has been more measured compared to the industry.
This foresight has equipped us to navigate today's market challenges effectively.
We believe our portfolio is now more resilient than most thanks to our business mix, limits profile, and the industries and geographies covered, which is evident in our third quarter results.
Our commitment to underwriting excellence and discipline positions us well for the future.
MJ: Moving on, our specialty business continued to achieve exceptional bottom-line results in the third quarter and year-to-date, delivering sustainable profitability and consistently robust margins.
We've accelerated our investments in this area, adding skilled talent and innovative technology to excel in an increasingly digital insurance market.
In ENS, for example, we have introduced a new policy quote-and-issue platform to enhance underwriting, response times, and operating efficiencies.
In Marine, we have enhanced and further strengthened our team, and are deploying new technology and processes to improve ease of use.
In Surety, we are investing in additional field talent and ensuring strong market visibility to stay connected with our customers and agents and to seize new business opportunities.
We continue to develop upper single or double-digit growth in our most profitable lines, including E&S, surety, and management liability.
MJ: At the same time, our prior and ongoing profitability improvement initiatives in specific segments, particularly programs, have led to higher than expected premium attrition in the quarter and have impacted our overall specialty top-line performance.
MJ: Excluding the programs business, specialty grew 5.4% in the quarter and 7.4% year-to-date.
and we expect high single-digit growth in the fourth quarter and subsequent quarters.
We believe the specialty market remains robust and full of attractive opportunities in our targeted growth areas.
We are enthusiastic about maintaining and enhancing significant growth in the E&S sector facilitated by our new platform.
In Marine, we are growing new business while expanding our portfolio, both geographically and across various business classes, reinforcing our position as a top-tier go-to carrier.
We continue to show steady growth and surety while maintaining underwriting discipline in the current market.
Conversely, in markets where we witness increased competition, particularly in sub-sectors of the professional lines market, we exercise the required prudence.
MJ: Our business is competitively positioned with numerous attractive growth opportunities.
We see a wealth of new business prospects and have great confidence in the investments we are making in specialty, as well as in its growth trajectory.
Overall, our third quarter results have built on our solid momentum from the first half of the year, providing strong evidence of our ability to navigate a dynamic market environment.
The effectiveness of our team's efforts instill profound confidence in our future as we continue to drive growth alongside healthy profitability.
We are determined to continue to provide innovative, high-quality insurance solutions for our partners and customers, to generate strong, sustainable, profitable growth, and to deliver strong results in a market environment that demands diligence and expertise.
qualities we possess in abundance.
Our execution to date and my confidence in our team reinforces my unwavering conviction in the Hanover's future trajectory.
With that, I'll turn the call over to Jeff.
Thank you, Jack, and good morning, everyone. I'm very pleased with our performance, which has gained significant momentum in recent quarters.
Jeff: In the third quarter, we've seen notable improvements in personal lines and sustained strong margins in both our core commercial and specialty segments.
Jeff: These achievements are the result of our disciplined underwriting, prudent pricing, and strong execution.
For the third quarter, our all-in combined ratio was 95.5%, which included 7.2 points of catastrophe losses.
The Hanover has strategically limited its exposure in Florida and the Carolinas, opting not to over-participate in the Gulf Coast wind markets.
Jeff: Catastrophe losses from Hurricane Helene were approximately 40 million, primarily impacting personal lines in Georgia and core commercial in the Carolinas.
Losses in the quarter also included a lesser impact from Hurricane Beryl along with a few weather events in the Midwest and Southeast.
Jeff: These losses were partially offset by .7 points of favorable development from prior year catastrophes.
Jeff: Due to our low exposure to Florida wind, including not writing personal lines in Florida at all, we expect losses from Hurricane Milton in October to be minimal.
Excluding catastrophes, our third quarter combined ratio was 88.3%, the best in several years, and an improvement of 2.4 points over the prior year quarter.
Year-to-date, our XCAT combined ratio stands at 88.7%, one of our best performances as well, and surpassing our original guidance range for the year of 90 to 91%.
Prior year development in the quarter was favorable by 0.9 points, highlighted by widespread favorability in property lines.
