Hanover Insurance Group Inc · NYSE:THG
Hanover Insurance — The Hanover Insurance Group — Bank of America Securities Financial Services Conference 2023
37 slides from Hanover Insurance's conference presentation, Feb 15, 2023
Slide 1: The Hanover Insurance Group, Inc.
The Hanover Insurance Group, Inc. (NYSE: THG) Bank of America Securities Financial Services Conference February 15, 2023
Slide 2: The Hanover Insurance Group (NYSE: THG) Overview
The Hanover Insurance Group (NYSE: THG) Overview Exchange/Ticker NYSE: THG Business Mix February 13, 2023 Stock price $143.88 Market capitalization $5.1 billion Annual dividend per share $3.24 (Yield: 2.2%) Personal Lines, GAAP Equity $2.3 billion 41% December 31, 2022 Equity, excluding net unrealiz
Slide 3: Key Takeaways
Key Takeaways Robust product capabilities and analytics combined with distinctive distribution Differentiation approach and local underwriting drives Hanover’s differentiation, positioning us well among both national and regional carriers Our winning business strategy presents a sustainable competit
Slide 4: Strategy
Strategy 4
Slide 5: Product Capabilities, Distribution and Local Underwriting Drive Differentiation
Robust Product Capabilities and Analytics Combined with Fulsome Distribution and Local Underwriting Drives Hanover’s Differentiation The Hanover combines the best attributes of Nationals and Large Regional Carriers Regionals Carriers Broad product Local presence offerings Robust agency Technology re
Slide 6: Our Differentiated Strategy Presents a Sustainable Competitive Advantage
Our Differentiated Strategy Presents a Sustainable Competitive Advantage in the Independent Agency Market Competitive Advantages SPECIALIZED DISTINCTIVE SPECIALIZED DISTINCTIVE CUSTOMER- PRODUCTS AGENCYAND PRODUCTS AGENCY DRIVEN AND CAPABILITIES PARTNERSHIPS PARTNERSHIPS APPROACH CAPABILITIES Agile
Slide 7: Our Three-Pronged Agency Approach
Our Three-Pronged Agency Approach Focused on Targeted Distribution, Broad and Relevant Underwriting, and Deep Business Insights Drives Growth and Profitability Depth of Hanover Breadth of Hanover Relationships Relationships 1 Business <$5M, 1 Unit, 23% 31% Business <$5M, Unit, 68% 53% 2+ Business $5
Slide 8: Capitalizing on Our Agents' Growth and Consolidation
Capitalizing on Our Agents’ Growth and Consolidation Trends Total Addressable Market $69B $53B +30% ✓ Partnering with growing agents ✓ Broader market reach by leveraging agency consolidation trends ✓ Expanding geographic and product reach 2016 2021 2,100 2,110 Agencies Agencies Positioned to drive c
Slide 9: Partner with Agents to Deliver Holistic, Customer-Centric Solutions
Partner with Agents to Deliver Holistic, Customer-Centric Solutions Differentiated and relevant approach in an increasingly fragmented market Premium mix by number of lines written with one carrier Personal Lines Middle Market 3+ lines Account 41% 53% 3+ lines Account 78% 88% 1-2 lines Monoline 59%
Slide 10: Specialized and Differentiated Offering in Each Business Segment
Specialized and Differentiated Offering in Each Business Segment Business Profile $5.5B 2022 Net Premiums Written Personal Lines – 41% Core Commercial – 36% Specialty – 23% ✓ Account business creates higher ✓ Specialized products by industry ✓ Lower end of the risk and size retention and lifetime va
Slide 11: Growth
Growth Hanover Insurance Group® 11
Slide 12: Transformed into diversified P&C franchise with strong growth opportunities
Transformed into diversified P&C franchise with strong growth opportunities ✓ Transformed to a more Net Premiums Written balanced, differentiated P&C Personal Lines Core Commercial Specialty franchise $5.5B ‒ In 1Q22, disaggregated the former Commercial Lines 23% segment into Core ~6% 25% Commercial
Slide 13: Specialty
Specialty Leading carrier for small to mid-sized clients primarily served by retail agents, with proven growth strategy on track to deliver ~10% CAGR over the next 5 years Business Mix Growth and Profitability Drivers $1.2B NPW • Contract Surety ✓ Expanding product capabilities Surety, 6% • Commerci
