Hanover Insurance : First Quarter 2024 Financial Supplement

FINANCIAL SUPPLEMENT

FIRST QUARTER 2024

THE HANOVER INSURANCE GROUP
FINANCIAL SUPPLEMENT
TABLE OF CONTENTS
Segment Descriptions	1
Financial Highlights	2
Consolidated Financial Statements
Income Statements	3
Balance Sheets	4
Pre-tax Operating Results and Related Metrics
Consolidated	5-6
Core Commercial	7-8
Specialty	9-10
Personal Lines	11-13
Investments
Net Investment Income and Yields	14
Investment Portfolio	15
Credit Quality and Duration of Fixed Maturities	16
Top 25 Corporate and Municipal Fixed Maturity Holdings	17
Reconciliation of Operating Income (Loss) to Net Income (Loss)	18
Other Information
Non-GAAP Financial Measures	19
Premium Related Metric Definitions	20
Corporate Information	21
Market and Dividend Information	21
Financial Strength and Debt Ratings	21

i

THE HANOVER INSURANCE GROUP

BASIS OF PRESENTATION

SEGMENT DESCRIPTIONS

CORE COMMERCIAL

Sub-segment	Customer and business type	Primary lines of business
Small Commercial	Coverage to small businesses, with annual premiums of $50,000 or less;	● Business owners' policy/commercial multiple peril
	Products are tailored to specific industry segments as needed.	● Commercial automobile
		● Workers' compensation
		● Other (general liability, commercial umbrella, monoline property)
Middle Market	Coverage to mid-sized businesses with annual premiums starting at $50,000, focusing on those	● Commercial multiple peril
	between $50,000 and $250,000. Products are tailored to certain specific industry segments,	● Commercial automobile
	including technology, manufacturing, human services, retail, real estate, among others.	● Workers' compensation
		● Other (general liability, commercial umbrella, monoline property)
SPECIALTY
Sub-segment	Customer and business type	Primary lines of business
Professional and Executive Lines	Coverage to small to mid-sizednon-public companies, including lawyer, engineer, accountant, and	● Professional liability
	various other professional and advisory firms including healthcare; provide protection for directors,	● Management liability
	officers and employees against actual or alleged errors, negligence or bad faith, employment	● Fidelity and crime
	practices.	● Other property and liability lines for healthcare firms
Specialty Property & Casualty	Program business - coverage to markets with specialty or risk management needs related to groups	● Commercial multiple peril
	of similar businesses;	● Commercial automobile
	Hanover Specialty Industrial (HSI) - coverage to small and medium chemical, paint, solvent and	● Workers' compensation
	other manufacturers and distributors;	● Other (general liability, commercial umbrella, monoline property)
	Excess & Surplus - non-admitted general liability and property coverage to risks outside of the
	appetite of standard commercial lines;
	Specialty General Liability - admitted coverage for higher-hazard liability risks
Marine	Includes coverage for inland and ocean marine, and insures against physical losses to property,	● Inland/ocean marine
	such as contractor's equipment, builders' risk and goods in transit. Also covers jewelers block, fine	● Ancillary lines of business written through marine agents
	art and other valuables.
Surety and Other	Provides coverage for construction and other firms, as well as sole proprietors in the event of claims	● Bond
	for non-performance or non-payment, and commercial surety coverage related to fiduciary or
	regulatory obligations.
PERSONAL LINES
Sub-segment	Customer and business type	Primary lines of business
Personal Automobile	Includes coverage for individuals against losses incurred from personal bodily injury, bodily injury to	● Personal automobile
	third parties, property damage to an insured's vehicle, and property damage to other vehicles and
	other property.
Homeowners and Other	Includes coverage for individuals for losses to their residences and personal property, such as those	● Homeowners
	caused by fire, wind, hail, water damage (excluding flood), theft and vandalism, and against third-	● Personal umbrella
	party liability claims.	● Inland Marine (jewelry, art, etc.)
		● Other (fire, personal watercraft, other miscellaneous)

OTHER

Included in Other is Opus Investment Management, Inc. ("Opus"), which provides investment management services to The Hanover Insurance Group, Inc. and its subsidiaries ("THG"), as well as institutions, pension funds, and other organizations. We expect to exit substantially all of Opus' business operations serving unaffiliated entities by the end of the second quarter of 2024. Investment management services provided by Opus to THG related to its investment-grade fixed maturities portfolio will also be transferred to an external manager. The Other segment also includes earnings on holding company assets; holding company and other expenses, including certain costs associated with retirement benefits due to our former life insurance employees and agents; and our run-off voluntary assumed property and casualty pools, run-off direct asbestos and environmental, and our product liability businesses.

