Hanover Insurance Estimates Q2 Catastrophe Loss of $148M

The Hanover Insurance Group, Inc. THG estimates second-quarter catastrophe loss of $148 million, pre-tax or $117 million after taxes. The loss estimate could be attributed to the company’s exposure to hail and wind storms in the Midwest in April and property losses from civil unrest across the United States.

The estimated figure takes into account $7 million of favorable prior-year development on several events from recent accident years and excludes expenses related to COVID-19 pandemic and favorable overall loss frequency.

The company's lower-than-expected current accident year losses exclude catastrophes, owing to decline in frequency. This positive is expected to largely offset higher-than-expected second-quarter catastrophe losses.

The Zacks Consensus Estimate for second-quarter earnings is currently pegged at $1.50 per share, indicating a decline of 20.2% from the year-ago quarter reported figure. We expect estimates to move south once analysts start incorporating loss estimates into their numbers.

Hanover Insurance is set to report its second-quarter earnings on Jul 28 after market close. Per our proven model, a company needs to have the right combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to deliver an earnings surprise.  Hanover Insurance has an Earnings ESP of 0.00% and a Zacks Rank #2. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Being a property and casualty insurer, Hanover Insurance is exposed to claims arising out of catastrophes, which significantly affect operations and financial condition. In the first quarter, the Commercial Lines segment’s catastrophe loss surged 129% to $23.8 million while combined ratio deteriorated 400 basis points to 98.2%. Segment underwriting results also declined in the quarter, primarily due to higher non-catastrophe loss activity and catastrophe losses.

Nonetheless, Hanover Insurance has ceded reinsurance programs designed to provide protection from significant losses arising from catastrophic events. The Commercial Lines and Personal Lines segments are primarily protected by a property catastrophe occurrence program, with retentions of $200 million. It provides coverage of up to $1.175 billion countrywide, less a $200 million retention for all defined perils. Additionally, an aggregate feature, effective Jul 1, 2019 through Jun 30, 2020, provided up to $75 million of coverage in excess of $300 million in aggregate catastrophe losses. The catastrophe losses subject to the aggregate feature are limited only to those events that exceed $7.5 million of incurred losses per event.

Shares of The Hanover Insurance have lost 26.2% year to date compared with the industry’s decline of 15.5%. Nevertheless, compelling product portfolio, widening specialty capabilities, strong market presence, strategic investments, effective cost control and a solid capital position should help shares bounce back.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Cat Loss Estimates of Some Other P&C Insurers

Several property and casualty insurers have come up with their second-quarter catastrophe loss estimates. Chubb Limited CB estimated second-quarter global after-tax net catastrophe loss of $1.15 billion.

Arch Capital Group ACGL estimated second quarter pre-tax net catastrophe losses in the range of $205 million to $225 million.

Cincinnati Financial Corporation CINF expects to incur pre-tax catastrophe loss of approximately $231 million.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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