What changed in this filing

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Item 1. Financial Statements

2020-07-29 compared with 2020-04-29 · 213 added, 127 removed, 682 unchanged (33% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

(In millions, except per share data)

1 unchanged sentence

Net realized and unrealized investment gains (losses):

Net realized gains (losses) from sales and other

Net realized gains from sales and other

Net change in fair value of equity securities

Impairment losses on investments

Impairment recoveries (losses) on investments

Total net realized and unrealized investment gains (losses)

7 unchanged sentences

Total losses and expenses

Income (loss) from continuing operations before income taxes

Income from continuing operations before income taxes

Income tax expense (benefit):

Total income tax expense (benefit)

Income (loss) from continuing operations

Effect of new tax regulations on Chaucer gain on sale

Total income tax expense

Income from continuing operations

Discontinued operations (net of taxes):

2 unchanged sentences

Loss from discontinued life businesses

Net income (loss)

Earnings per common share:

Income (loss) from continuing operations

Income from continuing operations

Discontinued operations (net of taxes):

2 unchanged sentences

Loss from discontinued life businesses

Net income (loss) per share

Net income per share

Weighted average shares outstanding

Income (loss) from continuing operations

Income from continuing operations

Discontinued operations (net of taxes):

2 unchanged sentences

Loss from discontinued life businesses

Net income (loss) per share

Net income per share

Weighted average shares outstanding

4 unchanged sentences

Three Months Ended

Six Months Ended

(In millions)

Net income (loss)

Other comprehensive income (loss), net of tax:

Other comprehensive income, net of tax:

Available-for-sale securities

Net appreciation (depreciation) during the period

Change in unrealized gains recognized in other comprehensive income

Changes in net unrealized gains on investment

Having no credit losses recognized in the

Consolidated Statements of Income

Having credit losses recognized in the

Consolidated Statements of Income

Total available-for-sale securities

4 unchanged sentences

translation during the period

Total other comprehensive income (loss), net of tax

Comprehensive income (loss)

Total other comprehensive income, net of tax

Comprehensive income

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

12 unchanged sentences

Deferred acquisition costs

Deferred income tax asset

Assets of discontinued businesses

24 unchanged sentences

Three Months Ended

Six Months Ended

(In millions)

4 unchanged sentences

Balance at beginning of period

Settlement and prepayment of accelerated share repurchases and other

Settlement and prepayment of accelerated share

repurchases and other

Balance at end of period

2 unchanged sentences

Balance at beginning of period

Net appreciation (depreciation) on available-for-sale securities

Net appreciation on available-for-sale securities

Adoption of Accounting Standards Updates (No.

2017-08 in 2019 )

Balance at end of period

5 unchanged sentences

Balance at beginning of period

Amount recognized as cumulative foreign currency translation

during the period

Amount recognized as cumulative foreign currency

translation during the period

Balance at end of period

4 unchanged sentences

Balance at beginning of period, as adjusted

Net income (loss)

Dividends to shareholders

11 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

Six Months Ended

(In millions)

2 unchanged sentences

Net realized and unrealized investment (gains) losses

Gain on sale of Chaucer-related Irish entity

Sale of Chaucer business

Net amortization and depreciation

14 unchanged sentences

Capital expenditures

Net cash proceeds from sale of Chaucer-related Irish entity, partially

offset by cash transferred

Net cash proceeds from sale of Chaucer-related Irish and Australian entities,

partially offset by cash transferred

Net cash used in investing activities

1 unchanged sentence

Proceeds from exercise of employee stock options

Proceeds from short-term borrowings

Change in cash collateral related to securities lending program

26 unchanged sentences

In the opinion of the Company’s management, the accompanying interim consolidated financial statements reflect all adjustments, consisting of normal recurring items, necessary for a fair presentation of the financial position and results of operations.

The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the full year.

The results of operations for the six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year.

These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 24, 2020.

14 unchanged sentences

2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses , which explicitly states that receivables arising from operating leases are not within the scope of Subtopic 326-20.

In 2019 and 2020, the FASB has issued several updates to ASC Update No.

