THG 2026年第3四半期決算説明会：営業EPSは5.15ドルに到達

要点

• ザ・ハノーバー・インシュアランス・グループ（NYSE: THG）が発表した第3四半期の営業EPSは過去最高となる5.15ドルに達し、営業ROEは約19%となりました。
• コンバインド・レシオは92.3%でした。自然災害を除いたベースでは前年同期比で2.6ポイント改善し85.5%となり、すべての主要セグメントで基礎的な損害率が改善したことが寄与しました。
• 正味計上保険料は3.1%増加しました。コア商業用保険は4.6%増加、個人用保険は1.7%増加し、一部のスペシャリティ事業もより力強い伸びを示しました。
• 純投資収益は12.7%増の1億3,190万ドルとなり、投資可能キャッシュの増加や再投資利回りが満期到来利回りを上回ったことが寄与しました。
• THGは当四半期中に約386,000株を8,600万ドルで自社株買いしました。10月26日時点で、年初からの累計買付数は130万株を超え、平均買付価格は約197ドルでした。
• 経営陣は、通期のコンバインド・レシオが当初のガイダンスを明確に上回る好改善となると予想しています。引き受け実績の向上に伴う代理店向け利益分配や従業員インセンティブ費用の増加はあるものの、好調な業績が背景にあります。

主要財務データ

事業および営業業績

個人向け保険部門

個人向け保険部門の災害除く当事故年度コンバインド・レシオは81.9%となり、前年同期比で3.9ポイント改善しました。住宅所有者用保険の災害除く当事故年度損害率は6.6ポイント改善して40.6%となり、既経過料率の改定、良好な小口損害頻度、大口損害の減少および免責金額の変更が寄与しました。

自家用自動車保険の災害除く当事故年度損害率は1.2ポイント改善して67.9%となり、特に車両保険をはじめ複数の補償で損害発生頻度が良好に推移しました。更新時の料率改定も引き続き堅調で、自動車保険は7.1%上昇、住宅所有者用保険は10.9%上昇しました。

保険料成長率は1.7%となりました。これは、THGがセット販売や高価値契約への移行を継続したことによるものです。建物補償（Coverage A）の補償限度額が50万ドルで記録された86%の契約維持率 および4%の保険料成長。同セグメントの新規事業は 5%増加し、引受査定依頼件数は 21%増加しました。プレステージ商品は、当四半期および年初来累計の双方で2桁成長を達成しました。

コア・コマーシャル

コア・コマーシャル部門の正味収入保険料は4.6%増加し、 更新時の改定率は7.4%となりました。自然災害を除く当年度コンバインド・レシオは1.1ポイント改善して 93.2%となり、対応する損害率は 60.5%へわずかに低下しました。

ミドル・マーケット部門の保険料は6.7%増加しました。これを支えたのは前年比で3ポイント以上向上した契約維持率です。THGはTAP Salesを通じた自動引受の拡大も進めており、労災保険での展開は第4四半期に完了する予定です。

同セグメントの報告ベースのコンバインド・レシオは100.5%となり、 主に自然災害損害の増加と、規模の小さいポートフォリオにおける通常の四半期ボラティリティを反映しています。経営陣によると、年初来累計のレシオは約97%であり、時間をかけてこれを下回る水準に改善する機会があると見ています。

スペシャリティ

スペシャリティ部門の自然災害を除く当年度コンバインド・レシオは 84.6%となり、前年比で1.4ポイント改善しました。自然災害を除く損害率は47.7%となり、好調な財物保険の業績に支えられました。

ハノーバー・スペシャリティ・インダストリアルおよびハノーバー・プログラムを除いたスペシャリティ部門の保険料は6.7%拡大しました。保証保険は 8.8%増加し、E&S保険は11.7% の伸びへ加速しました（第2四半期の6.5%から）。またマネジメント・ライアビリティは15.5%増加しました。スペシャリティ部門の契約維持率は前四半期比で83.2%に向上しました。、更新時の価格改定率は4.3%に達しました。

経営陣は、E&S（規格外保険）の成長の一因として、AIを活用した案件の受け付けと選別（トリアージ）を挙げました。競争が激化している財物保険市場では引き受け規律を維持する一方、スペシャルティ保険の正味収入保険料の伸びはさらに加速すると見込んでいます。

投資および資本

運用資産の約88%が現金および投資適格の固定利付有価証券で保有されていました。満期保有ポートフォリオの平均格付けはA+であり、保有資産の95%が投資適格に格付けされています。

経営陣によると、新規投資利回りは満期を迎える資産の利回りおよびポートフォリオ全体の実現利回りの双方を上回り続けています。金利上昇に伴い当期の未実現損失（評価損）は拡大したものの、同社はこれらの評価損について、信用問題ではなく金利要因によるものだと説明しました。

