What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-28 compared with 2021-04-30 · 246 added, 144 removed, 375 unchanged (51% of the section changed)

27 unchanged sentences

Our investment portfolio was affected by the deterioration in investment markets during March 2020, as well as the volatility in the subsequent months.

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.

Several uncertainties exist related to the Pandemic, including, among others, return to work initiatives, virus variants, vaccination rates, driving patterns, court caseload backlogs, and inflationary pressures.

We continue to believe that the Pandemic’s impacts on our near-term results should be manageable.

1 unchanged sentence

(See “Contingencies and Regulatory Matters” and “Item 1A – Risk Factors” for further discussion).

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.

During the six months ended June 30, 2021, our net income was $221.2 million, compared to $75.2 million for the six months ended June 30, 2020, an increase of $146.0 million, primarily due to changes in the fair value of equity securities and, to a lesser extent, prior year impairments on fixed income securities and an increase in operating income.

Operating income before interest expense and income taxes (a non-GAAP financial measure;

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.

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.

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.

The increase of $95.4 million was primarily due to freeze events in Texas and surrounding states impacting our commercial property lines.

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.

see also “Results of Operations – Consolidated – Non-GAAP Financial Measures”) was $222.4 million for the six months ended June 30, 2021, compared to $206.0 million for the six months ended June 30, 2020, an increase of $16.4 million.

This increase was primarily due to higher net investment income, earned premium growth, and net favorable development on prior years’ loss and loss adjustment expense (“LAE”) reserves (“prior years’ loss reserves’), partially offset by higher catastrophe losses and expenses.

The higher expenses were primarily due to the absence in 2021 of a non-recurring premium tax benefit of $13.8 million from a Michigan refund related to tax years 2014 through 2016 that was received in 2020.

Pre-tax catastrophe losses were $210.1 million for the six months ended June 30, 2021, compared to $185.7 million during the same period of 2020.

The increase of $24.4 million was primarily due to freeze events in Texas and surrounding states impacting our commercial property lines in the first quarter of 2021.

Net favorable development on prior years’ loss reserves was $20.8 million for the six months ended June 30, 2021, compared to $6.9 million for the six months ended June 30, 2020.

Commercial Lines

1 unchanged sentence

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.

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.

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.

Net premiums written increased 9.2% in the first six months of 2021, compared to the same period in 2020, primarily due to pricing increases and a reduction in insured business activity in 2020 as a result of the Pandemic.

Underwriting results declined in the first six months of 2021 , primarily due to higher catastrophe losses , partially offset by earned premium growth and lower expenses .

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.

6 unchanged sentences

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.

Net premiums written increased by 2.2% in the first three months of 2021, compared to the same period in 2020.

The modest premium growth reflects rate increases, partially offset by lower policies in force.

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.

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.

Net premiums written increased by 7.1% in the first six months of 2021, compared to the same period in 2020, primarily due to a return of approximately $30 million of premiums in 2020 to our eligible personal automobile customers in all our markets, providing financial relief during the Pandemic.

Excluding the impact of the premium refund, net premiums written grew by 3.6% primarily due to rate increases.

Underwriting results improved in the first six months of 2021, primarily due to lower catastrophe losses and favorable development of prior years’ loss reserves, partially offset by the aforementioned $13.8 million 2020 non-recurring premium tax refund and higher non-catastrophe current accident year large losses in our homeowners line.

Description of Operating Segments

11 unchanged sentences

Results of Operations – Consolidated

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.

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.

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.

Partially offsetting this increase was lower operating income before interest expense and income taxes for the three months ended March 31, 2021.

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.

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).

Consolidated net income for the three months ended June 30, 2021 was $128.5 million, compared to $115.2 million for the three months ended June 30, 2020, an increase of $13.3 million.

The increase in consolidated net income was primarily due to an increase in operating income before interest expense and income taxes for the three months ended June 30, 2021, partially offset by lower after-tax net realized and unrealized investment gains of approximately $27.1 million, primarily related to the change in the fair value of equity securities.

Operating income before interest expense and income taxes increased $48.4 million primarily due to lower catastrophe losses and, to a lesser extent, higher net investment income, partially offset by higher non-catastrophe current accident year losses and the absence in 2021 of a non-recurring premium tax benefit received in 2020.

