Hanover Insurance Group Inc · NYSE:THG
Hanover Insurance — The Hanover Insurance Group — Keefe, Bruyette & Woods Insurance Conference 2020
34 slides from Hanover Insurance's conference presentation, Sep 10, 2020
Slide 1: The Hanover Insurance Group, Inc.
The Hanover Insurance Group, Inc. (NYSE: THG) Keefe, Bruyette & Woods Conference September 10, 2020 1
Slide 2: Key Messages
Key Messages • Diversified franchise; achieving broad-based profitability through: • Differentiated agency-focused distribution strategy • Specialized and comprehensive portfolio mix, which provides continual growth opportunities • Conservative underwriting practices and mix management • Well-positi
Slide 3: ~$4.6B net written premium P&C franchise with exceptional opportunities
~$4.6B net written premium P&C franchise with exceptional opportunities ~$3.7B $4.9B 12.8% “A” Market 2019 2019 Adjusted Financial Capitalization* Revenue Operating ROE (1) strength *As of the close of trading on 9/9/2020 3
Slide 4: Well-diversified franchise with broad and relevant product mix
Well-diversified franchise with broad and relevant product mix $4.6B 2019 Net Premiums Written Geographic mix Business mix Other 12% Northeast Specialty 18% 21% West Personal Lines 9% 41% Southeast 12% Midwest 34% Core Commercial(2) Mid-Atlantic 38% 15% 4
Slide 5: Our Vision: To be the premier property and casualty franchise in the independent agency channel
Our Vision: To be the premier property and casualty franchise in the independent agency channel 5
Slide 6: Agency carrier of choice
Agency carrier of choice Unique agency distribution approach Deep Targeted Underwriting business distribution expertise insights 2,100 of the best Differentiated products $60B of target agents in the U.S. market data profiled Insight through data 7% average agency and analytics Pursuit of informed m
Slide 7: Strong and leverageable distribution platform
Strong and leverageable distribution platform Agent segmentation The Hanover focus # of # of The Segment Agents Target Hanover in U.S. Agents share 1. Top 3 brokers 3 Limited 1a. Top 4 – 10 brokers 7 7 4% 2. Top 200 200 150 5% 3. Regional agents 1,500 500 8% 4. Mid-size agents ≈7,000 1,000 16% 5. Sm
Slide 8: Bringing agents along in our journey to enhance innovative solutions
Bringing agents along in our journey to enhance innovative solutions throughout the insurance value chain Selling, Underwriting, Customer Acquisition Customer Servicing Binding Finding and retaining Underwriting data gathering Policy administration customers through our / sharing and claims handling
Slide 9: Leading specialized capabilities
Leading specialized capabilities Differentiation is key Core Commercial Specialty Personal Lines Industry specialization Robust and Account offering and unique relevant specialty for customers with operating model offerings complex needs 68% Account ~$1.0B Diversified 85% Account Business Portfolio
Slide 10: Core Commercial − Industry specialization and unique operating model
Core Commercial − Industry specialization and unique operating model 2019 Net premiums written Areas for growth opportunities Professional and • Further agency penetration Technology Financial 8% Services 7% Contractors, Transp. and Maint. Services 13% • New state of the art platform Wholesale & Ret
Slide 11: Robust and relevant Specialty offerings
Robust and relevant Specialty offerings Specialty 2019 Net premiums written Areas for growth opportunities Surety, 7% • Expanding product capabilities, Healthcare, 6% including financial institutions and Marine, 29% cyber • Enhancing existing E&S Professional & Executive Lines, 26% ~$1.0B platforms
Slide 12: Complete, whole account-oriented Personal Lines offering
Complete, whole account-oriented Personal Lines offering for customers with complex needs 2019 Net premiums written $1.9 billion Areas for growth opportunities Maintain retention advantage with • Leveraging agent-centric account and Hanover Platinum experience offering distribution strategy to bette
Slide 13: Financial results validate The Hanover strategy
Financial results validate The Hanover strategy Made great financial strides over the last several years 5 Year Total Shareholder Return* 2019 97% 77% 12.8% 52% Adjusted operating ROE(1) The Hanover S&P P&C S&P 500 * Based on September 4, 2015 through September 4, 2020. Assumes $100 invested on Sept
Slide 14: Ambitious and achievable long-term goals
Ambitious and achievable long-term goals Strong financial platform for profitable growth 13% target operating ROE Financial Targeted Stable/ Rigor and profitable Improving Expense growth loss ratio Leverage Prioritizing margin over Pricing increases and mix Continued expense discipline growth optimi
Slide 15: Strategic focus and financial rigor drive top-quartile ROE
Strategic focus and financial rigor drive top-quartile ROE Continuous portfolio management to deliver increased shareholder returns Top Quartile 2019 Second Quartile 12.8% Adjusted 2014 Operating Third ROE(1)* Quartile 9.6% Operating 2009 ROE(1) 7.0% Operating ROE(1) Peer Average 7.9%** Peer Average
Slide 16: History of Returning Excess Capital to Shareholders
History of Returning Excess Capital to Shareholders Not included in graph is the capital returned from the sale of $ in millions Chaucer: $201.5 ~$850M $181.9 $186.0 $152.0 $138.2 $127.3 $124.0 $105.6 $57.7 $111.2 $134.7 $37.2 $13.6 $78.2 $87.4 $72.6 $75.1 $20.4 $21.7 $20.0 $94.3 $97.6 $80.4 $86.8 $
Slide 17: Second Quarter 2020 Financial Results
