13 unchanged sentences
Consolidated results of operations and financial condition are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S.
−Removed: This discussion should be read in conjunction with the interim consolidated financial statements and related footnotes included elsewhere in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2020.
−Removed: Results of operations include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), our principal property and casualty companies;
−Removed: and other insurance and non-insurance subsidiaries.
−Removed: Our results of operations also include the results of our discontinued operations, consisting of our former accident and health and life insurance businesses, as well as our former Chaucer business.
+Added: This discussion should be read in conjunction with the interim consolidated financial statements and related footnotes included elsewhere in this Quarterly Report on Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2021.
+Added: Results of operations include the accounts of The Hanover Insurance Company (“Hanover Insurance”) and Citizens Insurance Company of America (“Citizens”), our principal property and casualty insurance companies, and other insurance and non-insurance subsidiaries.
+Added: Our results of operations also include the results of our discontinued operations, consisting of our accident and health and former life insurance businesses.
Executive Overview
1 unchanged sentence
Commercial Lines, Personal Lines and Other.
−Removed: Our strategy, which focuses on the independent agency distribution channel, supports THG’s commitment to our agency partners.
+Added: Our strategy, which focuses on the independent agency distribution channel, supports THG’s commitment to our customers and to our agency partners.
It is designed to generate profitable growth by leveraging the strengths of our distribution approach, including expansion of our agency footprint in underpenetrated geographies, as warranted.
−Removed: As part of that strategy, we have increased our capabilities in specialty markets and made investments designed to develop growth solutions for our agency distribution channel.
+Added: As part of that strategy, we have increased our capabilities in specialty markets and made investments designed to develop growth solutions for our agency distribution channel and meet the needs of our customers.
Our goal is to grow responsibly in all of our businesses, while managing volatility.
−Removed: The outbreak of the novel coronavirus, also known as COVID-19, and subsequent global pandemic (“Pandemic”) significantly impacted the U.S.
−Removed: and global financial markets and economies during the nine months ended September 30, 2020.
+Added: The outbreak of the novel coronavirus, also known as COVID-19, and subsequent global pandemic (“Pandemic”) has significantly impacted the U.S.
+Added: and global financial markets and economies since March 2020.
Circumstances relating to the Pandemic are unprecedented in scope and impact, continue to evolve, and are complex and uncertain.
−Removed: Our investment portfolio was affected by the deterioration in investment markets during March 2020, as well as volatility in the subsequent months.
−Removed: In addition, we experienced both favorable and adverse effects from the Pandemic on our underwriting results and operations, as well as our financial condition, during March through September of 2020.
−Removed: However, we continue to believe that the Pandemic’s economic impacts on our 2020 results should be manageable.
−Removed: The severity, duration and long-term impacts of the Pandemic, including continued declines in general economic conditions, adverse impacts to our investment portfolio and uncertainty around possible and actual governmental responses to the crisis, may significantly affect the property and casualty insurance industry, our business, and our financial results over the intermediate and long-term.
+Added: Our investment portfolio was affected by the deterioration in investment markets during March 2020, as well as the volatility in the subsequent months.
+Added: In addition, we experienced both favorable and adverse effects from the Pandemic on our underwriting results and operations, as well as our financial condition, during the period from March 2020 through March 2021.
+Added: We continue to believe that the Pandemic’s impacts on our near-term results should be manageable.
+Added: However, the severity, duration and long-term impacts of the Pandemic may affect the property and casualty insurance industry, our business, and our financial results over the intermediate and long-term.
(See “Contingencies and Regulatory Matters” and “Item 1A – Risk Factors” for further discussion).
−Removed: During the nine months ended September 30, 2020, our net income was $194.1 million, compared to $315.3 million for the nine months ended September 30, 2019, a decrease of $121.2 million, primarily due to changes in the fair value of equity securities and, to a lesser extent, impairment losses on fixed income securities.
+Added: During the three months ended March 31, 2021, our net income was $92.7 million, compared to a net loss of $40.0 million for the three months ended March 31, 2020, an increase of $132.7 million, primarily due to changes in the fair value of equity securities and, to a lesser extent, prior year impairments on fixed income securities, partially offset by a decrease in operating income.
Operating income before interest expense and income taxes (a non-GAAP financial measure;
−Removed: see also “Results of Operations – Consolidated – Non-GAAP Financial Measures”) was $334.4 million for the nine months ended September 30, 2020, compared to $343.1 million for the nine months ended September 30, 2019, a decrease of $8.7 million.
−Removed: This decrease was primarily due to higher catastrophe losses and, to a lesser extent, lower net investment income.
−Removed: These items were partially offset by lower non-catastrophe current accident year losses, primarily in our personal and commercial automobile lines, and a non-recurring premium tax benefit of $13.8 million due to a Michigan refund related to tax years 2014 through 2016.
−Removed: The lower current accident year losses were primarily due to a reduced level of economic activity as a result of the Pandemic.
−Removed: Pre-tax catastrophe losses were $251.6 million for the nine months ended September 30, 2020, compared to $134.2 million during the same period of 2019.
−Removed: The increase of $117.4 million was primarily due to $38.2 million in property damages related to riots and civil unrest in several major cities across the country, as well as wind and hail storms throughout the Midwest and Southeast, and Hurricane Isaias.
−Removed: Net favorable development on prior years’ loss and loss adjustment expense (“LAE”) reserves (“prior years’ loss reserves”) was $9.5 million for the nine months ended September 30, 2020, while development was insignificant overall for the nine months ended September 30, 2019.
+Added: see also “Results of Operations – Consolidated – Non-GAAP Financial Measures”) was $85.1 million for the three months ended March 31, 2021, compared to $117.1 million for the three months ended March 30, 2020, a decrease of $32.0 million.
+Added: This decrease was primarily due to higher catastrophe losses, partially offset by lower non-catastrophe current accident year losses, primarily in our personal automobile and commercial multiple peril lines and, to a lesser extent, higher net investment income.
+Added: Pre-tax catastrophe losses were $133.3 million for the three months ended March 31, 2021, compared to $37.9 million during the same period of 2020.
+Added: The increase of $95.4 million was primarily due to freeze events in Texas and surrounding states impacting our commercial property lines.
+Added: Net favorable development on prior years’ loss and loss adjustment expense (“LAE”) reserves (“prior years’ loss reserves”) was $8.2 million for the three months ended March 31, 2021, compared to $2.0 million for the three months ended March 31, 2020.
Commercial Lines
Our account-focused approach to the small commercial market, distinctiveness in the middle market, and continued development of specialty lines provides us with a diversified portfolio of products and delivers significant value to agents and policyholders.
−Removed: We continue to pursue our core strategy of developing strong partnerships with agents, enhanced franchise value through selective distribution, distinctive products and coverages, and continued investment in industry segmentation.
−Removed: Net premiums written increased 0.7% in the first nine months of 2020, compared to the same period in 2019.
−Removed: The modest premium growth during 2020 reflects a reduction in insured business activity as a result of the Pandemic.
−Removed: Underwriting results declined in the first nine months of 2020 , primarily due to higher catastrophe losses , partially offset by lower non- catastrophe current accident year losses.
−Removed: The lower non-catastrophe current accident year losses in our specialty industrial property, commercial automobile , and marine lines were partially offset by reserve provision s for exposure s related to the Pandemic and higher property losses in our commercial multiple peril lin e .
−Removed: The lower current accident year losses were primarily due to a reduced level of economic activity as a result of the Pandemic.
+Added: We continue to pursue our core strategy of developing strong partnerships with agents, enhanced franchise value through selective distribution, distinctive products and coverages, and through continued investment in industry segmentation.
+Added: Net premiums written increased 7.0% in the first three months of 2021, compared to the same period in 2020, primarily due to pricing increases.
+Added: Underwriting results declined in the first three months of 2021, primarily due to higher catastrophe losses, partially offset by lower non-catastrophe current accident year losses in our commercial multiple peril and commercial automobile lines.
The competitive nature of the Commercial Lines market requires us to be highly disciplined in our underwriting process to ensure that we write business at acceptable margins, and we continue to seek rate increases across many lines of business.
−Removed: Due to the Pandemic , and the resulting economic downturn affecting our Commercial Lines businesses, there is an increased level of uncertainty in our ability to grow our business and maintain or improve our underwriting profitability in this environment .
+Added: Due to uncertainty caused by the Pandemic, there is a level of uncertainty in our ability to grow our business and maintain or improve our underwriting profitability in this environment.
Personal Lines
−Removed: Personal Lines focuses on partnering with high quality, value-oriented agencies that deliver consultative selling to customers and stress the importance of account rounding (the conversion of single policy customers to accounts with multiple policies and additional coverages, to address customers’ broader objectives).
+Added: Personal Lines focuses on partnering with high quality, value-oriented agencies that deliver consultative selling to customers and stress the importance of account rounding (the conversion of single policy customers to accounts with multiple policies and/or additional coverages, to address customers’ broader objectives).
Approximately 86% of our policies in force have been issued to customers with multiple policies and/or coverages with us.
1 unchanged sentence
We continue to seek appropriate rate increases that meet or exceed underlying loss cost trends, subject to regulatory and competitive considerations.
−Removed: Due to the Pandemic, and the resulting economic downturn affecting our Personal Lines businesses, there is an increased level of uncertainty in our ability to grow our business and maintain or improve our underwriting profitability in this environment.
−Removed: Net premiums written decreased by 0.5% in the first nine months of 2020, compared to the same period in 2019.
−Removed: During the second quarter of 2020, we returned approximately $30 million of premiums to our eligible personal automobile customers in all of our markets, providing financial relief during the Pandemic.
−Removed: Excluding the impact of the premium refund, net written premiums increased 1.6%.
−Removed: Underwriting results improved in the first nine months of 2020, primarily due to lower non-catastrophe current accident year losses in our personal automobile line, a favorable change in development of prior years’ loss reserves and a non-recurring premium tax benefit, partially offset by higher catastrophe losses.
−Removed: The lower personal automobile losses were due to fewer accidents and decreased claim activity resulting from fewer miles driven as a result of the Pandemic.
+Added: Due to uncertainty caused by the Pandemic, there is a level of uncertainty in our ability to grow our business and maintain or improve our underwriting profitability in this environment.
+Added: Net premiums written increased by 2.2% in the first three months of 2021, compared to the same period in 2020.
+Added: The modest premium growth reflects rate increases, partially offset by lower policies in force.
+Added: Underwriting results improved in the first three months of 2021, primarily due to lower non-catastrophe current accident year losses in our personal automobile line, partially offset by higher large losses in our homeowners line.
