Hanover Insurance Group Inc (THG) 2024 Q3 法說會逐字稿

Good day, and welcome to the Hanover Insurance Group's third quarter earnings conference call. My name is Sanjay, and it will be your operator for today's call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Oksana Lukasheva. Go ahead.

Thank you, operator. Good morning and thank you for joining us for our quarterly conference call. We will begin today's call with prepared remarks from Jack Roach, our President and Chief Executive Officer, and Jeff Farber, our Chief Financial Officer. Available to answer your questions after our prepared remarks are [Dick Lavey, President of Agency market against, and Bryan Salvatore, President of Specialty Lines.] Before I turn the call over to Jack, let me note that our earnings press release, financial supplement and a complete slide presentation for today's call are available in the Investors section of our website at www.hanover.com.

After the presentation, we will to answer questions in the Q&A session, our prepared remarks and responses to your questions today, other than statements of historical fact include forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995.

These statements can relate to, among other things, our outlook and guidance for 2024 economic conditions and related effect, including economic and social inflation, potential recessionary impacts, as well as other risks and uncertainties such as severe weather and catastrophes that could affect the company's performance and or cause actual results to differ materially from those anticipated.

We caution you with respect to reliance on forward-looking statements and in this respect, refer you to the forward-looking statements section in our press release, the presentation deck and our filings with the SEC. Today's discussion will also reference certain non-GAAP financial measures, such as operating income and accident year loss and combined ratio, excluding catastrophes, among others.

A reconciliation of these non-GAAP financial measures to the closest GAAP measure on a historical basis can be found in the press release slide presentation with the financial supplement, which are posted on our website. As I mentioned earlier. With those comments, I will turn the call over to Jack.

Thank you, Oksana. Good morning, everyone, and thank you for joining us. We delivered exceptional results in the third quarter, driven by outstanding execution across our organization.

The significant profitability improvements we delivered in the third quarter of the direct result of the strategic initiatives we have been discussing with you for the past 18-months, including enhanced pricing, significant insurance to value adjustments, terms and condition changes and targeted underwriting actions.

Before we get into the details of the quarter, I want to acknowledge the people and communities affected by the recent hurricanes in Florida, the Southeast and Mid-Atlantic.

Hurricane Celine and Milton cause tragic loss of life and tremendous disruption. While only a small portion of our business is written in those regions, we are committed to providing our insured with much needed assistance and claims support. Our experienced and committed team is working around the clock to ensure that claims are processed as quickly and efficiently as possible.

Now turning to our results, we generated operating income of $3.5 per diluted share, yielding an operating return on equity of 14.4%. Our ex-cat combined ratio improved by 2.4 points compared to last year's quarter, further validating the impact of our margin recapture initiatives.

We delivered substantial improvements in personal lines, outstanding underwriting results and specialty and strong performance in core commercial, despite prudent loss selections resulting from industry liability trends. As evidenced by the favorable prior-year development across all three of our major segments.

Our reserves remain healthy, and we believe we are well positioned to navigate social inflation trends, and we continue to make notable advancements in our margin recapture and Cap mitigation plans, demonstrating our agility and resilience and enabling our strong and improving profitability trends.

Next, I'll discuss our segment performance at a high level. We're very pleased with the progress we're making in this business on both the top and bottom lines. Excluding catastrophe losses, we made significant year-over-year improvements in both auto and home, as a result of underwriting actions we have taken and the benefits of price increases. Auto is now at target returns on both are written and earned rate basis. Home is that target on a written basis.

Our personal lines team generated premium growth of 6.8% in the quarter, driven entirely by pricing with policies in force still declining year over year and sequentially as expected, the decline in policies in force reflects our continued efforts to carefully balance our geographic exposures in certain areas of the Midwest. Pricing continues to be very robust in personal lines. Despite tip reductions, we generated net written premium growth of approximately 3.5% in Midwest states and over 10% in the rest of our Personal Lines footprint.

As we continue to see rapidly improving margins, we are focused on accelerating growth in states with attractive profitability and geographic profiles. We expect this trend to continue in the fourth quarter as we gradually lean into more states for new business growth. At the same time, we are continuing to mitigate our overall catastrophe risk exposures with more than half of our Personal Lines portfolio now under new or enhanced deductibles.