2016-13, including the issuance in April 2019, ASC Update 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments , the issuance in May 2019, ASC Update 2019-05, Financial Instruments – Credit Losses (Topic 326):

Targeted Transition Relief, the issuance in November 2019, ASC Update No.

2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses and the issuance in February 2020, ASC Update 2020-02, Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

In 2019 and 2020, the FASB issued several updates to ASC Update No.

2016-13, including the issuance in April 2019 of ASC Update 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments , the issuance in May 2019 of ASC Update 2019-05, Financial Instruments – Credit Losses (Topic 326):

Targeted Transition Relief, the issuance in November 2019 of ASC Update No.

2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses and the issuance in February 2020 of ASC Update 2020-02, Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842) – Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.

8 unchanged sentences

2018-15 also provides specific guidelines related to the presentation of these capitalized implementation costs and related expenses in the financial statements.

The updated guidance is effective for interim and annual periods beginning after December 15, 2019, and should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.

Early adoption is permitted, including interim periods.

The Company implemented this guidance prospectively, effective January 1, 2020 , and it did not have a material impact on its financial position or results of operations.

4 unchanged sentences

This update also added a requirement to disclose the changes in unrealized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop level 3 fair value measurements, in addition to other fair value disclosure modifications.

The updated guidance is effective for interim and annual periods beginning after December 15, 2019, and should be applied prospectively for certain of the disclosure requirements and retrospectively to all periods presented upon the effective date for other disclosure requirements.

An entity is permitted to early adopt any removed or modified disclosures upon issuance of the update and delay adoption of additional disclosures until periods beginning after December 15, 2019, the effective date of the standard.

This update required both prospective and retrospective application to certain disclosures upon implementation.

The Company implemented this guidance effective January 1, 2020 and it did not have an impact on the Company’s financial position or results of operations as the update is disclosure related.

5 unchanged sentences

However, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

The updated guidance is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company implemented this guidance effective January 1, 2020 and it did not have a material impact on its financial position or results of operations.

18 unchanged sentences

This ASC update modifies disclosures related to defined benefit pension or other postretirement plans.

This ASC update removes the disclosure of amounts in accumulated other comprehensive income expected to be recognized over the next fiscal year and the effects of a one percentage point change of health care cost trends on net periodic benefit costs and postretirement benefit obligations and clarifies the specific requirements of disclosures related to the project benefit obligation and accumulated benefit obligation.

This ASC update removes the disclosure of amounts in accumulated other comprehensive income expected to be recognized over the next fiscal year and the effects of a one percentage point change of health care cost trends on net periodic benefit costs and postretirement benefit obligations and clarifies the specific requirements of disclosures related to the projected benefit obligation and accumulated benefit obligation.

This ASC update also adds disclosures related to weighted average crediting rates for cash balance plans and requires disclosure of an explanation of any significant gains and losses related to changes in benefit obligations for the period.

1 unchanged sentence

Early adoption is permitted.

Implementing this guidance is not expected to have an impact on the Company’s financial position or results of operations as the update is disclosure related.

The Company does not expect the adoption of ASC Update No.

2018-14 to have a material effect on its financial position or results of operations as the update is disclosure-related.

Fixed maturities

The amortized cost and fair value of available-for-sale fixed maturities were as follows:

March 31, 2020

June 30, 2020

Amortized Cost,

19 unchanged sentences

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, or the Company may have the right to put or sell the obligations back to the issuers.

March 31, 2020

June 30, 2020

Amortized Cost, net

9 unchanged sentences

Fixed maturity securities in an unrealized loss position

The following tables provide information about the Company’s available-for-sale fixed maturity securities that were in an unrealized loss position at March 31, 2020 and December 31, 2019 including the length of time the securities have been in an unrealized loss position:

March 31, 2020

The following tables provide information about the Company’s available-for-sale fixed maturity securities that were in an unrealized loss position at June 30, 2020 and December 31, 2019 including the length of time the securities have been in an unrealized loss position:

June 30, 2020

12 months or less

2 unchanged sentences

Investment grade:

Treasury and government agencies

Residential mortgage-backed

22 unchanged sentences

the general outlook for market conditions in the industry or geographic region in which the issuer operates;

and the degree to which the fair value of an issuer’s securities i s below the Company’s amortized cost.

and the degree to which the fair value of an issuer’s securities is below the Company’s amortized cost.