Looking at favorability in more detail, specialty was favorable by 3.1 points. The segment benefited from lower than anticipated losses in our professional and executive claims made policies and favorable results in surety.
Core commercial favorable development of 0.7 points was spread among multiple lines with favorability in each major line.
Core commercial umbrella is experiencing some pressure but it remains well within manageable levels.
Consequently, we have increased pricing in the third quarter from Q2, and we plan additional increases in the coming months.
Personal lines development was immaterial in the quarter overall, with some continuing elevated trend in umbrella. Accordingly, we are filing rates to achieve pricing in the 20% range for next year.
Our consolidated expense ratio of 31% was 0.8 points higher than the same quarter last year. This increase is due to higher agency and employee compensation this quarter, especially when compared to the lower level of variable compensation in the third quarter of last year.
Additionally, the expense ratio increase reflects ongoing investments in talent and technology, particularly in our specialty segment.
Jeff: We are confident in the investment choices we made, and we remain committed to our long-term goal of improving the expense ratio by 20 basis points per year.
Now turning to our segment results starting with personal lines.
This business posted another quarter of meaningful improvement reporting an XCAT combined ratio of 89.2 percent down by 7.2 points from the prior year quarter driven by the loss ratio.
Personal Line's auto continues to see an exceptional rebound in profitability, delivering a current accident-year loss ratio excluding catastrophes of 69.8%, an improvement of 7.7 points from the prior year quarter.
The majority of the improvement, however, is the result of earning in very substantial price increases and, to a lesser extent, lower-than-expected auto collision loss experience.
Collision severity has normalized, which should drive further margin improvement.
Jeff: Additionally, we continue to experience lower-than-expected frequency of losses.
Jeff: which might be attributable to multiple factors like the impact of crash prevention technology in cars and changing customer behavior including being more discerning on whether to file small claims.
Although bodily injury frequency remains well below pre-COVID levels, severity continues to be elevated due to riskier driving behaviors and distracted driving, resulting in a higher proportion of deadly crashes involving pedestrians, bicycles, and motorcycles.
While we are not attributing personal auto B.I. severity to social inflation, we continue to vigilantly monitor these trends.
Turning to the home and other components of our personal line segment, our XCAT current accident year loss ratio of 55.7% improved by 7.3 points from the prior year quarter, primarily driven by the benefit of rate and underwriting actions.
This is a trend we expect to continue.
Lower attritional and large loss frequency is helping our personalized property results.
Personal line's top line growth was 6.8% in the quarter showing nice sequential acceleration driven by strong pricing and improving retention across many states.
Jeff: Pricing is expected to further moderate but remain healthy exiting 2024. As a result, we remain on track to return to target profitability on an earned basis next year in personal lines overall.
Moving on to core commercial lines, we delivered a combined ratio excluding catastrophes of 91.1 percent, up a point from the prior year quarter.
Jeff: Core commercial current accident or loss ratio excluding catastrophes was 58.2 percent, relatively in line with expectations, but 1.9 points above the prior year quarter, which reflected lower than expected property large losses.
Property margins remain favorable in each line. At the same time, we are setting our liability current accident year loss specs higher to effectively position ourselves for increases in loss trends.
This resulted in an increase in the loss ratio in the commercial multi-peril line and in other core commercial.
Jeff: while overall GL rates are up nearly a point year-over-year and continuing to move up directionally.
We are picking our workers' compensation loss ratio higher as well, based on our normal long-term loss trend assumption and a relatively flat earned rate.
At the same time, the commercial auto loss ratio is demonstrating improvement driven by a similar collision frequency favorability being observed in personal lines.
In the specialty segment, the combined ratio excluding catastrophes increased 1.3 points to 82.6 percent compared to the prior year period, driven by higher expenses as noted before.
The specialty current accident year loss ratio, excluding catastrophes, came in at 48% for the quarter on strong results across the business and favorable to our low 50s loss ratio expectation.
Jeff: Property large loss experience was again below expectations especially in our marine Hanover specialty industrial property and ENS segments.
We are monitoring select liability lines for inflationary indicators and maintaining a prudent approach in our current accident year loss selections.