The benefit of these actions has been evident in the wake of some of the convective storms in the Midwest this year. Our higher deductibles not only have improved cost sharing on claims, but these terms and conditions have the additional benefit of encouraging policy holders to be more discriminating on full roof replacements, when storm damage is more cosmetic and helping CounterACT aggressive roofing company marketing tactics.

Also, we continue to broaden our account product capabilities and personal lines, adding collector car protection via a partnership with a leading classic car franchise. This will be critical for meeting the evolving needs of our customers as we maintain our competitive edge in the market. Turning to core commercial. Our solid financial performance underscores our prudent growth strategy and small commercial and effective margin improvement actions in middle market.

We are positioning our core commercial portfolio to be even more resilient while thoughtfully capitalizing on attractive growth opportunities. We are very pleased with our ongoing execution and excited about the prospects of reaching our full potential in this business. As we have guided, middle market premiums were lower in the third quarter as we finished up the journey on profitability, improvement in property and proceed cautiously with the liability lines. At the same time we retain the business. We desire to keep and gaining momentum with new business.

We are confident we will generate growth in middle market starting in the fourth quarter and expect to see steady improvement. Moving ahead. In our small commercial business, we leveraged our solid market position in attractive product portfolio in the quarter, delivering growth of approximately 6%. We have every reason to be optimistic about our small commercial prospects. Our meaningfully increased submissions and new business growth reflect the effectiveness of our TAP sale platform as well as the investments we've made in expanding our sales force and distribution reach.

We are particularly excited about the integration of workers' compensation in TAP sales next year, which we believe will further enhance our opportunities, our small commercial team is dedicated to competing and excelling in the marketplace every day as we continue to set ourselves. Apart with our underwriting expertise, advanced capable these digital tools and strong product offerings.

At the same time, we are intensely focused on profitability, especially given the industry environment relative to social inflation and litigation of use. We are pleased with the continued increase in average price changes in core commercial lines this quarter led by liability pricing.

Since 2016. We've been monitoring our loss trends and refining our underwriting appetite. Accordingly. Since that time, we have reduced exposure in high-risk areas such as industry sectors that are more prone to slip and fall and premises liability losses, particularly in major urban centers. Years ago, we discontinued standalone umbrella and focus on maintaining low liability limits in auto policies.

As a result, our growth in liability lines to date has been more measured compared to the industry. This foresight has equipped us to navigate today's market challenges. Effectively, we believe our portfolio is down more resilient than most thanks to our business mix limits profile in the industries and geographies covered, which is evident in our third quarter results.

Our commitment to underwriting excellence and disciplined positions us well for the future. Moving on our specialty business, continued to achieve exceptional bottom line results in the third quarter and year to date, delivering sustainable profitability and consistently robust margins.

We've accelerated our investments in this area, adding skilled talent and innovative technology to excel in an increasingly digital insurance market. E&S, for example, we have introduced a new policy Quote & Issue platform to enhance underwriting response times and operating efficiencies. In marine, we have enhanced and further strengthen our team and are deploying new technology and processes to improve ease of use Insurity. We are investing in additional field talent and ensuring strong market visibility to stay connected with our customers and agents and to seize new business opportunities.

Although specialty growth moderated to 3.4% in the quarter, we are very confident in our ability to rebound a strong growth. We continued to develop upper single or double digit growth in our most profitable lines, including E&S surety and management liability.

At the same time, our prior and ongoing profitability improvement initiatives in specific segments, particularly programs have led to higher than expense effected premium attrition in the quarter and have impacted our overall specialty top line performance. Excluding the programs business, specialty grew 5.4% in the quarter and 7.4% year to date. And we expect high single digit growth in the fourth quarter and subsequent quarters. We believe the specialty market remains robust and full of attractive opportunities in our targeted growth areas.

We are enthusiastic about maintaining and enhancing significant growth in the E&S sector, facilitated by our new platform. In marine, we are growing new business while expanding our portfolio, both geographically and across various business classes, reinforcing our position as a top tier go to carrier. We continue to show steady growth in surety while maintaining underwriting discipline in the current market.

