Hanover Insurance Group Earnings 2020-03-31

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

thg-10q_20200331.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, 2020

☐	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
6.35% Subordinated Debentures due 2053	THGA	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. 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 37,997,945 as of April 27, 2020.

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	41

Item 4.	Controls and Procedures	41

PART II.	OTHER INFORMATION	42

Item 1.	Legal Proceedings	42

Item 1A.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	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 (UNAUDITED)

	Three Months Ended
	March 31,
(In millions, except per share data)	2020			2019
Revenues
Premiums	$	1,141.4		$	1,095.1
Net investment income		69.6			70.2
Net realized and unrealized investment gains (losses):
Net realized gains (losses) from sales and other		3.1			(0.4	)
Net change in fair value of equity securities		(136.2	)		48.6
Impairment losses on investments		(28.5	)		—
Total net realized and unrealized investment gains (losses)		(161.6	)		48.2
Fees and other income		6.8			6.0
Total revenues		1,056.2			1,219.5
Losses and expenses
Losses and loss adjustment expenses		728.2			699.6
Amortization of deferred acquisition costs		236.9			229.5
Interest expense		9.4			9.4
Other operating expenses		135.6			132.4
Total losses and expenses		1,110.1			1,070.9
Income (loss) from continuing operations before income taxes		(53.9	)		148.6
Income tax expense (benefit):
Current		21.3			12.2
Deferred		(36.5	)		13.8
Total income tax expense (benefit)		(15.2	)		26.0
Income (loss) from continuing operations		(38.7	)		122.6
Discontinued operations (net of taxes):
Sale of Chaucer business		—			0.9
Loss from Chaucer business		—			(0.3	)
Loss from discontinued life businesses		(1.3	)		(0.8	)
Net income (loss)	$	(40.0	)	$	122.4
Earnings per common share:
Basic:
Income (loss) from continuing operations	$	(1.01	)	$	3.02
Discontinued operations (net of taxes):
Sale of Chaucer business		—			0.02
Loss from Chaucer business		—			(0.01	)
Loss from discontinued life businesses		(0.03	)		(0.02	)
Net income (loss) per share	$	(1.04	)	$	3.01
Weighted average shares outstanding		38.3			40.6
Diluted:
Income (loss) from continuing operations	$	(1.01	)	$	2.98
Discontinued operations (net of taxes):
Sale of Chaucer business		—			0.02
Loss from Chaucer business		—			(0.01	)
Loss from discontinued life businesses		(0.03	)		(0.02	)
Net income (loss) per share	$	(1.04	)	$	2.97
Weighted average shares outstanding		38.3			41.2

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)	2020			2019
Net income (loss)	$	(40.0	)	$	122.4
Other comprehensive income (loss), net of tax:
Available-for-sale securities:
Net appreciation (depreciation) during the period		(83.2	)		115.0
Change in unrealized gains recognized in other comprehensive income		—			1.4
Total available-for-sale securities		(83.2	)		116.4
Pension and postretirement benefits:
Net change in net actuarial loss		1.2			2.3
Cumulative foreign currency translation adjustment:
Amount recognized as cumulative foreign currency translation during the period		—			0.1
Total other comprehensive income (loss), net of tax		(82.0	)		118.8
Comprehensive income (loss)	$	(122.0	)	$	241.2

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)	2020			2019
Assets
Investments:
Fixed maturities, at fair value (amortized cost of $6,493.7 and $6,452.2)	$	6,625.0		$	6,687.1
Equity securities, at fair value		447.0			575.7
Other investments		755.5			733.2
Total investments		7,827.5			7,996.0
Cash and cash equivalents		143.9			215.7
Accrued investment income		51.5			53.0
Premiums and accounts receivable, net		1,271.0			1,260.4
Reinsurance recoverable on paid and unpaid losses and unearned premiums		1,820.4			1,814.0
Deferred acquisition costs		465.7			467.4
Deferred income tax asset		3.2			—
Goodwill		178.8			178.8
Other assets		417.3			402.4
Assets of discontinued businesses		98.1			102.8
Total assets	$	12,277.4		$	12,490.5
Liabilities
Loss and loss adjustment expense reserves	$	5,724.9		$	5,654.4
Unearned premiums		2,421.0			2,416.7
Expenses and taxes payable		512.0			627.7
Deferred income tax liability		—			51.8
Reinsurance premiums payable		58.5			53.4
Debt		707.5			653.4
Liabilities of discontinued businesses		116.9			116.9
Total liabilities		9,540.8			9,574.3
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		1,861.6			1,837.3
Accumulated other comprehensive income		70.6			152.6
Retained earnings		2,344.9			2,410.9
Treasury stock at cost (22.5 million and 22.1 million shares)		(1,541.1	)		(1,485.2	)
Total shareholders’ equity		2,736.6			2,916.2
Total liabilities and shareholders’ equity	$	12,277.4		$	12,490.5

