Hanover Insurance Group Inc (THG) 2025 Q4 法說會逐字稿

Good day, and welcome to The Hanover Insurance Group’s fourth-quarter earnings conference call. My name is Nick, and I will be your operator for today’s call. (Operator Instructions) Please note that this event is being recorded.

I would now like to turn the conference over to Oksana Lukasheva. Please 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 Roche, 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, Chief Operating Officer and President of Agency Markets; 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 Investor section of our website at hanover.com. After the presentation, we will 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 2026 guidance for the level of profitability and premium growth, economic conditions and related effects including economic and social inflation, tariffs, as well as other risks and uncertainties such as severe weather and catastrophes that could impact 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 statement 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 ratios 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, the slide presentation, or the financial supplement which are posted on our website.

With those comments, I will turn the call over to Jack.

Thank you, Oksana. Good morning, everyone, and thank you for joining us today.

Our outstanding fourth-quarter results capped a record year for The Hanover, a year marked by disciplined execution and strong engagement across the enterprise. Our performance in the quarter and in the full year is a testament to our agility and operational excellence, and also to the power of a strategy built to provide resilience, adaptability, and long‑term value creation. We delivered excellent margins while growing with intention. In markets where competition intensified, we remained disciplined, prioritizing profitability and quality risk selection. At the same time, we leaned into segments with attractive margins and favorable risk profiles. This balanced, targeted approach enabled us to navigate complex markets with confidence and clarity.

In addition, we continued to invest in a strategy that sets our company apart from our competitors, building out our product and service capabilities, enhancing our technology, strengthening our agency partnerships, and attracting and developing top talent. These investments have sharpened our competitive edge and have positioned us to capitalize on opportunities in any market environment, driving sustainable growth and profitability. From a financial perspective, we achieved one of the best fourth quarters in our 30-year history as a public company with record quarterly operating earnings per share. For the full year, we delivered an all‑time high operating return on equity of 20% along with a new record for annual operating earnings per share.

While we benefited from favorable weather in the fourth quarter and the year, we also generated strong underlying profit. The improvements in our underlying performance are the result of disciplined portfolio management and underwriting, building on the margin work we have been driving for the past few years as well as the skilled and thoughtful management of our investment portfolio. Now let's look at our operating performance by segment beginning with Personal Lines.

Our Personal Lines team continued to deliver outstanding profitability during the year, a direct result of the decisive actions we have taken and the strong execution across our business. We have materially elevated the resiliency and performance of our portfolio through pricing, changes in terms and conditions, and targeted deconcentration actions in the Midwest. These actions are driving stronger and more sustainable profitability while positioning us to deliver continued growth, balanced risk exposure, and sustainable long‑term returns. Personal Lines net written premium growth increased to 4.4% in the quarter with full-year growth of 3.7% primarily driven by pricing. Retention remained relatively stable, highlighting strong customer loyalty, the differentiated value of our bundled product offering, and the support of our agency partners.

And while rate is normalizing from historically high levels, we are very confident in our ability to sustain strong margins. Our Personal Lines team continued to advance our diversification strategy, focusing our growth in 11 key states where we have identified compelling, profitable expansion opportunities. Overall premiums in these states grew approximately 8% in the fourth quarter compared to 3% in all other states with new business seeing strong momentum in these diversification states. The momentum we have established across the business, coupled with our targeted actions, has also reduced the relative weight of Midwest business in our portfolio, reducing its share of our total premiums by approximately 4 points since the beginning of 2023.

While competition in monoline auto markets seems to be intensifying, differentiated offerings like bundled accounts and our Prestige product create significant opportunities to advance our market penetration and leverage our distribution strategy. As we look ahead, our Personal Lines business is well positioned to continue delivering steady, high‑quality performance and growth backed by solid margins, our effective whole account strategy, disciplined execution, and our geographic reach.