THGの自社株買い授権枠の残高は約5億4,600万ドルとなっていました。経営陣は、同社が十分な余剰資本を保有しており、今後も持続的な資本創出が見込まれるとし、配当と自社株買いが引き続き資本配分の重要な優先事項であると述べました。

経営陣のガイダンス

経営陣は、通期のコンバインド・レシオが会社の当初予想を明確に改善すると見込んでいます。これは、最初の9か月間の実績が当初の想定より約2ポイント良好に推移したことを受けたものです。

第4四半期のカタストロフィ（自然災害）損害の想定比率は5.2%です。保険引き受け収益性の向上により代理店への利益分配や従業員のインセンティブ費用が増加すると見込まれており、その結果、事業費率が通期目標の30.3%のガイダンスを達成できない可能性があると経営陣は指摘しました。

長期的な視点において、経営陣は魅力の乏しい市場で保険料規模を追求するのではなく、利益を伴う成長に引き続き注力しています。同社は、多様化されたポートフォリオと現在の高い収益性が、今後3〜5年間の成長機会を支えると期待しています。

リスクと注視事項

• 一部の財物保険ラインや低価格帯の個人向け保険分野では競争が激しい状態が続いており、短期的な保険料成長の制約となっています。
• カタストロフィ（大災害）損害は、特に中核商業用（コア・コマーシャル）などの小規模事業セグメントにおいて、四半期業績の変動要因となる可能性があります。
• THGは、不確実な賠償責任トレンドやソーシャル・インフレ（訴訟リスク等による保険金支払額の増大）に備え、慎重な引当金の計上を続けています。経営陣によると、準備金は保険数理上の中央値を上回る水準で積み立てられているとのことです。
• 労災保険の発生頻度は、料率が横ばいまたは下落傾向を示した数年間を経て、一部の州および業界で増加に転じています。
• 金利上昇は、信用力が安定している場合であっても、固定利付証券の未実現損失を通じて報告上の純資産価値（BVS）を圧迫する可能性があります。
• 計画を上回る高水準の収益性は変動報酬費用を増加させるため、保険引き受けマージンの改善効果が一部相殺される可能性があります。

アナリスト質疑応答の要点

成長とマージンの比較： 経営陣は収益性の維持が最優先事項であると強調しました。THGは競争の激しい市場で短期的な成長を無理に追うつもりはありませんが、ポートフォリオ全体での好調な収益が今後3〜5年間の事業拡大に向けた強固な基盤を構築すると信じています。

価格維持力： 同社は、持続的な価格決定力の背景として、パッケージ化された高価値の個人向け口座、小規模な商業顧客、および代理店との深い関係への注力を挙げました。経営陣によると、これらの顧客層は価格感応度が低く、独立系代理店チャネルにおいて強固な地盤を築いているとのことです。

準備金積立の保守性： 最高財務責任者（CFO）のジェフリー・ファーバー氏は、THGが総準備金に対する未報告発生損害（IBNR）準備金の割合を引き上げていることを確認しました。同氏は、同社が過去数年間にわたり慎重姿勢を強化しており、保険数理上の中央値を上回る準備金の計上を継続していると述べました。

代理店の統合： 経営陣は、小規模な代理店が大手ブローカーに統合されることで、より幅広い機能を利用できるようになるメリットがあると述べました。時間の経過とともに、THGはこのような統合から収益性と成長の双方において実質的な恩恵を受けていることを確認しています。

スペシャルティ分野の競合状況： 経営陣は価格競争の存在を認めたものの、中小規模市場の顧客に注力していることで、多様化された製品ポートフォリオ全体で比較的大幅な価格決定力と成長機会がもたらされていると述べました。

決算説明会（トランスクリプト）全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, and welcome to The Hanover Insurance Group's Third Quarter Earnings Conference Call. My name is Ranju Thomas, 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.

Oksana Lukasheva

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; Dick Lavey, our CEO-elect; and Jeff Farber, our Chief Financial Officer. Additionally, Bryan Salvatore, President of Specialty Lines, will be available to answer your questions after our prepared remarks.

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, performance, profitability, growth, strategy, capital management, the implementation and use of new technologies, the impact of 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 those comments, I will turn the call over to Jack.

John "Jack" C. Roche

Thank you, Oksana, and good morning, everyone. We're very pleased with our third quarter performance. Our results reflect continued momentum across the organization, strong execution in a dynamic market environment, and the strategic benefits of our diversified portfolio. Our portfolio is built around several structural advantages: Specialty Lines with broad product profitability, a preferred Personal Lines franchise concentrated in higher-value accounts, and a distinctive Core Commercial book anchored to small-sized businesses, a segment in which we excel.

