The Hanover Insurance Group shaved 1.8 points off its Q2 2021 combined ratio compared with the prior year period as the carrier benefited from lower catastrophe claims and rate increases in both its core commercial and personal lines segments, with results that overall comfortably beat analysts’ expectations.

The Hanover Q2 results

  • Q2 CR improves 1.8 points YoY to 94.4%
  • NPW increases 11.7% YoY to $1.21bn
  • Operating profit up $41.3mn YoY to $104mn
  • Commercial lines average base rate up 6.5% in Q2
  • Personal lines NPW up 11.6% YoY to $520.4mn

The Hanover Insurance Group shaved 1.8 points off its Q2 2021 combined ratio compared with the prior year period as the carrier benefited from lower catastrophe claims and rate increases in both its core commercial and personal lines segments, with results that overall comfortably beat analysts’ expectations.

Worcester, Massachusetts-based Hanover posted a combined ratio of 94.4 percent for the three months to 30 June, 2021, down from 96.2 percent compared with the prior year period.

Catastrophe losses totalling $76.8mn contributed 6.5 points to the Q2 2021 combined ratio, and were primarily related to several wind, rain and hail events that struck the Midwest in June. The Q2 2021 combined ratio also benefited from 1.1 points of favourable prior year development.

The Hanover’s first quarter 2020 combined ratio included 13.5 points of catastrophe losses. Favourable prior year development cut 40 basis points from the Q2 2020 combined ratio.

Net premiums written (NPW) across its operations amounted to $1.21bn in Q2 2021, up 11.7 percent compared with the prior year period.

The carrier’s operating profit for the three months to 30 June 2021 totalled $104mn, up from $62.7mn in the same period last year.

Operating income per diluted share of $2.85 in Q2 2021 was ahead of the $2.31 that was the consensus of analysts’ estimates as compiled by S&P Global’s Market Intelligence. The Hanover’s operating income per diluted share in Q2 2020 was $1.63.

Commercial lines rate rises continue

The Hanover said its core commercial average base rate increased by 6.5 percent during the second quarter, while pricing increases averaged 9.3 percent.

Second quarter 2021 commercial lines operating income before taxes was $104.4mn, up from $55.3mn in the prior year period.

The commercial lines unit posted a combined ratio of 92.1 percent in Q2 2021, down from 96.6 percent in 2020’s second quarter.

Catastrophe losses totalled $18.2mn in the three months to 30 June 2021 and added 2.6 points to the period’s combined ratio, net of $12mn of favourable prior year development.

In Q2 2020, The Hanover’s commercial lines unit faced $64.8mn of catastrophe losses, equal to 9.8 points of the combined ratio, and net of $6mn of favourable prior year development.

Commercial lines NPW totalled $686.8mn for 2021’s second quarter, up from $614.9mn in the prior year period.

Personal lines operating income dips down

The Hanover’s personal lines unit saw average rate increases of 2.8 percent in 2021’s second quarter.

Personal lines operating income before taxes for the three months to 30 June 2021 totalled $32.2mn, down from $32.6mn in the prior year period.

The company’s personal lines business posted a combined ratio of 97.6 percent, up 1.9 points on Q2 2020.

Second quarter 2021 personal lines catastrophe losses were $58.6mn, or 12.3 points of the combined ratio, and were driven by wind, rain and hail events in the Midwest in June, including in Michigan, where The Hanover has a 6.9 percent share of the personal lines market.

In Q2 2020, The Hanover’s personal lines platform faced $83mn of catastrophe losses, equal to 18.9 points of its combined ratio.

Personal lines NPW increased 11.6 percent year on year to $520.4mn, with the growth driven by an increase in new business.

Net investment income amounted to $75.6mn in the second quarter of 2021, up from $57.7mn in the prior year period.

John Roche, The Hanover’s president and CEO, said the company was very pleased with its Q2 2021 performance.

“[We achieved] exceptional growth and deliver[ed] an operating return on equity of 14.7 percent, reflecting the success of our distinctive agency and customer-centric strategy,” said Roche.

Jeffrey Farber, executive vice president and chief financial officer at The Hanover, added: “We delivered a strong ex-cat, current accident year combined ratio of 89 percent, and grew our book value per share by 4.8 percent during the quarter, underscoring the profitability of our diversified book of business and our ability to achieve high margins while growing in an uncertain environment.”

“We are very pleased with the underwriting margins in our business; however, we are mindful of the potential uncertainties related to social and economic inflation, as well as ongoing court and medical information delays, and we remain prudent in our assessment of loss costs,” Farber added.