•

Current accident year loss and loss adjustment expense (“LAE”) ratio, excluding catastrophes⁽²⁾, of 56.8%, which included favorable loss frequency in short-tail coverages, primarily personal auto, while maintaining prudent reserves in longer-tail liability lines

•

COVID-19 ultimate loss expectation remains unchanged with limited losses incurred to date

•

Catastrophe losses of $65.9 million, or 5.8 points of the combined ratio, including favorable development on prior-year catastrophes of $9.6 million

•

Net premiums written growth of 2.1%*, compared to a decline of 2.3% adjusted for non-recurring premium returns in the second quarter⁽³⁾

•

Rate increases of 5.7% in core commercial lines⁽⁴⁾ and 4.7% in Personal Lines⁽⁵⁾

•

Net investment income of $67.6 million, slightly below prior-year, primarily due to lower new money yields

•

Book value per share of $84.32, up 4.0% from June 30, 2020 and up 11.0% from December 31, 2019, driven by net income and increases in the fair value of fixed income securities

(1)

See information about this and other non-GAAP measures and definitions used throughout this news release on the final pages of this document.

Three months ended

Nine months ended

September 30

September 30

  ($ in millions, except per share data)

2020

2019

2020

2019

Net premiums written

$1,268.5

$1,242.9

$3,486.4

$3,478.7

Net income

118.9

118.9

194.1

315.3

per diluted share

3.13

2.96

5.05

7.71

Operating income

93.5

93.0

243.0

251.4

per diluted share

2.46

2.31

6.33

6.15

Net investment income

67.6

68.8

194.9

208.6

Book value per share

$84.32

$78.01

$84.32

$78.01

Ending shares outstanding (in millions)

37.4

39.6

37.4

39.6

Combined ratio

94.2 %

94.4 %

95.2 %

95.4 %

Prior-year development ratio

(0.2)%

-

(0.3)%

-

Catastrophe ratio

5.8 %

3.1 %

7.5 %

4.0 %

Combined ratio, excluding catastrophes

88.4 %

91.3 %

87.7 %

91.4 %

Current accident year combined ratio,

    excluding catastrophes⁽⁷⁾

88.6 %

91.3 %

88.0 %

91.4 %

Three months ended

Nine months ended

September 30

September 30

  ($ in millions)

2020

2019

2020

2019

Net premiums written

$760.5

$746.4

$2,083.0

$2,068.5

Net premiums earned

665.1

663.5

1,999.6

1,974.7

Operating income before taxes

62.3

74.1

172.2

227.1

Loss and LAE ratio

62.4%

60.5%

62.9%

60.3%

Expense ratio

34.5%

34.7%

34.3%

34.7%

Combined ratio

96.9%

95.2%

97.2%

95.0%

Prior-year development ratio

(0.6)%

(0.8)%

(0.6)%

(0.9)%

Catastrophe ratio

5.1 %

3.3 %

6.1 %

2.8 %

Combined ratio, excluding catastrophes

91.8 %

91.9 %

91.1 %

92.2 %

Current accident year combined ratio,

    excluding catastrophes

92.4 %

92.7 %

91.7 %

93.1 %

Three months ended

Nine months ended

September 30

September 30

  ($ in millions)

2020

2019

2020

2019

Net premiums written

$508.0

$496.5

$1,403.4

$1,410.2

Net premiums earned

470.3

460.6

1,373.8

1,355.5

Operating income before taxes

64.2

50.2

161.7

108.7

Loss and LAE ratio

62.5%

65.9%

64.6%

68.7%

Expense ratio

27.9%

27.4%

27.4%

27.4%

Combined ratio

90.4%

93.3%

92.0%

96.1%

Prior-year development ratio

0.2 %

1.2 %

(0.1)%

1.2 %

Catastrophe ratio

6.9 %

2.9 %

9.4 %

5.8 %

Combined ratio, excluding catastrophes

83.5 %

90.4 %

82.6 %

90.3 %

Current accident year combined ratio,

    excluding catastrophes

83.3 %

89.2 %

82.7 %

89.1 %

Investors:

Media:

Oksana Lukasheva

Michael F. Buckley

Emily P. Trevallion

Email: [email protected]

Email:  [email protected]

Email:  [email protected]

1-508-525-6081

1-508-855-3099

1-508-855-3263

The Hanover Insurance Group, Inc.