Jeff: Specialty net written premiums grew 3.4% in the quarter compared with 8.2% in the second quarter. But as Jack noted, we expect the pace of growth to snap back in the fourth quarter.
Moving on to our investment performance.
Jeff: Third quarter net investment income increased 9% year-over-year to $91.8 million, propelled by higher earned yields on our fixed income portfolio, partially offset by lower partnership income.
Income from limited partnerships was subdued in the quarter, driven by underperformance and a handful of private credit and real estate funds.
Excluding partnerships, net investment income was up approximately 15 percent in the third quarter of 2024 as compared to the year-ago quarter.
We've also benefited from repositioning within our portfolio. As in Q2, in the third quarter, we divested a portion of our lower-yielding fixed income securities in consideration of expiring tax carryback capacity from 2021.
Against the backdrop of a shifting interest rate environment, relatively tight credit spreads, and expectation of lower short-term rates going forward, we believe we are well positioned.
Our 4.1 year duration should result in increasing net investment income going forward. In the current interest rate environment, we are still seeing about a 150 basis point gap between new money and expiring yields.
Looking at our equity and capital position, the combination of earnings and change in unrealized losses in the quarter drove book value per share up 12.6 percent from Q2 to 79.90.
we continue to pursue a thoughtful capital allocation strategy
Jeff: We refrained from repurchasing shares during the wind season. Historically, we've consistently returned capital to our investors through increasing regular dividend payments and strategic share buybacks when the timing was right.
Our core approach hasn't changed. We continue to see both dividends and share repurchases as key tools for managing capital allocation and to create further shareholder value.
Moving on to an update on our guidance.
With one quarter left in the year, we feel we are on track to beat our original XCAT combined ratio guidance for the year.
Jeff: driven by better than expected improvements in the current accident year XCAT combined ratio as well as favorable development, which is helping to more than offset a slight miss on the expense ratio guidance.
Jeff: We now expect our full year expense ratio to be at or near 30.9% compared to the 30.7% to which we guided.
It is related to largely temporary items such as incentive compensation, which we expect to normalize in the following year.
Jeff: Most importantly, we anticipate the 2024 XCAT combined ratio to be below our guidance range of 90-91% that we established early in the year.
On a consolidated basis, we expect net written premium growth in the fourth quarter to be greater than 6%.
Given the minimal impact expected from Hurricane Milton, our planned cat load guide for Q4 remains unchanged at 5.7 percent.
Jeff: To conclude, we are extremely pleased with our Q3 results and increasing earnings growth momentum.
Our performance reflects the successful implementation of key strategies we've been executing over the past two years.
We will continue to focus on creating long-term growth and superior returns for our shareholders. We are optimistic about our ability to achieve our stated long-term return objectives over the next couple of years.
With that, we'll be happy to take your questions. Operator?
Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone.
If you are using a speakerphone, please pick up your handset before pressing the keys.
Today's first question comes from Matt Carletti with Citizens JMP. Please go ahead.
Hey, thanks. Good morning. Good morning.
I just have a couple of questions on the personal line segment.
Speaker Change: The progression of kind of returning to pith growth over the over the next several quarters or it feels like we're at an inflection point Maybe I'm getting that wrong
Speaker Change: Now, we definitely are moving forward with additional offense, particularly in those states where we are well past our threshold of hitting the target returns.
So, I'll let Dick speak a little bit to that, but the way I would have you to continue to think about it, Matt, is we are excited about how quickly we've been able to get our margins back in line and simultaneously enhance our diversification.
So, we're going to continue that process of moving to more offense, particularly on new business, because our retention ratios have come back nicely.
And we've already started to do that in several states to try to move towards more offense, but continue to be diligent in the Midwest, and in particular Michigan, so that we get a good balance of production and profitability and accelerate our diversification.
Speaker Change: So Dick maybe build on that. Yeah I'll just echo a couple things Jack said and I'll give you some more specifics but feel very good about the progress we're making against this
Speaker Change: Strategic Objective we have of
Dick: bringing TL portfolio back to target returns while simultaneously improving our geographic diversification, so
We're well on the way up towards this blueprint that we've created as you'd expect our 20 states We segment them based on profitability and how they contribute to our cat profile
Dick: So we already have a handful of states where PIF has turned positive and where we feel
The new business engine has been turned on more aggressively.