This diversified business mix gives us multiple levers for profitable growth regardless of where the cycle turns. Importantly, our commitment to investing and growing where returns are most attractive remains unchanged. Profitability is our top priority, and the company will continue to make underwriting, growth, and capital allocation decisions through that lens.

Turning to results. Our third quarter operating EPS came in meaningfully ahead of our original expectations and improved from the prior year quarter. Operating ROE was robust at approximately 19%. Net written premium growth was 3.1%. Across the portfolio, we remain disciplined and only wrote business that meets our return thresholds. These are intentional choices, and the underlying loss ratio performance reinforces our strategy.

Turning to our segment results. Specialty remains one of the strongest examples of the value created by our diversified business mix. The breadth of our portfolio allows us to navigate changing market conditions, maintain underwriting discipline, and pursue attractive opportunities across a wide range of products and markets. While conditions are competitive in certain property lines, we continue to see meaningful opportunities for profitable growth in an increasing number of our offerings.

In the quarter, excluding Hanover Specialty Industrial, which is most exposed to competition in the larger property market, and Hanover Programs, which we continue to tightly manage and limit expansion, we generated strong growth of 6.7%. We are seeing particularly strong growth momentum in the markets where conditions remain favorable and margins are attractive. Surety grew 8.8%, extending its strong track record. E&S growth accelerated from 6.5% in the second quarter to 11.7% in the third quarter, supported by our AI-enabled submission intake and triage capabilities.

Management liability posted strong growth of 15.5%, and both Marine and Hanover Professional Liability delivered accelerated growth compared to the second quarter. Retention for Specialty remained very strong, improving sequentially to 83.2%. Renewal price change also improved slightly to 4.3%, while rate held relatively consistent from the second quarter, with liability rate continuing to accelerate. We entered the fourth quarter with strong momentum across many lines within our Specialty book and significant confidence in the segment's ability to deliver sustained profitable growth.

I couldn't be prouder of how the organization is performing or more optimistic about the path ahead. We have built a special culture, attracted outstanding talent, and developed a leadership team that will continue to drive our strategy and performance for years to come. I believe we are exceptionally well positioned to build on this momentum and deliver sustained success.

As we discussed, our leadership transition is well underway, and it's fitting that Dick take you through the performance for Personal Lines and Core Commercial and update you on our exciting technology initiatives. Dick?

Richard Lavey

Thanks, Jack. At our Investor Day 6 weeks ago, we shared our perspective on the opportunities ahead and the strengths that position us for continued success. As we look at our third quarter results, they reinforce the strategy we had laid out. While our top line was influenced by a competitive environment in certain markets, the actions we are taking strengthen the foundation for durable growth and strong profitability over the long term.

I'll begin with Personal Lines, where the portfolio today is fundamentally different from the one we were managing just three years ago. We have deliberately shifted the book toward bundled higher-value account customers, customers who value advice and specialized coverage, and accounts with higher average premiums and lower price elasticity. Overall growth was 1.7% in the third quarter, reflecting top line moderation as we make deliberate choices in dynamic market conditions. Importantly, growth in the higher-value customer segment with Coverage A limits above $500,000 continues to outpace the broader portfolio, reinforcing the success of our preferred customer strategy. In this area of Personal Lines, retention remained exceptionally strong at 86%, a couple of points above the rest of the book, while premium increased 4%, supported by positive policy in force growth year-over-year.

Renewal pricing is approximately 1 point higher for these customers, while new business growth of 5% and a 21% increase in submission flow underscore the attractive opportunities we see going forward. Furthermore, within the higher-value cohort, momentum with our Prestige product is particularly strong with double-digit growth in both the third quarter and year-to-date. We believe these trends position us well to continue expanding our presence with preferred customers while maintaining our focus on profitability. Overall, Personal Lines renewal pricing remained very strong and continues to support attractive profitability for both auto and home business.

Looking ahead, we continue to develop opportunities for future revenue growth. These include adding new agency appointments, primarily in diversification states, and deepening existing relationships in those same markets. Data-driven prospecting and increased consolidation activity continue to create attractive openings to strengthen and expand our agency partnerships. In addition, quote activity and pipeline trends remain encouraging indicators.

Turning now to Core Commercial. The business continues to perform well, delivering net written premium growth of 4.6%, while maintaining relatively consistent renewal pricing change of 7.4%. Our disciplined focus on smaller-sized customers, combined with strong agency relationships and consistent underwriting execution, continues to position us to outperform across a range of operating environments. Small Commercial requires a unique blend of underwriting acumen and operational excellence, especially for more complex accounts that require underwriting judgment beyond automated platforms.

We've built our product suite and operating model specifically around the full spectrum of needs of small business customers, which continue to set us apart in the marketplace. As we look ahead, Small Commercial distribution expansion, broad product offerings, and service enhancement remain strategic priorities. Our strong value proposition has earned us strategically important positions with the industry's consolidators while also expanding relationships with existing agents and appointing new ones. Our TAP Sales production continues to grow and straight-through processing is expanding. Workers' compensation TAP Sales completes its rollout in Q4, extending our automated underwriting advantage to additional states.

