Hanover Insurance Group Inc · NYSE:THG
Hanover Insurance — The Hanover Insurance Group — Keefe, Bruyette & Woods Insurance Conference 2022
42 slides from Hanover Insurance's conference presentation, Sep 8, 2022
Slide 1: The Hanover Insurance Group, Inc.
The Hanover Insurance Group, Inc. (NYSE: THG) Keefe, Bruyette and Woods Conference September 8, 2022
Slide 2: Key Takeaways
Key Takeaways Differentiated strategy accelerates growth 1. Growing market share with our consumer- and agent-centric approach, while leveraging our diverse product set and proprietary analytical tools Specialized capabilities are a critical growth driver 2. Further developing specialized capabiliti
Slide 3: The Hanover Insurance Group Overview
The Hanover Insurance Group Overview Diversified U.S. P&C franchise with strong growth opportunities and track record of success $4.6B $5.0B Market 2021 Capitalization* NPW 11.2% “A” 2021 Operating Financial Strength** ROE(1) *As of the close of trading on 9/1/2022 3 **AM Best and S&P
Slide 4: Evolution to Today’s Diversified Franchise
Evolution to Today’s Diversified Franchise 2005 2021 • Transformed to a more Regional, personal lines driven Balanced, small/middle market focused balanced, differentiated carrier with property concentration commercial and personal lines carrier P&C franchise ‒ In 1Q22, disaggregated Personal Lines
Slide 5: Our Differentiated Strategy Presents a Sustainable Competitive Advantage
Our Differentiated Strategy Presents a Sustainable Competitive Advantage Competitive Advantages SPECIALIZED DISTINCTIVE CUSTOMER- PRODUCTS AND AGENCY DRIVEN CAPABILITIES PARTNERSHIPS APPROACH Agile Attractive Admirable innovator employer company Strategic Sustainability Enablers 5
Slide 6: Well-Positioned in the Current, Highly Dynamic Environment
Well-Positioned in the Current, Highly Dynamic Environment Market Dynamics Our Strategic Focus Distribution • Authentic partnership strategy Consolidation • Actionable customer insights Tech and Data • Opportunity for agile innovation in every Analytics aspect of our business Evolving • Customer-cen
Slide 7: Our Distinctive Agency Approach Drives Growth and Profitability
Our Distinctive Agency Approach Drives Growth and Profitability Three-pronged Increased depth and breadth partnership approach: drive improved economics 2,110 of the best Depth of Hanover Relationships agents in the U.S. $5M+ Targeted 32% $5M+ distribution 65% Franchise value <$5M 68% <$5M 35% Speci
Slide 8: A Partnership Strategy Capitalizing on Our Agents’ Growth and Consolidation Trends
A Partnership Strategy Capitalizing on Our Agents’ Growth and Consolidation Trends Tailwind Total Addressable • Increased relevance and share with long-term partners as Market they grew 30% • Agency M&A activity increased addressable market access GROWTH by >10% $69B • Increased leadership position,
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 Benefits of customer- centric approach Personal Lines Middle Market • Ease of doing business 3+ lines
Slide 10: Winning in a Fragmented Market
Winning in a Fragmented Market Enhancing our growth and relevancy in sectors that become more account centric • Based on our Agency Insight data, $35 billion, or 63% of overall profiled commercial Client Buying Patterns / lines premiums are assembled by agents as Account Fragmentation accounts, but
Slide 11: Highly Specialized and Differentiated Offering in Each Business Segment
Highly Specialized and Differentiated Offering in Each Business Segment Small Commercial Personal Specialty Lines Middle Market 2021 NPW $1.9B $1.1B $2.0B Targeted, profitable Account-based Account business (87%*) account business approach, integrated creates higher retention with core commercial an
Slide 12: Core Commercial
Core Commercial Diversified portfolio, providing industry focused solutions… Growth drivers Technology, 9% • Deepen agency relationships, Real Estate and Contractors, Institutions, 25% leveraging market insights Transp. and Maint. Services, 13% • Enhanced use of granular pricing and segmentation; ca
Slide 13: Specialty
Specialty Growth drivers $1+ billion diversified retail driven specialty business highly relevant to agents • Expanding product capabilities $1.1B focused on agent needs: 6% Excess & Surplus Healthcare – Financial Institutions 7% Surety 5% – Retail E&S platform 7% Specialty Industrial 10% Management
