The Hanover Insurance Gr (NYSE:THG) released first-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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Summary
The Hanover Insurance Gr reported strong first-quarter results, with an operating return on equity of 20.3% and operating earnings per share of $5.25.
The company's all-in combined ratio improved to 91.7%, with a record low Xcat combined ratio of 85.4%, showcasing effective pricing and underwriting actions.
Net written premium growth was 3.2%, with strategic focus on areas where property conditions are softening to preserve margins.
Personal Lines and Core Commercial segments showed solid growth, with Personal Lines premiums up 2.7% and Core Commercial up 4.3%.
Specialty lines experienced growth, particularly in management liability, surety, and specialty general liability, despite competitive pressures in property-exposed lines.
Investment income increased by 19.6% due to higher reinvestment yields and improved partnership income.
The company continues to invest in technology and AI to improve underwriting and claims processes, aiming for greater efficiency and competitiveness.
The management remains confident in the company's ability to deliver sustainable, profitable growth and maintain strong relationships with independent agents.
Full Transcript
OPERATOR
Good day and welcome to the Hanover Insurance Group's first quarter Earnings Conference call. My name is Betsy and I'll be your operator for today's call. At this time, all participants are in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by the zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your touchtone phone. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Oksana Lukashova. Please go ahead.
Oksana Lukashova
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 Levy, Chief Operating Officer and President of Agency Markets and Brian Salvatore, President of Special 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 [email protected] after the presentation, we will answer questions in the Q and 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 1999. These statements can relate to, among other things, our outlook, profitability growth and strategic initiatives, the impact of recently revised policy terms and conditions and targeted property actions, economic and geopolitical conditions and related effects, including economic and social inflation, tariffs as well as other risks and uncertainties such as severe weather and 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 Generally Accepted Accounting Principles (GAAP) financial measures such as operating income and accident year loss and combined ratios excluding catastrophes, among others. A reconciliation of these non Generally Accepted Accounting Principles (GAAP) financial measures to the closest Generally Accepted Accounting Principles (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.
Jack Roach (President and Chief Executive Officer)
Thank you Oksana and good morning everyone. We're off to a very strong start in 2023, posting excellent first quarter results and setting the stage for continued success. Our performance in the quarter highlights consistently tight execution across the enterprise as well as the durability of a portfolio that has been deliberately shaped for resilience, flexibility and strong performance across varying market cycles. Underlying margins across the book continued to trend favorably due in large measure to recent pricing and targeted underwriting actions actions. At the same time, we continued to benefit from our strong balance sheet and our high quality investment portfolio which once again generated attractive returns. Through disciplined asset allocation and investment management. We achieved record first quarter performance including operating return on equity of 20.3% and operating earnings per share of $5.25. Our all in combined ratio improved nearly 2.5 points to 91.7% while our Ex-cat combined ratio improved by a similar margin to 85.4%, both first quarter records. While weather activity was elevated in our footprint, our results demonstrate that that our underlying earnings engine is performing exceptionally well. Additionally, we are encouraged by the better than expected impact of enhanced terms and conditions and targeted property actions which we believe the meaningful favorable development on prior year catastrophe losses demonstrates. We generated balanced net written premium growth of 3.2% in the first quarter. We are executing thoughtfully in areas where property conditions are softening. This approach is enabling us to preserve margin integrity while positioning us for enhanced growth opportunities. Our 2023 plan assumed first quarter growth would represent the low point for the year. Turning now to our segment results beginning with Personal Lines, our performance in the quarter reflects a business that is tracking well even as external conditions remain fluid. We increased Personal Lines net written premiums by 2.7% reflecting the effectiveness of our state specific growth strategies. We continue to prioritize profitable growth in our underpenetrated states while carefully managing our exposure in the Midwest to align with our strategic diversification priorities. As the quarter progressed we saw positive new business momentum reinforcing our confidence in the trajectory of our Personal lines business. Importantly, pricing levels for the total personal lines book continued to exceed loss cost trends and and we remain confident in our ability to preserve margin integrity. Quoting activity close rates and conversion metrics also remain healthy reflecting strong alignment between price risk selection and customer value and we maintained excellent profitability in the quarter as evidenced by a year over year improvement of more than one point in our underlying loss ratio. Overall, our personal lines business is well positioned with our preferred full account strategy, disciplined pricing and stable customer behavior despite the increased competitiveness in personal auto in many states. Moving to core commercial we delivered solid growth of 4.3% in the quarter led by strong premium growth in small commercial and building momentum in middle market Our results reflect improved execution and are well aligned with our profitability objectives. Small commercial net written premiums accelerated sequentially from the prior quarter driven by double digit growth in new business transactional flow, digital engagement and consolidation activity all made positive contributions and are tracking to expectations and we believe