Hanover Insurance Group Earnings 2021-03-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

thg-10q_20210331.htm

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 March 31, 2021

☐	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 35,896,848 as of April 28, 2021.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	2

Item 1.	Financial Statements	2
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income	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	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION	40

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 6.	Exhibits	43

SIGNATURES		44

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three Months Ended
	March 31,
(In millions, except per share data)	2021			2020
Revenues
Premiums	$	1,161.8		$	1,141.4
Net investment income		76.8			69.6
Net realized and unrealized investment gains (losses):
Net realized gains (losses) from sales and other		(1.6	)		3.1
Net change in fair value of equity securities		39.1			(136.2	)
Impairment losses on investments		—			(28.5	)
Total net realized and unrealized investment gains (losses)		37.5			(161.6	)
Fees and other income		7.2			6.8
Total revenues		1,283.3			1,056.2
Losses and expenses
Losses and loss adjustment expenses		781.3			728.2
Amortization of deferred acquisition costs		240.3			236.9
Interest expense		8.5			9.4
Other operating expenses		139.1			135.6
Total losses and expenses		1,169.2			1,110.1
Income (loss) from continuing operations before income taxes		114.1			(53.9	)
Income tax expense (benefit):
Current		8.9			21.3
Deferred		12.4			(36.5	)
Total income tax expense (benefit)		21.3			(15.2	)
Income (loss) from continuing operations		92.8			(38.7	)
Discontinued operations (net of taxes):
Loss from discontinued life businesses		(0.1	)		(1.3	)
Net income (loss)	$	92.7		$	(40.0	)
Earnings per common share:
Basic:
Income (loss) from continuing operations	$	2.55		$	(1.01	)
Discontinued operations (net of taxes):
Loss from discontinued life businesses		—			(0.03	)
Net income (loss) per share	$	2.55		$	(1.04	)
Weighted average shares outstanding		36.4			38.3
Diluted:
Income (loss) from continuing operations	$	2.52		$	(1.01	)
Discontinued operations (net of taxes):
Loss from discontinued life businesses		(0.01	)		(0.03	)
Net income (loss) per share	$	2.51		$	(1.04	)
Weighted average shares outstanding		36.9			38.3

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

Table of Contents

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	Three Months Ended
	March 31,
(In millions)	2021			2020
Net income (loss)	$	92.7		$	(40.0	)
Other comprehensive income (loss), net of tax:
Available-for-sale securities:
Changes in net unrealized losses on investment securities:
Having no credit losses recognized in the Consolidated Statements of Income		(185.5	)		(70.8	)
Having credit losses recognized in the Consolidated Statements of Income		—			(12.4	)
Total available-for-sale securities		(185.5	)		(83.2	)
Pension and postretirement benefits:
Net change in net actuarial loss		0.7			1.2
Total other comprehensive loss, net of tax		(184.8	)		(82.0	)
Comprehensive loss	$	(92.1	)	$	(122.0	)

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

Table of Contents

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	March 31,			December 31,
(In millions, except share data)	2021			2020
Assets
Investments:
Fixed maturities, at fair value (amortized cost of $7,089.1 and $6,945.6)	$	7,370.3		$	7,454.4
Equity securities, at fair value		641.0			598.5
Other investments		793.2			793.2
Total investments		8,804.5			8,846.1
Cash and cash equivalents		112.1			120.6
Accrued investment income		48.0			51.2
Premiums and accounts receivable, net		1,369.6			1,339.3
Reinsurance recoverable on paid and unpaid losses and unearned premiums		1,882.9			1,874.3
Deferred acquisition costs		491.0			477.5
Goodwill		178.8			178.8
Other assets		461.5			445.7
Assets of discontinued businesses		99.6			110.2
Total assets	$	13,448.0		$	13,443.7
Liabilities
Loss and loss adjustment expense reserves	$	6,223.7		$	6,024.0
Unearned premiums		2,553.1			2,482.7
Expenses and taxes payable		601.8			687.5
Deferred income tax liability		64.0			97.3
Reinsurance premiums payable		57.3			48.4
Debt		781.0			780.8
Liabilities of discontinued businesses		120.3			120.8
Total liabilities		10,401.2			10,241.5
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		1,864.0			1,857.4
Accumulated other comprehensive income		187.7			372.5
Retained earnings		2,734.9			2,668.0
Treasury stock at cost (24.3 million and 24.1 million shares)		(1,740.4	)		(1,696.3	)
Total shareholders’ equity		3,046.8			3,202.2
Total liabilities and shareholders’ equity	$	13,448.0		$	13,443.7

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

Table of Contents

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

	Three Months Ended
	March 31,
(In millions)	2021			2020
Preferred Stock
Balance at beginning and end of period	$	—		$	—
Common Stock
Balance at beginning and end of period		0.6			0.6
Additional Paid-in Capital
Balance at beginning of period		1,857.4			1,837.3
Settlement and prepayment of accelerated share repurchases and other		6.6			24.3
Balance at end of period		1,864.0			1,861.6
Accumulated Other Comprehensive Income, net of tax
Net Unrealized Appreciation (Depreciation) on Investments:
Balance at beginning of period		428.1			216.0
Net depreciation on available-for-sale securities		(185.5	)		(83.2	)
Balance at end of period		242.6			132.8
Defined Benefit Pension and Postretirement Plans:
Balance at beginning of period		(55.6	)		(63.4	)
Net amount recognized as net periodic benefit cost		0.7			1.2
Balance at end of period		(54.9	)		(62.2	)
Total accumulated other comprehensive income		187.7			70.6
Retained Earnings
Balance at beginning of period		2,668.0			2,410.9
Cumulative effect of accounting change, net of taxes		—			(0.9	)
Balance at beginning of period, as adjusted		2,668.0			2,410.0
Net income (loss)		92.7			(40.0	)
Dividends to shareholders		(25.8	)		(25.1	)
Balance at end of period		2,734.9			2,344.9
Treasury Stock
Balance at beginning of period		(1,696.3	)		(1,485.2	)
Shares purchased at cost		(50.3	)		(59.2	)
Net shares reissued at cost under employee stock-based compensation plans		6.2			3.3
Balance at end of period		(1,740.4	)		(1,541.1	)
Total shareholders’ equity	$	3,046.8		$	2,736.6