Each of these enhances the economics of serving small business accounts in our favor: lower transaction cost, faster turnaround, better agent experience, and stronger retention fundamentals. In Middle Market, we are generating strong retention and new business as agents increasingly recognize our value proposition. Our underwriting expertise, disciplined risk selection, and service capabilities have positioned us as a preferred market for lower Middle Market accounts, supporting consistent growth while maintaining our profitability. Middle Market grew 6.7% in the quarter, supported by historically robust retention, improving more than 3 points year-over-year.

Taken together, we believe our differentiated position in Small Commercial, continued momentum in Middle Market, and a diversified distribution footprint for both businesses provide a durable foundation for profitable above-industry growth across Core Commercial. Overall, we remain encouraged by the market position of this business, and we are confident in our ability to expand market share and capitalize on growth opportunities ahead.

Now I'd like to spend a few minutes on our technology and AI investments. Our technology throughput continues to improve, allowing us to deploy new capabilities more quickly and embed AI more deeply across underwriting, claims, and customer service. Importantly, we remain focused on practical applications that drive measurable business outcomes. From AI-enabled underwriting and automated submission processing to real-time agency connectivity, these capabilities are making it easier and faster for agents and customers to do business with us.

During the quarter, we advanced our claims transformation efforts with the launch of Adjuster Workbench, which equips claims professionals with better information and insights at the point of decision-making. The platform helps adjusters make faster, more informed decisions by bringing together structured data, decision support, and relevant claims context in a single workflow. Over time, we expect these capabilities to improve both customer experience and operational performance through lower loss adjustment expenses and better severity management.

We also advanced our surety workflow and credit certification capabilities to improve efficiency and underwriting effectiveness. And in E&S, we further enhanced submission intake and triage capabilities, which is already helping support responsiveness and growth. Additionally, in Commercial Lines, we launched a new AI-enabled data exchange capability designed to make it easier and faster to transact business with our agents and brokers. The solution leapfrogs traditional point-to-point APIs by connecting directly with agency data environments, automating data extraction, appetite and eligibility review, and also rating to significantly accelerate quote turnaround.

Developed from concept to production in just three months, it demonstrates how our approach can rapidly translate ideas into practical capabilities with measurable business impact. While we are still in the early stages of realizing the full opportunity from our initiatives, we are encouraged by both the pace and delivery and the growing business impact. In closing, our third quarter results reflect the consistent execution of our strategy and the dedication of our employees across the organization. I am very excited about the future and confident in our ability to build on our strengths. We will continue to innovate thoughtfully, deepening our agency partnerships, maintaining underwriting discipline while delivering for our customers, and driving sustainable long-term performance.

With that, I'll turn it over to Jeff.

Jeffrey Farber

Good morning, everyone, and thank you for joining us. We had very strong performance in the third quarter with a combined ratio of 92.3% and our best-ever third quarter operating earnings per share of $5.15. These results reflect the high-quality earnings engine we've built and underscore the effectiveness of our strategy and the strength of our diversified book of business. Each of our business segments delivered excellent results, bolstered by another quarter of strong returns in our investment portfolio.

Excluding catastrophes, our combined ratio was 85.5%, an impressive 2.6-point improvement from the prior year quarter. Our current accident year loss ratio, excluding catastrophes, was 55.7%, improving nearly 2 points from the prior year quarter, with year-over-year improvement in each major segment. Catastrophe losses were 6.8 points of the combined ratio, inclusive of 0.7 points of favorable prior year cat development. This was consistent with our modeled expectations for the third quarter and gives us further confidence that our past actions are leading to more consistent returns even with some impactful wind and rain events in the Midwest this quarter.

The expense ratio for the quarter of 30.9% was somewhat higher than our original plan, primarily from higher variable compensation for agents in Personal Lines reflecting our meaningfully better-than-expected results to date, as well as some employee incentive costs given the much better-than-expected performance. We remain diligent in our expense management and committed to the long-term framework and targets we have set for the company. Third quarter favorable ex-cat prior year reserve development of $18.3 million included favorability across each segment.

In Specialty, favorable prior year reserve development was $14.8 million or 4 points with widespread favorability across multiple coverages. In Core Commercial, favorable prior year reserve development was $3 million or 0.5 points. And in Personal Lines, prior year reserve development was modestly favorable in both homeowners and auto. Our reserve position remains very strong and aligned to the current uncertain environment, particularly in liability lines, where we continue to remain prudent with our reserving approach.

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 third quarter, a 3.9-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 40.6%, improving 6.6 points from the prior year quarter and very favorable to our original expectations.