we are extremely well positioned with our small account customer base and strong agency position as evidenced by improved retention. Looking ahead, we expect our growth initiatives will enable us to continue to drive our top line while maintaining underwriting discipline. Middle market growth was positive in the first quarter reflecting improved momentum which we expect to build on going forward against the backdrop of softening property conditions. We are maintaining underwriting discipline where pricing pressure is evident with a continued focus on margin preservation. At the same time, we are implementing pricing and underwriting actions across commercial, auto and umbrella to address continued industry loss ratio pressure while segmentation efforts are enabling us to refine our portfolio toward more attractive risk profiles. Overall, we are pleased with the solid growth we delivered in core commercial supported by strategic positioning of our portfolio and strong momentum in small commercial. Turning to Specialty Our performance continues to validate the inherent strengths of our specialty business, our clear focus on pricing for risk and returns and our ability to generate strong profitability ahead of expectations. Growth of 2.3% reflects our measured posture in areas characterized by heightened competition, particularly in property exposed lines like Hanover Specialty Property top line pressure also reflects our strategy to keep our powder dry, protecting higher tiered accounts and selectively pulling back from underpriced, lower quality business where returns are less attractive. As an example, net written premiums declined in our programs business during the first quarter and while profitability in our book of business is quite good today, we are taking a cautious approach relative to the MGA environment and and remaining very selective in our distribution relationships. At the same time, we have seen double digit momentum in management, liability, surety and specialty gl, upper single digit growth in ENS and positive growth in professional lines and marine pricing discipline remains a cornerstone of specialty execution. Loss costs and margin focus continue to guide our pricing decisions and particularly as competition intensifies in a softening property environment. Looking at specialty subsegment highlights for the first quarter, professional and executive lines are taking advantage of a new operating model to enhance execution across underwriting capacity. Planning and workflow modernization, cross selling and pipeline discipline are further improving mix quality supported by closer coordination with with our core commercial lines team ENS grew 8.1% supported by liability focused offerings. With property growth tempered in response to competitive market conditions, our team remains focused on expanding our presence in the small ENS market where we continue to see attractive opportunities. In Marine Quarterly growth was expected to be a low point for the year and results actually came in slightly above expectations. We continue to benefit from our leadership in the marine market today and we expect growth to return to upper single digits for the rest of the year. Our Marine team remains focused on selectively allocating capacity and pursuing opportunities that help maintain margin, quality and agency relevancy. As we think about the year, we expect overall specialty growth to ramp up from here. We remain confident in our ability to drive top line growth across our highly diversified specialty book while we continue to deliver very strong profitability through disciplined execution and targeted investments. Stepping back from the segment results, the impact of our technology investments is increasingly visible across the organization. We are advancing everyday innovation alongside operating model transformation by accelerating our quoting processes and improving speed to answer and in strengthening claims execution, we are delivering better outcomes for customers, agents and employees. We are intentionally building reusable AI capabilities for the most common enterprise tasks to reduce complexity, strengthen execution and enable scale. For example, risk scoring and AI enabled triage are helping underwriters prioritize submissions and streamline intake and decision making. Built on an enterprise ingestion foundation now used across many underwriting, customer service and claims operations, these capabilities continue to scale all in. This represents a disciplined transformation across the organization grounded in robust data, modern technology and responsible AI and positions the company to operate more efficiently and scale with confidence. We will continue to refine our strategy and business model in ways that enhance the alignment between risk, price and capital, provide our agents and customers with the most innovative and responsive products and services possible and drive top tier results. While volatility, particularly from catastrophe activity will will always be a factor in our industry, our underlying performance continues to demonstrate the effectiveness of our past exposure, management actions and stability across a range of conditions. We plan to continue emphasizing disciplined underwriting as we pursue selective growth where returns are compelling, deploy capital efficiently and further invest in the capabilities needed to navigate an evolving PNC market. Most importantly, we remain confident in our ability to deliver sustainable, profitable growth and attractive long term value through a consistent execution driven approach. Our unique selective distribution partnership model with the best independent agents in the country continues to boost this confidence. In fact, this month we held our annual Presidents Club conference which includes the top 5% of our agents. During the conference we had many excellent conversations with our agent partners about our business strategies, operational tactics and ways we could best work together in this complex marketplace. Feedback from our agents has been very positive, particularly with respect to our underwriting and claims transformation efforts. We have successfully navigated dynamic industry environments before remaining sharply focused, acting decisively and executing with discipline, and we are committed to doing so going forward. With agility, alignment and performance at the core of our strategy, we are confident in our ability to deliver on our goals for 2023 and in years ahead, delivering value for our shareholders and many other stakeholders. With that, I'll turn the call over to Jeff.