1

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS

		Q1		Q2		Q3		Q4		Q1
(In millions, except earnings per share)		2023 (1)		2023 (2)		2023		2023		2024
PREMIUMS									$	1,625.8
Gross premiums written	$	1,577.3	$	1,589.9	$	1,763.3	$	1,502.4
Net premiums written		1,421.5		1,446.8		1,596.4		1,345.5		1,454.0
Net premiums earned		1,380.0		1,411.7		1,431.1		1,440.3		1,448.6
EARNINGS
Operating income (loss) before interest and taxes	$	13.2	$	(79.4)	$	13.7	$	158.1	$	149.7
Operating income (loss) after taxes		4.6		(68.3)		6.8		113.1		111.9
Income (loss) from continuing operations		(12.0)		(70.0)		8.2		107.3		115.5
Net income (loss)		(12.0)		(69.2)		8.6		107.9		115.5
PER SHARE DATA (DILUTED)
Operating income (loss) after taxes	$	0.13	$	(1.91)	$	0.19	$	3.13	$	3.08
Income (loss) from continuing operations		(0.34)		(1.96)		0.23		2.97		3.18
Net income (loss)		(0.34)		(1.94)		0.24		2.98		3.18
Dilutive weighted average shares outstanding		36.1		36.0		36.1		36.2		36.3
Basic weighted average shares outstanding		35.6		35.7		35.8		35.8		35.8
BALANCE SHEET
	March 31		June 30		September 30		December 31		March 31
(In millions, except per share data)		2023		2023		2023		2023		2024
Total assets	$	14,091.7	$	14,186.7	$	14,315.0	$	14,612.6	$	14,594.1
Total loss and loss adjustment expense reserves		7,143.4		7,313.3		7,329.8		7,308.1		7,331.1
Total shareholders' equity		2,389.0		2,237.9		2,116.3		2,465.6		2,522.7
Total shareholders' equity, excluding net unrealized appreciation										3,018.2
(depreciation) on fixed maturity investments, net of tax		2,934.2		2,847.9		2,837.2		2,928.0
Property and Casualty Companies									$	2,762.3
Statutory surplus	$	2,674.5	$	2,508.3	$	2,501.9	$	2,642.7
Premium to surplus ratio		2.09:1		2.27:1		2.31:1		2.20:1		2.12:1
Book value per share	$	66.89	$	62.62	$	59.21	$	68.93	$	70.22
Book value per share, excluding net unrealized appreciation									$	84.01
(depreciation) on fixed maturity investments, net of tax	$	82.16	$	79.68	$	79.38	$	81.86
Tangible book value per share (total book value excluding goodwill									$	64.80
and intangibles)	$	61.44	$	57.17	$	53.76	$	63.49
Shares outstanding		35.7		35.8		35.8		35.8		35.9
Total debt/equity		32.8 %		35.0 %		37.0 %		31.8 %		31.1 %
Total debt/total capital		24.7 %		25.9 %		27.0 %		24.1 %		23.7 %

1. Operating income metrics are calculated using diluted shares outstanding; loss from continuing operations, net of taxes and net loss metrics are calculated using basic shares outstanding due to antidilution.
2. Per share data is calculated using basic shares outstanding due to antidilution.

2

THE HANOVER INSURANCE GROUP

CONSOLIDATED INCOME (LOSS) STATEMENTS

		Three Months ended March 31
(In millions)		2024		2023	% Change
Premiums earned	$	1,448.6	$	1,380.0	5.0
Net investment income		89.7		78.7	14.0
Net realized and unrealized investment gains (losses):		(1.3)
Net realized losses from sales and other			(1.1)	18.2
Net change in fair value of equity securities		6.5		(7.1)	N/M
Recoveries (impairments) on investments:		0.3
Credit-related recoveries (impairments)			(4.5)	N/M
Losses on intent to sell securities		-		(10.3)	N/M
Total net realized and unrealized investment gains (losses)		0.3		(14.8)	N/M
	5.5		(23.0)	N/M
Fees and other income		7.3		8.0	(8.8)
Total revenues		1,551.1		1,443.7	7.4
LOSSES AND EXPENSES
Losses and loss adjustment expenses		935.2		1,017.4	(8.1)
Amortization of deferred acquisition costs		299.0		288.8	3.5
Interest expense		8.5		8.5	-
Other operating expenses		163.1		146.5	11.3
Total losses and expenses		1,405.8		1,461.2	(3.8)
Income (loss) before income taxes		145.3		(17.5)	N/M
Income tax expense (benefit)		29.8		(5.5)	N/M
Net income (loss)	$	115.5	$	(12.0)	N/M