Condensed Consolidated Income Statements

Three months ended

Nine months ended

September 30

September 30

($ in millions)

2020

2019

2020

2019

Revenues

Premiums earned

$1,135.4

$1,124.1

$3,373.4

$3,330.2

Net investment income

67.6

68.8

194.9

208.6

Net realized and unrealized investment gains (losses):

Net realized gains from sales and other

8.2

0.6

12.1

1.0

Net change in fair value of equity securities

30.3

15.0

(44.4)

75.3

    Impairment losses on investments

(0.8)

(0.8)

(27.9)

(1.2)

Total net realized and unrealized investment gains (losses)

37.7

14.8

(60.2)

75.1

Fees and other income

9.1

7.0

22.2

18.9

Total revenues

1,249.8

1,214.7

3,530.3

3,632.8

Losses and expenses

Losses and loss adjustment expenses

709.7

705.3

2,149.9

2,122.6

Amortization of deferred acquisition costs

237.7

232.8

711.9

692.8

Interest expense

9.8

9.4

28.6

28.1

Loss from repayment of debt

6.1

-

6.2

-

Other operating expenses

137.9

136.9

395.9

400.6

Total losses and expenses

1,101.2

1,084.4

3,292.5

3,244.1

Income from continuing operations before income taxes

148.6

130.3

237.8

388.7

Income tax expense

29.1

23.5

41.7

68.7

Effect of new tax regulations on Chaucer gain on sale

-

(4.4)

-

1.2

Income from continuing operations

119.5

111.2

196.1

318.8

Discontinued operations (net of taxes):

Sale of Chaucer business

-

6.4

-

(2.6)

Income from Chaucer business

-

2.1

-

1.6

Loss from discontinued life businesses

(0.6)

(0.8)

(2.0)

(2.5)

Net income

$118.9

$118.9

$194.1

$315.3

The Hanover Insurance Group, Inc.

Condensed Consolidated Balance Sheets

September 30

December 31

($ in millions)

2020

2019

Assets

Total investments

$8,727.4

$7,996.0

Cash and cash equivalents

231.5

215.7

Premiums and accounts receivable, net

1,353.0

1,260.4

Reinsurance recoverable on paid and unpaid losses and unearned premiums

1,841.1

1,814.0

Other assets

1,131.3

1,101.6

Assets of discontinued businesses

109.5

102.8

Total assets

$13,393.8

$12,490.5

Liabilities

Loss and loss adjustment expense reserves

$5,945.7

$5,654.4

Unearned premiums

2,537.1

2,416.7

Debt

780.4

653.4

Other liabilities

856.7

732.9

Liabilities of discontinued businesses

118.9

116.9

Total liabilities

10,238.8

9,574.3

Total shareholders’ equity

3,155.0

2,916.2

Total liabilities and shareholders’ equity

$13,393.8

$12,490.5

The Hanover Insurance Group, Inc.

Three months ended September 30

Nine months ended September 30

2020

2019

2020

2019

($ In millions, except per share data)

$

Amount

Per Share (Diluted)

$

Amount

Per Share (Diluted)

$

Amount

Per Share (Diluted)

$

Amount

Per Share (Diluted)

Operating income (loss)

Commercial Lines

$

62.3

$

74.1

$

172.2

$

227.1

Personal Lines

64.2

50.2

161.7

108.7

Other

1.9

2.0

0.5

7.3

Total

128.4

126.3

334.4

343.1

Interest expense

(9.8

)

(9.4

)

(28.6

)

(28.1

)

Operating income before income

   taxes

118.6

$

3.12

116.9

$

2.91

305.8

$

7.96

315.0

$

7.71

Income tax expense on operating

   income

(25.1

)

(0.66

)

(23.9

)

(0.60

)

(62.8

)

(1.63

)

(63.6

)

(1.56

)

Operating income after income taxes

93.5

2.46

93.0

2.31

243.0

6.33

251.4

6.15

Non-operating items:

Net realized gains from sales and

   other

8.2

0.21

0.6

0.02

12.1

0.31

1.0

0.02

Net change in fair value of equity

   securities

30.3

0.80

15.0

0.37

(44.4

)

(1.15

)

75.3

1.84

Impairment losses on investments

(0.8

)

(0.02

)

(0.8

)

(0.02

)

(27.9

)

(0.73

)

(1.2

)

(0.03

)

Loss from repayment of

   borrowings

(6.1

)

(0.16

)

-

-

(6.2

)

(0.16

)

-

-

Other non-operating items

(1.6

)

(0.04

)

(1.4

)

(0.03

)

(1.6

)

(0.04

)

(1.4

)

(0.03

)

Income tax benefit (expense) on

   non-operating items

(4.0

)

(0.11

)

4.8

0.12

21.1

0.55

(6.3

)

(0.15

)

Income from continuing

   operations, net of taxes

119.5

3.14

111.2

2.77

196.1

5.11

318.8

7.80

Discontinued operations (net of

   taxes):

Sale of Chaucer business

-

-

6.4

0.16

-

-

(2.6

)

(0.06

)

Income from Chaucer business

-

-

2.1

0.05

-

-

1.6

0.03

Loss from discontinued life

   businesses

(0.6

)

(0.01

)

(0.8

)

(0.02

)

(2.0

)

(0.06

)

(2.5

)

(0.06

)

Net income

$

118.9

$

3.13

$

118.9

$

2.96

$

194.1

$

5.05

$

315.3

$

7.71

Dilutive weighted average shares

   outstanding

38.0

40.2

38.4

40.9

•

The company’s outlook and its ability to achieve components or the sum of the respective period guidance on its future results of operations including: the combined ratio, excluding or including both prior-year reserve development and/or catastrophe losses; catastrophe losses; net investment income; growth of net premiums written and/or net premiums earned in total or by line of business; expense ratio; operating return on equity; and/or the effective tax rate;

•

The impact of the COVID-19 outbreak and subsequent global pandemic (“Pandemic”) and related economic conditions on the company’s operating and financial results, including, but not limited to, the impact on the company’s investment portfolio, declining claims frequency as a result of reduced economic activity, severity from higher cost of repairs due to, among other things, supply chain disruptions, declines in premium as a result of, among other things, credits or returns to the company’s customers, lower submissions, changes in renewals and policy endorsements, public health guidance, and the impact of government orders and restrictions in the states and jurisdictions in which the company operates;

•

Uses of capital for share repurchases, special or ordinary cash dividends, business investments or growth, or otherwise, and outstanding shares in future periods as a result of various share repurchase mechanisms, capital management framework, especially in the current environment, and overall comfort with capital levels;

•

Expectations with respect to the ASR agreement, including the amount and timing of the receipt of initial and final delivery of shares;

•

Variability of catastrophe losses due to risk concentrations, changes in weather patterns including climate change, terrorism, civil unrest, riots or other events, as well as the complexity in estimating losses from large catastrophe events due to delayed reporting of the existence, nature or extent of losses or where “demand surge,” regulatory assessments, litigation, coverage and technical complexities or other factors may significantly impact the ultimate amount of such losses;

•

Current accident year losses and loss selections (“picks”), excluding catastrophes, and prior accident year loss reserve development patterns, particularly in complex “longer-tail” liability lines, as well as the inherent variability in short-tail property and non-catastrophe weather losses;

•

The confidence or concern that the current level of reserves is adequate and/or sufficient for future claim payments, whether due to losses that have been incurred but not reported, circumstances that delay the reporting of losses, business complexity, adverse judgments or developments with respect to case reserves, the difficulties and uncertainties inherent in projecting future losses from historical data, changes in replacement and medical costs, as well as complexities related to the Pandemic, including legislative, regulatory or judicial actions that expand the intended scope of coverages, or other factors;

•

Characterization of some business as being “more profitable” in light of inherent uncertainty of ultimate losses incurred, especially for “longer-tail” liability businesses;

•

Efforts to manage expenses, including the company’s long-term expense savings targets, while allocating capital to business investment, which is at management’s discretion;