Conversely, in markets where we witness increased competition, particularly in subsectors of the professional lines market, we exercise the required prudence for selective growth opportunities. We see a wealth of new business prospects and have great confidence in the investments we are making and specialty as well as in its growth trajectory.

Overall, our third quarter results are built on our solid momentum from the first half of the year, providing strong evidence of our ability to navigate a dynamic market environment, the effectiveness of our team's efforts and still profound confidence in our future as we continue to drive growth alongside healthy profitability, we are determined to continue to provide innovative, high-quality insurance solutions for our partners and customers to generate strong, sustainable, profitable growth and to deliver strong results in a market environment that demands diligence and expertise qualities we possess in abundance.

Our execution to date in my covenants in our team reinforces my unwavering conviction in the Hanover's future trajectory. With that, I'll turn the call over to Jeff.

Thank you, Jack, and good morning, everyone. I'm very pleased with our performance, which has gained significant momentum in recent quarters. In the third quarter, we've seen notable improvements in personal lines and sustained strong margins in both our core Commercial and Specialty segments.

These achievements are the result of our disciplined underwriting, prudent pricing and strong execution for the third quarter are all in combined ratio was 95.5%, which included 7.2 points of catastrophe losses. The Hanover has strategically limited exposure in Florida. The Carolinas opting not to over participate in the Gulf Coast wind markets.

Catastrophe losses from Hurricane Helene were approximately EUR40 million, primarily impacting personal lines in Georgia and core commercial in the Carolinas. Losses in the quarter also included a lesser impact from Hurricane barrel, along with a few weather events in the Midwest and Southeast. These losses were partially offset by 0.7 points of favorable development from prior year catastrophes. Due to our low exposure to Florida wind, including not writing personal lines in Florida.

At all, we expect losses from Hurricane Milton in October to be minimal. Excluding catastrophes, our third quarter combined ratio was 88.3%, the best in several years and an improvement of 2.4 points over the prior year quarter. Year to date, our ex-cat combined ratio stands at 88.7%, one of our best performances as well and surpassing our original guidance range for the year of 90% to 91%.

Prior line development in the quarter was favorable by 0.9 points, highlighted by widespread favorability in property lines. While our liability loss experience and trends are largely within expectations, we continue to exercise prudence in our loss picks to guard against Vale utility in what remains an uncertain loss trend environment. Looking at favorability in more detail, specialty was favorable by 3.1 points.

The segment benefited from lower than anticipated losses in our professional and executive claims made policies and favorable results in surety. Core Commercial favorable development of 0.7 points was spread among multiple lines with favorability in each major line. Core commercial umbrella is experiencing some pressure, but it remains well within manageable levels. Consequently, we have increased pricing in the third quarter from Q2, and we plan additional increases in the coming months. Personal Lines development was immaterial in the quarter overall, with some continuing elevated trend in umbrella.

Accordingly, we are filing rates to achieve pricing in the 20% range for next year. Our consolidated expense ratio of 31% was 0.8 points higher than the same quarter last year. This increase is due to higher agency and employee compensation this quarter, especially when compared to the lower level of variable compensation in the third quarter of last year. Additionally, the expense ratio increase reflects ongoing investments in talent and technology, particularly in our specialty segment.

We are confident in the investment choices we made, and we remain committed to our long-term goal of improving the expense ratio by 20 basis points per a year. When we look at bigger picture, our combined ratio is coming in well below our original expectations.

Now turning to our segment results, starting with Personal Lines. This business posted another quarter of meaningful improvement reporting an ex-cat combined ratio of 89.2%, down by 7.2 points from the prior year quarter, driven by the loss ratio.

Personal lines. Auto continues to see an exceptional rebound in profitability, delivering a current accident year loss ratio, excluding catastrophes, of 69.8%, an improvement of 7.7 points from the prior year quarter. The comparison was somewhat impacted by higher loss picks in the third quarter last year, which developed favorably in Q4. The majority of the improvement, however, is the result of earning in very substantial price increases and to a lesser extent, lower than expected auto collision loss experience collision severity has normalized, which should drive further margin improvement.