3

THE HANOVER INSURANCE GROUP

CONSOLIDATED BALANCE SHEETS

		March 31		December 31
(In millions, except per share data)		2024		2023	% Change
ASSETS
Investments:	$	8,015.4
Fixed maturities, at fair value (amortized cost of $8,645.4 and $8,573.9)	$	7,985.3	0.4
Equity securities, at fair value		137.4		130.9	5.0
Other investments		794.4		796.9	(0.3)
Total investments		8,947.2		8,913.1	0.4
Cash and cash equivalents		264.6		316.1	(16.3)
Accrued investment income		57.9		58.2	(0.5)
Premiums and accounts receivable, net		1,739.5		1,705.6	2.0
Reinsurance recoverable on paid and unpaid losses and unearned premiums		1,999.8		2,056.1	(2.7)
Deferred acquisition costs		619.3		620.8	(0.2)
Deferred income tax asset		180.2		173.3	4.0
Goodwill		178.8		178.8	-
Other assets		521.4		504.0	3.5
Assets of discontinued businesses		85.4		86.6	(1.4)
Total assets	$	14,594.1	$	14,612.6	(0.1)
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES	$	7,331.1
Loss and loss adjustment expense reserves	$	7,308.1	0.3
Unearned premiums		3,104.9		3,102.5	0.1
Expenses and taxes payable		679.1		775.9	(12.5)
Reinsurance premiums payable		61.6		64.3	(4.2)
Debt		783.4		783.2	-
Liabilities of discontinued businesses		111.3		113.0	(1.5)
Total liabilities		12,071.4		12,147.0	(0.6)
SHAREHOLDERS' EQUITY
Preferred stock, par value $0.01 per share;		-
20.0 million shares authorized; none issued			-	-
Common stock, par value $0.01 per share; 300.0 million shares		0.6
authorized; 60.5 million shares issued			0.6	-
Additional paid-in capital		1,941.3		1,939.2	0.1
Accumulated other comprehensive loss		(548.9)		(517.2)	6.1
Retained earnings		2,993.9		2,909.4	2.9
Treasury stock at cost (24.6 million and 24.7 million shares)		(1,864.2)		(1,866.4)	(0.1)
Total shareholders' equity		2,522.7		2,465.6	2.3
Total liabilities and shareholders' equity	$	14,594.1	$	14,612.6	(0.1)

4

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME (LOSS) INFORMATION AND RATIOS