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)	2020			2019
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		1,837.3			1,871.8
Settlement and prepayment of accelerated share repurchases and other		24.3			(50.1	)
Balance at end of period		1,861.6			1,821.7
Accumulated Other Comprehensive Income, net of tax
Net Unrealized Appreciation (Depreciation) on Investments:
Balance at beginning of period		216.0			(27.2	)
Net appreciation (depreciation) on available-for-sale securities		(83.2	)		116.4
Adoption of Accounting Standards Updates (No. 2017-08 in 2019 )		—			1.5
Balance at end of period		132.8			90.7
Defined Benefit Pension and Postretirement Plans:
Balance at beginning of period		(63.4	)		(88.6	)
Net amount recognized as net periodic benefit		1.2			2.3
Balance at end of period		(62.2	)		(86.3	)
Cumulative Foreign Currency Translation Adjustment:
Balance at beginning of period		—			(0.7	)
Amount recognized as cumulative foreign currency translation during the period		—			0.1
Balance at end of period		—			(0.6	)
Total accumulated other comprehensive income		70.6			3.8
Retained Earnings
Balance at beginning of period		2,410.9			2,182.3
Cumulative effect of accounting change, net of taxes		(0.9	)		(1.5	)
Balance at beginning of period, as adjusted		2,410.0			2,180.8
Net income (loss)		(40.0	)		122.4
Dividends to shareholders		(25.1	)		(24.5	)
Balance at end of period		2,344.9			2,278.7
Treasury Stock
Balance at beginning of period		(1,485.2	)		(983.5	)
Shares purchased at cost		(59.2	)		(200.0	)
Net shares reissued at cost under employee stock-based compensation plans		3.3			5.7
Balance at end of period		(1,541.1	)		(1,177.8	)
Total shareholders’ equity	$	2,736.6		$	2,927.0

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

Table of Contents

THE HANOVER INSURANCE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Three Months Ended
	March 31,
(In millions)	2020			2019
Cash Flows From Operating Activities
Net income	$	(40.0	)	$	122.4
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized and unrealized investment (gains) losses		162.4			(48.4	)
Gain on sale of Chaucer-related Irish entity	—				(0.9	)

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	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	2020-05-12	Shareholder Vote, Exhibits
8-K	2020-04-28	Earnings, Exhibits
8-K	2020-04-17	Regulation FD, Exhibits
8-K	2020-04-10	Regulation FD, Exhibits
8-K	2020-03-26	Exhibits
8-K	2020-02-04	Earnings, Exhibits
8-K	2020-01-16	Earnings, Exhibits
8-K	2019-12-05	Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K	2019-10-30	Earnings, Exhibits
8-K	2019-07-31	Earnings, Exhibits
8-K	2019-06-25	Enter Agreement, Off-BS Arrangement, Officers, Other Events, Exhibits
8-K	2019-05-14	Shareholder Vote
8-K	2019-05-01	Earnings, Exhibits
8-K	2019-01-30	Earnings, Exhibits
8-K	2019-01-15	Other Events, Exhibits
8-K	2018-12-28	Enter Agreement, Leave Agreement, M&A, Off-BS Arrangement, Other Events, Exhibits
8-K	2018-10-31	Earnings, Exhibits
8-K	2018-09-17	Officers, Officers
8-K	2018-09-13	Enter Agreement, Regulation FD, Exhibits
8-K	2018-08-01	Earnings, Exhibits
8-K	2018-05-15	Shareholder Vote
8-K	2018-05-02	Earnings, Exhibits
8-K	2018-04-16	Other Events, Exhibits
8-K	2018-03-28	Other Events, Exhibits
8-K	2018-01-31	Earnings, Exhibits

EX-31.1	thg-ex311_9.htm
EX-31.2	thg-ex312_7.htm
EX-32.1	thg-ex321_6.htm
EX-32.2	thg-ex322_8.htm

THG 10Q Quarterly Report

Hanover Insurance Group Earnings 2020-03-31