HANOVER INSURANCE GROUP, INC. [THG] Filings

10-Q 1 thg-20240930.htm 10-Q 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-13754

THE HANOVER INSURANCE GROUP, INC.

(Exact name of registrant as specified in its charter)

    Delaware

    04-3263626

    (State or other jurisdiction of
incorporation or organization)

    (I.R.S. Employer
Identification No.)

440 Lincoln Street, Worcester, Massachusetts 01653

(Address of principal executive offices) (Zip Code)

(508) 855-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbols	Name of each exchange on which registered
Common Stock, $.01 par value	THG	New York Stock Exchange
7 5/8% Senior Debentures due 2025	THG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock was 36,033,351 as of October 29, 2024.

Table of Contents

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	2

Item 1.	Financial Statements	2
	Consolidated Statements of Income (Loss)	2
	Consolidated Statements of Comprehensive Income (Loss)	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Shareholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Interim Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	42

PART II.	OTHER INFORMATION	42

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 5.	Other Information	45

Item 6.	Exhibits	46

SIGNATURES		47

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions, except per share data)	2024			2023			2024			2023
Revenues
Premiums	$	1,479.2		$	1,431.1		$	4,401.0		$	4,222.8
Net investment income		91.8			84.2			271.9			250.5
Net realized and unrealized investment gains (losses):
Net realized losses from sales and other		(23.5	)		(0.9	)		(55.2	)		(1.9	)
Net change in fair value of equity securities		11.7			(5.2	)		19.3			(13.4	)
Impairments on investments:
Credit-related impairments		(0.1	)		—			(3.3	)		(6.2	)
Losses on intent to sell securities		(0.5	)		—			(2.2	)		(10.3	)
		(0.6	)		—			(5.5	)		(16.5	)
Total net realized and unrealized investment losses		(12.4	)		(6.1	)		(41.4	)		(31.8	)
Fees and other income		6.7			7.4			21.6			23.2
Total revenues		1,565.3			1,516.6			4,653.1			4,464.7
Losses and expenses
Losses and loss adjustment expenses		954.0			1,061.5			2,896.8			3,218.8
Amortization of deferred acquisition costs		307.8			296.6			910.3			878.1
Interest expense		8.5			8.5			25.6			25.6
Other operating expenses		165.3			150.9			494.1			451.3
Total losses and expenses		1,435.6			1,517.5			4,326.8			4,573.8
Income (loss) from continuing operations before income taxes		129.7			(0.9	)		326.3			(109.1	)
Income tax expense (benefit):
Current		36.7			(1.1	)		82.4			(13.7	)
Deferred		(9.1	)		(8.0	)		(14.1	)		(21.6	)
Total income tax expense (benefit)		27.6			(9.1	)		68.3			(35.3	)
Income (loss) from continuing operations		102.1			8.2			258.0			(73.8	)
Discontinued operations (net of taxes):
Income from discontinued life businesses		—			—			0.1			—
Income from discontinued Chaucer business		—			0.4			—			1.2
Net income (loss)	$	102.1		$	8.6		$	258.1		$	(72.6	)
Earnings per common share:
Basic:
Income (loss) from continuing operations	$	2.84		$	0.23		$	7.18		$	(2.07	)
Discontinued operations (net of taxes):
Income from discontinued life businesses		—			—			—			—
Income from discontinued Chaucer business		—			0.01			—			0.04
Net income (loss) per share	$	2.84		$	0.24		$	7.18		$	(2.03	)
Weighted average shares outstanding		36.0			35.8			35.9			35.7
Diluted:
Income (loss) from continuing operations	$	2.80		$	0.23		$	7.09		$	(2.07	)
Discontinued operations (net of taxes):
Income from discontinued life businesses		—			—			0.01			—
Income from discontinued Chaucer business		—			0.01			—			0.04
Net income (loss) per share	$	2.80		$	0.24		$	7.10		$	(2.03	)
Weighted average shares outstanding		36.5			36.1			36.4			35.7

The accompanying notes are an integral part of these interim consolidated financial statements.

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THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


	Three Months Ended							Nine Months Ended
	September 30,						September 30,
(In millions)	2024			2023				2024			2023
Net income (loss)	$	102.1		$	8.6			$	258.1		$	(72.6	)
Other comprehensive income (loss), net of tax:
Available-for-sale securities:
Changes in net unrealized gains (losses) on investment securities:
Having no credit losses recognized in the Consolidated Statements of Income (Loss)		242.4			(113.7	)			212.3			(87.0	)
Having credit losses recognized in the Consolidated Statements of Income (Loss)		0.6			(0.5	)			2.6			0.9
Total available-for-sale securities		243.0			(114.2	)			214.9			(86.1	)
Pension and postretirement benefits:
Net change in net actuarial loss		1.4			1.5				4.1			4.7
Long-duration insurance contracts:
Net change in market risk		(3.1	)		3.3				(1.3	)		2.6
Total other comprehensive income (loss), net of tax		241.3			(109.4	)			217.7			(78.8	)
Comprehensive income (loss)	$	343.4		$	(100.8	)		$	475.8		$	(151.4	)

The accompanying notes are an integral part of these interim consolidated financial statements.

