What changed in this filing

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Item 1. Financial Statements

2021-07-28 compared with 2021-04-30 · 145 added, 84 removed, 639 unchanged (26% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

(In millions, except per share data)

1 unchanged sentence

Net realized and unrealized investment gains (losses):

Net realized gains (losses) from sales and other

Net realized gains from sales and other

Net change in fair value of equity securities

Impairment losses on investments

Impairment recoveries (losses) on investments

Total net realized and unrealized investment gains (losses)

7 unchanged sentences

Total losses and expenses

Income (loss) from continuing operations before income taxes

Income from continuing operations before income taxes

Income tax expense (benefit):

Total income tax expense (benefit)

Income (loss) from continuing operations

Total income tax expense

Income from continuing operations

Discontinued operations (net of taxes):

Loss from discontinued life businesses

Net income (loss)

Earnings per common share:

Income (loss) from continuing operations

Income from continuing operations

Discontinued operations (net of taxes):

Loss from discontinued life businesses

Net income (loss) per share

Net income per share

Weighted average shares outstanding

Income (loss) from continuing operations

Income from continuing operations

Discontinued operations (net of taxes):

Loss from discontinued life businesses

Net income (loss) per share

Net income per share

Weighted average shares outstanding

4 unchanged sentences

Three Months Ended

Six Months Ended

(In millions)

Net income (loss)

Other comprehensive income (loss), net of tax:

Available-for-sale securities:

Changes in net unrealized losses on investment securities:

Changes in net unrealized gains (losses) on investment securities:

Having no credit losses recognized in the

5 unchanged sentences

Net change in net actuarial loss

Total other comprehensive loss, net of tax

Comprehensive loss

Total other comprehensive income (loss), net of tax

Comprehensive income

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

38 unchanged sentences

Three Months Ended

Six Months Ended

(In millions)

10 unchanged sentences

Balance at beginning of period

Net depreciation on available-for-sale securities

Net appreciation (depreciation) on available-for-sale

Balance at end of period

8 unchanged sentences

Balance at beginning of period, as adjusted

Net income (loss)

Dividends to shareholders

11 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended

Six Months Ended

(In millions)

Cash Flows From Operating Activities

Net income (loss)

Adjustments to reconcile net income to net cash provided by operating activities:

19 unchanged sentences

Proceeds from exercise of employee stock options

Proceeds from short-term borrowings

Dividends paid to shareholders

Repurchases of common stock

Repayment of debt

Other financing activities

20 unchanged sentences

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

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year.

The results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year.

These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2021.

20 unchanged sentences

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

March 31, 2021

June 30, 2021

Amortized Cost,

19 unchanged sentences

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

March 31, 2021

June 30, 2021

Amortized Cost, Net

9 unchanged sentences

Fixed maturity securities in an unrealized loss position

The following tables provide information about the Company’s available-for-sale fixed maturity securities that were in an unrealized loss position at March 31, 2021 and December 31, 2020, including the length of time the securities have been in an unrealized loss position:

March 31, 2021

The following tables provide information about the Company’s available-for-sale fixed maturity securities that were in an unrealized loss position at June 30, 2021 and December 31, 2020, including the length of time the securities have been in an unrealized loss position:

June 30, 2021

12 months or less

31 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

Proceeds from sales

For the three months ended March 31, 2021, the Company did no t recognize any impairments.

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

For the three and six months ended June 30, 2021, the Company recognized impairments of $ 0.2 million on fixed maturities.

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

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

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

At March 31, 2021 and December 31, 2020, the allowance for credit losses on mortgage loans was $ 7.9 million.

At March 31, 2021, there was no allowance for credit losses on available-for-sale securities and at December 31, 2020, the allowance for credit losses on available-for-sale securities was $ 0.1 million.

At June 30, 2021 and December 31, 2020, the allowance for credit losses on mortgage loans was $ 7.9 million and the allowance for credit losses on available-for-sale debt securities was $ 0.1 million.

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

9 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

Net gains (losses) recognized during the period

net gains (losses) recognized on equity securities sold

net (losses) gains recognized on equity securities sold

during the period

83 unchanged sentences

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

March 31, 2021

June 30, 2021

December 31, 2020

18 unchanged sentences

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

During the first three months of 2021 and 2020, the Company did not adjust any prices received from its pricing service.

During the first six months of 2021 and 2020, the Company did not adjust any prices received from its pricing service.

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

3 unchanged sentences

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

March 31, 2021

June 30, 2021

(in millions)

20 unchanged sentences

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

At March 31, 2021 and December 31, 2020, the fair values of these investments were $ 172.9 million and $ 172.8 million, respectively, approximately 2 % of total investment assets.

At June 30, 2021 and December 31, 2020, the fair values of these investments were $ 161.1 million and $ 172.8 million, respectively, approximately 2 % of total investment assets.

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

March 31, 2021

June 30, 2021

(in millions)

7 unchanged sentences

Total financial instruments

The tables below provide reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

The following tables provide a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3).