The Company also considers any factors that might raise doubt about the issuer’s ability to make contractual payments as they come due and whether the Company expects to recover the entire amortized cost basis of the security.

Proceeds from sales

The proceeds from sales of available-for-sale securities and gross realized gains and gross realized losses on those sales were as follows:

Three Months Ended March 31,

The proceeds from sales of available-for-sale fixed maturities and gross realized gains and gross realized losses on those sales were as follows:

Three Months Ended June 30,

Proceeds from

1 unchanged sentence

(in millions)

Fixed maturities

Six Months Ended June 30,

Proceeds from

(in millions)

Fixed maturities, excluding held-for-sale (Chaucer)

1 unchanged sentence

Total fixed maturities

For the three months ended March 31, 2020, the Company recognized $ 28.5 million of impairments, consisting primarily of $ 22.2 million on fixed maturities and $ 4.8 million on mortgage loans.

For the three months ended June 30, 2020, the Company recognized in earnings a $ 1.4 million net recovery in impairment losses on fixed maturities, primarily resulting from increased market values during the quarter on credit losses recognized in the first quarter of 2020.

For the six months ended June 30, 2020, the Company recognized $ 27.1 million of impairment losses, consisting primarily of $ 20.8 million on fixed maturities and $ 4.8 million on mortgage loans.

Impairments on fixed maturities included $ 16.2 million categorized as intend-to-sell and $ 4.6 million of credit-related losses.

As such, the Company recorded an allowance for credit losses of $ 6.2 million on corporate fixed maturities at March 31, 2020.

In addition, the Company increased its allowance for credit losses on mortgage loans by $ 4.8 million in the first quarter of 2020, to $ 6.1 million as of March 31, 2020.

For the three months ended March 31, 2019, the Company recognized no impairments.

The methodology and significant inputs used to measure the amount of credit losses on fixed maturities in 2020 were as follows:

Corporate bonds – the Company utilized a financial model that derives expected cash flows based on probability-of-default factors by credit rating, asset duration and loss-given-default factors based on security type.

For the three and six months ended June 30, 2019, total impairments on fixed maturities recognized in earnings was $ 0.4 million.

See Note 2, “New Accounting Pronouncements — Recently Implemented Standards ”, for a discussion of new guidance effective January 1, 2020, which impacts the accounting for expected credit losses on fixed maturity securities and mortgage loans.

Under the new guidance, credit losses on fixed maturities continue to be measured based on the present value of expected future cash flows compared to amortized cost;

however, credit losses on available-for-sale fixed maturities are now recognized through an allowance instead of a direct write down of amortized cost.

The new guidance stipulates that recoveries of previously recorded credit losses are recorded immediately as a reversal of the allowance.

In addition, the allowance is limited to the amount that fair value is less than amortized cost and therefore, changes in the fair value of investments due to reasons other than credit could result in increases or decreases in the allowance.

Changes in the allowance for credit losses are recorded in net realized and unrealized investment gains (losses).

At June 30, 2020 and December 31, 2019, the allowance for credit losses on mortgage loans was $ 6.1 million and $ 1.3 million, respectively.

The allowance for credit losses on available-for-sale securities was $ 3.8 million at June 30, 2020.

There was no allowance for credit losses on available-for-sale securities at December 31, 2019.

The methodology and significant inputs used to measure the amount of credit losses were as follows:

Fixed maturities, Corporate bonds – the Company utilized a financial model that derives expected cash flows based on probability-of-default factors by credit rating, asset duration and loss-given-default factors based on security type.

These factors are based on historical data provided by an independent third-party rating agency.

7 unchanged sentences

The following table provides pre-tax net realized and unrealized gains (losses) on equity securities:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

Net gains (losses) recognized during the period

net gains (losses) recognized on equity securities sold

net (losses) gains recognized on equity securities sold

during the period

57 unchanged sentences

and capital structure support features.