+Added: The lower personal automobile losses were due to fewer accidents and decreased claim activity resulting from changes in driving patterns as a result of the Pandemic.
Description of Operating Segments
11 unchanged sentences
Results of Operations – Consolidated
−Removed: Consolidated net income for both the three months ended September 30, 2020 and the three months ended September 30, 2019 was $118.9 million.
−Removed: Net income remained flat year-over-year primarily due to consistent operating income combined with offsetting fluctuations in non-operating and discontinued items.
−Removed: After-tax net realized and unrealized investment gains increased $17.2 million in the third quarter of 2020 as compared to the third quarter of 2019.
−Removed: This was offset by the net loss from repayment of debt of $6.1 million in the third quarter of 2020, as well as the absence, in 2020, of Chaucer related earnings and tax benefits totaling $12.9 million.
−Removed: Consolidated net income for the nine months ended September 30, 2020 was $194.1 million, compared to $315.3 million for the nine months ended September 30, 2019, a decrease of $121.2 million.
−Removed: The year-over-year comparison of consolidated net income was primarily affected by an increase in after-tax net realized and unrealized investment losses of approximately $110.4 million, primarily related to the change in fair value of equity securities and, to a lesser extent, an increase in impairment losses on investments.
−Removed: In addition, lower operating income in 2020 as compared to 2019 and the aforementioned loss on the repayment of debt contributed to the change.
−Removed: Operating income decreased primarily as a result of higher catastrophe losses and, to a lesser extent, lower net investment income.
−Removed: These decreases in operating income were partially offset by lower non-catastrophe current accident year losses, as well as a non-recurring premium tax benefit received in the second quarter of 2020.
−Removed: The following table reflects operating income before interest expense and income taxes for each operating segment and a reconciliation to consolidated net income from operating income before interest expense and income taxes (a non-GAAP measure).
+Added: Consolidated net income for the three months ended March 31, 2021 was $92.7 million, compared to a net loss of $40.0 million for the three months ended March 31, 2020, an increase of $132.7 million.
+Added: The increase in consolidated net income (loss) was primarily a result of $31.4 million of after-tax net realized and unrealized investment gains in 2021 as compared to $125.5 million of after-tax net realized and unrealized investment losses in 2020, a change of $156.9 million.
+Added: This change was primarily related to the change in fair value of equity securities and, to a lesser extent, a decrease in impairment losses on investments.
+Added: Partially offsetting this increase was lower operating income before interest expense and income taxes for the three months ended March 31, 2021.
+Added: Operating income before interest expense and income taxes decreased $32.0 million primarily due to higher catastrophe losses, partially offset by lower non-catastrophe current accident year losses, and, to a lesser extent, higher net investment income.
+Added: The following table reflects operating income (loss) before interest expense and income taxes for each operating segment and a reconciliation to consolidated net income (loss) from operating income before interest expense and income taxes (a non-GAAP measure).
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
(in millions)
−Removed: Operating income before interest expense and income taxes:
+Added: Operating income (loss) before interest expense and income taxes:
Commercial Lines
7 unchanged sentences
Net realized and unrealized investment gains (losses)
−Removed: Net loss from repayment of debt
−Removed: Effect of new tax regulations on Chaucer gain on sale
−Removed: Other non-operating
Income tax benefit (expense) on non-operating items
−Removed: Income from continuing operations, net of taxes
+Added: Income (loss) from continuing operations, net of taxes
Discontinued operations (net of taxes):
−Removed: Sale of Chaucer business
−Removed: Income from Chaucer business
Loss from discontinued life businesses
+Added: Net income (loss)
Non-GAAP Financial Measures
In addition to consolidated net income, discussed above, we assess our financial performance based upon pre-tax “operating income,” and we assess the operating performance of each of our three operating segments based upon the pre-tax operating income (loss) generated by each segment.
−Removed: As reflected in the table above, operating income before interest and taxes excludes interest expense on debt and certain other items which we believe are not indicative of our core operations, such as net realized and unrealized investment gains and losses.
+Added: As reflected in the table above, operating income before interest expense and income taxes excludes interest expense on debt and certain other items which we believe are not indicative of our core operations, such as net realized and unrealized investment gains and losses.
Such gains and losses are excluded since they are determined by interest rates, financial markets and the timing of sales.
−Removed: Also, operating income before interest and taxes excludes net gains and losses on disposals of businesses, gains and losses related to the repayment of debt, discontinued operations, costs to acquire businesses, restructuring costs, the cumulative effect of accounting changes and certain other items.
−Removed: Although the items excluded from operating income before interest and taxes are important components in understanding and assessing our overall financial performance, we believe a discussion of operating income before interest and taxes enhances an investor’s understanding of our results of operations by highlighting net income attributable to the core operations of the business.
−Removed: However, operating income before interest and taxes, which is a non-GAAP measure, should not be construed as a substitute for income before income taxes or income from continuing operations, and operating income should not be construed as a substitute for net income.
+Added: Also, operating income before interest expense and income taxes excludes net gains and losses on disposals of businesses, gains and losses related to the repayment of debt, discontinued operations, costs to acquire businesses, restructuring costs, the cumulative effect of accounting changes and certain other items.
+Added: Although the items excluded from operating income before interest expense and income taxes are important components in understanding and assessing our overall financial performance, we believe a discussion of operating income before interest expense and income taxes enhances an investor’s understanding of our results of operations by highlighting net income (loss) attributable to the core operations of the business.
+Added: However, operating income before interest expense and income taxes, which is a non-GAAP measure, should not be construed as a substitute for income before income taxes or income from continuing operations, and operating income should not be construed as a substitute for net income (loss).
Catastrophe losses and prior years’ reserve development are significant components in understanding and assessing the financial performance of our business.
5 unchanged sentences
The following is our discussion and analysis of the results of operations by business segment.
−Removed: The operating results are presented before interest expense, taxes and other items which management believes are not indicative of our core operations, including realized gains and losses, as well as unrealized gains and losses on equity securities, and the results of discontinued operations.
+Added: The operating results are presented before interest expense, income taxes and other items which management believes are not indicative of our core operations, including realized gains and losses, as well as unrealized gains and losses on equity securities, and the results of discontinued operations.
The following table summarizes the results of operations for the periods indicated:
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
(in millions)
10 unchanged sentences
Operating income before interest expense and income taxes
−Removed: Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019
−Removed: Operating income before interest expense and income taxes was $128.4 million in the three months ended September 30, 2020, compared to $126.3 million in the three months ended September 30, 2019, an increase of $2.1 million.
−Removed: This increase was primarily due to lower non-catastrophe current accident year losses in our personal automobile line, partially offset by higher catastrophe losses.
−Removed: Net premiums written increased $25.6 million in the three months ended September 30, 2020, compared to the three months ended September 30, 2019, due to growth in both our Commercial and Personal Lines segments.
+Added: Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
+Added: Operating income before interest expense and income taxes was $85.1 million for the three months ended March 31, 2021, compared to $117.1 million for the three months ended March 31, 2020, a decrease of $32.0 million.
+Added: This decrease was primarily due to higher catastrophe losses in our commercial property lines, partially offset by lower non-catastrophe current accident year losses, primarily in our personal automobile and commercial multiple peril lines and, to a lesser extent, higher net investment income.
+Added: Net premiums written increased $59.2 million in the three months ended March 31, 2021, compared to the three months ended March 31, 2020, due to growth in both our Commercial and Personal Lines segments.
Production and Underwriting Results
2 unchanged sentences
These items are not meaningful for our Other segment.
−Removed: Three Months Ended September 30, 2020
+Added: Three Months Ended March 31, 2021
(dollars in millions)
1 unchanged sentence
Personal Lines
−Removed: Three Months Ended September 30, 2019
+Added: Three Months Ended March 31, 2020
(dollars in millions)
3 unchanged sentences
Loss and LAE and catastrophe loss ratios include prior year reserve development.
−Removed: Three Months Ended September 30,
+Added: Three Months Ended March 31,
(dollars in millions)
9 unchanged sentences
Total Personal Lines
−Removed: The following table summarizes GAAP underwriting results for the Commercial Lines, Personal Lines and Other segments and reconciles them to operating income before interest expense and income taxes.
−Removed: Three Months Ended September 30,
+Added: The following table summarizes U.S.
+Added: GAAP underwriting results for the Commercial Lines, Personal Lines and Other segments and reconciles them to operating income (loss) before interest expense and income taxes.
+Added: Three Months Ended March 31,
(in millions)
−Removed: Underwriting profit (loss),
−Removed: excluding prior year reserve
−Removed: development and catastrophes
+Added: Underwriting profit, excluding
+Added: prior year reserve development
+Added: and catastrophes
Prior year favorable (unfavorable)
8 unchanged sentences
Other operating expenses
−Removed: Operating income before
+Added: Operating income (loss) before
interest expense and income taxes
Commercial Lines
−Removed: Commercial Lines net premiums written were $760.5 million in the three months ended September 30, 2020, compared to $746.4 million in the three months ended September 30, 2019.
+Added: Commercial Lines net premiums written were $757.4 million for the three months ended March 31, 2021, compared to $707.6 million for the three months ended March 31, 2020.
This $49.8 million increase was primarily driven by pricing increases and strong retention.
−Removed: Commercial Lines underwriting profit for the three months ended September 30, 2020 was $18.7 million, compared to $30.4 million for the three months ended September 30, 2019, a decrease of $11.7 million.
−Removed: Catastrophe losses for the three months ended September 30, 2020 were $33.6 million, compared to $22.0 million for the three months ended September 30, 2019.
−Removed: The $11.6 million increase was primarily due to wildfires on the West Coast and Hurricane Isaias.
−Removed: Favorable development on prior year’s loss reserves for the three months ended September 30, 2020 was $3.9 million, compared to $5.6 million for the three months ended September 30, 2019, an unfavorable change of $1.7 million.
−Removed: Commercial Lines current accident year underwriting profit, excluding catastrophes, was $48.4 million for the three months ended September 30, 2020 , compared to $46.8 million for the three months ended September 30, 2019 .
−Removed: This $1.6 million in crease was primarily d riven by lower non-catastrophe current accident year losses.
−Removed: The lower non-catastrophe current accident year losses were due to lower property loss activity in our other commercial and commercial automobile lines, partially offset by higher property losses in our commercial multiple peril line .
+Added: Commercial Lines underwriting loss for the three months ended March 31, 2021 was $49.3 million, compared to underwriting profit of $10.4 million for the three months ended March 31, 2020, a decrease of $59.7 million.