Moving now to Core Commercial. This business continued to deliver solid profitability for the quarter and the year supported by active portfolio management and disciplined pricing. While the market environment has become more competitive in select sectors, we have responded with greater precision and discernment, directing our efforts toward opportunities that meet our return thresholds. Our Small Commercial franchise continued to deliver a strong performance on both top and bottom lines with net written premiums increased by nearly 5% in the quarter and for the full year. Renewal metrics remained favorable in the business as well with strong retention and double‑digit price increases. New business was very healthy with double‑digit growth, a clear reflection of our market leadership and the strong commitment from our best agents as we pursue more targeted offense.

Small Commercial has meaningful barriers to entry, and our competitive advantage is well established, anchored in an efficient service model, strong brand recognition with agents, and a robust product offering that blends point‑of‑sale capabilities with traditional underwriting expertise in the higher end of Small Commercial.

During the year, we expanded our distribution capability through strategic and thoughtful new agency appointments and increased engagement with more account managers throughout our existing agency relationships. Our Workers Compensation Advantage product is now live in 17 states with a national rollout targeted by the end of 2026, making it even easier for our agent partners to place new business and to transition books of business to us as markets consolidate.

Moving on to Middle Market. Despite experiencing some softening property market conditions, underlying growth accelerated sequentially to 2.6% in the fourth quarter. Our proven strategy in Middle Market centers on managing the business at a granular level with focus on sectors where we can truly differentiate ourselves. Middle Market rate and retention reflected crisp execution in the quarter with rates and terms aligned to the underlying environment and the desirability of the risk.

Renewal pricing decelerated modestly in the fourth quarter driven primarily by property lines. Even with such pricing moderation, earned pricing continues to meet loss trends. We continued to exercise discipline in this market, walking away from underpriced new business as rate and risk selection remain critical to our success. As we adjust to more dynamic market conditions, we have several levers to accelerate profitable growth in Middle Market. We are doubling down on high margin, expertise‑driven segments such as technology, human services, and manufacturing.

We are deploying our enhanced underwriting workbench which includes additional automation and pricing tools for underwriters to strengthen decision quality and improve productivity, and we are transitioning to an enhanced field underwriting model to ensure that we deploy strong expertise while adjusting to evolving agency operating models. Overall, our Core Commercial business is positioned to deliver top‑line improvement in 2026 led by continued growth momentum in Small Commercial in a market that remains overall rational and stable.

Turning to Specialty, this segment continues to deliver consistent and strong profitability through expertise‑based underwriting, targeted risk selection, and disciplined execution. We are taking targeted rate actions and deploying margins selectively to retain and grow our high‑quality book of business while staying close to loss cost trends. Granular policy design and improved terms and conditions continue to also help offset moderating rate trends.

Premium growth in Specialty moderated to approximately 4% in the fourth quarter adjusted for reinstatement premium, reflecting heightened competitive pressure across property lines which impacted our Hanover Specialty Industrial Property and, to a lesser degree, our Marine business. Importantly, market conditions remain constructive across most other Specialty segments with nice resiliency in the smaller account space which represents the vast majority of our book of business.

Excess and Surplus Lines continued to deliver strong double‑digit growth, and we enter 2026 with a very strong and experienced team in this segment. Our new AI-powered submission triage is delivering nicely. Our risk appetite is expanding in targeted areas, and we are well positioned to benefit from tightening capacity in parts of the market where we have deep expertise and strong appetite.

Management liability growth accelerated in the fourth quarter due in large measure to pricing stabilization, strong growth in our financial institution segment, and an updated admitted asset manager product launched in the fourth quarter. More broadly across Professional and Executive Lines, our enhanced operating model is improving quoting speed, responsiveness, and agent engagement, supporting profitable growth as market conditions evolve.

Surety delivered robust double‑digit growth in the quarter as we benefited from the growth in some commercial surety niches and from added tech capability to write E&S bond products. We are also driving meaningful efficiency gains through technology upgrades and process refinements that are speeding decision making and enhancing underwriting quality decisions. And at the same time, we have strengthened risk selection and pricing segmentation which are important contributors to the margin durability we are seeing across Specialty. Overall, Specialty remains a powerful lever for growth and ROE expansion supported by our team’s deep expertise, disciplined underwriting, and differentiated earnings across market environments.