But as a full enterprise, when you look at all 20 states
We, you know, we can expect PIF shrinkage to moderate into next quarter and then really throughout 2025 and see some very modest positive PIF growth by the end of the year or at the end of the year.
Dick: Just couldn't be prouder of our team and their execution. I think it's I'd like to say it's one of our superpowers that we have here at Hanover is just how we collaborate with our agent partners and and Get them get them on board with the action plans we have
Great, that's very helpful. And then one other, if I could, sticking with personal lines.
Speaker Change: Good evening.
We view your kind of peak TAD exposure, if you will, as SES or spring weather, however you want to think about it. And you guys obviously have been undergoing not just rate, but I'm thinking more of like the non-rate actions, the deductibles and things like that. And we saw some improvements kind of this second quarter versus, you know...
2023 second quarter and we were kind of middle innings of those.
changes working through the portfolio and it feels like we'll be kind of at the end of the game or very close to it by this coming spring. Can you give us a kind of
Speaker Change: order of magnitude, if it's possible, if, you know, if an X event were to happen, whether that's, you know, spring, you know, second quarter, 23, kind of, when we get to the end, maybe that second quarter, 25, you know, how that same event would look different once you get all those changes through the book.
Yeah, Matt, this is Jack again. Listen, we, you're right in that by, you know, by April of next year we will have been through the renewal cycle of our deductible changes which are particularly meaningful in the Midwest where the severe convective storms have been most prevalent.
Speaker Change: place with our portfolio, with the pricing that we've achieved, the full insurance-to-value enhancements that we've had.
deductibles that not only include all peril deductibles at 2,500 but you know one and one and a half percent wind deductibles, wind and hail deductibles in in that region.
and then some PIP shrinkage that we manufactured during this period. So the combination of all those are gonna be meaningful.
but I know it'll frustrate you. Modeling previous storms or thinking about it really doesn't, I think, achieve the goal. The way we try to look at it is we run our simulated models and we ask ourselves overall how much
benefit are we getting from that property aggregation management and the new pricing in terms of conditions?
Speaker Change: Yeah, fair enough. Thank you for the color. I appreciate it.
Speaker Change: Thank you, Matt.
Thank you. The next question comes from Mike Zaremsky with BMO. Please go ahead.
Mike Zaremsky: Hey, good morning.
Mike Zaremsky: First question on some of the commentary about setting your liability picks higher. I believe that was in Coral Commercial.
Speaker Change: The one nine points of higher loss ratio was one six of it was due to the lower large losses in the year ago quarter. So a relatively small amount was the <unk>.
Loss picks for the for the liability trends.
Speaker Change: Overall, we believe 57% to 58 is the right level for 2024 that may improve a little bit next year, because we're getting 12 plus points of renewal price change versus overall core trend, but I think generally speaking we feel really good about our balance sheet.
About our loss picks and if you look back at page six of our earnings deck, you'll see we provided an awful lot of information as to why we feel that will be relatively advantaged on liability loss trends biggest issue being the frequency benefit.
<unk>, which is the bottom right.
Or that we're seeing for lower frequency in a lot of the industries in which we participate which is dramatic.
Okay interesting, Okay, and then maybe just.
Thanks for that.
Sticking with.
Speaker Change: Liability lines commercial.
Speaker Change: Personal lines.
You talk about any puts and takes on an.
Mike Zaremsky: And on reserve releases.
Most of the industry still has been kind of adding a bit to some of their GL.
Mike Zaremsky: Umbrella.
Mike Zaremsky: Commercial auto lines.
Mike Zaremsky: Let's see the overall.
It was a redundant again, but on any puts.
Puts and takes we should be thinking about.
Nothing really major as we said PL was minimal favorable <unk> was $3 6 million with favor ability and all four major lines. So you didn't have a dramatic issue with workers comp covering up the other liability lines. They were all favorable.
Mike Zaremsky: Had the frequency benefit in in a variety of areas, helping us to overcome severity and then specialty was a big contributor with about $10 million largely on the professional executive lines and those are claims made shorter type tail policies.
Got it okay.
