Hanover Insurance Group, Inc. Aktie

Good morning, everyone, and welcome to The Hanover's 2026 Investor Update. I'm Oksana Lukasheva. Thank you for joining us. The Hanover strategic ambition and our progress have been consistent. And today, we will focus on what comes next. What is changing in our approach as the industry evolves, where we see the greatest opportunities to create value, what we expect will drive sustainable earnings and returns and the financial framework against which you can assess our progress.

In a moment, you'll hear from our CEO, Jack Roche, and CEO-Elect Dick Lavey, followed by Bryan Salvatore, President of Specialty Lines. We'll then turn to a business leader panel on operating model transformation and AI moderated by our Chief Information and Innovation Officer, Will Lee. Next, Chief Claims Officer, Dave Lovely, will discuss our claims transformation. CFO, Jeff Farber, will close the presentations by introducing our new long-term financial targets. We will conclude the event with a 30-minute Q&A session.

Before we begin, a brief reminder that today's discussion will include forward-looking statements, which are subject to risks and uncertainties, and actual results may differ materially from those discussed. Please refer to the forward-looking statement disclosures in today's presentation and our filings with the SEC for additional information. We will also refer to certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the presentation materials, which will be posted on our website.

With that, it is my pleasure to welcome our President and Chief Executive Officer, Jack Roche.

Thank you, Oksana, and thanks to all of you for participating in our Investor Day. We very much value the ongoing dialogue we have with the investment community, and we appreciate the opportunity to give you an updated and deeper view of Hanover's strategy and our future prospects. Our 2021 Investor Day was designed to carry us through 2026. And as we approach that horizon and a thoughtful CEO succession, this is a perfect time to reflect on our progress and to lay out the next chapter.

So let's take a couple of minutes to review our accomplishments. As a management team, we are quite proud of the performance against the 5-year aspirational goals we put forth in 2021. We generated approximately 20% operating ROE for the last 12 and 18 months versus our target of 14% by 2026. We also outperformed our operating EPS target while being relatively in line with our book value and premium growth targets.

Importantly, we achieved these targets while navigating a highly complex environment, including post-COVID uncertainty and significant spike in inflation. In fact, these environmental challenges served as a stimulus to accelerate our portfolio management actions and further advance the diversification of our earnings stream. As a result, we sit here today with the best financial and strategic position we've ever been, generating robust and diversified earnings across all 3 business segments and significantly better spread of risk across our geographic footprint.

Today, we are a true national player in commercial lines and a top super regional in personal lines. At the same time, we executed major improvements in our portfolio and property aggregation management, greatly reducing our earnings volatility. And our thoughtful and consistent growth are enabling even more relevance with the top distributors and allowing us to improve our scale and expense position.

Now if you ask me what I'm most proud of during my tenure, it is not any individual result or metric. It is the leadership team and the culture I will leave behind. This highly competent team has embraced this most dynamic environment and truly collaborates as one. Our business unit and corporate leaders share insights on loss trends, market shifts and strategic direction. They are students of the industry, not just their function.

Every leader here is expected to understand the complexities of the P&C business well beyond their own functional area. Our leaders are agile and effective. Business leaders are more than underwriting experts. They evolve their operating models and drive their own technology agendas. In this most transformational time in our business, we have the strongest team in the history of the company, and they're very excited to elevate to the next level.

And my confidence in the company extends well beyond the senior leadership group to the broader Hanover organization, a team that has proven it can execute through significant change and is ready to keep evolving for the future. At the heart of our success is a very special culture. It is built on our CARE values and exceptional leadership standards we hold everyone accountable to.

Our various outside recognitions are gratifying, but the feedback I value the most is from our 5,000 employees who give us some of the highest participation and engagement scores in the industry. I truly believe that our talent and culture are major contributors to our financial success and lead to the sustainability of our performance going forward.

And it is the most durable asset I can leave to my partner and successor, Dick Lavey. As I get ready to pass the baton to Dick, I couldn't be more confident in his ability to lead this unique company forward. His deep experience in the property casualty business, complemented by significant expertise in the technology landscape, position him very well in this dynamic environment. Dick is one of the most tech-savvy P&C executives in the business today, and he has a world-class team around him that is truly excited about the future ahead.

So with that, I'll turn the floor over to our CEO-elect, Dick Lavey.

Okay. Thank you, Jack. I'm so honored to follow in your footsteps and continue this amazing journey. Having been at The Hanover for over 22 years, I feel so connected to our people, our culture and our strategy, and I'm beyond proud to lead this team forward. I'll begin with a summary or an overview of our next chapter, which we characterize as scaling with resiliency and durability.

And there's one conviction I want to start with today. I believe The Hanover occupies an increasingly distinctive position in the market, national caliber A+ capabilities and talent, local agency intimacy and a diversified and broadly profitable portfolio built around customers who value advice. We have created a competitive advantage that delivers real and measurable durability in our earnings power, and that is a very powerful position from which to grow. And the opportunity ahead is to scale that advantage without losing what makes us distinctive.

Importantly, underlying our path to a diversified portfolio is a strategic and intentional go-to-market approach where we have laser-like focus about where we compete and which customer segments we target and how we built our operating models to perform in these markets. Specifically, we have a disciplined focus on a small to midsized customer profile in Small Commercial, Middle Market and Specialty with an emphasis on the full account. And this segmentation is critical to us and will continue.

In Personal Lines, we have been purposeful in writing full accounts and moving upmarket, writing more complex PL customers with multiple homes, cars and ancillary needs. This is the segment that seeks insurance advice and is comfortably positioned in the IA channel. This is a key driver, we believe, of our go-forward resilience and durability as we scale the company.

So looking out the next 5 to 7 years, the industry forces will continue to challenge the environment, no doubt, but also create opportunities. And we firmly believe that our approach allows us to smartly navigate these trends. There's volatility and complexity rising across many liability lines. The independent agency channel will continue to consolidate and reorganize agent and customer expectations will continue to demand speed and clarity and the generative AI technology is enabling many new possibilities.

AI is incredibly exciting for our company and for the industry. This represents a paradigm shift in how our industry operates, streamlining how we do business and resolving many of the long-standing challenges that have frustrated agents, carriers and customers alike. It will help reduce friction in how we exchange data and interact with customers and agents, bringing both efficiencies to how we execute and enabling better insights and decisioning in underwriting claims and service.

So when you combine these opportunities with Hanover's innate agility and our tech business partnership, I couldn't be more optimistic about where -- what we can accomplish as we scale this company. So the strategy, the diversification and the transformation approach all contribute to a very strong earnings architecture.

In fact, our recent improved performance is not just a function of a favorable cycle, but rather a reflection of a resilient portfolio profile, reimagined operating models for claims and underwriting, a differentiated agency strategy and a financial management approach designed to compound value through the cycles. And our company is backed by a fortress strength balance sheet with strong reserves, a high-performing investment portfolio and strategic capital deployment.

So as I step into the CEO role, The Hanover is embarking on its next chapter, not as a better performing version of our prior model, but as a structurally different company, more technology-enabled, more specialized and with greater scale, all of which enables us to deliver value. My goal is to march our company forward towards $10 billion in premium and $1 billion in earnings. And on that journey, we have aspirational goals to deliver 7% net written premium compounded growth and a mid- to high teens ROE in the next 5 years.

As a backdrop, it's worth some brief comments on where we believe the industry is headed with these 4 trends that are well understood. Risks are definitely getting more complex. There's weather volatility, casualty inflation and evolving loss trends that require sharper underwriting execution and a claims operation designed for severity management. So as a result, specialization is definitely required.

Agency models continue to evolve. Many are consolidating, concentrating business among a number of large distributors and commoditizing certain markets, Personal Lines auto and micro small commercial as examples. This requires independent agent carriers to focus on products and sectors that are sustainably embedded in the value-added consultative IA channel.

Customer and agency preferences are evolving. They place business where quoting is fast, workflows are easy and carriers can respond with clarity. This is no longer a differentiator. It's table stakes in our industry. The technology environment is changing rapidly as generative AI enables new technologies or new capabilities, excuse me, at faster speed to market. Carriers that embed AI in the flow of work will outpace those that struggle to integrate the technology into their operating models.

So we believe this future environment rewards carriers like The Hanover that combine advice-led distribution, underwriting precision, technology-enabled speed, claims discipline and volatility management. I'm excited now to turn to our ambitious strategy, and I'll begin with this new visual. This compass is an excellent framework to represent how we will chart our course forward and navigate the challenges ahead. Our winning position is based on a trifecta of 3 competitive advantages: first, authentic agency partnerships; second, product breadth and business diversification; and third, smart innovation and operating model change to effectively meet our agents and customers' demand for speed and simplicity.

These advantages are supported by proven execution enablers, rigorous underwriting and financial discipline, a high-performing, people-first culture and a customer-focused mindset of value-added services. So I'll offer some brief comments about the 3 competitive advantages and the 3 enabling differentiators and then go a bit deeper on each one successively so that hopefully, you can easily track where I am with my comments.

Our 3 highly profitable growing businesses provide access to attractive profit pools that have shown resilience to traditional insurance cycles, enhancing durability of our earnings. Our distinctive agency distribution strategy and authentic partnerships continue to differentiate us in this industry and help secure access to profitable business. These deep relationships with leading agents and brokers are created and enhanced by our proprietary agency insight platform that helps us build road maps to partner relevancy as well as by our field operating model and culture.

And the operating model work has been a strategic imperative for years. We continue to advance these models to align with the changing needs of today's independent agent distribution and for customers. Our underwriting analytics and financial discipline are foundational to consistent performance. Risk management and reserving rigor, portfolio agility, prudent capital management, all of that enables us to navigate evolving risks and capture attractive profit opportunities.

Our consultative account-based approach to customers with value-added services combines comprehensive protection, preventative risk solutions and digital access, which deepens customer loyalty and enhances lifetime value. And finally, our high-performing people-first culture attracts, develops and retains top talent, creating a competitive advantage that supports innovation, execution and long-term shareholder value and highly touted by our employees, our very special culture is a critical linchpin to our success. I intend to work very hard to preserve and nourish this competitive advantage as we scale our company and face change in our dynamic industry.

So our portfolio. Our 3 major segments offer us a diversified revenue and earnings stream and enable flexible and thoughtful capital allocation options to those segments with the best return profiles, giving us multiple paths to profitable growth and earnings resilience. Specialty providing higher-margin optionality, Core Commercial providing agency-led scale and Personal Lines providing diversification relative to commercial pricing -- the pricing cycles and liability challenges. And each segment is value-oriented and specialized and comfortably entrenched within the IA channel.

So, Specialty, we have 4 divisions, 9 business units and 18 product offerings, which provide diversified growth and earnings streams while enhancing our relevance to agency partners. This small account focus creates significant opportunities for automation and scalability and growth, supporting a clear path to a sub-90% combined ratio and high teens ROE through the cycle.

Core Commercial includes a very broad appetite in Small Commercial and niche expertise in Middle Market. We focus on smaller to midsized businesses, avoiding significant property and cycle volatility. Personal Lines is focused on multiproduct customers and is positioned to benefit from the continued share gains of the independent agency channel in this segment. And our recent turnaround is delivering more stable, higher-quality earnings.

Currently, we see attractive growth opportunities across all 3 segments, and we're targeting approximately 7% annual growth rate for our consolidated enterprise over the next 5 years. On distribution, it's really exciting for me to brag a bit about our distribution advantage as we've been building this out from the moment I arrived here 22 years ago. And we've created an unmatched network of authentic agency and broker and now wholesaler partnerships.

Our agency franchise truly is a proprietary growth engine, and I believe the forces reshaping distribution align with the strengths that have differentiated The Hanover for 2 decades. I'm proud to say that The Hanover has a front row seat with most of the best players where we've been offering our wisdom, our advice and proprietary agency insight data to help them with their decisions. And in turn, we've been clear beneficiaries.

Agency archetypes are also evolving with more digital-first agencies, more panels, more wholesale use, and therefore, carriers who can evolve their models enjoy wider addressable markets and growth opportunities. We have a thoughtful and clear road map to build out the technologies that are required to connect to agencies to remove that friction in our workflows, as I've discussed, and meet agents where they are or how they want to interact.

So we're making great progress on this, including some strong work with the leading agency management systems. Our agency count is expanding slowly as top agents consolidate and new advice-driven agent models emerge. Personal Lines is targeting roughly 125 new appointments per year, concentrated in our diversification states. and Small Commercial is targeting 350 to 375 new appointments with expansion in both traditional appointments, but also virtually managed appointments in networks and more remote agencies.

As evidenced by the statistics on the right, you can see we've achieved some terrific depth and breadth within our distribution, where 74% of our premium is coming from agents producing more than 5 million and 67% of our premium from agents that have 5 or more business unit relationships.

So we want to discuss The Hanover Agency Insight for a few moments. It's truly a unique asset in our industry. No other carrier offers a similar capability and it really creates a valuable competitive advantage for us and provides us for a blueprint for our growth. For those not familiar, this is a proprietary custom-built system and approach that provides agents an excellent and thorough analysis of their entire book of business, and we act as a consultant by educating them on a variety of dimensions of their business.

I can't tell you how many agency principals have said to me in our consultation sessions, Dick, The Hanover team has taught me more about my book of business in the last 2.5 hours than I've seen in the 30 years of running my agency, which is just terrific. So there are 4 major steps to the agency insight. First, we ingest an agent's complete data set. We then do a slew of analyses and offer back a variety of benchmarks. Agents love to see a scorecard of how they perform versus agencies of like size and quality. Our -- we then offer ideas on how to optimize their value through cross-sell, upsell, strategic market consolidation, producer and account manager productivity and carrier and wholesaler utilization as examples.

We not only give them our PowerPoint file, but we also return back all of their data organized in a file and in a way that they can then use it to operationalize the plans that we covered. So this process, as you can imagine, generates a measurable information asymmetry in our favor in every agency relationship where it has been deployed. We've completed the agency insight on virtually all of our partner agents, and it's a requirement for all new appointments. So very powerful.

So let's move to technology and transformation, awesome topic. We have so much excitement and optimism on this topic. We pursue a thoughtful outcome-driven approach to ensure that we can clearly see a measurable ROI, which positions us to innovate at scale and with capital efficiency. So first, I would say our tech environment and our tech stack is in excellent position. We've replaced, upgraded and modernized the vast majority of our core systems and have used a cloud migration mentality where it makes sense for us, but not in all cases, thinking critically about how to best manage cost and outcomes.

Similarly, our data is continuously getting better and currently in excellent shape. And as we all know, this is an essential enabler to successful Gen AI transformation efforts. So when we consider the potential for Gen AI, our philosophy is to invest in a disciplined, thoughtful way and focus on areas which align with our strategy, where we see a true path to value and scalability.

I had the opportunity and good fortune to help shape this approach during my time as COO, and I will bring that same practical outcomes-focused mindset to every investment and every capital allocation decision. So process improvement comes first, while technology is the accelerator, that's how we think about it. We think about use cases that would bring efficiency and improve decision-making to our work, focusing on bottlenecks and lower value-added tasks. Then we reimagine the workflows with these capabilities embedded, not just as something that gets layered on top as like another tool that our folks are using.

Importantly, our transformation framework operates on 4 principles: standardized platforms where it makes sense, build once and reuse, embed AI in the flow of work, which is what I just described, and the test, learn and scale approach. On the first point, we have achieved a common technology platform across our company, meaning we've standardized the tools that we use.

A few examples. Pega is being used to orchestrate workflows across businesses and functions. Hanover AI is what we call it, is a homegrown AI agent builder for proprietary and restricted data and agentic work. And then Microsoft Copilot is what we use for everyday innovation. So those are standardized.

As you've heard, we -- also, we focus on 3 major functions: underwriting, claims and service, no surprise, but focus on optimizing how work is ingested, analyzed, triaged and synthesized in a way that accelerates the work that our employees do to complete their job. More specifically, this view shows some of those AI agents that we're building to actually make this happen. So you're going to hear more about this in action from our transformation panel later this morning. But AI agents such as the ingestion tool, appetite checking, intelligent routing, those all help with efficiency, while AI agents such as decision alerts or underwriting, scoring, pricing guidance, those all help with enhancing our insights.

I am so excited about how these technologies can finally help us reduce that friction around data exchange that we experience and enable us to grow our company. Absolutely, this work has measurable results as we see here in a number of categories. And frankly, we aspire to have additional efficiencies. Significant reduction in the turnaround time for underwriting, which is a wide range here, depending on the product and the segment, 15% on one end for the more complex risks and upwards of 60% for the simpler risks that we can touch much less.

Yield improvement, very important, a critical one to enable us to scale, putting more quotes out more quickly and writing more of it. We expect a 10% to 20% improvement. Again, this varies by business and some others here a lift up in claims adjuster productivity, gaining overall operating leverage from slower hiring as we grow the company as a couple more examples.

So let me now make some brief comments on the 3 enablers of our strategy. First, disciplined underwriting, analytics, financial management is so critical to our performance. My focus is to maintain our strong financial performance as we grow and a broad-based discipline is paramount. So a few critical areas worth mentioning. Underwriting excellence in all of our business at the top.

This begins with excellent talent and the training and development of these professionals to foster and grow deep underwriting expertise, supported by a strong line of business capability, which provides clear guidelines and exposure management tools to help with risk selection and pricing segmentation to make sure we effectively price the risk adequately. Strong analytic horsepower provided by actuarial, finance and business resources who have access to the latest suite of tools to help and assist with the development of predictive models where appropriate on new and renewal business to offer granular portfolio insights, which help guide our mix and our diversity, hugely important for aggregation management.

This team has developed and deployed a daily in-force property exposure database so that we can track enterprise aggregation every single day for which our reinsurers are giving us enormous accolades. And lastly, a financial discipline and performance management operating cadence that has really become a bedrock of our company, and Jeff Farber will speak about this in more detail.

So value-added services. We strongly believe our industry must continue to make advancements not just in restoring people's lives and businesses when loss occurs, but also helping and assisting the prevention of losses from occurring and really improving the quality of homes and business operations overall.

As such, we have a risk mitigation mindset and focus on delivering claims prevention strategies and technologies to our customers across all segments with robust partnerships with companies like Hartford Steam Boiler with whom we partner on deployment of temperature and water sensors. This program is showing excellent success. We also have a menu of value-added services that we offer to end consumers and a fulsome set of digital capabilities to enable customer interactions however they prefer.

But rather than list all of those services, we prefer to share our customer satisfaction outcomes, which reflect how we perform, frankly, in the ultimate moments of truth. So you can see here high retentions, mid- to high 80s, which is excellent. Customer satisfaction, very strong, around 90% in both policyholder -- in our policyholder centers and claims excellent Net Promoter Scores above 70, 74, 73, which is very strong relative to a typical NPS benchmark.

And then lastly, and perhaps most importantly, our culture, which I truly believe is an operating advantage and a multiplier for us. As Jack discussed in his opening comments, we couldn't be more proud of what we've created here at -- The Hanover with regards to culture. There's something pretty magical about it, honestly. Our employees feel valued, respected, empowered to make decisions and confident that their contributions have a meaningful impact on our performance.

We spend considerable time clearly defining what great leadership looks like here at The Hanover. And we've built our own leadership model that we call Leadership 5 or L5, which spikes out 5 core leadership pillars listed here. These define the behaviors that we expect, the leaders we want to develop and the standards by which we hold ourselves accountable. And my intention is to continue to build a company that attracts and retains exceptional talent where people have the opportunity to grow, reach their full potential as leaders and make meaningful impact where they can become great coaches, innovators, change agents, decision-makers and integrators.

This really is a passion project for me. So our strategic advantages and enablers come together to deliver excellent performance over time, delivering consistent value for our stakeholders. This value creation flywheel is a terrific representation of how this performance fuels itself. Our capabilities and operating models will drive the relevancy with our agent partnerships that we described, which in turn enables us to grow profit pools as we scale, leading to a strong and strengthening balance sheet that enables reinvestment and then the cycle repeats itself.

So as we look ahead, we have established a new set of 5-year financial targets that reflect both our ambition and our confidence in the strength of our franchise. We are targeting a return on equity in the mid- to high teens, supported by disciplined underwriting, strong execution and thoughtful capital management. We expect to grow net written premiums by approximately 7% annually, balancing growth with profitability and risk selection.

And that growth, combined with continued operating leverage and capital deployment is anticipated to drive earnings per share of approximately 10% annually. And finally, we expect that performance to translate into book value per share growth of approximately 10% over the period. So together, these targets reflect our commitment to delivering attractive, sustainable returns and creating long-term value for our shareholders. The Hanover team is very excited for the future, and we are ready for what's next.

So now I'll place on my other hat as the current leader of Core Commercial and Personal Lines and offer some commentary on the prospects of these segments before I turn it over to Bryan to speak about specialty.

So starting with Core Commercial, I'll once again emphasize how disciplined we are with our customer segmentation and gearing our focus on the lower end of what is traditionally defined as middle market as well as small commercial. We thrive in this space of small to midsized customers who have complex insurance needs, and we bring a full account solution to the table, including specialty coverages.

In fact, just over 80% of our accounts have a total premium of under $200,000 in what we would be called middle market and over 80% of our small commercial accounts are under $10,000. So focusing on this space has enabled us to deliver price resilience and higher-than-average retentions through the softening cycle, as you've seen in our results. Throughout Small Commercial, we have a full spectrum of offerings from the easier to underwrite and price business that can be processed through our automated point-of-sale system. To individually underwritten business that doesn't fit on the BOP.

And this increases our relevancy with agents and puts us in a winning position as they consolidate business to more strategic carriers. As we step into the Middle Market space, we approach the market as industry experts. And for a few of our industry segments, we have created specialized underwriting units, technology, life sciences and human services as examples.

So now standing at $2.4 billion, this portfolio has achieved a very nice diversification of industry mix, as you can see on the right here, that really helps insulate us from deterioration in any one individual segment. We have -- a little bit more on Small Commercial. We have a robust and ambitious growth goal for Small Commercial, and we enjoy excellent momentum today.

Agents, as you know, are pursuing efficiency in many different ways, and we are meeting them where they are. So whether they adopt the latest digital capabilities or they prefer the more traditional workflow of quoting and binding business, our goal is the same, which is to make it easy, make it easier to do business with The Hanover and to innovate at pace.

This positions us to continue to be a winner with the best of the best in Small Commercial. And a number of areas really give me great confidence in our ability to scale this business while growing at 8% on average in the next 5 years. So first, we have significant capacity and headroom within the agencies with whom we currently work. Our Agency Insight process tells us that and helps us map out a path to greater relevancy and is especially useful when agents consolidate their business into fewer strategic markets.

So we're unique in that we have dedicated resources to do this work on behalf of agents, including an industry-leading customer service center that can service the business for agents after we ship the business to us. More importantly, though, our new state-of-the-art point-of-sale platform brings excellent ease of doing business, enabling quotes in just minutes, which is driving market share gains by winning the hearts and minds of account managers, helping to build muscle memory, right, which we know is huge in Small Commercial.

The new point-of-sale system is also enabling us to expand our distribution because now we can more easily introduce new products into new states and more easily train new agents. Increasing access to more customers, more Small Commercial customers is really critical to us in scaling that business. So today, we have roughly 2,300 agents using our system, and we can easily double that number in the coming years and still preserve the franchise value, which is precious to us of The Hanover. And so that would grant us significantly more access to customers.

So shifting to Personal Lines. We deliberately shaped our $2.7 billion high-performing portfolio curated in a selective 19-state footprint, which, frankly, has a more attractive industry performance profile relative to other states. Our target customer segment is highlighted in that stack chart with the Platinum product in the middle tier segment and the Prestige product for our $750,000 to $3 million coverage A or replacement cost type customers.

We boast a nearly 90% account profile, which is industry-leading based on our industry agency data. So really the envy of many of our competitors. Also, a vast number of these accounts have a common auto and home effective date. And this common effective date essentially reduces potential shopping events from 2:1, leading to better pricing resilience and higher retention and frankly, workflow efficiencies for agents.

So to continue to win in this segment, we also completed our product build-out of high-margin ancillary lines. And adding these coverages has had a magnifying effect on retention. So we know from our data that accounts with 4 or more policies essentially has a 95% or better long-term retention. You have a customer for life when you have all of their policies in one place.

Our team in Personal Lines has built a truly best-in-class capability to help agents consolidate business to more strategic carriers, which is becoming more and more common. It's been very helpful in the last couple of years as we've been trimming exposure in certain geographies. So importantly, as a result of our market-leading catastrophe management actions and our overall deductible strategy, particularly in the Midwest, we have a broadly profitable, more resilient and well positioned for growth type of portfolio in personal lines.

Finally, this puts a spotlight -- this slide puts a spotlight on why we were so intentional in our push upward into the higher-valued Personal Lines segment, which here we're defining as customers with a $500,000 coverage A and above. So that cuts across our Platinum and Prestige segments. We sized this segment at $95 billion with the vast majority of it being in the IA channel.

So while the channel has a 37% market share overall of personal lines, in this segment, they control 90% -- so that shouldn't come as a surprise as these are more complex accounts with multiple policies, so requiring the advice and counsel of an adviser. And you can see that within our agencies, we see a 3x -- we have had 3x the growth of these types of customers versus our competition.