As we close the books on 2025, ending the year with outstanding results and a solid foundation, we begin 2026 poised to build on that strength and to accelerate our progress. Our portfolio is stronger, our execution is sharper, and we have the operating leverage and discipline needed to continue to deliver attractive returns as we accelerate top‑line growth. We have built businesses that are resilient, adaptable, and positioned to win in any market through underwriting excellence and operational discipline.

In closing, I want to thank and recognize our employees for their dedication, our agent partners for their collaboration, and our customers and investors for their trust in us.

With that, I will turn the call over to Jeff.

Thank you, Jack, and good morning, everyone. We are very pleased with our exceptional performance and strong execution in both the fourth quarter and for the full year, headlined by several records as our momentum continues to build across every major area of the business. We wrapped up the year on a high note with an excellent fourth-quarter combined ratio of 89% as well as operating return on equity of 23.1%, one of our best results ever. Our full-year combined ratio was a strong 91.6%, improving over 3 points year over year.

Excluding catastrophes, our combined ratio in 2025 was 87.1%, decisively outperforming our original guidance for the year and 1.3 points better when compared to 2024. Catastrophe losses for the year of 4.5 points came in well below our original guidance, helped by generally benign weather and our property management actions which continue to contribute positively to our cat and ex‑cat results. Our expense ratio of 31.1% for the year improved 20 basis points from 2024 but was above our original expectations driven primarily by higher variable agency and employee compensation, reflecting better than expected underwriting results and a much lower level of cats.

Additionally, we continued to make investments across the business to support future profitable growth. We remain committed to managing expenses carefully. Quarterly prior-year reserve development ex-CAT was favorable across each segment in both the fourth quarter and the full year. In Specialty, favorable prior year reserve development was 5.3 points for the quarter with widespread favorability across multiple coverages. In Personal Lines prior-year reserve development was slightly favorable in the quarter. Homeowners coverage continues to be favorable while we made a minor increase to auto bodily injury in response to higher severity. We also updated our current-year assumptions accordingly.

And in Core Commercial, fourth-quarter prior-year reserve development was 0.3 points favorable with very minor adjustments by line. As it relates to commercial and personal auto liability, we expect pricing to continue to increase in 2026. In line with our traditional reserving approach, we are being thoughtful and prudent in setting our loss picks in both prior and current accident years to ensure that our balance sheet remains strong.

Turning to our underlying underwriting performance. We posted outstanding results and outpaced our expectations in both the quarter and the year. Our consolidated underlying loss ratio improved 1.1 points to 57.1% in the year with impressive improvement in Personal Lines, Specialty results that continue to exceed our expectations, and strong underwriting margins in Core Commercial.

Now I will discuss results by segment, starting with Personal Lines. This business posted an outstanding current accident year ex‑cat combined ratio of 85.3% for the year and 85.4% for the quarter, improving 3.8 points and 0.6 points from the prior-year periods respectively. The improvement in the year was driven by the benefit of earned pricing in both Personal Auto and Homeowners as well as reduced frequency. Our Personal Auto ex‑cat current accident year loss ratio was 69.5% for the year, an improvement of 2.2 points compared to the prior year. The result for the fourth quarter of 75.7% was higher year-over-year but approximated our expectations.

Turning to Homeowners. We delivered exceptional ex‑cat current accident year loss ratio improvement down 6.4 points to 45.8% for the year and down 4.6 points to 36.6% in the fourth quarter. Earned pricing continues to be a benefit as well as favorable weather. We also continue to partially attribute lower claim frequency to deductible changes leading to fewer small claims not only intact, but also in ex-CAT results.

Personal Lines growth accelerated to 4.4% in the fourth quarter with the full year at 3.7%. PIF was relatively stable in the quarter shrinking 0.6 points sequentially, which is an improvement from the third quarter of 2025. We expect PIF growth in 2026. We achieved Personal Lines renewal price of 9.2% in the quarter with auto pricing up 6.9% and home pricing up 12.3% while price increases were lower sequentially, they remain above our long-term loss trend. Umbrella pricing remained strong holding around 20%. We are pleased with our current Personal Lines rate levels in light of the strong overall profitability we've achieved.