Additionally, we continue to experience lower than expected frequency of losses, which might be attributable to multiple factors like the impact of crash prevention technology in cars and changing customer behavior, including being more discerning on whether to file small claims. Although bodily injury frequency remains well below pre-COVID levels, severity continues to be elevated due to riskier driving behaviors and distracted driving, resulting in a higher proportion of deadly crashes involving pedestrians, bicycles and motor side cycles.

While we are not attributing personal auto BI severity to social inflation, we continue to vigilantly monitor these trends. Turning to the home and other components of our personal lines segment. Our ex-cat current accident year loss ratio of 55.7% improved by 7.3 points from the prior year quarter, primarily driven by the benefit of rate and underwriting actions. This is a trend we expect to continue. The new lower attritional and large loss frequency is helping our personal lines property results.

We anticipate our home and other line will reach target returns on an earned basis by mid 2025. Personal Lines top-line growth was 6.8% in the quarter, showing nice sequential acceleration, driven by strong pricing and improving retention across many states. Pricing is expected to further moderate but remained healthy. Exiting 2020, full-track turned to target profitable EBIT on an earned basis next year. In Personal Lines overall.

Moving on to core Commercial Lines, we delivered a combined ratio excluding catastrophes of 91.1%, up a point from the prior year quarter. Core Commercial current accident year loss ratio, excluding catastrophes, was 58.2%, relatively in line with expectations, but 1.9 points above the prior year quarter, which reflected lower than expected property large losses. Property margins remain favorable in each line. At the same time, we are setting our liability. Current accident year loss picks higher to effectively position ourselves for increases in loss trends.

This resulted in an increase in the loss ratio in the commercial multi-peril line and in other core commercial. In terms of pricing, we have increased umbrella pricing to 12.7%, while overall GL rates are up nearly a point year over year and continuing to move up directionally.

We are picking our workers' compensation loss ratio higher as well based on our normal long-term loss trend assumption and a relatively flat earned rate. At the same time, the commercial auto loss ratio is demonstrating improvement, driven by a similar collision frequency favorability we observed in personal lines. Core Commercial top-line growth slowed to 1.7% in the quarter, driven by premium reduction in middle market due to property actions and lower new business.

In the specialty segment, the combined ratio, excluding catastrophes, increased 1.3 points to 82.6% compared to the prior year period, driven by higher expenses. As noted before, the specialty current accident year loss ratio, excluding catastrophes, came in at 48% for the quarter on strong results across the business and favorable to our low 50s loss ratio expectation. Property large loss experience was again below expectations, especially in our marine, Hanover, specialty industrial property and in segments.

We are monitoring select liability lines for inflationary indicators and maintaining a prudent approach in our current accident year loss selections. Specialty's net written premiums grew 3.4% in the quarter compared with 8.2% in the second quarter. But as Jack noted, we expect the pace of growth to snap back in the fourth quarter. Moving on to our investment performance.

Third quarter. Net investment income increased 9% year over year to $91.8 million, propelled by higher earned yields on our fixed income portfolio, partially offset by lower partnership income income from limited partnerships with some due to the quarter, driven by under-performance in a handful of private credit and real estate funds.

Excluding partnerships, net investment income was up approximately 15% in the third quarter 2024 as compared to the year-ago quarter. We've also benefited from repositioning within our portfolio as in Q2, in the third quarter, we divested a portion of our lower yielding fixed income securities in consideration of expiring tax carryback capacity from 2021. Against the backdrop of a shifting interest rate environment, relatively tight credit spreads and expectation of lower short-term rates going forward, we believe we are well positioned.

Our 4.1 year duration should result in increasing net investment income going forward. In the current interest rate environment, we are still seeing about 150 basis point gap between new money and expiring yields. Looking at our equity and capital position, the combination of earnings and change in unrealized losses in the quarter drove book value per share, up 12.6% from Q2 to 79.9 d.

We continue to pursue a thoughtful capital allocation strategy. We refrain from repurchasing shares during the winter season. Historically, we've consistently return capital to our investors through increasing regular dividend payments and strategic share buybacks.