+Added: Catastrophe losses for the three months ended March 31, 2021 were $118.8 million, compared to $23.8 million for the three months ended March 31, 2020.
+Added: The $95.0 million increase was primarily due to freeze events in Texas and surrounding states associated with record low temperatures.
+Added: Net favorable development on prior year’s loss reserves for the three months ended March 31, 2021 was $3.3 million, compared to $3.7 million for the three months ended March 31, 2020, a decrease of $0.4 million.
+Added: Commercial Lines current accident year underwriting profit, excluding catastrophes, was $66.2 million for the three months ended March 31, 2021, compared to $30.5 million for the three months ended March 31, 2020.
+Added: This $35.7 million increase was primarily driven by lower non-catastrophe current accident year losses, primarily in our commercial multiple peril and commercial automobile lines.
+Added: The lower current accident year losses in commercial multiple peril reflect a single $12.6 million large property loss in 2020.
+Added: Our property per risk excess of loss reinsurance treaty incepts annually on July 1 st and includes a $10 million annual aggregate deductible for the $10 million excess of $10 million layer.
+Added: As the 2020 large loss was the first to impact this layer of coverage in the treaty year, we retained $10 million of this large commercial multiple peril property loss to satisfy this deductible for the layer.
+Added: The lower commercial automobile losses were due to fewer accidents and decreased claim activity resulting from changes in driving patterns as a result of the Pandemic.
+Added: Additionally, the Commercial Lines current accident year losses and LAE also reflected a reserve provision for COVID-19 related exposures in 2020.
We continue to manage underwriting performance through increased rates, pricing segmentation, specific underwriting actions and targeted new business growth.
Our ability to achieve overall rate increases is affected by many factors, including regulatory activity and the current competitive pricing environment, particularly within the workers’ compensation line.
−Removed: Due to the Pandemic and the resulting economic downturn affecting our Commercial Lines segment, there is an increased level of uncertainty in our ability to grow our business and maintain or improve our underwriting profitability in this environment.
−Removed: The extent and duration of the Pandemic's future disruption to our businesses are unknown and may result in continued moderation in claims volumes due to a substantial reduction in business activity.
−Removed: For example, less traffic and congestion on the roads may result in fewer accidents involving our insureds in our commercial automobile line.
−Removed: In addition, a reduction in our insureds’ underlying business activity, as well as the inability of certain businesses to fully restart operations and recover from the economic impacts of the prolonged stay-at-home orders, may result in a significant reduction in our future commercial multiple peril, workers' compensation and general liability premium levels.
+Added: Due to uncertainty caused by the Pandemic, there is a level of uncertainty in our ability to grow our business and maintain or improve our underwriting profitability in this environment.
+Added: The extent and duration of the Pandemic's future disruption to our businesses are unknown and may result in continued moderation in claims volumes due to a reduction in business activity and reduced premium levels.
Personal Lines
−Removed: Personal Lines net premiums written were $508.0 million in the three months ended September 30, 2020, compared to $496.5 million in the three months ended September 30, 2019, an increase of $11.5 million, primarily driven by pricing increases.
−Removed: Net premiums written in the personal automobile line of business for the three months ended September 30, 2020 were $311.6 million, compared to $308.2 million for the three months ended September 30, 2019, an increase of $3.4 million.
+Added: Personal Lines net premiums written were $438.7 million for the three months ended March 31, 2021, compared to $429.3 million for the three months ended March 31, 2020.
+Added: The premium growth of $9.4 million was primarily driven by rate increases, partially offset by lower policies in force.
+Added: Net premiums written in the personal automobile line of business for the three months ended March 31, 2021 were $280.7 million, compared to $279.4 million for the three months ended March 31, 2020, an increase of $1.3 million.
Personal automobile policies in force decreased by 2.7%.
−Removed: Net premiums written in the homeowners line of business for the three months ended September 30, 2020 were $179.7 million, compared to $174.3 million for the three months ended September 30, 2019, an increase of $5.4 million.
+Added: Net premiums written in the homeowners line of business for the three months ended March 31, 2021 were $143.1 million, compared to $137.6 million for the three months ended March 31, 2020, an increase of $5.5 million.
Homeowners policies in force decreased by 0.9%.
−Removed: Personal Lines underwriting profit for the three months ended September 30, 2020 was $43.0 million, compared to $28.8 million for the three months ended September 30, 2019, an increase of $14.2 million.
−Removed: Catastrophe losses for the three months ended September 30, 2020 were $32.3 million, compared to $13.2 million for the three months ended September 30, 2019, an increase of $19.1 million, primarily due to Hurricane Isaias.
−Removed: Unfavorable development on prior year’s loss reserves for the three months ended September 30, 2020 was $1.0 million, compared to $5.6 million for the three months ended September 30, 2019, a favorable change of $4.6 million.
−Removed: Personal Lines current accident year underwriting profit, excluding catastrophes, was $76.3 million for the three months ended September 30, 2020, compared to $47.6 million for the three months ended September 30, 2019.
−Removed: This $28.7 million increase was primarily due to lower current accident year losses in our personal automobile line.
−Removed: The lower personal automobile losses were due to fewer accidents and decreased claim activity resulting from fewer miles driven a result of the Pandemic.
+Added: Personal Lines underwriting profit for the three months ended March 31, 2021 was $58.9 million, compared to $44.1 million for the three months ended March 31, 2020, an increase of $14.8 million.
+Added: Catastrophe losses for the three months ended March 31, 2021 were $14.5 million, compared to $14.1 million for the three months ended March 31, 2020, an increase of $0.4 million.
+Added: Net favorable development on prior year’s loss reserves for the three months ended March 31, 2021 was $5.2 million, compared to $1.6 million for the three months ended March 31, 2020, an increase of $3.6 million.
+Added: Personal Lines current accident year underwriting profit, excluding catastrophes, was $68.2 million for the three months ended March 31, 2021, compared to $56.6 million for the three months ended March 31, 2020.
+Added: This $11.6 million increase was primarily due to lower current accident year losses in our personal automobile line, partially offset by higher large losses in our homeowners line.
+Added: The lower personal automobile losses were due to fewer accidents and decreased claim activity resulting from changes in driving patterns as a result of the Pandemic.
We have been able to obtain rate increases in our Personal Lines markets and believe that our ability to obtain increases will continue over the long term.
2 unchanged sentences
We monitor these trends and consider them in our rate actions.
−Removed: Due to the Pandemic and the resulting economic downturn affecting our Personal Lines segment, there is an increased level of uncertainty in our ability to retain or grow our business and maintain or improve our underwriting profitability in this environment.
−Removed: The extent and duration of the Pandemic's future disruption to our businesses are unknown and may result in a continued moderation in claims volumes due to a substantial reduction in customer activity including, for example, fewer miles driven by the insureds in our personal automobile line.
−Removed: In addition, in 2019, Michigan enacted major reforms of its current system governing personal and commercial automobile insurance, especially related to automobile Personal Injury Protection (“PIP”) coverage.
−Removed: We believe that we are effectively executing the transition and will be able to navigate this market successfully.
−Removed: As of September 30, 2020, the net impact of these reforms was not significant to our total net premiums written and underwriting profit.
−Removed: For the full year 2019, net premiums written that were attributable to PIP coverage in Michigan were $159.7 million, or 3.5% of our total full year 2019 net premiums written, while Michigan personal automobile net premiums written represented 12% of THG’s total full year 2019 net premiums written.
−Removed: For more information, please refer to “Risk Factors – Michigan PIP Reform” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.
−Removed: Our Other segment had operating income of $1.9 million for the three months ended September 30, 2020, consistent with $2.0 million for the three months ended September 30, 2019.
−Removed: Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
−Removed: Operating income before interest expense and income taxes was $334.4 million in the nine months ended September 30, 2020, compared to $343.1 million in the nine months ended September 30, 2019, a decrease of $8.7 million.
−Removed: This decrease was primarily due to higher catastrophe losses and lower net investment income.
−Removed: These items were partially offset by lower non-catastrophe current accident year losses primarily in our personal and commercial automobile lines and a non-recurring premium tax benefit.
−Removed: The lower current accident year losses were primarily due to a reduced level of economic activity as a result of the Pandemic.
−Removed: The increase in catastrophe losses was primarily due to property damages related to riots and civil unrest in several major cities across the country, wind and hailstorms throughout the Midwest and Southeast, and Hurricane Isaias.
−Removed: Net premiums written increased by $7.7 million in the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.
−Removed: Premiums grew during the period in both our Commercial and Personal Line segments, partially offset by the personal automobile premium refund of approximately $30 million in the second quarter.
−Removed: Production and Underwriting Results
−Removed: The following tables summarize premiums written on a gross and net basis, net premiums earned and loss (including catastrophe losses), LAE, expense and combined ratios for the Commercial Lines and Personal Lines segments.
−Removed: Loss, LAE, catastrophe loss and combined ratios shown below include prior year reserve development.
−Removed: These items are not meaningful for our Other segment.
−Removed: Nine Months Ended September 30, 2020
−Removed: (dollars in millions)
−Removed: Commercial Lines
−Removed: Personal Lines
−Removed: Nine Months Ended September 30, 2019
−Removed: (dollars in millions)
−Removed: Premiums Written
−Removed: Premiums Written
−Removed: Premiums Earned
−Removed: Commercial Lines
−Removed: Personal Lines
−Removed: The following table summarizes net premiums written, and loss and LAE and catastrophe loss ratios by line of business for the Commercial Lines and Personal Lines segments.
−Removed: Loss and LAE and catastrophe loss ratios include prior year reserve development.
−Removed: Nine Months Ended September 30,
−Removed: (dollars in millions)
−Removed: Commercial Lines:
−Removed: Commercial multiple peril
−Removed: Commercial automobile
−Removed: Workers’ compensation
−Removed: Other commercial
−Removed: Total Commercial Lines
−Removed: Personal Lines:
−Removed: Personal automobile
−Removed: Other personal
−Removed: Total Personal Lines
−Removed: The following table summarizes GAAP underwriting results for the Commercial Lines, Personal Lines and Other segments and reconciles them to operating income before interest expense and income taxes.