Slide 14: The Hanover’s Specialty Portfolio
The Hanover’s Specialty Portfolio Broad capabilities for small to mid-sized clients primarily served by retail agents A leading carrier in the small and middle markets: Examples of our comprehensive specialty solutions: • Contract Surety • Programs Complex Manufacturer • Commercial Surety • Industri
Slide 15: Proven Growth Strategy on Track to Deliver ~10% CAGR Over the Next 5 Years
Proven Growth Strategy on Track to Deliver ~10% CAGR Over the Next 5 Years Clear line of sight to attractive market opportunities $129B The Hanover Specialty Market Opportunity U.S. Specialty Market ~$45B Segment Premium Out-of-scope Excess & Surplus $10B classes and lines (clients <$500M In-sco
Slide 16: Personal Lines
Personal Lines Moving upstream toward a more value- Growth Drivers oriented and growing customer segment… • Leveraging agent-centric distribution Future strategy and state-of-the-art TAP Sales High net worth consideration platform to gain share $3.0M “Emerging affluent • Success with market consolid
Slide 17: Platform Positioned to Deliver Consistent Profitability
Platform Positioned to Deliver Consistent Profitability Franchise repositioning delivers robust Improved domestic performance generated ROEs… by lower expense and loss ratios Current Accident Year Combined Ratio, Ex-CAT(4) 2021 Operating Return on Equity 91.1% 90.9% 90.9% 91.8% 11.2% 88.4% 89.8% 8.5
Slide 18: Ambitious, But Achievable Financial Targets For The Next Five Years
Ambitious, But Achievable Financial Targets For The Next Five Years Outlined During September 2021 Investor Day Long-Term Our Long-Term Aspirational Goals Target CAGR ROE NPW EPS BVPS ~14% 7+% 12-13% 7-8% Forward-looking non-GAAP measures, including normalized run rate and 2026 forecast, are not rec
Slide 19: Continued Fixed Cost Leverage From Growth is the Foundation of Improved Financial Performance
Continued Fixed Cost Leverage From Growth is the Foundation of Improved Financial Performance Looking Forward Expense Ratio Improvement from Fixed Cost Leverage • We expect at least 20 basis point annual improvement via fixed cost leverage 31.3% • After significant investment in modernization of our
Slide 20: Strong Second Quarter 2022 Operating Results
Strong Second Quarter 2022 Operating Results Current accident year combined ratio, ex-CAT, increased from Achieving strong growth in each segment… the prior-year quarter, primarily driven by Personal Lines: 2Q22 Net Premiums Written Growth – Higher underlying loss ratio in Auto, due to increased pro
Slide 21: Differentiated Pricing Strategy and Reduced Claims Frequency Lead to Favorable Position
Differentiated Pricing Strategy and Reduced Claims Frequency Lead to Favorable Position in the Current Inflationary Environment Auto and Home Cumulative Filed Rate vs. Q2’2022 Filed Rate* • Our prudent and measured rate strategy during the pandemic has resulted in a more measured current rate need i
Slide 22: Technology Investments to Enhance Our Front-End Capabilities
Technology Investments to Enhance Our Front-End Capabilities 2016 – 2020 2021 and beyond Foundation building Customer-facing, high-visibility enhancements Processes and Business Models Processes and Business Core Digital and Models Systems APIs Core Systems ~30% Data and $280 ~70% Analytics Million
Slide 23: Our Claims Organization is a Strong Contributor to Earnings and Growth
Our Claims Organization is a Strong Contributor to Earnings and Growth Enhance customer • Technology and digital capabilities experience have yielded ~60 basis point through digital and reduction in unallocated loss self-service adjustment expense (“ULAE”) ratio between 2017 and 2020 Claims • Over t
Slide 24: Financial Discipline Drives Success
Financial Discipline Drives Success • Conservative reserving • Business investment philosophy strengthens based on risk- resilience for future adjusted returns uncertainty • Return excess • Limited earnings Reserving Capital capital to volatility shareholders Discipline Management Risk and Optimize
Slide 25: Targeted Management of Property Aggregation Reduces Volatility
Targeted Management of Property Aggregation Reduces Volatility Our catastrophe management and corporate reinsurance philosophy is grounded in risk analytics, and the group’s earnings and financial strength Prior exposure management actions have proven effective Domestic Catastrophe Loss Ratio • Proa