Now turning to our Core Commercial segment. We posted a current accident year ex‑cat combined ratio of 91.6% for the fourth quarter, improving 2.4 points from the prior-year quarter and achieved 92.6% for the 2025 year. The fourth-quarter ex‑cat current accident year-loss ratio improved 1.5 points from the prior-year quarter to 57.4% as core property continued to perform well and large loss activity remained within expectations. The full-year result of 59.1% was slightly higher compared to 2024, primarily driven by prudently increased loss selections in commercial auto liability and in workers compensation, partially offset by lower losses in commercial multiple peril.

Core Commercial net written premiums grew 3.6% in the year and 2.5% in the quarter, led by Small Commercial on the back of double‑digit new business growth and healthy retention. Core Commercial segment growth was impacted by Middle Market reinstatement premiums which were receipts in the fourth quarter of 2024 and payments in 2025. Excluding the reinstatement premium impact, the Core Commercial segment delivered fourth-quarter growth of 4.1% inclusive of 2.6% growth in Middle Market. We are very satisfied with what we are seeing in this segment of the market and have confidence in our ability to continue capturing profitable growth opportunities.

Overall retention in Core continues to be solid at 85.3%, up nearly a point from Q3, while price increases including exposure changes moderated only slightly to 9.4%. Price levels remain elevated compared to historical averages, and overall rate continues to be above loss trend.

Moving on to Specialty. The business continues to perform extremely well, posting a current accident year combined ratio ex-CAT of 87.4% for the year and 89.5% for the quarter. The current accident year loss ratio ex-CAT of 50.1% for the year and 51.4% for the quarter were both within our long‑term expectation of low 50s for this business. Fourth-quarter loss experience was largely in line with expectations while the year saw favorability driven by large property losses, which can fluctuate period to period. Liability continued to remain within expectations. We are very pleased with the consistent execution and profitability in our Specialty book and remain confident in our positioning to further capture attractive growth opportunities in our markets.

Turning to reinsurance. We successfully completed our multi‑line casualty reinsurance renewal on January 1. The program was placed in a similar manner to last year including the same $2.5 million per risk retention at rate levels slightly below our expectations. As a reminder, our property per risk and catastrophe reinsurance treaties will renew on July 1.

Moving on to a discussion of our investment portfolio, net investment income increased an impressive 24.9% in the fourth quarter and 22% for the year to $454.4 million. This performance reflects growth in our asset base from strong earnings, the benefit of higher reinvestment yields, improving partnership income, and the success of our portfolio repositioning efforts. As we mentioned last quarter, fourth quarter NII also included a benefit of approximately $4 million from the investment of funds from our $500 million debt issuance in August 2025. This benefit is offset by higher interest expense on our debt. The debt level was temporarily elevated following our issuance but will normalize in the first quarter.

We repaid approximately $62 million of senior notes that matured in October 2025 and also called $375 million of senior notes at par, which were retired in January, originally set to mature in April. Our investment portfolio continues to be a key pillar of our diversified earnings stream. It is conservatively positioned, broadly diversified across sectors, and is not overexposed to any single asset class or industry sector.

Our limited exposure to variable rate instruments also continues to provide stability in our investment income and reduces reinvestment risk as short‑term rates decline. Our fixed maturity portfolio continues to carry a weighted average rating of A+ with 95% of holdings investment grade. Portfolio duration excluding cash remained relatively stable at approximately 4.3 years, consistent with our long‑term asset liability alignment approach.

Moving on to our equity and capital position, our book value increased approximately 27% in 2025, ending the year at $100.90 driven by strong earnings in the year and an improved unrealized loss position on invested assets. Excluding unrealized, book value increased approximately 15% for the year to $104.21. In December, we raised our quarterly dividend by 5.6% to $0.95 per share, marking the 21st consecutive year we have increased our dividend, underscoring the durability of our enterprise, our commitment to delivering shareholder value, and the confidence we have in the company’s future.