Since you pointed out slide six which is an interesting slide thanks for adding that.
I think out of that.
Speaker Change: A K B W.
Speaker Change: Updated it here.
Speaker Change: So.
Mike Zaremsky: We can see that your mix to less.
I guess, a little less liability than others.
Mike Zaremsky: You also show contractors frequency being.
Up materially while frequency is down materially for for most other.
Mike Zaremsky: Industry classes.
Speaker Change: Would you.
Would you say that you are also underway.
Underweight contractors I don't know if theres, a way to even size up what the industry looks like.
Mike Zaremsky: Contractors.
Mike Zaremsky: And then as contractors have continued source of.
Mike Zaremsky: Of higher.
Quincy only or is it anything going on severity two in any of these industry.
Mike Zaremsky: Industry classes. Thanks.
Speaker Change: Yes so.
Mike This is Jack I'm going to let I'm going to let up.
<expletive> comment on specifically our profile in core commercial including.
Contracting percentages, but I think youre thinking about it exactly right right. We share the same severity as the industry, we're seeing similar trends through a lot of other folks.
Our book composition as well as the actions that we took in the last few years I think are advantaged us, particularly on the frequency of the severity and then what that chart shows you that <expletive> and kind of build upon is that.
Mike Zaremsky: <unk>.
The non contract in classes of business are predominantly showing the improvement.
Based on the actions that we took.
But the construction business continues.
Thank for two major reasons a.
The inventory of claims is pretty fulsome since most contractors worked through the pandemic.
Mike Zaremsky: <unk>.
Mike Zaremsky: And because of the activity levels. The frequency is just not.
It's not coming down like we're seeing in other sectors of the business. So yes.
Yes, just a little color commentary so we have been super thoughtful about how we built our construction portfolio over the years today. It represents a fairly modest portion of our of our core <unk> portfolio really in the low teens percentage.
Mike Zaremsky: <unk>.
And been very thoughtful about state mix, which is really important when you are when you're talking about this industry.
The legal environment as construction defect environments.
Mike Zaremsky: Environment, and then also thinking about and tightly managing the sub sectors.
A contract or is that you're right, which is equally important to state mix. So just even in dairy.
Thoughtful about all of that and then of course risk solutions and premium audits play a critical role in this segment.
Mike Zaremsky: We do both of those exceptionally well.
Matt you probably noticed as others have that we have no y axis or vertical axis on that chart and I wanted to share a little bit of information. So while <expletive> said contractors are relatively small I think 10% to 15% of our portfolio relative to others in the industry that bigger.
Portfolios contractors frequency is up single digits, where some of the other industries would have frequency has declined since 2019 through 2023 in the 20% to 30% range. So when you think about all of that together in total.
We have a pretty substantial frequency decline.
Got it that's helpful and maybe I'll just sneak one last one in on just the overall competitive environment. So there is a number of companies have reported some of your peers and everyone is different a little different mix and geographic mix as well, but.
Mike Zaremsky: Yes.
Mike Zaremsky: It looks like pricing has been been kind of.
Mike Zaremsky: Essentially accelerating a little bit.
But theres also some conflicting kind of industry surveys show pricing decelerating, a little bit and so just just curious what.
From a competitive environment would you say.
Is that.
Mike Zaremsky: From what Youre seeing.
Is the increase you're seeing more on core commercial Hanover specific or is the industry do you think.
Pushing through a little bit more rate and if they are.
Mike Zaremsky: What's driving that thanks.
Yes, I think as you're observing Mike. This is there is a bit of a <unk>.
Sectoral a view there in an account size you and I would tell you that in the small to lower middle market.
Area of the business across the sectors that we play in.
Mike Zaremsky: We are seeing.
A flattening of the property pricing, but a.
Mike Zaremsky: As things are improving.
But an increase in the liability pricing, which is appropriate given the environment that we're seeing so I think when you get into the larger accounts, there's a lot more pressure and youre reading about that youre seeing that.
Mike Zaremsky: And I think Brian can even speak to that within.
Within the specialty portfolio that we're still we're still generating double digit pricing overall, but within the nine businesses within specialty.
We clearly have variances and differences that represent.