Fixed Maturities

(in millions)

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Balance April 1, 2021

Balance June 30, 2021

Three Months Ended June 30, 2020

Balance April 1, 2020

Transfers out of Level 3

Included in total net realized and unrealized

investment gains

Included in other comprehensive income-net appreciation on available-for-sale securities

Balance June 30, 2020

Change in unrealized gains for the period

included in other comprehensive income for

assets held at the end of the period

Fixed Maturities

(in millions)

Six Months Ended

June 30, 2021

Balance January 1, 2021

Total gains (losses):

Included in total net realized and

unrealized investment gains

Included in other comprehensive loss-net depreciation on available-for-sale securities

Balance March 31, 2021

Included in total net realized and unrealized

investment gains

Included in other comprehensive loss-net

depreciation on available-for-sale securities

Balance June 30, 2021

Change in unrealized losses for the period

1 unchanged sentence

assets held at the end of the period

Three Months Ended March 31, 2020

Six Months Ended

June 30, 2020

Balance January 1, 2020

Transfers out of Level 3

Total gains (losses):

Included in other comprehensive loss-net appreciation (depreciation) on available-for-sale securities

Balance March 31, 2020

Included in total net realized and unrealized

investment gains

Included in other comprehensive income-net

appreciation (depreciation) on available-for-sale securities

Balance June 30, 2020

Change in unrealized gains (losses) for the period

included in other comprehensive loss for

included in other comprehensive income for

assets held at the end of the period

There were no transfers between Level 2 and Level 3, and there were no Level 3 liabilities held by the Company for the three months ended March 31, 2021 and 2020.

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

There were no level transfers between Level 2 and Level 3 for the three and six months ended June 30, 2021.

There were no Level 3 liabilities held by the Company for the three and six months ended June 30, 2021 and 2020.

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

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

March 31, 2021

June 30, 2021

December 31, 2020

33 unchanged sentences

There were no interrelationships between these inputs which might magnify or mitigate the effect of changes in unobservable inputs on the fair value measurement.

Income tax expense for the three months ended March 31, 2021 and 2020 has been computed using estimated annual effective tax rates.

Income tax expense for the six months ended June 30, 2021 and 2020 has been computed using estimated annual effective tax rates.

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

The tax provision was comprised of a U.S.

federal income tax expense of $ 21.3 million and a benefit of $ 15.2 million for the three months ended March 31, 2021 and 2020, respectively.

federal income tax expense of $ 51.6 million and $ 12.6 million for the six months ended June 30, 2021 and 2020, respectively.

The Company and its subsidiaries file income tax returns in the U.S.

2 unchanged sentences

federal and state income tax examinations and foreign examinations for years after 2016.

The audits of the Company’s Massachusetts Corporate Excise Tax for years 2017 and 2018 commenced in June 2021.

Pension Plans

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

Three Months Ended March 31,

Three Months Ended June 30,

(in millions)

4 unchanged sentences

Net periodic pension (benefit) cost

Six Months Ended June 30,

(in millions)

Pension Plans

Interest cost

Expected return on plan assets

Recognized net actuarial loss

Net periodic pension (benefit) cost

Other Comprehensive Income (Loss)

The following tables provide changes in other comprehensive loss.

Three Months Ended March 31,

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

Three Months Ended June 30,

(in millions)

Changes in net unrealized gains (losses) on investment

Net unrealized losses arising during period for

Net unrealized gains arising during period for

those having no credit losses in Consolidated

Statement of Income

Net unrealized losses arising during period for

Net unrealized gains arising during period for

those having credit losses in Consolidated

Statement of Income

Amount of (gains) losses realized from sales and

Amount of gains realized from sales and

other recognized in Consolidated Statement

Amount of credit recoveries recognized in the

Consolidated Statement of Income

Amount of additional impairment losses

recognized in the Consolidated Statement

Net unrealized gains

Pension and postretirement benefits:

Amortization of net actuarial losses

recognized as net periodic benefit cost

Other comprehensive income

Six Months Ended June 30,

(in millions)

Changes in net unrealized gains (losses) on

investment securities:

Net unrealized gains (losses) arising during period for

those having no credit losses in Consolidated

Statement of Income

Net unrealized gains (losses) arising during period for

those having credit losses in Consolidated

Statement of Income

Amount of gains realized from sales and other

recognized in Consolidated Statement of

Amount of credit losses recognized in the

2 unchanged sentences

recognized in the Consolidated Statement

Net unrealized losses

Net unrealized gains (losses)

Pension and postretirement benefits:

1 unchanged sentence

recognized as net periodic benefit cost

Other comprehensive loss

Other comprehensive income (loss)

Reclassifications out of accumulated other comprehensive income were as follows:

Three Months Ended

Six Months Ended

(in millions)

5 unchanged sentences

Comprehensive Income

Where Net Income (Loss) is Presented

Net unrealized gains (losses) on investment

Net realized gains (losses) from sales and

Impairment losses on investments

Where Net Income is Presented

Net unrealized gains on investment

Net realized gains from sales and

Impairment recoveries (losses) on investments

Total before tax

Tax benefit (expense)

Continuing operations;

6 unchanged sentences

Total reclassifications for the period

Expense reflected in income (loss),

The amount reclassified from accumulated other comprehensive income for the pension and postretirement benefits was allocated approximately 40 % to loss adjustment expenses and 60 % to other operating expenses for the three months ended March 31, 2021 and 2020.