−Removed: Nine Months Ended September 30,
−Removed: (in millions)
−Removed: Underwriting profit (loss),
−Removed: excluding prior year reserve
−Removed: development and catastrophes
−Removed: Prior year favorable (unfavorable)
−Removed: loss and LAE reserve
−Removed: development on
−Removed: non-catastrophe losses
−Removed: Prior year favorable (unfavorable)
−Removed: catastrophe development
−Removed: Current year catastrophe losses
−Removed: Underwriting profit (loss)
−Removed: Net investment income
−Removed: Fees and other income
−Removed: Other operating expenses
−Removed: Operating income before
−Removed: interest expense and income taxes
−Removed: Commercial Lines
−Removed: Commercial Lines net premiums written were $2,083.0 million in the nine months ended September 30, 2020, compared to $2,068.5 million in the nine months ended September 30, 2019.
−Removed: The modest premium growth during 2020 reflects a reduction in insured business activity as a result of the Pandemic.
−Removed: Commercial Lines underwriting profit for the nine months ended September 30, 2020 was $50.4 million, compared to $96.2 million for the nine months ended September 30, 2019, a decrease of $45.8 million.
−Removed: Catastrophe losses for the nine months ended September 30, 2020 were $122.2 million, compared to $55.4 million for the nine months ended September 30, 2019.
−Removed: The $66.8 million increase was due to property damages related to the riots and civil unrest in several major cities across the country, wildfires on the West Coast, and Hurricane Isaias.
−Removed: Favorable development on prior years’ loss reserves for the nine months ended September 30, 2020 was $12.7 million, compared to $17.1 million for the nine months ended September 30, 2019, an unfavorable change of $4.4 million.
−Removed: Commercial Lines current accident year underwriting profit, excluding catastrophes, was $159.9 million for the nine months ended September 30, 2020, compared to $134.5 million for the nine months ended September 30, 2019, an increase of $25.4 million, primarily due to lower non-catastrophe current accident year losses.
−Removed: The lower current year non-catastrophe losses were primarily due to lower large property loss activity in our specialty industrial property and marine lines, and lower losses in our commercial automobile line, partially offset by reserve provisions for exposures due to the Pandemic and higher property losses in our commercial multiple peril line.
−Removed: The reserve provisions for exposures due to the Pandemic of approximately $19 million were primarily reflected in our workers’ compensation, healthcare, commercial multiple peril, management and professional liability, and surety lines.
−Removed: The lower current accident year losses were primarily due to a reduced level of economic activity as a result of the Pandemic.
−Removed: Personal Lines
−Removed: Personal Lines net premiums written were $1,403.4 million in the nine months ended September 30, 2020, compared to $1,410.2 million in the nine months ended September 30, 2019, a decrease of $6.8 million.
−Removed: During the second quarter of 2020, we returned approximately $30 million of premiums to our eligible Personal Lines customers in all of our markets, providing financial relief during the Pandemic.
−Removed: Excluding the impact of the premium refund, net written premiums would have increased 1.6%.
−Removed: Personal Lines underwriting profit for the nine months ended September 30, 2020 was $104.5 million, compared to $45.4 million for the nine months ended September 30, 2019, an increase of $59.1 million.
−Removed: Catastrophe losses for the nine months ended September 30, 2020 were $129.4 million, compared to $78.8 million for the nine months ended September 30, 2019.
−Removed: The increase of $50.6 million was primarily due to several wind and hailstorms throughout the Midwest and Southeast and Hurricane Isaias.
−Removed: Favorable development on prior years’ loss reserves for the nine months ended September 30, 2020 was $0.7 million, compared to unfavorable development of $16.4 million for the nine months ended September 30, 2019, a favorable change of $17.1 million.
−Removed: Personal Lines current accident year underwriting profit, excluding catastrophes, was $ 233.2 million in the nine months ended September 30, 2020, compared to $ 140 .
−Removed: 6 million in the nine months ended September 30, 201 9 .
−Removed: This $9 2.6 million increase was primarily due to lower current accident year losses in our personal automobile line and , to a lesser extent, a non - recurring premium tax benefit.
−Removed: Personal automobile losses were lower due to fewer accidents and decreased claim activity resulting from fewer miles driven as a result of the Pandemi c.
−Removed: Our Other segment had operating income of $0.5 million for the nine months ended September 30, 2020, compared to $7.3 million for the nine months ended September 30, 2019.
−Removed: The decline of $6.8 million was primarily due to lower net investment income as a result of the deployment of cash in the prior year.
+Added: Due to uncertainty caused by the Pandemic, there is a level of uncertainty in our ability to retain or grow our business, and maintain or improve our underwriting profitability in this environment.
+Added: Our Other segment had operating income of $1.1 million for the three months ended March 31, 2021, compared to an operating loss of $2.4 million for the three months ended March 31, 2020, a favorable change of $3.5 million.
+Added: This change is primarily due to prior year’s results including a $3.3 million reserve increase, based on the receipt of an updated third-party actuarial study for the legacy Excess and Casualty Reinsurance Association (“ECRA”) pool.
Reserve for Losses and Loss Adjustment Expenses
The table below provides a reconciliation of the gross beginning and ending reserve for unpaid losses and loss adjustment expenses.
−Removed: Nine Months Ended
−Removed: September 30,
+Added: Three Months Ended
(in millions)
−Removed: Gross loss and LAE reserves, beginning of period
+Added: Gross reserve for losses and LAE, beginning of period
Reinsurance recoverable on unpaid losses
−Removed: Net loss and LAE reserves, beginning of period
+Added: Net reserve for losses and LAE, beginning of period
Net incurred losses and LAE in respect of losses occurring in:
−Removed: Current year (1)
Prior year non-catastrophe loss development
−Removed: Prior year catastrophe development
Total incurred losses and LAE
4 unchanged sentences
Gross reserve for losses and LAE, end of period
−Removed: The nine months ended September 30, 2020 includes $0.7 million of non-operating expense.
The table below summarizes the gross reserve for losses and LAE by line of business.
−Removed: September 30,
(in millions)
17 unchanged sentences
The following table summarizes prior year (favorable) unfavorable development for the periods indicated:
−Removed: Nine Months Ended September 30,
+Added: Three Months Ended March 31,
(in millions)
2 unchanged sentences
Other Segment
−Removed: Total prior year (favorable) unfavorable development
−Removed: It is not possible to know whether the factors that affected loss reserves in the first nine months of 2020 will also occur in future periods.
+Added: Total prior year favorable development
+Added: It is not possible to know whether the factors that affected loss reserves in the first three months of 2021 will also occur in future periods.
We encourage you to read our 2020 Annual Report on Form 10-K for more information about our reserving process and the judgments, uncertainties and risks associated therewith.
Catastrophe Loss Development
−Removed: In the nine months ended September 30, 2020 and 2019, favorable catastrophe development was $16.6 million and $20.5 million, respectively.
−Removed: The favorable catastrophe development during the nine months ended September 30, 2020 was primarily due to lower than expected losses related to certain 2017, 2018, and 2019 windstorms, winter storms and hurricanes and the 2017 and 2018 California wildfires.
−Removed: The favorable catastrophe development during the nine months ended September 30, 2019 was primarily due to lower than expected losses related to the 2017 and 2018 California wildfires, including the sale of subrogation rights on certain California wildfire losses, and lower than expected losses related to the 2018 hurricanes.
+Added: For the three months ended March 31, 2021 and 2020, catastrophe loss development was zero in both periods.
2021 Loss and LAE Development, excluding catastrophes
−Removed: For the nine months ended September 30, 2020, net favorable loss and LAE development, excluding catastrophes, was $9.5 million.
−Removed: Lower than expected losses in the workers’ compensation line of $25.6 million in accident years 2016 through 2019 and other commercial lines of $11.1 million were partially offset by higher than expected losses in the commercial multiple peril line of $13.3 million, in accident years 2016, 2017 and 2019, and the commercial automobile line of $10.7 million, driven by higher bodily injury and personal injury protection losses, primarily in accident years 2017 through 2019.
−Removed: Within other commercial lines, lower than expected losses in our marine line of $13.1 million, in accident years 2017 through 2019, and specialty industrial property and commercial miscellaneous property lines were partially offset by higher than expected losses in the general liability lines.
−Removed: The adverse prior year development for our Other Segment was due to our 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 consists of asbestos and environmental exposures.
+Added: For the three months ended March 31, 2021, net favorable loss and LAE development, excluding catastrophes, was $8.2 million primarily due to lower than expected losses in the personal automobile line, driven by lower bodily injury and personal injury protection losses primarily in accident year 2020, and in the workers’ compensation line, primarily in accident years 2015 through 2017 and 2019.
2020 Loss and LAE Development, excluding catastrophes
−Removed: For the nine months ended September 30, 2019, net unfavorable loss and LAE development, excluding catastrophes, was $0.2 million.
−Removed: Higher than expected losses in the personal automobile line of $13.9 million, primarily in accident years 2016 and 2017, and the commercial automobile line were substantially offset by lower than expected losses in the workers’ compensation line of $15.7 million, primarily in accident years 2016 through 2018.
−Removed: Within other commercial lines, lower than expected losses in the marine and commercial miscellaneous property lines were partially offset by higher than expected losses in the general liability lines.
−Removed: In addition, Other Segment unfavorable development of $0.9 million was due to adverse loss trends in our run-off voluntary assumed property and casualty reinsurance pools business which includes asbestos and environmental reserves.
+Added: For the three months ended March 31, 2020, net favorable loss and LAE development, excluding catastrophes, was $2.0 million.
+Added: Lower than expected losses in the workers’ compensation line, primarily in accident years 2016, 2018 and 2019, and other commercial and homeowners lines were partially offset by higher than expected losses in the commercial and personal automobile and commercial multiple peril lines.
+Added: Within other commercial lines, lower than expected losses in our marine line, primarily in accident years 2018 and 2019, and specialty industrial and commercial property lines were partially offset by higher than expected losses in the general liability lines.
+Added: The adverse prior year development for our Other Segment was due to our run-off voluntary assumed property and casualty reinsurance pools business.
+Added: This $3.3 million reserve increase was based on an updated third-party actuarial study received in the first quarter of 2020 for the legacy ECRA pool that primarily consists of asbestos and environmental exposures.
Reinsurance Recoverables
−Removed: Reinsurance recoverables were $1,841.1 million and $1,814.0 million at September 30, 2020 and December 31, 2019, respectively, of which $76.0 million and $89.8 million represent billed recoverables.
+Added: Reinsurance recoverables were $1,882.9 million and $1,874.3 million at March 31, 2021 and December 31, 2020, respectively, of which $60.5 million and $88.4 million, respectively, represent billed recoverables.
A reinsurance recoverable is billed after an eligible reinsured claim is paid by an insurer.
