The Hanover Insurance Group, Inc. has announced net income of $92.7 million for Q1 2021 against a net loss of $40 million for the prior year quarter, despite its catastrophe ratio increasing from 3.3% to 11.5% for the period.
Despite the net income turnaround in the quarter, The Hanover’s operating income fell from $86.8 million in Q1 2020 to $61.4 million in Q1 2021, primarily as a result of an after-tax increase in the fair value of equity securities of $30.9 million, which the firm explains is excluded from operating income.
Reflecting growth in all segments, net premiums written spiked by 5.2% to approximately $1.2 billion compared with approximately $1.1 billion in Q1 2020.
As pre-announced earlier in April, the insurer’s first quarter 2021 performance was negatively impacted by catastrophe losses to the tune of $133.3 million, or 11.5% of net earned premiums. The majority of its Q1 cat bill relates to the impacts of winter storms Uri and Viola in the U.S. in February.
At $76.8 million, net investment income improved year-on-year by $7.2 million, driven by unusually high income from certain limited partnerships, partially offset by lower new money yields, says the firm.
All in all, The Hanover has announced a combined ratio of 98.8% for the opening quarter of the year, representing a deterioration from the 95.2% reported a year earlier.
However, excluding the impacts of catastrophes during the period, the company’s combined ratio improved, year-on-year, from 91.9% to 87.3%.
John C. Roche, President and Chief Executive Officer (CEO) at The Hanover, commented: “We are very pleased with our strong financial performance in the first quarter, in light of the unprecedented catastrophe activity.
“We delivered net premiums written growth of 5.2%, exceeding our original first quarter expectations and demonstrating our ability to capitalize on attractive market opportunities in this dynamic environment. In Commercial Lines, our growth surpassed pre-COVID levels, as we benefitted from our deep agency relationships, rate increases, and an improvement in the overall economic environment.
“The Commercial Lines rate environment continues to be robust, as evidenced by average rate increases of 6.1% in our core commercial business and further rate acceleration in most of our specialty businesses. We believe the commercial pricing environment will remain strong moving forward. In Personal Lines, we accelerated our top-line momentum throughout the quarter, improving retention and delivering strong new business results, providing further validation of the effectiveness of our customer-centric strategy.
“As we look ahead, we are focused on driving profitable growth across our portfolio, enabling us to continue to invest in our company and deliver increasing value for our shareholders, agents, customers and other stakeholders.”
Jeffrey Farber, Executive Vice President (EVP) and Chief Financial Officer (CFO), added: “We reported strong underlying underwriting performance, as demonstrated by a combined ratio, excluding catastrophes, of 87.3%, largely the result of mix improvement, earning-in of rate increases, and the continuing benefit of lower loss frequency, primarily in auto lines. Although our expense ratio in the quarter was slightly elevated compared to the first quarter 2020, due to the timing of certain expenses in the year-ago quarter, we remain on track to deliver a 30-basis point improvement in 2021.
“Our high-quality investment portfolio performed exceptionally well, generating $76.8 million of pre-tax income in the quarter, and we continued to thoughtfully manage our capital, returning $110 million to our shareholders through April 27, including $84 million through share repurchases.”