When the timing was right, our core approach hasn't changed. We continue to see both dividends and share repurchases as key tools for managing capital allocation and to create further shareholder value. Moving on to an update on our guidance with one quarter left in the year, we feel we are on track to beat our original ex-cat combined ratio guidance for the year, driven by better than expected improvements in the current accident year ex-cat combined ratio as well as favorable development, which is helping to more than offset a slight miss on the expense ratio guidance.

We now expect our full year expense ratio to be at or near 30.9% compared to the 30.7% to which we guided. It is related to largely temporary items such as incentive compensation, which we expect to normalize in the following year. Accordingly, we are expecting to guide to a 30.5% expense ratio in 2025, which should realign us with our long-term expense ratio goals. Most importantly, we anticipate the 2024 ex-cat combined ratio to be below our goal guidance range of 90% to 91% that we established early in the year. On a consolidated basis, we expect net written premium growth in the fourth quarter to be greater than 6% given the minimal impact expected from hurricane Milton.

Our planned cat load guide for Q4 remains unchanged at 5.7%. To conclude, we are extremely pleased with our Q3 results and increasing earnings growth momentum. Our performance reflect the successful implementation of key strategies we've been executing over the past two years. We will continue to focus on creating long-term growth and superior returns for our shareholders. We are optimistic about our ability to achieve our stated long-term return objectives over the next couple of years. With that, we'll be happy to take your questions.

Operator?

(Operator Instructions)

Matt Carletti with JMP

Thanks. Good morning. I just had a couple of months. A couple of questions on on the personal line segment. Jack, you spoke about in a bit in your opening comments. I think I heard you say that both auto and home are faced with that in mind. Can you give us a little bit of an idea how you view kind of the progression of kind of returning to pay growth over the over the next level closer?

It feels like we're at an inflection point. Maybe I'm getting that wrong. We definitely are moving forward with additional offense and particularly in those states where we are well past our threshold of start hitting the target returns. So I'll let Jeff speak a little bit to that. But the way I would have you to continue that think about it, Matt, is we are excited about how quickly we've been able to get our margins back in line and simultaneously enhance our diversification.

So where we are going to continue that process of moving to more offense, particularly on new business because our written pension ratios have come back nicely. And we've already started to do that and several states to move towards more offense, but continue to be diligent in the Midwest and in particular, Michigan so that we get a good balance of production and profitability and accelerate our diversification. So that maybe build on that.

Yes. I'll just echo a couple of days checks that and I'll give you some more specifics, but feel very good about the progress we're making against our strategic objective. We have of bringing EPL portfolio back target returns while simultaneously improving our geographic diversification. So we're well on the way up towards the blueprint that we've created.

As you'd expect our 20 states, we segment them based on profitability and how they contribute to our cat profile. So we already have a handful of states where pith has turned positive and where we feel that our new business engine can be has been turned down more aggressively. But as a full enterprise, when you look at all 20 states, we can expect to see shrinkage to moderate into next quarter and then really throughout 2025.

And I see some very modest positive growth by the end of the year or at the end of the year. So just I couldn't be prouder of our team in there execution. I think it's I'd like to say it's one of our superpowers that we have your hand versus how we collaborate with our agent partners and get them, get them on board with the action plans we have.

Right. That's very helpful.

And then one other, if I could, sticking with personal lines, I think we view kind of your kind of peak cat exposure, if you will, as SES or spring weather every way to think about it. And you guys obviously have been undergoing not just rate, but I'm thinking more like the non rate actions and the deductibles and things like that. And we saw some improvements kind of the second quarter versus 2023, second quarter.

And we are kind of middle innings of those changes working through the portfolio. And it feels like will be kind of at the end of the game are very close to it by this coming spring.

Can you give us a kind of order of magnitude if it's possible, if it's an excellent point happen, whether that be a spring or early second quarter of '23, kind of we get to the end, maybe that second quarter '25 on how that trend that would look different once you get all those changes through the book?

Yes, Matt, this is Jack again. Listen you're right in that by by April of next year, we will have been through the renewal cycle of our deductible changes, which are particularly meaningful in the Midwest, where the severe convective storms have been most prevalent.

So that is true. We will be at a dramatically improved place with our portfolio with with the pricing that we've achieved, the full insurance to value enhancements that we've had on deductibles that not only include all Parral deductibles at [2500], but 1% and 1.5% wind deductibles, wind and hail deductibles in that region and then some PIP shrinkage that we manufacture during this period.