Second Quarter 2020 Financial Results Three months ended June 30 Financial Update ($ in millions) 2019 2020 • Strong results demonstrated by operating EPS(6) of $1.63 Net premiums written $1,137.8 $1,081.0 and operating ROE of 9.5%(1) Growth 4.0% -5.0% Net premiums earned $1,111.0 $1,096.6 • Current
Slide 18: COVID-19 Disclosures
COVID-19 Disclosures - Based on information as of July 28, 2020* Thoughtful underwriting practices and carefully constructed business mix mitigate exposure Well-positioned to successfully navigate the current environment: • Thoughtful and conservative underwriting practices • Broad, well-diversified
Slide 19: Net Investment Income Trends
Net Investment Income Trends ($ in millions) Net Investment Income* • Net investment income of $57.7 million in the $72.7 second quarter, down from $69.6 million in the $69.6 $68.8 $69.6 $14.2 $57.7 prior-year quarter due to: $11.8 $10.7 $13.4 $1.5 • Decline in the fair value of limited partnerships
Slide 20: Investment Portfolio Holdings – Total Invested Assets and Cash of $8.5B
Investment Portfolio Holdings – Total Invested Assets and Cash of $8.5B As of June 30, 2020 Fixed Maturities: $7.1 Billion Equities, Cash and Other: $1.4 Billion 1% 4% 1% 13% Marketable 10% Securities 32% 21% Industrials Exchange Traded Funds 15% 20% (ETF) 12% 13% Utilities Financials 33% 19% 6% Ind
Slide 21: Well-positioned to thrive in the current dynamic market environment
Well-positioned to thrive in the current dynamic market environment • Unique agency-focused distribution strategy continues to differentiate The Hanover • Balanced and robust portfolio provides broad-based profitability across the business • Leveraging our industry leading agency insights to identif
Slide 22: Appendix
Appendix Hanover Insurance Group® 22
Slide 23: Strong and experienced Executive Leadership
Strong and experienced Executive Leadership John “Jack” Roche President and Chief Executive Officer • Appointed president and chief executive officer of The Hanover in November 2017 • Served in several senior leadership positions since joining The Hanover in 2006, responsible for personal and commer
Slide 24: Forward-Looking Statements and Additional Risks and Uncertainties
Forward-Looking Statements and Additional Risks and Uncertainties 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 statemen
Slide 25: Additional Risks and Uncertainties (continued)
Additional Risks and Uncertainties (continued) 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 re
Slide 26: Non-GAAP Financial Measures
Non-GAAP Financial Measures Non-GAAP Financial Measures As discussed on page 38 of the company’s Annual Report on Form 10-K for the year ended December 31, 2019, the company uses non-GAAP financial measures as important measures of its operating performance, including operating income, operating inc
Slide 27: End notes
End notes* (1) Operating Return on Average Equity and Adjusted Operating Return on Average Equity (“Operating ROE” and “Adjusted Operating ROE”) are non- GAAP measures. Operating ROE is calculated by dividing operating income after tax for the applicable period (see under the heading in this present
Slide 28: End notes continued
End notes continued (1) Continued. Three months Years Ended ended December 31, December 31, December 31, June 30, Net Income ROE (non-GAAP) 2009 2014 2019 2020 Net Income (GAAP) $197.2 $282.0 $425.1 $115.2 Annualized net income (non-GAAP) $460.8 Average shareholders' equity (GAAP) $2,168.3 $2,737.3
Slide 29: End notes continued
End notes continued (2) Core Commercial business provides commercial property and casualty coverages to small and mid-sized businesses in the U.S., generally with annual premiums per policy up to $250,000, primarily through the Commercial Multiple Peril, Commercial Auto and Workers’ Compensation lin
Slide 30: End notes continued
End notes continued (3) Combined ratio, excluding catastrophes, and current accident year combined ratio, excluding catastrophes, are non-GAAP measures. The combined ratio, excluding catastrophes is equal to the combined ratio, excluding catastrophe losses. The current accident year combined ratio,
Slide 31: End notes continued
End notes continued (6) Operating income (loss) is a non-GAAP measure. Operating income (loss) before taxes, as referenced in the results of the three business segments (for year ended December 31, 2014, which also included Chaucer), is defined as, with respect to such segment, operating income (los
Slide 32: End notes continued
End notes continued (7) Price increases in Personal Lines is the estimated cumulative premium effect of approved rate actions applied to policies available for renewal, regardless of whether or not policies are actually renewed. Accordingly, pricing changes do not represent actual increases or decre
Slide 33: End notes continued
End notes continued (8) Continued. December 31, March 31, June 30, September 30, December 31, ($ in millions) 2018 2019 2019 2019 2019 Total shareholders' equity (GAAP) $2,954.7 $2,927.0 $2,941.1 $3,086.8 $2,916.2 Less: net unrealized appreciation (depreciation) on fixed maturity investments, net of
Slide 34: End notes continued
End notes continued (8) Continued. March 31, June 30, ($ in millions) 2020 2020 Total shareholders' equity (GAAP) $2,736.6 $3,071.7 Less: net unrealized appreciation (depreciation) on fixed maturity investments, net of tax 132.8 384.5 Total shareholders' equity, excluding net unrealized appreciation
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