Consolidated net income for the six months ended June 30, 2021 was $221.2 million, compared to $75.2 million for the six months ended June 30, 2020, an increase of $146.0 million.

The increase in consolidated net income was primarily a result of $57.0 million of after-tax net realized and unrealized investment gains in 2021 as compared to $72.8 million of after-tax net realized and unrealized investment losses in 2020, a change of $129.8 million, primarily related to the change in the fair value of equity securities and, to a lesser extent, a decrease in impairment losses on investments.

Operating income before interest expense and income taxes increased $16.4 million primarily due to higher net investment income, earned premium growth, and net favorable development on prior years’ loss reserves, partially offset by higher catastrophe losses and the aforementioned absence of a non-recurring premium tax benefit received in 2020.

The following table reflects operating income (loss) 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).

Three Months Ended

Six Months Ended

(in millions)

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Net realized and unrealized investment gains (losses)

Other non-operating

Income tax benefit (expense) on non-operating items

Income (loss) from continuing operations, net of taxes

Income from continuing operations, net of taxes

Discontinued operations (net of taxes):

Loss from discontinued life businesses

Net income (loss)

Non-GAAP Financial Measures

3 unchanged sentences

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.

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.

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).

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 attributable to the core operations of the business.

Catastrophe losses and prior years’ reserve development are significant components in understanding and assessing the financial performance of our business.

8 unchanged sentences

Three Months Ended

Six Months Ended

(in millions)

10 unchanged sentences

Operating income before interest expense and income taxes

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

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.

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.

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.

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Operating income before interest expense and income taxes was $137.3 million for the three months ended June 30, 2021, compared to $88.9 million for the three months ended June 30, 2020, an increase of $48.4 million.

This increase was primarily due to lower catastrophe losses, primarily in our commercial multiple peril and homeowners lines, and, to a lesser extent, higher net investment income, partially offset by higher non-catastrophe current accident year losses and a 2020 non-recurring premium tax benefit.

Net premiums written increased $126.2 million for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, primarily due to rate increases and the aforementioned 2020 premium refund.

Production and Underwriting Results

2 unchanged sentences

These items are not meaningful for our Other segment.

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

(dollars in millions)

1 unchanged sentence

Personal Lines

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

(dollars in millions)

3 unchanged sentences

Loss and LAE and catastrophe loss ratios include prior year reserve development.

Three Months Ended March 31,

Three Months Ended June 30,

(dollars in millions)

10 unchanged sentences

The following table summarizes U.S.

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.

Three Months Ended March 31,

GAAP underwriting results for the Commercial Lines, Personal Lines and Other segments and reconciles them to operating income before interest expense and income taxes.

Three Months Ended June 30,

(in millions)

Underwriting profit, excluding

Underwriting profit (loss), excluding

prior year reserve development

3 unchanged sentences

on non-catastrophe losses

Prior year favorable (unfavorable)

Prior year favorable

catastrophe development

4 unchanged sentences

Other operating expenses

Operating income (loss) before

Operating income before

interest expense and income taxes

Commercial Lines

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.

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.

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.

The $95.0 million increase was primarily due to freeze events in Texas and surrounding states associated with record low temperatures.

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.

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.

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.

The lower current accident year losses in commercial multiple peril reflect a single $12.6 million large property loss in 2020.

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.

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.

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.

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.

Commercial Lines net premiums written were $686.8 million for the three months ended June 30, 2021, compared to $614.9 million for the three months ended June 30, 2020.

This $71.9 million increase was primarily driven by pricing increases and a reduction in insured business activity in 2020 as a result of the Pandemic.

Commercial Lines underwriting profit for the three months ended June 30, 2021 was $53.8 million, compared to $21.3 million for the three months ended June 30, 2020, an increase of $32.5 million.

Catastrophe losses for the three months ended June 30, 2021 were $18.2 million, compared to $64.8 million for the three months ended June 30, 2020, a decrease of $46.6 million.

The higher catastrophe losses in 2020 were primarily due to property damages related to riots and civil unrest in several major cities across the country.

Net favorable development on prior year’s loss reserves for the three months ended June 30, 2021 was $7.9 million, compared to $5.1 million for the three months ended June 30, 2020, an increase of $2.8 million.

Commercial Lines current accident year underwriting profit, excluding catastrophes, was $6 4 .

1 million for the three months ended June 30 , 2021 , compared to $ 81.0 million for the three months ended June 30 , 2020 .