We also continued to be active in share buybacks, repurchasing approximately 307,000 shares, totaling $55 million in the fourth quarter and approximately 754,000 shares totaling $130 million during 2025. Additionally, we repurchased approximately $44 million worth of shares through January 30. We remain dedicated to responsible capital management and prioritizing shareholder value.

Turning to our annual guidance for 2026. We expect overall consolidated net written premium growth to accelerate in 2026 to mid-single‑digit growth. We expect net investment income growth in the mid to upper single digits compared to 2025. Our expense ratio for 2026 is expected to be 30.3%. However, we want to let you know, we will not be giving specific expense ratio guidance in future years.

We will continue to be disciplined financial managers, but we believe the combined ratio overall should really be the focus that we guide to. The combined ratio excluding catastrophes should be in the range of 88% to 89%, an improvement from our 2025 guidance. Our CAT load for the year is 6.5% consistent with our guidance for 2025, although cat losses for 2025 came in below our expectations and we continue to observe benefits from our deductible and terms and conditions changes, we believe holding our CAT load consistent for now is prudent given the volatility of this income statement line and evolving weather patterns. Our CAT load for the first quarter is 6.1%.

To wrap up, we are beginning 2026 in a position of strength and are extremely well positioned to deliver on our goals. Our broad and resilient portfolio, diversified earnings stream, and talented team are the foundation that will allow us to sustain this performance in 2026 and beyond. The combination of underwriting performance and the strong investment portfolio puts Hanover in a terrific place.

With that, we are ready to open the line for questions. Operator?

(Operator Instructions)

Michael Phillips, Oppenheimer.

Jeff, in your opening comments, you talked about adjusting the current year for auto BI severity. I assume you were referring to Personal Auto there given what we see in the quarter. So I guess -- and you also, of course, mentioned the Core Commercial accident and loss ratio up a bit given the activity you took earlier in the year. We didn't see that activity for Core Commercial this quarter. I don't think we did.

I guess, does that mean that the pressure you felt from those casualty lines in Core Commercial that you felt less of a need to do so. I mean, do you think things are kind of easing there?

So your first question, yes, it was PL Auto liability that we were raising picks in the fourth quarter. With respect to Core Commercial Auto, we didn't see a whole heck of a lot this particular quarter. It has been a relatively quiet quarter there, but we've been mentioning it all year long, and we've been increasing our IBNR reserves for Auto largely for -- solely really for 2023 and '24 and '25. Years before that are quite mature, and I think we leave 2025 with the strongest balance sheet that we've ever had.

Maybe more of a higher level question maybe for Jack. As we get into a phase for the overall industry where pricing starts to come off a little bit and maybe more so as the year progresses, Jeff, can you -- or maybe Jack or Dick, can you talk about any changes you might make to how you approach your agency partners? I guess specifically, do you talk to them more from management team, do they hear from you more, do they hear from you less, does your message change or what you say to them change as we get into a softer environment?

I will say a few words here, and I'm sure Dick can chime in also. I think the dialogue that we're having with the top agents in the country is accelerating for a number of reasons. They are obviously becoming more strategic and operationally focused, and they are increasingly trying to work with carriers that can help them with their evolving operating models. So there's a lot of dialogue going on across our franchise, and as you know, our partner strategy really lends itself to this type of dialogue, including some great analytical tools that help agents as they're trying to become more efficient and more effective.

So from a pricing standpoint, I wouldn't say that that alone is changing our dialogue at the top of the house. What becomes really important is that our field teams and our underwriters are very proactive about which accounts are coming up, when, and how we want to approach those things? So we're being respectful of the client relationships that they have, but also at the same time not acquiescing to an overall market condition. Each account needs to be looked at one account at a time.

So Dick, you want to supplement that?

I like the way you came at this question, Mike, are doing anything differently or if we have to lean in differently? And I'd say, yeah, we adjust our activity and specifically our talk track with our agents. More time spent on helping them understand their economics and their behaviors in this kind of marketplace, watching the trends and the leading indicators, really focus on the benefits of keeping accounts stitched together in a bundled way because when you separate those out and you have perhaps two shopping opportunities, that creates issues for them in the future with the potential risk to retention.