In addition to the benefit of earned pricing, we observed very favorable attritional loss frequency and lower-than-usual large losses. We continue to attribute some of the benefit we've seen in recent quarters to deductible changes, leading to fewer smaller claims in both cat and ex-cat results. In Personal Auto, our ex-cat current accident year loss ratio was 67.9%, an improvement of 1.2 points compared to the prior year quarter. Frequency remains favorable across multiple coverages, particularly in collision.

Personal Lines grew 1.7% in the third quarter, decelerating modestly from the second quarter. Growth has been impacted by our prior actions to manage exposure in certain concentrations, which has led to slightly lower PIF year-over-year as well as a competitive market. Both auto and home achieved strong resilient renewal pricing increases in the third quarter that approximated second quarter pricing increases with auto up 7.1% and home up 10.9%. Umbrella pricing increases also continued to be strong.

Now turning to our Core Commercial segment. We delivered a current accident year ex-cat combined ratio of 93.2%, improving 1.1 points from the prior year quarter. The current accident year loss ratio, excluding catastrophes, was 60.5%, a slight improvement from the prior year quarter, benefiting from an increasingly strong book of business as well as solid property performance. Seasonally, we tend to have slightly higher property losses in the third quarter and have built that into our expectations. We remain prudent in our liability picks, which reflect a disciplined and measured view of the operating environment, helping to ensure that the portfolio and our balance sheet remain well positioned. We continue to price business consistent with that view with rate levels remaining quite strong.

Moving on to Specialty. This business continued to perform extremely well with a current accident year ex-cat combined ratio of 84.6% in the third quarter, improving 1.4 points from the prior year quarter. The current accident year loss ratio, excluding catastrophes, was 47.7%, favorable to both year-over-year and our expectations for the segment, helped by favorable property performance. We remain very pleased with the continued strong profitability of our Specialty book and the positioning of the business to capture attractive growth opportunities in our markets. We are focused on and have line of sight to further premium growth acceleration in Specialty.

Turning to Investments. Our investment portfolio continues to perform very well and remains an important contributor to the durability of our earnings profile. Net investment income of $131.9 million in the third quarter increased 12.7%, benefiting from greater investable cash generated by strong underwriting results and elevated reinvestment rates. We are able to deploy that capital at attractive yields while maintaining our disciplined approach to duration and credit risk, allowing us to enhance returns while maintaining our very high-quality portfolio.

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 risk exposures. Our fixed maturity portfolio weighted average rating is A+ with 95% of holdings investment grade. Earned yields on the fixed maturity portfolio were 4.58% in the third quarter, up from 4.33% a year ago, and we continue to reinvest at higher yields than what is maturing. This positions us to continue building a resilient and growing NII stream that we expect will support earnings stability in the periods ahead.

While rising interest rates resulted in higher unrealized losses during the quarter, we believe those marks are entirely rate driven and not reflective of credit spread moves. Much of the well-laddered fixed income portfolio is asset liability matched with our insurance reserves. Accordingly, the temporary move in book value driven by the unrealized depreciation in the fixed income portfolio is largely matched with the change in economic value of the undiscounted reserves, even though the balance sheet may not reflect that.

Moving on to our equity and capital position. Excluding the impact of unrealized losses, book value per share increased 2.7% sequentially even after accounting for our dividend payment and significant share repurchases in the quarter. We continue to actively participate in share buybacks, repurchasing approximately 386,000 shares totaling $86 million in the third quarter. And year-to-date through October 26, we've repurchased over 1.3 million shares at an average price of approximately $197. We have approximately $546 million remaining in our current share repurchase authorization.

We have substantial excess capital and should continue to generate meaningful excess capital given the current environment. We will continue to evaluate the most effective uses of capital and returning capital to shareholders through dividends and share repurchases remains an important component of our approach. Through three quarters of the year, our combined ratio has run a couple of points better than the trajectory we contemplated in our original combined ratio guidance, fueled by exceptional underwriting performance across the business.

As we have mentioned all year, meaningfully outperforming on the combined ratio causes an increase in expenses for agent profit sharing and employee incentives. Including those expense increases, we expect the full year combined ratio to clearly beat our original guidance. Our fourth quarter cat load is 5.2%.

To summarize, we are excited about our exceptional performance so far this year and have never been more optimistic about where our business is headed longer term. With that, we are ready to open the line for questions. Operator?

Operator

[Operator Instructions] The first question comes from the line of Michael Phillips with Oppenheimer.

質疑応答

Michael Phillips

I think you had a great quarter, so I'm going to maybe talk some high-level questions and not specific to the quarter, if I could. I'm sure you track this. I'm not sure you share it, but we'll see. If you were to take your agency partners and maybe rank them from small to largest, is there -- I'm wondering, is there any correlation to size of agency and profitability of agency? And I'm thinking maybe like I've looked at some histograms where they show in different buckets and if you overlay those buckets with loss ratios from the business they give you. Any correlation there at all?