So clearly, our focus here and our overall value proposition is resonating. I am extremely optimistic that we can outperform in this customer niche and in the states where we choose to compete. As the personal lines marketplace and pricing rationalizes, we've proven that our model can consistently perform and grow at that mid-single-digit range. So as I prepare to step into the CEO role, I am incredibly proud of the strength of our company, our people, the franchise that we have built. Our next chapter is about compounding our advantages through very disciplined execution and growth. And I am truly excited to lead this company forward as we continue to create long-term value.

So with that, I will turn it over to Bryan to discuss our specialty businesses. Thank you very much.

Thank you, Dick, and thanks to everybody that has joined us today. Specialty has become a very important driver of earnings and growth for The Hanover and I'm excited to spend a few minutes discussing the franchise we've built and why we believe Specialty is well positioned to become an even larger contributor to The Hanover's enterprise value.

Today, I'll share how The Hanover strategy is implemented within Specialty and how it is giving the business a structural ability to grow profitably across market cycles, what differentiates our franchise, our improved profitability over time and why we believe Specialty is positioned for profitable growth. There are a number of reasons why I am confident about the future, and I break them down across 4 main themes.

First, Specialty is a differentiated underwriting franchise built around distinct markets where expertise and rigorous discipline, combined with strong relationships creates real competitive advantages. Also, over the last several years, we've transformed specialty into one of the company's strongest contributors to profitability and earnings. Third, speed and ease of doing business have become important differentiators. This is particularly important in a highly profitable small specialty space where turnaround is measured in hours, not days. We are well positioned to win here.

More broadly, I view specialty as a microcosm of The Hanover strategy. We've built a collection of highly specialized businesses into a diversified but closely coordinated franchise that is growing profitably, serving agents exceptionally well and contributing meaningfully to Hanover's value proposition. With our market position, broad-based profitability and market access, we are targeting 9% net written premium CAGR over the next 5 years.

This can be impacted by market conditions, and we will continue to prioritize profit over growth. But what excites me is as we enter 2027, every one of our specialty businesses is positioned to profitably grow. That's a different position than we were several years ago, and it reflects the deliberate work that's gone into strengthening this franchise.

Let me start by giving you a better sense of what Specialty actually is today. Hanover Specialty is a diversified portfolio of niche businesses that require specialized underwriting and claims experts that have the deep technical knowledge to solve the distinct needs of agents and customers.

Today, Specialty includes 9 businesses with 18 different product areas and approximately $1.7 billion in direct written premiums or $1.4 billion in net written premiums that spread across a range of markets, including marine, industrial property, E&S, professional lines, surety and a strictly managed program business.

There's also complexity to the specialty distribution as it combines highly focused specialist producers, independent agents as well as large brokers, wholesalers and MGAs. We have built strong relationships and trust across these producer channels. Importantly, given our diversity of product and distribution, we're not dependent on any one product, any one line of business or any single distribution source.

This diversification gives us multiple sources of earnings and the ability to shift emphasis as opportunities evolve across market cycles. And it has been important to our strong profitability and our 6% CAGR over the last 10 years, even as we actively shaped the portfolio, exited underperforming businesses, reduced concentrations and aggressively managed limits and mix. That reshaping is evident in how the book has evolved over time with growth and scale.

As we scaled Specialty, we were deliberate about growing our most profitable businesses, such as Marine, Industrial Property, our Professional and Executive Lines, Surety and E&S, most of which have not only grown but become a bigger percentage of our portfolio. We are very pleased with the results of our efforts and our top line choices have been met with bottom line outcomes.

One message I'd emphasize here is that we view this accomplishment as structural improvement. Since 2019, we've achieved an improvement of Specialty's combined ratio by more than 10 points while approximately tripling pretax operating income. 4 consecutive years of combined ratios in the 80s, while increasing Specialty's contribution to enterprise earnings from less than 1/5 of the company's PTOI to roughly 1/3 today.

Specialty has become one of our company's most important earnings engines and a critical part of Hanover's growth, and we are committed to solid growth as we move forward. There are times, we may accept slower growth in a product area as we balance competitiveness with pricing discipline and profitability. But as I mentioned earlier, every one of our specialty businesses is now positioned to profitably grow.

I referred to our accomplishments as structural. This is driven from our targeted actions and robust portfolio management discipline. Over the last several years, we have substantially repositioned our portfolio. We have augmented and significantly strengthened our surety business, refocused our specialty property appetite, introduced TAP Sales to several segments to improve speed and efficiencies, added capabilities and brought scale to our newest offerings.

And these attributes will not diminish in a softer market. Conditions in the specialty markets vary meaningfully by line, customer segment, geography, and we have a strong underwriting drill to navigate them. This is accomplished by analyzing the classes of business, geographies, market opportunity and more for each of our 18 distinct product areas, establishing in each area the parts of that market we will aggressively pursue. And we review our approach often, and it is ingrained across our businesses and our underwriters.

We then drill that down to the account level and the terms and the pricing. As an example, we recently navigated significant price competition in the private company management liability area. While many companies went negative on pricing, we were able to thoughtfully decelerate price increases but never went pricing negative on the portfolio. And while growth slowed for a short period, we still grew. And now with price strengthening somewhat, we are growing Management Liability in upper single digits.

Equally as important as what we do is whom we work with to build our business. The Hanover has been very successful in building strong retail agent relationships and Specialty both contributes to and benefits from these retail relationships. It's worth noting that many retailers access wholesalers and certain niche and affinity group platforms for product or placement expertise or access to certain products.

We built our distribution in the 3 producer channels, retail agents and brokers, wholesale brokers and niche and affinity market administrators and hired people with proven success in these channels to manage the business. As a result, we've established a strong footing with each channel that continues to grow. For example, we had very little wholesaler placed business 9 years ago. Today, it is over $300 million of our business. It is profitable and it is growing relatively fast.

Also, many of the larger retailers have built out both wholesale and affinity facilities as part of their strategy. We work with these firms to develop and support this part of their business by aligning on the targeted offices or operations. This provides broad opportunities while reducing reliance on any single source of business. Another area where we have invested heavily to strengthen the franchise is speed and ease of doing business.

In small account specialty, where we are a meaningful player, Speed increasingly translates into success as placement decisions are made in hours, not days. Speed becomes as important a competitive lever as price. This is a meaningful opportunity for us. Our large portfolio of smaller accounts gives us the scale and the transaction volume to benefit from workflow improvements, automation and technology-enabled underwriting.

We're investing in these across the portfolio, whether it's AI-enabled submission triage in E&S, digital processing capabilities in marine, workflow enhancements in surety or accelerating quoting capabilities in professional and executive lines, the goal is consistent, access and turnaround that is quick, easy and dependable.

With a focus on enabling our underwriters to spend more time evaluating risk, working through agents' needs and building relationships and spending less time on gathering data and administrative work. You'll hear more about our investments in AI and our operating model shortly during the innovation panel that follows my presentation.

Let me close by bringing all of this together and reinforcing that we have many sources of profitable growth. As I shared, our existing diversified portfolio is in a very good shape and represents a meaningful source of growth. We also see opportunities to scale our newer offerings, including cyber, financial institutions, product liability, among others. And over the last 18 months, we've launched or expanded our appetite in 13 areas. This is another key driver of our growth.

Importantly, these are not transformational bets. They are targeted extensions of businesses we know well, supported by rigorous underwriting, planning and ongoing portfolio management. They include quota share builders risk, expanding our motor truck cargo, excess for A&E and health care, increasing our capacity and surety where desirable and starting to write media liability.

Additionally, we are selectively expanding our distribution, adding targeted relationships and that broadens our reach. We will remain attentive to selective portfolio opportunities such as renewal rights or other targeted transactions that could complement our capabilities. And finally, we will continue to improve on speed and ease of doing business to drive growth without compromising our price or underwriting standards.

So we have a lot of levers we are pulling as Specialty continues to contribute to Hanover's earnings and our portfolio is in the best position ever to deliver on this.

With that, I will turn it over to Will Lee and bring up our business panelists.

Good morning, everyone. I'm Willard Lee. I'm the Chief Information and Innovation Officer at The Hanover. I'm thrilled today to be able to host our business and technology panel. I've been able to have the opportunity here to be able to see technology from many different angles. I've seen it from the angle of a business operator and also as a technology leader.

And so all of those experiences have really helped shape my perspective on what good looks like, but also from the standpoint of looking at our entire tech portfolio and understanding the priorities and sequencing to drive the most value for the money that we're spending on the technology side.

As you probably heard from Dick this morning, one of his main messages was talking about bringing more technology into the ecosystem. And through that, what we're going to be doing is not only just looking at technology, but also thinking about operating models and workflows, which are at the heart of all of our businesses.

So today, I'm joined by 4 business leaders. They are here to showcase their areas within the value chain. I am joined by Dan Halsey, who runs our Personal Lines area. I have Sarah Medina, who runs our Professional Lines; Kate Williams, who runs our E&S business. And finally, we have Matt Mitchell, who runs our middle market and corporate underwriting functions.

So before handing this over to Sarah, I did think it was important for us to talk a little bit about the guiding principles that each of our cross-functional teams use on a day-to-day basis. So the first point is just it may seem obvious, but it is about sort of matching up our deep business expertise with our technologists.

Having that mind meld and that collaboration upfront really does give us the best outcomes because it isn't a straight line between point A and point B. Secondly, we are building all of our technology responsibly. And so what that means is that within each of our project teams, there are a set of nonnegotiables. And those nonnegotiables range between our technical architecture, our AI and data governance and also our cybersecurity standards and policies.

And then finally, we have what we call our enterprise city plans. And those city plans are our way to be able to show our business areas where we plan to share infrastructure and business capabilities and where we're planning to build bespoke solutions. And so for all of us to have -- be on the same page around what that city plan looks like is so important going forward as we bring more technology into the ecosystem.

We want to always be looking at the total cost of ownership of the technology and also our ability to scale those technology dollars.

Okay. So now to Sarah. So with your example, I love it because this is an initiative where we didn't try and throw technology at the problem right away, and we looked at the operating models and the workflows first. So maybe you can talk a little bit about what you've been up to in Professional lines.

Yes. Thanks, Will. So the most important lesson that we learned when we went through the transformation for professional executive lines is that you do need to start with the operating model first, not the technology because we firmly believe the technology is most effective when it's applied to the right processes. Our prior model worked well for us for many years, but it was designed for a different environment. And as we've seen customer expectations evolve and agencies consolidate their business, both customers and agencies are asking more from us relative to speed and ease of doing business.

So with that, we knew that we needed to redesign our model so that we could continue to service the distinct areas of our portfolio. So what we did is we took a step back and we reexamined the work itself. So that meant looking at the ways in which the business was coming into our organization. We looked at each step of the underwriting process and where the key decisions were being made. And then from that, we redesigned the model so that we aligned risk complexity to the appropriate underwriting expertise.

So that meant streamlining our more simplistic submissions, but then for our complex risks, aligning those to where we had specialized resources. We're seeing great results from the work that we've done. Our productivity per underwriter is up. We've improved our service standards. And in our Small Firm segment, we're able to respond now in a matter of hours, which was days before.

So that's coming through in our submission to yield ratio that's increased 5%, and we do anticipate additional gains as the model continues to mature. So I think the impact is clear. We've been able to grow our business, increase underwriting productivity, and we're doing that without a corresponding increase in our expenses. In the first quarter for professional executive lines, we grew 5%. That accelerated to 9% in the second quarter. And we've improved the amount of business that we can have flow through our straight-through underwriting engine.

So with those capacity gains, we have underwriters now able to spend more time on the key decisions and relationships that really drive our profitable growth. Another important piece is that we can leverage the framework that we've built in other areas across specialty that are looking to transform their business. So the sequence really matters. It's the operating model first, and then it's the technology augmentation second.

We're really well positioned because we've standardized our workflows and really simplified the way in which we do business so that we can deploy AI more broadly and at a greater scale so that we can realize returns faster. As a next step, we're really excited and see significant opportunities for AI to help us in terms of submission triage and intake in ways that we can also deliver risk insights directly to our business and underwriters. So we're not looking at AI and technology as an initiative, but instead really the next phase so that we can become a more effective and efficient underwriting organization.

That's a great point you're making just around starting with the operating models and the workflows before the technology. So now let's turn it over to Kate on the E&S side, sticking in the sort of the intake triage area of the value chain, but this was actually an area where we decided we would put technology first to help you with your profitable growth. So you are one of the first folks to adopt our intake engine, enterprise intake engine. So maybe you can tell us a little bit how that's been going with you in your business.

Sure. In 20 years of E&S underwriting, I have seen a great deal of change, but one truth has been constant, and that's that building a submission volume is not the challenge. When you consider the importance of scale, it's navigating that volume that is the real challenge. Identifying opportunities amongst the sea of submissions that align with our risk appetite and profitability objectives while making the best use of our underwriting resources.

Inside the last decade, the E&S industry has seen multiple years of double-digit growth, new capital, new market entrants and expanded MGA capability, each having had an impact on the accelerated submission activity. At the same time, the historical distinction between E&S and standard market placements has largely eroded.

As a result, agents and brokers have really had to adapt and adjust their marketing practices, often submitting the same risk to dozens of carriers across both the admitted and the non-admitted markets. Since 2023, our E&S submission volume has more than doubled. We recognize that continuously adding to staff in response to that demand is not the best solution.

Instead, we needed to narrow our underwriters' focus, directing their expertise to the opportunities that matter the most, particularly in a competitive and softening market where speed to quote has become an even more critical driver of growth and underwriting success. In our small to lower middle market segment, speed is decisive. Identifying the right opportunities to quote is the essential first step.

To address this challenge, we first focus on bringing structure to our e-mail-based intake process. Submissions frequently arise as unstructured e-mails with information spread across applications, loss runs, numerous supporting documents in any number of formats. We developed capabilities that transform these e-mail submissions into structured data, score and prioritize the opportunities, hand up potential declinations and then surface the most promising risk to the top of our underwriters' workflows.

While implementation continues, these capabilities are reducing the time spent sorting and reacting to the loudest or most urgent submissions. Instead, our underwriters can focus their expertise on areas that bring the greatest value. those opportunities that are most likely to quote, find and deliver underwriting outcomes. Although it's still too early to quantify the full impact on close ratios, we are building a smarter and more scalable underwriting platform that enhances our capability to compete in a dynamic market.

Our E&S growth accelerated from second quarter through August, and we are excited about the momentum that we are building and the opportunities that lie ahead.

Now that we've gone through the work in professional executive lines to successfully redesign and launch our model, I think we're really well positioned, Kate, to leverage the work that you've done in E&S because submission triage and intake is our next step.

And then the next layer is what happens when this information actually reaches the underwriter. Matt, you're doing a lot of work to embed AI capabilities directly into your work bench so that data and risk analytics are there at that key point of decision-making. How is that working for you? And where are you seeing that come through from an execution standpoint on your business?

Sure. Similar to Kate, middle market, we will be leveraging AI for submission intake, triage and summarization of new businesses. But if you focus on the value chain, particularly around underwriting, our primary focus is effectiveness, not just efficiency. And the reason why we focus that way is the complex underwriting process of middle market. It involves carefully analyzing exposures and controls over many lines of business looking at policy structure and using that to inform our technical pricing by line of business. We think there's an opportunity to use AI to improve specific steps in the underwriting process, but also improve and strengthen our overall analytics.

This is becoming increasingly important as the business of middle market is very complex. New exposures are hitting it all the time, and we have over 5 lines of business in a dozen industries. And so the complexity is only increasing. So our approach is really a two-pronged approach. First, one, where do we deploy AI capabilities to enhance specific steps in the underwriting process and do it in a way that helps us build out robust analytics.

While it's early days, we feel we have some tangible wins in creating some underwriting capacity and improving execution. Two examples come to mind. The first is what we're doing with contractual risk transfer. And the second is about how we're enhancing the underwriting of our commercial auto line, a difficult line for many companies in today's environment.

Understanding contractual risk transfer is critical to understanding the liabilities a risk is assuming or transferring through a contractual indemnification agreement. What our underwriters are doing today is they're using AI to evaluate these lengthy documents, assess the risk practices and procedures, make sure that the indemnification language is appropriate for the jurisdiction and making sure the underlying limits are okay.

We think this is an extremely important way to help understand the holistic picture of the liability. Moving on to commercial auto. This line is a difficult line, and we think underwriting discipline is critical, not just analytics. And so what our underwriters are using AI for is to analyze OSHA violations. They're also going out and finding inspection reports, safety rating and information that's not captured on the loss runs.

We think this on top of the application is providing a more holistic view of the risk and helping to guide our underwriters to make the right decisions. What's nice about the 2 examples I just highlighted is they're doing it in a very standardized format, improving the speed, but also improving the employee experience and the underwriting execution. We think these examples are creating lift, they're adding insights and they're improving our execution as well.

So Matt, maybe we just stick with you for a couple more minutes here. So your business is so data-intensive and middle market. Maybe you can talk a little bit more also about how both on the data and AI foundation, you're building that out as you're moving forward.

Sure. Thanks, Will. Technical pricing is critical in middle market, and that's built really on your data and analytics. And so we think we're constantly looking for opportunities to improve our pricing sophistication. One good example comes to mind is what we're doing with loss runs. The middle market underwriting process involves looking at 5 years of prior carrier loss information. This information shows up in a PDF file, it could be 10 to 20 or even more pages. And it often has inconsistent formats and inconsistent descriptions of operations.

So one thing AI is enabling us to do is convert this into a nice summarized approach that actually provides the underwriters a total view of the loss information. But beyond that, we're using our large language models to actually extract that information, convert it to data, store it in our databases. Why that's important is we look at many more risks than we write. And now we're using this information to help build out more enhanced pricing tools and benchmarking that we think will be accretive to the organization over time.

Matt, as I sit here and listen to you share, it really resonates. Prioritizing the right opportunities to quote is really only the beginning for E&S. The next step for us is underwriting augmentation. You and I operate in very different markets, admitted and surplus lines, but there are so many parallels, particularly in the complexity of the risk that we underwrite.

Contract review, for example, is a critical component of our E&S underwriting process, spanning some of our largest industry segments such as construction and commercial real estate. The efficiencies gained by just this feature alone will be significant with clear potential to multiply as capabilities are added.

Thanks, guys. I think that definitely shows the improvements that we're making on the underwriting decision side and the efficiencies that we're getting from underwriting. So now let's transition over to Dan. The part of the value chain here, which would be servicing. And all the investments that we're making here obviously show up for our agents and our customers. So maybe you can talk a little bit more about what's happening in personal lines.

Absolutely. So in Personal lines, we compete for a customer segment that is increasingly valuable and increasingly demanding. These customers typically have more affluent households and more complex insurance needs. Importantly, they rely from guidance from independent agents to help them protect their lifestyle and their assets, knowing that success cannot be based solely on price.

You have to be good at ease of doing business. You have to be really responsive and you have to effectively support the agents in servicing those type of customers. This is where AI has been giving us meaningful business value. So far, we are recording and storing interactions across our entire underwriting and service organizations, including conversations with customers and agents.

At this point, we have 4 million conversations available for analysis. Previously, we would have no ability to get through those 4 million conversations. But today, with large language models and AI-powered sentiment analysis, we can now understand these interactions at scale. We're able to identify what great service looks like and pinpoint frictions in both customer and agent journey. These insights are bringing tangible value to our business, helping us grow, grow more profitably and help with operational performance.

To date, we've seen improved retention and accelerated new business production while we've maintained our pricing discipline. We have doubled our identified cross-sell opportunities, which will allow us to deepen our customer relationship and increase share of wallet. Our straight-through processing of target market business is up nearly 20% since the end of last year to over 85% this quarter, which means faster service and improved responsiveness.

This has been a notable difference for our agents, and it has allowed our team to help our agents write higher quality risks. And the proof is in the momentum we have in our prestige product this year, which is now growing over 12% year-to-date. We're also achieving greater operational efficiency and scale without compromising personalized service, which differentiates Hanover and strengthens our competitive position.

So the value proposition is quite straightforward. AI helps us listen to agent and customers, learn from every single interaction and continuously improve the experience we deliver. This isn't a story about 4 million conversations. It's what those conversations are helping us do to grow profitably, enhance efficiency and deepen relationships with our customers and agents. These are practical examples of how we're deploying AI at Hanover today, disciplined investments with measurable outcomes designed and aligned to our strategy.

So thanks, Dan. That's a great example that you're giving at the end here around how you're using AI to accelerate the development of your people. So I have an example in IT that's also near and dear to me. We are rolling out our AI software development cycle as we speak. And part of that, as we think about rewiring our process is that we're doubling down on the skills that are needed for the future. And that includes a lot of the business acumen and the business engagement upfront.

So we will have developers who will spend less time coding and more time doing requirements. We will also have our BAs building prototypes using a bunch of the different AI tooling to be able to build prototypes that are much closer to being production-ready than the traditional wire frames that were done in the past.

So we believe with the combination of those 2 things put together, that gives us the best outcomes for our customers, our agents and ultimately, our shareholders. So again, I wanted to thank the panel for today for sharing your insights on your initiatives.

We're going to turn our discussion now over to the last piece of the value chain, which would be claims, and we'll have Dave Lovely coming up talking about his modernization journey. So on behalf of myself and the panel, we appreciate everybody's time and attention today.

Thank you, and good morning, everyone. Today, I would like to talk about how claims is becoming a strategic margin lever for the company, delivering better outcomes for the customer while driving disciplined financial performance. At our last Investor Day, we committed to transforming claims through a targeted investment in talent, technology and analytics.

Today, we can say with confidence, we delivered on those commitments. We improved both loss cost accuracy and loss adjustment expense while also improving customer experience, creating meaningful and sustainable value for both the enterprise and our shareholders.

At the same time, we are building the next generation of capabilities. Investments in our single pane of glass strategy are already underway, and they are beginning to generate additional value across the enterprise. As the external environment becomes more complex, we continue to strengthen our expertise and our operating capabilities so we can respond with speed, discipline and consistency. Through our one Hanover approach, claims insights help drive better enterprise decision-making, strengthen portfolio performance and improve reserve confidence.

In 2021, we committed to transform our claims operation, improving outcomes, increasing efficiency, strengthening our analytical capabilities and delivering greater value across the organization. We delivered on those commitments. We generated 90 basis points of loss adjustment expense improvement. And we did that while continuing to invest in our capabilities and our infrastructure and while executing on a comprehensive redesign of our operating model.

Those investments have also improved indemnity outcomes, producing more than $65 million of annual run rate savings, equal to 110 basis points of loss ratio improvement. We achieved that through faster claims cycle times, more sophisticated fraud prevention, stronger recoveries, enhanced vendor strategies and the earlier identification of complex claims, followed by the faster deployment of specialized experts to manage those losses.

As part of this operating model transformation, we implemented a new claims system, digitized workflows, expanded our use of advanced analytics, and we added specialized expertise for handling complex claims. Together, these changes are helping us deliver better outcomes more consistently and more efficiently.

We are already realizing measurable operational benefits as reflected in several key performance indicators. Our digital tools are seeing strong customer adoption, which has accelerated claims cycle times, reduced unnecessary inquiries and help streamline operations. We have also launched new predictive models across the full claims life cycle and invested in an interconnected ecosystem of vendor tools.

In the near term, these capabilities will continue to improve productivity, accelerate claims handling and enhance decision quality while reducing operating expenses. Over time, they should strengthen our ability to identify hidden severity risk, detect complex fraud and generate deeper portfolio intelligence across the enterprise.

Importantly, we achieved these results while also improving customer experience. Our Net Promoter Score of 74 is the highest in our history and places us in the top tier of the industry. That reflects sustained improvements in claims execution through simpler processes, faster resolution, more accurate valuation and the effective use of specialized expertise on complex losses.

And it reinforces the core principle of our operating model. We are committed to delivering fair outcomes and exceptional customer service. When you step back and look across these results, the story is clear. Better claims execution leads to more accurate loss outcomes, and that creates stronger margins, greater reserve confidence and higher quality earnings.

Having transformed our operating model, we are now scaling the next phase of value creation through AI, automation, advanced analytics and decision intelligence. And importantly, this is not just a future state vision. Many of these capabilities are already being deployed across our claims organization, helping our professionals navigate complex files, access information more efficiently and make better informed decisions.

What differentiates our approach is our single pane of glass strategy. Rather than deploying a collection of disconnected tools, we are building a unified claims platform that brings together data, workflows, vendor solutions, analytics and AI-enabled decision support into a single operating environment. That architecture creates a value multiplier.

Every interaction creates data. Every insight improves decision-making. Every new capability strengthens the platform and generates additional opportunities for value creation. Most importantly, this is a platform strategy, not a point solution strategy because new capabilities are built on a common foundation, benefits compound over time rather than becoming fragmented across separate systems.

We have built a scalable organization that aligns expertise and technology around the complexity of each claim, allowing us to match the right resources and decision support to the needs of that claim consistently and effectively.

In the long-tail casualty lines, we've enhanced severity management through predictive analytics, expanded clinical expertise and earlier intervention. That is helping us identify higher-risk claims sooner and manage outcomes more effectively.

For short-tail auto and property claims, we've expanded digital capabilities such as photo estimating and virtual property inspections, improving efficiency and accelerating resolution. Through our One Hanover approach, claims is becoming an increasingly important source of insight for underwriting, pricing, reserving and portfolio management.

