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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2023
or
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☐ |
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)
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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:
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Title of each class |
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Trading Symbols |
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Name of each exchange on which registered |
Common Stock, $.01 par value |
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THG |
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New York Stock Exchange |
7 5/8% Senior Debentures due 2025 |
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THG |
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New York Stock Exchange |
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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.
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Large accelerated filer |
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 35,753,876 as of August 1, 2023.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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(In millions, except per share data) |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenues |
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Premiums |
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$ |
1,411.7 |
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$ |
1,293.8 |
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$ |
2,791.7 |
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$ |
2,557.6 |
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Net investment income |
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87.6 |
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70.5 |
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166.3 |
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147.4 |
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Net realized and unrealized investment gains (losses): |
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Net realized gains (losses) from sales and other |
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0.1 |
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(19.2 |
) |
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(1.0 |
) |
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(16.2 |
) |
Net change in fair value of equity securities |
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(1.1 |
) |
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(59.0 |
) |
|
|
|
(8.2 |
) |
|
|
|
(77.0 |
) |
Impairments on investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit-related recoveries (impairments) |
|
|
(1.7 |
) |
|
|
0.5 |
|
|
|
|
(6.2 |
) |
|
|
|
(0.1 |
) |
Losses on intent to sell securities |
|
|
— |
|
|
|
(0.2 |
) |
|
|
|
(10.3 |
) |
|
|
|
(0.5 |
) |
|
|
|
(1.7 |
) |
|
|
0.3 |
|
|
|
|
(16.5 |
) |
|
|
|
(0.6 |
) |
Total net realized and unrealized investment losses |
|
|
(2.7 |
) |
|
|
(77.9 |
) |
|
|
|
(25.7 |
) |
|
|
|
(93.8 |
) |
Fees and other income |
|
|
7.8 |
|
|
|
6.5 |
|
|
|
|
15.8 |
|
|
|
|
12.4 |
|
Total revenues |
|
|
1,504.4 |
|
|
|
1,292.9 |
|
|
|
|
2,948.1 |
|
|
|
|
2,623.6 |
|
Losses and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
|
1,139.9 |
|
|
|
845.5 |
|
|
|
|
2,157.3 |
|
|
|
|
1,633.0 |
|
Amortization of deferred acquisition costs |
|
|
292.7 |
|
|
|
269.3 |
|
|
|
|
581.5 |
|
|
|
|
532.2 |
|
Interest expense |
|
|
8.6 |
|
|
|
8.5 |
|
|
|
|
17.1 |
|
|
|
|
17.0 |
|
Other operating expenses |
|
|
153.9 |
|
|
|
141.4 |
|
|
|
|
300.4 |
|
|
|
|
283.2 |
|
Total losses and expenses |
|
|
1,595.1 |
|
|
|
1,264.7 |
|
|
|
|
3,056.3 |
|
|
|
|
2,465.4 |
|
Income (loss) from continuing operations before income taxes |
|
|
(90.7 |
) |
|
|
28.2 |
|
|
|
|
(108.2 |
) |
|
|
|
158.2 |
|
Income tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
(14.8 |
) |
|
|
29.4 |
|
|
|
|
(12.6 |
) |
|
|
|
59.6 |
|
Deferred |
|
|
(5.9 |
) |
|
|
(24.0 |
) |
|
|
|
(13.6 |
) |
|
|
|
(29.5 |
) |
Total income tax expense (benefit) |
|
|
(20.7 |
) |
|
|
5.4 |
|
|
|
|
(26.2 |
) |
|
|
|
30.1 |
|
Income (loss) from continuing operations |
|
|
(70.0 |
) |
|
|
22.8 |
|
|
|
|
(82.0 |
) |
|
|
|
128.1 |
|
Discontinued operations (net of taxes): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued Chaucer business |
|
|
0.8 |
|
|
|
— |
|
|
|
|
0.8 |
|
|
|
|
— |
|
Loss from discontinued life businesses |
|
|
— |
|
|
|
(0.1 |
) |
|
|
|
— |
|
|
|
|
(0.5 |
) |
Net income (loss) |
|
$ |
(69.2 |
) |
|
$ |
22.7 |
|
|
|
$ |
(81.2 |
) |
|
|
$ |
127.6 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(1.96 |
) |
|
$ |
0.64 |
|
|
|
$ |
(2.30 |
) |
|
|
$ |
3.60 |
|
Discontinued operations (net of taxes): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued Chaucer business |
|
|
0.02 |
|
|
|
— |
|
|
|
|
0.03 |
|
|
|
|
— |
|
Loss from discontinued life businesses |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(0.01 |
) |
Net income (loss) per share |
|
$ |
(1.94 |
) |
|
$ |
0.64 |
|
|
|
$ |
(2.27 |
) |
|
|
$ |
3.59 |
|
Weighted average shares outstanding |
|
|
35.7 |
|
|
|
35.6 |
|
|
|
|
35.7 |
|
|
|
|
35.6 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
(1.96 |
) |
|
$ |
0.63 |
|
|
|
$ |
(2.30 |
) |
|
|
$ |
3.55 |
|
Discontinued operations (net of taxes): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued Chaucer business |
|
|
0.02 |
|
|
|
— |
|
|
|
|
0.03 |
|
|
|
|
— |
|
Loss from discontinued life businesses |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(0.02 |
) |
Net income (loss) per share |
|
$ |
(1.94 |
) |
|
$ |
0.63 |
|
|
|
$ |
(2.27 |
) |
|
|
$ |
3.53 |
|
Weighted average shares outstanding |
|
|
35.7 |
|
|
|
36.1 |
|
|
|
|
35.7 |
|
|
|
|
36.1 |
|
The accompanying notes are an integral part of these interim consolidated financial statements.