•

Mix improvement, underwriting initiatives, coverage restrictions and pricing segmentation actions, among others, to grow businesses believed to be more profitable or reduce premiums attributable to products or lines of business believed to be less profitable; balance rate actions and retention; offset long-term and/or short-term loss trends due to increased frequency; increased “social inflation” from a more litigious environment and higher average cost of resolution, increased property replacement costs, and/or social movements;

•

The ability to generate growth in targeted segments through new agency appointments; rate increases (as a result of its market position, agency relationships or otherwise), retention improvements or new business; expansion into new geographies; new product introductions; or otherwise; and  

•

Investment returns and the effect of macro-economic interest rate trends and overall security yields, including the macro-economic impact of the Pandemic and corresponding governmental initiatives taken in response, and geopolitical circumstances on new money yields and overall investment returns.

•

The severity, duration and long-term impact related to the Pandemic, including, but not limited to, decline in economic conditions, actual and possible government responses, legislative, regulatory and judicial actions, adverse impacts to the investment portfolio valuation and yield, changes in frequency and severity of claims in both Commercial and Personal Lines, customers’ abilities to pay premiums or renew existing insurance policies, impacts to distributors (including agent partners), and the possibility of additional premium adjustments, including credits and returns, for the benefit of insureds;

•

The potential for operations to be disrupted or negatively impacted due to (i) the risk of the company’s workforce, including third-party contractors, being unable to work due to illness, quarantine, limitations on travel or other government restrictions in connection with COVID-19 and the Pandemic; (ii) the company’s reliance on the functioning of business continuity plans and technology while the majority of employees work remotely for an extended period of time; and (iii) the ongoing threat of cyberattacks and vulnerabilities;

•

Changes in regulatory, legislative, economic, market and political conditions, particularly in response to COVID-19 and the Pandemic (such as legislative or regulatory actions that would retroactively require insurers to cover business interruption or other types of claims irrespective of terms, exclusions or other conditions included in the contractual terms of the policies that would otherwise preclude coverage, mandatory returns and other rate-related actions, as well as presumption legislation in regards to workers’ compensation);

•

Heightened investment market volatility, fluctuations in interest rates (which have a significant impact on the market value of the investment portfolio and thus book value), U.S. Federal Reserve actions, inflationary pressures, default rates, prolonged global market conditions and other factors that affect investment returns from the investment portfolio;

•

Adverse claims experience, including those driven by large or increased frequency of catastrophe events (including those related to terrorism, riots and civil unrest), and severe weather;

•

The uncertainty in estimating weather-related losses or the long-term impacts of the Pandemic, and the limitations and assumptions used to model other property and casualty losses (particularly with respect to products with longer-tail liability lines, such as casualty and bodily injury claims, or involving emerging issues related to losses incurred as the result of new lines of business, such as cyber or financial institutions coverage, or reinsurance contracts and reinsurance recoverables), leading to potential adverse development of loss and loss adjustment expense reserves;

•

Litigation and the possibility of adverse judicial decisions, including those which expand policy coverage beyond its intended scope or award “bad faith” or other non-contractual damages, and the impact of “social inflation” affecting judicial awards and settlements;

•

The ability to increase or maintain insurance rates in line with anticipated loss costs and/or governmental action, including mandates by state departments of insurance to either raise or lower rates or provide credits or return premium to insureds;

•

Investment impairments, which may be affected by, among other things, the company’s ability and willingness to hold investment assets until they recover in value, as well as credit and interest rate risk and general financial and economic conditions;

•

Disruption of the independent agency channel, including the impact of competition and consolidation in the industry and among agents and brokers, and the degree to which agents and brokers remain operational during the Pandemic;

•

Competition, particularly from competitors who have resource and capability advantages;

•

The global macroeconomic environment, including actions taken in response to the Pandemic, inflation, global trade wars, energy market disruptions, equity price risk, and interest rate fluctuations, which, among other things, could result in reductions in market values of fixed maturity and other investments;

•

Adverse state and federal regulation, legislative and/or regulatory actions (including recent significant revisions to Michigan’s automobile personal injury protection system and related litigation, and various regulations, orders and proposed legislation related to business interruption and workers’ compensation coverages, premium grace periods and returns, and rate actions);

•

Financial ratings actions, in particular, downgrades to the company’s ratings;

•

Operational and technology risks and evolving technological and product innovation, including risks created by remote work environments, and the risk of cyber-security attacks or breaches on the company’s systems or resulting in claim payments (including from products not intended to provide cyber coverage);

•

Uncertainties in estimating indemnification liabilities recorded in conjunction with obligations undertaken in connection with the sale of various businesses and discontinued operations; and

•

The ability to collect from reinsurers, reinsurance pricing, reinsurance terms and conditions, and the performance of the run-off voluntary property and casualty pools business (including those in the Other segment or in Discontinued operations).

