HANOVER INSURANCE GROUP, INC. [THG] Filings

10-Q 1 thg-10q_20210930.htm 10-Q thg-10q_20210930.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 September 30, 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 35,580,242 as of October 26, 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	25

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)	2021			2020			2021			2020
Revenues
Premiums	$	1,186.0		$	1,135.4		$	3,527.6		$	3,373.4
Net investment income		78.8			67.6			231.2			194.9
Net realized and unrealized investment gains (losses):
Net realized gains from sales and other		3.6			8.2			6.8			12.1
Net change in fair value of equity securities		0.3			30.3			65.9			(44.4	)
Impairment recoveries (losses) on investments		0.1			(0.8	)		(0.1	)		(27.9	)
Total net realized and unrealized investment gains (losses)		4.0			37.7			72.6			(60.2	)
Fees and other income		7.6			9.1			21.7			22.2
Total revenues		1,276.4			1,249.8			3,853.1			3,530.3
Losses and expenses
Losses and loss adjustment expenses		844.0			709.7			2,370.4			2,149.9
Amortization of deferred acquisition costs		244.0			237.7			728.5			711.9
Interest expense		8.5			9.8			25.5			28.6
Loss from repayment of debt		—			6.1			—			6.2
Other operating expenses		137.4			137.9			412.2			395.9
Total losses and expenses		1,233.9			1,101.2			3,536.6			3,292.5
Income from continuing operations before income taxes		42.5			148.6			316.5			237.8
Income tax expense (benefit):
Current		9.9			29.9			47.1			69.7
Deferred		(2.2	)		(0.8	)		12.2			(28.0	)
Total income tax expense		7.7			29.1			59.3			41.7
Income from continuing operations		34.8			119.5			257.2			196.1
Discontinued operations (net of taxes):
Loss from discontinued life businesses		(0.8	)		(0.6	)		(2.0	)		(2.0	)
Net income	$	34.0		$	118.9		$	255.2		$	194.1
Earnings per common share:
Basic:
Income from continuing operations	$	0.98		$	3.17		$	7.14		$	5.16
Discontinued operations (net of taxes):
Loss from discontinued life businesses		(0.03	)		(0.02	)		(0.05	)		(0.05	)
Net income per share	$	0.95		$	3.15		$	7.09		$	5.11
Weighted average shares outstanding		35.7			37.7			36.0			38.0
Diluted:
Income from continuing operations	$	0.96		$	3.14		$	7.04		$	5.11
Discontinued operations (net of taxes):
Loss from discontinued life businesses		(0.02	)		(0.01	)		(0.06	)		(0.06	)
Net income per share	$	0.94		$	3.13		$	6.98		$	5.05
Weighted average shares outstanding		36.3			38.0			36.6			38.4

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 (LOSS) (UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,					September 30,
(In millions)	2021			2020			2021			2020
Net income	$	34.0		$	118.9		$	255.2		$	194.1
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		(47.8	)		27.5			(171.4	)		198.4
Having credit losses recognized in the Consolidated Statements of Income		(0.1	)		0.3			0.1			(2.1	)
Total available-for-sale securities		(47.9	)		27.8			(171.3	)		196.3
Pension and postretirement benefits:
Net change in net actuarial loss		0.6			1.1			2.0			3.5
Total other comprehensive income (loss), net of tax		(47.3	)		28.9			(169.3	)		199.8
Comprehensive income (loss)	$	(13.3	)	$	147.8		$	85.9		$	393.9

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)

	September 30,			December 31,
(In millions, except share data)	2021			2020
Assets
Investments:
Fixed maturities, at fair value (amortized cost of $7,400.4 and $6,945.6)	$	7,699.2		$	7,454.4
Equity securities, at fair value		615.5			598.5
Other investments		788.3			793.2
Total investments		9,103.0			8,846.1
Cash and cash equivalents		171.2			120.6
Accrued investment income		48.2			51.2
Premiums and accounts receivable, net		1,503.0			1,339.3
Reinsurance recoverable on paid and unpaid losses and unearned premiums		2,002.8			1,874.3
Deferred acquisition costs		544.6			477.5
Goodwill		178.8			178.8
Other assets		446.3			445.7
Assets of discontinued businesses		107.4			110.2
Total assets	$	14,105.3		$	13,443.7
Liabilities
Loss and loss adjustment expense reserves	$	6,540.1		$	6,024.0
Unearned premiums		2,742.0			2,482.7
Expenses and taxes payable		679.8			687.5
Deferred income tax liability		69.6			97.3
Reinsurance premiums payable		68.1			48.4
Debt		781.4			780.8
Liabilities of discontinued businesses		122.0			120.8
Total liabilities		11,003.0			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		1,880.7			1,857.4
Accumulated other comprehensive income		203.2			372.5
Retained earnings		2,846.7			2,668.0
Treasury stock at cost (24.9 million and 24.1 million shares)		(1,828.9	)		(1,696.3	)
Total shareholders’ equity		3,102.3			3,202.2
Total liabilities and shareholders’ equity	$	14,105.3		$	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				Nine Months Ended
	September 30,				September 30,
(In millions)	2021		2020		2021		2020
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									<

HANOVER INSURANCE GROUP, INC. [THG] Filings
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10-K	[2021-02-24]
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10-Q	[2020-07-29]
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10-Q	[2017-11-02]
10-Q	[2017-08-03]
10-Q	[2017-05-04]
10-K	[2017-02-22]
10-Q	[2016-11-04]
10-Q	[2016-07-29]
10-Q	[2016-05-05]
10-K	[2016-02-25]
10-Q	[2015-10-30]
10-Q	[2015-07-30]
10-Q	[2015-05-01]
10-K	[2015-02-24]
10-Q	[2014-10-30]
10-Q	[2014-08-01]
10-Q	[2014-05-01]
10-K	[2014-02-25]
10-Q	[2013-11-01]
10-Q	[2013-08-01]
10-Q	[2013-05-01]
10-K	[2013-02-26]
10-Q	[2012-11-01]
10-Q	[2012-08-02]
10-Q	[2012-05-04]
10-K	[2012-02-29]