2
THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
(In millions) |
|
2023 |
|
|
2022 |
|
|
|
2023 |
|
|
|
2022 |
|
Net income (loss) |
|
$ |
(69.2 |
) |
|
$ |
22.7 |
|
|
|
$ |
(81.2 |
) |
|
|
$ |
127.6 |
|
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) |
|
|
(66.6 |
) |
|
|
(261.4 |
) |
|
|
|
26.7 |
|
|
|
|
(640.8 |
) |
Having credit losses recognized in the Consolidated Statements of Income (Loss) |
|
|
0.4 |
|
|
|
(3.0 |
) |
|
|
|
1.4 |
|
|
|
|
(3.5 |
) |
Total available-for-sale securities |
|
|
(66.2 |
) |
|
|
(264.4 |
) |
|
|
|
28.1 |
|
|
|
|
(644.3 |
) |
Pension and postretirement benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in net actuarial loss |
|
|
1.6 |
|
|
|
1.1 |
|
|
|
|
3.2 |
|
|
|
|
2.2 |
|
Long-duration insurance contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in market risk |
|
|
1.4 |
|
|
|
6.2 |
|
|
|
|
(0.7 |
) |
|
|
|
13.1 |
|
Total other comprehensive income (loss), net of tax |
|
|
(63.2 |
) |
|
|
(257.1 |
) |
|
|
|
30.6 |
|
|
|
|
(629.0 |
) |
Comprehensive loss |
|
$ |
(132.4 |
) |
|
$ |
(234.4 |
) |
|
|
$ |
(50.6 |
) |
|
|
$ |
(501.4 |
) |
The accompanying notes are an integral part of these interim consolidated financial statements.
3
THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
(In millions, except share data) |
|
2023 |
|
|
2022 |
|
Assets |
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
Fixed maturities, at fair value (amortized cost of $8,375.5 and $8,294.5) |
|
$ |
7,598.0 |
|
|
$ |
7,481.8 |
|
Equity securities, at fair value |
|
|
232.7 |
|
|
|
241.9 |
|
Other investments |
|
|
809.7 |
|
|
|
786.1 |
|
Total investments |
|
|
8,640.4 |
|
|
|
8,509.8 |
|
Cash and cash equivalents |
|
|
167.6 |
|
|
|
305.0 |
|
Accrued investment income |
|
|
55.5 |
|
|
|
54.5 |
|
Premiums and accounts receivable, net |
|
|
1,673.8 |
|
|
|
1,601.4 |
|
Reinsurance recoverable on paid and unpaid losses and unearned premiums |
|
|
1,997.3 |
|
|
|
1,964.5 |
|
Deferred acquisition costs |
|
|
606.4 |
|
|
|
604.8 |
|
Deferred income tax asset |
|
|
203.7 |
|
|
|
199.2 |
|
Goodwill |
|
|
178.8 |
|
|
|
178.8 |
|
Other assets |
|
|
577.4 |
|
|
|
493.0 |
|
Assets of discontinued businesses |
|
|
85.8 |
|
|
|
84.1 |
|
Total assets |
|
$ |
14,186.7 |
|
|
$ |
13,995.1 |
|
Liabilities |
|
|
|
|
|
|
Loss and loss adjustment expense reserves |
|
$ |
7,313.3 |
|
|
$ |
7,012.6 |
|
Unearned premiums |
|
|
3,020.8 |
|
|
|
2,954.2 |
|
Expenses and taxes payable |
|
|
651.7 |
|
|
|
731.7 |
|
Reinsurance premiums payable |
|
|
69.5 |
|
|
|
70.3 |
|
Debt |
|
|
782.8 |
|
|
|
782.4 |
|
Liabilities of discontinued businesses |
|
|
110.7 |
|
|
|
110.2 |
|
Total liabilities |
|
|
11,948.8 |
|
|
|
11,661.4 |
|
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 |
|
|
1,923.0 |
|
|
|
1,913.1 |
|
Accumulated other comprehensive loss |
|
|
(670.9 |
) |
|
|
(701.5 |
) |
Retained earnings |
|
|
2,853.0 |
|
|
|
2,992.9 |
|
Treasury stock at cost (24.7 million and 24.9 million shares) |
|
|
(1,867.8 |
) |
|
|
(1,871.4 |
) |
Total shareholders’ equity |
|
|
2,237.9 |
|
|
|
2,333.7 |
|
Total liabilities and shareholders’ equity |
|
$ |
14,186.7 |
|
|