(1)

Operating income and operating income per diluted share are non-GAAP measures. Operating income (loss) before taxes, as referenced in the results of the business segments, is defined as, with respect to such segment, operating income (loss) before taxes and interest expense. These measures are used throughout this document. The reconciliation of operating income and operating income per diluted share to the closest GAAP measures, income from continuing operations and income from continuing operations per diluted share, respectively, is provided on the preceding pages of this news release. See the disclosure on the use of this and other non-GAAP measures under the heading “Forward-Looking Statements and Non-GAAP Financial Measures.”

(2)

Current accident year loss and LAE ratio, excluding catastrophe losses, is a non-GAAP measure, which is equal to the loss and LAE ratio (“loss ratio”), excluding prior-year reserve development and catastrophe losses. The loss ratio (which includes losses, LAE, catastrophe losses and prior-year loss reserve development) is the most directly comparable GAAP measure. A reconciliation of the GAAP loss ratio to the current accident year loss ratio, excluding catastrophe losses, is shown on the following page.

Three months ended

September 30, 2020

Commercial Lines

Personal Lines

Total

Total loss and LAE ratio

62.4 %

62.5 %

62.4 %

Less:

Prior-year reserve development ratio

(0.6)%

0.2 %

(0.2)%

Catastrophe ratio

5.1 %

6.9 %

5.8 %

Current accident year loss and LAE ratio, excluding catastrophes

57.9 %

55.4 %

56.8 %

September 30, 2019

Total loss and LAE ratio

60.5 %

65.9 %

62.7 %

Less:

Prior-year reserve development ratio

(0.8)%

1.2 %

-

Catastrophe ratio

3.3 %

2.9 %

3.1 %

Current accident year loss and LAE ratio, excluding catastrophes

58.0 %

61.8 %

59.6 %

Nine months ended

September 30, 2020

Commercial Lines

Personal Lines

Total

Total loss and LAE ratio

62.9 %

64.6 %

63.7 %

Less:

Prior-year reserve development ratio

(0.6)%

(0.1)%

(0.3)%

Catastrophe ratio

6.1 %

9.4 %

7.5 %

Current accident year loss and LAE ratio, excluding catastrophes

57.4 %

55.3 %

56.5 %

September 30, 2019

Total loss and LAE ratio

60.3 %

68.7 %

63.7 %

Less:

Prior-year reserve development ratio

(0.9)%

1.2 %

-

Catastrophe ratio

2.8 %

5.8 %

4.0 %

Current accident year loss and LAE ratio, excluding catastrophes

58.4 %

61.7 %

59.7 %

(3)

Total net premiums written, excluding the impact of the premium returned in April and May, is a non-GAAP measure. Total net premiums written is the closest GAAP measure and is reconciled in the table below:

Three months ended June 30,

2020

2019

Growth

Total net premiums written

$1,081.0

$1,137.8

(5.0)%

Plus: premium return

30.2

-

-

Total net premiums written,

excluding premium return

$1,111.2

$1,137.8

(2.3)%

(4)

Core Commercial business provides commercial property and casualty coverages to small and mid-sized businesses in the U.S., generally with annual premiums per policy up to $250,000, primarily through the commercial multiple peril, commercial auto and workers’ compensation lines of business, as reported on pages 8 and 9 of the Third Quarter 2020 Financial Supplement. Price increases in Commercial Lines represent the average change in premium on renewed policies caused by the estimated net effect of base rate changes, discretionary pricing, inflation or changes in policy level exposure or insured risks.