So that's a combination of all those are going to be meaningful. But I know it will frustrate you a modeling previous storms or thinking about it. It really doesn't, I think, achieve the goals of the way we tried to look at it as we run our simulated models and we ask ourselves all overall, how much benefit are we getting from that property aggregation management and the new pricing and terms and conditions. And I think the only fair thing we can say to you is that it will be meaningful. It will be a significant and in any storms that come across US and in the 2025.

Fair enough. Thanks for the color. Appreciate it.

Mike Zaremski with DNO.

Hey, good morning. First question on on some of the commentary about them setting your liability picks higher. I believe that was the car commercial. How do we think about that? When we also hear your commentary about the underlying call core commercial loss ratio being a bit worse. But you said most of it was because last year was just that you had cited as being exceptionally better than expected. So I think I could probably do some math on your implied 4Q guide to.

So I'm trying to get at are you how should we expect a bit of a higher underlying in order to embed conservatism on AMI viability given the environment?

So Mike, in the third quarter, we had a loss ratio of 58.2 and 57.4 year to date. And those are both right on our expectations. And that compares to 56.3 for 2023 quarter and 55.7 for the sequential quarter. But those were both super low on unusually low large losses that we mention those in those quarters.

The 1.9 points of higher loss ratio was 1.6 of it was due to the lower large losses in the year-ago quarter. So a relatively small amount was the loss picks for the for the liability trends. I think overall, we believe 57 to 58 is the right level for 2020 for that may improve a little bit next year because we're getting 12 plus points of renewal price change versus overall core trend. But I think generally speaking, we feel really good about our balance sheet about our loss picks.

And if you look back, we see at page 6 of our earnings deck, you'll see we provided an awful lot of information as to why we feel that will be relatively advantaged on liability loss trends, biggest issue being the frequency benefit, which is the bottom right corner that we're seeing for lower frequency in a lot of the industries in which we participate, which is dramatic. Interesting. I'm okay.

Then maybe just thanks for that. Sticking with them liability lines and commercial that not personal lines you talk about any puts and takes on on on on reserve level has been kind of adding a bit to some of their GL umbrella, commercial auto line. Some let's see. The overall was was ever done it again. But and any puts and takes we should be thinking about?

Nothing really major. As we said, PL was minimal. Favorable sales was 3.6 million with favorability in all four major lines. So you didn't have a dramatic issue with workers' comp covering up the other liability lines. There were all favorable as we have the frequency benefit in in a variety of areas you're helping us to overcome severity. And then specialty was our big contributor was about 10 million, largely on the professional executive lines. And those are claims made shorter type tail policies.

Got it. Okay. And then as you point out 56, which is an interesting slide for adding that, I think you added that at KBW and updated here. So we can see that your mix points to last some a little less visibility than others. You also Showtime tractors frequency being up up materially while frequency is down materially for from most other industry classes, would you would you say that you are also underway, contractors that are not there's a way that even sites up, but the industry looks like on contractors, but I'm in as contractors a continued source of higher frequency only? Or is it anything severity to in any of these industry classes?

Thanks. Hello, Mike, this is Jack. I'm going to let I'm going to let up Jeff, I comment on specifically our profile in core commercial, including contracting percentages. But I think you're thinking about it. Exactly right, right. We share the same severity as the industry. We're seeing similar trends to a lot of other folks. But our book composition as well as the actions that we took in the last few years.

I think our advantaging us, particularly on the frequency of severity and what that chart shows you that Dick and kind of a build upon is that though the non-contract and classes of business are predominantly showing the improvement based on the actions that we took. But the construction business continues, I think, for two major reasons a, the inventory of claims is pretty fulsome since most contractors work through the pandemic.

And because of the activity levels, the frequency is just not it's not coming down like we're seeing in other sectors of the business. So that's just a little color commentary. So we have been super thoughtful about how we built our construction portfolio over the years today, it represents a fairly modest portion of our of our core C&I portfolio, really in the low teens percentage and been very thoughtful about state mix, which is really important when you're when you're talking a bill environment, is construction defect environments tightly, meaning the subsectors, the types of contractors that you're right, which is equally important to state mix.