Slide 14: Core Commercial
Core Commercial Leading carrier in providing agents with the flexibility between straight through and more complex, risk specific underwriting Growth and Profitability Drivers Business Mix $2.0B NPW ✓ Deepen agency relationships, leveraging market insights Real Estate and 24% Diversified Institution
Slide 15: Personal Lines
Personal Lines Leading carrier for whole account offerings for middle market customers across an attractive regional footprint Growth and Profitability Drivers Business Mix $2.2B NPW ✓ Partnering with select independent agents to gain share of preferred accounts (~30% Monoline 20 State Footprint cur
Slide 16: Profitability
Profitability 16
Slide 17: Long-term Approach to Financial Discipline Drives Success
Long-term Approach to Financial Discipline Drives Success • Rigorous underwriting • Conservative performance reserving philosophy management strengthens resilience • Investment in Optimize • Limited earnings innovation Enterprise Reserving volatility Performance Discipline Driving Shareholder Return
Slide 18: Built a Robust Performance Track Record Over The Last Several Years
Built a Robust Performance Track Record Over The Last Several Years… ($ in billions) Net Premiums Written Expense Ratio(2) ~6% CAGR 33.2% $5.5 -2.4 $5.0 32.6% Points $4.4 $4.6 $4.6 $3.9 $4.1 32.1% 31.6% 31.6% 31.3% 30.8% 2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022 ($ in mil
Slide 19: Strong Execution Delivers Improved Performance
Strong Execution Delivers Improved Performance (3) Combined Ratio Combined Ratio, Ex-CAT • Improved performance generated by: 100.5% ─ Lower expense ratio driven by growth and operating efficiencies 96.6% 95.0% ─ Improved underlying loss ratio through 2021, supported by our 90.3% maturing and very p
Slide 20: Well-positioned to Deliver on our Long-term ROE Target of 14% or Higher By 2026
Well-positioned to Deliver on our Long-term ROE Target of 14% or Higher By 2026, Despite Inflationary Pressures and CATs in 2022 Operating Return on Equity ~14% ~12.5% 10.5%(4) Normalized Operating ROE Expect improved ROE performance from 2022 to be Normalized driven by: for CATs ✓ Return of underly
Slide 21: Drivers of Loss Ratio Improvement
Drivers of Loss Ratio Improvement Current Accident Year, Ex-CAT Loss Ratio • Need to recapture approximately Illustrative 3.5 points of the loss ratio from elevated 2022 base • Made strong progress in the fourth quarter of 2022 toward our margin recapture plan ─ Underwriting actions ─ Meaningfully a
Slide 22: Continued Fixed Cost Leverage From Growth Improves Financial Performance
Continued Fixed Cost Leverage From Growth is the Foundation of Improved Financial Performance Looking Forward Expense Ratio Improvement • Expect at least 20 basis point from Fixed Cost Leverage annual improvement via fixed cost 33.2% leverage 31.3% • After significant investment in modernization of
Slide 23: Technology Investments to Enhance Our Front-End Capabilities and Generate Efficiencies
Technology Investments to Enhance Our Front-End Capabilities and Generate Efficiencies 2016 – 2020 2021 and beyond Foundation building Customer and agent experience Invested over $200 million Open-ended infrastructure to upgrade or replace nearly allows for agility in future all core systems within
Slide 24: Our Claims Organization is a Strong Contributor to Earnings and Growth
Our Claims Organization is a Strong Contributor to Earnings and Growth Claims Strategy Unallocated Loss Adjustment Expense (“ULAE”) • Enhance customer experience through digital and self-service ~90 bps Reduction • Optimize indemnity outcomes by ✓ Technology and leveraging data and analytics digital
Slide 25: High Quality, Diversified Investment Portfolio