−Removed: Billed reinsurance recoverables related to the Michigan Catastrophic Claims Association (the “MCCA”) were $33.7 million and $29.2 million at September 30, 2020 and December 31, 2019, respectively, and billed non-MCCA reinsurance recoverables totaled $42.3 million and $60.6 million at September 30, 2020 and December 31, 2019, respectively.
−Removed: At September 30, 2020, $2.2 million of the billed non-MCCA recoverables were outstanding greater than 90 days, whereas at December 31, 2019, there were no balances outstanding greater than 90 days.
+Added: Billed reinsurance recoverables related to the Michigan Catastrophic Claims Association (the “MCCA”) were $36.1 million and $35.5 million at March 31, 2021 and December 31, 2020, respectively, and billed non-MCCA reinsurance recoverables totaled $24.4 million and $52.9 million at March 31, 2021 and December 31, 2020, respectively.
+Added: At March 31, 2021, $0.2 million of the billed non-MCCA recoverables were outstanding greater than 90 days, whereas at December 31, 2020, there were no balances outstanding greater than 90 days.
Investment Results
Net investment income before income taxes was as follows:
−Removed: Three Months Ended September 30,
−Removed: Nine Months Ended September 30,
+Added: Three Months Ended March 31,
(dollars in millions)
Fixed maturities
+Added: Limited partnerships
Mortgage loans
Equity securities
−Removed: Limited partnerships
Other investments
3 unchanged sentences
Earned yield, total portfolio
−Removed: The decrease in net investment income for the three months ended September 30, 2020 was primarily due to the impact of lower new money yields and the deployment of cash during 2019 for accelerated share repurchases and special dividends.
−Removed: These decreases were partially offset by higher partnership income and the continued investment of operational cash flows.
−Removed: The decrease in net investment income for the nine months ended September 30, 2020 was primarily due to the deployment of cash during 2019 for accelerated share repurchases and special dividends, the impact of lower new money yields and lower partnership income.
−Removed: These decreases were partially offset by the continued investment of operational cash flows.
+Added: The increase in net investment income for the three months ended March 31, 2021 was primarily due to higher limited partnership income, the continued investment of operational cash flows and higher mortgage loan income, partially offset by the impact of lower new money yields.
+Added: Higher income from our limited partnerships primarily reflects increased market valuation due to positive valuation changes in the funds’ equity holdings and certain successful fund investments.
We expect average fixed income yields to continue to decline as new money rates remain lower than our embedded book yield.
1 unchanged sentence
We held cash and investment assets diversified across several asset classes, as follows:
−Removed: September 30, 2020
+Added: March 31, 2021
December 31, 2020
9 unchanged sentences
Cash and Investments
−Removed: Total cash and investments increased $747.2 million, or 9.1%, for the nine months ended September 30, 2020, as compared to December 31, 2019, primarily due to operational cashflows, market value appreciation and the net proceeds from our senior debt issuance in August 2020.
−Removed: These increases were partially offset by the funding of financing activities, including our debt retirement, stock repurchases and dividend payments.
−Removed: The following table provides information about the investment types of our fixed maturities portfolio:
−Removed: September 30, 2020
+Added: Total cash and investments decreased $50.1 million, or less than 1%, for the three months ended March 31, 2021 as compared to December 31, 2020.
+Added: This decrease was primarily due to market value depreciation and the funding of financing activities, including our stock repurchases and dividend payments, partially offset by the continued investment of operational cash flows.
+Added: Th e following table provides information about the investment types of our fixed maturities portfolio:
+Added: March 31, 2021
(in millions)
2 unchanged sentences
Net Unrealized
+Added: Gains (Losses)
Change in Net
5 unchanged sentences
Total fixed maturities
−Removed: The increase in net unrealized gains on fixed maturities was primarily due to lower prevailing interest rates partially offset by wider credit spreads.
+Added: The decrease in net unrealized gains on fixed maturities was primarily due to higher prevailing interest rates.
Amortized cost and fair value by rating category were as follows:
−Removed: September 30, 2020
+Added: March 31, 2021
December 31, 2020
4 unchanged sentences
Amortized Cost, Net of Allowance for Credit Losses
+Added: Amortized Cost, Net of Allowance for Credit Losses
Caa and lower
1 unchanged sentence
Total fixed maturities
−Removed: Based on ratings by the National Association of Insurance Commissi oners (“NAIC”), approximately 96 % and 95% of the fixed maturity portfolio consisted of investment grade securities at September 30, 2020 and December 31, 201 9 , respectively .
+Added: Based on ratings by the National Association of Insurance Commissioners (“NAIC”), approximately 96% of the fixed maturity portfolio consisted of investment grade securities at March 31, 2021 and December 31, 2020.
The quality of our fixed maturity portfolio remains strong based on ratings, capital structure position, support through guarantees, underlying security, issuer diversification and yield curve position.
3 unchanged sentences
The duration of our fixed maturity portfolio was as follows:
−Removed: September 30, 2020
+Added: March 31, 2021
December 31, 2020
1 unchanged sentence
Amortized Cost, Net of Allowance for Credit Losses
+Added: Amortized Cost, Net of Allowance for Credit Losses
Total fixed maturities
4 unchanged sentences
Equity securities primarily consist of U.S.
−Removed: income-oriented large capitalization common stocks and developed market equity index exchange-traded funds.
+Added: income-oriented large capitalization common stocks and developed market equity index and corporate bond exchange-traded funds.
Mortgage and other loans consist primarily of commercial mortgage loan participations which represent our interest in commercial mortgage loans originated by a third party.
−Removed: We share, on a pro-rata basis, in all related cash flows of the underlying mortgage loans, which are investment-grade quality and diversified by geographic area and property type.
+Added: We share, on a pro-rata basis, in all related cash flows of the underlying mortgage loans, which are primarily investment-grade quality and diversified by geographic area and property type.
Other investments consist primarily of our interest in corporate middle market and real estate limited partnerships.
−Removed: Corporate middle market limited partnerships may invest in senior or subordinated debt, preferred or common equity or a combination thereof, of middle market businesses.
+Added: Corporate middle market limited partnerships may invest in senior or subordinated debt, preferred or common equity or a combination thereof, of privately-held middle market businesses.
Real estate limited partnerships hold equity ownership positions in real properties and invest in debt secured by real properties.
1 unchanged sentence
Although we expect to invest new funds primarily in investment grade fixed maturities, we have invested, and expect to continue to invest, a portion of funds in limited partnerships, common equity securities, below investment grade fixed maturities and other investment assets.
−Removed: For the three months ended September 30, 2020, we recognized $0.8 million of impairments, consisting primarily of additional credit losses on mortgage loans partially offset by recoveries of credit losses on fixed maturities, primarily resulting from increased market values during the quarter.
−Removed: For the nine months ended September 30, 2020, we recognized $27.9 million of impairments, consisting primarily of $19.1 million on fixed maturities and $6.6 million on mortgage loans.
−Removed: Impairments on fixed maturities included $16.5 million categorized as intend-to-sell and $2.6 million of credit-related losses, primarily in the energy sector, and to a lesser degree, consumer non-cyclical and consumer cyclical sectors.
−Removed: For the three and nine months ended September 30, 2019, we recognized $0.8 million and $1.2 million, respectively, of other-than-temporary impairments on corporate fixed maturity securities.
−Removed: At September 30, 2020 and December 31, 2019, the allowance for credit losses on mortgage loans was $7.8 million and $1.3 million, respectively.
−Removed: The allowance for credit losses on available-for-sale securities was $1.6 million at September 30, 2020.
−Removed: There was no allowance for credit losses on available-for-sale securities at December 31, 2019.
−Removed: The carrying values of fixed maturity securities on non-accrual status at September 30, 2020 and December 31, 2019 were not material.
−Removed: The effects of non-accruals for the nine months ended September 30, 2020 and 2019, compared with amounts that would have been recognized in accordance with the original terms of the fixed maturities, were also not material.
+Added: For the three months ended March 31, 2021, we did not recognize any impairments.
+Added: For the three months ended March 31, 2020, we recognized $28.5 million of impairments, consisting primarily of $22.2 million on fixed maturities and $4.8 million on mortgage loans.
+Added: Impairments on fixed maturities included $16.0 million categorized as intend-to-sell and $6.2 million of credit-related losses.
+Added: At March 31, 2021 and December 31, 2020, the allowance for credit loses on mortgage loans was $7.9 million.
+Added: There was no allowance for credit losses on available-for-sale securities as of March 31, 2021, compared to an allowance of $0.1 million at December 31, 2020.
+Added: The carrying values of fixed maturity securities on non-accrual status at March 31, 2021 and December 31, 2020 were not material.
+Added: The effects of non-accruals for the three months ended March 31, 2021 and 2020, compared with amounts that would have been recognized in accordance with the original terms of the fixed maturities, were also not material.
Any defaults in the fixed maturities portfolio in future periods may negatively affect investment income.
Unrealized Losses
−Removed: Gross unrealized losses on fixed maturities at September 30, 2020 were $2.5 million, a decrease of $5.1 million compared to December 31, 2019, primarily attributable to lower interest rates, partially offset by wider credit spreads.
−Removed: At September 30, 2020, gross unrealized losses consisted primarily of $1.7 million on corporate fixed maturities, $0.3 million on U.
−Removed: government securities and $0.3 million on residential mortgage-backed securities.
+Added: Gross unrealized losses on fixed maturities at March 31, 2021 were $58.1 million, an increase of $54.8 million compared to December 31, 2020, primarily attributable to higher interest rates.
+Added: At March 31, 2021, gross unrealized losses consisted primarily of $20.9 million on corporate fixed maturities, $12.1 million on U.
+Added: government securities, $11.7 million on municipals and $10.4 million on residential mortgage-backed securities.
See Note 3 – “Investments” in the Notes to Interim Consolidated Financial Statements.
2 unchanged sentences
Inherent in our assessment are the risks that market factors may differ from our expectations;
−Removed: the global economic downturn resulting from the Pandemic is longer and more severe than current expectations;
+Added: the global economic recovery following the Pandemic takes longer than current expectations;
we may decide to subsequently sell a security for unforeseen business needs;
2 unchanged sentences
Although unrealized losses on fixed maturities are not reflected in the results of financial operations until they are realized, the fair value of the underlying investment, which does reflect the unrealized loss, is reflected in our Consolidated Balance Sheets.
−Removed: The following table sets forth gross unrealized losses for fixed maturities by maturity period at September 30, 2020 and December 31, 2019.
+Added: The following table sets forth gross unrealized losses for fixed maturities by maturity period at March 31, 2021 and December 31, 2020.
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 we may have the right to put or sell the obligations back to the issuers.