Three months ended

Three months ended

September 30, 2020

September 30, 2019

($ in millions)

Core Commercial

Other Commercial

Total

Commercial

Core Commercial

Other Commercial

Total

Commercial

Net premiums written

$441.2

$319.3

$760.5

$440.3

$306.1

$746.4

Net premiums earned

$385.9

$279.2

$665.1

$385.4

$278.1

$663.5

Nine months ended

Nine months ended

September 30, 2020

September 30, 2019

($ in millions)

Core Commercial

Other Commercial

Total

Commercial

Core Commercial

Other Commercial

Total

Commercial

Net premiums written

$1,210.1

$872.9

$2,083.0

$1,210.3

$858.2

$2,068.5

Net premiums earned

$1,163.0

$836.6

$1,999.6

$1,153.4

$821.3

$1,974.7

(5)

Price increases in Personal Lines is the estimated cumulative premium effect of approved rate actions applied to policies available for renewal, regardless of whether or not policies are actually renewed. Accordingly, pricing changes do not represent actual increases or decreases realized by the company.

(6)

Operating return on average equity (“operating ROE”) is a non-GAAP measure. Operating ROE is calculated by dividing annualized operating income after tax for the applicable period (see under the heading in this news release “Non-GAAP Financial Measures” and end note (1)), by average shareholders’ equity, excluding unrealized appreciation (depreciation) on fixed maturity investments, net of tax, for the period presented. Total shareholders’ equity, excluding net unrealized appreciation (depreciation) on fixed maturity investments, net of tax, is also a non-GAAP measure.  Total shareholders’ equity is the most directly comparable GAAP measure, and is reconciled below. For the calculation of operating ROE, the average of beginning and ending shareholders’ equity, excluding net unrealized appreciation (depreciation) on fixed maturity investments, net of tax, is used for the period as shown in the table below and reconciled on the following page:

Period ended

($ in millions)

June 30,

September 30,

2020

2020

Total shareholders' equity (GAAP)

$3,071.7

$3,155.0

Less: net unrealized appreciation (depreciation) on fixed

     maturity investments, net of tax

384.5

412.3

Total shareholders' equity, excluding net unrealized appreciation

     (depreciation) on fixed maturity investments, net of tax

$2,687.2

$2,742.7

Average shareholders' equity (GAAP)

$3,113.4

Average shareholders' equity, excluding net unrealized appreciation

     (depreciation) on fixed maturity investments, net of tax

$2,715.0

($ in millions)

Three months ended

September 30

Net Income ROE

2020

Net income (GAAP)

$

118.9

Annualized net income*

$

475.6

Average shareholders' equity (GAAP)

$

3,113.4

Return on equity

15.3

%

Operating Income ROE (non-GAAP)

Operating income after taxes

$

93.5

Annualized operating income, net of tax*

$

374.0

Average shareholders' equity, excluding net unrealized

     appreciation (depreciation) on fixed maturity

     investments, net of tax

$

2,715.0

Operating return on equity

13.8

%

(7)

Combined ratio, excluding catastrophes, and current accident year combined ratio, excluding catastrophes, are non-GAAP measures. These measures are used throughout this document. The combined ratio (which includes catastrophe losses and prior-year loss reserve development) is the most directly comparable GAAP measure. A reconciliation of the GAAP combined ratio to the combined ratio, excluding catastrophes, and to the current accident year combined ratio, excluding catastrophes, is shown on the following page.

Three months ended

Three months ended

September 30, 2020

September 30, 2019

Commercial Lines

Personal Lines

Total

Commercial Lines

Personal Lines

Total

Total combined ratio (GAAP)

96.9

%

90.4

%

94.2

%

95.2

%

93.3

%

94.4

%

Less: catastrophe ratio

5.1

%

6.9

%

5.8

%

3.3

%

2.9

%

3.1

%

Combined ratio, excluding catastrophe

    losses (non-GAAP)

91.8

%

83.5

%

88.4

%

91.9

%

90.4

%

91.3

%

Less: Prior-year reserve development

    ratio

(0.6

)%

0.2

%

(0.2

)%

(0.8

)%

1.2

%

-

Current accident year combined ratio,

    excluding catastrophe losses (non-

    GAAP)