Richard Lavey

Yes. Mike, this is Dick. Yes, of course, as you would expect with our strong agency strategy, we track performance by agency type and size very closely. It's a critical part of how we manage distribution. Broad observations: we see strong profitability across our different distribution segments. So various sized agents can perform well, of course, really driven by our strategy, the small accounts that we -- the space we play in, the diversification of our capabilities, just the strength of our partnerships.

But certainly, increased size of book brings scale, right, which does enable an ability to absorb shock losses, cat losses, et cetera. But what we know beyond scale or depth or market share as we track it, breadth matters a lot as well. So diversification of the book. And together, the breadth and depth can bring better performance on a number of performance indicators. So that diversification or breadth, what we know is important, in particular, is access to Specialty business. So you -- when an agent has business with us across multiple segments, Specialty being one of them, performance is quite good, as you would expect from the nature of those -- of that business. So it's really both depth and breadth that we look at. And of course, our Agency Insight tool gives us a perfect knowledge, if you will, into that and helps us manage and monitor that.

Michael Phillips

Okay. I guess it sounds like in summary, it sounds like maybe larger is slightly better margins in terms of the book they give you, if I paraphrase all that. Another way to ask that, Dick, would be to say this, if I could go a little bit further on this one. If I'm a small mom-and-pop agency and on the smaller side, below average. And then suddenly, I got bought out by a big multinational broker, can you track my performance now 5 years later, is my loss ratio better than the book I'm giving you?

Richard Lavey

It can be, sure. Frankly, there's a lot of factors in there. What's the starting point, what does that look like? If it's a small mom-and-pop agency, they're going to tend to have more Personal Lines and Small Commercial business, maybe a house account in Middle Market. So as they -- which can have strong profitability, those businesses. As they fold into a larger agency, that depends on the operating model that's adopted by folding into that agency. In the early years, they keep them honestly more autonomous. But over time, we are seeing increase in better profitability and growth as those smaller agencies have access to bigger, better, broader capabilities. So I think that's a good question. We see net-net benefits as these smaller agencies are integrated into the larger entities.

Michael Phillips

Okay. Second question on Specialty for a second. I think we're at that part of the cycle where obviously in a softening market, kind of the peaks and troughs of the P&C cycle might get amplified in the non-admitted space as kind of the admitted players might get hungry for the stuff they're not used to writing. To what extent -- and I know your Specialty book is more skewed towards admitted, I think it's 80-20, admitted, non-admitted. But to what extent is your Specialty book maybe protected from that happening? So that as we look out at your 5-year plan, I think your Specialty book is kind of the leader of your growth target. So any protection there that should keep that happening from admitted players coming into your Specialty book?

Bryan Salvatore

Yes, Mike, this is Bryan Salvatore. Thanks for the question. I'd say a few things. And I think we touched on it. We are very much focused on that small to Middle Market space, and that cuts across most of our portfolio. And so with that, we do see a bit less competition. There's still competition, but a bit less. We see a bit more pricing power than we hear amongst our competitors. And we still see the ability to grow it. And I think the fact that we have a very diversified portfolio really helps that, right?

So -- I think Jack touched on it. Many of our areas are still seeing good growth opportunities. And frankly, we've worked on the portfolio in a way that we like the composition of our book. So yes, we're dealing with price competition. We're very, very balanced in the way we manage that price competition. And we've been able to continue our growth trajectory. And we think as we move into '27 and '28, we expect that to hold up and frankly, in a number of cases, improve.

Operator

The next question comes from the line of Mike Zaremski with BMO.

Michael Zaremski

Maybe a 2-part question on pricing power in both Personal Lines and Commercial Lines. It's great to see pricing hold up much better than kind of peers. I'm curious if you have any color, if I look kind of back longer term at Hanover's pricing power versus peers, it wasn't -- the relationship seems to have gapped out much more in your favor in terms of pricing holding up, which is great. Retentions don't actually look to be too different for you all versus longer term either. So just curious if you -- any thoughts on why your pricing power is holding up so well relative to the industry.

John "Jack" C. Roche

Mike, this is Jack. I'll just say a quick response to that at a high level, and then I'm sure Dick or Bryan can jump in. But I think the short answer to your question is yes. If we look back over time, we were at a different stage of our maturity. A lot of our businesses were still developing. Some of them were through acquisitions, some of those were build-outs. So we really are in a different place in terms of the maturation of the portfolio and obviously, the pricing comes along with that.

And I think our relevancy with the best agents in the country is peaking such that we're less of a target, if you will, for moving business. There's a real reason for agents to want to keep their book of business with us. And combine that with the account size, I think we have an advantage, if you will, going to market and maybe getting an extra point or two based on all of those key attributes.