Today, claims insights are helping the broader organization identify emerging trends earlier, improve risk selection and respond more effectively to changing risk conditions. Our operating model, our investments in talent and technology and our agility have strengthened our ability to respond to worsening litigation trends, emerging risks across the industry and the evolving needs of our business partners as they bring new products to market.

As we continue scaling these capabilities, we expect claims to create additional value over the next 5 years. Specifically, we are targeting an additional 30 to 50 basis points of unallocated loss adjustment expense ratio improvement, greater accuracy in evaluating losses combined with faster, more consistent level of service that our customers and agents expect and further improvement in reserve confidence driving higher quality earnings.

Over the past 5 years, we've transformed claims through a powerful combination of advanced analytics, specialized expertise, AI-enabled decision support and The Hanover continuous feedback loops into underwriting, pricing, reserving and portfolio management.

When these capabilities work together, they create measurable value across multiple dimensions at the same time. more accurate loss costs, lower operating expense, faster claims resolution, greater recoveries and stronger reserve confidence. This transformation is proven, measurable and already producing results. We've built a foundation, demonstrated the impact and established a road map that will continue to compound value for years to come. Thank you.

Thank you, and good morning. My colleagues covered strategy and execution, and now I get to share what we get for all this terrific work. These are our new financial targets through 2031. Our long-range target for operating ROE is mid- to high teens. Net written premium, we expect to grow 7% annually and our operating EPS and book value per share 10-plus percent on a CAGR basis.

Remember, profitability is the primary focus and growth is secondary. The top of the flywheel describes how we achieve our advantages as an organization. The bottom covers financial drivers and benefits. Those include underwriting benefits and efficiency, balance sheet strength and earnings resiliency and disciplined capital management.

I'm going to summarize for you all that we're going to describe in the presentation, but really, it goes around earnings resiliency and driving efficiency. So we have strengthened and diversified our performance, and I'll give you some of the examples shortly. We are driving efficiency through scale, and I'm going to show you that also.

Cat volatility, we've reduced that meaningfully over time, and we've been prudently reserving our balance sheet. And then finally, capital efficiency and capital management drive EPS and book value per share growth. We have been outperforming our peers based on ROE for the last 8 quarters, and I think this provides an excellent launching pad for the next 5 years for The Hanover.

I'm going back here to 2016, which is just before our first Investor Day that I was involved in. This is actually my third. In 2016, we had an ex-cat combined ratio of 91.1%. By 2021, we moved to 89.8%, and our guidance for 2026 was 88% to 89%. We have a very strong track record for 10 years of continuous combined ratio improvement.

2031's expectation is to continue that trend very meaningfully from our 2026 guidance. My colleagues spoke about net written premium growth and what the drivers are. Specialty and Small Commercial drive the meaningful portion of growth, but all segments participate meaningfully. Broad-based profitability is key to cycle resiliency. The chart on the left shows the last 10 quarters of profit from 2024 through Q2 2026.

Upper right hand has Personal lines. The bottom has Core Commercial, which consists of Small Commercial and middle and the upper left is specialty. And if you look at it, you can see it's exactly 1/3, 1/3, 1/3 for each of those pieces. That drives resiliency. Our ability to achieve better renewal rate than the industry because of account strategy and our small-sized accounts is a big differentiator.

If you look as an evidence point on the right side, you'll see Commercial Lines renewal rate and Hanover in the light blue has consistently over the last 3.5 years, achieved better rate than the industry. A major driver of our performance improvement over the last several years and the 5 years going forward is efficiency. Our scalable operation continues to drive efficiency. The expense ratio has been and will continue to be such a driver. We achieved 28.5% based on our 2031 target from 33.2% in 2016.

Let me take you through the important drivers from 2026 original guidance to 2031 target of 28.5%. Scale is a meaningful driver from the growth of premium, but underwriter efficiency, reduced outsourcing costs and lower future headcount growth driven by technology and AI enhancement are big drivers for us.

We've done a tremendous amount of work on our cats from 2023 forward, and that includes getting lots of price, reducing aggregations and modifying terms and conditions. If you look at the bars on the left, this shows the 1 in 10 and the 1 in 100 return period modeled losses as a percentage of equity from '23 to '26. And you can see it's gone down dramatically.

On the right side of the slide, this is our annual cat load expectations for 2031. It happens to go down from 6.5% in '25 and in '26 to 6.3% in 2031, but that's largely driven by the mix change in the portfolio. We've gone tremendous length to make sure our reserves are appropriately stated and our reserves are prudent. And we've really done that by enhancing IBNR as a percentage of our total reserves.

So if you look from 2019 forward, we've increased that percentage dramatically. And that has shown up as favorable development every year since 2017, which is essentially 10 years. Prudent reserving is a cornerstone of what Hanover is all about. We have a very conservative investment portfolio. It continues to drive strong earnings growth. Higher interest rates enabled us to reposition the portfolio into a significantly stronger earnings asset, generating exceptional net investment income.

It provides a foundation for 6% NII CAGR or higher over the next 5 years. Book value per share growth is very important to The Hanover. As we sit at the end of Q2 2026, we're at $111 per share. The income of the firm, the impact of growth, the impact of scale and efficiency and the growth of investment income drive tremendous increase in book value per share.

After repurchasing and ordinary dividends, book value per share grows to almost $200 a share by 2031. We have a very clear capital management strategy that consists of profitable growth, increasing steady dividends and strong capital returns. In order to give you an idea of how we're thinking about and meaning strong capital returns, -- in May of 2026, we restocked our repurchase authorization to $700 million.

If you go back to that original inception date, we expect that $700 million authorization to last 2 to 3 years. So that gives you an idea that we're providing for meaningful capital returns over the 5-year period. No good 5-year plan would not have some upside potential on top of that plan. For us, it's potential additional indemnity saves from claims, investment allocation to additional credit risk, which we may make at the right time, additional benefits from technology and, of course, potential inorganic growth from small accretive capital deployment.

So I get to finish with the payoff. These are very compelling aspirational financial goals. I want to thank you for your attention, and I'd like to invite my colleagues to join me up on stage so we continue with the Q&A session. Thanks.

[Operator Instructions] And today's first question comes from Michael Phillips at Oppenheimer.

I guess, first off, 2 questions. First off, Jack, congrats and all the best to you on your next phase of what's happening for you. I appreciate everything you've done. Two questions. First off, I guess, for Dick, can you help us think about -- you gave some nice numbers on your 5-year plan.

Can you help us think about, I guess, the earnings potential power of the company going forward and maybe separate from what you've done structurally and what you can do versus, I guess, the overall environment and what you've done for loss volatility and cat volatility. Is it more one or the other? And maybe specifically if it is the former?

Okay. Great. Mike, that's a great focus area to launch us here. We are so pleased about our earnings performance. And I would say that performance and more importantly, our future earnings power, to your question, is really driven by more than the current environment. So more than the pricing environment, more than cat performance.

And I say that emphatically because certainly, while we expect some normalization of elements of our profitability, there are structural changes that have been made at our company. We're a different company underneath. So personal lines, right, all the deductible strategies that we pursued, the aggregation work and the diversification of geography, really important. The core commercial -- we're broadly profitable and our mix change and risk profile, it has been improved.

And in Specialty, we've gained scale in many of our businesses and now really a diversified contributor to our earnings. Our small to midsized customer focus in Commercial lines and our upper tier focus in Personal lines, all that gives us pricing resiliency.

Our volatility has been reduced across the portfolio. Net investment income is now large and really a sustainable contributor to earnings. And frankly, with some thoughtful re-risking, perhaps some upside there. So all of that really all of it kind of survives the normalization that we could expect in pricing and cat loss activity.

So we have a stronger return profile underneath it than we have historically. And that really is driving the durability of earnings that we see and compounding those earnings and our book value going forward.

Okay. I guess my second question would be, I think you're a great one used to lead the agency distribution for Hanover. Lots of news, obviously, from the larger brokers kind of going after the middle market brokers. Obviously, that reinforced a couple of weeks ago with Aon.

Can you talk about what that means for your distribution? And specifically, I have 2 specific areas around that. What does that mean for your ability to compete against the larger carriers? And then secondly, your investments in the agency distribution, do they become diminished as the agents that you focus on become part of larger pocket companies?

Yes. Just the opposite, I would say. I'm bullish about what a transaction like this, USI, Aon, NFP can mean in time. And maybe I'll address that more specifically. But broad and generally speaking, this -- the distribution consolidation that's occurring has really been a net benefit to our company. As you pointed out, we are a distribution company. We -- agency management, agency analytics, these are towering strengths of our company. So as the distribution consolidates, we generally have very strong relationships with the acquirers and the acquirees.

So that 1 plus 1 equals 3 occurs. They think strategically about their carriers, the importance that they place on which strategic areas they should go after and consolidate their business with. That requires operational and analytics. So we come to the table with our agency insight and frankly, our operational prowess. So we're brought to the table in these discussions.

And I think on a go-forward basis, that is going to be super helpful. Specific to the Aon, USI, NFP transaction, I like what they're building. It's a middle market capability, middle market, lower end of middle market. As you know, that's our wheelhouse. That's where we play. That's where we have success. So leveraging our strong relationships that we have with USI and NFP, frankly, across the country. I have fabulous relationships going back to my days running field operations with USI. That's going to inure to our benefit.

But a really important point, my last point, something you mentioned in your question, when these kinds of transactions occur, really overnight, the new combined institution has large concentrations of business with these large carriers in our industry. So Hanover shows up as a great alternative, a complement to that and very much needed. Jack and I have been out in the marketplace with the CEOs of many of these organizations, and we hear it all the time, like we need a carrier like Hanover that brings something to the table.

It's a diversification play for the agent, just as we talk about diversification, they they need to diversify the portfolio of carriers that they work with. So that's very, very good for an organization like Hanover. We're going to, in 2 weeks, be out at CIAB conference and the agendas are all about this topic. They're very robust, and it's an opportunity for us to talk about how we map out our future together. So I'm upbeat.

Okay. Maybe just a real quick one for Jeff, if I could. Jeff, the numbers you gave for the guide, are they based on what is the base for full year '26?

The numbers are really our 5-year model beginning January 1, 2027 and going all the way through 2031. We've clearly based that in terms of jumping off points on how we're doing, how we're building, what forward curves look like for NII and what our view is over that time period, Mike.

And our next question today comes from Paul Newsome at Piper Sandler.

Maybe a little bit of a big picture question. In the first, the 2021 goal, your growth rate was pretty similar as a target. I think you came in just a tad under what you're looking for over that 5-year period. But we also had a hard market during that period of time. How does the new target sort of differ given that the environment today is looking increasingly soft?

Yes. Let me say a word about that in that I agree that coming out of COVID and facing the challenges that came with the post-COVID environment and heading into a high inflation period had, I think, some volatility in top line both ways. Our accomplishments over the last 5 years also include a period by which things shut down materially, and we had to make some real adjustments in our portfolio, in our underwriting. So I think there was tailwinds and headwinds relative to our growth over the last 5 years.

Yes. And Paul, as we stare down the next 5 years, I mean, this is an ambitious plan. We're going to be disciplined about how we earn it. As I said in my answer to my last question, we have this diversification now that gives us some optionality, places to press the gas pedal, places to hit the brakes. And the cycles, as you know, the pricing cycles are not moving in unison.

So we can pick our spots to thoughtfully allocate our capital to drive growth. And again, it goes beyond the environment. We have opportunities to drive market share with our agents, appoint new agents that give us access to more customers and scale the capabilities that we've invested in and bought. So our next 5 years builds on this foundation that we had, and I think it gives us a lot of confidence. But we'll navigate it. We'll be smart.

As Jeff said in his opening comments, it's we have aggressive ambitious growth goals, but it's about profit first. So we'll make the right decisions.

That makes sense. And it's fair to say you came in pretty close to the growth, but your ROE was way higher than you thought back then, which is great. A little bit of talk maybe on M&A. I think we went through -- you guys went through really well the capital management pieces with buyback and such. But there was a comment about interest in renewal rights and maybe you could give us some thoughts as to how M&A may or may not fit within those financial targets.

Good. Thanks, Paul. So I would say it's desired but not required for our next chapter. It's not built in into our assumptions here. This is an organic growth plan that we're looking at. But we have ambitious goals to bring in new capabilities, and we will continue to aggressively evaluate potential opportunities, but we're going to continue to have a high bar, a high threshold to make that happen.

We've had a lot of success in the past of making acquisitions that are accretive quickly, and that remains paramount. So immediately or quickly matching our culture and distribution. So we look at the potential opportunities across those 3 lenses. And we're active looking, but we're being smart about it. And rest assured, we'll be disciplined.

And our next question today comes from Mike Zaremski at BMO.

Thanks for putting this thoughtful presentation together. First question is on the combined ratio aspirations and guidance. I believe 86% to 87% ex catastrophes was the guide. So I'm assuming that includes potential reserve movements. So just -- that's clearly a very bullish profit margin guide. I know you -- within that, there was 30 to 50 basis points of loss adjustment expense ratio improvement.

But just curious, given how healthy that guide is, are you -- any -- could you unpack maybe your expectations on pricing power? I know investors are kind of focused on the deceleration trend. Maybe you can kind of share whether you feel like pricing is going to stay kind of at current levels or not really decel much more to get you to that kind of bullish ratio?

So Mike, this is a 5-year model, as we mentioned. So by 2031, we expect to get to that number that you referenced, 86% to 87% on an ex-cat combined ratio. The biggest driver is expense ratio benefit. So we're on an aspirational basis, hoping to get near approximately 28.5%. So that takes 1.75% out of the expense ratio. That's really the biggest driver when you put it all together. I think you mentioned reserve movements.

With respect to prior year, we have not baked any adverse or favorable development into that. We generally don't do that with any forecast. So Obviously, we're comparing that improvement to the original guide at the beginning of the year. And this year, we've been performing quite a bit better than that.

But we're optimistic that we can achieve those goals. With respect to pricing and loss trend, things are going to change 2 or 3 times in individual businesses between now and 2031. We believe we have an excellent track record, and you can see that over the last 3 or 4 years of adapting to such change, making the necessary movements that we need to and being able to react favorably.

That's helpful, Jeff. And my follow-up is pivoting a bit to the Agency Insights platform and also how it might overlap with your current growth and growth aspirations. I don't know if you can kind of just at a high level estimate what percentage of your overall agency base uses the Agency Insights platform.

I think we heard you say all new agencies have to use it. And I'm curious if you -- if there's a way to -- do you have a sense of whether the Agency Insight system is adding to maybe a point or more or less to growth annually already or do you expect it to impact growth in the future?

Yes. I wouldn't attach a specific percentage to the growth. But clearly, it's an enabler to our overall growth. So it's a critical path item for us. The vast majority of our agents -- I know I referenced the new appointments, but 70%, 80% of our partner agents have done this. In fact, they asked to have the Agency Insight repeated so that we can track whether or not we're making progress.

But what comes out of it is are these road maps, these growth road maps, and they don't happen overnight. So it's a little bit of a longer-term view, but it is all about how Hanover can become a more relevant partner with them within their agency. That often does lead to some consolidation of markets to a more strategic focus to our company.

So it is -- and along the way, we're just enhancing the trust that has been built between our distribution and our company. We're teaching them things. We're showing them things about their agency and how to improve their economics. So it's -- the advantage is real. And whether it's consolidation or pipeline or just organic growth, we see evidence of improvement in every agent that we're using. It's just -- it's along different time lines.

I think about also we're at a time where we're starting to see the strategic consolidation that everyone anticipated and see how powerful it is to instantaneously be able to take that data. And even before these agents go through integration and try to figure out what they're going to look like, we can already start helping them envision what their total portfolio is going to look like and what actions have been taken in the past to improve economics and better serve customers.

So it's a really powerful time for us to be able to leverage all of that data and all the trust that we've built up and now plow it back into agents who are going to have to move from being M&A specialists to being operational specialists.

Our next question today comes from Rowland Mayor with RBC Capital Markets.

I wanted to quickly follow up on the expense ratio comments. Would you be able to utilize some of those expense efficiencies to offer more attractive pricing to clients, maybe drive incremental growth?

Well, as you know, it all goes into the alchemy of profitability. And so over a 5-year period, we don't know with certainty what the pricing environments will be about each business, what the expense issues will be about each business. But we're committed to harvest the scale benefits we get from growth in terms of our expenses. Also, we've got line of sight around reducing the outsourcing costs and then between technology and hiring less people in the future, changing operating models and designs that we think we're pretty capable of doing that. With respect to whether that's offsetting a little less growth to grow a little more or being able to grow a little more, I think time will tell.

And then I appreciated the efficiency highlights and the run rate savings commentary. Could you maybe walk through the tech investment cycle here and where you think incremental efficiency drivers will come from as you advance the AI and other tech offerings?

I'm sorry, I didn't understand the question.

I'm referring to Slide 19 specifically, you highlighted some of the savings already. And I'm just curious if we're at a starting point or if we're further along. Okay.

Thank you. I had a hard time hearing your question. Yes, the -- our technology investment has been ongoing. So 10 years ago, we made some critical decisions to replace platforms, modernize, move to the cloud where it makes sense, as I mentioned. So that's predominantly behind us. So the foundation is built. Clearly, there's continuously things that you need to work on. But so now it is about incremental investments that we can leverage that great work that we did in the past. And generative AI is one of those. We're really bullish.

I'm very bullish about the capabilities that AI will deliver to the organization. We're already witnessing the speed at which and the less cost at which we can build new capabilities. So that whole software development life cycle is dramatically changing. So we'll be thoughtful. We're working within the parameters that we have that we hold ourselves accountable to, to how many dollars we want to spend on technology in total.

AI is increasingly becoming a larger percentage of that naturally. And when you built your foundations, and that's really solid, you're then into the space of, okay, well, let's use AI to advance our capabilities more quickly. So hopefully, that gets to the heart of your question.

All right. We have one question from the webcast chat, and it's about specialty growth. What gives you confidence to achieve 9% specialty growth targets in the current softening environment?

That's a great question, and thank you. I want to go back to sort of where I ended our discussion, right? We have a lot of levers that we're able to pull to drive growth. We have many, many products in our 18 product areas. And as I mentioned, each of them are in the best position we've ever been in. They're all profitable. We're able to grow all of them. But what we've always done is emphasize growth in the areas where the greatest opportunity was.

So while we'll look to grow all of our businesses or most of our businesses, we will lean into areas like management liability, where I mentioned we navigated a tough market and came out of it with upper single-digit growth. Professional Liability, Surety, Marine, all of these areas are well positioned in our existing book. On top of that, I mentioned that we've been building out products. And as we've been building out those products, they've achieved the kind of scale and they're positioned to really grow even more now.

So we can lean on that. And then I would probably add that when I think about that operating model stuff that I shared, right, we're seeing really good success there. That speed of the turnaround is really having an impact. And we literally just had a field leadership meeting. We do this every year. We just had it. And across the country, we got feedback that it is having the intended impact. It's helping us grow. So as I think I mentioned, we have a lot of levers to pull, and we will be leaning into them, and we're very ambitious and we're very optimistic about it.

And our next question today comes from Meyer Shields at KBW.

One of the earlier slides mentioned that 39% of your premium comes from your top 20 brokers or maybe it's the top 20 industry brokers. I was hoping you could talk a little bit about the underwriting profitability of that block of premium versus the rest in the context of likely significant consolidation in the brokerage world.

Meyer, let me -- I'll say a couple of things about the retrospective aspect of your question. I think one of the biggest proof points of the potency of our strategy is over the last 10 years, not only have we been able to work with some of the big consolidating agents in a way where it's more of a partnership than a leverage game, but also our profitability from a loss ratio perspective has actually been slightly better than the rest of the overall portfolio.

And that's hard to do in this business, frankly. But I think it's a proof point that we're at a point now, as Dick and the team go forward, that we're an essential partner in helping agents execute their strategy and not in a tug of war with large distributors that are trying to leverage their carriers.

Yes, absolutely. I would echo, there's a real pull for our value proposition, as I mentioned earlier, as these organizations get larger and larger. So Hannover has a coveted spot in the portfolio as they think about their future. So that has a true partnership element to it, which is it has to be profitable business that we're building together so as a long-term durability of the relationship. If they're treating us just as capacity, that doesn't end well.

So that's why this trust building, this relationship building, this analytics that we bring forward, we together orchestrate what the portfolio looks like so that it's profitable through the cycle. So I'm optimistic that we'll continue to be very entrenched with the leaders of these organizations to make sure that we have a profitable book of business into the future.

Okay. That's phenomenal and very thorough. Second question, over the 5 years leading up to 2031, can you talk about the big picture expectations for reinsurance purchasing?

Reinsurance purchasing for the next 5 years?

The phone line isn't perfect for us. Meyer, I don't see tremendous difference for reinsurance purchasing. As you know, July 1 is our cat and property per risk renewal and January 1 is our casualty and then we've got a few others scattered throughout. I see it largely the same. We haven't changed our cat treaty attachment point in a long, long time since Katrina time frame.

And we've been maintaining it. We haven't really -- haven't used that treaty at all. We've just been adding up at the top with either cat bonds or buying traditional. We may find over time that ventilating the casualty treaty may make sense. But by and large, I think we're spending the right amount of money, and we're getting the right amount of coverage.

And our next question today comes from Mike Zaremski at BMO.

Great. Just a final follow-up on the net investment income guidance. I believe 6% was cited. I just -- I wanted to clarify whether that includes alternatives and just kind of looking at the today's yield curve on especially the fixed income side, are you using the yield curve? Or are you assuming interest rates eventually fall from here?

Yes, Mike, we had guided, if you will, on an aspirational basis for 5 years, 6-plus percent. So we're hopeful that it's a little north of 6%. We built this model about 6 weeks ago. So it is, by and large, before the rate increases that have happened really in the last month or 6 weeks or so.

So the buying that we're doing today would be meaningfully above that. And we use the forward curves in place at the time 6 weeks ago or so. If we were to build that today and redo it, it would probably increase a little bit from there, but we'll see. It's going to change over time. And it does include alternatives. But for us, alternatives is a relatively small portion of the portfolio.

One of the things that we mentioned is we may, at the right time, add some credit risk to the portfolio. And we've done a little bit of that at times when spreads widen a little bit, think things like Liberation Day or beginning of the Iran war. We've got a terrific Chief Investment team under Lindsay Greenfield's leadership. And right now, credit spreads are at near historical tights. So we don't think it makes sense to expand that credit risk meaningfully, but there will be a time in the future to do that.

We have a question in the chat, and this is about how much we are investing in AI? And can we keep up with large carriers on AI investments?

Yes. Great. So as I referenced, we have a very thoughtful, practical investment road map in generative AI. And I believe it's more about being smart and agile than it is about the sheer volume that you spend, I believe, to compete effectively in AI with the right approach. AI can actually make things cheaper and faster. And so it's a bit of a great equalizer.

So a company like ours, our size, I'd like to think of this as like a Goldilocks size in this category because we have this agility, this business technology partnership that we described to you. It has very real benefits in that we can bring business leaders together, functional leaders together, and we can make common decisions. I'm learning more and more that, that is critical. So what I described as a common orchestration layer, that platform, it brings efficiencies to all the work that you do. So you don't have these scattered one-off AI capabilities.

You actually have a set of orchestrated capabilities that are embedded in your operating rhythm. So I'm bullish that actually, in this case, size of company and agility is more important than total dollars spent.

And we always remind ourselves and our investors that the more you spend, the bigger the mortgage is. So be thoughtful. And as you start to really see benefits, you can accelerate that spend and take on more of that opportunity that presents itself. But I think we're still in the early innings of understanding the magnitude of the opportunity. And I feel confident working with the team that we are exploring that at a pretty aggressive level, but we're being really thoughtful about the overall level of spend.

And our final question today comes from Meyer Shields at KBW.

Just a quick follow-up. Should we think of the inorganic growth opportunities as largely within the specialty segment?

That would be a priority focus of ours. We believe patching on capabilities that can then be scaled. That's a very similar pattern to what we've done in the past. So I would say that is a higher priority. Some of the other business units, the opportunities are more challenging, to be honest, to actually locate in the market. So that's most likely the place where we're going to make an acquisition.

That concludes the question-and-answer session. I'll hand it back to the Han over to you for closing remarks.

Thank you very much. So thank you for participating today. We really appreciate your time and interest in our company. I'll end where I began, which was that we believe this company has an increasingly distinctive position in the market, and that's going to lead to this durability of earnings.

So today was about showcasing that power to you. I also want to thank Jack for his outstanding leadership to our company and to the industry, frankly, -- he's left impressions on both and will be missed. And this team is proud and honored to stand on his broad and capable shoulders and take the company forward. So thank you again. I look forward to spending some time with many of you individually. Appreciate your time.

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

Good day, and welcome to the Hanover Insurance Group's Second Quarter Earnings Conference Call. My name is Chris, and I will be your operator for today's call. [Operator Instructions] Please note that today's 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, our Chief Operating Officer and CEO elect; and Bryan Salvatore, President of Specialty Lines.

