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Table of Contents

 

/

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, 2022

or

 

☐

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 35,562,307 as of October 31, 2022.

 

 

Table of Contents

 

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

 

24

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

45

 

 

 

 

Item 4.

Controls and Procedures

 

45

 

 

 

 

PART II.

OTHER INFORMATION

 

46

 

 

 

 

Item 1.

Legal Proceedings

 

46

 

 

 

 

Item 1A.

Risk Factors

 

46

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

48

 

 

 

 

Item 6.

Exhibits

 

49

 

 

 

 

SIGNATURES

 

50

 

 

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

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

September 30,

 

(In millions, except per share data)

 

2022

 

 

2021

 

 

 

2022

 

 

 

2021

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premiums

 

$

1,331.2

 

 

$

1,186.0

 

 

 

$

3,888.8

 

 

 

$

3,527.6

 

Net investment income

 

 

73.0

 

 

 

78.8

 

 

 

 

220.4

 

 

 

 

231.2

 

Net realized and unrealized investment gains (losses):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains (losses) from sales and other

 

 

(0.1

)

 

 

3.6

 

 

 

 

(16.3

)

 

 

 

6.8

 

Net change in fair value of equity securities

 

 

(29.1

)

 

 

0.3

 

 

 

 

(106.1

)

 

 

 

65.9

 

Recoveries (impairments) on investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit-related recoveries (impairments)

 

 

(1.4

)

 

 

0.7

 

 

 

 

(1.5

)

 

 

 

0.6

 

Losses on intent to sell securities

 

 

(14.3

)

 

 

(0.6

)

 

 

 

(14.8

)

 

 

 

(0.7

)

 

 

 

(15.7

)

 

 

0.1

 

 

 

 

(16.3

)

 

 

 

(0.1

)

Total net realized and unrealized investment gains (losses)

 

 

(44.9

)

 

 

4.0

 

 

 

 

(138.7

)

 

 

 

72.6

 

Fees and other income

 

 

7.0

 

 

 

6.1

 

 

 

 

19.4

 

 

 

 

17.9

 

Total revenues

 

 

1,366.3

 

 

 

1,274.9

 

 

 

 

3,989.9

 

 

 

 

3,849.3

 

Losses and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

939.6

 

 

 

844.0

 

 

 

 

2,572.6

 

 

 

 

2,370.4

 

Amortization of deferred acquisition costs

 

 

277.1

 

 

 

244.0

 

 

 

 

809.3

 

 

 

 

728.5

 

Interest expense

 

 

8.5

 

 

 

8.5

 

 

 

 

25.5

 

 

 

 

25.5

 

Other operating expenses

 

 

140.6

 

 

 

135.9

 

 

 

 

423.8

 

 

 

 

408.4

 

Total losses and expenses

 

 

1,365.8

 

 

 

1,232.4

 

 

 

 

3,831.2

 

 

 

 

3,532.8

 

Income from continuing operations before income taxes

 

 

0.5

 

 

 

42.5

 

 

 

 

158.7

 

 

 

 

316.5

 

Income tax expense (benefit):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

12.9

 

 

 

9.9

 

 

 

 

72.5

 

 

 

 

47.1

 

Deferred

 

 

(13.0

)

 

 

(2.2

)

 

 

 

(42.5

)

 

 

 

12.2

 

Total income tax expense (benefit)

 

 

(0.1

)

 

 

7.7

 

 

 

 

30.0

 

 

 

 

59.3

 

Income from continuing operations

 

 

0.6

 

 

 

34.8

 

 

 

 

128.7

 

 

 

 

257.2

 

Discontinued operations (net of taxes):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued life businesses

 

 

(0.4

)

 

 

(0.8

)

 

 

 

(1.1

)

 

 

 

(2.0

)

Net income

 

$

0.2

 

 

$

34.0

 

 

 

$

127.6

 

 

 

$

255.2

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.02

 

 

$

0.98

 

 

 

$

3.62

 

 

 

$

7.14

 

Discontinued operations (net of taxes):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued life businesses

 

 

(0.01

)

 

 

(0.03

)

 

 

 

(0.03

)

 

 

 

(0.05

)

Net income per share

 

$

0.01

 

 

$

0.95

 

 

 

$

3.59

 

 

 

$

7.09

 

Weighted average shares outstanding

 

 

35.6

 

 

 

35.7

 

 