Richard Lavey

Yes. So let's maybe click down a little bit. First, Mike, thanks for calling that out. Our performance on these dimensions, I think it's continued evidence that our strategy is working over time. I couldn't be happier with our performance in Personal Lines and Core Commercial and Specialty. In Personal Lines, we continue to penetrate our target segment, right, which is this higher valued account, which is securely served in the IA channel. And the fact that we have 90% account, nearly 80% common effective date and even higher on new business secures that customer and I think does drive the pricing resiliency that you're experiencing in Personal Lines.

We're growing that book above $500,000 in Prestige. I think we're quite unique in Personal Lines right now, and I think the envy of the industry. Core Commercial, it's a similar theme, diversified business, book of business, but importantly, advantaged by the customer segments we play in. So it's an account focus with these smaller sized accounts. And I think that advantages us and gives us that pricing resiliency. So similar theme in Specialty. I don't know that we need to go to Bryan with that. I think it's a common -- which is what gives us great confidence about our future, frankly.

Michael Zaremski

That's great color. Maybe pivoting a bit to reserves and long-tail casualty. I feel like you guys continue to put up very good and consistent results relative to the industry. Just curious if you'd be willing or able to share whether you're adding IBNR levels. So the ratio of IBNR is moving higher throughout the year in some of those long-tail casualty lines to continue to build conservatism? Or maybe is that something you're willing to discuss? I know we'll see some stat information, obviously, but not until March of next year.

Jeffrey Farber

Mike, we are clearly adding IBNR to our reserves. So our percentage of IBNR to total reserves keeps increasing. I thought we had, in my portion, had shared a statistic on this in the Investor Day presentation, but perhaps it was left on the cutting room floor. But over time, we'll certainly show that. I think what's important is we've been adding prudence to our reserves for years now. We've shown consistent favorable development.

We're establishing our reserves well above our actuarial central estimate, and that obviously has to be done through IBNR. And as you know, we've carefully grown thinking about geography as well as industry selections, and that's created a reduced frequency. So all of that gives us a lot of confidence in our reserves.

Michael Zaremski

And Jeff, while I have you just sneaking one in, and I will check the Investor Day deck. I don't believe you mentioned the new money rate on the investment portfolio unless I missed it.

Jeffrey Farber

We did not mention that, but it is clearly well above expiring and it has been -- it is certainly above our earned yield. But you can imagine when 10-year Treasuries are 5% or greater, we're certainly having a pretty helpful new money rate. So it bodes well for the portfolio. The real question is how long will rates stay at this level. But we're optimistic about our fixed income portfolio for sure.

Operator

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

Rowland Mayor

I guess just quickly sticking on the investment discussion. Can you discuss how investment yields impact your target underwriting margins, particularly as we look out to 2027?

Jeffrey Farber

Generally, they are independent processes. We look at our investments and try to maximize the yield with our conservative portfolio. And separately, we try to optimize underwriting income in the markets that we're operating in.

Rowland Mayor

And I guess just pivoting back to growth, given the margins in homeowners and the pricing you're still getting, what's holding back this growth? Is it still mix shift? Or is it something else?

Richard Lavey

Yes. It is -- there is absolutely some competitiveness in the lower-end segments, right? And as you've heard us say, we're shifting our mix upwards into that higher-value customer. And with that is a higher average premium. So you're seeing some of the PIF dynamics play out that way where those larger -- the larger premium sized accounts, but fewer PIF.

Now that said, we are growing PIF in those segments, more so than the overall book. We're also showing PIF growth in our diversification states. So for us, much of it is strategic. We're shifting the book geographically and by customer segment. So those dynamics are playing out in the PIF trajectory.

Operator

The next question comes from the line of Paul Newsome with Piper Sandler.

Jon Paul Newsome

I think we're actually kind of all trying to go at the same place, same question. But there's a lot of conversation about growth on the prepared remarks, but growth is fairly limited, which suggests you're doing what I think you probably should do, which is actually be very careful about growth and maintain profitability. As we look forward, talk about the bias towards potential margin improvements versus growth?

And because obviously, it's a soft market and you are pushing rate faster than others. So does that suggest that maybe it's not about growth in the future, it's really about -- in the near future, it's really about margin containment or even expansion? Or are you really serious about trying to actually have a faster top line, at least in the near future given the market environment?

John "Jack" C. Roche

Paul, this is Jack. Obviously, that's the question of the day. And I would tell you that what's always been true in our business is that the healthier carriers are the only ones that have an opportunity to grow over the mid and longer term. So putting ourselves in a position where we have strong earnings across the entire portfolio, both from a business unit standpoint and a geography, literally gives us the best opportunity we've had.