Before I turn the call over to Jack, let me note that our earnings press release financial supplement and a complete slide presentation for today's call are available in the Investors section of our website at 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 guidance, profitability, growth, strategy, capital management, the implementation and use of new technologies the impact of recently revised policy terms and conditions and targeted property actions. Additionally, they can relate to factors that could impact the company's performance and/or cause actual results to differ materially from those anticipated, including changes in the demand for our products 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 catastrophes.

We caution you with respect to reliance on forward-looking statements, and in this respect, refer you to the forward-looking statements section in our press release, the presentation deck and our filings with the SEC.

Today's discussion will also reference certain non-GAAP financial measures such as operating income and accident year loss and combined 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 their comments, I will turn the call over to Jack.

Thank you, Oksana, and good morning, everyone. We delivered an outstanding second quarter with results that underscore the resilience of our business and the strength of our execution in a dynamic market environment. Our performance demonstrates that disciplined underwriting and targeted growth can coexist, and this combination is delivering significant returns. We continue to be thoughtful in how and where we grow. Investing in opportunities where market conditions and expected returns are attractive, while maintaining a prudent risk profile across the portfolio.

Our strong results reflect the strategic actions we have taken over several years to strengthen and reshape our company. We have refined our portfolio around our underwriting and distribution strengths while investing in capabilities that enhance risk selection, improve efficiencies and enable our teams to operate with greater speed and precision. Together, our actions are driving a stronger, more scalable business and positioning us to deliver consistent profitable growth. The diversification of our portfolio helps us navigate changing market conditions, and we expect to sustain strong earnings in our portfolio over time.

In the quarter, we delivered record second quarter performance with operating return on equity of approximately 20% and operating earnings of $5.31 per diluted share. At the same time, net written premium growth accelerated to 4.6%, led by core commercial and specialty while personal lines continue to generate strong margins and leading indicators of business momentum. As we discussed last quarter, we expected top line growth to strengthen and our second quarter results reflect that trend. We entered the second half of the year with confidence in our ability to sustain this positive trajectory.

I'll now discuss our segment performance in more detail. Our Personal Lines business is reaping the benefits of prudent underwriting and strong execution in the post-pandemic market environment. The underwriting margin gains we continue to realize reflect sustained pricing discipline, thoughtful terms and conditions management and proactive exposure management actions across the portfolio. Although the industry is experiencing competitive market conditions, particularly in monoline Personal Auto, our relationship-driven approach and full account strategy continue to differentiate the Hanover and position us well in the marketplace with preferred customers.

Importantly, our renewal pricing in Personal Lines remains above long-term loss cost trends, supporting healthy margins and reflecting the strong value proposition we deliver to agents and customers. While the quarterly increase in net written premiums was consistent with the first quarter, production activity has picked up in terms of new business submissions, quoting and conversion. Retention improved from the first quarter and the overall quality of the book continued to strengthen as we gradually increase our mix towards higher-value customers.

We continue to see a growing contribution from our higher-value Prestige offering, reflecting the deliberate shift we have been driving over the past several years. Prestige customers exhibit higher retention than the broader book and as this business becomes a larger share of the portfolio, it is enhancing portfolio quality and making pricing more resilient.

Year-to-date, we have added approximately 100 new distribution points with 75% of those appointments in our targeted diversification states, prioritizing distribution partners that mirror our top-performing agencies. Overall, Personal Lines remains a differentiated account-based franchise that is generating attractive returns and positions us well to further grow our market share.

Now turning to Core Commercial. This business is executing very well, delivering both healthy growth and solid profitability. Underlying margins improved from full year 2025 levels, while pricing remains robust. These results reflect the strength of our underwriting strategy and deliberate portfolio management actions. Net written premiums increased by 7.2% in the second quarter, up from 4.3% in the first quarter reflecting continued momentum in core commercial. Market pricing remains favorable, generally in the high single-digits, although we are seeing conditions become a bit more competitive. This environment reinforces our focus on retention, disciplined underwriting and targeted pricing strategies tailored to specific products, industries and geographies.

In Small Commercial, premium growth of 6% represents another quarter of healthy expansion. Renewal activity and new business pricing remained favorable and retention is stable at approximately 86% with relatively low remarketing activity in this space. This is a result of the advanced underwriting tools and technology we have been building to improve responsiveness, make it easier for agents to do business with us and drive better execution. We have expanded no-touch submission flow through our TAP sales offering, resulting in higher submission volumes and deeper agency connectivity.

At the same time, our TAP sales workers' compensation product expansion remains on track for a full country rollout this year. We expect this initiative will broaden our market share and further support profitable growth. As these capabilities continue to scale, small commercial remains one of our most important long-term growth drivers, supporting strong profitability over time.

Middle Market delivered 9.4% top line growth in the quarter. Excluding the benefit of several nonrecurring or timing items, growth was approximately 7%, a strong result and a significant improvement from 1.5% growth in the first quarter. We continue to win attractive business through our strongest agent relationships that are committed to deepening our penetration and expanding our partnerships. At the same time, we remain disciplined in our underwriting.

In the smaller account space, where we are primarily focused, including the lower end of middle market, we are less exposed to the broader property market softening. Over the past several years, we have taken meaningful actions around property terms and conditions, and we continue to maintain that approach, which helps protect profitability and differentiates our portfolio. Combined with our deep expertise and agent-focused approach, we believe core commercial is well positioned to compete, grow and generate attractive risk-adjusted returns as market conditions evolve.

Turning to Specialty. This segment remains a key driver of profitable growth. Specialty is a business where our underwriting matters most and where our team converts risk selection expertise into attractive growth and disciplined returns while increasing scale over time. The breadth of our specialized capabilities enables us to pursue opportunities where technical expertise, underwriting discipline and deep relationships create a meaningful competitive advantage. Production activity and growth were not uniform across the portfolio, and that is by design. We saw a healthy growth across professional and executive lines, where market conditions continue to improve.

In management liability, strong new business production and continued gains in response speed and underwriting execution drove excellent top line results. Additionally, Surety delivered strong growth, fueled by robust new business, healthy demand and momentum in targeted bond offerings with our strongest distribution partners. As expected and consistent with last quarter, Hanover Specialty Industrial business production was more subdued. Reflecting its greater exposure to the softening property market. This reflects our willingness to moderate production where pricing comes under pressure and reallocate capital to more attractive opportunities further highlighting the advantage of our highly diversified specialty portfolio.

In Marine, we are benefiting from strong market relationships and deep local expertise. While competition remains elevated, our teams continue to proactively manage renewals and capitalize on attractive market opportunities as they emerge, including some expanded offerings in motor truck cargo and Builder's Risk quota share.

Within E&S, our ability to generate sustained profitability and solid growth remains a key differentiator. The earnings contribution we generate here allows us to be thoughtful about the risks we add and opportunistic in expanding our presence in attractive niches. We continue to see meaningful new business activity through June, and we are deploying capacity carefully with a clear focus on risk-return balance. At the same time, we're making strong progress against our ambitious enterprise-wide transformation agenda. Across our businesses and functions, we are deploying capabilities that improve productivity, enhance decision-making and help our teams focus on the highest value opportunities.

As an example, in E&S, our proprietary AI-driven tool, Triage Pro helps underwriters prioritize the most attractive submissions and be more responsive to the best opportunities. And in surety, new workbench tools are streamlining workflows and delivering more actionable insights, enabling underwriters to spend more time on complex risks and customer solutions. As markets evolve, we believe the combination of specialized expertise, data and advanced technology will become an even greater differentiator for our company.

I want to recognize our team for another excellent quarter. The strength of our results and improving growth momentum reflects the depth of our talent, the consistency of our execution and the underwriting discipline that continues to distinguish our company from our competitors. As we enter the second half of the year, we do so with momentum, confidence and a clear path toward achieving our strategic and financial objectives. Our strategy is working. Our execution remains strong, and we believe we are well positioned to continue delivering attractive returns and creating long-term value for shareholders.

Before I conclude, I'd like to briefly acknowledge the retirement announcement we shared recently. After 40 years in the industry, including more than 20 years at the Hanover and with over 9 years as the CEO, I am extremely fulfilled and grateful for the opportunities that this extraordinary industry has presented to me. And I am incredibly proud of what we have accomplished together at this special company, transforming an undifferentiated regional carrier into a specialized national carrier with a unique value proposition for the top independent agents in the country.

I have tremendous confidence in the future of our company and in Dick Lavey's leadership as he prepares to assume the role of CEO in January. We have significant momentum and exceptional team and a bright future ahead. I remain fully engaged through the end of the year and look forward to continuing our work together while helping to ensure a seamless transition.

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

Good morning, everyone. Before I begin, I want to add that it has been an absolute privilege to work alongside Jack. Jack, your leadership has helped shape a stronger, more resilient company. And while we look forward to continuing our work together through the end of the year, we are all incredibly grateful for your contribution and lasting impact on the Hanover. And I know you have much to do in your last 6 months with us. Dick and I have been great partners for the last 9 years, and I look forward to next chapter with tremendous excitement.

With that, let me turn to our second quarter results. We are pleased to have delivered a record performance for the second quarter, continuing our recent momentum, which reflects the strength of our diversified book of business. Each business segment contributed to these results delivering strong underwriting margins, bolstered by another quarter of strong returns in our investment portfolio. We posted a combined ratio of 91.2%, a record second quarter performance improving by 1.3 points year-over-year. Excluding catastrophes, our combined ratio was 85.5% also an outstanding result.

Our current accident year loss ratio, excluding catastrophes, was 55.8%, improving from the prior year quarter driven by Personal Lines. Catastrophe losses were 5.7 points of the combined ratio, inclusive of 0.8 points of favorable prior year CAT development. This was below our modeled expectations for the second quarter and gives us further confidence that our past actions are leading to more consistent returns, even with some frequent catastrophe activity in our geographies during the quarter.

The expense ratio for the quarter of 31% was modestly elevated compared to our expectations, primarily from higher variable compensation for agents and personal lines, reflecting our meaningfully better-than-expected results to date as well as some employee incentive costs given the much better-than-expected combined ratios. We remain diligent in our expense management, aligning spending with strategic priorities while continuing to make targeted investments that support sustainable profitable growth. Second quarter favorable ex-CAT prior year reserve development of $21.5 million included favorability across each segment.

In Specialty, favorable prior year reserve development was $10.8 million or 3 points with widespread favorability across multiple coverages. In Personal Lines, favorable prior year reserve development was $10.1 million or 1.5 points with favorability in homeowners and to a lesser extent, in Auto, both driven by property coverages. And in Core Commercial, favorable prior year reserve development was $0.6 million. Our reserve position remains very strong and aligned to the current uncertain environment. Particularly in liability lines, where we continue to remain prudent.

Now I'll further discuss each segment's current accident year results, starting with Personal Lines. This business generated an excellent current accident year ex-CAT combined ratio of 81.9% for the second quarter, a 2.9 point improvement from the prior year period driven by the benefit of earned pricing and benign frequency.

In Homeowners, we delivered an outstanding ex-CAT current accident year loss ratio of 43.7%, improving 7.4 points from the prior year quarter and favorable to our expectations. In addition to the benefit of earned pricing, we observed very favorable attritional loss frequency as well as lower large and weather-related losses compared to last year. We continue to attribute some of the benefit we've seen in recent quarters to deductible changes leading to fewer small claims in both CAT and ex-CAT results.

In Personal Auto, our ex-CAT current accident year loss ratio was 64.7%, an improvement of 1.5 points compared to the prior year quarter. Frequency remains favorable across multiple coverages, particularly in collision. Personal Lines grew 2.6% in the second quarter consistent with the first quarter. Growth has been impacted by our prior actions to manage exposure in certain concentrations, which has led to lower PIF year-over-year.

However, our trajectory has improved over time as PIF was again roughly flat sequentially, and we continue to expect sequential PIF growth by the end of 2026. Both auto and home achieved strong renewal pricing increases in the second quarter that approximated first quarter pricing increases with auto up 7.1% and home up 10.9%. 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 91.2% (sic) [ 91.1% ]. The current accident year loss ratio, excluding catastrophes, of 58.7% was 2.2 points higher than the prior year quarter, driven by reduced large property losses in the 2025 quarter and prudently increased liability picks in 2026. Compared to the full year of 2025, the second quarter of 2026 loss ratio improved 0.4 points.

Our liability loss selections reflect a disciplined and measured view of the operating environment helping to ensure that the portfolio and our balance sheet remain well positioned over time. We are also pricing business consistent with that view with rate levels remaining healthy. Particularly in commercial auto and umbrella.

Moving on to Specialty. This business continued to perform extremely well with a current accident year ex-CAT combined ratio of 88.6% (sic) [ 85.6% ] in the second quarter. The current accident year loss ratio, excluding catastrophes, was 51.6% in line with our expectation for this segment. This result was modestly elevated from the prior year quarter which saw lower-than-expected property large losses, while property losses in the current quarter approximated our expectations. We remain very pleased with the continued strong performance of our Specialty book, and the positioning of the business to capture attractive growth opportunities in our markets.

Net written premiums grew 4.4% in the quarter, an acceleration from the first quarter. This growth level reflects our focus on protecting the strong profitability of the business while leaning into attractive opportunities. We remain focused and have line of sight to further premium growth acceleration in Specialty.

Turning to reinsurance. We completed a very successful renewal of our property treaties on July 1. The market response was quite favorable with both incumbent reinsurers and new participants joining our panel, reflecting the effectiveness of our property and catastrophe management initiatives. The highlights of our current property reinsurance program are as follows: we renewed both treaties, our property per risk and CAT occurrence, maintaining or enhancing structures relative to prior year. We issued a new CAT bond with expanded coverage relative to the expiring CAT bond.

Positive investor interest allowed us to upsize this bond to $150 million, reduced the pricing guidance range and issue at the low end of that reduced range. Our CAT occurrence program exhausts at $2.05 billion for all covered perils, while maintaining our $200 million retention. We achieved better-than-expected financial outcomes with substantial reductions of reinsurance costs on a risk-adjusted basis on our loss-free CAT program. We expanded our property per risk limit by $25 million, which replaces facultative purchases while maintaining the attachment point and reducing co-participation. Pricing was significantly better than original expectations.

Turning to our recent investment performance. Net investment income increased 13.4% in the quarter driven by growth in our asset base from strong earnings and the benefit of higher reinvestment yields for fixed income. Partnership income was lower than our expectations for the quarter but has performed in line with our expectations through the first half of the year. Net investment income from the fixed income portfolio increased 16.3% over the prior year quarter.

Our investment portfolio continues to provide steady growing returns, helped by our disciplined mix and broad diversification. Roughly 88% of our total invested assets are in cash and 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 A+ with 95% of Holdings investment grade. Earned yields on the fixed maturity portfolio were 4.45% in the second quarter, up from 4.24% a year ago, and we continue to reinvest at higher yields than what is maturing. Portfolio duration, excluding cash, increased slightly to approximately 4.5 years, consistent with our long-term asset liability alignment approach.

Moving on to our equity and capital position. Our book value per share increased 3.5% sequentially to $105.40 driven by strong earnings in the quarter, partially offset by share repurchases, the quarterly dividend and a slight increase in the unrealized loss position. Excluding unrealized book value per share increased 3.8% sequentially. We continue to actively participate in share buybacks, repurchasing approximately 291,000 shares totaling $55 million in the second quarter. And year-to-date through July 24, we have repurchased approximately 827,000 shares at an average price of $180.

In the second quarter, we announced our new share repurchase authorization of $700 million. As capital builds fast in the current highly profitable moderate growth environment, it is allowing us increased flexibility. We will continue to evaluate the most effective uses of capital and as excess capital accumulates, returning capital to shareholders through dividends and share repurchases remains an increasingly important component of our approach. Through the first half of 2026, our results continue to run a couple of points better than the trajectory we contemplated in our original combined ratio guidance. We don't expect to give that back. However, we prefer not to update guidance intra-year. Our third quarter CAT load is expected to be 6.9%.

To wrap up, we've achieved an exceptional first half of 2026 and are well positioned headed into the second half of the year, thanks to our diversified earnings stream outstanding team. The combination of our very well-performing investment portfolio and the ongoing underwriting profitability should serve us quite well.

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

[Operator Instructions] And today's first question comes from Michael Phillips with Oppenheimer.

Congrats on the quarter and the year and maybe the decade. I guess first question is on Personal Lines. A couple of quick questions and then maybe a little broader question on Personal Lines. Can you just remind how you specifically define Prestige and what percent of your personal book is Prestige right now?

And then just a broader question around that. I was surprised to see the rate kind of accelerate from last quarter. I assume that's just maybe that book of business is more insulated from the price competition that we see in the direct channel and the non-packaged business. But should we expect that to continue, I guess, Jack, with your comments on margins are healthy and are above loss trends, kind of trajectory of rate from here on that book?

Yes. I'll send that right over to the expert.

All right. Thanks, Mike. So Prestige, we just defined as $750,000 to, say, $3 million of coverage A. As a reminder, that's a replacement cost. And of course, varies by geography as to what fits into those bookends. But we are pushing towards $350 million of that business and growing it very nicely. So it's -- if you look at our PIF growth, we're seeing that outpace the rest of the book.

The second question was around rate increases, yes. Mike, that was frankly driven by a sizable rate increase that we implemented in a particular state, and we had a full quarter of impact from that refiling come through, and that drove the rates up.

In addition, of course, our other states, renewal pricing held steady. So really, I think that speaks to our strategy working. Where we focus full accounts being close to 90% common effective dates where a single shopping event is close to 80% and moving upstream towards the prestige and higher coverage A all that, frankly, there's less price elasticity up there.

So we're bullish that, that will continue. And of course, we watch this marketplace very closely, including what happens in the direct-to-consumer market, have awesome visibility into our agents data, as you know. And so we're watching for that unbundling and agents losing business, and we're not seeing evidence of that in -- certainly in our segments. But we'll keep a close eye on it.

Okay. Great. I guess second question, maybe on your comments on the casualty loss pick and raising a little bit there, I know it's not needle moving for you guys at all, pretty small numbers. But maybe it's a chance to kind of help us to think about kind of a reminder of what's going on at the industry level and maybe also a good reminder for how you set your reserves. So sort of a 2-part thing. Can you go into maybe where -- what you were seeing in casualty?

I think in the past, it's been Commercial Auto. Is it less frequency benefits? Is it more higher severity? Anything there that you can comment on, maybe help us frame how we think about what's going on in the industry? And then for you guys specifically, I guess, it's not the first quarter you've done that. I think you've done it 3 or 4 quarters out of the past 5 or so.

So when we see that -- again, I know it's not needle moving for you guys, but when we see that, what does it mean for how we think about your prior book of business, your prior year reserves if you're raising the current picks a couple of quarters or 3 in a row? And that's just a chance to maybe remind us on how you set your reserves.

Mike, this is Jack. I'll just make a few comments on the macro picture that you're asking about, and then I'll let Jeff speak specifically to our discipline around PICCs. I'll remind you that our casualty book, really, as you stated, is broad-based. And so there are a portion of the liability book that is exposed to legal system abuse and some of the trends that continue to deteriorate.

But frankly, the diversification of our portfolio, even within casualty is quite broad. Much of the Specialty business is less exposed to some of those phenomenons and obviously, where we play in the liability arena is a little bit more less exposed to some of the severity trends. But with that, why don't I let Jeff speak specific to the base of your question.

Thank you. To get into the specifics of PICCs and reserving, in the second quarter, we were 2.2 points higher than the second quarter of '25. But I'll remind you, we were below the first quarter of '26 and below the full year of 2025 on a loss ratio basis. The second quarter of '25 had very low large losses. So that's a big chunk of it in terms of the compare.

And you're right, we have been raising our PICCs for casualty really over the last several quarters. And we want to be above the actuarial central estimate for the current accident year, which puts us in line with where we are in prior years, where we've been consistently above the actuarial central estimate and setting uncertainty reserves for all the things that Jack was really referencing in the beginning of the answer to the question. And I will remind you that when we're setting current accident year, it's all IBNR. So we just want to be well prepared, Mike.

[Operator Instructions] And the next question comes from Dan Cohen with BMO Capital Markets.

Maybe just first one, just focusing on pricing and retention in Core Commercial, just with retention improving sequentially and maybe the pricing figure there, not deselling as much as we've seen peers so far. Can you maybe just talk about what do you think is driving that retention and kind of the stability in the pricing? And then maybe squaring that with Jack's comments just on conditions becoming little more competitive. Was that solely property comment? Or is that starting to bleed over to some liability lines?

This is Dick. I'll take this question. Yes. The durability of our pricing and retention, super proud of it. We -- I would say it's directly related to where we play. Both in the customer segment being smaller account size customers, the low end of the market and of course, industry there's less price elasticity. So we see that coming into the factoring in here.

But also technology, operating model, distribution strength factor in here, of course, playing at the lower end where there's -- we believe we can achieve higher rates and still have that retention. But the technology we've put in place in small commercial allows for better segmentation on renewals, so we can get more precise on pricing, less touch, so greater straight-through processing on renewals. So that enables you to achieve a higher rate and higher retention.

The operating model that we've put in place in middle market, where our underwriters are very focused and spent a lot of time out in the marketplace, working very closely with our distribution. So I'd add distribution strength of that, our relationships with our agents. We're out in advance of our renewals. We do not -- we try very hard to keep accounts from going out to renewal. So that connectivity to the agent and the producer helps in that regard. So you kind of put all those together, and we feel like there's a flywheel of performance that helps us outperform.

And then maybe for Jeff on capital management, just how should we be thinking about buybacks here in the near term, given the strength in shares recently, just given the move? Just thinking about is that maybe the payback period is out a little bit longer. Should we think about returning capital as kind of a ratio just of net income? Or are we thinking that maybe we can move to possibly a special dividend here at some point?

Dan, you probably noticed we bought a little less stock back in the second quarter than we did in the first quarter, and that was not intentional. There are a variety of factors, as you referenced, some of them that go into buybacks, including dilution in the payback period on that dilution. Because of the CEO succession process, and out of an abundance of caution. We were out of the market for more days in this particular period. So we bought a little less.

But as you referenced, dividends and stock buyback will be an active tool in our deployment of existing and future excess capital. So I think we'll be active in the market.

Our next question is from Paul Newsome with Piper Sandler.

Congratulations on the quarter. And obviously, congratulations to Jack and Dick. That's great. I don't think it was asked. Obviously, you've got a transition here from -- any thoughts on strategy as things change. Dick, you're on the spot.

Well, first of all, I'll remind you that we have an Investor Day on September 17, which I'm very excited about. It's a great opportunity to lay out the next 5 years and talk about our strategic initiatives and our financial plan. So we'll look forward to saying more then. Right now, we're really heads down. We're just heads down on executing our strategy, which is well defined and working well, profitably growing our diversified set of businesses.

At the same time, I am keenly engaged and focused on enhancing our capabilities, right, to strengthen the relevancy we have in the distribution channel with the best agents in the country. And of course, leveraging technology to scale our business with our enhanced operating model. So those are a big area focus for me. Naturally, you'd expect us to stay the course on a strategy that's working, but layer in some important elements like innovation and capability to help scale the company. So more to follow.

Maybe a little bit of a follow-up on the technology piece. Particularly in Personal Lines, it looks like the winners over time have had materially lower expense ratios. And I'm just curious, big picture, do you think that given the platform that that's -- that Hanover is capable of moving expense ratios down? I'm not talking about next year, but over time to where some of those better peers are.

Yes, absolutely. We're highly focused on this topic and the technology will enable us to scale the business, Personal Lines. That technology has been in place for, gosh, a decade. So we continue to refine it. And think about ways to scale. So we're working through that. The expense ratio question. So we'll say more about it at our Investor Day. So certainly, we -- you can expect some improvement through all of the investments that we're making, but it would be inappropriate to say too much about that right now.

And the next question comes from Riley Sandom with RBC Capital Markets.

Good morning. This is Riley Sandom on for Rowland Mayor. Great. Your stock has moved up a lot, and it's now a fairly valuable currency. Would M&A make sense today, especially as you generate excess capital?

Riley, this is Jack. I just want you to restate the question so we get it right.

Sure. Your stock has moved up a lot and is now a fairly valuable currency. Would M&A make sense today, especially as you generate excess capital?

Yes. So we talked often, Riley, about capital deployment and how we prioritize that. In addition to growing organically, we have had a fairly consistent pursuit from a corporate development standpoint on M&A opportunities. Early in our journey, as you know, we did a number of acquisitions and renewal rights transactions.

The last decade, we've been frustrated, frankly, that we haven't found things that align with our strategy, but also could come to us at an appropriate price or would have a cultural fit. So that pursue is going to continue. I think going into the future, I believe there are going to be more and more opportunities that present themselves in the marketplace and our company is very capable of not only assessing those opportunities, but executing on the ones that we find to be really strategic. So time will tell how much of that actually ends up being part of our next chapter, but I think it's certainly part of our regular pursuit.

Just to add to that a little bit, we've never really done large transformational M&A even in our history that require the use of stock. So I think that's unlikely. As Jack referenced, some of the smaller capital-light inorganic opportunities to expand capability, product, talent are very much in that capability. And that might utilize some of the excess capital without actually using that currency so -- but unlikely to be transformational in terms of its acquisition.

Great. And maybe just one more follow-up here. Could you speak to current trends you're seeing in net investment income and maybe more specifically, how limited partnership is resulting?

