WORCESTER, Mass., October 23, 2019 – Shares of The Hanover Insurance Group Inc. (NYSE: THG) declined -2.27% to $133.48. The stock grabbed the investor’s attention and traded 728.839K shares as compared to its average daily volume of 247.40K shares. The stock’s institutional ownership stands at 89.80%.
The Hanover Insurance Group, Inc. (THG) reported net income of $122.40M, or $2.97 per diluted share, in the first quarter of 2019, compared to $67.70M, or $1.57 per diluted share, in the prior-year quarter. Operating income was $80.70M, or $1.96 per diluted share, for the first quarter of 2019. This compared to operating income of $66.10M, or $1.54 per diluted share, in the prior-year quarter. The difference between net and operating income in the first quarter of 2019 is primarily due to an after-tax increase in the fair value of equity securities of $38.40M, or $0.93 per diluted share.
First Quarter Operating Highlights
Commercial Lines:
Commercial Lines operating income before taxes were $80.20M, compared to $61.40M in the first quarter of 2018. The Commercial Lines combined ratio was 94.2%, compared to 97.2% in the prior-year quarter. Catastrophe losses were $10.40M, or 1.6 points of the combined ratio, compared to $38.00M, or 6.0 points of the combined ratio, in the prior-year quarter. First quarter 2019 catastrophe losses included $23.90M, or 3.7 points, of current accident year losses, primarily from winter weather events in the Midwest and Northeast. First quarter 2019 catastrophe losses also included favorable development of $13.50M, or 2.1 points, primarily reflecting the agreement with a third party to sell the company’s subrogation rights related to certain 2017 and 2018 California wildfire losses.
First quarter 2019 results included $7.50M, or 1.1 points, of net favorable prior-year reserve development, excluding catastrophes, driven primarily by releases in Workers’ Compensation and Commercial Multiple Peril (“CMP”), partially offset by reserve increases in the Commercial Auto line as a result of elevated bodily injury severity. This compared to net favorable prior-year reserve development, excluding catastrophes, of $1.60M, or 0.3 points, in the first quarter of 2018.
Net premiums written were $677.40M in the quarter, up 0.8% from the prior-year quarter, as growth in the more profitable businesses, including Technology, Professional Lines, Marine, and Small Commercial, was partially offset by underwriting initiatives in Commercial Auto and the Hanover Program business. Core Commercial business price increases averaged 5.2% for the first quarter, while retention was stable at 82.7%.
Personal Lines:
Personal Lines operating income before taxes were $26.80M in the quarter, compared to $34.30M in the first quarter of 2018. The Personal Lines combined ratio was 98.2%, compared to 95.8% in the prior-year quarter. Catastrophe losses were $29.00M, or 6.6 points of the combined ratio, driven by winter weather events in the Midwest and Northeast, which compared to $27.50M, or 6.7 points, in the prior-year quarter. First quarter 2019 results included $7.50M, or 1.7 points, of net unfavorable prior-year reserve development, primarily related to elevated bodily injury severity in Personal Auto. This compared to unfavorable prior-year reserve development of $1.60M, or 0.4 points, in the first quarter of 2018.
Net premiums written were $420.60M in the quarter, up 6.0% from the prior-year quarter, due to higher renewal premium, primarily attributable to rate increases. Personal Lines average rate increases in the first quarter of 2019 were 5.0%.
Investments:
Net investment income was $70.20M for the first quarter of 2019, compared to $66.00M in the prior-year quarter. The increase was primarily due to the continued investment of operating cashflows and the investment of the remaining proceeds from the sale of Chaucer. These increases were partially offset by lower limited partnership income. The average pre-tax earned yield on fixed maturities was 3.61% and 3.64% for the quarters ended March 31, 2019 and 2018, respectively. Total pre-tax earned yield on the investment portfolio for the quarter ended March 31, 2019 was 3.65%, down from 3.84% in the prior-year quarter.
In the first quarter of 2019, net realized and unrealized investment gains recognized in earnings were $48.20M, primarily due to an increase in the fair value of equity securities during the period. In the first quarter of 2018, net realized and unrealized investment losses recognized in earnings were $22.90M, which included $0.60M of impairment charges.
The company held $7.90B in cash and invested assets on March 31, 2019. Fixed maturities and cash represented 85% of the investment portfolio. Approximately 95% of the company’s fixed maturity portfolio is rated investment grade. Net unrealized gains on the fixed maturity portfolio at the end of the first quarter of 2019 were $66.70M before taxes, an increase in fair value of $151.10M since December 31, 2018. This change was due to lower prevailing interest rates and tightening credit spreads in the first quarter of 2019.
THG has a market value of $5.26B while its EPS was booked as $7.50 in the last 12 months. The stock has 39.43M shares outstanding. In the profitability analysis, the company has net profit margin of 9.00%. Beta value of the company was 0.56; beta is used to measure riskiness of the security. Analyst recommendation for this stock stands at 2.20.