Asset-backed securities – overall credit quality, including assessments of the underlying collateral type such as credit card receivables, auto loan receivables and equipment lease receivables;

Asset-backed securities – overall credit quality, including assessments of the underlying collateral type such as credit card receivables, automobile loan receivables and equipment lease receivables;

geographic diversification;

23 unchanged sentences

The estimated fair values of the financial instruments were as follows:

March 31, 2020

June 30, 2020

December 31, 2019

12 unchanged sentences

Amortized Cost:

The Company has processes designed to ensure that the values received from its third party pricing service are accurately recorded, that the data inputs and valuation approaches and techniques utilized are appropriate and consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value.

The Company performs a review of the fair value hierarchy classifications and of prices received from its pricing service on a quarterly basis.

The Company has processes designed to ensure that the values received from its third party pricing services are accurately recorded, that the data inputs and valuation approaches and techniques utilized are appropriate and consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value.

The Company reviews the pricing services’ policies describing its methodology, processes, practices and inputs, including various financial models used to value securities.

For assets carried at fair value, the Company performs a review of the fair value hierarchy classifications and of prices received from its pricing service on a quarterly basis.

Also, the Company reviews the portfolio pricing, including a process for which securities with changes in prices that exceed a defined threshold are verified to independent sources, if available.

1 unchanged sentence

The Company does not adjust quotes or prices obtained from the pricing service unless the pricing service agrees with the Company’s challenge.

During 20 20 and 2019 , the Company did not adjust any prices received from its pricing service.

During the first six months of 2020 and 2019, the Company did not adjust any prices received from its pricing service.

Changes in the observability of valuation inputs may result in a reclassification of certain financial assets or liabilities within the fair value hierarchy.

3 unchanged sentences

The following tables provide, for each hierarchy level, the Company’s investment assets that were measured at fair value on a recurring basis.

March 31, 2020

June 30, 2020

(in millions)

20 unchanged sentences

Limited partnerships measured at fair value using NAV based on an ownership interest in partners’ capital have not been included in the hierarchy tables.

At March 31, 2020 and December 31, 2019, the fair values of these investments were $ 182.1 million and $ 183.6 million, respectively, approximately 2 % of total investment assets.

At June 30, 2020 and December 31, 2019, the fair values of these investments were $ 179.0 million and $ 183.6 million, respectively, approximately 2 % of total investment assets.

The following tables provide, for each hierarchy level, the Company’s estimated fair values of financial instruments that were not carried at fair value:

March 31, 2020

June 30, 2020

(in millions)

11 unchanged sentences

Three Months Ended

March 31, 2020

June 30, 2020

Balance April 1, 2020

Transfers out of Level 3

Included in total net realized and

unrealized investment gains

Included in other comprehensive income-

net appreciation on available-for-sale

Balance June 30, 2020

Change in unrealized gains for the period

included in other comprehensive income for

assets held at the end of the period

Three Months Ended

June 30, 2019

Balance April 1, 2019

Total (losses) gains:

Included in total net realized and

unrealized investment losses

Included in other comprehensive income-

net appreciation on available-for-sale

Purchases and Sales:

Balance June 30, 2019

Fixed Maturities

(in millions)

Six Months Ended

June 30, 2020

Balance January 1, 2020

Transfers out of Level 3

Total gains (losses):

Included in total net realized and unrealized

investment gains

Included in other comprehensive income-net

appreciation (depreciation) on available-for-sale securities

Balance March 31, 2020

appreciation (depreciation) on

available-for-sale securities

Balance June 30, 2020

Change in unrealized gains (losses) for the period

1 unchanged sentence

assets held at the end of the period

Three Months Ended

March 31, 2019

Six Months Ended

June 30, 2019

Balance January 1, 2019

Included in total net realized and unrealized

investment gains

Included in other comprehensive income-net

depreciation on available-for-sale securities

Balance March 31, 2019

There were no transfers between Level 2 and Level 3, and there were no Level 3 liabilities held by the Company for the three months ended March 31, 2020 and 2019.

appreciation on available-for-sale securities

Purchases and sales:

Balance June 30, 2019

During the three and six months ended June 30, 2020, a fixed maturity security was transferred from Level 3 to Level 2, primarily as a result of assessing the significance of unobservable inputs on the fair value measurement.