Jeff Farber (Chief Financial Officer)
Thank you Jack and good morning everyone. We are very pleased with the strong results we delivered in the first quarter, which are a testament to the outstanding execution of our team and the diversification of our businesses. Each part of the business contributed to our impressive results. With personal lines remaining at outstanding margins, specialty profitability outperforming our expectations, core commercial posting, solid healthy margins, all bolstered by our investment portfolio which continues to provide very strong returns. Catastrophe losses were 6.3 points of the combined ratio. We recognized 3.1 points of favorable prior year catastrophe development largely from lower severity on 2025 events. We believe this reflects stronger than originally estimated benefits from terms and conditions change and other property management and risk prevention actions. As an example, on hail events, we have observed lower severity as a result of increased policy deductibles in both personal and commercial lines. We are very encouraged by what we are seeing reinforcing our optimism that these actions will drive better stability in our underwriting results going forward. Current accident year catastrophe losses were primarily driven by an unusually severe hail and wind event in the beginning of March with the heaviest impact in Illinois and Michigan and to a lower extent winter storm fern in January, which impacted many states across the country. Together, these two events made up over half of current year CAT losses. As claims develop and mature, we will be in a good position to assess the favorable impact that our underwriting actions achieve. Excluding catastrophes, our combined ratio was extremely strong at 85.4%, reflecting a 2.4 point improvement over the prior year quarter with loss ratio improvements in each segment. The expense ratio for the quarter was 30.7% in line with our expectations. We continue to take a diligent approach to expenses, aligning costs with strategic priorities while making targeted investments to support future profitable growth for the full year. We continue to expect an expense ratio of 30.3% as the benefit of growth leverage skews towards the latter part of the year. First quarter favorable ex cat prior year reserve development of $25 million included favorability across each seg in specialty. Favorable prior year reserve development was 14.2 million or 3.9 points with widespread favorability across multiple coverages. In personal lines, favorable prior year reserve development was 9.2 million or 1.4 points. With favorability in home and to a lesser extent in auto driven by property coverages and in core commercial, favorable prior year reserve development was 1.6 million or 0.3 points. With minor adjustments by line, our reserve position remains strong and aligned to the current uncertain environment. Now I'll further discuss each segment's current accident year results. Starting with personal lines, this business generated an excellent current accident year XCAT combined ratio of 8.83.8% for the first quarter, a 0.7 point improvement from the prior year period. The benefit of earned pricing in both auto and home and favorable frequency helped drive a 1.1 point improvement in the underlying loss ratio driven by homeowners. In this line we delivered an outstanding ex CAT current accident year loss ratio 46.7%, improving two points from the prior year quarter and favorable to our expectations helped by the benefit of strong earned pricing. We also continued to observe lower attritional loss frequency and partially attribute the benefit to deductible changes leading to fewer smaller claims in both CAT and ex CAT results. Our personal auto ex cat current accident year loss ratio was 66 0.7%, an improvement of 0.2 points compared to the prior year quarter. We are seeing continued stability in collision frequency aside from the impact of severe winter weather. Personal lines grew 2.7% in the first quarter with policies in force (PIF) flat sequentially, which is an improvement from the fourth quarter of 2025. We continue to expect policies in force (PIF) growth in 2026. Both auto and home achieved strong pricing increases in the first quarter with auto up 6.7% and home up 10.8%. Umbrella pricing increases also continued to be Strong at approximately 19%. Now turning to our core commercial segment, we delivered a current accident year ex cat combined ratio of 91.5%, a 3.6 point improvement from the prior year quarter. The current accident year loss ratio excluding catastrophes of 58.8% was 2.9 points better than the prior year quarter. The first quarter of 2025 included some elevated property large losses while large loss performance was within expectations in the first quarter of 2026. Core commercial net written premiums grew 4.3% in the quarter, propelled by increased momentum in both small commercial and middle market. Small Commercial grew 6.4%, improving over 1.5 points compared to the fourth quarter of 2025. Middle Market net written premiums increased 1.5%. Price levels remain healthy and elevated particularly in commercial, auto and umbrella. Moving on to specialty, this business continued to perform very well with a current accident year ex CAT combined ratio of 85.4%. The current accident year loss ratio excluding catastrophes was 49% in the quarter, coming in better than our expectations and our low 50s target for this segment driven by property favorability while liability remained within expectations. The continued exceptional performance and profitability of this segment highlight the quality and positioning of our specialty business. While growth was pressured in the quarter, it reflects our prudent approach and focus on protecting the strong profitability of the business. We are working tirelessly to ramp up premium growth. Turning to our recent investment performance, net investment income increased an impressive 19.6% in the quarter