A competitive marketplace Bryan you want to say a few words on that yes sure. So.
Speaker Change: Your point.
Bryan: In some of our environment is pretty competitive if you think about the professional lines marketplace that said, we have been getting very very good rate on that business for a number of years.
Mike Zaremsky: Highly profitable and so yes, we're adjusting rate thoughtfully.
Mike Zaremsky: Be competitive in that space and other areas, we're continuing to see.
Mike Zaremsky: The need for.
Increased rate accomplishing right I think about that in the E&S environment. For example, so there was a real mix there and we balance that makes me navigate that mix in our different marketplaces.
Speaker Change: Thank you.
Speaker Change: Thank you. The next question comes from Michael Phillips with Oppenheimer. Please go ahead.
Speaker Change: Thanks, Good morning.
Wanted to go back to when.
Speaker Change: I earlier questions.
Jeff you answer on the core commercial you said around 50 758 feels about right.
Speaker Change: It may be could improve a bit in 2025, given the pricing levels.
Speaker Change: North of 12%.
Mike Zaremsky: And you talked about strong pricing in both property and liability, but I'm wondering how much of that possible improvement in 2025.
Mike Zaremsky: It could be one of the other property versus liability can you kind of course setup.
So what's happening is for the last couple of years property pricing has been stronger than liability core has been strong overall and the loss trend was heavier in property now we're seeing the cost of materials building et cetera begin.
<unk> to slow a little bit so the need for price around property in core will slow and our view on.
Liability pricing will increase and where an account writer. So we think about it in total across the portfolio and we believe that we are maintaining or increasing our profit along the way.
Yes, and I would remind you might.
If you study this that the companies such as ours that have really done a good job on insurance to value.
Are really in the catbird seat in that we have that part of the pricing equation in a really good place and can start to have more nominal increases.
And that allows us to be competitive for the good businesses. Some of the competitors a lot of the regional companies that were told are still catching up.
Mike Zaremsky: And they have to catch up on insurance to value or their reinsurance.
Challenges get worse, so I think that puts us in a really good situation that property is improving lie.
Our liability were watching carefully but continuing to perform well.
And I like the combination of that in a market that will continue to.
Mike Zaremsky: Kind of figure out where exactly the loss trends are going in liability and how severe they are going to be for particularly for those that didn't didn't do what they needed to do on the reserve side.
Okay. Okay. Thank you.
If I look at the premium growth in core commercial the CMP down this quarter and I assume that's because of your comments.
<unk> said about the market and kind of underwriting actions, you're taking there I want to make sure that that's the case.
Mike Zaremsky: So then you said you expect to kind of.
Mike Zaremsky: That to improve over the next few quarters so that.
And then also sort of specific to what we see and CMP this quarter, the $1 eight and maybe that could improve from here.
Yes. This is <expletive> yes.
Speaker Change: That is exactly right. There is there is a little bit in there about some of the actions we've taken and then on the new business side. It can be you can see lumpiness quarter to quarter on a line basis, but we expect.
Speaker Change: As the prepared remarks earlier suggested that middle market will make its way back to that mid single digit kind of growth into next year.
Okay, and then just lastly, maybe just more high level.
A lot of your stuff that you are talking about is strong and you've improved personal and you talked about how that's going.
Speaker Change: On an earned basis for homeowners all next year in your core commercial along quite well and as you said it could improve even there.
Mike Zaremsky: 2025 lots of improvements.
Hats off to that I guess as you as you put all that together and think.
Mike Zaremsky: Maybe capital management, and how do you put all that together and think it's time to look at some share repurchase for next year.
Yes, we're very bullish on our opportunities for improvement, particularly in personal lines NII and even cat for the reasons that we've talked about.
We definitely are supportive of routine regular dividend growth and buybacks along the way.
Along with organic growth, which will ramp up in the fourth quarter and in 2025, we haven't bought stock back in a while we typically wait for the end of wind season.
I think we're likely to be back to capital management sooner rather than later.
Speaker Change: Okay, great. Thank you.
Speaker Change: Thank you Mike.
Thank you. The next question comes from Meyer Shields with <unk>. Please go ahead.
Speaker Change: Damian Air Mayer Jane.