 

 

35.6

 

 

 

 

36.0

 

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.02

 

 

$

0.96

 

 

 

$

3.56

 

 

 

$

7.04

 

Discontinued operations (net of taxes):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued life businesses

 

 

(0.01

)

 

 

(0.02

)

 

 

 

(0.03

)

 

 

 

(0.06

)

Net income per share

 

$

0.01

 

 

$

0.94

 

 

 

$

3.53

 

 

 

$

6.98

 

Weighted average shares outstanding

 

 

36.1

 

 

 

36.3

 

 

 

 

36.1

 

 

 

 

36.6

 

 

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

2

Table of Contents

 

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)

 

2022

 

 

2021

 

 

 

2022

 

 

 

2021

 

Net income

 

$

0.2

 

 

$

34.0

 

 

 

$

127.6

 

 

 

$

255.2

 

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

 

 

(245.1

)

 

 

(47.8

)

 

 

 

(885.9

)

 

 

 

(171.4

)

Having credit losses recognized in the
   Consolidated Statements of Income

 

 

(2.2

)

 

 

(0.1

)

 

 

 

(5.7

)

 

 

 

0.1

 

Total available-for-sale securities

 

 

(247.3

)

 

 

(47.9

)

 

 

 

(891.6

)

 

 

 

(171.3

)

Pension and postretirement benefits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net change in net actuarial loss

 

 

1.1

 

 

 

0.6

 

 

 

 

3.3

 

 

 

 

2.0

 

Total other comprehensive loss, net of tax

 

 

(246.2

)

 

 

(47.3

)

 

 

 

(888.3

)

 

 

 

(169.3

)

Comprehensive income (loss)

 

$

(246.0

)

 

$

(13.3

)

 

 

$

(760.7

)

 

 

$

85.9

 

 

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

3

Table of Contents

 

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

 

September 30,

 

 

December 31,

 

(In millions, except share data)

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

Fixed maturities, at fair value (amortized cost of $8,093.9 and $7,514.8)

 

$

7,200.9

 

 

$

7,723.9

 

Equity securities, at fair value

 

 

399.5

 

 

 

661.3

 

Other investments

 

 

793.7

 

 

 

767.4

 

Total investments

 

 

8,394.1

 

 

 

9,152.6

 

Cash and cash equivalents

 

 

164.8

 

 

 

230.9

 

Accrued investment income

 

 

50.1

 

 

 

49.8

 

Premiums and accounts receivable, net

 

 

1,623.8

 

 

 

1,469.5

 

Reinsurance recoverable on paid and unpaid losses and unearned premiums

 

 

1,945.8

 

 

 

1,907.3

 

Deferred acquisition costs

 

 

600.2

 

 

 

552.0

 

Deferred income tax asset

 

 

211.2

 

 

 

—

 

Goodwill

 

 

178.8

 

 

 

178.8

 

Other assets

 

 

480.9

 

 

 

606.3

 

Assets of discontinued businesses

 

 

96.2

 

 

 

107.1

 

Total assets

 

$

13,745.9

 

 

$

14,254.3

 

Liabilities

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$

6,774.0

 

 

$

6,447.6

 

Unearned premiums

 

 

2,971.5

 

 

 

2,734.9

 

Expenses and taxes payable

 

 

723.3

 

 

 

907.7

 

Deferred income tax liability

 

 

—

 

 

 

60.8

 

Reinsurance premiums payable

 

 

78.5

 

 

 

55.1

 

Debt

 

 

782.2

 

 

 

781.6

 

Liabilities of discontinued businesses

 

 

120.5

 

 

 

121.7

 

Total liabilities

 

 

11,450.0

 

 

 

11,109.4

 

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

 

 

1,904.5

 

 

 

1,887.2

 

Accumulated other comprehensive income (loss)

 

 

(766.1

)

 

 

122.2

 

Retained earnings

 

 

3,029.6

 

 

 

2,983.2

 

Treasury stock at cost (24.9 million and 25.0 million shares)

 

 

(1,872.7

)

 

 

(1,848.3

)

Total shareholders’ equity

 

 

2,295.9

 

 

 

3,144.9

 

Total liabilities and shareholders’ equity

 

$

13,745.9

 

 

$

14,254.3

 

 

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

4

Table of Contents

 

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)

 

2022

 

 

2021

 

 

2022

 

 

 

2021

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning and end of period