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The Hanover reports higher net income, improved combined ratio in Q4

4th February 2021 - Author: Luke Gallin

The Hanover Insurance Group, Inc. has reported a rise in net income for the fourth-quarter of 2020 to $164.6 million, while operating income also improved in the period, year-on-year, to $112 million.

the-hanover-insurance-group-logoThe difference in Q4 net and operating income, which grew by $54.8 million and $31.8 million, respectively, was primarily driven by the after-tax increase in the fair value of equity securities of $45.7 million, which the firm notes is excluded from operating income.

For the quarter, net premiums written increased slightly to $1.12 billion, while net investment income fell from $72.7 million in Q4 2019 to $70.2 million in Q4 2020.

Overall, The Hanover has reported a combined ratio of 92.4% for the quarter, which marks an improvement on the 96.2% posted a year earlier.

The catastrophe loss ratio totalled 3% in Q4 2020 compared with 3.1% for the same period in 2019.

In commercial lines, operating income grew to $103.2 million as the unit recorded a combined ratio of 91.5%. Catastrophe losses in the firm’s commercial lines segment totalled $10 million in Q4, against $27.8 million in Q4 2019.

The commercial lines segment result also included $6.3 million of net favorable prior-year reserve development, driven primarily by continued favourability in workers’ compensation, partially offset by unfavourable development in commercial auto.

In Personal lines, The Hanover has reported higher operating income of $50.8 million and a stronger combined ratio of 93.4% when compared with Q4 2019. Within this segment, catastrophe losses amounted to $25.1 million in Q4 2020, compared with $7.3 million for the prior year period.

“In a year marked by a global pandemic and the related economic recession, very active weather and social unrest, we delivered outstanding results, rising to the occasion, posting record operating earnings and generating an operating return on equity of 16.2% in the fourth quarter and 13.1% for the full year,” said John Roche, President and Chief Executive Officer (CEO).

“We are greatly encouraged by the positive underlying growth trends across our business, with fourth quarter rate increases of 6.4% in core commercial and 8.9% in specialty lines, as well as a rebound in customers’ exposure bases. We continue to be intently focused on providing our agent partners and customers the high-quality insurance solutions and the pricing consistency they expect and deserve,” he continued.

For the full-year 2020, The Hanover’s net income fell from $425.1 million a year earlier to $358.7 million, while operating income increased from $331.6 million to $355 million.

Net premiums written jumped to $4.598 billion in 2020 as net investment income fell slightly, from $281.3 million in 2019 to $265.1 million in 2020.

All in all, the company’s combined ratio improved in 2020 to 94.4% against 95.6% a year earlier. For the year, catastrophe losses reached $286.7 million, or 6.3 percentage points of the combined ratio. In comparison, the firm booked just $169.3 million of catastrophe losses in 2019, which contributed 3.8 points of the combined ratio.

“Our performance in 2020 reflects the strength of our company, effectiveness of our strategy and versatility of our business model. We begin 2021 with a building growth momentum, an experienced team, a broad and innovative portfolio of products and services, and an unmatched distribution capability, exceptionally well-positioned to take advantage of the opportunities ahead,” concluded Roche.

Jeffrey M. Farber, Executive Vice President and Chief Financial Officer (CFO), added: “We delivered excellent underwriting results during the year, reporting an all-in combined ratio of 94.4% and 88.1% excluding catastrophes, due in part to an improved mix, favorable development, as well as loss frequency benefits, primarily in our auto lines.

“Our profitability was broad-based, with each of our business segments delivering target profitability, underscoring the diversification and resiliency of our businesses. Although 2020 was a particularly active catastrophe year, our full-year catastrophe losses were appreciably lower than industry averages, reflecting the effectiveness of our prior underwriting actions and prudent risk management practices.

“We also achieved our cost management and efficiency targets in 2020, identifying areas of permanent expense savings, and providing a clear line of sight to a 30-basis-point improvement in our expense ratio for 2021. In addition, we continued to be great stewards of our capital, returning approximately $312 million to shareholders through share repurchases and dividends during the year, and growing book value per share by nearly 16% to a record level of $87.96. We start the new year in an excellent financial position, backed by a strong balance sheet, ample liquidity and a high-quality investment portfolio.”

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