So just have been very thoughtful about all of that. And then, of course, Risk Solutions and Premium audit play a critical role in this segment and where we do both of those exceptionally well.

Matt, you probably noticed as others have that we have no the Y axis or vertical axis on that chart and wanted to share a little bit of information.

So while Dick said, the contractors are relatively small, think 10% to 15% of our portfolio relative to others in the end history, that bigger portfolios, contractors frequency is up single digits where some of the other industries would have frequency decline since 2019 through 2023 in the 20% to 30% range. So when you think about all that together in total, we have a pretty substantial frequency decline.

Got it. That's helpful. And maybe I'll just sneak one last one in on just the overall competitive environment. So there's a number of companies have reported some of your peers and everyone has different a little different mix and geographic mix as well for them. It looks like pricing has been been kind of sequentially accelerating a little bit, but there's also some conflicting kind of industry surveys that shelf pricing decelerating a little bit. And so just curious, you know what from a competitive environment would you say the is that what you from what you're saying, the increase you're seeing more on core commercial Hanover specific or as the industry you income pushing through a little bit more rate and if they are in a what's what's driving that? Thanks.

Yes, I think as you're observing, Mike, this is there is a bit of a sectoral view. There is an account size view. I would tell you that in the small to lower middle market area of the business across the sectors that we play and we are seeing and a flattening of the property pricing, but a as things are improving, but an increase in the liability pricing, which is appropriate, given the environment that we're seeing.

So I think when you get into the larger accounts, there's a lot more pressure and you're reading about that. You're seeing that, and I think Brian can even speak to that within a within the specialty portfolio that we're still we're still generating double digit pricing overall. But within the nine businesses within specialty, we clearly have variances and differences that represent a competitive marketplace.

And you want to say a few words on that.

Yes, sure. So on fewer points, some of our environment is pretty competitive, but the professional online marketplace, that said, we have been getting very, very good rate in that business for a number of years, highly profitable. And so yes, we're adjusting right thoughtfully to be competitive in that space. In other areas. We're continuing to see now that the need for increased rate accomplishing rate. I think about that in the E&S environment, for example. So there was a real mix there and we do balance that makes we navigate that mix in our different marketplace. Thank you.

Michael Phillips with Oppenheimer.

Thanks. Good morning. I wanted to go back to on one of the earlier questions. Jeff, your answer on the core commercial, you said around 57 future about right, maybe you could improve a bit in 2025, given the pricing levels are north of 12% on I guess you talked about strong pricing of property and liability, but I'm wondering how much of that possible improvement of 2025, it could be one of the other property versus liability? And can you kind of parse that out?

So what's happening is for the last couple of years, property pricing has been stronger than liability. Core has been strong overall and the loss trend was heavier in property. Now we're seeing the cost of materials building, et cetera. Big into slowed a little bit. So the need for price around property and core will slow. And our view on liability pricing will increase, and we're an account writer.

So we think about it in total across the portfolio. And we believe that we're maintaining or increasing our profit along the way, yes, I would remind you might you study this that, you know, the companies such as ours that have really done a good job on insurance to value are really in the catbird seat in that we have that part of the pricing equation in a really good place and can start to have more nominal increases. And that allows us to be competitive for the good businesses.

Some of the competitors, a lot of the regional companies that were told are still catching up and they have to catch up on insurance to value or their reinsurance on a challenges to get worse. So I think that puts us in a really good situation. That property is improving liability. We're watching carefully but continuing to perform well. And I like the combination of that in a market that will continue to kind of figure out where exactly the loss trends are going in liability and how severe they are going to be for, particularly for those that didn't I didn't do it. They need to do on the reserve side.

Okay. Thank you. If we look at the premium growth and growth commercial and I assume that's because of your comments you said about middle market and and kind of underwriting actions you take that. I want to make sure that that's an indication of simple. Then you said you expect kind of that to improve over the next few quarters. So that also sort of specific to what we see and CMP this quarter, 1.8, maybe that could improve from here?