−Removed: September 30,
(in millions)
7 unchanged sentences
As a result, we could incur additional realized and unrealized losses in future periods, which could have a material adverse impact on our results of operations and/or financial position.
−Removed: In the first nine months of 2020, the Pandemic resulted in widespread economic disruption due to various government-mandated emergency orders, consumer and business uncertainty, and forced business closures.
−Removed: Financial markets have substantially recovered from the significant declines experienced earlier in the year;
−Removed: however, the economic outlook remains uncertain as a resurgence of the infection rate is being experienced in many U.S.
−Removed: Unemployment rates remain elevated, many corporations have eliminated forward revenue and earnings guidance, several foreign countries have placed restrictions on travel by U.S.
−Removed: citizens and many small businesses remain closed.
−Removed: government and its agencies have taken extraordinary measures to stabilize the economy through fiscal policy actions, such as passage of the CARES Act and other bills that will provide roughly $3 trillion in economic support.
−Removed: These actions have muted the recessionary dynamics that occur in a downturn and have supported a strong but incomplete recovery of the labor markets.
−Removed: It is unclear whether such actions will be sufficient to minimize the economic recession in the near and intermediate term, and what effect such unprecedented events will ultimately have on our investment portfolio.
−Removed: Due to the Pandemic, global monetary policies have become extremely accommodative in support of financial market stability.
+Added: Signs of an economic recovery in the U.S.
+Added: continue to build as COVID-19 vaccinations gain momentum, Federal Reserve monetary policy remains accommodative and approval of a third COVID-19 relief plan, the $1.9 trillion American Rescue Plan, begins to make an impact.
+Added: Vaccination rates have recently exceeded 3 million doses per day in the U.S.
+Added: and, while infection rates and virus mutations are still of concern, projected trends have allowed state and local governments to begin the process of gradual re-openings.
+Added: Unemployment rates remain elevated and while the U.S.
+Added: government and its agencies have taken extraordinary measures to stabilize the economy through fiscal and monetary policy actions which have muted typical recessionary dynamics, the recovery in the labor market has been uneven.
+Added: It is unclear whether such actions will be sufficient to support continued economic recovery in the intermediate term, and what long-term effects such unprecedented events will ultimately have on our investment portfolio.
+Added: Due to the Pandemic, global monetary policies remain extremely accommodative in support of financial market stability.
Major central banks have lowered interest rates, relaxed collateral requirements and instituted various asset purchase programs to stabilize financial markets and support economic growth.
−Removed: In the U.S., for example, the Federal Reserve (the “Fed”) is maintaining its federal funds target range at 0% to 0.25% and is conducting unprecedented quantities of asset purchases.
−Removed: Additionally, lending facilities have been established to support the flow of credit to households, businesses and state and local governments.
−Removed: However, because the Pandemic still poses considerable downside risks to economic activity and labor markets over the medium term, U.S.
−Removed: government officials are working toward another round of fiscal policy actions to support the economy and the flow of credit to households and businesses experiencing the greatest financial impact from the Pandemic.
−Removed: Fundamental conditions in certain corporate sectors are particularly tenuous, especially in the energy sector where the decline in global demand has driven meaningful declines in the value of our holdings of related fixed maturities.
−Removed: Further, the lodging, restaurant and transportation services subsectors are severely impacted by the Pandemic.
+Added: In the U.S., for example, the Federal Reserve (the “Fed”) is maintaining its federal funds target range at 0% to 0.25% and is purchasing unprecedented quantities of assets.
+Added: The Fed noted that continuation of these policies will need to balance the dual mandate of maximum employment and price stability should inflationary expectations increase, or should other economic conditions change, such as public health and the labor market.
+Added: Fundamental conditions in certain corporate sectors remain challenging, such as the energy sector which faces a decline in global demand, and the lodging, restaurant and transportation services subsectors which have been directly impacted by the Pandemic.
We may experience defaults on fixed income securities, particularly with respect to non-investment grade debt securities.
2 unchanged sentences
Net income also included the following items:
−Removed: Three Months Ended September 30,
+Added: Three Months Ended March 31,
(in millions)
Net realized and unrealized investment gains
−Removed: Loss from repayment of debt
Discontinued life businesses
−Removed: Net realized and unrealized investment gains
−Removed: Discontinued operations - Chaucer business, including
−Removed: sale, net of taxes
−Removed: Discontinued life businesses
−Removed: Nine Months Ended September 30,
−Removed: (in millions)
−Removed: Net realized and unrealized investment losses
−Removed: Loss from repayment of debt
−Removed: Discontinued life businesses
Net realized and unrealized investment gains (losses)
−Removed: Discontinued operations - Chaucer business, including
−Removed: sale, net of taxes
Discontinued life businesses
−Removed: We manage investment assets for our Commercial Lines, Personal Lines and Other segments based on the requirements of our combined property and casualty companies.
+Added: We manage investment assets for our Commercial Lines, Personal Lines and Other segments based on the requirements of our combined property and casualty insurance companies.
We allocate the investment income, expenses and realized gains and losses to our Commercial Lines, Personal Lines and Other segments based on actuarial information related to the underlying businesses.
−Removed: We managed investment assets separately for our former Chaucer business.
−Removed: Net realized and unrealized gains on investment were $37.7 million for the three months ended September 30, 2020, compared to $14.8 million for the three months ended September 30, 2019.
−Removed: Net realized and unrealized gains in both 2020 and 2019 were primarily due to changes in the fair value of equity securities.
−Removed: Net realized and unrealized losses on investment were $60.2 million for the nine months ended September 30, 2020, compared to net realized and unrealized gains of $75.1 million for the nine months ended September 30, 2019.
−Removed: For the nine months ended September 30, 2020, net realized and unrealized losses were primarily due to changes in the fair value of equity securities and, to a lesser extent, from impairment losses on investments.
−Removed: For the nine months ended September 30, 2019, net realized and unrealized gains were primarily due to changes in the fair value of equity securities.
−Removed: On September 19, 2020, we redeemed our outstanding $175.0 million principal amount of 6.35% subordinated debentures due 2053.
−Removed: We recognized the remaining $6.1 million of unamortized debt issuance costs associated with this debt.
−Removed: Discontinued operations in 2020 include our discontinued accident and health and life businesses.
−Removed: In 2019, our discontinued operations primarily included our former Chaucer business and, to a lesser extent, our discontinued life business.
−Removed: For the three months and nine months ended September 30, 2019, results related to our discontinued Chaucer business, including the sale, net of taxes, primarily reflects a revision to our best estimate of Chaucer’s 2018 catastrophe losses, which reduced our estimate of pre-tax contingent proceeds by $13.5 million.
−Removed: This was partially offset by gains from the sale of the Chaucer-related Australian and Irish entities for the nine month period.
−Removed: Losses of $2.0 million and $2.5 million in the discontinued life businesses for the nine months ended September 30 , 2020 and 2019, respectively, primarily reflect adverse loss trends related to the long-term care pool.
−Removed: We are subject to the tax laws and regulations of the U.S.
−Removed: and foreign countries in which we operate.
+Added: Net realized and unrealized investment gains were $37.5 million for the three months ended March 31, 2021, compared to net realized and unrealized investment losses of $161.6 million for the three months ended March 31, 2020.
+Added: For the three months ended March 31, 2021, net realized and unrealized investment gains were primarily due to changes in the fair value of equity securities.
+Added: For the three months ended March 31, 2020, net realized and unrealized investment gains (losses) were primarily due to changes in the fair value of equity securities and, to a lesser extent, from impairment losses on investments.
+Added: Discontinued operations include our discontinued accident and health and life businesses.
+Added: Losses of $0.1 million and $1.3 million for the three months ended March 31, 2021 and 2020, respectively, primarily reflect adverse loss trends related to the long-term care pool.
We file a consolidated U.S.
−Removed: federal income tax return that includes our holding company and its U.S.
−Removed: subsidiaries.
−Removed: Generally, taxes are accrued at the U.S.
−Removed: statutory tax rate of 21% for income from U.S.
−Removed: We accrue taxes on certain non-U.S.
−Removed: income that is subject to U.S.
−Removed: tax at the enacted U.S.
−Removed: Foreign tax credits, where available, are utilized to offset U.S.
−Removed: tax as permitted.
−Removed: Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019
−Removed: The provision for income taxes from continuing operations was an expense of $29.1 million and $19.1 million for the three months ended September 30, 2020 and 2019, respectively.
−Removed: These provisions resulted in consolidated effective federal tax rates of 19.6% and 14.7% for the three months ended September 30, 2020 and 2019, respectively.
−Removed: These provisions reflect benefits related to tax planning strategies implemented in prior years of $2.5 million and $3.2 million for the three months ended September 30, 2020 and 2019, respectively.
−Removed: In addition, these provisions also included excess tax benefits related to stock-based compensation of $0.1 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively.
−Removed: Lastly, the provision for 2019 includes a benefit of $4.4 million, which reflects the effect of changes in the tax law related to the 2018 sale of Chaucer.
−Removed: Absent these items, the provision for income taxes would have been an expense of $31.7 million, or 21.3%, and $27.2 million, or 20.9%, for the three months ended September 30, 2020 and 2019, respectively.
−Removed: The income tax provision on operating income was an expense of $25.1 million and $23.9 million for the three months ended September 30, 2020 and 2019, respectively.
−Removed: These provisions resulted in effective tax rates for operating income of 21.2% and 20.4% for the three months ended September 30, 2020 and 2019, respectively.
−Removed: These provisions include excess tax benefits related to stock-based compensation of $0.1 million and $0.5 million for the three months ended September 30, 2020 and 2019, respectively.
−Removed: Absent this item, the provision for income taxes would have been an expense of $25.2 million, or 21.2%, and $24.4 million, or 20.9%, for the three months ended September 30, 2020 and 2019, respectively.
−Removed: Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019
−Removed: The provision for income taxes from continuing operations was an expense of $41.7 million and $69.9 million for the nine months ended September 30, 2020 and 2019, respectively.
−Removed: These provisions resulted in consolidated effective federal tax rates of 17.5% and 18.0% for the nine months ended September 30, 2020 and 2019, respectively.
−Removed: These provisions reflect benefits related to tax planning strategies implemented in prior years of $6.9 million and $10.4 million for the nine months ended September 30, 2020 and 2019, respectively.
−Removed: In addition, these provisions also included excess tax benefits related to stock-based compensation of $2.0 million and $2.6 million for the nine months ended September 30, 2020 and 2019, respectively.