So we spend a lot of time talking about that, the benefits of not only bundled accounts, but then in our case, we have a common effective date which is really powerful because both of those policies renew on the same date. So we try to put data in front of them for their own book and for the industry and our team. You heard me say this before, it's a superpower of ours that we bring data and we help agents understand their own situation. So that's what I would add to Jack’s response.

Mike Zaremski, BMO.

Maybe on Personal Lines specifically, if you can tease out directionally what the non‑cat property benefit was in Home. I think there was a benefit for the year just so we can better understand the run rate. You guys all have obviously done an excellent job improving margins there. And just maybe higher level overall Personal Lines, I saw the comment in your deck about expecting policies (inaudible) to grow a bit. But I guess, what's the North Star in the current competitive environment? Would it be very low single‑digit PIF growth? Any comment there would be helpful.

It’s Jeff. I will start on the loss ratio. A lot of moving pieces with respect to Home. First off, we're getting price above loss trend, which is really earning in and being powerful for us. But you also have issues like the benefit of the deductibles and even some consumer behavior. Clearly, favorable weather in 2025 and particularly in the fourth quarter is having a healthy benefit.

So I'm reluctant to spike that out even though we've tried to estimate it because it's too raw. I don't have enough confidence in it, but I think it would be wise to assume that the 47.5% that we did for the year will need to come up a little bit because of that particular benefit.

Right, and I'll take the question on the North Star for Personal Lines. We've really been maniacally focused on our North Star in Personal Lines which is to be the best market in the IA channel for preferred accounts, so I do think of our future strengthening that strength, growing thoughtfully while achieving our diversification objectives not only across states but within states where we have a lot of market share, pushing ourselves continuously upstream into the Prestige account space, the $750,000 to $3 million space.

And as you've seen, importantly, continue to invest in the account solution, so classic cars, scheduled items, things like that. So we continue to be focused on that. I like a mid single‑digit growth objective into the future. I think that's a good place to be. And as prices come down to more rational levels, that's always been our objective.

Okay, sounds good. My follow‑up, Jeff, a lot of commentary helpful on the reinstatement premiums. Can you just remind us what drove the reinstatement premiums? Is that cat or casualty?

Sure. So again with reinstatement premium, we had some incoming reinstatement premium on reserve takedown in fourth quarter and some outgoing on an increased reserve for reinsurance. It was not cat. It was generally property -- large property loss exposure in the property per risk program.

Okay, great. And I guess lastly, just thinking higher level about lawsuit inflation in the United States, and I'm cognizant of the comments you made on Personal Auto. But it looks like you guys have been adding some conservatism to your loss picks throughout the year in Commercial. I guess, we'll see some data -- the stat data in a month or so. But any changes in your view of what you're seeing around the industry trend‑wise in terms of lawsuit inflation? Is it stabilizing at high levels, still maybe increasing, decreasing?

This is Jack. I think overall what we're witnessing now is that the liability severity trends are presenting themselves in a pretty mature way. Will the severity levels continue to go up over time? Possible, but I think maturing might be a good word right now because there are not too many severe injuries that don't include a lawyer and lawyer representation and the courts are obviously in full gear. So I think there is a little bit of leveling out in terms of the environment itself, and I think the way we have tried to deal with it, as you referenced, is make sure that we have the right claim strategies and we're going at each individual claim in an appropriate way, but also to continue to be very prudent with our reserving.

I think we have done our best to add to IBNR levels, to look at the individual trends by subline, and make sure that we're not one of the companies that gets behind. And so I have a high level of confidence, as does Jeff, in our reserve position, but also our claim strategies in this litigious environment.

Paul Newsome, Piper Sandler.

I was hoping you could give us a little bit more elaboration on the competitive environment in Middle Market Commercial, which seems to be heating up. I think your investors fear that what we have seen in the large account pushes back down into Middle Market. What's your perspective today on that?