There were no transfers between Level 2 and Level 3 for the three and six months ended June 30, 2019.

There were no Level 3 liabilities held by the Company for the three and six months ended June 30, 2020 and 2019.

The following table provides quantitative information about the significant unobservable inputs used by the Company in the fair value measurements of Level 3 assets.

Where discounted cash flows were used in the valuation of fixed maturities, the internally-developed discount rate was adjusted by the significant unobservable inputs shown in the table.

March 31, 2020

June 30, 2020

December 31, 2019

10 unchanged sentences

0.7 - 6.8% (4.3%)

Discount for:

Small issue size

Credit stress

Above-market coupon

21 unchanged sentences

(in millions)

March 31, 2020

June 30, 2020

December 31, 2019

3 unchanged sentences

Subordinated debentures maturing February 3, 2027

Short-term borrowings

Total principal debt

Unamortized debt issuance costs

The Company had $ 54.0 million of short-term advances from the Federal Home Loan Bank (“FHLB”) outstanding at March 31, 2020, which will be repaid in the second quarter of 2020.

At March 31, 2020, the Company was in compliance with the covenants associated with its debt indentures and credit arrangements.

Income tax expense for the three months ended March 31, 2020 and 2019 has been computed using estimated annual effective tax rates.

At June 30, 2020, the Company was in compliance with the covenants associated with its debt indentures and credit arrangements.

Income tax expense for the six months ended June 30, 2020 and 2019 has been computed using estimated annual effective tax rates.

These rates are revised, if necessary, at the end of each successive interim period to reflect current estimates of the annual effective tax rates.

The tax provision was comprised of a U.S.

federal income tax benefit of $ 15.2 million and an expense of $ 26.0 million for the three months ended March 31, 2020 and 2019, respectively.

federal income tax expense of $ 12.6 million and $ 50.8 million for the six months ended June 30, 2020 and 2019, respectively.

The Company or its subsidiaries files income tax returns in the U.S.

4 unchanged sentences

The components of net periodic pension cost for the defined benefit pension plans included in the Company’s results of operations are as follows:

Three Months Ended March 31,

Three Months Ended June 30,

(in millions)

4 unchanged sentences

Net periodic pension cost

Other Comprehensive Income (Loss)

The following tables provide changes in other comprehensive income (loss).

Three Months Ended March 31,

Six Months Ended June 30,

(in millions)

Unrealized gains (losses) on available-for-sale

Unrealized gains (losses) arising during period

Amount of realized gains (losses) from sales

Impairment losses on investments

Net unrealized gains (losses)

Pension Plans

Interest cost

Expected return on plan assets

Recognized net actuarial loss

Net periodic pension cost

Other Comprehensive Income

The following tables provide changes in other comprehensive income.

Three Months Ended June 30,

(in millions)

Changes in net unrealized gains on investment

Net unrealized gains arising during period for

those having no credit losses in Consolidated

Statement of Income

Net unrealized gains arising during period for

those having credit losses in Consolidated

Statement of Income

Amount of gains realized from sales and other

recognized in Consolidated Statement of

Amount of credit (recoveries) losses

recognized in the Consolidated

Statement of Income

Amount of additional impairment losses

recognized in the Consolidated Statement

Net unrealized gains

Pension and postretirement benefits:

Amortization of net actuarial losses (gains) recognized as net periodic benefit cost

Amortization of net actuarial losses

recognized as net periodic benefit cost

Cumulative foreign currency translation adjustment:

Foreign currency translation recognized during

Other comprehensive income (loss)

Foreign currency translation recognized

during the period

Other comprehensive income

Six Months Ended June 30,

(in millions)

Changes in net unrealized gains (losses) on

investment securities:

Net unrealized gains arising during period for

those having no credit losses in Consolidated

Statement of Income

Net unrealized gains (losses) arising during period for

those having credit losses in Consolidated

Statement of Income

Amount of gains realized from sales and other

recognized in Consolidated Statement of

Amount of credit losses recognized in the

Consolidated Statement of Income

Amount of additional impairment losses

recognized in the Consolidated Statement

Net unrealized gains

Pension and postretirement benefits:

Amortization of net actuarial losses

recognized as net periodic benefit cost

Cumulative foreign currency translation adjustment:

Foreign currency translation recognized

during the period

Other comprehensive income

Reclassifications out of accumulated other comprehensive income were as follows:

Three Months Ended

Six Months Ended

(in millions)

6 unchanged sentences

Where Net Income (Loss) is Presented

Unrealized gains (losses) on available-for-

sale securities

Net realized gains (losses) from sales and other

Impairment losses on investments

Net unrealized gains on investment

Net realized gains from sales and

Impairment (recoveries) losses on

Total before tax

Continuing operations;

Discontinued operations - life businesses

Discontinued operations - life

Amortization of defined benefit pension

and postretirement actuarial losses

Loss adjustment expenses and other operating

Loss adjustment expenses and other

operating expenses (1)

Continuing operations;

Total reclassifications for the period

Benefit (expense) reflected in income (loss),

The amount reclassified from accumulated other comprehensive income for the pension and postretirement benefits was allocated approximately 40 % to loss adjustment expenses and 60 % to other operating expenses for the three months ended March 31, 2020 and 2019.

Benefit (expense) reflected in

income, net of tax

Segment Information

18 unchanged sentences

Three Months Ended

Six Months Ended

(in millions)

13 unchanged sentences

Net investment income

Other income (expense)

Personal Lines operating income

8 unchanged sentences

Net realized and unrealized investment gains (losses)

Income (loss) from continuing operations before income taxes

Other non-operating

Income from continuing operations before income taxes

The following table provides identifiable assets for the Company’s business segments and discontinued operations:

March 31, 2020

December 31, 2019

(in millions)

Identifiable Assets

June 30, 2020

December 31, 2019

Property and Casualty Companies

2 unchanged sentences

Stock-based Compensation

As of March 31, 2020, there were 2,761,668 shares and 2,352,110 shares available for grant under The Hanover Insurance Group 2014 Long-Term Incentive Plan and The Hanover Insurance Group 2014 Employee Stock Purchase Plan, respectively.

As of June 30, 2020, there were 2,794,893 shares and 2,341,331 shares available for grant under The Hanover Insurance Group 2014 Long-Term Incentive Plan and The Hanover Insurance Group 2014 Employee Stock Purchase Plan, respectively.

Compensation cost for the Company’s stock-based awards and the related tax benefits were as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

2 unchanged sentences

Stock Options

Information on the Company’s stock option activity for the three months ended March 31, 2020 and 2019 is summarized below.

Three Months Ended March 31,

Information on the Company’s stock option activity for the six months ended June 30, 2020 and 2019 is summarized below.

Six Months Ended June 30,

(in whole shares and dollars)

9 unchanged sentences

The following tables summarize activity information about employee restricted stock units:

Three Months Ended March 31,

Six Months Ended June 30,

(in whole shares and dollars)

7 unchanged sentences

Outstanding, end of period

In the first three months of 2020 and 2019, the Company granted market-based awards totaling 34,911 and 23,924 , respectively, to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity.

In the first six months of 2020 and 2019, the Company granted market-based awards totaling 34,911 and 23,924 , respectively, to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity.

The vesting of these stock units is based on the relative total shareholder return (“TSR”) of the Company.

12 unchanged sentences

Three Months Ended

Six Months Ended

(in millions, except per share data)

4 unchanged sentences

Diluted shares used in the calculation of earnings per share

Per share effect of dilutive securities on income (loss) from

continuing operations and net income (loss)

Excludes 0.6 million shares due to antidilution that resulted from the Company having losses from continuing operations and net losses for the quarter ended March 31, 2020.

Diluted earnings per share for the three months ended March 31, 2020 and 2019 excludes 0.4 million and 0.2 million, respectively, of common shares issuable under the Company’s stock compensation plans because their effect would be antidilutive.

Per share effect of dilutive securities on income from

continuing operations

Per share effect of dilutive securities on net income

Diluted earnings per share for the three months ended June 30, 2020 excludes 0.9 million shares issuable under the Company’s stock compensation plans because their effect would be antidilutive.