High Quality, Diversified Investment Portfolio Total invested assets and capital of $8.8 billion As of December 31, 2022 Fixed Maturities: $7.5 billion Equities, Cash and Other: $1.3 billion ABS, 5% Other, 1% U.S. Government, Cash and cash 6% equivalents , 23% Utilities, 4% Industrials, Mortgage 28%
Slide 26: Clear Priorities Have Driven Consistent Return of Capital
Clear Priorities Have Driven Consistent Return of Capital Annual Return of Excess Capital Return as Capital ($MMs) % of Net Income 2022 $140 120.4% Maintain strong capitalization 2021 $265 63.2% and adequate liquidity 2020 $312 87.1% 2019 $111 26.2% 2018 $152 38.9% Organic and inorganic growth 2017
Slide 27: Sustainability
Sustainability Hanover Insurance Group® 27
Slide 28: Recent ESG updates
Recent ESG updates Process Disclosures Awards Launched Global Reporting 100% score on Human Embedding ESG into our Initiative (GRI) Index in 2019 Rights Corporate Equality business strategy Index Created GRI disclosure that cross references to TCFD in Recognized by Forbes as Established Board of 202
Slide 29: Diverse Board Focused on Delivering Sustainable, Long-Term Stakeholder Value
Diverse Board Focused on Delivering Sustainable, Long- Term Stakeholder Value Through Strong Governance Board Member Selected Experience Cynthia Egan Collective Expertise T. Rowe Price, Fidelity Chair of the Board ✓ P&C Insurance Francisco Aristeguieta Citigroup, State Street ✓ Financial Services Ke
Slide 30: About The Hanover
About The Hanover The Hanover Insurance Group, Inc. is the holding company for several property and casualty insurance companies, which together constitute one of the largest insurance businesses in the United States. The company provides exceptional insurance solutions through a select group of ind
Slide 31: Forward-Looking Statements
Forward-Looking Statements Forward-Looking Statements Certain statements in this document and comments made by management may be “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, may be forward-
Slide 32: Additional Risks and Uncertainties
Additional Risks and Uncertainties Additional Risks and Uncertainties Investors are further cautioned and should consider the risks and uncertainties in the company’s business that may affect such estimates and future performance that are discussed in the company’s most recently filed reports on For
Slide 33: Non-GAAP Financial Measures
Non-GAAP Financial Measures As discussed on page 37 of the company’s Annual Report on Form 10-K for the year ended December 31, 2021, the company uses non-GAAP financial measures as important measures of its operating performance, including operating income, operating income before interest expense
Slide 34: End notes
End notes (1) Operating income and operating income per diluted share are non-GAAP measures. The following table provides the reconciliation of operating income and operating income per diluted share to the most directly comparable GAAP measures, income from continuing operations and income from con
Slide 35: End notes continued
End notes continued (2) Throughout this presentation, for purposes of the expense ratio calculation, expenses are reduced by installment and other fee revenues. (3) Combined ratio, excluding catastrophes, is a non-GAAP measure. The combined ratio (which includes catastrophe losses and prior-year los
Slide 36: End notes continued
End notes continued (4) “Normalized Operating ROE” is a non-GAAP financial measure and is used for illustrative purposes only. “Normalization” is not intended to imply a forward-looking statement or future expectations but is intended to illustrate results after specific adjustments. Normalization f
Slide 37: End notes continued
End notes continued (5) Renewal price change in Personal Lines represents the average change in premium on policies available to renew caused by the net effects of filed rate, inflation adjustments or other changes in policy level exposure or insured risks, regardless of whether or not the policies
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