This $16.9 million decrease was primarily driven by higher non-catastrophe current accident year losses, primarily due to lower frequency of claims in the second quarter of 2020 as a result of the economic slowdown due to the Pandemic and, to a lesser extent, property large loss activity in the second quarter of 2021 in our commercial multi ple peril and specialty industrial property lines, partially offset by earned premium growth and lower expenses.

We continue to manage underwriting performance through rate actions, 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.

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Personal Lines

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.

The premium growth of $9.4 million was primarily driven by rate increases, partially offset by lower policies in force.

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 Lines net premiums written were $520.4 million for the three months ended June 30, 2021, compared to $466.1 million for the three months ended June 30, 2020.

The premium growth of $54.3 million was primarily driven by the return of approximately $30 million of automobile premiums, during the second quarter of 2020, to our eligible Personal Lines customers in all our markets, providing financial relief during the Pandemic, and by rate increases experienced during the second quarter of 2021.

Net premiums written in the personal automobile line of business for the three months ended June 30, 2021 were $318.6 million, compared to $276.8 million for the three months ended June 30, 2020, an increase of $41.8 million.

Personal automobile policies in force decreased by 0.9%.

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%.

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.

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.

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.

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.

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.

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.

Net premiums written in the homeowners line of business for the three months ended June 30, 2021 were $182.4 million, compared to $173.7 million for the three months ended June 30, 2020, an increase of $8.7 million.

Homeowners policies in force increased by 0.6%.

Personal Lines underwriting profit for the three months ended June 30, 2021 was $9.5 million, compared to $17.4 million for the three months ended June 30, 2020, an decrease of $7.9 million.

Catastrophe losses for the three months ended June 30, 2021 were $58.6 million, compared to $83.0 million for the three months ended June 30, 2020, a decrease of $24.4 million.

The higher catastrophe losses in 2020 were primarily due to several wind and hail storms throughout the Midwest and Southeast.

Net favorable development on prior year’s loss reserves for the three months ended June 30, 2021 was $5.0 million, compared to $0.1 million for the three months ended June 30, 2020, an increase of $4.9 million.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $63.1 million for the three months ended June 30, 2021, compared to $100.3 million for the three months ended June 30, 2020.

This $37.2 million decrease was primarily due to higher current accident year losses in our personal automobile line and a 2020 non-recurring premium tax benefit of $13.8 million.

The higher personal automobile losses were primarily due to fewer accidents and decreased claim activity in 2020 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.

3 unchanged sentences

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.

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.

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.

Our Other segment had operating income of $0.7 million for the three months ended June 30, 2021, compared to $1.0 million for the three months ended June 30, 2020, a decrease of $0.3 million.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Operating income before interest expense and income taxes was $222.4 million for the six months ended June 30, 2021, compared to $206.0 million for the six months ended June 30, 2020, an increase of $16.4 million.

This increase was primarily due to higher net investment income, earned premium growth, and net favorable development on prior years’ loss reserves, partially offset by higher catastrophe losses and expenses.

The higher expenses were primarily due to a 2020 non-recurring premium tax benefit.

Net premiums written increased by $185.4 million for the six months ended June 30, 2021, compared to the six months ended June 30, 2020.

This was primarily due to pricing increases, a reduction in insured business activity in 2020, and the aforementioned 2020 premium refund.

Production and Underwriting Results

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.

Loss, LAE, catastrophe loss and combined ratios shown below include prior year reserve development.

These items are not meaningful for our Other segment.

Six Months Ended June 30, 2021

(dollars in millions)

Commercial Lines

Personal Lines

Six Months Ended June 30, 2020

(dollars in millions)

Premiums Written

Premiums Earned

Commercial Lines

Personal Lines

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.

Loss and LAE and catastrophe loss ratios include prior year reserve development.

Six Months Ended June 30,

(dollars in millions)

Commercial Lines:

Commercial multiple peril

Commercial automobile

Workers’ compensation

Other commercial

Total Commercial Lines

Personal Lines:

Personal automobile

Other personal

Total Personal Lines

The following table summarizes 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.