CONSOLIDATED

Three Months ended March 31

						2024										2023
		Core				Personal						Core				Personal
(In millions, except percentage data)		Commercial		Specialty		Lines		Other		Total		Commercial		Specialty		Lines		Other		Total
Gross premiums written	$	660.0	$	408.4	$	557.4	$	-	$	1,625.8	$	634.1	$	392.5	$	550.7	$	-	$	1,577.3
Net premiums written	$	582.4	$	339.8	$	531.8	$	-	$	1,454.0	$	565.3	$	324.3	$	531.9	$	-	$	1,421.5
Net premiums earned	$	528.9	$	320.9	$	598.8	$	-	$	1,448.6	$	507.4	$	311.7	$	560.9	$	-	$	1,380.0
Losses and LAE:
Current year, excluding catastrophe losses		309.4		156.6		392.7		-		858.7		296.9		166.8		381.7		-		845.4
Prior year unfavorable (favorable) development, excluding catastrophe losses		(9.2)		(1.1)		(0.1)		-		(10.4)		3.5		(18.1)		11.6		-		(3.0)
Current year catastrophe losses		24.5		10.2		59.2		-		93.9		64.6		25.8		84.6		-		175.0
Prior year unfavorable (favorable) catastrophe development		(3.8)		(3.2)		-		-		(7.0)		(0.7)		(4.3)		5.0		-		-
Total losses and LAE		320.9		162.5		451.8		-		935.2		364.3		170.2		482.9		-		1,017.4
Amortization of deferred acquisition costs and other underwriting expenses		177.1		119.5		156.1		-		452.7		167.9		110.8		150.2		-		428.9
GAAP underwriting profit (loss)		30.9		38.9		(9.1)		-		60.7		(24.8)		30.7		(72.2)		-		(66.3)
Net investment income		40.8		20.3		25.6		3.0		89.7		36.1		17.0		22.6		3.0		78.7
Other income		1.3		1.3		4.0		0.7		7.3		1.2		1.8		4.3		0.7		8.0
Other operating expenses		(1.5)		(1.7)		(1.6)		(3.2)		(8.0)		(1.3)		(1.2)		(1.3)		(3.4)		(7.2)
Operating income (loss) before income taxes	$		$		$		$		$		$		$		$		$		$
71.5	58.8	18.9	0.5	149.7	11.2	48.3	(46.6)	0.3	13.2
Loss and LAE ratio:
Current year, excluding catastrophe losses		58.5 %		48.7 %		65.6 %		N/M		59.3 %		58.5 %		53.5 %		68.0 %		N/M		61.2 %
Prior year unfavorable (favorable) development, excluding catastrophe losses		(1.7)%		(0.3)%		-		N/M		(0.7)%		0.7 %		(5.8)%		2.1 %		N/M		(0.2)%
Current year catastrophe losses		4.6 %		3.2 %		9.9 %		N/M		6.5 %		12.7 %		8.3 %		15.1 %		N/M		12.7 %
Prior year unfavorable (favorable) catastrophe development		(0.7)%		(1.0)%		-		N/M		(0.5)%		(0.1)%		(1.4)%		0.9 %		N/M		-
Total loss and LAE ratio		60.7 %		50.6 %		75.5 %		N/M		64.6 %		71.8 %		54.6 %		86.1 %		N/M		73.7 %
Expense ratio		33.2 %		37.0 %		25.5 %		N/M		30.9 %		32.9 %		35.3 %		26.1 %		N/M		30.7 %
Combined ratio
	93.9 %		87.6 %		101.0 %		N/M		95.5 %		104.7 %		89.9 %		112.2 %		N/M		104.4 %

5

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME (LOSS) INFORMATION AND RELATED RATIOS

CONSOLIDATED

		Q1		Q2		Q3		Q4		Q1
(In millions, except percentage data)		2023		2023		2023		2023		2024
Gross premiums written	$	1,577.3	$	1,589.9	$	1,763.3	$	1,502.4	$	1,625.8
Net premiums written	$	1,421.5	$	1,446.8	$	1,596.4	$	1,345.5	$	1,454.0
Net premiums earned	$	1,380.0	$	1,411.7	$	1,431.1	$	1,440.3	$	1,448.6
Losses and LAE:
Current year, excluding catastrophe losses		845.4		880.0		867.8		867.2		858.7
Prior year favorable development, excluding catastrophe losses		(3.0)		(1.7)		(2.1)		(9.1)		(10.4)
Current year catastrophe losses		175.0		261.6		195.8		57.7		93.9
Prior year favorable catastrophe development		-		-		-		-		(7.0)
Total losses and LAE		1,017.4		1,139.9		1,061.5		915.8		935.2
Amortization of deferred acquisition costs and other underwriting expenses		428.9		438.1		438.9		447.0		452.7
GAAP underwriting profit (loss)		(66.3)		(166.3)		(69.3)		77.5		60.7
Net investment income		78.7		87.6		84.2		81.6		89.7
Other income		8.0		7.8		7.4		7.6		7.3
Other operating expenses		(7.2)		(8.5)		(8.6)		(8.6)		(8.0)
Operating income (loss) before income taxes	$		$		$		$		$
13.2	(79.4)	13.7	158.1	149.7
Loss and LAE ratio:
Current year, excluding catastrophe losses		61.2 %		62.3 %		60.6 %		60.2 %		59.3 %
Prior year favorable development, excluding catastrophe losses		(0.2)%		(0.1)%		(0.1)%		(0.6)%		(0.7)%
Current year catastrophe losses		12.7 %		18.5 %		13.7 %		4.0 %		6.5 %
Prior year favorable catastrophe development		-		-		-		-		(0.5)%
Total loss and LAE ratio		73.7 %		80.7 %		74.2 %		63.6 %		64.6 %
Expense ratio		30.7 %		30.6 %		30.2 %		30.6 %		30.9 %
Combined ratio		104.4 %		111.3 %		104.4 %		94.2 %		95.5 %
Combined ratio, excluding catastrophe losses		91.7 %		92.8 %		90.7 %		90.2 %		89.5 %
Current accident year combined ratio, excluding catastrophe losses		91.9 %		92.9 %		90.8 %		90.8 %		90.2 %