Sure. We have a very conservatively constructed portfolio. We take a lot of risk in underwriting like most property casualty insurers do, and we think we want to be fairly conservative. It's largely fixed maturities. The investment partnerships have delivered solid returns for a long, long period of time. It's not a large book, I think, $400 million. It's been in place for decades. And from time to time, in a given quarter, it would have a lower performance rather than stronger performance. It was $3.6 million in this particular quarter.

It was a little over $11 million in the first quarter. So that was an outstanding first quarter and a bit of a weaker second quarter if you put it together. But sometimes, there are idiosyncratic reasons in the 30 to 35 underlying partnerships where there could be either write-downs or write-ups or monetizations that happen from time to time, Riley.

And this does conclude today's question-and-answer session. I would now like to turn the conference back over to Oksana Lukasheva for any closing remarks.

Thank you, everybody, for your participation today, and we are looking forward to talk to you at our Investor Day event on September 17. Thank you.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

Good morning, and welcome to the Hanover's 2026 Annual Meeting of Shareholders. Please note that this call is being recorded. And I would like to turn the call over to Ms. Egan to commence the meeting.

Thank you, operator. Good morning, ladies and gentlemen, and welcome to the 2026 Annual Meeting of Shareholders of The Hanover Insurance Group, Inc. My name is Cynthia Egan, and I am Chair of the company's Board of Directors. Thank you for your participation in the meeting this morning. With me is Jack Roche, President and Chief Executive Officer and a Director of the company.

As Chair, I will serve as presiding officer and lead the formal part of our meeting this morning. After we've concluded the formal part of the meeting, Jack will provide a brief presentation, and we will have an opportunity for questions and comments. For the benefit of interested listeners, we are transmitting the audio portion of the meeting and accompanying slide presentation through a live webcast posted on our website.

At this time, I call the meeting to order. In addition to Jack and me, the other directors in attendance are: Francisco Aristeguieta, Kevin Bradicich, Theo Bunting, Bill Donnell, Jane Carlin, Paul Condrin, Kathy Lane, Joe Ramrath and Betsy Ward.

I ask that the Board members stand together to be recognized as a group.

The company's tabulation agent, Mediant Communications, has delivered an affidavit of mailing, establishing that notice of this meeting was duly given. The notice, along with the proxy statement for the meeting were made available to shareholders on March 26, 2026. A copy of the notice of the meeting and the affidavit of mailing will be filed with the minutes of this meeting. All shareholders of record at the close of business on March 19, 2026, are entitled to vote at this meeting.

A representative from Mediant is here today and has been appointed Inspector of Elections. The inspector has informed me that the company has received valid proxies representing a majority of the outstanding shares. Accordingly, a quorum is present.

The Board has proposed 3 items for consideration, discussion and voting, all of which are set forth in the company's proxy statement. They are as follows: Number one, election of directors, Francisco A. Aristeguieta; Kevin J. Bradicich; Theo H. Bunting, Jr.; Jane D. Carlin; William E. Donnell; Joseph R. Ramrath; John C. Roche and Elizabeth A. Ward have each been nominated to serve for a 1-year term. Item #2 is an advisory vote on executive compensation, and item #3 is the ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the company for 2026. At this time, I would like to ask for a motion with respect to each of the proposals.

Representatives of PricewaterhouseCoopers are also attending today's meeting and will be available for questions during the discussion period. I would now like to open the floor for discussion by shareholders of these specific proposals before the meeting. Following the discussion, we will distribute ballots to any shareholders who wish to vote in person. If you are a shareholder of record as of March 19, 2026, and have a question regarding these 3 proposals, please raise your hand to be recognized. Then please state your name and indicate whether you are a shareholder or hold a valid proxy before asking your question. If you have questions or comments about matters other than these proposals or wish to propose other matters, time will be allowed in just a few minutes.

If there is no discussion regarding these proposals, which were set forth in the company's proxy statement, then I declare that the polls are now open for receipt of votes by ballot. If you are either a shareholder of record or hold a valid proxy and you want to change your vote or vote for the first time, then please raise your hand and one of the ushers will provide you with a ballot.

I declare that the polls are closed for voting. Please allow us a moment to determine the voting results.

I have been informed by the inspector that each of the nominees for election to the Board of Directors has been duly elected, and all other proposals have been approved by the requisite shareholder vote.

Now, before we close the formal part of the meeting and move to management's presentation and session for questions, is there any other business to properly come before the meeting? Again, there will be time for questions in just a few minutes.

Since there is no further business on the agenda, the formal portion of the meeting is adjourned, and we will now turn to management's presentation followed by questions or comments.

I'd like to introduce Jack Roche, our President and CEO, and turn the meeting over to him.

Thank you, Cynthia. And good morning, everyone. Welcome to our Annual Shareholders Meeting. As the CEO of this great company, I am very proud of our team and the important work employees across our company do every day to deliver value for our policyholders, shareholders and other key stakeholders. In this moment of time in our world -- excuse me, in this moment -- dynamic moment in our world and in our industry, I have the utmost confidence in our ability to continue to evolve and deliver even greater value. Today, I am pleased to highlight our continued progress competitive positioning, growth momentum, and unique culture; review our recent financial performance and results; and outline the actions we're taking to execute our strategy and drive sustained value into the future.

We delivered exceptional results for the year, once again demonstrating the strength and resilience of our team, the effectiveness of our strategy and strong execution across the organization. We strengthened our predict and prevent capabilities, combining sensor technology, data insights, and risk expertise to help customers improve safety and reduce losses. Furthermore, we reshaped our catastrophe profile, reducing exposures in select geographies, to position our portfolio for improved loss performance and persistency of earnings going forward, and we expanded our product and service capabilities, strengthening our underlying performance. At the same time, we invested in our distinctive independent agency partnerships as well as our talent across the organization, reinforcing the unique culture that drives our performance.

Today, our company is stronger and better positioned than ever. Our team is focused on accelerating growth and advancing our goal to be the premier property and casualty franchise in the independent agency channel.

We made meaningful progress last year improving the durability of our margins through higher pricing, a more attractive business mix and targeted underwriting actions. These actions translated into outstanding financial results in 2025. For the year, we delivered record operating income per diluted share of $19.09, record operating return on equity of 20.1%, an 87.1% ex-CAT combined ratio and $6.3 billion in net premiums written.

We grew our net investment income during the year to $454 million, up 22% year-over-year and increased our book value per share by 27% to $100.90. At the same time, we increased shareholders' quarterly dividends by nearly 6%, marking 21 consecutive years of annual increases, underscoring our disciplined approach to capital management and our long-standing commitment to returning value to our shareholders.

The positive momentum we established last year has continued into 2026. For the first quarter of this year, we reported record results, including operating return on equity of 20.3%, operating income of $5.25 per diluted share. We also increased net written premiums by 3.2% from the first quarter of last year. And finally, at the same time, we achieved an outstanding underwriting performance as evidenced by our ex-CAT combined ratio of 85.4% and our 91.7% combined ratio all in.

Our results in 2025 reflect years of intentional work to build a diversified and balanced income statement -- income stream, excuse me. This approach enhances stability across market cycles, improves resilience and reduces earnings volatility. For the year, each major business segment delivered meaningful contributions to both growth and profitability. In our Personal Lines business, we strengthened our position as a leader in the total account market, improving profitability significantly and taking strategic underwriting actions to diversify our book and reduce property concentrations.

We also continued to advance our focus on writing full account business, bundling home, auto, umbrella and other ancillary lines to meet the broader needs of individuals and families. Account business now represents approximately 89% of our Personal Lines portfolio and remains a strategic differentiator, driving higher retention and supporting expansion into higher-value home and auto markets. As a result, our Personal Lines business is well positioned to drive profitable growth going forward.

Our Specialty business delivered another strong year in 2025, generating attractive margins, stronger agency relevance and robust growth in its most profitable lines, including excess and surplus lines, surety, health care and marine. We continued to invest in our product offerings, expand our distribution, particularly in the wholesale channel and introduced AI-enabled tools to streamline new business acquisition and improve operational efficiency.

As demand for specialized insurance solutions continues to increase, this business represents a robust and profitable growth engine for us and is well positioned to continue delivering industry-leading performance. Our Core Commercial business also delivered strong results for the year, maintaining a careful balance between growth, portfolio quality and profitability. We continued to invest in scalable digital capabilities and focus on growth in our most profitable industry segments, while implementing underwriting and pricing actions where necessary.

And in today's liability environment, we believe we are well positioned as we refined our exposures, maintained our reinsurance protections and reduced our exposure to highly litigious jurisdictions. Overall, our Core Commercial business is well positioned to continue to deliver strong results in 2026.

We remain committed to our vision during the year, investing heavily in the key tenets of our strategy: distinctive agency partnerships, specialized products and capabilities and a customer-driven approach. A defining strength of our company has always been our independent agency distribution model. Over our nearly 175-year history, we have built deep trusted relationships with many of the best agents in the industry. As a result, our relationships with our agent partners continue to grow stronger. During 2025, we continued to modernize our workflows, enhancing operating models and delivering technology solutions to make it easier for agents to submit, quote and bind business.

Through our proprietary Agency Insight program, we expanded advisory services that help our agents gain efficiencies and better serve their customers. As we continue to work with our agent partners across all of our business segments, we are focused on making ease of doing business a priority, offering our agents innovative and responsive products and services, and helping them serve their customers and grow their businesses as we grow ours.

We made significant strategic progress over the last year as well, focusing on transformation across the organization, intent on enhancing our operating model, business responsiveness and the many ways work is performed. Our efforts are gaining traction, and these investments have positioned us to accelerate our use of data and analytics and AI to make meaningful progress. For example, in claims, high-impact AI capabilities are enabling us to transform and streamline workflows and expand adjuster capacity.

In the E&S space, we are introducing technology to ingest submissions, and we will begin to analyze that information in ways that help our underwriters make quicker, more informed decisions about the risks being submitted. These and other efforts are beginning to have a positive impact across the organization, allowing our employees to focus on what matters most, our agents and our customers.

As our business evolves, we are committed to sustaining our strong corporate culture. Our culture, a culture that is based on trust and respect that attracts outstanding professionals that brings our care values of collaboration, accountability, respect and empowerment to life and one that creates an environment where our employees can make a difference in our business and in our communities.

These efforts have not gone unnoticed. In 2025, that commitment was recognized through multiple external honors, including recognition by Time, Forbes and U.S. News & World Report as Best Place to Work and a Best Insurance Company. During the year, we continued investing in career development, leadership programs and employee engagement, ensuring our teams can build fulfilling careers while making a meaningful impact.

Similarly, we maintain our commitment to be an environmentally conscious organization and to help build strong vibrant communities, finding ways to enable and support employee volunteerism while making contributions that address a wide range of community needs. These efforts have brought positive momentum to our organization as we strive to attract and retain the talented team required to drive sustainable, profitable growth in an evolving market.

I am proud to say that, once again, our employees and our company came together in our annual employee giving campaign contributing more than $1.5 million to benefit thousands of nonprofit organizations and countless individuals and families across the country. We also came together in many other ways throughout the year, providing financial, in-kind and volunteer support for public education, after-school programs, shelters, food pantries health and safety, community building and more.

Today, our company is better positioned than ever. With the strength of our franchise, the depth and experience of our team and the effectiveness of our proven strategy, we are moving forward from a position of strength. I am incredibly proud of what we have accomplished in 2025, and I am confident in our ability to drive sustained success in the years ahead, embracing change, navigating challenges and capitalizing on the opportunities to deliver lasting value for our shareholders and our other stakeholders. Thank you for your continued trust and support.

At this time, we'll open the floor to questions if there are some.

Hearing none, I am happy to turn the floor back over to Cynthia Egan, our Chair, for our closing. Thank you.

Jack, thank you for your comments. Once again, the company delivered excellent results. Your leadership and the exceptional bench strength and unique culture that has been meticulously developed in every corner of the organization continues to deliver value to your shareholders, your agent partners, your policyholders and every constituency. On behalf of the Board of Directors and your shareholders, we thank you. And we thank each and every member of The Hanover team for an excellent year.

This concludes today's meeting. Thank you all very much.

The call has now concluded. We thank you for attending today's annual meeting presentation. You may now disconnect your lines.

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. [Operator Instructions] Please note 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 Investors 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, 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 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 statements section in our press release, the presentation deck and our filings with the SEC. Today's discussion will also reference certain non-GAAP financial measures such as operating income and accident year loss and combined 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, and good morning, everyone. We're off to a very strong start in 2026, 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. At the same time, we continue 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 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 2026 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 continue to exceed loss cost trends, 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 1 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 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 E&S 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, 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 our core commercial lines team.

E&S 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 E&S 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, improving speed to answer and then 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 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 P&C 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 President's 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 2026 and in years ahead, delivering value for our shareholders and many other stakeholders. With that, I'll turn the call over to Jeff.

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 and 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 changes 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 2 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 segment. 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 ex-CAT combined ratio of 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 of 46.7%, improving 2 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 66.7%, 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 PIF flat sequentially, which is an improvement from the fourth quarter of 2025. We continue to expect 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 and 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- 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 continue 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 28. 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 Instructions] The first question today comes from Michael Phillips with Oppenheimer.

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 of years. That is where the market, specifically commercial market is headed. I'll start with an answer here, hopefully not the answer, but I'm 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 Jack, can you talk about any structural things within Hanover that if we are to fast forward the next year, give us confidence that, that commercial renewal rate deceleration for Hanover won't be as dramatic as your peers?

Yes. Mike, thanks for the question. 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 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, 9 specialty businesses, again, is an extension of that enterprise view.

And we work, as you know, in the small to lower end of 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.

Okay. I think it's a good story. I 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 at all you really have to think 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 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 portfolio approach to some parts of Small Commercial and how you have to have a separate operating model that gets at 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 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.

The next question comes from Paul Newsome with Piper Sandler.

I was hoping you could touch a little bit more on your comments you made around the program business. Kind of -- 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 unusual more than what we'd expect pricing concerns as well as terms and condition changes.

Yes, Paul, this is Jack. I'll make a couple of comments here broadly and then let Bryan speak to Hanover programs. But I'll remind you and others that we write program and programmatic business across many business units in our enterprise. As 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 of businesses. And frankly, our Hanover programs business in total is smaller than the program business that we write across the enterprise in 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. Bryan, do you want to build on that?

Yes. 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, right? 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 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 I would tell you that what we see our agents doing is increasingly leaning towards 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 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 in the 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 is it just continuing at sort of the high levels that we've seen in the recent past?

Yes. 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 paying attention to these liability trends because 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 of the industry has reached a plateau of fairly high severity that we're all dealing with in terms of managing through that and making sure we get substantial rate.

The next question comes from Mike Zaremski with BMO.

Just switching gears to Personal Lines. 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 kind of 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 can throw in how to think about retention there as well.

Yes, 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 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.

Yes. So a lot of great points there, Jack. I'd 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 for full account, 90%. The other fact 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 the 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 allowed 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 honed and fine-tuned our capabilities. And we just -- we know who we are. We stick to our strategy, and we're not immune, but we think we can outperform, particularly as we continue to push ourselves up market with higher coverage, our prestige product is having tremendous success, and that gives us confidence about the future.

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 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, Bryan.

Yes. So I'm actually quite pleased with the performance of almost all of our portfolio. In fact, I'd say pretty much all of our portfolio, right? 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 out a single area. I would probably highlight that property continues to be very strong from a profit perspective. But 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 single out an area. I just see really good broad-based profit.

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 on to 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 maintain 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.

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 continue to highlight marine. Maybe you can just -- I think when a lot of us think about marine, we think of kind of 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?

Yes. So there is quite a bit to marine business. 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, which 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 haul 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. Inland, I think was the clarification that I missed. So I appreciate that.

The next question comes from Meyer Shields with KBW.

This is Jing, on for Meyer. 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 in the overall specialty pricing?

Yes. Thank you. So I think first thing I would call to your attention is that we are very deliberate about our pricing, right? And 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. 9 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 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 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, E&S, specialty general liability. And then I would add that we see an increase in growth in areas like marine and professional liability as well.

Jing, we had planned for the first quarter of 2026 to be the lowest growth quarter of the year. And that, combined with the optimism that Bryan has for the various areas gives us confidence that we can ramp up the growth from here in specialty.

got you. Very helpful. My second question, just a quick one. Is there any underlying reserve movement on the casualty lines?

I'm not exactly sure how to answer that, Jing. 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.

The next question comes from Rowland Mayor with RBC Capital Markets.

I wanted to quickly ask on the CAT PYD. Was that a result of a specific review of how you had booked that business? Or are you continuing to hold some conservatism around kind of the underwriting changes in personal lines?

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 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 less severity. 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.

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 homeowners business or the personal lines PIF?

This is Jack. 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.

The next question comes from Bob Huang with Morgan Stanley.

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 and 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?

Bob, thanks for the question. Super important time for us to address that 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 Lavey to take on some additional responsibility in this area to make sure that we -- 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 5-year forecast as our current 5-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.

Yes. 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 of 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 yes, so it's been over a year since I stepped into the role of COO and I took the responsibility of just helping our organization frame our strategy on overall transformation and kind of tackle the highest order of priorities that we believe are going to bring us some benefit realization, doing that in partnership with Willie Lee, our CIO, but with a keen focus on scaling our company, right, 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 on balance, as I absorb all of that is that 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, we're tackling really the common activities across our value chain in underwriting, claims and operations. So 2 very quick examples. 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 scale 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. E&S is our first business that is going to benefit from that. Injection and triage agent, which is really very ripe for this -- for efficiency.

We had 70,000 submissions in E&S 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 business is also underway, middle market, small commercial, marine. In the claims side, 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 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, 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.

The next question comes from Mike Zaremski with BMO.

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 reaccelerating a tiny bit. Just curious what you're seeing in those lines? Is it kind of steady upwards bias, downwards bias?

Yes. 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 is feeling in property 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 -- 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.

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 participating on our call today, and we're looking forward to talking to you next quarter.

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

[Audio Gap] financial services conference. This is sort of the insurance leave of things. And we're really pleased to have Hanover Insurance company here. We have CEO, Jeff Roche; and CFO, Jeff Farber. We will go through whatever, I don't know if you can preliminary remarks before you want to get started, but we can go to it.

I'll just say a couple of things for those that are less familiar with us that we're about $6.5 billion property and casualty underwriter who really distinguishes itself in the marketplace based on our unique agency partnership model, along with a diverse set of specialized products. Highly motivated workforce of roughly 5,000 people, a national footprint for Commercial Lines, a super regional footprint for Personal Lines. And we're coming off of a record year in terms of earnings and super excited, frankly, to come into 2026 with kind of the best earnings, diverse earnings power that we've ever had and to take on both the challenges and the opportunities that are going to present themselves in this very dynamic marketplace.

There's a lot going on. I don't [indiscernible] was kind of a wild ride. We'll probably get into that. But -- so let's talk about just the near-term prospects for a business like Hanover. If I look at a lot of companies, as they close out their 2025 year growth seems to be decelerating, the #1 top soft market cyclicality. I think that people use the word soft and they're not even sure what they mean by they just like the word. But you guys have an ambition to grow and maybe accelerate from here. And so what is the impulse that suggests to you that there's an opportunity to take lemons and make lemonade, if that's really what's going on?

Yes, there's no doubt that the environment is putting some growth pressure on both carriers and agents and brokers. But at the same time, we believe on the underwriting side of the business, those companies that really have substantial profitability and are generating those profits in a very distributed way have an opportunity to navigate a pretty complex market that really is a series of mini cycles versus one big cycle. And so I'm anxious to talk to you about some of those in more detail.

But on a high level, what I would say is that we're going to try to translate our additional profitability into growth opportunities, particularly in specialty and Small Commercial. We think as the liability trends further flush themselves out, they're going to be companies like ours that can lean into the growth opportunities that come from a reaffirming of the market, at least on the liability side. And then last but not least, we're in the best place we've ever been in Personal Lines with a unique account strategy that frankly competes nicely against regionals and mutuals across the land, which is a good majority of the competitor set that we face off against.

In my mind, I think if there's probably 4 levers. [indiscernible] by more, but there's price, there's number of agents distributing your product. There's a breadth of distributions, you can expand to adjacencies. Or there's the ability to take a higher proportion of the share from the agents that you already do business with.

When you're thinking about those options, maybe those aren't the only options, those are the ones that come to mind for me, what are the toggles that really drive your view?

Yes. First and foremost, it's the last one. We have plenty of headroom across our diverse set of products with the agents that we have. And we have a very good standing with the consolidating agents who are bringing more and more agents into the fold, some of which we're very connected to. Others that were getting connected to through their increased centralization or regionalization of their models. So for us, growth is really about are you healthy enough to make great growth appropriate. And you've seen us be relatively disciplined over the last several years to make sure that we could bounce back from some of the headwinds we faced in the back half of '22 and '23.

So we're not going to make light of the landscape that pushes against some of the growth opportunities. But I think we're more diverse, and more capable, and more profitable and ready to lean into the right growth opportunities versus some competitors who frankly have peaked, and they're in market cycles in their product line that present much stiffer headwinds than I think we face overall.

I guess I started on the sell side, [indiscernible], but I've been covering insurance since '97. And I think I've been saying without really thinking about it forever, that there are 20,000 to 30,000 [indiscernible] agents across the United States of America. And you have the number of agents you do business with and you have this consolidation.

Can we talk about like just understanding like how independent, whether it's 20 or whether it's 30, what does it look like out there? How many [indiscernible] agencies are there out there? How many agencies are part of a network? As you try and say like, here's our opportunities that here's what we're working with, here's where we can go. Can you sort of give us an understanding what the demographic of the agency market looks like?

Yes. I mean in macro, if you look at all the individual agencies that I think transact with P&C carriers, it's roughly around still 35,000 agents. Now that includes some of the spin-offs from the likes of the nationwide movement into the channel, same regenification of some agents that were part of the consolidation that have decided to go off on their own. But that number hasn't changed dramatically over the last decade. Plus you have some consolidation that's bringing some agents together, but you have some...

Is Gallagher 1 or is Gallagher 2000?

So for us, right, in that product set that I talked about, it's one. In our -- the way we count is by agency locations by which we plan. So if you look at Gallagher, who we're -- is now our largest distributor after they take on Assured Partners. We have roughly 50 agency relationships within their 1,000 options. So we're selective even within the large consolidators. And frankly, that's to best -- to our both best interest in that.

We don't want to create a bunch of activity with agency locations that either don't have a book of business that match our risk appetite, or relationship-wise don't follow our kind of partnering model. So when we look at the 2,200 agents that we have roughly, right, it's -- it is -- includes hundreds of agents that are in the top 20 that have been consolidated, but still a lot of midsize and smaller agents that are either Personal Lines, or Small Commercial and Personal Line centric, or boutiques that haven't consolidated have decided to stay outside of that.

To one of your points, Josh, the networking, people used to call aggregators has grown, as you know. There's a lot of independent agents that decided to go that route as opposed to giving up their independents. And frankly, we've been somewhat apprehensive to engage with them in the past. But the last 5 years or so, we've seen a much more strategic orientation to those networks that have opened up some options for us to engage with them.

So we have real legitimate strong agency relationships with the largest all the way down to some of the smallest. As long as they sell value and they have a good fit with our product set, we consider them a candidate for our distribution approach.

And in your prospecting, how many [indiscernible] are there out there that you're in conversation with that could become a Hanover agency in the future? And how many will you add in 2026?

So we -- on average, we are recording the next 200 across small and Personal Lines, in particular, maybe some boutiques for specialty. We've got all we need in the middle market space that's usually coming from the top and the middle. We can bring on anywhere from 100 to 150 new smaller agents a year, particularly to spread our diversification in Personal Lines and Small Commercial. And that somewhat offset some of the folks that get purchased and kind of fold in to some of the large consolidators.

So the aggregate hasn't moved that much over the last several years, but there's some incoming and outgoing based on the way the distribution system is evolving. And it's quite, quite healthy, I think. Because these smaller agents that are choosing to stay independent value our proposition as much as some of the large and strategic agents do. And they'll offer up a lot more information in the courting process. Many times -- most of the time when we bring on a new agent, we've already done an agency insights, profile and have an idea of exactly what their business looks like.

Given yesterday's stock volatility around -- really just a new story about something that -- the fact that was written about [indiscernible] it could come [indiscernible] the idea that genetic AI is not something that's out there looming in the distance. I'm [indiscernible] your opinions aren't any different today than were yesterday, or the day before. You've been thinking about it. Where -- what do you think about it? And what are the risks? What are the opportunities?

I think this is a transformative time. I really do, and I believe that on the agency side of the business, there is a massive opportunity to leverage large language models and new tools that are emerging to more efficiently and more effectively service their clients. I think when you look at even simple things like coverage verification and validating that they've -- the policies came through the way they were supposed to, when they're being processed. The outsourcing of that now is going to be somewhat cannibalized by technology, like happened in the outsourcing of labor arbitrage for a lot of the carriers that leveraged people to do work that now can be repetitively put into a technology model.

So I think there's going to be plenty of opportunities for agents to find out how to work more effectively, better serve customers, but also recognize that one of the major problems that agents have across the land is they can't find talent to build the openings that they have and to serve their customers. So in a lot of ways, this is kind of just in time opportunity for them to match that up in the short term.