Six Months Ended June 30,

(in millions)

Underwriting profit (loss),

excluding prior year reserve

development and catastrophes

Prior year favorable (unfavorable)

loss and LAE reserve development on

non-catastrophe losses

Prior year favorable (unfavorable)

catastrophe development

Current year catastrophe losses

Underwriting profit (loss)

Net investment income

Fees and other income

Other operating expenses

Operating income (loss) before

interest expense and income taxes

Commercial Lines

Commercial Lines net premiums written were $1,444.2 million for the six months ended June 30, 2021, compared to $1,322.5 million for the six months ended June 30, 2020.

This $121.7 million increase was primarily driven by pricing increases and a reduction in insured business activity in 2020 as a result of the Pandemic.

Commercial Lines underwriting income for the six months ended June 30, 2021 was $4.5 million, compared to $31.7 million for the six months ended June 30, 2020, a decrease of $27.2 million.

Catastrophe losses for the six months ended June 30, 2021 were $137.0 million, compared to $88.6 million for the six months ended June 30, 2020.

The $48.4 million increase was primarily due to first quarter freeze events in Texas and surrounding states associated with record low temperatures.

Favorable development on prior years’ loss reserves for the six months ended June 30, 2021 was $11.2 million, compared to $8.8 million for the six months ended June 30, 2020, an increase of $2.4 million.

Commercial Lines current accident year underwriting profit, excluding catastrophes, was $130.3 million for the six months ended June 30, 2021, compared to $111.5 million for the six months ended June 30, 2020, an increase of $18.8 million primarily due to earned premium growth and lower expenses.

Personal Lines

Personal Lines net premiums written were $959.1 million for the six months ended June 30, 2021, compared to $895.4 million for the six months ended June 30, 2020, an increase of $63.7 million.

During the second quarter of 2020, we returned approximately $30 million of automobile premiums to our eligible Personal Lines customers in all our markets, providing financial relief during the Pandemic.

In addition, 2021 net written premiums grew due to rate increases.

Personal Lines underwriting profit for the six months ended June 30, 2021 was $68.4 million, compared to $61.5 million for the six months ended June 30, 2020, an increase of $6.9 million.

Catastrophe losses for the six months ended June 30, 2021 were $73.1 million, compared to $97.1 million for the six months ended June 30, 2020.

The decrease of $24.0 million was primarily due to several wind and hail storms throughout the Midwest and Southeast in 2020.

Favorable development on prior years’ loss reserves for the six months ended June 30, 2021 was $10.2 million, compared to $1.7 million for the six months ended June 30, 2020, an increase of $8.5 million.

Personal Lines current accident year underwriting profit, excluding catastrophes, was $131.3 million for the six months ended June 30, 2021, compared to $156.9 million for the six months ended June 30, 2020.

This $25.6 million decrease was primarily due to a 2020 non-recurring premium tax benefit and higher current accident year large losses in our homeowners line.

Our Other segment had operating income of $1.8 million for the six months ended June 30, 2021, compared to an operating loss of $1.4 million for the six months ended June 30, 2020, a favorable change of of $3.2 million.

This change was 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.

Three Months Ended

Six Months Ended

(in millions)

4 unchanged sentences

Prior year non-catastrophe loss development

Prior year catastrophe development

Total incurred losses and LAE

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The following table summarizes prior year (favorable) unfavorable development for the periods indicated:

Three Months Ended March 31,

Six Months Ended June 30,

(in millions)

3 unchanged sentences

Total prior year favorable development

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.

It is not possible to know whether the factors that affected loss reserves in the first six 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

For the three months ended March 31, 2021 and 2020, catastrophe loss development was zero in both periods.

For the six months ended June 30, 2021 and 2020, favorable catastrophe development was $15.0 and $7.0 million, respectively.

The favorable catastrophe during the six months ended June 30, 2021 was primarily due to lower than expected losses related to certain 2018 through 2020 hurricanes, tornadoes, and other storms.

The favorable catastrophe development during the six months ended June 30, 2020 was primarily due to lower than expected losses related to certain 2017 and 2019 wind storms, winter storms and hurricanes.

2021 Loss and LAE Development, excluding catastrophes

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.

For the six months ended June 30, 2021, net favorable loss and LAE development, excluding catastrophes, was $20.8 million, primarily due to lower than expected losses in the workers’ compensation line, primarily in accident years 2014 through 2019, and in the personal automobile line, driven by lower bodily injury and personal injury protection losses primarily in accident year 2020.

2020 Loss and LAE Development, excluding catastrophes

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

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.

