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The Hanover’s combined ratio improves in Q4 and full year 2019

5th February 2020 - Author: Luke Gallin

The Hanover Insurance Group, Inc. has reported a decline in net income for the fourth-quarter of 2019 to $109.8 million, while its combined ratio strengthened slightly to 96.2% in Q4 2019, when compared with the prior year quarter.

The HanoverThe Hanover’s net income fell from the $123.6 million recorded in the fourth-quarter of 2018, while operating income of $80.2 million in Q4 2019, improved on the $64.9 million posted in the prior year quarter.

The company notes that the difference between net income and operating income in the period was mostly driven by an after-tax rise in the fair value of equity securities of $24.7 million, which is excluded from operating income.

At 96.2%, The Hanover’s Q4 2019 combined ratio improved on the 97.4% recorded in Q4 2018. Excluding catastrophes, the combined ratio totalled 93.1%, against 92.8% a year earlier. For the full year, The Hanover’s combined ratio hit 95.6% versus 96.1% in 2018, and, excluding catastrophes the combined ratio for the full year weakened slightly from 90.9% to 91.8% in 2019.

Within commercial lines business, catastrophe losses totalled $27.8 million in the fourth-quarter and included favourable prior year reserve development of $6.5 million. This compares with cat losses of $47 million in the fourth-quarter of 2018.

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Commercial lines net premiums written totalled $638.7 million in the fourth-quarter of 2019, up 6.5% on the $600 million posted in Q4 2018. For the full year, The Hanover’s net premiums written in this segment increased to $2.7 billion. The unit recorded operating income before taxes of $73 million, compared with $57.4 million a year earlier.

Turning to personal lines, and the company’s Q4 2019 income before taxes hit $36.2 million, which represents a very slight decline on the $36.5 million recorded in the fourth-quarter of 2018. Catastrophe losses in the segment increased from $3 million in Q4 2018 to $7.3 million in Q4 2019, while the combined ratio weakened slightly to 96.5%.

Net premiums written in the personal lines segment grew 4.4% to $464.3 million the fourth-quarter of 2019, and for the full year increased to roughly $1.9 billion.

John Roche, President and Chief Executive Officer (CEO) at The Hanover, commented: “2019 was an excellent year for our company, marked by record earnings and solid growth in our most profitable segments, further strengthening our market position as we begin 2020.

“As the market environment becomes increasingly complex – with significant changes to profit pools, loss trends and rate movements – we are focused on ensuring that we continue to achieve broad-based profitability across our businesses. We have accomplished this to date through effective portfolio management and rate increases.

“Reflecting the success of our strategy, we delivered an annual operating ROE(6) of 12.0%, and an adjusted ROE(6) of 12.8% in 2019, while growing premiums 4.5%,” said Roche. “Our growth was highlighted by strong results in Core Commercial, Personal Lines and most Specialty businesses, driven by price increases – 7.9% in Core Commercial and 5.1% in Personal Lines in the fourth quarter – as well as robust new business and new product initiatives. We look forward to building on the momentum we generated throughout the past year, as we leverage our proven ability to navigate the current dynamic market.”

The Hanover has also reported price increases in the fourth-quarter of 2019 of 7.9% in commercial lines and 5.1% in personal lines.

Furthermore, net investment income grew by almost 5% to $72.7 million in Q4 2019, and by more than 5% to $281.3 million for the full year 2019, when compared with the same periods in 2018.

The Hanover’s Executive Vice President and Chief Financial Officer (CFO), Jeffrey Farber, added: “We are pleased with our performance during the year, with an operating income of $8.16 per diluted share, a combined ratio of 95.6%, and a combined ratio, excluding catastrophes, of 91.8%.

“While property loss pressure emerged across select businesses throughout the year and in the fourth quarter, liability trends continued to be in line with our expectations, helped by our prior mix and pricing initiatives. At the same time, we improved our expense ratio by 50 basis points, to 31.6%, while we continued to invest in our businesses.

“In 2019, we promptly deployed approximately $850 million in equity generated by the Chaucer sale, through three accelerated share repurchase programs and two special dividends. We will continue to deploy our capital with our shareholder interests in mind. Our balance sheet remains strong and we look forward to another successful year in 2020.”

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