But I think what people miss understand about our business, not just in Commercial Lines, but for a lot of Personal Lines is that the infrastructure that allows carriers and agents to interface is very complex. And there's a lot of bespoke operating models, bespoke technology interfaces, the agency management systems all go into different point-of-sale operations. So it's really much harder than people think to replace that infrastructure with one sweeping, a method of doing business because everybody has got their own mousetrap. It doesn't mean it's right, by the way. And I think there's a much more complexity to how this technology is going to transform the agency side of the business over time.

So I don't think they should feel immediately threatened. But if you're not investing in the right ways to streamline, you easily could be left behind.

Well, I don't mean to bad mouth your distribution but I think that you've been doing all the work. You can figure out the prices are, you've putting up the balance sheet and taking the risk, and they've been making a lot of money. And to the extent to which the goal should ultimately be to deliver value. Are insurance customers today getting good value? And will these technologies help you deliver value to customers, maybe at the expense of your distribution?

I would answer the question that there's quite a variety of service propositions and execution on the distribution side. I think our selective approach to who we partner with, and how we engage with those agents, actually allows us to honestly look ourselves in the mirror and say that we're working with the value-added part of the distribution system. And I would tell you that trusted advice has never been more critical to clients.

I think clients are anxious about what's going on both in the Personal Lines and the Commercial Lines side of the business. And even if they're going to do some homework on their own, they need somebody to validate the choices that they're making, if not give them options that they can't get on their own. So -- but the answer to your question is we've already found ways to better serve, particularly small face customers, with self-help tools and new ways to understand and demystify insurance. And so I think the better agents are following that path to say, let's use today.

And there is a period of time when you're buying a bunch of agencies that maybe you take your eye off the ball on how you're servicing the customer, and we see some of that when we do market consolidations. But I think going forward, the better agents now understand that customers are expecting something for the money they're paying. And there's new digital ways to do that, that don't have to be a direct model. They should be -- include the trusted adviser not exclude the trusted adviser.

Well, changing gears a little bit. I want to get Jeff involved. The earnings power of the company has changed a lot over the last couple of years. particularly as float has generated a much better return. It's part interest rate driven, part you've made some changes in how you're investing and whatnot. Can you talk a little bit about, A, what the changes are, and B, what it means for your ability to underwrite if you're earning more on the investments?

Sure. Josh, thanks for that. NII has become a very powerful driver of earnings for our firm. It took a while to get there in that we had low interest rates for so long that there was a low embedded yield in the portfolio. But with higher interest rates for a while and the stronger cash flows, particularly if you take a look at 2025, we had [ such ] strong earnings with a slightly greater than 20% ROE, that the cash just keeps coming in from earnings and from growth, of course, reinvesting at a higher yield, the stability of interest rates.

And we did some portfolio sculpting along the way where we took some lower coupon bonds and sold them, and were able to carry back for 3 years [indiscernible] some gains and get some cash from the IRS back that we would have lost as they were expiring from 3 years. So I talked from time to time about this flywheel, and it takes a long time to get it to run. But now that it [indiscernible] it takes a very long time just hard to slow it down. So it's really driving a tremendous amount of value, and we've guided to mid to upper single digits growth of NII.

And I'm really hopeful that we don't competed away, but it certainly gives a balance to our income statement that really can't change. So it allows you to where you need to be to be a little bit more competitive to keep that business.

[indiscernible] in a way. So there's a lot of spare skeptics in the Personal Lines market who say that Personal Lines carriers are making too much money. A couple of governors have said that also, particularly maybe looking at it homeowners insurance, but also I can tell you that the auto insurance markets are clearly at the peak of their profit cycle.

We can look -- I mean, plenty of history in [indiscernible] they won't [indiscernible] forever. It's a cyclical business. But if I go look at Commercial Lines margins, I don't think they've been this good for 50 years, or maybe even longer since the 1950s. And so it feels like it's out of the cyclical market. [indiscernible] finding a new reality. And interest rates are pretty healthy right now.

You used the words competing away this benefit we have. It's a great discipline to have healthy investment income and also be arguably at the most profitable for Commercial Lines ever been. Is that sustainable?

Well, nothing is sustainable at peaks forever, of course, but I think it's important to take a multiyear view on profit. Certainly, 2025 seems like a really, really strong period for the industry, and I haven't really studied because all the results aren't out, how nonpublic and some of the later reporters have done. But clearly, it's a strong period.

But 2023 wasn't really that long ago. 2022, not that long ago. So depending on what period you take -- many in the industry with very, very high cats and severe [ convective ] storms didn't make a whole heck a lot of money in 2023. So if we want to take a 1-year view, where if you have excess profits, you have to send it back, that's obviously not a sustainable situation. And I think, look, when ROEs get to [ 20 ], they're going to work their way down and the better companies are going to have to fight to keep them there. And when ROEs are low, they're going to naturally -- equilibrium will work their way up from there.

In terms of where you expect returns are more sustainable, there's an argument right now about admitted lines versus [indiscernible] historically. In the software market, [indiscernible] has grown much faster than excess and surplus is taking back some of the risk. Some say, well, actually, that's not actually how things happened this time around. There are different risks now, and they're never coming back.

A lot of really high-margin property within the E&S business now that the prices are coming down. When you see this sort of pathway towards accelerating growth, is the path in higher margins than admitted lines? Or is it in [indiscernible]? And how do you plans to like...

I think built into what you were saying in the premise, I do think it's a different landscape today. People are -- E&S has -- is an amalgamation of various sectors and lines of business. It includes some coastal property and some distressed business, some really good business that requires different pricing flexibility, freedom of form and rate. So there's a lot of reasons why the E&S business has grown so much.

Even when you look into a lot of the specialty businesses, including ours, E&S is a product as opposed to a sector, right? We write some of our health care business, our Hanover Specialty Industrial business, our professional liability and management liability. We are able to use a non-admitted product to expand our appetite, or create some sustainable performance, whereas before, it was more of a admitted or not admitted kind of approach, and E&S was really kind of all running through the wholesale channel to solve a non-admitted problem.

So I think it's a different mosaic. And to your question, I think there's profit to be made in many segments of the business, if you have something distinctive that you're offering, and you have some agility. Because the business has a way of finding the profit pools. And not necessarily destroying them, but if you've over-earned in workers' comp or you've been part of the last 6 years of a great E&S run.

What's the other side of that hill look like? I'm really glad we're not a monoline E&S property writer, for example, right now. That is a very competitive market , likely destroying the very margins that created over the last several years in pretty short order, particularly with three major wholesalers controlling well over half of that business

So I like our kind of approach and that is what's a diversified set of products that are relevant to the agents that we do business with, but allow us to not be cornered into one subsegment of the business. And then for each of our businesses, we require our business leaders to say, why Hanover? What is it that we do that's so unique and different that we can be in the leadership group. We don't have to be a monopoly, but we have to say, for example, in Small Commercial, we can honestly say we have one of the best Small Commercial capabilities. And we don't have to be $3 billion or $4 billion. We're $1.5 billion of point of sale -- non-point-of-sale world-class service center, great consolidation opportunities, leveraging our data and analytics to help agents do what they're trying to do on their side of the firm. We have an amazing Small Commercial business that puts us in a top 3 position with any agent in the country that's trying to consolidate markets.

So that's what we mean by that is be authentic about your strategy, one business at a time. We're the best total account writer in the IA channel and Personal Lines. There's nobody that has that level of penetration, albeit in 20 states, but -- and that's not our propaganda, that's our agents' experience. So that's how we combat it is, don't put all your eggs in one basket. And when you do see that your discipline or your distinctiveness in any sector is waning either address it, or have the guts to move away and say, that's not where your future penetration should come from.

One question I've asked everybody [indiscernible] mixed answer. I don't have a conclusion from it. I think it's like 29, 30 degrees in New York City right now. I'm looking forward to going back after having not been above [ 20 ] for about 3 consecutive weeks. I know a lot of people have an insurance claim this winter. And because I only know like 43 people like [indiscernible] multiple things, it seems like it's going to be a big claim winter. Do you have any indication in your books, whether you think there's anything usual about this winter or -- or I mean, of course, that's you're in the business paying claims.

I think 40-something states, all being subfreezing if not sub zero, in some cases, is a unique year. But maybe you start with what we've talked about in the quarter, and then I'll add a few thoughts.

Yes. So middle of last week, we had our earnings call for the fourth quarter. And we got asked the question and what we shared is, number one, our cat load is 6.1% for the first quarter. That compares to 6.5% for the full year. And based on what we see through January, which is that large freezing snow wind cat across almost every state in the country, we don't see any reason at all to change our cat load for the first quarter based on what we're seeing so far.

Interesting.

But to your point, the cold weather continues. So the question on people's mind should be, are there frozen pipes out there that when we saw we're going to have the next round of pipe burst or experiences. That generally happens when an event is extreme and quick, where it comes and gets you and then the warmth -- when people have this level of time to deal with freezing temperatures, it would -- it's very unusual that they don't address, or find that they have frozen pipes and some minor shape or form. So it doesn't mean it can't happen. It doesn't mean it won't happen.

But what you saw, I remember with the Texas freeze, was man did it get cold. Forget about the grid, just in general, people weren't able to react to it. And by the time they got back to their facilities, things were bursting and off we were going. So the other thing is, remember, on the Personal Lines side, the work we did to deal with some of the severe convective storm trends and broader frequency issues is we now have a $2,500 all peril deductible on the vast majority of the homes in most states.

So if you're thinking about it from a Personal Lines perspective, you're going to have to have a pretty material event to create a claim that's going to get reimbursement for us. And that's both good and bad. But from an economic standpoint, we made a lot of progress by advancing that strategy.

It seems pretty easy to go through $2,500, I would think, but maybe I'm wrong about that?

Yes. But it's -- but you have folks that depends how quickly they find the burst, right? If you're going to replace out the flooring in the bathroom and do some stuff, and you say, well, I'm not sure I'm going to bother with my insurance company over that kind of [indiscernible] But if you are gone for 7 days and you come back and your entire first floor is flooded, well, yes, you're going to have an insurance claim, and we have some of those. And by the way, we're -- we get paid to deal with that. So we're not trying to be avoiding claims. It's just it does -- it has this additional benefit beyond where we originally started with severe convective storms to say, claims have to be material.

And what we see in our homeowners' claims is that the average claim size is way up because for a variety of different reasons, the smaller claims just don't come through anymore.

So if we go back in time about 2, 3 years ago, we're spending a lot of time talking about 2016 to 2019 accident year casualty development, which I don't know when people first started talking about that, but simultaneously when that was involved, we also were experiencing once in 50-year type inflation in the United States. And now it's 2026, and we've heard a number of you talking about social inflation.

In some ways, we're not seeing the development in claims that the [indiscernible] afraid. And it seems like that after we've inoculated ourselves against 16 to 19 years, the 21 through 25 years have not been as scary as I was told to be prepared for it. Is that -- am I wrong? Am I right? Are we -- are things -- or -- is it a confluence that some things turned out a lot better and are overshadowing what are -- is [indiscernible] in other areas?

I think it depends on the firm. It depends on the line of business. It depends on the geography. It depends on the industry that one is focused on. Commercial auto seems to be -- commercial liability seems to be an issue of its own relative to other areas. We were unfortunate in one respect in that in 2016, we took a large charge to put a bunch of issues behind us. But we learned an awful lot at that point in time, and it caused us to really want to avoid certain geographies, major metropolitan cities, avoid certain industries that we thought were going to be ripe for deterioration and higher frequency. And then we grew much more carefully, or slowly than some of our peers in terms of casualty business.

So you pull all that together, and while the severity is up a lot, since before COVID time frame, not necessarily the '16 to '19, but let's say from '19 forward, the frequency is down for us dramatically. That's really allowed us, along with some good reserving coming out of 2020, where we've had some benefits of not trucking not happening and different things not happening in 2020 and being conservative reserves, I think, puts us in a really good place.

Commercial auto, there isn't really a great place to hide. I think people are seeing it really across the industry. We're fortunate that all year long, we've been adding to '23, '24 and '25, and I think we leave the year in a really good place. And we've wanted to take small bites at these things rather than to let it get behind us to go ahead of us.

Yes. And Josh, to be honest with you, while we feel comfortable with our reserve position and the actions that we took to not be an outlier in any of those areas, I think there's a few more chapters left in this book.

I think there is -- I'm on the Executive Committee of the APCIA, the biggest trade for the industry, all the good companies are involved in that. And this is the fourth year in a row where legal system abuse is the #1 advocacy position. Every company is concerned about it. The severity -- the severity continues to produce some pretty outrageous jury awards. And so I do think it comes down to what's the complexion of your book of business. Did you grow into the problem on knowingly, and how well did you reserve? And that part of it has still got to play out.

There are some -- particularly in those most recent years, I think if companies weren't adjusting their picks and being realistic along the way, there's still some pain to be found. And we've tried very hard to be one of the companies that makes the proper adjustments so that we don't have a larger problem down the road.

In addition to making those changes in the reserving, you've also made a lot of changes in terms of your cat exposure over time. And over the last couple of years, and maybe even further, the price of reinsurance is coming down. Does that give you any license to take more risk because you can offload it to somebody else? Or are you constrained by a permanent sort of mentality that we want to have a low cat risk exposure in this way we're going to run our business and the price of protection doesn't really factor into whether or not we change how we think about it.

So our cat program, cat treaty attaches a $200 million per risk and between a combination of traditional reinsurance and cat bonds goes way up into the top and really covers risk of and types of issues. And it's very effective. We do have a property per risk treaty, which is between $3 million and $4 million per risk. But it really isn't designed to deal with volatility of a severe convective storm So there isn't really an available market in an efficient way to do an aggregate at the moment, as you probably know. Or to put something in place that would make a $50 million large severe convective storm only $20 million -- it's not that easy to do.

So that would be the kind of a particular piece of reinsurance that would cause somebody to want to go a little more aggressively into the Midwest. We're very comfortable with our position, our portfolio. For us, the bigger approach would really be -- was to thin the aggregations in the Midwest and then to put in place the terms and conditions and deductibles that we talked about earlier and also use a lot more technology. So for example, some of the larger risks, we have technology that has temperature sensors and water sensors that have done a tremendous job in giving people the information to make a large potential loss into a tiny loss or to head it off before it becomes a problem.

I think -- listen, we still think of this as an earnings volatility issue. I think we feel very comfortable with our aggregate exposures. So to Jeff's point, this is a discipline that we want to continue to build on. We're really proud of our teams in executing in a hard market to get us to a much better place. And so where is it limiting to us.

Personal Lines growth in the Midwest will still be somewhat constrained to further diversify our earnings stream. We're making great margins. So that's not the issue. The question is, do you want to repeat some version of 2023, and we do not. We think our investors deserve better than that. But we're pretty excited about the fact that what goes along with that is there's not a whole lot of folks that are anxious to write homeowners across the country. So being the best account writer, including the home, makes us distinctive. It just requires us to be good at what we do, including managing our micro concentrations. And that seems like a very sustainable business model into the future.

And so we compete against a lot of mutuals and regionals who, frankly, still haven't caught up to the margins that the marketplace. People sometimes look at the direct-to-consumer and then maybe the two large nationals in Personal Lines. That is a very small subset of the market that we compete in, right? We compete against a very different competitor set, and we are very much an industry leader at this point.

You mentioned Midwest a couple of times, obviously, you are a major player in the state of Michigan. There's no [indiscernible] reforms that went through a few years ago. I think it's a better state to do business with than it's been in the past. Has that made it harder for you to more competitive? Has it caused new entrants who previously avoided Michigan market to try and compete with some of your market share there?

Not in any material way. I mean there's always new players nipping in and looking at that, but I wouldn't say that we have any major competitors that -- whether it be on the Personal Lines side or the Commercial Lines side. There's no doubt that PIP reform has worked. We have customers that are not buying unlimited PIP now. They're buying down the limits. We're getting better paid for that. The reform at the claims cost side is taking effect.

So we feel great that we not only influence that issue, but that we're benefiting from it and that it's allowing us to improve our margins without really seeing new entrants that decided to take on. Because Michigan is complicated well beyond just the PIP issues. And I suspect that part of it is that the weather that surrounded the last few years maybe further dampened some people's interest. And all in, we're still one of the top writers in Michigan.

Can you help frame a little bit from -- you're planning on growing. You all sort of buying back stock. What is the ROI on a dollar deployed into the business versus a dollar return to shareholders?

I think the highest and best use for capital is growth, assuming that you can meet our margin requirements for that growth. But there's a limit to how much we can grow and at mid-single digits growth for 2026, which is what we've guided to, we're generating an awful lot of capital. So we have to decide what to do with that capital, and it's a bit of a high-class problem to have extra capital.

So I suspect it will be a variety of things. We have dividend opportunities. We've -- 21 years in a row, we've increased the ordinary dividend, and we'll certainly consider other things. We've been more active recently in stock buyback, and I suspect that will continue. And then we have other things that we can certainly look at, whether that be reinsurance opportunities, or investment portfolio choices, but I think we'll be balanced in order to deploy the capital in the best interest of shareholders, Josh.

Well, I appreciate the time spent with you today. I [indiscernible] you have good meetings. Thank you all in the audience and listening through the webcast. And we shall reconvene later.

All right. Thank you.

Thank you, Josh.

Good day, and welcome to The Hanover Insurance Group's Fourth Quarter Earnings Conference Call. My name is Nick, and I'll be your operator for today's call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Oksana Lukasheva. 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 Investors 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 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 statements section in our press release, the presentation deck and our filings with the SEC.

Today's discussion will also reference certain non-GAAP financial measures such as operating income and accident year loss and combined 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 remain 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 successfully navigate complex markets with confidence and clarity. In addition, we continue 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've been driving for the last 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've taken and the strong execution across our business. We've 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 creates 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 to deliver 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 towards 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 remain 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 continue 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 work bench, 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 margin 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 very 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've 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've 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 our investors for their trust in us.

With that, I'll 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 continue 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'll 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 in CAT, 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 remains 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're very satisfied with what we're 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 1 point from Q3, while price increases, including exposure changes, moderated only slightly to 9.4%. Price levels remained 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 multiline 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 of 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 continue 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 the Hanover in a terrific place.

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

[Operator Instructions] And the first question today will come from Michael Phillips with Oppenheimer.

Congrats on a nice year and quarter. Jeff, in your opening comments, you talked about adjusting the current year for auto BI severity. I assume you're 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 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. And I guess, does that mean that the pressure you felt from those casualty lines and Core Commercial, you felt less of a need to do so and maybe 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, yes, we didn't see a whole heck of a lot this particular quarter. It's 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.

Okay. Jeff, appreciate that. Maybe more of a higher-level question, maybe for Jack -- or Jack. As we kind of 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 -- or Jack, can you talk about any changes that you might make to how you approach your agency partners, I guess, specifically, do you talk to them more from management teams? Do they hear from you more? Do they hear from you less? Does your message, what you say to them, change as we get into a softer environment?

Mike, this is Jack. Thanks for the question. I'll 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're obviously becoming more strategic and operationally focused, and they're increasingly trying to work with carriers that can help them with their evolving operating model. 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, do you want to supplement that?

I like the way you came at this question, Mike, is are we doing anything differently? Or do we have to lean in more differently? And I'd say, yes, we adjust kind of 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, kind of the leading indicators, really focused on the benefits of keeping accounts stitched together, right, in a bundled way because when you separate those out and you have perhaps 2 shopping opportunities, that creates issues for them in the future with potential risk to retention. So we spent a lot of time talking about that, how to -- 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've heard me say this before, it's a super power of ours that we bring data and we help agents understand their own situation. So that's probably what I'd add to Jack's response.

The next question will come from Mike Zaremski with BMO.

Maybe on Personal Lines specifically, if you can kind of just tease out directionally what the non-CAT property benefit was in home? I think there was a benefit for the year, just so we kind of can better understand the run rate. You guys have obviously done an excellent job improving margins there. And just maybe higher level overall Personal Lines, kind of like I see the comment in your deck about expecting policy count to grow a bit. But I guess what's kind of the North Star in the current competitive environment? Would it be kind of very low single-digit PIF growth? Or any comment there would be helpful.

Thanks, Mike. It's Jeff. I'll 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 very 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 even particularly in the fourth quarter is having a healthy benefit. So it's -- I'm reluctant to spike that out, even though we've tried to estimate it because it's just -- 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.

All right. And I'll take the question on the North Star Personal Lines. So thanks for that. 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 as like strengthening that strength, growing thoughtfully while achieving our diversification objectives, not only across states, but even within states where we have a lot of market share, pushing ourselves continuously upstream into that prestige account space, the $750 million to $3 million space. And then as you've seen, importantly, continue to invest in that account solution. So classic cars, schedule items and things like that. So we are -- we continue to be focused on that.

I like a mid-single-digit growth objective kind of 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 2024 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 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 or maybe the industry trend-wise in terms of lawsuit inflation? Is it stabilizing at high levels, still maybe increasing, decreasing?

Yes. Thanks, Mike. 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's 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 a leveling out in terms of the environment itself.

And I think the way we've 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.

The next question will come from Paul Newsome with Piper Sandler.

I was hoping you could give us maybe a little bit more elaboration on the competitive environment in middle market commercial, which seems to be heating up. And I think there are investor fears that what we've seen in the large account pushes back down to the middle market. What's your perspective today on that?

Yes. Thanks, Paul. This is Jack. I'll get us started here. I would say that there's 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 some 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-sized accounts and 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 then maybe a different question. Longer term, I think catastrophe management has been an effort. The 6.5% looks a lot like -- for next year looks a lot 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 sort of broadly thought way?

Well, I think our objective is to really focus on earnings volatility. And so I 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, the 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 -- in our property aggregate management, but to be -- not be -- to be still relatively conservative in terms of how we model that out and choose our CAT loads.

Yes, 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 new technology that is having a tremendously beneficial impact on limiting those CATs where people 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.

The next question comes from Rowland Mayor with 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 as efficiency gains come 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 our rationale of 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 we -- the team has been very disciplined in that regard to find savings to fund the additional investments that are required for our future.

Yes. I don't think that you should interpret our moving away from guidance as in any way, lacking financial 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 we had guided to with or without CAT, it causes us to have an expense ratio elevation and just didn't really want to be slavish toward reporting against it or being held to it.

Having said all that, there's an awful lot going on with expenses. We have expense needs and demands to make investments in technology and data and analytics in AI, in a variety of different places, and we're making those investments in a way that we'll spend a little bit of 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 then ask on the repurchase volumes, and they've been steadily walking up the past few quarters and even the January number looked -- I think it was 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?

Yes. We bought back, as you said, $100 million of stock in the last 4 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 deal. 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.

The next question will come from Meyer Shields with KBW.

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

Yes, definitely. We're seeing the frequency on the property coverages in the auto and the homeowner side of things. And certainly, some of that's related to customer behavior, we believe. Some of it's related to the terms and conditions that we put in place, certainly on the home side and the weather, ex CAT weather. And then, of course, as you know, on the auto side, the safety technology that is being implemented in the cars as they roll off the conveyor belt and more and more of those on the streets and highways is definitely having an impact on the number of accidents and frequency down.

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

This is Jack. I'll say a couple of words in 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're not still at a traditional gap of new to renewal pricing. So Dick, I don't know...

No, we've never been at a more adequate price level in our -- as we look across all of our states in the 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.

The next question will come from Mike Zaremski with BMO.

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

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

And the next question will come from Daniel Lee with Morgan Stanley.

My first question is on the Specialty segment. I was just kind of curious to hear just some more details on like competitive dynamics. I know you guys mentioned just competitive pressure across the Property Lines. But -- and yes, 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?

Yes. Thank you, Daniel. 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.

Yes. So I guess my follow-up is, I'm also kind of 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 kind of see that subsiding as a little bit of the [indiscernible] markets start to open up? Just curious.

So I'll react to that too. Sorry, 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're positioned, which is middle to smaller E&S, and so the competition there isn't as severe as you might see in some other places. Also, we have a real nice mix now of retail play E&S business and wholesale space. 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're looking forward to talking to you next quarter.

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

Good day, and welcome to The Hanover Insurance Group's Third Quarter Earnings Conference Call. My name is Alan, and I'll be your operator for today's call. [Operator Instructions]. Please note this event is being recorded.

And 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 Investors section of our website at www.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 guidance for 2025, economic conditions and related effects, including economic and social inflation, potential recessionary impacts, tariffs, as well as other risks and uncertainties such as severe weather and catastrophes that could affect the company's performance and/or cause actual results to differ materially from those anticipated. We caution you with respect to reliance on forward-looking statements, and in this respect, refer you to the forward-looking statements section in our press release, the presentation deck in 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, as I mentioned earlier.

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

Thank you, Oksana. Good morning, everyone, and thank you for joining us today. The exceptional results we delivered in the third quarter once again reflect the strong performance across our business, the effectiveness and the potential of our strategy as well as the momentum we've established across the organization. In a market defined by continuous change and ever-increasing complexity, we're not simply managing our business in the current quarter. We're carefully studying longer-term market dynamics, anticipating material trends and developments and investing in capabilities as we adjust and refine our strategy. And we're positioning our company to continue to deliver meaningful value to all of our key stakeholders over the long term, leveraging the benefits of innovation, disciplined execution and the inherent strengths of our independent agency network.

