The Hanover Insurance Group, Inc. (NYSE: THG) Keefe, Bruyette & Woods Conference September 10, 2020 1
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-positioned to thrive in the current and dynamic market environment • Financial results and top-quartile returns validate our strategy • Ambitious and achievable long-term target of 13% operating ROE 2
~$4.6B net written premium P&C franchise with exceptional opportunities “A” ~$3.7B $4.9B 12.8% Market 2019 2019 Adjusted Financial Operating ROE (1) Capitalization* Revenue strength 3 *As of the close of trading on 9/9/2020
Well-diversified franchise with broad and relevant product mix $4.6B 2019 Net Premiums Written Geographic mix Business mix Other Northeast 12% Specialty 18% 21% West Personal Lines 9% 41% Southeast 12% Midwest 34% Core Commercial (2) Mid-Atlantic 38% 15% 4
Our Vision: To be the premier property and casualty franchise in the independent agency channel 5
Agency carrier of choice Unique agency distribution approach Deep Underwriting Targeted business expertise distribution insights Differentiated products 2,100 of the best $60B of target agents in the U.S. market data profiled Insight through data and analytics 7% average agency Pursuit of informed market share opportunities Local presence with 49 offices 6
Strong and leverageable distribution platform Agent segmentation The Hanover focus # of # of The Target Hanover Segment Agents in U.S. Agents share Limited 3 1. Top 3 brokers 7 7 1a. Top 4 – 10 brokers 4% 150 5% 200 2. Top 200 500 8% 1,500 3. Regional agents ≈7,000 4. Mid-size agents 1,000 16% ≈26,000 450 22% 5. Small agents ≈2,100 7% ≈35,000 Total 7
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 agents Digital servicing Workflow efficiency Digital distribution Claims digital reporting Data analytics and handling Digital customer Telematics and IOT pilots acquisition 8
Leading specialized capabilities Differentiation is key Personal Lines Core Commercial Specialty Industry Robust and specialization Account offering relevant specialty and unique for customers with offerings operating model complex needs ~$1.0B Diversified 85% Account 68% Account Portfolio Business Business 9
Core Commercial − Industry specialization and unique operating model 2019 Net premiums written Areas for growth opportunities • Further agency penetration Professional and Technology Financial 8% Services 7% Contractors, Transp. and Maint. Services • New state of the art platform 13% Wholesale & Retail 13% • Enhanced product capabilities – Human and $1.7B Social Services Business Owners’ Advantage Manufacturing 16% 12% Hospitality 7% Real Estate and Institutions 24% 10
Robust and relevant Specialty offerings Specialty 2019 Net premiums written Areas for growth opportunities • Expanding product capabilities, Surety, 7% including financial institutions and Healthcare, 6% Marine, 29% cyber Professional & • Enhancing existing E&S Executive Lines, 26% platforms ~$1.0B • Expanding shelf space with agent Specialty Industrial, 7% partners E&S, • 5% Leveraging Core Commercial Programs Business, 20% 11
Complete, whole account-oriented Personal Lines offering for customers with complex needs 2019 Net premiums written Areas for growth opportunities $1.9 billion Maintain retention advantage with • Leveraging agent-centric account and Hanover Platinum distribution strategy to better serve experience offering customer needs and grow higher 85% profit business 84% • New agency appointments in under-penetrated geographies 79% Monoline Account Platinum Average Retention 12
Financial results validate The Hanover strategy Made great financial strides over the last several years 5 Year Total Shareholder 2019 Return* 97% 12.8% 77% Adjusted 52% 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 September 4, 2015 in the Hanover Insurance Group 13 Inc.’s stock or applicable indices, including the reinvestment of dividends
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 Pricing increases and mix Prioritizing margin over Continued expense discipline growth optimization 24-26% marginal expense ratio Thoughtful capital management and allocation 14
Strategic focus and financial rigor drive top-quartile ROE Continuous portfolio management to deliver increased shareholder returns Top Quartile 2019 Second 12.8% Quartile Adjusted 2014 Operating ROE (1) * Third 9.6% Quartile Operating 2009 ROE (1) 7.0% Operating ROE (1) Peer Average 8.3%** Peer Average 7.9%** Peer Average 8.7%** * Adjusted for the un-deployed equity attributable to Chaucer, our former international specialty business we sold at the end of 2018. ** Source: S&P Global Market Intelligence. Peer set includes AFG, AIG, ARGO, AXS, CB, CINF, CNA, DGICA, HIG, HMN, JRVR, KMPR, MKL, MCY, ORI, PRA, PROS, SAFT, SIGI, STFC, ALL, TRV, UFCS, and WRB. The 2009 peer average does not include JRVR and PROS and 2014 does not include PROS as those companies went public in 2014 and 2019, respectively. Peer operating return on equity is calculated by taking full year operating income for each respective year and dividing by the average of the beginning 15 and ending equity, excluding accumulated other comprehensive income, for each quarter in the respective year.
History of Returning Excess Capital to Shareholders Not included in graph is the capital returned from the sale of Chaucer: $ in millions $201.5 ~$850M $186.0 $181.9 $152.0 $138.2 $127.3 $124.0 $105.6 $57.7 $111.2 $134.7 $37.2 $13.6 $87.4 $78.2 $75.1 $72.6 $20.4 $20.0 $21.7 $97.6 $94.3 $86.8 $80.4 $74.2 $67.0 $60.0 $55.1 $50.9 $47.2 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Dividends Repurchases Capital return as a 117.5% 197.8% 134.3% 55.1% 31.0% 60.8% 119.9% 66.6% 38.9% 26.2%* percent of net income* 16 * Net income is as reported and includes Chaucer
Second Quarter 2020 Financial Results Three months ended Financial Update June 30 2019 2020 ($ in millions) 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 $1,096.6 Current accident year loss and loss adjustment expense (“LAE”) ratio, excluding catastrophes (5) , of 51.8%, which Combined ratio 96.1% 96.2% included favorable loss frequency in short-tail coverages, Combined ratio, ex-cat (3) 90.7% 82.7% primarily Personal Auto, while prudently reserving for Current accident year 90.7% 83.1% uncertainty in longer-tail lines combined ratio, ex-cat (3) Net premiums written and growth ($ in millions) • Limited COVID-19-related loss activity experienced to date; increased COVID-19 loss reserves by $6 million to ↑ 5.6% now include Workers’ Compensation, bringing the total ↑ 4.0% ↑ 3.5% ↑ 5.6% $1,242.9 ↓ 5.0% ultimate loss expectation to $19 million $1,137.8 $1,136.9 $1,103.0 $1,081.0 • Catastrophe losses of $147.8 million, or 13.5 points, including favorable development on prior-year catastrophes of $7.0 million 2Q19 3Q19 4Q19 1Q20 2Q20 • Net premiums written decrease of 5.0%*, primarily due to Current accident year combined ratio, ex-cat the impact of the Personal Auto premium return, lower new business and exposure reductions within 92.1% 93.2% 91.3% 90.7% Commercial Lines 83.1% • Core Commercial Lines rate increases (2) of 5.1% and 59.6% 61.8% 60.7% 59.2% 51.8% 4.8% in Personal Lines (7) • Book value per share of $81.10, up 12.6% from March 31.5% 31.7% 31.4% 31.4% 31.3% 31, 2020, driven primarily by increases in the fair value of fixed income and net income 2Q19 3Q19 4Q19 1Q20 2Q20 Expense ratio (4) Current accident year loss and LAE ratio, ex-cat (5) 17 * Unless otherwise stated, net premiums written growth and other growth comparisons are to the same period of the prior year.
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