The Hanover Insurance Group (THG)

Property and casualty insurer The Hanover Insurance Group (NYSE:THG) missed Wall Street’s revenue expectations in Q3 CY2025, but sales rose 5.5% year on year to $1.67 billion. Its GAAP profit of $4.90 per share was 19.5% above analysts’ consensus estimates.

Company Overview

Founded in 1852 during a time when fire insurance was crucial for protecting businesses and homes, The Hanover Insurance Group (NYSE:THG) provides property and casualty insurance products through independent agents, serving individuals, small businesses, and mid-sized companies.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

The Hanover Insurance Group competes with other property and casualty insurers including The Travelers Companies (NYSE:TRV), Chubb Limited (NYSE:CB), The Hartford Financial Services Group (NYSE:HIG), and Progressive Corporation (NYSE:PGR).

In general, insurance companies earn revenue from three primary sources. The first is the core insurance business itself, often called underwriting and represented in the income statement as premiums earned. The second source is investment income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services. Over the last five years, The Hanover Insurance Group grew its revenue at a mediocre 6.4% compounded annual growth rate. This fell short of our benchmark for the insurance sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. The Hanover Insurance Group’s recent performance shows its demand has slowed as its annualized revenue growth of 5.1% over the last two years was below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, The Hanover Insurance Group’s revenue grew by 5.5% year on year to $1.67 billion, missing Wall Street’s estimates.

Net premiums earned made up 93.7% of the company’s total revenue during the last five years, meaning The Hanover Insurance Group lives and dies by its underwriting activities because non-insurance operations barely move the needle.

Net premiums earned commands greater market attention due to its reliability and consistency, whereas investment and fee income are often seen as more volatile revenue streams that fluctuate with market conditions.

When insurers sell policies, they protect themselves from extremely large losses or an outsized accumulation of losses with reinsurance (insurance for insurance companies). Net premiums earned are therefore net of what’s ceded to reinsurers as a risk mitigation and transfer strategy.

The Hanover Insurance Group’s net premiums earned has grown at a 6.4% annualized rate over the last five years, slightly worse than the broader insurance industry and in line with its total revenue.

When analyzing The Hanover Insurance Group’s net premiums earned over the last two years, we can see that growth decelerated to 4.6% annually. This performance was similar to its total revenue.

The Hanover Insurance Group’s net premiums earned came in at $1.55 billion this quarter, up 4.8% year on year. But this wasn’t enough juice to meet Wall Street Consensus estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For insurance companies, we look at the combined ratio rather than the operating expenses and margins that define sectors such as consumer, tech, and industrials.

The combined ratio sums the costs of underwriting (salaries, commissions, overhead) as well as what an insurer pays out in claims (losses) and divides it by net premiums earned. If a company boasts a combined ratio under 100%, it is underwriting profitably. If above 100%, it is losing money on its core operations of selling insurance policies.

Given the calculation, a lower expense ratio is better. Over the last five years, The Hanover Insurance Group’s combined ratio has swelled by 2.6 percentage points, going from 98.5% to 92.6%. It has also improved by 14.1 percentage points on a two-year basis, showing its expenses have consistently grown at a slower rate than revenue. This typically signals prudent management.

The Hanover Insurance Group’s combined ratio came in at 91.1% this quarter, beating analysts’ expectations by 263.3 basis points (100 basis points = 1 percentage point). This result was 4.4 percentage points better than the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

The Hanover Insurance Group’s EPS grew at a remarkable 17.1% compounded annual growth rate over the last five years, higher than its 6.4% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its combined ratio didn’t improve.

Diving into The Hanover Insurance Group’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, The Hanover Insurance Group’s combined ratio improved by 2.6 percentage points over the last five years. On top of that, its share count shrank by 4.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For The Hanover Insurance Group, its two-year annual EPS growth of 207% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, The Hanover Insurance Group reported EPS of $4.90, up from $2.80 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects The Hanover Insurance Group’s full-year EPS of $17.29 to shrink by 6%.

Insurers are balance sheet businesses, collecting premiums upfront and paying out claims over time. Premiums collected but not yet paid out, often referred to as the float, are invested and create an asset base supported by a liability structure. Book value per share (BVPS) captures this dynamic by measuring these assets (investment portfolio, cash, reinsurance recoverables) less liabilities (claim reserves, debt, future policy benefits). BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

The Hanover Insurance Group’s BVPS grew at a sluggish 2.6% annual clip over the last five years. However, BVPS growth has accelerated recently, growing by 27.4% annually over the last two years from $59.11 to $96 per share.

Over the next 12 months, Consensus estimates call for The Hanover Insurance Group’s BVPS to grow by 28.3% to $101.15, elite growth rate.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

The Hanover Insurance Group currently has $1.28 billion of debt and $3.43 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 0.3×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 1.0× for an insurance business. Anything below 0.5× is a bonus.

Return on equity, or ROE, represents the ultimate measure of an insurer's effectiveness, quantifying how well it transforms shareholder investments into profits. Over the long term, insurance companies with robust ROE metrics typically deliver superior shareholder returns through a balanced approach to capital management.

Over the last five years, The Hanover Insurance Group has averaged an ROE of 10.9%, uninspiring for a company operating in a sector where the average shakes out around 12.5%.

It was good to see The Hanover Insurance Group beat analysts’ EPS expectations this quarter. On the other hand, its book value per share missed and its net premiums earned fell slightly short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $167 immediately after reporting.

Updated: December 4, 2025 at 11:40 PM EST

Before deciding whether to buy The Hanover Insurance Group or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

The Hanover Insurance Group isn’t a terrible business, but it doesn’t pass our quality test. First off, its revenue growth was mediocre over the last five years, and analysts don’t see anything changing over the next 12 months. And while its estimated BVPS growth for the next 12 months is great, the downside is its projected EPS for the next year is lacking. On top of that, its BVPS growth was weak over the last five years.

The Hanover Insurance Group’s P/B ratio based on the next 12 months is 1.8x. Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $200.13 on the company (compared to the current share price of $178.51).