In the quarter, we delivered operating return on equity over 21%, due in large measure to robust net investment income, a very strong ex cap performance and a quiet catastrophe quarter. As much as ever, we're proud of our continued solid execution as we navigate very complex and diverging market environments across various P&C segments, and we're even more excited about the competitive advantages we're building for the future.

What's particularly encouraging is that even as the environment evolves, the markets where we've chosen to compete are relatively rational and healthy. This stability, along with our diversified portfolio, broad-based profitability and experienced and talented team creates a very solid foundation on which we are building our business, investing in capabilities that are relevant to our agents and customers and accelerating the continued evolution of our business.

Each of our business segments made important contributions in the quarter. Our Personal Lines team continued to execute exceptionally well, delivering improved profitability and maintaining its focus on geographic diversification. The team achieved steady growth in the low single digits supported by strong pricing and new business, which is showing positive momentum. Our new business boasts a high-quality profile, centered on full account relationships with bundled customers now representing approximately 93%. Our account-focused strategy continues to be a real differentiator in today's market, driving improved retention and higher customer lifetime value. This approach further strengthens our resiliency in the competitive monoline auto market, as we provide our customers with a whole account solution for their complex insurance needs.

As most of our property remediation actions are behind us, the rate of PIF decline has slowed significantly. In fact, we're experiencing sequential PIF growth in our diversification states, and we're satisfied with our pricing relative to loss trend, particularly given the successful execution of our goals for the year, in terms of repositioning and profitability. The progress we've made has put us in one of the best positions we've ever been in personal lines.

Moving on to Core Commercial. With 2 strong businesses, small commercial and middle market, our Core Commercial portfolio offers the flexibility to adapt as market dynamics shift, and as we respond to a changing environment while sustaining attractive returns. In the quarter, our Core Commercial business delivered near double-digit pricing, while we carefully balance growth with portfolio quality. For its part, our small commercial business is gaining upward momentum with an encouraging growth trajectory.

Strong new business in the third quarter, high retention and underwriting discipline remain key strengths. Our workers' compensation Advantage TAP sales rollout is proving to be highly successful. We're now live in multiple states with more expansion underway, which we expect will help drive additional growth. This platform eliminates manual rating and issuance for eligible risks, consolidates policies and allows agents to generate quotes in just 8 key strokes, and in under 2 minutes for many customers. By increasing straight-line issuance with reduced underwriting referrals, it's significantly easier to do business with us, while enhancing our efficiency, accuracy and agent satisfaction.

Our small commercial rates remained strong in the quarter. This segment is less susceptible to market cycles, and we have confidence in our portfolio with a focused growth mindset and strong retention of our business. We continue to supplement organic growth with strategic book consolidations and distribution expansion. In Middle Market, our growth was impacted by a handful of large account nonrenewals and lost accounts, which underscores the heightened competition in the larger account property space. As a reminder, even within our middle market portfolio, we primarily focus on the small and midsize account sectors where we can differentiate ourselves with specialized coverages and risk management tools, combined with our cost-effective operating model. That said, underlying retention remain healthy, and we continue to focus on accounts that meet our return thresholds, supporting acceptable margin performance and mix quality.

Our differentiated risk solutions capabilities continue to set us apart. Water sensors are now deployed in the vast majority of our targeted buildings and our expanding telematics capabilities in Commercial Lines auto are designed to provide actionable insights that help customers better understand and manage their risks.

Now turning to specialty. Top line momentum accelerated significantly in the third quarter as expected, with net written premiums growing at high single-digit pace, a meaningful step-up from the first and second quarter. This included strong broad-based growth in a number of key lines with marine and health care, delivering solid expansion with sequential acceleration. Additionally, we posted another quarter of double-digit growth and stable margins in E&S. We're well positioned in E&S with a mix that plays to our strengths in a competitive environment.

We focus on smaller, lower limit accounts with a tilt towards casualty. The book delivers stable, attractive margins, supported by strong underwriting and a thoughtfully crafted appetite. Our dual wholesale and retail distribution model allows for broader market access and provides greater agility in navigating a bifurcated landscape. Our specialty team continued to achieve above-target profitability in the quarter, while implementing healthy renewal pricing increases.

Our robust profitability provides us with the flexibility to manage pricing strategically where needed. Despite somewhat tighter competition in some lines in particular property, the overall environment in our target specialty markets remains fairly rational. Lower middle market and small business specialty segments where we choose to operate are typically associated with lower cycle volatility and more resilient pricing. As a result, our markets continue to present attractive opportunities for profitable growth and we're gaining meaningful top line traction.

Before I wrap up my prepared remarks, I want to highlight some significant initiatives that are transforming our specialty operations. In professional and executive lines, we've implemented a new operating model to streamline quoting and to further strengthen agent relationships. Speed has become increasingly important to agents and clients, so we've redesigned workflows to improve turnaround times across quoting, processing and binding. Smaller, more transactional accounts are handled efficiently primarily through technology with input from transactional underwriters, while larger, more complex opportunities are directed to our most experienced underwriters who take a more consultative approach. This shift is already driving efficiencies while allowing us to build deeper agent partnerships, particularly as many of the larger distributors are refining their operating models to create more efficiencies and improve their margins.

At the same time, in E&S, we're fine-tuning and training a new AI-powered underwriting tool that streamlines the intake and triage of submissions from agents and brokers. This tool leverages our existing systems and artificial intelligence to structure submission data and then triages the submission against our risk appetite and other proprietary underwriting criteria. The benefits of the tool are substantial, enhanced operating efficiency and accelerated processing times result in significantly faster submission turnaround and market improvement in service levels. Moreover, it creates an enhanced agent experience with faster approvals or declinations and quicker buying times where appropriate.

An important aspect of this AI-powered engine is that is built upon modular architecture, which enables future scalability and therefore, can be extended into middle market, marine and other specialty lines, and even claims over time with modification and customization. This scalable approach we're taking ensures that innovation developed in one segment can be adapted and deployed across our enterprise, maximizing our return on investment while accelerating the transformation of our entire business.

With a clear strategy and continued investments in capabilities, talent and technology, we're building a specialty business that's agile, scalable and well positioned to meet evolving market needs, all while setting a high bar for performance and partnership. Our third quarter results further demonstrate that our strategy is delivering. We are achieving target or above target returns across most segments and geographies, positioning us well for growth acceleration into 2026. These results reflect the effectiveness of our portfolio mix, disciplined risk management and strong execution capabilities. We're excited about the momentum we're building across the enterprise, delivering with consistency and clarity while investing in our business. These investments, combined with our disciplined approach to underwriting and our strong agent relationships create a powerful foundation for sustained success.

With that, I'll turn the call over to Jeff.

Thank you, Jack, and good morning, everyone. We are very pleased with our strong results in the quarter, marked by several third quarter records, including operating earnings per share of $5.09 and a combined ratio of 91.1%. This excellent performance reflects our continued momentum and underscores the strength of our positioning as we head towards finishing the year and look forward to continued success in 2026.

Our combined ratio, excluding cats, improved 0.2 points from the prior year quarter, primarily driven by improvement in personal lines. Catastrophe losses of 3 points came in 3.8 points below our third quarter assumption and lower than historical averages. Benign weather played an important role and our property management actions have also contributed positively to our CAT and ex-CAT results. Our expense ratio of 31.3% was slightly above expectations, driven primarily by higher variable agency compensation, reflecting better-than-expected year-to-date results, including much lower catastrophe losses. We remain focused on managing expenses carefully while investing strategically in initiatives that drive our long-term success.

Third quarter favorable ex-CAT prior year reserve development of $12.1 million included modest favorability across each segment. In specialty, favorable development was $10 million or 2.8 points with widespread favorability, most notably in professional and executive lines, claims-made business.

In Personal Lines, favorable prior year reserve development was $0.9 million, driven by Home. And in Core Commercial, favorable prior year reserve development was $1.2 million. Favorability across a few coverages was partially offset by increased reserves in commercial auto as we respond to increased severity. Now I'll further discuss each segment's current accident year results, starting with Personal Lines.

This business posted an outstanding third quarter current accident year ex-CAT combined ratio of 85.8%, improving 3.4 points from the [indiscernible] ratio was 69.1%, an improvement of 0.7 points compared to the prior year quarter, driven by the benefit of earned pricing and continued favorable loss frequency across multiple coverages, most notably in collision.

Turning to homeowners. Our ex-CAT current accident year loss ratio of 47.2% was an 8.5 point improvement from the prior year period and favorable relative to our expectations driven by strong earned pricing and lower attritional loss frequency, which, as previously mentioned, we partially attribute to more benign weather. Personal Lines grew 3.6%, with new business momentum continuing to accelerate.

Growth is especially strong in our target diversifying states. We achieved renewal price of 10.5% in the quarter with auto pricing up 8% and home pricing up 13.9%. While price increases were lower sequentially, they remain above our long-term loss trend. Umbrella pricing remains strong, holding above 20% and consistent with the second quarter.

We are satisfied 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 94.3%, 2.5 points above the prior year period driven by the loss ratio. We continue to prudently increase picks in commercial auto in response to increased severity, and we also experienced a couple of larger claims in workers' comp in the quarter. Core Commercial net written premium grew 3.5%, fueled by strong momentum in small commercial, where top line expansion accelerated on the back of double-digit new business growth and healthy retention. Overall retention in core continues to be robust at 84.4%, underscoring the quality and stability of the book.

Core pricing moderated slightly, reflecting lower exposures from the slowing economy, while underlying rate increases remain stable and continued to outpace loss trends.

Moving on to Specialty. The business performed exceptionally well, posting a current accident year combined ratio ex-CAT of 86% and a current accident year loss ratio ex-CAT of 48.8%, slightly above the prior year quarter, but better than our long-term expectation of low 50s for this business. Property performance continued to be favorable and liability coverages remained within expectations. Specialty renewal pricing was 8.3%, up slightly from 2Q, while at the same time, retention improved sequentially to 83.2%, underscoring the continued appetite for our offerings. Pricing remains strong and above loss trend.

We are very pleased with the consistent execution in our specialty book including an accelerating top line and remain confident in our positioning to further capture attractive growth opportunities in our markets.

Moving on to a discussion of our investment portfolio, which continues to provide higher returns and remains a key source of our earnings power. Net investment income was exceptionally strong, increasing 27.5% from the prior year quarter to $117 million, reflecting growth in our asset base from underwriting and investment activity, improved partnership results, the benefit of higher reinvestment yields and the success of our portfolio repositioning efforts. During the quarter, the realization of certain tax carrybacks enabled us to further reposition the portfolio.

Third quarter NII also included a benefit of approximately $2 million from the investment of funds from our recent $500 million debt issuance. We expect to benefit in the fourth quarter of approximately $4 million. However, this benefit is offset by higher interest expense on our debt. The debt level is temporarily elevated following our issuance, as we have $375 million of senior notes maturing in April 2026 callable in January at par.

Our fixed maturity portfolio continues to carry a weighted average rating of A+ with 95% of Holdings investment grade. Portfolio duration, excluding cash, remained stable at approximately 4.4 years, consistent with our long-term asset liability alignment approach. We also maintained limited exposure to variable rate instruments, providing stability in our investment income and reducing reinvestment risk as short-term rates decline.

Moving on to our equity and capital position. Our book value increased approximately 7% sequentially and 21% year-to-date. We were active in share repurchases in Q3, demonstrating our ongoing commitment to returning capital to shareholders as a key component of our capital management strategy. From the beginning of July through October 27, the company repurchased approximately 323,000 shares of common stock, totaling $55 million, of which approximately 213,000 shares were purchased during the third quarter of 2025 for approximately $36 million, with the remaining balance purchased through a 10b5-1 plan during October. We have approximately $210 million of remaining capacity under our existing share repurchase program.

We're entering the final quarter of the year from a position of real strength, delivering a 19.1% operating return on equity, a 92.6% combined ratio and operating income per diluted share of $13.31 year-to-date. These results underscore the power of our diversified earnings engine and disciplined execution across the enterprise. Each quarter of this year, we've been slowly ramping up our top line growth. Looking ahead, we expect premium growth to continue to accelerate, given our smaller sized account focus in Commercial Lines and the momentum we are building in Personal Lines diversification states. Our fourth quarter CAT load is expected to be 5.2%.

With a strong foundation, resilient portfolio and exceptional team, we are well positioned to sustain this performance and to continue creating meaningful value for shareholders.

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

[Operator Instructions] Our first question today comes from Michael Phillips of Oppenheimer.

I wanted to start with the large account property in the middle market business just because we've had some kind of mixed stories from others. And I guess I'm going to hear your opinion of whether you think we've reached a floor for pricing there, first off. And then any impact specifically on your margins in the near term because of that?

Mike, thanks for the question. This is Jack. I'll say a couple of words here and then let Dick obviously respond with a little bit more specificity. But I think overall, you know that we have remained fairly conservative in the upper middle market, whether it be property or casualty driven. That tends to be where the market softens the quickest or decelerates in pricing. And frankly, we differentiate ourselves in a more dramatic way in the low- to mid-sized account, particularly with our specialization and niches.

So I do think that we are getting to the point where the competition that has increased, has to recognize that the property pricing can't continue to go in the wrong direction and the liability trends are gradually going to need to be addressed. So we think there is likely hopefully some bottoming out of that, but that's not where we focus most of our energy.

Yes. I don't have too much to add to that, Jack. I mean, I'd say it's -- we take each account one by one, and we look at what we believe to be our -- the technical pricing on those accounts, and we look at the full account, obviously. So we think about pricing property in the context of the other lines as well. So it's hard to say if the floor is here, but we're certainly going to remain disciplined. And we've been really disciplined about our ITVs and making sure those are in good order. So we'll continue to fight the fight account by account.

Okay. I guess turning to the core commercial and the accident year loss ratio. You said pretty clearly the 2.4 points was the large workers' comp and then in addition to commercial auto. But I guess given comments recently from you guys on pricing and loss trends there, I guess, ex that 2 things, your core loss ratio sounds like it was probably flat. Should we expect some improvement there? And I guess, what's your confidence that we might get some margin expansion in core commercial in 2026?

Mike, it's Jeff. We'll give our guidance on our loss ratio and the combined ratio when we get to January. But I think overall, we're very confident and optimistic about the price increases that we've been getting relative to loss trend. And it's hard to talk about individual lines, but I am optimistic about the firm overall, given the 9.9 points of price we're getting in core commercial. And I think that bodes well when some of the things that showed themselves in this quarter start to normalize.

Our next question comes from Matt Carletti of Citizens.

You guys have done, I think, a really good job in recent years. It's kind of staying ahead of the [indiscernible] in a really challenging environment. Jack, you made some comments about remaining forward-looking and not just kind of in the past and gave a few concrete examples. I was hoping maybe you could zoom out kind of 30,000 feet. And as we look forward for Hanover over the next new picture period 1, 3, 5 years, kind of -- kind of strategically where you want to take the business? I mean, if I'm hearing from some of your examples, I think I'm hearing speed and efficiency and ease of doing business with your agents is kind of a key focus. But what else might be on that list?

Thanks, Matt, for that question. And I can't -- I can tell you that I've never been more optimistic about our future sincerely. It's really hard in our business to build a diversified portfolio that has broad-based profitability. And frankly, we're right where we want to be in that regard. You're never going to get to the point where everything is perfect, but to have 4 major businesses contributing to our profitability, most of our geographies in relatively good position to grow. That's really the horsepower you need in order to lean into the current marketplace.

We had obviously an opportunity to build on the momentum in small commercial and specialty. And I really am optimistic that middle market will be able to contribute particularly next year in our profitable growth. And Personal Lines is already where we need it to be. The only restraint that we have is one that we self-imposed around diversification and making sure that our property aggregations are appropriate relative to earnings volatility. So I really believe we're at a point now where our capabilities are -- we're not done in terms of building new things and expanding our appetite where it's appropriate. But I would say that what we're most excited about is that the distribution is starting to come to us.

Increasingly, the best agents in the land are looking to improve their margins on the small base value, whether that be personal lines, small commercial or even in the small specialty world. So I think we have an opportunity to take our operating model work that we've highlighted and lean into changes in the distribution system that are making -- frankly, creating a higher demand for what we already do. And refining that and improving upon that is going to be a big part of the way in which we improve our own economics, but we help agents improve their economics. So you should expect us to talk early in '26 about how we're going to elevate our underwriting appetite at the right time, and I think we're positioned to do that, particularly in specialty and middle market. And look at additional sectors for both growth and relevancy. We have a track record of doing that, and we're ready to kind of use our elevated profitability to help us kind of lean into those opportunities.

Our next question comes from Mike Zaremski of BMO.

I'm switching to Personal Lines. On the home insurance side, and I appreciate the comments about the percent that's bundled now, definitely higher than historical. Just so we can maybe better appreciate the durability of the current profit margins. Would you be willing to share how much lower the frequency levels are that you expect kind of under the new terms and conditions, deductibles, et cetera, versus kind of the old portfolio?

Mike, that's really hard to say. At present, the frequency benefit is substantial. We haven't really shared that, and I don't think we're prepared to do that. But both in terms of auto, particularly around collision and in homeowners, we're seeing it. And as most have talked about, it's really hard to tell in auto, whether it relates to safer driving because of technology, safer driving because people are concerned about premiums going up or just general concern where they don't -- they've actually had a claim and they don't want to make a claim for fear their premium would go up or all of the above.

Going forward, we're trying to assess right now whether we think that frequency benefit is going to continue in both home and auto as we plan and ultimately as we give our guidance for next year. So stay tuned when we come back to you in late January, early February on the call, we will do our best to give you that readout.

Okay. Great. Pivoting to the core commercial segment, the underlying loss ratio, you called out, what might be some onetime on work comp, but then commercial auto, I think we'll assume that just given the state of commercial auto for a long time that maybe that's more run ratable as the impact it's having. So I'm assuming the -- in the past, I think you've talked about a 57% to 58% accident loss ratio target in that overall segment, is it fair to say that we should be thinking a bit higher?

That's hard to say. This year, as you know, it's 60%, a year ago, it was in the 58% range. And I think that's a reasonable target. I'm still optimistic about that. Even though we've raised our picks in commercial auto, the team is actively working that book and assessing and trying to obtain some price increases there. So still optimistic that that's the appropriate level going forward.

Okay. Got it. And lastly, just on the overall competitive environment. I know you've touched on this a bit already, but when we -- I think one of the main questions we've been fielding for a while now from investors is just the rate of change on pricing power in commercial. The pricing is decelerating a bit, but it's not decelerating a lot. So maybe you can kind of talk about are you guys doing something different than the market [indiscernible] underlying actions that's keeping pricing propped up? Or is just the market not as competitive as some might think it is when they look at especially the large account space?

Yes, Mike, this is Jack. Thanks for that question. I think at the highest level, it's where we play and who -- and how we do business with agents. We are focused on the small to lower end of middle market business, not only in core commercial, but in specialty. And that is, I think something that is not as easy to kind of address for a lot of carriers because it requires a unique operating model and an ability to underwrite efficiently beyond just point-of-sale system. So I think it's not exactly a moat around it, but I think it's much more stable business historically.

And I think you're also seeing with some of the volatility in the upper middle market, both in specialty and middle that agents have less and less time to worry about saving a few dollars on the [indiscernible] market, if you will. So I think that's part of the influence, but we do work hard in creating some value such that preferred accounts can stay with the preferred market, and I do think that is how agents perceive us. Maybe I could just give Bryan a chance on the specialty area, in particular to highlight why we think we're kind of having sustained pricing even in a relatively competitive market.

Yes, sure. And I would say, Jack, to start, our play in that small and middle market segment, we see the competitive pressure, but it's definitely not as pronounced as we're seeing in other areas. And I think the work that we've done on our operating model to what I believe really solves a need for our agents, especially the larger agents, the consolidating agents and they're streamlining their placement platforms. And so our ability to turn the submissions around same day in a lot of instances, and really help their economics in this space.

It doesn't -- to your point, it doesn't create a moat around the business, but it absolutely provides us the benefit of their appreciation for the work that we do with them, and frankly, also just delivering a breadth of products that are healthy, so we can solve a range of their needs in a really efficient way.

The strong growth this quarter, the high retention and also the high price increase that we're getting, I think, is good evidence that Bryan's strategy is clearly working.

[Operator Instructions] Our next question comes from Paul Newsome of Piper Sandler.

I was hoping you could maybe give us some thoughts -- updated thoughts on the expense ratio goals. At one point, you're kind of looking for about 20 basis points of improvement per year, but that kind of got derailed by some other issues and some mix changes. As we look at '25, are we at kind of a place where you can think about returning to that goal? Or is that something that you just have to revisit entirely?

Over the long run, we are committed to that goal of 20 basis points per annum improvement, and that was built into our guide of 30.5%, and we'll address that end of January, February when we do our fourth quarter call. What I've said from time to time on these calls when asked about it, when we have years or periods where the loss ratio is below what we had guided to in the combined ratio, and also when CATs are below our guide, there are scenarios where the expense ratio has to increase a bit, but that would be a small offset to the overall decline in the combined ratio.

So even if you think about CATs, when we have lower CATs, there are slightly higher agency profit share that has to be paid. So it's a little harder to deal with the expense ratio in and of itself. But overall, Paul, we are committed to that long-term objective.

Our next question comes from Meyer Shields of KBW.

I wanted to really get [ Jeff off on ] both core and contingent commission rates. In the past, as pricing has softened. I think the broker's hands have gotten strengthened and they've been able to push for more. And I'm wondering whether you're seeing that and whether consolidation of the smaller account space among the larger brokers is playing a role?

Thanks, Meyer. Listen, I can tell you that as recently as the CIEB conference in October, we have had what I think is some of the most strategic dialogue with the biggest and best agents in the land around how we have a unique opportunity to work together to better serve customers in a more efficient way. And frankly, we've been really upfront that we don't get there by exchanging the last nickel that we both earn and move our margins into brokers margins.

What we've been successful in doing heretofore and I think we can continue to do that is use our capabilities to help agents improve their margins, particularly on the lower face value business, and to grow their business in a very strategic way through our partnering approach. And I really believe that the way in which we engage with agents keeps us out of a tug of war for the last nickel. And so we have not seen any major pressure in that regard. In fact, the bigger the agents get the more they want some stability in their contingencies, so we negotiate a proper balance of guaranteed supplemental type of stuff so that they don't come up dry on a less good year, but we simultaneously negotiate kind of taking some off the top to pay for that over time.

So I feel great about the way we're working with those agents in a very strategic way, and we're going to continue to push that as part of our strategy.

Okay. Perfect. That's good to hear. Related question, when you see technology that's certainly better to a lot of the competitors that are out there and the business that you win from that perspective, should we think of that as recurring? Or is that like a one renewal cycle? And then you've already gotten what you're going to get?

Maybe you could clarify for us a little bit, Meyer, when you say the onetime benefit, tell me what you're thinking?

So wondering whether you go through a year and Agent X has the technology that gets responses much faster stuff like that. So you've boosted the new account wins on that basis. Does the accelerated growth, is that something that persists going forward? Or is it just similar growth off of a higher base?

Let me let Dick kind of respond to that more holistically. But I think we're in a phase where agents are looking at who are their most strategic markets that can help them become more efficient and better serve customers at the right level, and all these things are tools. So I think embedded in all that is if you're positioned as a top-tier market, whether it be in small commercial or in specialty, particularly on the small end, you're creating kind of a strategic position that has some sustainability to it in terms of profitable growth. But Dick can update on the technology side.

Other color I'd add to that, Meyer, it isn't just about the technology on the way in, the front door, your technology, your system, your operating model needs to wrap around that customer throughout the year through your renewals that persist? How are you at handling endorsements and certificates and calls on billing, right? So it's a collection of services that brings [indiscernible] terrific experience. So the customer is happy with the carrier, happy with the agent. And as you know, particularly in the small commercial, the retentions are quite high. We have some of the highest retentions in that market segment in the industry.

So we've been at this for years to obviously have a forward-facing ease of quoting so that comes to us preferentially, but then the stickiness of that business is dependent upon the -- all the other components that you have in your operating model. So I would argue that it sustains the growth model.

Yes. And if I could -- this is Bryan, if I could just add one more thing. We've also worked really diligently in the small space on making the renewal process very low touch on the small, simple policies. So I would definitely say it's not just on the new business, but it goes through the process.

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

Thank you very much, everybody, for your participation today. We are looking forward to talking to you next quarter.

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

Okay. Thanks so much. We are going to move on. Our next guests are Jack Roche, CEO; and Jeff Farber, CFO of the Hanover Group. Jack is going to start with some introductory comments, and then we'll move into Q&A. And as always, if you have questions in the audience, please don't hesitate to raise your hand. We will get you the mic. And that way, we can ensure you're getting what you need out of this session. With Jack that -- let me try that again. With that, Jack, the floor is yours.

All right. Thank you, Meyer, and I appreciate the opportunity to be here with you today. And I'm also appreciative of the opportunity to just give you a brief update on the Hanover and dive into some good Q&A. And I think I would just headline the fact that we're really excited about where we are from a financial position and financial trajectory perspective that allows us to lean into this complex and dynamic market and start taking the enterprise to the next level. We've worked hard to navigate some pretty difficult challenges with the weather and with the changing loss patterns.