Yes. This is that, yes, that's exactly right. There's there's some little bit in there about some of the actions we've taken. And then on the new business side, it can be if you can see lumpiness quarter to quarter on a line basis. But we expect, as the prepared remarks earlier, suggested that middle market will make its way back to that mid single digit kind of growth into next year.

Okay. And then just lastly, maybe just more high level of a lot of your stuff that you're talking about. There's a strong and you've improved personal and and you talked about how that's going to our investors for homeowners next year and your core commercials along quite well. And just said, it could improve even their 2025 lots of improvements.

So hats off to that, I guess as you as you put all that together and thank you and maybe a capital management and how do you put all that together?

I think it's time to look at some share repurchase production. We're very bullish on our opportunities for improvement, particularly in personal lines, NI and even cat for the reasons that we've we've talked about, we definitely are supportive of routine regular dividend growth and buybacks along the way, along with organic growth, which will ramp up in the fourth quarter end in 2025.

We haven't bought stock back in a while, but we typically wait for the into wind season. I think we're likely to be back to capital management sooner rather than later.

Okay, great. Thank you.

Meyer Shields with KBW.

Okay. When we look at the gap between pricing and rate and cause muscle, I guess a little surprised to hear that gap and expand, which means more exposure unit growth just because that would indicate for most insurance companies.

Is there anything unique going on at Hanover that would drive that exposure unit growth?

Meyer you know what you what we may be witnessing the exposure growth in the work comp side of things. This has been robust and so that you see the distance now with what exposure looks like versus what rate looks like. As you know, the rate and Workopolis is flat to down depending on the state, the delta between rate and renewal price over the last five quarters.

If you look at page 7 of our earnings deck has been pretty consistent over time. We can certainly get back to you if there's a deeper story there yet another small differences, Evernote, their significant. That's really what about asking.

Second, a couple of questions on auto first, and I probably should know this, but you've talked about higher deductibles and personalized that that actually is that relevant to personal auto? Is that more on the home side?

I'm sorry say that personal personal auto deductibles for the most part,

It's nowhere near is up as improved if you will, but we continue to inch up deductibles, NPL auto, we give Yes, we've given ourselves a thorough review state by state and where we feel like it's been modest. And yet you have logged business has been on the books for a long time and they might be sitting at a 500 deductible. So we and our agents are full the support of this. We work with them to overtime and shows up upwards in up to 1,000 and whatnot. But the bigger push has been a loan side.

Okay. Great. That's helpful. And then finally, I know in the past we always talk about new business penalty when growth ramps up as and that was again all the personal auto side, it's pricing becomes more significant. Is that as relevant to concerned, does a ramp-up in growth?

All else equal imply some of your impression and answer.

We're in an unusual time in the personal lines business where there was actually a period in certain states where our new business pricing was of was above our renewal levels. And that's hard to do given the renewal pricing that we were pushing through. But as you know, we were trying to create some changes in our growth patterns by state. So we we kept pushing pricing in our point of sale system.

So we got the results that we were looking for. So I would tell you, based on what we're seeing today, we feel we are not anticipating a significant new business penalty anytime in the near future, the quality of the business that way writing new business, I mean in personal lines because we narrowed the nozzle is the best it's ever been, and it's coming through at renewal pricing. And so as we start to move forward and and widen, that now is a little bit and get a little bit more competitive. I think it's going to be commensurate with the loss trends and the improvements thereof. So I like I like our trajectory for the foreseeable future and personal lines.

Okay, excellent. Thank you so much.

Mike Zaremski with BMO.

Thanks. A real quick. I don't think this is in the earnings release or the deck. I'm trying to cap. I think you said at the updated guidance for the year, was it ex-cat combined ratio? I think you said below 90 91, not the 90 to 91. Just wanted to clarify that.

That's correct. I think we are in the high 88 range year to date, so it would be very difficult to see deterioration. Fourth quarter is always a strong quarter for us and we have no reason to believe not. So we haven't updated guidance per se, but clearly we expect to be below the 90 to 91 that we originally guided to. Mike.

Okay. Just wanted to clarify. Thank you.

This concludes our question and answer session. I would now like to turn the call back over to Oksana Lukasheva for any closing remarks.

Thank you very much for listening and participating today are looking forward to talking to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.