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THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)


	September 30,			December 31,
(In millions, except share data)	2024			2023
Assets
Investments:
Fixed maturities, at fair value (amortized cost of $8,936.5 and $8,573.9)	$	8,620.0		$	7,985.3
Equity securities, at fair value		150.1			130.9
Other investments		760.6			796.9
Total investments		9,530.7			8,913.1
Cash and cash equivalents		427.1			316.1
Accrued investment income		64.2			58.2
Premiums and accounts receivable, net		1,881.5			1,705.6
Reinsurance recoverable on paid and unpaid losses and unearned premiums		1,960.9			2,056.1
Deferred acquisition costs		662.9			620.8
Deferred income tax asset		128.1			173.3
Goodwill		178.8			178.8
Other assets		443.7			504.0
Assets of discontinued businesses		89.1			86.6
Total assets	$	15,367.0		$	14,612.6
Liabilities
Loss and loss adjustment expense reserves	$	7,426.8		$	7,308.1
Unearned premiums		3,339.2			3,102.5
Expenses and taxes payable		775.1			775.9
Reinsurance premiums payable		50.9			64.3
Debt		783.9			783.2
Liabilities of discontinued businesses		113.4			113.0
Total liabilities		12,489.3			12,147.0
Commitments and contingencies
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 authorized; 60.5 million shares issued		0.6			0.6
Additional paid-in capital		1,962.9			1,939.2
Accumulated other comprehensive loss		(299.5	)		(517.2	)
Retained earnings		3,074.5			2,909.4
Treasury stock at cost (24.5 million and 24.7 million shares)		(1,860.8	)		(1,866.4	)
Total shareholders’ equity		2,877.7			2,465.6
Total liabilities and shareholders’ equity	$	15,367.0		$	14,612.6

The accompanying notes are an integral part of these interim consolidated financial statements.

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THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
(In millions)	2024			2023			2024			2023
Preferred Stock
Balance at beginning and end of period	$	—		$	—		$	—		$	—
Common Stock
Balance at beginning and end of period		0.6			0.6			0.6			0.6
Additional Paid-in Capital
Balance at beginning of period		1,951.9			1,923.0			1,939.2			1,913.1
Employee and director stock-based awards and other		11.0			8.4			23.7			18.3
Balance at end of period		1,962.9			1,931.4			1,962.9			1,931.4
Accumulated Other Comprehensive Income (Loss), net of tax
Net Unrealized Appreciation (Depreciation) on Investments:
Balance at beginning of period		(490.9	)		(613.3	)		(462.8	)		(641.4	)
Net appreciation (depreciation) on available-for-sale securities		243.0			(114.2	)		214.9			(86.1	)
Balance at end of period		(247.9	)		(727.5	)		(247.9	)		(727.5	)
Defined Benefit Pension and Postretirement Plans:
Balance at beginning of period		(52.1	)		(60.9	)		(54.8	)		(64.1	)
Net amount recognized as net periodic benefit cost		1.4			1.5			4.1			4.7
Balance at end of period		(50.7	)		(59.4	)		(50.7	)		(59.4	)
Long Duration Insurance Contracts:
Balance at beginning of period		2.2			3.3			0.4			4.0
Net change in market risk		(3.1	)		3.3			(1.3	)		2.6
Balance at end of period		(0.9	)		6.6			(0.9	)		6.6
Total accumulated other comprehensive loss		(299.5	)		(780.3	)		(299.5	)		(780.3	)
Retained Earnings
Balance at beginning of period		3,003.4			2,853.0			2,909.4			2,992.9
Net income (loss)		102.1			8.6			258.1			(72.6	)
Dividends to shareholders		(31.0	)		(29.3	)		(93.0	)		(88.0	)
Balance at end of period		3,074.5			2,832.3			3,074.5			2,832.3
Treasury Stock
Balance at beginning of period		(1,862.9	)		(1,867.8	)		(1,866.4	)		(1,871.4	)
Net shares reissued at cost under employee stock-based compensation plans		2.1			0.1			5.6			3.7
Balance at end of period		(1,860.8	)		(1,867.7	)		(1,860.8	)		(1,867.7	)
Total shareholders’ equity	$	2,877.7		$	2,116.3		$	2,877.7		$	2,116.3

The accompanying notes are an integral part of these interim consolidated financial statements.