This is Jack. I will get us started here. I would say that there is no doubt that on the larger property schedules and in certain sectors there has been some heightened competition. But I would tell you at the same time, there are particular areas and I would spike out something like the human services sector where they have real challenges in terms of market access, particularly in the professional liability and the sexual abuse and molestation lines and getting excess limits. So there's parts of the Middle Market sector particularly on the liability side that are definitely on the front end of a firming market. And if I had a crystal ball, I would probably say that that will continue that, at some point in time, the property market will level off and the liability pricing will steal the headlines.

But in the meantime, being a good account player, primarily playing on the low to mid‑size accounts and not staying out of the upper Middle Market is serving us extremely well. And I think we're poised eventually to be even more assertive as the market starts to firm hopefully sometime this year.

And maybe a different question. Longer term, I think capacity management has been an effort. The 6.5% looks a lot like a CAT load for next year, looks like it has been in the past, maybe more of a stable number. Are you thinking about trying to move your property exposure to have less cat in the future, or is this kind of the right level through a broadly thought way?

Well, I think our objective is to really focus on earnings volatility. And so I can go there because the more we can address any micro concentrations and then look at the pricing and terms and conditions across the portfolio, then I don't think there's a magic number that we're shooting for. I think all of that adds up to us over time trying to drive the CAT load of the organization down. But the environment will dictate some of that.

And as you've seen, severe convective storms have driven some CAT loads up in some of our competitors. So we're trying to be very thoughtful about making continued meaningful progress in our cat management and our property aggregate management, but still be relatively conservative in terms of how we model that out and choose our CAT loads.

Yeah, Paul, severe convective storm is the area that has given us some issue over the last several years with that volatility. And we've done a tremendous amount of work on thinning out the aggregations, putting in place the deductibles for the terms and conditions, and making it so those matters are less severe, getting lots of rate.

And then also, particularly in the Commercial space, putting in place a new technology that is having a tremendously beneficial impact on limiting those cats where people can have devices that will let them know if there's either excessive cold temperatures or some water issues with pipes, and that's a real benefit for us.

Rowland Mayor, RBC Capital Markets.

I wanted to quickly get ahead of no longer getting expense ratio guide in 2027. Is the long‑term goal there still to show year‑over‑year improvement. And I guess on top of that, the tech investments, are those neutral to the expense ratio right now? Are efficiency gains coming in, or is that still adding some pressure?

This is Jack. Listen, I think what you should know is that we intend to be very disciplined from an expense standpoint and that we believe we have expense leverage as we grow the organization. And so I'll let Jeff speak to kind of a rationale going forward on guidance, but I think you should expect us to scale each of our businesses. But obviously, the mix, our expense quotient is different across each of those businesses. And I would say, from an investment standpoint in technology and data and analytics, the philosophy of the firm is that we are spending more, but we tend to do that by reducing some expenses in other areas as opposed to trying to drag that out of earnings. And I think the team has been very disciplined in that regard to find savings to fund the additional investments that are required for our future.

Yeah, I don't think that you should interpret our moving away from guidance is in any way lacking financial or expense management discipline. To the contrary, we're still every bit as disciplined as we always have. But a year like we've had this year, where the loss ratio is -- or the overall combined ratio is much lower than what we guided to, with or without cat, it causes us to have an expense ratio elevation and just didn't want to really be slavish toward reporting against it or being held to it.

Having said all that, there is an awful lot going on with expenses. We have expense needs and demands to make investments in technology, data analytics, and AI in a variety of different places, and we're making those investments in a way where we'll spend a little money before we'll get the benefits of that, which will come. But we're funding that. And so we have a very active process of looking at our expenses across the organization and creating the capacity that's needed to be able to make those investments.

That's super helpful, and I wanted to quickly ask on the repurchase volumes, and they've been steadily walking up the past few quarters and even the January number looked like the biggest probably month you’ve had in a very long time. Can you walk through the approach there and just how we should be thinking about your ability to buy back stock and maybe capital needed for growth needs?

Yeah, we bought back, as you said, $100 million of stock in the last four months which is a healthy dose. With growth being a little bit lower in the last 12 months and the earnings and profits being super strong, we're building a lot of capital as you can imagine. It ends up being a high‑class problem.