Benefit (expense) reflected in income,

Segment Information

18 unchanged sentences

Three Months Ended

Six Months Ended

(in millions)

6 unchanged sentences

Commercial Lines:

Underwriting income (loss)

Underwriting income

Net investment income

4 unchanged sentences

Net investment income

Other income (expense)

Personal Lines operating income

8 unchanged sentences

Net realized and unrealized investment gains (losses)

Income (loss) from continuing operations before income taxes

Other non-operating

Income from continuing operations before income taxes

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

(in millions)

March 31, 2021

June 30, 2021

December 31, 2020

3 unchanged sentences

Stock-based Compensation

As of March 31, 2021, there were 1,980,405 shares and 2,329,534 shares available for grant under The Hanover Insurance Group 2014 Long-Term Incentive Plan and The Hanover Insurance Group 2014 Employee Stock Purchase Plan, respectively.

As of June 30, 2021, there were 1,974,651 shares and 2,321,916 shares available for grant under The Hanover Insurance Group 2014 Long-Term Incentive Plan and The Hanover Insurance Group 2014 Employee Stock Purchase Plan, respectively.

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions)

2 unchanged sentences

Stock Options

Information on the Company’s stock option activity for the three months ended March 31, 2021 and 2020 is summarized below.

Three Months Ended March 31,

Information on the Company’s stock option activity for the six months ended June 30, 2021 and 2020 is summarized below.

Six Months Ended June 30,

(in whole shares and dollars)

9 unchanged sentences

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

Three Months Ended March 31,

Six Months Ended June 30,

(in whole shares and dollars)

7 unchanged sentences

Outstanding, end of period

In the first three months of 2021 and 2020, the Company granted market-based awards totaling 37,348 and 34,911 , respectively, to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity.

In the first six months of 2021 and 2020, the Company granted market-based awards totaling 37,348 and 34,911 , respectively, to certain members of senior management, which are included in the table above as performance and market-based restricted stock activity.

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

12 unchanged sentences

Three Months Ended

Six Months Ended

(in millions, except per share data)

4 unchanged sentences

Diluted shares used in the calculation of earnings per share

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

Per share effect of dilutive securities on income from

continuing operations

Per share effect of dilutive securities on net income

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

Diluted earnings per share for the three months ended March 31, 2021 and 2020 excludes 0.2 million and 0.4 million shares, respectively, issuable under the Company’s stock compensation plans because their effect would be antidilutive.

T he Board of Directors has authorized a stock repurchase program which provides for aggregate repurchases of the Company’s common stock of up to $ 900 million, and under which the Company had approximately $ 78 million available at March 31, 2021.

Diluted earnings per share for the three and six months ended June 30, 2020 excludes 0.9 million and 0.6 million shares, respectively, issuable under the Company’s stock compensation plans because their effect would be antidilutive.

T he Board of Directors has authorized a stock repurchase program which provides for aggregate repurchases of the Company’s common stock of up to $ 1.3 billion, including a $ 400 million increase to the program on May 11, 2021.

Under this program the Company had approximately $ 405 million available at June 30, 2021.

Under the repurchase authorization, the Company may repurchase, from time to time, common stock in amounts, at prices and at such times as the Company deems appropriate, subject to market conditions and other considerations.

11 unchanged sentences

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

Three Months Ended

Six Months Ended

(in millions)

10 unchanged sentences

As a result of continuing trends in the Company’s business, reserves, including catastrophes, have been re-estimated for all prior accident years and were decreased by $ 35.8 million and $ 13.9 million in 2021 and 2020, respectively.

For the three months ended March 31, 2021, net favorable loss and LAE development was $ 8.2 million.

This was 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.

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

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

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

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

For the six months ended June 30, 2021, net favorable loss and LAE development was $ 35.8 million, primarily as a result of net favorable Commercial Lines development of $ 23.2 million and favorable Personal Lines development of $ 13.2 million.

Commercial Lines favorable development was primarily due to lower than expected catastrophe losses of $ 12.0 million for hurricanes, tornadoes, and other storms in accident years 2018 through 2020, and lower than expected losses of $ 10.7 million within the workers’ compensation line in accident years 2014 through 2019.

Personal Lines favorable development was primarily due to lower than expected losses of $ 9.8 million in the personal automobile line, driven by lower bodily injury and personal injury protection losses primarily in accident year 2020.

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

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

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

Commitments and Contingencies

10 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.

What changed 10-Q

Item 1. Financial Statements