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.

The adverse prior year development for our Other Segment was due to our run-off voluntary assumed property and casualty reinsurance pools business.

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.

For the six months ended June 30, 2020, net favorable loss and LAE development, excluding catastrophes, was $6.9 million.

Lower than expected losses in the workers’ compensation line of $15.8 million in accident years 2016 through 2019 and other commercial lines were partially offset by higher than expected losses in the commercial and personal automobile lines and the commercial multiple peril line.

Within other commercial lines, lower than expected losses in our marine line of $11.5 million, in accident years 2017 through 2019, and commercial miscellaneous property line were partially offset by higher than expected losses in the general liability lines.

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 ECRA pool that primarily consists of asbestos and environmental exposures.

Reinsurance Recoverables

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.

Reinsurance recoverables were $1,932.3 million and $1,874.3 million at June 30, 2021 and December 31, 2020, respectively, of which $82.7 million and $88.4 million, respectively, represent billed recoverables.

A reinsurance recoverable is billed after an eligible reinsured claim is paid by an insurer.

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.

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.

Billed reinsurance recoverables related to the Michigan Catastrophic Claims Association (the “MCCA”) were $38.5 million and $35.5 million at June 30, 2021 and December 31, 2020, respectively, and billed non-MCCA reinsurance recoverables totaled $44.2 million and $52.9 million at June 30, 2021 and December 31, 2020, respectively.

At June 30, 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:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(dollars in millions)

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Earned yield, total portfolio

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.

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.

The increase in net investment income for the three months and six months ended June 30, 2021 was primarily due to higher limited partnership income and the continued investment of operational cash flows, partially offset by the impact of lower new money yields.

Higher income from our limited partnerships primarily reflects increased market valuation due to positive valuation changes in the funds’ equity holdings.

In addition, limited partnership results in the second quarter of 2020 reflect low valuations due to Pandemic-related business and financial market disruptions.

Income from partnerships can vary significantly from period to period and neither the elevated results during the first half of 2021, nor the weak results in the first half of 2020, reflect expected returns for this asset class.

We expect average fixed income yields to continue to decline as new money rates remain lower than our embedded book yield.

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We held cash and investment assets diversified across several asset classes, as follows:

March 31, 2021

June 30, 2021

December 31, 2020

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Cash and Investments

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.

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.

Total cash and investments increased $95.6 million, or 1.1%, for the six months ended June 30, 2021 as compared to December 31, 2020.

This increase was primarily due to the continued investment of operational cash flows, partially offset by the funding of financing activities, including our stock repurchases and dividend payments, and by net market value depreciation.

Th e following table provides information about the investment types of our fixed maturities portfolio:

March 31, 2021

June 30, 2021

(in millions)

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Net Unrealized

Gains (Losses)

Change in Net

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Total fixed maturities

The decrease in net unrealized gains on fixed maturities was primarily due to higher prevailing interest rates.

The decrease in net unrealized gains on fixed maturities was primarily due to higher prevailing interest rates, partially offset by tighter credit spreads.

Amortized cost and fair value by rating category were as follows:

March 31, 2021

June 30, 2021

December 31, 2020

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Total fixed maturities

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.

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The duration of our fixed maturity portfolio was as follows:

March 31, 2021

June 30, 2021

December 31, 2020

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Equity securities primarily consist of U.S.

income-oriented large capitalization common stocks and developed market equity index and corporate bond exchange-traded funds.

income-oriented large capitalization common stocks and developed market equity index 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.

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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.

For the three months ended March 31, 2021, we did not recognize any impairments.

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.

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

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

For the six months ended June 30, 2020, we recognized $27.1 million of impairments, 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 loses on mortgage loans was $7.9 million.

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.

The carrying values of fixed maturity securities on non-accrual status at March 31, 2021 and December 31, 2020 were not material.

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.

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

At June 30, 2021, we held no fixed maturities on non-accrual status.

At December 31, 2020, the carrying values of fixed maturities on non-accrual status were not material.

The effects of non-accruals for the six months ended June 30, 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

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.

At March 31, 2021, gross unrealized losses consisted primarily of $20.9 million on corporate fixed maturities, $12.1 million on U.

government securities, $11.7 million on municipals and $10.4 million on residential mortgage-backed securities.