driven by growth in our asset base from strong earnings, the benefit of higher reinvestment yields and improved partnership income. Our investment portfolio continues to provide steady returns helped by disciplined positioning and broad diversification. Roughly 88% of our total invested assets are in cash investment grade fixed income, highlighting the high quality composition of our portfolio and the relatively modest size of our other exposures. Our fixed maturity portfolio weighted average rating is AA minus with 95% of holdings. Investment grade earned yields on the fixed maturity portfolio were 4.42% in the first quarter up from 4.08% a year ago and we continue to reinvest at higher yields than what is maturing. Portfolio duration excluding cash remained relatively stable at approximately 4.4 years, consistent with our long term asset liability alignment approach. Moving on to our equity and capital position, our book value per share increased 1% sequentially to 101.86, driven by strong earnings in the quarter, partially offset by an increase in the unrealized loss position. Share repurchases and the quarterly dividend excluding unrealized book value per share increased 2.8% sequentially. We continued to actively participate in share buybacks, repurchasing approximately 503,000 shares totaling 87 million in the first quarter. Additionally, we repurchased approximately 14 million worth of shares through April 28th. We remain dedicated to responsible capital management and prioritizing shareholder value. Our second quarter cat load is expected to be 7.9% to wrap up. We had an exceptionally strong start to 2026 and are confident in our strong market position headed into the rest of the year. The company continues to perform well across the board, helped by our diversified business and earnings stream as well as our extremely talented team. With that, we are ready to open the line for questions. Operator
OPERATOR
we will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Michael Phillips with Oppenheimer. Please go ahead.
Michael Phillips (Equity Analyst at Oppenheimer)
Thank you. Good morning, everybody. I want to start, Jack, I guess, with what I think is admittedly a generic topic, but an important one that I think could separate Hanover from peers over the next couple years. That is where the market, specifically commercial market, is headed. I start with an answer here. Hopefully not the answer, but going to sound too familiar. We don't follow the market down. We're laser focused on margins, says everybody. Obviously, I guess it's a matter of degree. But can, Jack, can you talk about any structural things within Hanover that if we are to fast forward to next year, give us confidence that that commercial renewal rate deceleration for Hanover won't be as dramatic as your peers?
Jack Roach (President and Chief Executive Officer)
Yes, Mike, thanks for the question. You know, I would start off with the fact that we have the most diversified business and earnings stream in the history of the company. And that is essential as we face off on a market that is, I think, going to be, you know, showcasing many cycles as opposed to one total cycle that affects all businesses and all geographies the same way. So to be in a position where all of our major business units and most of our geographies are contributing to our profitable growth, that is powerful in and of itself within commercial lines. Having a pretty diversified portfolio across small commercial, middle market, nine specialty businesses, again, is an extension of that enterprise view. And we work, as you know, in the small to lower end of the middle market. We have a good balance between property and casualty. We have a strong alignment with our agency plan. I think we're particularly well served by leveraging those profit margins into appropriate pricing. That doesn't generate a lot of remarketing activity in this dynamic marketplace. So I think the secret sauce for us is we figured out how to make money in a lot of different places and we can navigate and pull different levers across the way without being kind of stuck in one business segment that's in a down cycle.
Michael Phillips (Equity Analyst at Oppenheimer)
Okay. Yeah, no, thanks, Jack. I think it's a good story. Appreciate the thoughts. I guess sticking just specifically with small commercial, where one could maybe argue that there might be more pressure longer term from advances in tech, at least from a distribution angle, is that something that all that you feel you have to think
Jack Roach (President and Chief Executive Officer)
about well, we constantly think about not only how we navigate the contemporary challenges and opportunities, but also where the longer term view is going to be. I think, like some of our better competitors have articulated, small commercial is, is much more complex than I think people fully appreciate in terms of how fragmented it is across the distribution system and how you have to both have a kind of point of sale or, you know, portfolio approach to some parts of small commercial and how you have to have a separate operating model that gets out the appropriate level of underwriting for kind of the upper end of small commercial. And then furthermore, you look at small specialty and how much business really extends into that more specialized line. So I wouldn't say that there's a moat necessarily around it, but you have to have made a lot of investment, you have to have a lot of history and data around where the profitability is by line of business, by geography and by business segment. And if you do that well, I think you can manage through at least the short term pressures. The longer term view we are very optimistic about because as you know, Dick can share with you, we are heavily invested and excited about some of the transformational opportunities that will take what we do today and frankly make ourselves more efficient and more competitive into the future.