−Removed: Finally, the provision for 2019 includes a charge of $1.2 million, which reflects the effect of changes in the tax law related to the 2018 sale of Chaucer.
−Removed: Absent these items, the provision for income taxes would have been an expense of $50.6 million, or 21.3%, and $81.7 million, or 21.0%, for the nine months ended September 30, 2020 and 2019, respectively.
−Removed: The income tax provision on operating income was an expense of $62.8 million and $63.6 million for the nine months ended September 30, 2020 and 2019, respectively.
−Removed: These provisions resulted in effective tax rates for operating income of 20.5% and 20.2% for the nine months ended September 30, 2020 and 2019, respectively.
−Removed: These provisions include excess tax benefits related to stock-based compensation of $2.0 million and $2.6 million for the nine months ended September 30, 2020 and 2019, respectively.
−Removed: Absent this item, the provision for income taxes would have been an expense of $64.8 million, or 21.2%, and $66.2 million, or 21.0%, for the nine months ended September 30, 2020 and 2019, respectively.
+Added: federal income tax return that includes our holding company and its domestic subsidiaries (including non-insurance operations).
+Added: Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020
+Added: The provision for income taxes from continuing operations was an expense of $21.3 million and a benefit of $15.2 million for the three months ended March 31, 2021 and 2020, respectively.
+Added: These provisions resulted in consolidated effective federal tax rates of 18.7% and 28.2% for the three months ended March 31, 2021 and 2020, respectively.
+Added: These provisions reflect benefits related to tax planning strategies implemented in prior years of $1.9 million in both of the three months ended March 31, 2021 and 2020.
+Added: In addition, these provisions also included excess tax benefits related to stock-based compensation of $1.0 million and $1.9 million for the three months ended March 31, 2021 and 2020, respectively.
+Added: Absent these items, the provision for income taxes would have been an expense of $24.2 million and a benefit of $11.4 million for the three months ended March 31, 2021 and 2020, respectively, or 21.2% for both periods.
+Added: The income tax provision on operating income was an expense of $15.2 million and $20.9 million for the three months ended March 31, 2021 and 2020, respectively.
+Added: These provisions resulted in effective tax rates for operating income of 19.8% and 19.4% for the three months ended March 31, 2021 and 2020, respectively.
+Added: These provisions included excess tax benefits related to stock-based compensation of $1.0 million and $1.9 million for the three months ended March 31, 2021 and 2020, respectively.
+Added: Absent this item, the provision for income taxes would have been an expense of $16.2 million, or 21.1%, and $22.8 million, or 21.2%, for the three months ended March 31, 2021 and 2020, respectively.
Critical Accounting Estimates
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Pension benefit obligations
+Added: Investment credit losses
Deferred taxes
For a more detailed discussion of these critical accounting estimates, see our 2020 Annual Report on Form 10-K.
−Removed: Additionally, as a result of the recent economic disruption to the financial markets and overall challenges to economic conditions worldwide as a result of the Pandemic, we experienced a higher level of impairments in the first nine months of 2020 than in recent years.
−Removed: Accordingly, the following critical accounting estimate has been added.
−Removed: INVESTMENT CREDIT LOSSES
−Removed: We employ a systematic methodology to evaluate declines in fair values below amortized cost for all fixed maturity investments.
−Removed: The methodology utilizes a quantitative and qualitative process that seeks to ensure that available evidence concerning the declines in fair value below amortized cost is evaluated in a disciplined manner.
−Removed: In determining whether a decline in fair value below amortized cost should be recorded as an impairment, we evaluate several factors and circumstances, including the issuer’s overall financial condition;
−Removed: the issuer’s credit and financial strength ratings;
−Removed: the issuer’s financial performance, including earnings trends, dividend payments and asset quality;
−Removed: any specific events which may influence the operations of the issuer;
−Removed: the general outlook for market conditions in the industry or geographic region in which the issuer operates;
−Removed: and the degree to which the fair value of an issuer’s securities is below our cost.
−Removed: We consider factors that might raise doubt about the issuer’s ability to make contractual payments as they become due and whether we expect to recover the entire amortized cost basis of the security.
−Removed: We monitor corporate fixed maturity securities with unrealized losses on a quarterly basis and more frequently when necessary to identify potential credit deterioration, as evidenced by ratings downgrades, unexpected price variances, and/or company or industry specific concerns.
−Removed: We apply consistent standards of credit analysis which includes determining whether the issuer is current on its contractual payments, and we consider past events, current conditions and reasonable and supportable forecasts to evaluate whether we expect to recover the entire amortized cost basis of the security.
−Removed: We utilize valuation declines as a potential indicator of credit deterioration and apply additional levels of scrutiny in our analysis as the severity of the decline increases.
−Removed: For our impairment review of asset-backed fixed maturity securities, we forecast our best estimate of the prospective future cash flows of the security to determine if we expect to recover the entire amortized cost basis of the security.
−Removed: Our analysis includes estimates of underlying collateral default rates based on historical and projected delinquency rates and estimates of the amount and timing of potential recovery.
−Removed: We consider available information relevant to the collectability of cash flows, including information about the payment terms of the security, prepayment speeds, the financial condition of the underlying borrowers, collateral trustee reports, credit ratings analysis and other market data when developing our estimate of the expected cash flows.
−Removed: When an impairment of a fixed maturity security occurs, and we intend to sell or more likely than not will be required to sell the investment before recovery of its amortized cost basis, the amortized cost of the security is reduced to its fair value, with a corresponding charge to earnings, which reduces net income and earnings per share.
−Removed: If we do not intend to sell the fixed maturity investment or more likely than not will not be required to sell it, we separate the impairment into the amount we estimate represents the credit loss and the amount related to all other factors.
−Removed: The amount of the estimated loss attributable to credit is recognized in earnings, which reduces net income and earnings per share.
−Removed: We estimate the amount of the credit impairment by comparing the amortized cost of the fixed maturity security with the net present value of the fixed maturity security’s projected future cash flows, discounted at the effective interest rate implicit in the investment prior to impairment.
−Removed: Declines in market value which are not credit loss related are recorded as unrealized losses, which do not affect net income and earnings per share, but reduce accumulated other comprehensive income, which is reflected in our Consolidated Balance Sheets.
−Removed: We cannot provide assurance that the impairments will be adequate to cover future losses or that we will not have substantial additional impairments in the future.
−Removed: See Note 3 — “Investments” in the Notes to Interim Consolidated Financial Statements for further discussion regarding impairments and securities in an unrealized loss position.
Statutory Surplus of Insurance Subsidiaries
The following table reflects statutory surplus for our insurance subsidiaries:
−Removed: September 30,
(in millions)
Total Statutory Capital and Surplus
−Removed: The statutory capital and surplus for our insurance subsidiaries decreased $47.9 million during the first nine months of 2020.
−Removed: This decrease was primarily due to the payment of a $245 million dividend and from unrealized and realized net investment losses, primarily due to changes in the fair value of equity securities.
−Removed: These decreases were partially offset by underwriting profits.
+Added: The statutory capital and surplus for our insurance subsidiaries increased $79.2 million during the first three months of 2021.
+Added: This increase was primarily due to underwriting profits and from net realized and unrealized investment gains, primarily due to changes in the fair value of equity securities.
The NAIC prescribes an annual calculation regarding risk-based capital (“RBC”).
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however, in the insurance industry, RBC ratios are widely expressed as a percentage of the Company Action Level.
−Removed: The following table reflects the Company Action Level, the Authorized Control Level and RBC ratios for Hanover Insurance (which includes Citizens and other insurance subsidiaries), as of September 30, 2020, expressed both on the Industry Scale (Total Adjusted Capital divided by the Company Action Level) and Regulatory Scale (Total Adjusted Capital divided by Authorized Control Level):
+Added: The following table reflects the Company Action Level, the Authorized Control Level and RBC ratios for Hanover Insurance (which includes Citizens and other insurance subsidiaries), as of March 31, 2021, expressed both on the Industry Scale (Total Adjusted Capital divided by the Company Action Level) and Regulatory Scale (Total Adjusted Capital divided by Authorized Control Level):
(dollars in millions)
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However, dividend payments to us by our insurance subsidiaries are subject to limitations imposed by regulators, such as prior notice periods and the requirement that dividends in excess of a specified percentage of statutory surplus or prior year’s statutory earnings receive prior approval (so called “extraordinary dividends”).
−Removed: During the first nine months of 2020, Hanover Insurance paid $245.0 million in dividends to the holding company.
+Added: During the first quarter of 2021, Hanover Insurance did not pay dividends to the holding company.
Sources of cash for our insurance subsidiaries primarily consist of premiums collected, investment income and maturing investments.
2 unchanged sentences
We periodically adjust our investment policy to respond to changes in short-term and long-term cash requirements.
−Removed: Net cash provided by operating activities was $546.6 million during the first nine months of 2020, as compared to $423.9 million during the first nine months of 2019.
−Removed: The $122.7 million increase in cash provided was primarily due to a decrease in loss payments, an increase in premiums received and, to a lesser extent, the result of lower federal income tax payments in the first nine months of 2020, compared to the first nine months of 2019.
−Removed: Net cash used in investing activities was $480.3 million during the first nine months of 2020, as compared to $505.2 million during the first nine months of 2019.
−Removed: During the first nine months of 2020, cash used in investing activities primarily related to net purchases of fixed maturities.
−Removed: During the first nine months of 2019, cash used in investing activities primarily related to net purchases of fixed maturities and, to a lesser extent, equity securities and other investments, partially offset by net proceeds received from the sale of the Chaucer-related Irish and Australian entities.
−Removed: Net cash used in financing activities was $50.5 million during the first nine months of 2020, as compared to $785.1 million during the first nine months of 2019.
−Removed: During the first nine months of 2020, cash used in financing activities primarily resulted from the repayment of debt, the repurchase of common stock and three quarterly dividend payments to shareholders, offset by net proceeds received from debt borrowings.
−Removed: During the first nine months of 2019, cash used in financing activities primarily resulted from repurchases of common stock through two accelerated share repurchase (“ASR”) agreements, the payments of a special dividend and three quarterly dividends to shareholders, and the repayment of the Federal Home Loan Bank (“FHLB”) advances.
+Added: Net cash provided by operating activities was $141.8 million during the first three months of 2021, as compared to $36.6 million during the first three months of 2020.
+Added: The $105.2 million increase in cash provided was primarily due to an increase in premiums received and a decrease in loss payments in the first three months of 2021, compared to the first three months of 2020.
+Added: Net cash used in investing activities was $78.6 million during the first three months of 2021, as compared to $99.9 million during the first three months of 2020.
