Key Points

• THG was ranked America’s best insurance company in 2022.
• The company offers industry-high dividend yield of more than 2%
• With a 16.7% increase in Net Income, THG is well poised for growth

What is THG?

The Hanover Insurance Group (NYSE:THG) is the holding company for property and casualty insurance companies, and its shares have had quite the run over the years. Together all these sub-companies make THG one of the largest insurance businesses in the US.

THG was ranked America’s best insurance company in 2022 based on excellent customer reviews, amongst other metrics. Moreover, the earnings growth record has made THG shares an excellent investment choice for investors like me. But the seesaw motion of the company’s stock has left me hanging about future growth potential.

So, let’s explore whether THG shares are a good potential investment.

Why THG shares could go up?

The insurance company’s biggest attraction point for investors is its industry-high dividend yield. Its more than 2% dividend yield surpasses the S&P 500’s yield of 1.27%.

Also, the forecasted earnings estimate of THG is good and positive. Undoubtedly forecasts have a huge impact on the company’s stock price motion. Eventually, these predictions will have a positive impact on the THG shares and will shift the share price movement towards an upward direction, I believe.

It is worth mentioning that Fitch Ratings has affirmed the ‘A’ (Strong) Insurer Financial Strength (IFS) rating of The Hanover Insurance Company. Isn’t this enough to push the stock upwards? In my opinion, THG shares are ready to accelerate!

What could go wrong?

Being an insurance provider, one of the biggest risks for business is inflation. In fact, rising inflation directly hits the insurance providers’ earnings. Since the increased prices will spike the amount claimed by the insurer, the current premium might not be sufficient. Hence, the future earnings of THG are at risk.

Furthermore, every insurance company is either using or seeking ways to leverage and incorporate technology into its business growth strategy. As a matter of fact, this has led to increased competition amongst the insurance industry player. I believe keeping up with the technology is very important to sustain growth for THG. Otherwise, THG shares might be at risk of downfall.

Should I Invest in THG shares?

The year 2021 was marked by the effectiveness of THG’s distinctive strategy. The efficient pricing strategy adopted in the Personal Lines business segment and the focus on innovative products and technology advancements in the Commercial Line segment have led the company towards impressive growth.

The Hanover Group currently stands at a valuation of approximately $5bn. Despite being volatile, the THG shares have maintained their bullish streak since the last quarter of 2020. During the current year, the THG shares have appreciated by approx. 8% year-to-date. Currently, the THG shares are trading at around $145.

Also, in the recent earnings report, THG reported a 9.2% increase in net premiums for the full year. In addition to this, Net Income was reported to be $418.7m, representing a 16.7% increase year-on-year. The company is well poised for growth, going forward in 2022.

THG shares could be a great investment for my portfolio, in my opinion. In the face of ongoing challenges and inflation risks, the stock has maintained its growth. Moreover, the high dividend yield removes doubts about unprofitable investment in my mind. Therefore, I’m tempted to add America’s best insurance company in 2022.

Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned at the time of writing. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.