And we've always been good stewards of capital. We've got choices. Growth is always at the top of the list, continuing buybacks of course, dividends. We can consider things about reinsurance, perhaps even small inorganic or renewal rights deals. But we'll be balanced, Rowland, as to how we use capital, and I suspect the stock buyback will continue to play a meaningful role.

Meyer Shields, KBW.

Two quick questions on the Personal Lines if I can. First, at least the third quarter of this year, we're seeing most Personal Lines coverage claim frequency decline. I'm wondering whether that broad picture matches what you are seeing in your preferred market.

Yeah, yes, definitely. We're seeing the frequency on the property coverages, the Auto, and the Homeowners side of things. And certainly, some of that is related to customer behavior, we believe. Some of it is related to the terms and conditions that we put in place, certainly on the Home side, and the weather, ex-CAT weather.

And of course, as you know, on the Auto side, the safety technology that is being implemented in cars as they roll off the conveyor belt and more of those on the streets and highways is definitely having an impact on the number of accidents and frequency being down.

Okay, perfect. That's very helpful. When we look forward to the growth in the new states, I am assuming the 11 states that Jack called out, we're going to continue to pursue growth there. Should we anticipate some level of new business penalty or higher initial loss ratios that we are going to frame from the fact that there's going to be hopefully an uptick in new business?

This is Jack. I will say a couple of words on that. These are existing states that we believe are reaching a level of maturity and benefiting from the hard market that we came out. That accelerated growth can come through at a very accretive level, so I would not think about it in a traditional way with new business penalty. Frankly, we've been through an era where new business pricing was matching renewal pricing for some time, so we are not still at a traditional gap of new to renewal pricing.

So Dick, I don't --

Yeah. We've never been at a more adequate price level as you look across all of our states that do business. So we feel good about it.

And needless to say, as we diversify from a capital allocation perspective and just an overall performance, we think it will help us because we have had to adjust CAT loads, and we've had to think about weather differently. And so spreading that risk better, particularly on the homeowner side is having an additional positive impact.

Mike Zaremski, BMO.

Great. Just a quick follow-up. Does the -- is the winter storm recently in 1Q, is that big enough to -- we should talked about it? And is it -- if so, is it in the guide for '26?

So Fern represented most of our January CATs. That's winter storm Fern. And based on what we're seeing, there's no reason to modify our first-quarter CAT estimate at 6.1%, Mike.

Daniel Lee, Morgan Stanley.

My first question is on the Specialty segment. I was just curious to hear just more details on competitive dynamics. I know you guys mentioned just competitive pressure across the Property Lines. And yeah, maybe with management liability and pricing stabilization across for professional and executive lines, how are you guys thinking about the competitive dynamics going forward for that subsegment?

I'll take that. It's Bryan Salvatore. And yes, to your point, we do see increased competition across the property lines, and we are reacting to that. We're really fortunate to have a very diversified portfolio. And the things that you mentioned, for example, management liability, really, pleased with the progress we saw in the fourth quarter, right? Yes, the market has stabilized. But that, along with the investments we've made in operating model efficiency, improving turnaround, we saw double-digit growth in the fourth quarter for management liability, and we see that continuing.

And we also saw improvement in professional liability from the investments we've made there. So that diversified portfolio for us gives us a lot of confidence in our ability to appropriately grow in 2026 even in this environment.

So I guess my follow-up is, I'm also curious on just the overall E&S demand that you guys are seeing out there. Is there still more robust submission flows that are coming in for E&S? Or do you guys see that subsiding as a little bit of the modern markets start to open up? Just curious.

Yeah. So I'll react to that, too. We have not seen any abatement in the activity in our E&S book. It grew double‑digits throughout the year. It grew double‑digits in the fourth quarter. The submission volume is quite high, and we do have a couple of benefits.

One is where we are positioned, which is middle to smaller E&S, and so the competition there is not as severe as you might see in some other places. Also, we have a real nice mix now of retail-placed E&S business and wholesale placed, so we have different avenues, different access to opportunities. And so we continue to see that business growing for us in a nice healthy way.

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

Thank you, everyone, for dialing in today. We are looking forward to talking to you next quarter.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.