Somebody might be on mute.
Speaker Change: Got it.
Speaker Change: Sorry is that better.
Speaker Change: Yes, we can hear you, yes, yes, yes, sorry about that.
Mike Zaremsky: Okay.
When we look at the gap between pricing and rate in core commercial I guess I was a little surprised to see that gap expand which means more exposure unit growth just because that.
Mike Zaremsky: In the case for most insurance companies.
Is there anything unique going on.
That number that would drive that exposure unit growth.
Mike Zaremsky: Two nine.
Mike Zaremsky: Yeah.
What we may be witnessing.
The exposure growth and the work comp side of things has been robust.
Mike Zaremsky: And so that.
You see the distance.
Speaker Change: With what.
Speaker Change: What exposure looks like versus what rate it looks like as you know the rates and where comp is.
Is flat to down on the state.
The delta between rate and renewal price over the last five quarters. If you look at page seven of our earnings deck has been pretty consistent.
Over time.
We can certainly get back to you.
If there is a deeper story there.
Speaker Change: Yes, there are small differences I don't know if there are significant that's really what I was asking.
Second a couple of questions on auto first thing I, probably should know this but you talked about higher deductibles and personalized does that actually is that relevant to personal auto too is that more on the home side.
I'm, sorry, say personal personal auto deductibles for the most part it's nowhere near as.
Speaker Change: Okay.
<unk> has improved if you will but we continue to inch up deductibles and PL auto.
Mike Zaremsky: Yes.
Mike Zaremsky: <unk> given ourselves.
Mike Zaremsky: A thorough review state by state and where we feel like it's been modest yes.
Mike Zaremsky: <unk> business has been on the books for a long time and they might be sitting at a 500 dollar deductible. So we and our agents are fully supportive as we work with them to overtime into those up upwards to 1000 and whatnot, but the.
The bigger push is that on the home side.
Okay perfect. That's helpful. And then finally I know in the past, we always talk about new business penalty when growth ramps up.
And this is again all the personal auto side its pricing becomes more significant is that as relevant to concern does a ramp up in growth all else equal imply some loss ratio pressure in the near term.
Well, we are in an unusual time and the personal lines business, where there was actually a period in certain states, where our new business pricing was was above our renewal levels and that's hard to do given the renewal pricing that we were pushing through.
Mike Zaremsky: But as you know we were trying to create.
Some changes in our growth patterns by state. So we we kept pushing.
Mike Zaremsky: <unk> and our point of sale system until we got the results that we were looking for so I would tell you based on what we're seeing today.
We don't we're not anticipating a significant new business penalty anytime in the near future the quality of the business that we're writing in new business in personal lines, because we narrowed the nozzle is the best it's ever been and it's coming through at renewal pricing.
And so as we start to move forward in and widen that nozzle a little bit.
And get a little bit more competitive.
I think it's going to be commensurate with the loss trends and improvements thereof.
So I like I like our trajectory for the foreseeable future in personal lines.
Okay excellent. Thank you so much.
Thanks Amir.
Thank you. The next question is a follow up from Mike Zaremski with BMO. Please go ahead.
Oh, Thanks, So real quick.
I don't think this is in the earnings release or the deck.
I'm trying to Jeff I think you said.
The updated guidance for the year.
Speaker Change: Uh huh.
Mike Zaremsky: X cat combined ratio I think you said below 90 91, not 90 to 91, just wanted to clarify that.
That's correct I think we are in the high 80 eights range year to date so.
It would be very difficult to see deterioration fourth quarter is always a strong quarter for us and we have no reason to believe not so we haven't updated guidance per se, but clearly we expect to be below the 90% to 91 that we originally guided to Mike.
Okay, just wanted to clarify thank you.
Mike Zaremsky: Sure.
Mike Zaremsky: Sure.
Thank you.
<unk> concludes our question and answer session I would now like to turn the call back over to Oksana Chavez for any closing remarks.
Thank you very much for listening in and participating today are looking forward to I can to you next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
Mike Zaremsky: Yeah.
Mike Zaremsky: [music].
Mike Zaremsky: Yes.
Mike Zaremsky: [music].
Mike Zaremsky: Yeah.