Gross unrealized losses on fixed maturities at June 30, 2021 were $22.6 million, an increase of $19.3 million compared to December 31, 2020, primarily attributable to higher interest rates, partially offset by tighter credit spreads.

At June 30, 2021, gross unrealized losses consisted primarily of $8.2 million on corporate fixed maturities, $6.7 million on U.

government securities and $4.2 million on residential mortgage-backed securities.

See Note 3 – “Investments” in the Notes to Interim Consolidated Financial Statements.

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Inherent in our assessment are the risks that market factors may differ from our expectations;

the global economic recovery following the Pandemic takes longer than current expectations;

the global econom ic recovery following the Pandemic take s longer than current expectations ;

we may decide to subsequently sell a security for unforeseen business needs;

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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.

The following table sets forth gross unrealized losses for fixed maturities by maturity period at March 31, 2021 and December 31, 2020.

The following table sets forth gross unrealized losses for fixed maturities by maturity period at June 30, 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.

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Signs of an economic recovery in the U.S.

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.

Vaccination rates have recently exceeded 3 million doses per day in the U.S.

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.

Unemployment rates remain elevated and while the U.S.

continue as progress on vaccinations has reduced the spread of COVID-19 domestically.

Amid this progress and strong policy support, indicators of economic activity and employment have strengthened.

The sectors most adversely affected by the Pandemic, such as the lodging and hospitality sectors, have shown improvement, but still remain below pre-Pandemic levels of economic activity.

Inflation has risen and overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S.

households and businesses.

Unemployment rates remain somewhat elevated and while the U.S.

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.

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.

It is unclear how such actions and inflationary pressures will affect the continued economic recovery and our investment portfolio.

Due to the Pandemic, global monetary policies remain extremely accommodative in support of financial market stability.

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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.

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.

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.

However, the Fed has signaled an increased likelihood to begin raising interest rates in 2023 as indicators of economic recovery have strengthened above previous expectations.

The Fed seeks to achieve maximum employment and inflation of 2% over the long term, and has noted that the federal funds target range will be maintained until labor market conditions have reached levels consistent with the Fed’s goals.

Fundamental conditions in certain corporate sectors remain challenging, such as the lodging and hospitality sectors, which still face lower than pre-Pandemic levels of demand.

We may experience defaults on fixed income securities, particularly with respect to non-investment grade debt securities.

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Net income also included the following items:

Three Months Ended March 31,

Three Months Ended June 30,

(in millions)

Net realized and unrealized investment gains

Net realized and unrealized investment gains (losses)

Discontinued life businesses

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Discontinued life businesses

Six Months Ended June 30,

(in millions)

Net realized and unrealized investment gains (losses)

Discontinued life businesses

Net realized and unrealized investment losses

Discontinued life businesses

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.

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.

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.

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.

Net realized and unrealized investment gains were $31.1 million for the three months ended June 30, 2021, compared to $63.7 million for the three months ended June 30, 2020.

For the three months ended June 30, 2021 and 2020, net realized and unrealized investment gains were primarily due to changes in the fair value of equity securities.

Net realized and unrealized investment gains were $68.6 million for the six months ended June 30, 2021, compared to $97.9 million of net realized and unrealized investment losses for the six months ended June 30, 2020.

For the six months ended June 30, 2021, net realized and unrealized investment gains were primarily due to changes in the fair value of equity securities.

For the six months ended June 30, 2020, net realized and unrealized investment losses were primarily due to changes in the fair value of equity securities and, to a lesser extent, from impairment losses on investments

Discontinued operations include our discontinued accident and health and life businesses.

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.

Losses of $1.2 million and $1.4 million for the six months ended June 30, 2021 and 2020, respectively, primarily reflect adverse loss trends related to the long-term care pool.

We file a consolidated U.S.

federal income tax return that includes our holding company and its domestic subsidiaries (including non-insurance operations).

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

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.

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.

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.

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.

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.

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.

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.

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.

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.

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

The provision for income taxes from continuing operations was an expense of $30.3 million and $27.8 million for the three months ended June 30, 2021 and 2020, respectively.

These provisions resulted in consolidated effective federal tax rates of 18.9% and 19.4% for the three months ended June 30, 2021 and 2020, respectively.

The provision for 2021 includes a net benefit related to prior years’ federal tax credits of $1.7 million.