That said, there is some competition in the more profitable areas. And you -- as we said in our prepared remarks and as you know of us, we're a disciplined group. We're not going to stretch growth at the wrong time simply to be more relevant or to try to impress somebody in the short term. I think the goals that we put forward in Investor Day are very realistic for us because the companies that come through this transitionary period that have broad-based strong earnings are going to get, I think, a significant opportunity to grow over the next 3 to 5 years. And so that's how I would triangulate short-term discipline and focus and execution with longer-term growth opportunity.

Richard Lavey

Yes, Paul, I'll just add, as you heard me...

Jon Paul Newsome

No, go ahead.

Richard Lavey

Yes. Just to put a point of emphasis on this. We -- I called out that we believe Hanover has a unique and distinctive position in the marketplace and exiting through this market segment or cycle with the type of profitability and strength does give us the advantage of architecting a growth profile that makes a lot of sense. And we have very strong identity of who we are and where we play, and we believe the investments we've made and the levers that we can pull into the future are going to allow us to push towards those ambitious targets we put in front of us.

Jon Paul Newsome

Nitpicky question and emphasize that it was really a good quarter. The combined ratio in Core Commercial was over 100% and I heard you talk about sort of normal volatility, but that's a high number. It's just the nature of that business and where we are today such that we'd expect it a quarter or two every year or so of over 100%? Or is there really something kind of unique or special happening in that quarterly result? And I apologize, I know it's a small piece of a bigger pie and everything else is going very well. But I think that's kind of what -- at least I'm getting some feedback that investors are interested in that.

Jeffrey Farber

I think this particular quarter highlights the value of the diversification of our businesses. So Personal Lines and Specialty having extraordinarily low combined ratios gives us that value. Clearly, we don't love a greater than 100% combined ratio in Core. And I think if you break it into its pieces, the loss ratio at 60.5% is actually slightly down from the year ago of 60.6% in the 2025 similar quarter. And what you really have is there's some seasonality there. So there's some property losses that tend to show up in the third quarter for whatever reason.

Our liability picks really haven't changed over the course of this year. We're continuing to be prudent, but we haven't changed them or had any sort of a catch-up. From a combined ratio perspective, really the challenge was cat. So cats were a few points high. And with a small book and a small sample size of a quarter, we can have that from time to time. So you can have a handful of larger few million dollar losses that just move your cat up a few points.

Fortunately, Personal Lines cats were lower than one would have expected. Now clearly, the 100.5% is not where we expect. And even though the year-to-date numbers are more like 97%, we think we can have opportunities to bring that below 97% over time.

Operator

[Operator Instructions] The next question comes from the line of Meyer Shields with KBW.

Meyer Shields

A couple of quick questions. One, within Personal Lines, I was happy to see a little bit of expense ratio improvement. But I guess I'm a little surprised because there wasn't that much earned premium growth, and it was fantastic from an underwriting standpoint. So I would have expected incentive compensation to push that up. Is there something unusual in this quarter's expense numbers?

Jeffrey Farber

Meyer, as you know, we are committed to long-term efficiency on our expense trajectory. We certainly outlined that. Overall, across the entire organization, and I mentioned this in the prepared remarks, because the combined ratio has been so strong and is at least a couple of points better, the expense ratio will go up across the organization.

From time to time, you see differences in allocations or where the expense ratio sits. So there may be something going on in a particular quarter truing up the year-to-date. But overall, we're committed to our trajectory, and we feel good about it even if the expense ratio doesn't hit our 30.3% guide this year because the combined ratio is so strong.

Meyer Shields

Okay. Yes, that's helpful. And I think everyone will be happy to see you have to pay more in incentive comp for better profits. Second question, in workers' compensation, and I apologize if I've missed this, but The Hartford talked about seeing rising frequency, and that's unusual in general in workers' compensation. I was wondering, your book is pretty small, but are you seeing that trend as well?

Richard Lavey

Meyer, I'll start by saying on balance, the work comp line performs very well for us and hitting target returns. Underneath that performance, mix matters a lot, industries that you're in and the states that you're in. As you know, work comp is really always a state-by-state performance discussion with varying loss trends and varying rate increases or decreases by state. So we have seen frequency trends for some time, but I'd say it varies by state and industry.

There's been years of flat to declining pricing up against modestly increasing loss trends. So with that scenario, for us, this is just about thoughtful mix management and really constructing a growth profile in the right industries and segments to manage that frequency that we've been seeing over time. From an accounting perspective, because we've been seeing those trends for at least a year, it's provided an opportunity for us to adequately address it in our loss picks.

Operator

As there are no further questions, this concludes our question-and-answer session. I would now like to turn the conference back over to Oksana Lukasheva for closing remarks.

Oksana Lukasheva

Thank you, everybody, for your participation as always, and we are looking forward to talking to you next quarter.

Operator

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