6

THE HANOVER INSURANCE GROUP

GAAP UNDERWRITING AND OPERATING INCOME (LOSS) INFORMATION AND RATIOS

CORE COMMERCIAL

		Q1		Q2		Q3		Q4		Q1
(In millions, except percentage data)		2023		2023		2023		2023		2024
Gross premiums written	$	634.1	$	553.8	$	667.4	$	539.1	$	660.0
Net premiums written	$	565.3	$	486.8	$	589.4	$	465.5	$	582.4
Net premiums earned	$	507.4	$	515.6	$	517.4	$	519.9	$	528.9
Losses and LAE:
Current year, excluding catastrophe losses		296.9		289.9		291.1		301.0		309.4
Prior year unfavorable (favorable) development, excluding catastrophe losses		3.5		0.7		2.7		(2.2)		(9.2)
Current year catastrophe losses		64.6		38.3		44.6		30.5		24.5
Prior year favorable catastrophe development		(0.7)		(5.0)		-		(1.0)		(3.8)
Total losses and LAE		364.3		323.9		338.4		328.3		320.9
Amortization of deferred acquisition costs and other underwriting expenses		167.9		171.2		173.7		176.0		177.1
GAAP underwriting profit (loss)		(24.8)		20.5		5.3		15.6		30.9
Net investment income		36.1		39.7		38.4		37.6		40.8
Other income		1.2		1.1		1.3		1.1		1.3
Other operating expenses		(1.3)		(1.2)		(1.9)		(1.5)		(1.5)
Operating income before income taxes	$		$		$		$		$
11.2	60.1	43.1	52.8	71.5
Loss and LAE ratio:
Current year, excluding catastrophe losses		58.5 %		56.2 %		56.3 %		57.8 %		58.5 %
Prior year unfavorable (favorable) development, excluding catastrophe losses		0.7 %		0.1 %		0.5 %		(0.4)%		(1.7)%
Current year catastrophe losses		12.7 %		7.5 %		8.6 %		5.9 %		4.6 %
Prior year favorable catastrophe development		(0.1)%		(1.0)%		-		(0.2)%		(0.7)%
Total loss and LAE ratio		71.8 %		62.8 %		65.4 %		63.1 %		60.7 %
Expense ratio		32.9 %		33.0 %		33.3 %		33.6 %		33.2 %
Combined ratio
	104.7 %		95.8 %		98.7 %		96.7 %		93.9 %
Combined ratio, excluding catastrophe losses		92.1 %		89.3 %		90.1 %		91.0 %		90.0 %
Current accident year combined ratio, excluding catastrophe losses		91.4 %		89.2 %		89.6 %		91.4 %		91.7 %

7

THE HANOVER INSURANCE GROUP

PREMIUMS WRITTEN AND RELATED METRICS

CORE COMMERCIAL

		Q1		Q2		Q3		Q4		Q1
(In millions, except percentage data)		2023		2023		2023		2023		2024
Written Premium
Gross	$	634.1	$	553.8	$	667.4	$	539.1	$	660.0
Ceded		(68.8)		(67.0)		(78.0)		(73.6)		(77.6)
Net	$	565.3	$	486.8	$	589.4	$	465.5	$	582.4
Growth		7.3%		7.2%		4.2%		2.7%		3.0%
Net premiums written by sub-segment
Small Commercial	$	311.9	$	291.8	$	292.0	$	275.7	$	336.0
Middle Market		253.4		195.0		297.4		189.8		246.4
Total	$	565.3	$	486.8	$	589.4	$	465.5	$	582.4
Net premiums written by line of business
Commercial Multiple Peril	$	277.8	$	241.5	$	312.2	$	241.1	$	287.0
Commercial Automobile		100.3		90.4		98.1		84.4		105.7
Workers' Compensation		123.2		96.3		101.5		85.8		124.5
Other Core Commercial		64.0		58.6		77.6		54.2		65.2
Total	$	565.3	$	486.8	$	589.4	$	465.5	$	582.4
Related Metrics
Premium Retention		84.0%		83.5%		83.8%		83.6%		82.3%
Renewal Price Change		11.5%		11.3%		11.8%		12.4%		11.5%

8