Diluted earnings per share for the six months ended June 30, 2020 and 2019 excludes 0.6 million and 0.2 million, respectively, of common shares issuable under the Company’s stock compensation plans because their effect would be antidilutive.

T he Board of Directors authorized a stock repurchase program which provides for aggregate repurchases of up to $ 900 million, including a $ 300 million increase to the program that was authorized on December 5, 2019.

13 unchanged sentences

The table below provides a reconciliation of the gross beginning and ending reserve for unpaid losses and loss adjustment expenses.

Three Months Ended

Six Months Ended

(in millions)

10 unchanged sentences

As a result of continuing trends in the Company’s business, reserves including catastrophes have been re-estimated for all prior accident years and were decreased by $ 13.9 million and $ 20.6 million in 2020 and 2019, respectively.

For the three months ended March 31, 2020, net favorable loss and LAE development was $ 2.0 million.

Lower than expected losses in the workers’ compensation line, other commercial lines and homeowners line were partially offset by higher than expected losses in the commercial and personal automobile lines, commercial multiple peril line, and in the Company’s run-off voluntary assumed property and casualty reinsurance pools business.

Within other commercial lines, lower than expected losses in the Company’s marine line and specialty industrial and commercial property lines were partially offset by higher than expected losses in the general liability lines.

The higher than expected losses in the Company’s run-off voluntary assumed property and casualty reinsurance pools business was based on an updated third-party actuarial study received in the first quarter of 2020 for the legacy Excess and Casualty Reinsurance Association (“ECRA”) pool that primarily consists of asbestos and environmental exposures.

For the three months ended March 31, 2019, net favorable loss and LAE development was $ 13.2 million, primarily as a result of favorable catastrophe development due to the sale of subrogation rights on certain 2017 and 2018 California wildfires .

In addition, higher than expected losses in the Company’s personal and commercial automobile lines were substantially offset by lower than expected losses in the Company’s workers’ compensation and commercial multiple peril lines.

For the six months ended June 30, 2020, net favorable loss and LAE development was $ 13.9 million primarily as a result of net favorable Commercial Lines development of $ 18.1 million, partially offset by unfavorable development in the Other Segment.

Commercial Lines favorable development was primarily due to lower than expected losses of $ 15.8 million within the workers’ compensation line in accident years 2016 through 2019 and, within other commercial lines, $ 12.8 million within the marine line primarily in accident years 2017 through 2019, partially offset by higher than expected losses in the commercial automobile line driven by higher bodily injury and personal injury protection losses primarily in accident years 2017 through 2019.

In addition, Other Segment unfavorable development was due to the Company’s run-off voluntary assumed property and casualty reinsurance pools business primarily based on an updated third-party actuarial study received in the first quarter of 2020 for the legacy Excess and Casualty Reinsurance Association (“ECRA”) pool that primarily consists of asbestos and environmental exposures.

For the six months ended June 30, 2019, net favorable loss and LAE development was $ 20.6 million, primarily as a result of favorable catastrophe development due to the sale of subrogation rights on certain 2017 and 2018 California wildfires and lower than expected losses related to the 2018 hurricanes.

In addition, lower than expected losses in the Company’s workers’ compensation and commercial multiple peril lines were substantially offset by higher than expected losses in the Company’s personal and commercial automobile lines.

Commitments and Contingencies

8 unchanged sentences

Subsequent Events

On April 10, 2020, the Company announced that it will return 15 % of April and May personal automobile premiums to its eligible Personal Lines customers in all of THG’s markets, providing financial relief during the outbreak of the novel coronavirus, also known as COVID-19, and subsequent global pandemic.

The Company’s decision to return a portion of premium payments to its customers is a recognition of the impact of government-mandated stay-at-home measures, which are reducing the number of vehicles on the roads and miles driven, and consequently, the number of claims filed.

The Company estimates that this premium refund will be approximately $ 30 million, which will be recognized in the second quarter of 2020.

Pending regulatory approvals, the Company will credit April in-force policies in May, and May in-force policies in June.

There were no subsequent events requiring adjustment to the financial statements and no additional disclosures required in the notes to the interim consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements