The Hanover Insurance Group, Inc. 2026 Q3 Earnings Call

Please go ahead. 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, Dick Lavey, our CEO-elect, and Jeff Farber, our Chief Financial Officer. Additionally, Bryan Salvatore, President of Specialty Lines, will be available to answer your questions after our prepared remarks. 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 hanover.com. After the presentation, we will answer questions in the Q&A session. Our prepared remarks and responses to your questions today, other than statements of historical fact, include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

These statements can relate to, among other things, our outlook, guidance, performance, profitability, growth, strategy, capital management, the implementation and use of new technologies, the impact of revised policy terms and conditions, and targeted property actions. Additionally, they can relate to factors that could impact the company's performance and/or cause actual results to differ materially from those anticipated, including changes in the demand for our products, economic and geopolitical conditions and related effects, including economic and social inflation, tariffs, as well as the forward-looking statement section in our press release, the presentation deck, and our filings with the SEC. Today's discussion will also reference certain non-GAAP financial measures, such as operating income and accident year loss and combined ratios, 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. With those comments, I will turn the call over to Jack.

Thank you, Oksana, and good morning, everyone. We're very pleased with our third quarter performance. Our results reflect continued momentum across the organization, strong execution in a dynamic market environment, and the strategic benefits of our diversified portfolio. Our portfolio is built around several structural advantages, Specialty Lines with broad product profitability, a preferred Personal Lines franchise concentrated in higher value accounts, and a distinctive Core Commercial book anchored to small-sized businesses, a segment in which we excel. This diversified business mix gives us multiple levers for profitable growth regardless of where the cycle turns. Importantly, our commitment to investing and growing where returns are most attractive remains unchanged. Profitability is our top priority, and the company will continue to make underwriting, growth, and capital allocation decisions through that lens. Turning to results. Our third quarter operating EPS came in meaningfully ahead of our original expectations and improved from the prior year quarter.

Operating ROE was robust at approximately 19%. Net written premium growth was 3.1%. Across the portfolio, we remain disciplined and only wrote business that meets our return thresholds. These are intentional choices, and the underlying loss ratio performance reinforces our strategy. Turning to our segment results. Specialty remains one of the strongest examples of the value created by our diversified business mix. The breadth of our portfolio allows us to navigate changing market conditions, maintain underwriting discipline, and pursue attractive opportunities across a wide range of products and markets. While conditions are competitive in certain property lines, we continue to see meaningful opportunities for profitable growth in an increasing number of our offerings.

In the quarter, excluding Hanover Specialty Industrial, which is most exposed to competition in the larger property market, and Hanover Programs, which we continue to tightly manage and limit expansion, we generated strong growth of 6.7%. We are seeing particularly strong growth momentum in the markets where conditions remain favorable and margins are attractive. Surety grew 8.8%, extending its strong track record. E&S growth accelerated from 6.5% in the second quarter to 11.7% in the third quarter, supported by our AI-enabled submission intake and triage capabilities. Management liability posted strong growth of 15.5%, and both Marine and Hanover Professional Liability delivered accelerated growth compared to the second quarter. Retention for Specialty remained very strong, improving sequentially to 83.2%. Renewal price change also improved slightly to 4.3%, while rate held relatively consistent from the second quarter, with liability rate continuing to accelerate.

We enter the fourth quarter with strong momentum across many lines within our Specialty book and significant confidence in the segment's ability to deliver sustained profitable growth. I couldn't be prouder of how the organization is performing or more optimistic about the path ahead. We have built a special culture, attracted outstanding talent, and developed a leadership team that will continue to drive our strategy and performance for years to come. I believe we are exceptionally well-positioned to build on this momentum and deliver sustained success. As we've discussed, our leadership transition is well underway, and it's fitting that Dick take you through the performance for Personal Lines and Core Commercial and update you on our exciting technology initiatives.

Dick? Thanks, Jack. At our Investor Day 6 weeks ago, we shared our perspective on the opportunities ahead and the strengths that position us for continued success.

As we look at our third quarter results, they reinforce the strategy we had laid out. While our top line was influenced by a competitive environment in certain markets, the actions we are taking strengthen the foundation for durable growth and strong profitability over the long term. I'll begin with Personal Lines, where the portfolio today is fundamentally different from the one we were managing just 3 years ago. We have deliberately shifted the book toward bundled, higher-value account customers who value advice and specialized coverage, and accounts with higher average premiums and lower price elasticity. Overall growth was 1.7% in the third quarter, reflecting top-line moderation as we make deliberate choices in dynamic market conditions.

Importantly, growth in the higher-value customer segment with coverage A limits above $500,000 continues to outpace the broader portfolio, reinforcing the success of our preferred customer strategy. In this area of Personal Lines, retention remained exceptionally strong at 86%, a couple of points above the rest of the book, while premium increased 4%, supported by positive policy in force growth year over year. Renewal pricing is approximately one point higher for these customers, while new business growth of 5% and 21% increase in submission flow underscore the attractive opportunities we see going forward. Furthermore, within the higher-value cohort, momentum with our Prestige product is particularly strong, with double-digit growth in both the third quarter and year to date. We believe these trends position us well to continue expanding our presence with preferred customers while maintaining our focus on profitability.

Overall, Personal Lines renewal pricing remained very strong and continues to support attractive profitability for both auto and home business. Looking ahead, we continue to develop opportunities for future revenue growth. These include adding new agency appointments, primarily in diversification states, and deepening existing relationships in those same markets. Data-driven prospecting and increased consolidation activity continue to create attractive openings to strengthen and expand our agency partnerships. In addition, quote activity and pipeline trends remain encouraging indicators. Turning now to Core Commercial, the business continues to perform well, delivering net written premium growth of 4.6% while maintaining relatively consistent renewal pricing change of 7.4%. Our disciplined focus on smaller-sized customers, combined with strong agency relationships and consistent underwriting execution, continues to position us to outperform across a range of operating environments.

Small commercial requires a unique blend of underwriting acumen and operational excellence, especially for more complex accounts that require underwriting judgment beyond automated platforms. We've built our product suite and operating model specifically around the full spectrum of needs of small business customers, which continue to set us apart in the marketplace. As we look ahead, small commercial distribution expansion, broad product offerings, and service enhancement remain strategic priorities. Our strong value proposition has earned us strategically important positions with the industry's consolidators while also expanding relationships with existing agents and appointing new ones. Our TAP Sales production continues to grow and straight-through processing is expanding. Workers' compensation TAP Sales completes its rollout in Q4, extending our automated underwriting advantage to additional states. Each of these enhances the economics of serving small business accounts in our favor, lower transaction cost, faster turnaround, better agent experience, and stronger retention fundamentals.