Slide 26: High Quality Diversified Investment Portfolio
High Quality Diversified Investment Portfolio Total invested assets and capital of $8.6 billion As of June 30, 2022 Fixed Maturities: $7.2 billion Equities, Cash and Other: $1.4 billion U.S. Government, Cash and cash Other, 1% 5% equivalents , 11% Utilities, 4% Exchanged traded funds CMBS, 12% Indus
Slide 27: Clear Priorities Have Driven Consistent Return of Capital
Clear Priorities Have Driven Consistent Return of Capital Annual Return of Excess Capital Return as Capital ($MMs) % of Net Income 2022 YTD $74 58.0% 2021 $265 63.2% Maintain strong capitalization 2020 $312 87.1% and adequate liquidity 2019 $111 26.2% 2018 $152 38.9% 2017 $124 66.6% 2016 $186 119.9%
Slide 28: Valuation Perspectives
Valuation Perspectives • Strong market position and growth prospects • Broad-based profitability 15.6x 14.0x • Top-quartile ROE 12.5x 13.3x 11.2x Price/NTM • Strong track record of Earnings earnings improvement • Earnings consistency and Hanover Peer Median* National Regional Specialty low volatilit
Slide 29: Appendix
Appendix Hanover Insurance Group® 29
Slide 30: Strategic Sustainability Enablers are at the Heart of Our Hanover Identity
Strategic Sustainability Enablers are at the Heart of Our Hanover Identity Sustainability Enablers • In these dynamic times, great companies can only thrive if they are built on a Agile sustainability foundation innovator Admirable • Effectiveness of our strategy, company combined with strong talent
Slide 31: 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 2021 Recognized by Forbes as Established Board o
Slide 32: Our Culture and People are Our Greatest Assets
Our Culture and People are Our Greatest Assets Our CARE values 88% 7 of managers have received Business resource groups for leadership development training C A women and underrepresented populations 100% Collaboration Accountability Recognized by Forbes of employees who can work as one of America’s
Slide 33: 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 Chair of the Board T. Rowe Price, Fidelity Collective Expertise P&C Insurance Francisco Aristeguieta Citigroup, State Street Financial Services Kevin
Slide 34: Awards and Recognitions
Awards and Recognitions Recognized by $1.5M 100% score on Newsweek as Fairygodboss Raised through Human Rights Women Best Company one of America’s Corporate on Boards Award for Women United Way Most Responsible Campaign Equality Index (2016, 2019, 2020) (2020, 2021) Companies (2018, 2019, 2020, (202
Slide 35: 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 36: Forward-Looking Statements and Additional Risks and Uncertainties
Forward-Looking Statements and Additional Risks and Uncertainties 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
Slide 37: Additional Risks and Uncertainties (continued)
Additional Risks and Uncertainties (continued) 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 Form 10-K and Form 10-Q an
Slide 38: 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 39: End notes
End notes (1) Operating Return on Average Equity (“Operating ROE”) is a non-GAAP measure. Operating ROE is calculated by dividing annualized operating income after taxes for the applicable period (see under the heading in this presentation “Non-GAAP Financial Measures”) by the average shareholders’
Slide 40: End notes continued
End notes continued (3) Throughout this presentation, for purposes of the expense ratio calculation, expenses are reduced by installment and other fee revenues. (4) Combined ratio, excluding catastrophes, and current accident year combined ratio, excluding catastrophes, are non-GAAP measures. The co
Slide 41: End Notes
End Notes End notes continued (6) Operating income (loss) and operating income (loss) per diluted share are non-GAAP measures. The following table provides the reconciliation of operating income (loss) and operating income (loss) per diluted share to the most directly comparable GAAP measures, incom
Slide 42: End Notes continued
End notes continued (7) Total shareholders’ equity, excluding net unrealized appreciation (depreciation) on fixed maturity investments, net of tax, is a non- GAAP measure. Total shareholders’ equity is the most directly comparable GAAP measure and is reconciled in the table below. For the calculatio
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