I think we've demonstrated to ourselves and to our investors that we have the right agility and capability to take on some of those challenges and in relatively short order, reemerge as a top performer from a bottom line perspective. And so now we're focused on using that broad-based profitability across 4 major businesses to our advantage, frankly, because I don't think the world is going to get any less complex or dynamic.

And we believe that the companies that have diversified earnings stream and real strong capability are going to be able to both navigate some of the challenges, but take advantage of the opportunities that naturally come from these type of market changes. So just real quickly in Personal Lines, we believe we're one of the top account writers in the independent agency channel, albeit in the 20 states we choose to do business.

We have an amazing small commercial platform that focuses not only on the point-of-sale-oriented business, but the non-point-of-sale business, which puts us in an enviable position at a time when agents and brokers are trying to consolidate markets and do more with less. Our specialty business now is approaching $1.5 billion and growing and generating tremendous returns, 9 businesses, 20-something products, all focused on the agents building specialization.

And then last but not least, our middle market business is in the best place it's been in some time. We are navigating the challenges that come in the higher limits business, but we believe that's going to be huge upside for our company as we continue to show the right level of discipline. So all in, we're in the best position, frankly, we've been in many, many years and excited about the opportunities ahead.

Great. Thanks so much. I want to start with a big picture question. I get a lot of question -- introductory questions about the cycle and less about other things that matter tremendously but are maybe harder to put into a chart. And one of the things where I think Hanover distinguishes itself is with this agency strategy. And I was hoping you could talk about how -- when you're going to either existing agencies looking for deeper penetration or for newer agencies, how you differentiate yourself from the competition?

Yes. Listen, a real important tenet to our strategy is being selective in who we do business with, but bringing forward a value proposition to the agents that are winning in the space, both big, medium and small, to give them specialized capabilities, but also give them a bit of a franchise approach towards that, frankly, the industry has lost over time. Many of our most capable competitors, frankly, over distribute and have become distribution agnostic over time. It doesn't make them bad companies, but it makes -- it really opens up an opportunity for a company like ours that's big enough to invest in businesses that are specialized, but also agile and capable of focusing more and more on agent strategy versus just ours.

And the biggest way we differentiate ourselves with the consolidators as well as the best midsized agents across the land is we've demonstrated the ability to listen and understand and digest the agent strategy, both nationally and locally and bring our capability set to help them advance. We believe when we do that well, we get more than rewarded, but that's really what distinguishes us on a daily basis. And I think you know we've been able to build things like our Agency Insights portal and other analytical tools that make that dialogue less anecdotal and more specific about how do we build those future partnerships in a way that's mutually beneficial.

Great. Thank you. We've -- agency consolidation has been a constant really since -- well, I started in the '90s, and it predates me by a few decades. One of the more recent themes has been the largest brokerages out there, focusing more on the smaller end of the middle market or the small account market. And I was wondering, given that, that's a lot of where Hanover focus is, how does that aspect of consolidation impact your growth strategy? What are the costs? What are the opportunities?

Yes. Listen, if we're honest with you, over time, we wondered, frankly, how the flow businesses would factor into our value proposition. Many of the large and medium-sized agents get up every day and think about writing midsized accounts or greater and generating really good returns and adding value. But the reality is that many of those agents have spent the last decade buying agencies, integrating them and have more small commercial and personal lines and frankly, smaller specialty business than they ever expected.

The other reality of that situation is that those -- that business, that part of their portfolio is -- probably has the lower end of the EBITDA margins, and they need the most help in terms of either consolidating that or creating new efficiencies for this business that they've paid a fair amount of money for. So our relevancy in the distribution system has actually gone up even though we spend a lot of time on the specialized businesses and try to be in that day-to-day flow of transactions. Our dialogue increasingly has been in the flow businesses all the way through the specialty and how can we help them improve their EBITDA margins, where should we be account-centric versus more specialized by line of business or sector. And I would say that half of our dialogue with the national folks now is really on that aspect of our value proposition.

Great. So I want to segue to that to the TAP platform because I imagine that's one of the areas or one of the opportunities for improving efficiencies. I was hoping you could talk through where it is, where it's going and how it helps win share.

Sure. So TAP sales is our point-of-sale platform that transcends from personal lines to small commercial. And now many of our smaller specialty lines are plugged into it, not necessarily transactionally, but an account manager or a CSR inside of an agency can get access to those various business segments in our point-of-sale system today better than they ever have. The investment we made in tap sales, particularly in Small Commercial was a really important one. It has now put us in the top tier of day-to-day transactions. It's created efficiencies at the account manager level by up to 50% in terms of time spent on location input. Imagine the talent challenges that agents have today.

When you can take your day-to-day transactional and start cutting down time by half, expanding your appetite and through your profitability being able to be more offensive, all of those things are incredibly attractive to agents when they're trying to gain those efficiencies and do more with less, as I said. So we're going to build on that. We're currently almost through with adding our workers' comp line into that, increasing our straight through so that there's less touch. Our responsiveness for many of those lines now are hours instead of days when there are kickouts. So our day-to-day proposition for account managers and CSRs has really never been better.

Okay. And just as a quick follow-up on that, the agency response to TAP sales.

Well, we've really exceeded every metric that we set out for ourselves when we made that investment, particularly in Small Commercial. We're getting more account managers using the system, the uptick of number of accounts that they're putting into the system, the efficiency coming through in the close rates, all of the major benchmarks that we set for ourselves a couple of years ago, we've met or exceeded. So we couldn't be happier with the way that platform has extended our small commercial capabilities.

And should we look at growth, whether it's policy counts or premiums as the primary outcome that we'll be able to see?

Yes. But I think what we're going to further demonstrate is we didn't just put a new platform in place. We converted our pricing to be able to take on the higher end of the small commercial. So more and more of our non-point-of-sale business is being able to be levered into the tap sales point-of-sale system, but in a way where we price it with the same level of precision.

So we're going to demonstrate not just growth overall, but how we're able to kind of further diversify our offering to agents and become more relevant at a time where they have way too many markets for their lower-end premium. And with our Agency Insights tool, when we go out there and show people how their -- how fragmented their business is, it just makes their anxiety go up. And so what we are bringing forward is solutions, not just data to show them that the inefficiency in the smaller end of the market really needs to be resolved, and we simply have more and more tools to help them.

Okay. That's great. I want to drill down to one thing that you just said, which is that agents have too many markets that they're dealing with. It has been a long-term thesis of mine is that at some point in time, there is an inefficiency to be blunt, there are probably too many companies out there relative to the and there are expenses associated with that. How important of a factor is that to your distribution network?

Right now, as you've seen, as organic growth on the agency side starts to subside a little bit, the focus, whether you're preparing to do an IPO or whether you're trying to satisfy your private equity partners or you're trying to build and maintain your independence, you've never been more focused on your economics. And so I think folks are looking at what are the various ways in which I can better serve customers preferably in a digital way, but do it in a more economical way because the smaller end of the business just keeps coming at you. And so many agents have tried to either put it in a box or separate it.

And what they realize is that is where the growth of the economy comes from and being better able to serve that business is better than trying to kind of push it aside and treat it like a less significant part of their portfolio. So we're -- I can tell you, we are gaining more and more traction with the biggest agents in the land around how can we take their market consolidation and you have to segment it in ways that it is executable. And what people don't realize is the last 2 decades, we've gotten more proprietary as an industry in underwriting and in pricing and it's simply not as simple as everybody thinks it is.

So you need somebody that not only has a breadth of appetite and some pricing capability but has a demonstrated skill and experience in sorting through the portfolio with our analytical tools and allowing them to focus those consolidation efforts in a way where they actually get something done and we are making meaningful progress. But if everybody just wants to take their nonstrategic carriers and try to jam it into their strategic carriers, they're being very naive about what it takes to get -- to do more with less.

Right. No, that's very helpful. I want to shift to talk about -- I'm sorry, to shift to talk about individual lines of business. And you mentioned that there's a simplistic assumption for pricing, and I'm going to ask this question intentionally simplistically. And that is the industry has struggled with commercial auto, right? I completely get that it is ground zero for social inflation. You've got very, very sympathetic plaintiffs in many cases and a very aggressive trial bar.

But it seems to me, and I haven't done this work in 25 years, but it seems like, okay, all we need to do is in our pricing assumptions, assume that severity is 2 points higher than we used to, and then you get to adequate pricing. But we haven't yet seen the industry get to that point where, okay, yes, severity is high, pricing is high enough to reflect that. What am I missing in the process? What are the complexities that sort of get in the way of that happening?

Commercial auto has been a challenge for the industry for a dozen years. And as much as many in the industry think they're making progress, the severity trend seems to be moving away. And it is clearly the epicenter of lawyer involvement and social inflation, and that doesn't seem to be abating really anytime soon. Fortunately, for the Hanover, it's a small portion of our overall business. It's less than 7% of the business. And for us, we tend to write smaller accounts. We tend to have smaller vehicles, and we tend to have smaller limits.

And while we're going to be going after this and getting additional rate, I feel like with our conservative reserving, I think we're in good shape. But the industry really needs to deal with it, and there's a lot of solutions. I think price increase is really just one of them. The industry is really focused on how to tame the legal environment a bit. And that's going to be state by state. It will take some time, but there are a lot of things happening.

Right. And we have seen some states actually come aboard.

Georgia, Florida, a few states. Absolutely.

This is a two-pronged question because if you go back several years, and it's really early in the period of time when people were talking about social inflation getting worse. So Hanover said, you know what, we're going to focus on regions or jurisdictions, if you will, in the most literal sense, where the courts are less difficult. So the 2 questions I want to ask are, one, how is that manifesting itself in your commercial auto exposure? And two, what's the next step for that for general liability itself, which is, as I understand it, where the strategy first emerged.

Yes. I think as far back as really latter part of 2011, we clearly acknowledge that something was changing in terms of the duration of liability cases and those increased involvement of lawyers. And so we started pricing, I can remember in 2012, 8 to 10 points of price and got back up over 10. So this is like Jeff said, 12 years of pretty substantial pricing, it turns out it's simply not enough, right? The environment was getting worse along the way. And I think what we did first in auto is we eliminated the vast majority of any monoline auto and assume that, that was no longer a good value proposition for us. We downsized private manufacturing fleets, durable wholesale type accounts that auto as kind of the line we moved away from.

We also took a very serious look at the geographic concentrations or penetrations because there are states like Texas and even Southern California and downstate New York that just were magnifying the problem. And so we got after it. When we start, we also decided to remove ourselves from monoline or unsupported umbrella because that's essentially excess auto. Then we -- as you saw, really kind of, I think, around 2018, we started to presume that, that was going to start to leak its way into the slip trip and fall type of exposures because that's the next biggest category that attorneys were easily able to find claimants that they could exercise on. Auto is easy because as soon as you have an accident, it gets posted at the police departments, it gets spread around and you have letters from 6 attorneys.

But when you slip in the grocery store, it's a little bit harder for them to figure out. It's more volunteerism, but it's penetrated there. We made some meaningful adjustments like you referenced in the big cities. We got off a lot of real estate, a lot of OL&T exposures. And we did this all before, I think the industry started to talk more and more about legal system abuse. So I think that's what we've been able to demonstrate to investors is that listen, everybody's got this problem to different degrees, but have you done something about it beyond price that hasn't been sufficient and I think we make a good case.

For example, in auto, over the last 5 years, we actually have a lower level of PIF in commercial auto. We compete against some people that have grown commercial auto in a meaningful way during that period and likely have deep regrets about what that did to their reserve position and their results. So I think that's what we commit to do is being very transparent with our investors that this is how we're growing the business. This is where we've seen some progress. This is where we've seen some things not work out and have a reputation for dealing with things along the way and not letting them build up to the point where they become huge problems for the company.

And the combination of being selective about geographies being selective about particular industries that we focused on has manifested itself in the last 5 years of having substantially reduced frequency of these matters. The severity is the severity. And in some cases, we can moderate the severity by avoiding some judicial hell holes and all that, but severity is up a lot. But thank goodness, our frequency of matters is down a lot, which allows us with some good reserving and some price to be able to have a conservative balance sheet.

Okay. Fantastic. When we take that, maybe in the other direction on a -- from a growth mindset, what's the process and -- sorry, process -- little Canadian -- and time line for adding new industries to core commercial.

So we'll continue to flex our appetite. And I would say that in small commercial, we are very diverse in terms of the industry sectors. I don't think there's a lot of areas where agents said, "Hey, we need you to -- maybe habitational is an area where we're particularly conservative." But beyond that, I think we're seeing as a pretty broad-based appetite in small. In middle, we've been more discriminating for good reason. But I would say most of our appetite is more of percentage of penetration or percentage of your portfolio. So for example, we're -- we have a moderate level of concentration in construction. There are times when the construction business is more palatable.

And there's other areas where you have to contract. Human service agencies right now is a particularly challenging sector. But our expectation is as the market contracts and pricing really comes through in terms of conditions change, that will flex back in and be a little bit more robust at the right time for those sectors. So I don't think there's any particular area sectorally that we're missing out on or that we think is a big part of our next steps. But it's the ability to kind of be more agile around what levels of growth you're going to have in each of the subsegments and geographies.

We have a model where our local RVP understands what we bring to the table, but it's their job to help us understand what is our portfolio going to look like in that particular state. And that is super important because what we look like in Texas is a lot different than what we look like in Maine and it needs to be. And it's not just about what economy lives there, it's about what are the legal and CAT and other exposures that make our portfolio kind of different by geography. It's a big part of our secret sauce.

So when we think about that, just as a follow-up, the geographic growth ambitions, how does this enhance or constrain your growth appetite?

It does both. We'll have all of our field leaders into our home office next week, and they will present as they do twice a year, what their proposition is, why should they get stronger capital allocation. Are they in a position for growth? Or do we need to be patient and see them continue to make some modifications in their underwriting and their portfolio management. Again, that's a big part of how we run the company. But as you would imagine, whether it be personal lines or commercial lines, we have more and more geographies that are ready for some elevated growth. We're never going to be one of those companies that's going to be growth for growth's sake. It's just not how we're born.

But we are more diversified in our earnings stream and we have more geographies and businesses that are hitting our hurdle rates, and that allows us to kind of elevate the growth of the overall firm, but it still comes back to one geography at a time. Where are we? What steps do we need to take? But if you have a dozen plus states that are hitting on all cylinders, our expectation is that we're ramping growth and growing our business disproportionately there.

Okay. Fantastic. I do want to take a second just to look through the room to see if there are questions. Go ahead. Clayton, they just bring you the mic.

Just on a high level, when you think about the business cumulatively across the board and you think about the general pricing trend and loss cost trend and you think about your forward-looking accident year loss picks. Could you just talk about that trend and how you think about the margin from here? And if it can actually get better or it's just too difficult of a macro backdrop and too much competition?

Yes. I'll make a couple of comments, and then Jeff you jump in. I've done this -- I've been in this business a while and realized that pricing versus loss trend is super important, but it's anything but a static measure. So we think about it as right now, we feel like we're pricing our product overall at or above loss trend in all of our major sectors. But we also think out into the future, if I use middle market as an example.

Right now, you're seeing some compression on the property side because a lot of people have priced their product more aggressively, have changed some terms and conditions. And so in some ways, the pricing should decelerate. On the other side, I think we're a little slow as an industry to recognize the liability pricing that's required given the way those trends have gone about it. As an account writer for the most part, we balance that, so we're not too schizophrenic. But I believe as we go through the rest of this year and into next year, you're going to see a significant hardening on the liability side. So that's -- that forward-looking approach is what allows us to kind of think about, right, today, we're certainly hitting the pricing targets that we want.

But we are starting to position ourselves for when some of the less capable or more disadvantaged folks on the liability side start to reduce their appetite or accelerate their pricing where can we take advantage of that or where can we actually turn that into some accelerated offense. But overall, I think the answer to your question is I think this is a pretty rational market.

I think people -- there are some areas where there is some pricing pressure. Well, you've got some sectors that are performing in the low 80s in terms of the combined ratio. That's not -- there should be some competition there. But I go back to the diversification of our earnings stream. What makes us really excited about our proposition going forward is we're not overly dependent on any one sector, right?

We have 4 major businesses. We have almost 20 businesses sectors below that. And we have optionality in terms of if we see some compression in certain parts of our specialty business or if there's some accelerated competition in certain small commercial states, we have our personal lines business that's come back into its own. We have a middle market business that will likely take advantage of some hardening on the liability lines. And that really gives us some real power going forward.

So to talk about a baseline, I'll talk about our year-to-date results because it tends to eliminate the vagaries of individual quarters by segment fluctuations. So as I think about we're -- I think we had an 18% ROE year-to-date. So we're performing at a pretty solid level. If I go segment by segment, the core commercial segment had slightly heavier losses largely driven in the first quarter property. I think there's room for improvement on that basis on that benchmark. Specialty had a very strong 6 months particularly in the second quarter, and I think that should continue at that level, but hard to say.

And personal lines has some room for improvement as continuation of price -- of earned price above loss trend should show some improvement as we go forward. And that, coupled with the ongoing increases of NII based on cash flows that have been strong and also buying new bonds at higher interest rates that are rolling forward gives us confidence as we go forward for the rest of the year.

Okay. And then Mark, let me just get the mic to you.

Just as a follow-up on that. You said the market is pretty rational, commercial property, maybe like there's a little bit of over correction going on in certain types of markets, coastal markets or lines that have had some losses or something. What about personal lines?

Like do you think there -- are we -- are we moving into a more moderating rate environment that's more consistent with kind of low to mid-single-digit claims inflation long term that everyone believes? Or do you think there's risk as we look out kind of 12 to 18 months that there's a need or a potential risk of overcorrection in personal lines just like there has been in some areas of commercial property this year.

Sure. Yes, I agree with your view on commercial property. And I think you know about us, we really are not an opportunistic property market, right? We don't overindex on E&S property or coastal property. So we see that, but we don't feel terribly affected by. In personal lines, I'll succinctly tell you that I think the personal lines business is further segmenting itself, right? And the reason why I emphasize our account orientation is because while those that focus almost exclusively on auto are headed down a dangerous path of becoming a price war and potentially overcompensating on the back end of the cycle.

On the other side, even the folks that had intentions of being a bundler are doing a lot less bundling these days because home is a challenge. People are a little bit worried about whether the weather patterns are going to continue. And so we're seeing inside in the IA channel, it still represents about 38% of the market, some real stabilization.

And I'll remind you that there's only a couple of nationals. There's a couple of big super regionals like we are in the personal line space in 20 states and then a whole bunch of smaller mutuals and regionals. And so 2/3 of the personal lines market in the IA channel, which has been pretty stable, is driven by companies that are behind. Either because they haven't gotten their insurance, the values up yet, they haven't reconciled their property aggregations.

They don't have the pricing sophistication that the nationals of the midsized companies have. So there's still a fairly challenging market, particularly in the IA channel, for somebody to say, how do I -- I can chase some auto pricing, but then I got to place the home with somebody and there's not a lot of monoline home players, particularly in Middle America. So we feel like we're in a pretty good spot where our margins are in good place. We're still getting relatively good price, and we just can't get greedy.

We've got to keep being thoughtful about what the right pricing is for a total account that allows us to hit the returns that we want to do, but provide some relative stability because the consumers are hurting, right? This is a challenging time for many consumers in the personal line space. So we monitor the direct-to-consumer market and what's happening there. We pay attention to the captive channel. What I would tell you, inside the IA channel, we still feel like we're in a really good position and it's reasonably responsible in terms of how the pricing patterns are playing out. Does that hit it?

Okay. Perfect. I want to spend a little time talking about specialty, maybe from 2 different perspectives. First, just a broad overview, how much of your specialty book involves unusual lines where you've got the -- you've got some lines or customers in the core commercial segment.

So the strength of our specialty business is that we have a number of businesses that created an expert-to-expert experience where an agent has expertise and management liability or professional liability or some health care space, surety, where we handle that, I don't want to say a monoline basis, but on a kind of expert to expert experience. We may or may not write the casualty or the other lines, but we're still dealing with an expertise-based model.

But because we play on the lower end of the spectrum, kind of small to midsize accounts, we have an added ability to go out to a number of our agents and see where we can cross-market or cross-sell. If you take away from some of the portal business that we have for like Builder's Risk or some of the online stuff that is just literally off the point-of-sale system, it's roughly between 35% to 40% of our specialty business has some connectivity to the core lines.

And I quite frankly think that's healthy because what we don't want to do is let cross-sell become obligatory. It's really hard to have appetites across multiple lines or multiple businesses and get it right. So I think what we've been able to do is, and I think that percentage, 35% to 40% is probably industry-leading. Particularly for management liability and professional liability, I think many of the people we compete against either get their business exclusively through wholesalers, which means they're, by definition, getting a monoline proposition or they're dealing with the brokers or the bigger accounts where it is -- they're really not even attempting to do any cross-sell.

So I quite like the way that mosaic plays out for us. And we have different strategies to kind of bring that forward. And our core lines underwriters, both small commercial and middle market, they have incentives to go out and find the desirable specialty lines that are associated with our core lines. And that is when you hear Bryan Salvatore talk, that's what excites him is that he's part of a company that thinks like that and can help extend his specialty business into the core line area.

Okay. That's fantastic. And then another specialty line that can mean a lot of things is marine. I was hoping just to drill down in terms of what you currently focus on in Marine and maybe what the growth prospects are expanding that definition.

Yes, I would say marine is probably our strongest specialty business, frankly, both in terms of consistent high profitability but also our growth prospects going forward. It's approaching $0.5 billion. It is a -- we have some of the best talent in the industry. When you go out to the core independent agents, there's only 2 or 3 markets that they depend on a regular basis for builders risk, contractor's equipment, motor truck cargo, things like instrument floaters and musical -- there's all these non-fixed property exposures that are best underwritten and placed over time by marine underwriters. We do a small portion of our -- in the ocean marine, but that's really not our specialty.

We're more in the inland marine. But it's that breadth of product line. In fact, from a strategy standpoint, we try not to get any subsector of the marine business to be more than 20% of the portfolio. Because over time, things ebb and flow, and it's that diversification in the Marine business, that has allowed us to consistently produce sub-90 combined ratios and continue to grow the business. So I couldn't be more excited about it. The leadership that we have in that business is second to none and we have huge headroom ahead for us in the marine business.

Okay. And then as a follow-up on specialty, and I always defined specialty is relying more on underwriting skills and maybe simply analytics. I know that's a little bit of a generalization. But what does Hanover do to attract, to retain and to train underwriting and claims talent?

On the claims side?

And on the underwriting side.

And on the underwriting side. Yes. I mean one of your premises is that you go all the way from personal lines on one side of the spectrum to maybe some of the most bespoke specialty businesses. Highly analytical, highly actuarial to much more of an art than a science. The data is important across all of our businesses, but data analytics and data science and the ability to put various products together are most important in personal lines and small commercial and frankly, intuitiveness and experience and then figuring out how to get some efficiencies on the specialty business is kind of the continuum that we work with.

I think one of the strengths and the reason why I think we're winning the talent war is because people look at, if you just stay on the specialty side of the business, they can be part of building something and helping us redefine operating models on the small to midsize business. This is an exciting time that if you are investing in technology and data and analytics, and you have people that like working on that small face value business.

The game is changing, whether it be building portals, working more directly with agents giving them some opportunity to do some pre-underwriting in a box environment or just leveraging the service center environment that we've created. We've got more and more specialty business where they're saying, "Hey, can you just service this business for me because it's some of the lowest EBITDA margins we have."

On the claims side, I think there's a parallel to that. The companies that are leaning into the operating model change and figuring out what they have to touch, what they don't have to touch. I'll give you a small example. Six years ago, we had 18 appraisers that would have to go out and see probably 80% of the auto accidents that we had. It was a very archaic way, but the COVID changed that overnight. And now what we have is a set of digital tools and inside appraisal folks that can do part 4 or 5x in terms of workload.

The efficiency and the effectiveness of the appraisals is improved and the customer experience is through the roof. Our NPS scores in claims are the highest they've been in some time. So it's so ironic that we're at a -- if you're focused on this and you know what part of the value chain has an opportunity to improve. The adoption rates are way up. People are just -- they want to do things digitally. They want to get things done, and we're leaning into that environment and improving expenses, customer experience and, frankly, creating new roles for talent to be able to come in and say, "Hey, that job is more enticing to me than being heckled inspector or driving out and looking at cars for a living." That's just, frankly, not that exciting of a job anymore.

It's not that rewarding. We've got 30 seconds. I'm going to throw in a quick question on the personal line side. You're in 20 states now in x years, what number will that be?

I don't know is the right answer. I think some of that will be how the personal line plays out. We always have a set of next states that we would consider. We also have a list of states that probably never good. And those states we've been pretty disciplined on. I think it's going to be a function, frankly, of how the game plays out in terms of independent agency persistency in the channel, whether our account orientation continues to evolve as something that's truly distinctive in the marketplace. If it is, I could see us being in another half a dozen states, I don't see it ever being 40 plus. Some of the states are just undesirable from either a legal or a weather perspective. And frankly, we can be a super regional in personal lines and fit our agents' desires for that business. In commercial, we think of ourselves as really a full national player.

Right. Perfect. With that, we've come to the end of our session. Please join me in thanking Jack and Jeff for the session.

Thank you so much.