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

Table of Contents

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended
	March 31,
(In millions)	2021			2020
Cash Flows From Operating Activities
Net income (loss)	$	92.7		$	(40.0	)
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized and unrealized investment (gains) losses		(38.3	)		162.4
Net amortization and depreciation		3.8			5.1
Stock-based compensation expense		5.6			5.0
Amortization of defined benefit plan costs		0.8			1.5
Deferred income tax expense (benefit)		12.6			(36.7	)
Change in deferred acquisition costs		(13.5	)		1.7
Change in premiums receivable, net of reinsurance premiums payable		(21.3	)		(5.5	)
Change in loss, loss adjustment expense and unearned premium reserves		270.5			75.0
Change in reinsurance recoverable		(8.5	)		(6.4	)
Change in expenses and taxes payable		(143.6	)		(112.7	)
Other, net		(19.0	)		(12.8	)
Net cash provided by operating activities		141.8			36.6
Cash Flows From Investing Activities

Price	131.74	EPS	11
Shares	41	P/E	12
MCap	5,388	P/FCF	13
Net Debt	-158	EBIT	509
TEV	5,231	TEV/EBIT	10
TTM 2019-09-30, in MM, except price, ratios

10-Q	2021-03-31	Filed 2021-04-30
10-K	2020-12-31	Filed 2021-02-24
10-Q	2020-09-30	Filed 2020-10-28
10-Q	2020-06-30	Filed 2020-07-29
10-Q	2020-03-31	Filed 2020-04-29
10-K	2019-12-31	Filed 2020-02-24
10-Q	2019-09-30	Filed 2019-10-31
10-Q	2019-06-30	Filed 2019-08-01
10-Q	2019-03-31	Filed 2019-05-02
10-K	2018-12-31	Filed 2019-02-22
10-Q	2018-09-30	Filed 2018-11-01
10-Q	2018-06-30	Filed 2018-08-03
10-Q	2018-03-31	Filed 2018-05-03
10-K	2017-12-31	Filed 2018-02-27
10-Q	2017-09-30	Filed 2017-11-02
10-Q	2017-06-30	Filed 2017-08-03
10-Q	2017-03-31	Filed 2017-05-04
10-K	2016-12-31	Filed 2017-02-22
10-Q	2016-09-30	Filed 2016-11-04
10-Q	2016-06-30	Filed 2016-07-29
10-Q	2016-03-31	Filed 2016-05-05
10-K	2015-12-31	Filed 2016-02-25
10-Q	2015-09-30	Filed 2015-10-30
10-Q	2015-06-30	Filed 2015-07-30
10-Q	2015-03-31	Filed 2015-05-01
10-K	2014-12-31	Filed 2015-02-24
10-Q	2014-09-30	Filed 2014-10-30
10-Q	2014-06-30	Filed 2014-08-01
10-Q	2014-03-31	Filed 2014-05-01
10-K	2013-12-31	Filed 2014-02-25
10-Q	2013-09-30	Filed 2013-11-01
10-Q	2013-06-30	Filed 2013-08-01
10-Q	2013-03-31	Filed 2013-05-01
10-K	2012-12-31	Filed 2013-02-26
10-Q	2012-09-30	Filed 2012-11-01
10-Q	2012-06-30	Filed 2012-08-02
10-Q	2012-03-31	Filed 2012-05-04
10-K	2011-12-31	Filed 2012-02-29
10-Q	2011-09-30	Filed 2011-11-08
10-Q	2011-06-30	Filed 2011-08-09
10-Q	2011-03-31	Filed 2011-05-09
10-K	2010-12-31	Filed 2011-02-24
10-Q	2010-09-30	Filed 2010-11-04
10-Q	2010-06-30	Filed 2010-08-06
10-Q	2010-03-31	Filed 2010-05-07
10-K	2009-12-31	Filed 2010-03-01

8-K	2020-10-27
8-K	2020-10-27
8-K	2020-10-13
8-K	2020-08-31
8-K	2020-08-20
8-K	2020-08-19
8-K	2020-07-28
8-K	2020-07-14
8-K	2020-05-12
8-K	2020-04-28
8-K	2020-04-17
8-K	2020-04-10
8-K	2020-03-26
8-K	2020-02-04
8-K	2020-01-16
8-K	2019-12-05
8-K	2019-10-30
8-K	2019-07-31
8-K	2019-06-25
8-K	2019-05-14
8-K	2019-05-01
8-K	2019-01-30
8-K	2019-01-15
8-K	2018-12-28
8-K	2018-10-31
8-K	2018-09-17
8-K	2018-09-13
8-K	2018-08-01
8-K	2018-05-15
8-K	2018-05-02
8-K	2018-04-16
8-K	2018-03-28
8-K	2018-01-31

EX-31.1	thg-ex311_10.htm
EX-31.2	thg-ex312_7.htm
EX-32.1	thg-ex321_9.htm
EX-32.2	thg-ex322_8.htm

THG 10Q Quarterly Report

Hanover Insurance Group Earnings 2021-03-31