Hanover Insurance surges on record Q4 earnings, dividend hike
Insurer beats EPS estimates by 37.3% as underwriting excellence drives combined ratio to 89%
The Hanover Insurance Group shares climbed in Wednesday trading after the property and casualty insurer reported fourth-quarter operating earnings that crushed analyst expectations, fueled by exceptional underwriting performance and record returns on equity.
The Worcester, Massachusetts-based insurer reported operating earnings per share of $5.79 for the final quarter of 2025, significantly exceeding the $4.22 consensus estimate and marking a 37.3% beat. The strong results were driven by a combined ratio of 89.0%, a dramatic improvement from 94.8% in the prior-year quarter, indicating the company collected more in premiums than it paid out in claims and expenses.
Hanover achieved a record operating return on equity of 23.1% in the fourth quarter and 20.1% for the full year 2025, a performance that places the insurer among the most profitable in the property and casualty sector. For the full year, the combined ratio reached 91.6%, representing an improvement of more than three points year-over-year, while the ex-catastrophe combined ratio of 87.1% improved by 1.3 points.
"Our strong underwriting results, combined with solid investment performance, delivered exceptional value for our shareholders in 2025," the company stated in its earnings announcement. Net investment income for 2025 increased 22% to $454.4 million, providing an additional boost to profitability.
The board of directors approved a 5.6% dividend increase to $0.95 per share, marking the 21st consecutive annual dividend hike. The company also returned capital to shareholders through share repurchases, executing $130 million in buybacks during 2025 with $130 million of authorization remaining.
Looking ahead to 2026, Hanover set a target for an ex-catastrophe combined ratio in the range of 88% to 89%, signaling confidence in sustaining its underwriting discipline. The guidance reflects the company's focus on selective growth and risk management in a pricing environment that has remained favorable for insurers.
Shares of Hanover, which have a market capitalization of approximately $6.2 billion, were recently trading at $175.07, up 0.6% on the day. The stock has gained 20% over the past year, outperforming broader insurance indices as investors have rewarded the company's consistent profitability and capital management.
Analysts remain broadly positive on the stock, with an average target price of $200.43 according to market data, implying roughly 14% upside from current levels. Of the seven analysts covering the company, five rate it a buy or strong buy, while two recommend hold. The stock trades at a price-to-earnings ratio of 10.07, below the five-year average for the property and casualty insurance sector.
Institutional investors own 90.2% of Hanover's outstanding shares, reflecting high confidence from professional money managers in the insurer's strategy and execution. The company's low beta of 0.32 indicates the stock typically experiences less volatility than the broader market, appealing to risk-averse investors seeking stable returns.
Hanover's performance comes amid a generally favorable environment for property and casualty insurers, who have benefited from disciplined underwriting and rate increases that have outpaced loss cost inflation. The company's focus on specialty commercial lines and mid-market business has allowed it to maintain pricing power while avoiding competitive pressures in more commoditized segments.
The insurer's book value per share increased 27% in 2025, according to company disclosures, reflecting the cumulative impact of strong earnings and disciplined capital allocation. The combination of dividend growth, share buybacks, and book value appreciation has created a virtuous cycle of shareholder value creation.