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THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


	Nine Months Ended
	September 30,
(In millions)	2024			2023
Cash Flows From Operating Activities
Net income (loss)	$	258.1		$	(72.6	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Net realized and unrealized investment losses		41.7			31.6
Net amortization and depreciation		2.1			5.5
Stock-based compensation expense		23.5			23.9
Amortization of defined benefit plan costs		5.1			5.9
Deferred income tax benefit		(14.3	)		(21.5	)
Change in deferred acquisition costs		(42.1	)		(26.6	)
Change in premiums receivable, net of reinsurance premiums payable		(189.2	)		(176.6	)
Change in loss, loss adjustment expense and unearned premium reserves		353.8			550.5
Change in reinsurance recoverable		95.2			(27.7	)
Change in expenses and taxes payable		(13.7	)		(9.6	)
Other, net		72.7			(13.8	)
Net cash provided by operating activities		592.9			269.0
Cash Flows From Investing Activities
Proceeds from disposals and maturities of fixed maturities		1,750.3			503.4
Proceeds from disposals of equity securities and other investments		61.3			121.5
Purchase of fixed maturities		(2,137.1	)		(744.0	)
Purchase of equity securities and other investments		(58.1	)		(57.6	)
Capital expenditures		(7.2	)		(9.7	)
Net cash used in investing activities		(390.8	)		(186.4	)
Cash Flows From Financing Activities
Proceeds from exercise of employee stock options		11.5			4.3
Dividends paid to shareholders		(91.7	)		(86.9	)
Other financing activities		(10.5	)		(10.5	)
Net cash used in financing activities		(90.7	)		(93.1	)
Net change in cash and cash equivalents		111.4			(10.5	)
Net change in cash related to discontinued operations		(0.4	)	—
Cash and cash equivalents, beginning of period		316.1			305.0
Cash and cash equivalents, end of period	$	427.1		$	294.5

The accompanying notes are an integral part of these interim consolidated financial statements.

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THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation and Principles of Consolidation

The accompanying unaudited consolidated financial statements of The Hanover Insurance Group, Inc. and its subsidiaries (“THG” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) for interim financial information and with the requirements of Form 10-Q. Certain financial information that is provided in annual financial statements, but is not required in interim reports, has been omitted.

The interim consolidated financial statements of THG include the accounts of The Hanover Insurance Company and Citizens Insurance Company of America, THG’s principal property and casualty companies, and other insurance and non-insurance subsidiaries. These legal entities conduct their operations through several business segments discussed in Note 8 – “Segment Information.” All intercompany accounts and transactions have been eliminated.

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In the opinion of the Company’s management, the accompanying interim consolidated financial statements reflect all adjustments, consisting of normal recurring items, necessary for a fair presentation of the financial position and results of operations. The results of operations for the nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Company’s 2023 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 22, 2024.

2. New Accounting Pronouncements

Recently Issued Standards

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This Update requires entities to disclose an annual tabular rate reconciliation, using both percentages and currency amounts, broken out into specific categories, to the extent those items exceed a specified threshold. In addition, all entities are required to disclose annual income taxes paid, net of refunds received, disaggregated by federal, state, and foreign jurisdictions, and for individual jurisdictions when the amount is at least five percent of total income tax payments, net of refunds received. This Update is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. This guidance may be implemented either on a prospective or retrospective basis. The Company does not expect implementation of this guidance to have a material effect on its financial position or results of operations, as the Update is disclosure related.

In November 2023, the FASB issued ASC Update No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This Update requires entities to disclose significant segment expenses and other segment items on an annual and interim basis, and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Additionally, it requires entities to disclose the title and position of the Chief Operating Decision Maker (“CODM”), and an explanation of how the CODM uses the reported measures of segment profit or loss. The Update does not change how entities identify operating segments, aggregate them, or apply the quantitative thresholds to determine reportable segments. This Update is effective for annual reporting periods beginning after December 15, 2023, and interim reporting periods beginning after December 15, 2024, with early adoption permitted. The guidance should be applied retrospectively to all prior periods presented in the financial statements. The Company does not expect implementation of this guidance to have a material effect on its financial position or results of operations, as the Update is disclosure related.

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3. Investments

A. Fixed maturities

The amortized cost and fair value of available-for-sale fixed maturities were as follows:

         
        September 30, 2024

         
        Amortized Cost,