+Added: During the first three months of 2021, cash used in investing activities primarily related to net purchases of fixed maturities.
+Added: During the first three months of 2020, cash used in investing activities primarily related to net purchases of fixed maturities and, to a lesser extent, equity securities and other investments.
+Added: Net cash used in financing activities was $71.7 million during the first three months of 2021, as compared to $8.5 million during the first three months of 2020.
+Added: During the first three months of 2021 and 2020, cash used in financing activities primarily resulted from the repurchase of common stock and for the quarterly dividend payment to our shareholders.
+Added: The payments made in the first quarter of 2020 were partially offset by short-term borrowings.
Dividends to common shareholders are subject to quarterly board approval and declaration.
−Removed: During the first nine months of 2020, as declared by the Board, we paid three quarterly dividends of $0.65 per share to our shareholders totaling approximately $74 million.
+Added: During the first three months of 2021, as declared by the Board, we paid a quarterly dividend of $0.70 per share to our shareholders totaling approximately $25.5 million.
We believe that our holding company assets are sufficient to provide for future shareholder dividends should the Board of Directors declare them.
−Removed: At September 30 , 2020 , THG, as a holding company, held approximately $ 528 .4 million of fixed maturities and cash.
+Added: At March 31, 2021, THG, as a holding company, held approximately $326.2 million of fixed maturities and cash.
We believe our holding company assets will be sufficient to meet our current year obligations, which we expect to consist primarily of quarterly dividends to our shareholders (as and to the extent declared), interest on our senior and subordinated debentures, certain costs associated with benefits due to our former life employees and agents, and, to the extent required, payments related to indemnification of liabilities associated with the sale of various subsidiaries.
−Removed: As discussed below, we have, and opportunistically may continue to, repurchase our common stock and our deb t .
+Added: As discussed below, we have, and opportunistically may continue to, repurchase our common stock and our debt.
We do not expect that it will be necessary to dividend additional funds from our insurance subsidiaries in order to fund 2021 holding company obligations;
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We do not anticipate the need to sell these securities to meet our insurance subsidiaries’ cash requirements since we expect our insurance subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements relating to current operations.
−Removed: However, there can be no assurance that unforeseen business needs or other items, including any effects of the Pandemic or associated legislative, judicial or regulatory actions on our liquidity and investment portfolio, will not occur causing us to have to sell those securities in a loss position before their values fully recover, thereby causing us to recognize impairment charges in that time period.
+Added: However, there can be no assurance that unforeseen business needs or other items will not occur causing us to have to sell those securities in a loss position before their values fully recover, thereby causing us to recognize impairment charges in that time period.
The Board of Directors has authorized a stock repurchase program which provides for aggregate repurchases of our common stock of up to $900 million.
2 unchanged sentences
We are not required to purchase any specific number of shares or to make purchases by any certain date under this program.
−Removed: On December 9, 2019, pursuant to the terms of an ASR agreement (the “December 2019 ASR”) we paid $150.0 million in exchange for shares of our common stock.
−Removed: Under the terms of the December 2019 ASR, we received an initial delivery of approximately 0.9 million shares of our common stock.
−Removed: On February 26, 2020, we received approximately 0.2 million shares of our common stock as final settlement of shares repurchased under the December 2019 ASR.
−Removed: In addition to the shares repurchased under the December 2019 ASR, during the first nine months of 2020 we repurchased approximately 1.0 million shares at an aggregate cost of $94.3 million.
−Removed: As of September 30 , 2020, we have repurchased 5.4 million shares under this $900 million program and have approximately $242 million available for additional repurchases.
−Removed: On October 27, 2020, we entered into a new ASR agreement (the “October 2020 ASR”), pursuant to which we will pay $100.0 million in exchange for shares of our common stock.
−Removed: Initial share delivery, of approximately 80% of the total number of shares expected to be received under this agreement, is scheduled for October 29, 2020.
−Removed: Final settlement of the October 2020 ASR is expected to occur not later than February 3, 2021.
−Removed: On August 24, 2020, we issued $300.0 million aggregate principal amount of 2.50% senior unsecured debentures due September 1, 2030.
−Removed: Net proceeds of the debt issuance were $297.7 million.
−Removed: A portion of the net proceeds was used to redeem $175.0 million outstanding 6.35% subordinated notes due 2053, resulting in a pre-tax loss of $6.1 million, related primarily to the accelerated amortization of debt issuance costs.
−Removed: We maintain our membership in FHLB which provides us with access to additional liquidity based on our stock holdings and pledged collateral.
−Removed: At September 30 , 2020, we had borrowing capacity of $108.0 million.
−Removed: There were no outstanding borrowings under this short-term facility at September 30 , 2020;
+Added: On October 29, 2020, pursuant to the terms of an accelerated share repurchase (“ASR”) agreement (the “October 2020 ASR”), we paid $100.0 million in exchange for shares of our common stock.
+Added: We received an initial share delivery, of approximately 0.8 million shares of common stock, which was approximately 80% of the total number of shares expected to be repurchased under the October 2020 ASR
+Added: On January 29, 2021, we received approximately 45,000 shares of our common stock as final settlement of shares repurchased under the October 2020 ASR.
+Added: In addition to the shares repurchased under the October 2020 ASR, during the first three months of 2021 we repurchased approximately 0.4 million shares at an aggregate cost of $45.3 million.
+Added: As of March 31 , 2021, we ha d repurchased 6.8 million shares under this $900 million program and ha d approximately $7 8 million available for additional repurchases.
+Added: We maintain our membership in the Federal Home Loan Bank (“FHLB”) to provide access to additional liquidity based on our holdings of FHLB stock and pledged collateral.
+Added: At March 31 , 2021, we had borrowing capacity of $130.1 million.
+Added: There were no outstanding borrowings under this short-term facility at March 31 , 2021;
however, we have and may continue to borrow, from time to time, through this facility to provide short-term liquidity.
−Removed: On April 30, 2019, we entered into a new credit agreement that provides for a five-year unsecured revolving credit facility not to exceed $200.0 million at any one time outstanding, with the option to increase the facili ty up to $300.0 million (assuming no default and satisfaction of other specified conditions, including the receipt o f additional lender commitments ) .
+Added: On April 30, 2019, we entered into a credit agreement that provides for a five-year unsecured revolving credit facility not to exceed $200.0 million at any one time outstanding, with the option to increase the facility up to $300.0 million (assuming no default and satisfaction of other specified conditions, including the receipt of additional lender commitments).
The agreement also includes an uncommitted subfacility of $50.0 million for standby letters of credit.
−Removed: Borrowings, if any, under this new agreement are unsecured and incur interest at a rate per annum equal to, at our election, either (i) the greater of, (a) the prime commercial lending rate of the administrative agent, (b) the NYFRB Rate plus half a percent, or (c) the one month Adjusted LIBOR plus one percent and a margin that ranges from 0.25% to 0.625% depending on our debt rating, or (ii) Adjusted LIBOR for the applicable interest period, plus a margin that ranges from 1.25% to 1.625% depending on our debt rating.
+Added: Borrowings, if any, under this agreement are unsecured and incur interest at a rate per annum equal to, at our election, either (i) the greater of, (a) the prime commercial lending rate of the administrative agent, (b) the NYFRB Rate plus half a percent, or (c) the one month Adjusted LIBOR plus one percent and a margin that ranges from 0.25% to 0.625% depending on our debt rating, or (ii) Adjusted LIBOR for the applicable interest period, plus a margin that ranges from 1.25% to 1.625% depending on our debt rating.
The agreement also contains certain financial covenants such as maintenance of specified levels of consolidated equity and leverage ratios, and requires that certain of our subsidiaries maintain minimum RBC ratios.
−Removed: We currently have no borrowings under this agreement and h ad no borrowings under this agreement during the first nine months of 20 20 .
+Added: We currently have no borrowings under this agreement and had no borrowings under this agreement during the first three months of 2021.
The LIBOR rate, upon which Adjusted LIBOR is based, is expected to be discontinued by the end of 2021.
Our credit agreement permits us to agree with the Administrative Agent for the credit facility on a replacement to Adjusted LIBOR subject to the satisfaction of certain conditions.
−Removed: At September 30, 2020, we were in compliance with the covenants of our debt and credit agreements.
+Added: At March 31, 2021, we were in compliance with the covenants of our debt and credit agreements.
Off-Balance Sheet Arrangements
2 unchanged sentences
REGULATORY AND INDUSTRY DEVELOPMENTS
−Removed: In response to the Pandemic, regulators in many of the states in which we operate have issued orders or guidance pertaining to, among other things, (a) premium refunds, credits or reductions for personal automobile insurance premiums and premiums for other insurance lines that regulators have determined are disproportionately impacted by the Pandemic, including certain commercial lines, for the periods during which stay-at-home orders and other governmental restrictions were or remain in effect, with premium adjustments based on factors such as the ongoing frequency and severity of claims, inflation, repair costs and reinsurance pricing, among others;
+Added: In response to the Pandemic, regulators in many of the states in which we operate have issued orders or guidance pertaining to, among other things, (a) premium refunds, credits or reductions for personal automobile insurance premiums and premiums for other insurance lines that regulators have determined are disproportionately impacted by the Pandemic, including certain commercial lines, for the periods during which governmental restrictions were or remain in effect, with premium adjustments based on factors such as the ongoing frequency and severity of claims, inflation, repair costs and reinsurance pricing, among others;
(b) premium payment grace periods, moratoriums on policy non-renewals and cancellations, and other measures that are similar to actions historically implemented in regions heavily impacted by catastrophes, which we anticipate to be manageable, depending on the duration of the regulatory orders and the degree to which policyholder payment patterns vary as a result;
3 unchanged sentences
The impact of such legislation, were it to be adopted, would, according to a statement of the NAIC on March 25, 2020, “create substantial solvency risks” for the property and casualty insurance sector, “significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.” Industry trade groups further assert that any such legislation would be violative of basic contract law and well-founded principles of constitutional law.
−Removed: Federal stimulus plans such as the CARES Act providing financial support to individuals and businesses during the Pandemic may mitigate the political pressure to continue advancing such proposed legislation.
+Added: Federal stimulus plans such as the CARES Act and the American Rescue Plan Act of 2021 providing financial support to individuals and businesses during the Pandemic may mitigate the political pressure to continue advancing such proposed legislation.
Proposals are also being considered at the federal level to establish government-funded pandemic insurance programs, possibly similar to the federal terrorism risk insurance program.
5 unchanged sentences
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.