Michael Phillips (Equity Analyst at Oppenheimer)
Okay, wonderful. Thank you for the comments, Jack.
OPERATOR
The next question comes from Paul Newsom with Piper Sandler. Please go ahead.
Paul Newsom
Good afternoon, morning, wherever it is. Thanks for the call. Was hoping you could touch a little bit more on your comments you made around the program business. Always kind of hard as an outsider to tell exactly what's in there and if there's sort of specific areas within those areas within programs, market wise geography, whatever you think is interesting, where you might see, you know, unusual more than what we'd expect, pricing concerns as well as terms and condition changes.
Jack Roach (President and Chief Executive Officer)
Yeah, Paul, this is Jack. I'll make a couple of comments here broadly and then let Brian speak for to hand over programs. But I'll remind you and others that we write program and programmatic business across many business units in our enterprise. Matter of fact, I don't think there's a single business that doesn't have at least some programmatic business with individual distributors across the various lines and businesses. And frankly our Hanover programs business in total is smaller than the program business that we write across the enterprise and other specialized businesses. So what we articulated in our prepared remarks is that programs in the Hanover Programs area that we've been working on to improve its profitability, we've achieved that profitability that we were seeking and have greatly improved It. But on the margin, we're trying to keep our powder dry for what we think is the next round of opportunities. And so I would say we shrunk a little bit following through on that discipline that we have and not taking in any material new programs. But we're quite optimistic about how we can translate that into eventually stronger growth in the future. Brian, you want to build on that?
Brian Salvatore (President of Specialty Lines)
Yeah. I mean, first of all, I think you said a lot of that quite well. Right. So I think what I would add, I'll just call it out. Right. The program business that I think you're referring to is the smaller part of our total program portfolio, which actually performs very well. As Jack pointed out, we have worked very diligently on that Hanover Programs book. It is actually performing well. And frankly, the pricing in that part of the portfolio is actually quite strong. So we feel very good about that. And then, you know, I think what I would add is I really do think it's important, this notion of keeping our powder dry. Right. So we finished or finishing up some of that cleanup work. And, you know, I would tell you what we see our agents doing is increasingly leaning towards this. This area. Right. To be able to work their portfolio. And so with all the work that we've done, I would say we feel, you know, really well positioned to support them across multiple lines in programs outside of programs. I think we're well positioned and this is an important space to our agents. That's great. And then maybe some thoughts on the comments that you made about Commercial Auto and some of the other severity hotspots. Some of your peers this quarter and past have really gotten behind the ball here in terms of what's going on. Just from your perspective, are we seeing an acceleration of some of the severity issues or just is it just continuing at sort of the high levels that we've seen in the recent past? Yeah, I think. I think I would kind of echo. What I said on the last quarter call was that there is a maturation of the trends in my mind, but at a very high level. So we know that the severity of liability cases, whether they're commercial auto or slip, trip and fall or other types of liability claims, are dramatically higher than they were historically. But as we've gotten further away from the COVID kind of court closures and we've started to see how those litigation trends come through and some of the jury and judge awards, it is clearly starting to mature. But I wouldn't say that I think what you're going to see is different carriers are in different places with their book mix, with their reserve position, with how they've actuarially addressed the loss trend analysis. And we feel really good about the way we've managed through this. But we get up every single day, you know, paying attention to these liability trends because they are, they are elevated. Paul, this particular quarter our commercial auto results were fairly benign in both the current year and prior year. There's not all that much informational content in that statement because I think that commercial auto the industry has reached a plateau of a fairly high severity that we're all dealing with in terms of managing through that and making sure we get substantial rate.
Paul Newsom
Great congrats on the quarter. Appreciate the help as always. Thanks, Paul.
OPERATOR
The next question comes from Mike Zemerinski with bmo. Please go ahead.
Mike Zemerinski
Great. Good morning. Switching gear stuff to personal lines. Just looking at the continued excellent results for you all especially but also on the industry basis, should we expect pricing power to moderate more materially towards peers or are you guys, since you have a more differentiated portfolio, especially regional as well, do you expect to kind of keep pricing well above the kind of industry average? Maybe you could throw in how to think about retention there as well. Thanks.
Jack Roach (President and Chief Executive Officer)
Yeah Mike, I'll let Dick obviously speak to some specifics about the personal lines business but I think your articulation of our where we play and how we're different is an important part of the answer. We are the best account writer in the 20 states we choose to do business in in the IA channel and that gives us some real, I think staying power. That said, we live in a competitive, you know, business. I think our account strategy itself is now really paying huge dividends because there's no doubt that in the direct channel and even in the captive channel there is real pricing pressure coming particularly on auto. But having home as part of our proposition is a meaningful part of the way in which we differentiate ourselves but also keep ourselves out of that pure auto pricing market.
Dick Levy (Chief Operating Officer and President of Agency Markets)
Yeah, so a lot of great points there, Jack. You know, I just reemphasize sticking to our strategy. Right. Both geography and customer segment is what we believe will help us continue to kind of outperform and I think stands up better in a competitive market. The full account 90%. The other fact, you know that we have 76% of a common effective date. So that brings efficiencies to having both policies or multiple policies renew on the same date. But I'll just add we have an amazing state management capability. Kind of working as a co CEO if you will, with A field leader in each state driving those agency relationships at the desk level. And the analytic tools and practices that we've built over the years has just allow us to stay on top of the trends and kind of be laser like in how we outperform in the marketplace. Looking at new business through the comparators and adjusting quickly our dials. Studying intensely the customer behavior on renewals, specifically price elasticity and making sure that we're doing the right kind of renewal pricing to maintain and keep our best accounts. So we just, we just honed and fine tuned our capabilities and you know, we just, we know who we are, we stick to our strategy and you know, we're not immune but we think we can, we can outperform. Particularly as we continue to push ourselves up market with a higher coverage. A our prestige product is having tremendous success and you know, that gives us confidence about the future.
Mike Zemerinski
Okay, great. Maybe just shifting gears to the also excellent results in specialty. If we focus on the core loss ratio continues to usually track below the
Brian Salvatore (President of Specialty Lines)
low 50s, which is great. Just curious, has there been any items you want to call out that kind of have been better than expected? We should just continue to keep in mind. Yes, go ahead Brian. Yes, so I'm actually quite pleased with the performance of almost all of our portfolio. As I say, pretty much all of our portfolio. The core loss ratios across our lines of business are really strong. The profitability that we delivered was broad based. So I don't know that I would call it a single area. I would probably highlight that property continues to be very strong from a profit perspective. Again, really good profitability across this portfolio. Some of that was from hard work in parts of the portfolio, a lot of discipline in our pricing and our portfolio management. But beyond that I wouldn't say about an area. I just see really good flood based profit.
Jack Roach (President and Chief Executive Officer)
Mike. I would just add that one of the strengths of being able to play primarily in the retail agency side of that business across multiple businesses, it gives us the ability to flex based on the way the market cycles are changing. And I think we used the example of management liability last quarter where we faced several quarters of some pricing pressure and we held onto our book of business but we lowered some of our growth trajectory. And as we finished up 2025 and headed into 26, we were able to re elevate our growth because we maintained that profitability and the pricing discipline started to come back into the business. So I believe that's the secret to being in the more specialized businesses. Do you have that core profitability do you have multiple areas that you can bob and weave so that you're not trapped into one business that is going to be too cyclical?
Brian Salvatore (President of Specialty Lines)
And just to really quickly add that you mentioned before, our focus on that small to middle market space definitely benefits us, especially right now. And just a quick follow up just for maybe education, you know, you continue to highlight marine, maybe you can just. I think when a lot of us think about marine, we think of kind of the, the more syndicated large account marketplace kind of Lloyds of London type business. Maybe you can just give us a quick flavor of what the typical marine account looks like. Yeah. So you know, there is quite a bit to marine. There's quite a number of lines of products there. Right. I'll go back to what I said before. Even there, we focus on the middle market to smaller space. The vast proportion of our business in terms of PIP is smaller accounts and a lot of that is builders, risk, contractors, equipment, what you would call inland marine. And then the other thing I would say relative to what people often refer to as ocean marine, our book I don't think looks like a lot of others that you might be thinking of. Right. We do not write a lot of hull coverage. We write marinas, we write brown water stuff, things that are traditionally better performing. So we're very fortunate because I think of our agent relationships that we've really built one of the larger marine practices in this inland marine space and what I think of as lower severity ocean marine. Got it.
OPERATOR
So yeah, inland I think was the clarification that I missed. So appreciate that, thanks. The next question comes from Meyer Shields with kbw. Please go ahead.
Jean Omer
Good morning, this is Jean Omer. Thanks for taking my question. My first question is on specialty. Just a follow up on that. We see that there's a pricing slowdown this quarter. I'm just curious what's driving that. And also you mentioned that you'll see specialty growth ramp up from here. What areas are you focusing on given the kind of slowdown and the overall specialty pricing? Thanks. Yeah, thank you. So I think first thing I would call to your attention is that we are very deliberate about our pricing and you know, I think worthwhile to consider and I think it ties a little bit into your part B of your question. Right. This is a very diversified portfolio. Nine businesses, 19 separate product areas focused on the small to middle market space. And they're not all traveling on that same path. Right. So there we did feel some, we felt pricing pressure in the property space, one of our most profitable areas. And we're managing that in a very disciplined way. I'll go back to something Jack pointed out before about management liability. We have a track record in our businesses of appreciating the profit margin, understanding that we have to compete, but doing that in a measured and deliberate way, sometimes sacrificing near term growth so that we're well positioned to grow going forward. And so that's, that's the way we're thinking about pricing in this environment. And I do see the ability to continue to drive growth in the areas we had success. I think that was the other part of your question. So management liability, surety ENS or specialty general liability. And then I would add that we see an increase in growth in areas like marine and professional liability as well.
Brian Salvatore (President of Specialty Lines)
Jing we had planned for the first quarter, 2026, to be the lowest growth quarter of the year. And that combined with the optimism that Brian has for the various areas, gives us confidence that we can ramp up the growth from here in specialty.
Jean Omer
Gotcha. Really helpful, thank you. My second question, just a quick one. Is there any underlying reserve movement on the casualty lines?
Jeff Farber (Chief Financial Officer)
I'm not exactly sure how to answer that, Jiang. We do every single quarter we look at our entire book and so we're always making adjustments in terms of our overall reserves. If your question is about prior year development, specifically in core casualty, there were essentially no, almost no movements in individual lines of business.
Jean Omer
Gotcha. Thank you. Thank you, Jane.
OPERATOR
The next question comes from Roland Mayer with RBC Capital Markets. Please go ahead.
Roland Mayer
Hi, good morning. I wanted to quickly ask on the CAT pyd, was that result of a specific review of how you had booked the business or are you consider continuing to hold some conservatism around? Kind of the underwriting changes in personal lines?
Jeff Farber (Chief Financial Officer)
So we look at our CAT reserves every single month and as we did at the end of March in April, we looked at 24 and 25 reserves. And we certainly don't want to get short. So we look at those in a, in a prudent way. But we were really surprised that the level of severity and to a lesser extent frequency on both personal lines and commercial lines, particularly from 2025 events, had rolled off more favorably than we had originally estimated. So it was lower large losses in commercial lines and in personal lines, it was, you know, less severity of the terms and conditions are having a very meaningful impact across both personal and commercial lines. With respect to conservatism, we always try to be conservative, but I would not anticipate the level of favorable development that we had this particular quarter to be repeating.
Roland Mayer
Thank you, that's super helpful. And I'm just wondering on that, with the terms and conditions coming in better than you had previously thought, does that change how quickly you want to grow the homeowner's business or the personal lines? Pif, this is Jack.
Jack Roach (President and Chief Executive Officer)
I hope eventually the answer is yes, we're going to remain cautious. But the silver lining of having some CAT activity, particularly in some of our more penetrated footprint, is that we really get to sharpen our analysis about the effectiveness of the terms and conditions and how we're pricing those and the impact it's having on our property aggregations. So for right now, as we said in our prepared remarks, we're not making major changes, but I would be disappointed if eventually all of that didn't translate into the appropriate level of earnings volatility and the ability to grow the business more than we've been willing to do over the last couple of years.
Roland Mayer
That's super helpful, thank you.
OPERATOR
The next question comes from Bob Huang with Morgan Stanley. Please go ahead.
Bob Huang
Hey, good morning. So I think most of my questions are addressed, but one thing I want to unpack a little bit is as we think about the broader innovations in technology, a lot of companies have addressed their willingness and their aspiration for AI and innovation. Just curious, in that increasingly tech driven environment, where do you think you fit in from a competitive perspective and how do you think the competitive environment will evolve because of technology?
Jack Roach (President and Chief Executive Officer)
Bob, thanks for the question. Super important time for us to address that with, with our investment community. I'm really excited about the way the organization is leaning into the opportunities that technology and AI are presenting. I think you saw that a few quarters ago. We asked Dick Levy to take on some additional responsibility in this area to make sure that the innovations were business led. In conjunction with our technology teams, we're making a ton of progress and we'll look forward to updating you further about the impact that we believe we can make with those likely we'll do that later in the year when we update our five year forecast as our current five year forecast comes to a conclusion at the end of 26. But Dick, if you want to highlight kind of your view of the momentum that we're building.