92.4

%

83.3

%

88.6

%

92.7

%

89.2

%

91.3

%

Nine months ended

Nine months ended

September 30, 2020

September 30, 2019

Commercial Lines

Personal Lines

Total

Commercial Lines

Personal Lines

Total

Total combined ratio (GAAP)

97.2

%

92.0

%

95.2

%

95.0

%

96.1

%

95.4

%

Less: catastrophe ratio

6.1

%

9.4

%

7.5

%

2.8

%

5.8

%

4.0

%

Combined ratio, excluding catastrophe

    losses (non-GAAP)

91.1

%

82.6

%

87.7

%

92.2

%

90.3

%

91.4

%

Less: Prior-year reserve development

    ratio

(0.6

)%

(0.1

)%

(0.3

)%

(0.9

)%

1.2

%

-

Current accident year combined ratio,

    excluding catastrophe losses (non-

    GAAP)

91.7

%

82.7

%

88.0

%

93.1

%

89.1

%

91.4

%

(8)

Here, and later in this document, the expense ratio is reduced by installment and other fee revenues for purposes of the ratio calculation.

(9)

The separate financial information of each operating segment is presented consistent with the way results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Management evaluates the results of the aforementioned operating segments without consideration of interest expense on debt and on a pre-tax basis.

THE HANOVER INSURANCE GROUP

FINANCIAL SUPPLEMENT

TABLE OF CONTENTS

Business Descriptions................................................................................................

1

Financial Highlights.....................................................................................................

2

Consolidated Financial Statements

Income Statements.................................................................................................

3

Balance Sheets......................................................................................................

4

GAAP Underwriting Results

Consolidated...........................................................................................................

5-7

Commercial Lines..................................................................................................

8-10

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 to Net Income.............................................

18

Other Information

Non-GAAP Financial Measures...........................................................................

19

Corporate Information............................................................................................

20

Market and Dividend Information..........................................................................

20

Financial Strength and Debt Ratings...................................................................

20

THE HANOVER INSURANCE GROUP

BASIS OF PRESENTATION

BUSINESS DESCRIPTIONS

COMMERCIAL LINES

Commercial multiple peril coverage insures businesses against third party liability from accidents occurring on their premises or arising out of their operations, such as injuries sustained from products sold. It also insures business property for damage, such as that caused by fire, wind, hail, water damage (except for flooding), theft and vandalism.

Commercial automobile coverage insures businesses against losses incurred from personal bodily injury, bodily injury to third parties, property damage to an insured’s vehicle, and property damage to other vehicles and property. Commercial automobile policies are often written in conjunction with other commercial lines.

Workers’ compensation coverage insures employers against employee medical and indemnity claims resulting from injuries related to work. Workers’ compensation policies are often written in conjunction with other commercial policies.

Other Commercial Lines is comprised of management and professional liability, which covers primarily commercial professional, management and medical liability; marine, which includes inland and ocean marine, and insures businesses against physical losses to property; Hanover Programs, which includes coverage to markets where there are specialty coverage or risk management needs related to groups of similar businesses; specialty industrial and commercial property, which provides insurance to small and medium-sized chemical, paint, solvent and other manufacturing and distribution companies; monoline general liability, which covers bodily injury, property damage and personal injury arising from products sold or accidents occurring on premises or operations; surety, which provides businesses with contract surety coverage in the event of a failure to perform or pay claims and coverage related to fiduciary or regulatory obligations; and other commercial lines, which includes umbrella, fidelity and crime.

PERSONAL LINES

Personal automobile coverage insures individuals against losses incurred from personal bodily injury, bodily injury to third parties, property damage to an insured's vehicle, and property damage to other vehicles and other property.

Homeowners coverage insures individuals for losses to their residences and personal property, such as those caused by fire, wind, hail, water damage (excluding flood), theft and vandalism, and against third party liability claims.

Other Personal Lines are comprised of personal inland marine (jewelry, art, etc.), umbrella, fire, personal watercraft and other miscellaneous coverages.

OTHER

Included in Other are Opus, which provides investment advisory services to affiliates and also manages assets for unaffiliated institutions such as insurance companies, retirement plans and foundations; earnings on holding company assets; holding company and other expenses and a discontinued voluntary property-casualty pools business.

THE HANOVER INSURANCE GROUP

FINANCIAL HIGHLIGHTS