Dick Levy (Chief Operating Officer and President of Agency Markets)
Yeah, great. And I thought Jack's prepared remarks did a really nice job highlighting what we're doing. I'll just maybe make a couple of overarching comments and then give you a couple examples perhaps to make it come alive and then end with, I think, a specific response to your question about the impact on Competitiveness. But yeah. So it's been over a year since I stepped into the role of COO and took the responsibility of just helping our organization frame our strategy on overall transformation and how to tackle the highest order of priorities that we believe are going to bring us some benefit realization. Doing that in partnership with Will Lee, our cio, but with a keen focus on scaling our company to bring more growth and efficiency, and have been working intensely with the business leaders and functional leaders and also spending time externally to your question, understanding technology vendors, competitor actions. And I can say, you know, on balance, as I, as I absorb all of that, is that we, we feel terrific about our progress. We are right in the game with what others are tackling. And as Jack pointed out, and you've heard me say this before too, you know, we're tackling really the common activities across our value chain in underwriting, claims and operations. So two very quick examples, you know, this, this idea of in the underwriting space, probably the most impactful, that in claims, but this ingestion and triage agent that will help us receive, codify and synthesize submissions and get it to the right person with the right skill as fast as possible with a running start on insights, frankly, is going to be one of the biggest benefits that come out of this transformation effort. ENS is our first business that is going to benefit from that ingestion and triage agent, which is really very ripe for this, for efficiency. We had 70,000 submissions in ENS last year, a portion of which is frankly missed opportunity because of underwriter capacity. So these tools bring us underwriter capacity and effectiveness in helping them sort through the piles of submissions and then triaging them, focusing on the more promising activities. So other businesses also underway, middle market, small commercial, marine. In the claim side, you know, an AI agent, we have agents that are built to help us synthesize really complex contracts, medical records, claims files, kind of searching for and summarizing specific answers to critical questions about indemnity clauses, name parties, limits, risk transfer provisions, things like that. And these documents can be 100 to 300 pages long. So what used to take hours now takes minutes. So you can imagine the benefit to the adjusters on that. Lots of work on medical records, looking for severity, fraud, settlement insights, that kind of thing. So speed, accuracy, effectiveness. So, you know, I just. We're so bullish about the benefits that this brings. Really importantly, we're doing all of this in kind of a Lego block modular architecture to make sure that we can reuse these agents as we build them across multiple places. So when you step back from all that, you know how you frame this question, is it going to increase the competitiveness? I think if you don't, if you're not investing in these, you're going to miss out. So, yes, those that have invested are going to be more competitive because they're going to be able to get after the more promising opportunities more quickly with more precision. And so I think if you're not in that game, you're going to miss out. So we're confident and comfortable that we're right there with it.
OPERATOR
The next question comes from Mike Zyremski with bmo. Please go ahead.
Jack Roach (President and Chief Executive Officer)
Thanks. Just a quick follow up on the competitive environment. Maybe trying to tease out some pricing power trends. I think, Jack, you mentioned pricing remains healthy and elevated in the social inflation lines. I think we saw a bit of, we saw the acceleration stopping in terms of higher increasing pricing in some of those lines late last year and maybe coming down a little bit from healthy levels. And some of your competitors have talked about pricing kind of re accelerating a tiny bit. Just curious of what you're seeing in those lines. Is it kind of steady upwards bias, downwards bias? Thanks. Yeah, I would say in general, and I think Jeff addressed this to some degree, that we're having real discipline and success or showing real discipline and having success in the liability lines that are most susceptible and seeing kind of legal system abuse, impact, commercial auto. We continue to be very, very disciplined. The general liability lines that are most susceptible to slip trip and fall type of activity and I would say umbrella, not just in commercial lines but also in personal lines, we're getting really robust pricing. So I think the market is behaving pretty rational. And while some of the pricing pressure that the industry's feeling in property, you know, feels like it's intensifying, our belief is that that is most susceptible to the larger end of the property cycle. And we're for the most part a property or an account writer in the small and middle market space. So we have the ability to kind of think about account pricing and not get too hung up on pricing by individual line of business. So hopefully that answers your question.
Mike Zyremski
Thank you. Thanks, Mike.
OPERATOR
This concludes our question and answer session. I would like to turn the conference back over to Oksana Lukashova for any closing remarks.
Oksana Lukashova
Thank you everyone for participating on our call today and we're looking forward to talking to you next quarter.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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