In addition, these provisions reflect benefits related to tax planning strategies implemented in prior years of $1.0 million and $2.5 million in the three months end June 30, 2021 and 2020, respectively.

Finally, the provision for 2021 also includes excess tax benefits related to stock-based compensation of $0.8 million for the three months ended June 30, 2021.

Absent these items, the provision for income taxes would have been an expense of $33.8 million, or 21.1%, and $30.3 million, or 21.2%, for the three months ended June 30, 2021 and 2020, respectively.

The income tax provision on operating income was an expense of $24.8 million and $16.8 million for the three months ended June 30, 2021 and 2020, respectively.

These provisions resulted in effective tax rates for operating income of 19.3% and 21.1% for the three months ended June 30, 2021 and 2020, respectively.

The provision for 2021 includes a net benefit related to prior years’ federal tax credits of $1.7 million.

In addition, the provision for 2021 also includes excess tax benefits related to stock-based compensation of $0.8 million for the three months ended June 30, 2021.

Absent these items, the provision for income taxes for 2021 would have been an expense of $27.3 million, or 21.2%, for the three months ended June 30, 2021.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

The provision for income taxes from continuing operations was an expense of $51.6 million and $12.6 million for the six months ended June 30, 2021 and 2020, respectively.

These provisions resulted in consolidated effective federal tax rates of 18.8% and 14.1% for the six months ended June 30, 2021 and 2020, respectively.

The provision for 2021 includes a net benefit related to prior years’ federal tax credits of $1.7 million.

In addition, these provisions reflect benefits related to tax planning strategies implemented in prior years of $2.9 million and $4.4 million for the six months ended June 30, 2021 and 2020, respectively.

Finally, these provisions also include excess tax benefits related to stock-based compensation of $1.8 million and $1.9 million for the six months ended June 30, 2021 and 2020, respectively.

Absent these items, the provision for income taxes would have been an expense of $58.0 million and $18.9 million for the six months ended June 30, 2021 and 2020, respectively, or 21.2% for both periods.

The income tax provision on operating income was an expense of $40.0 million and $37.7 million for the six months ended June 30, 2021 and 2020, respectively.

These provisions resulted in effective tax rates for operating income of 19.5% and 20.1% for the six months ended June 30, 2021 and 2020, respectively.

The provision for 2021 includes a net benefit related to prior years’ federal tax credits of $1.7 million.

In addition, these provisions include excess tax benefits related to stock-based compensation of $1.8 million and $1.9 million for the six months ended June 30, 2021 and 2020, respectively.

Absent these items, the provision for income taxes would have been an expense of $43.5 million and $39.6 million for the six months ended June 30, 2021 and 2020, respectively, or 21.2% for both periods.

Critical Accounting Estimates

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Total Statutory Capital and Surplus

The statutory capital and surplus for our insurance subsidiaries increased $79.2 million during the first three months of 2021.

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 statutory capital and surplus for our insurance subsidiaries decreased $41.4 million during the first six months of 2021.

This decrease was primarily due the payment of a $255 million dividend, primarily offset by an increase in 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.

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):

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 June 30, 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”).

During the first quarter of 2021, Hanover Insurance did not pay dividends to the holding company.

During the second quarter of 2021, Hanover Insurance paid $255.0 million in dividends to the holding company.

Sources of cash for our insurance subsidiaries primarily consist of premiums collected, investment income and maturing investments.

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We periodically adjust our investment policy to respond to changes in short-term and long-term cash requirements.

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.

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.

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.

During the first three months of 2021, cash used in investing activities primarily related to net purchases of fixed maturities.

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.

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.

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.

The payments made in the first quarter of 2020 were partially offset by short-term borrowings.

Net cash provided by operating activities was $309.0 million during the first six months of 2021, as compared to $225.8 million during the first six months of 2020.

The $83.2 million increase in cash provided was primarily due to an increase in premiums received, partially offset by higher federal income tax payments in the first six months of 2021, compared to the first six months of 2020 and, to a lesser extent, an increase in loss payments.

Net cash used in investing activities was $160.6 million during the first six months of 2021, as compared to $156.7 million during the first six months of 2020.

During the first six months of 2021 and 2020, cash used in investing activities primarily related to net purchases of fixed maturities.

Net cash used in financing activities was $162.6 million during the first six months of 2021, as compared to $102.2 million during the first six months of 2020.

During the first six months of 2021, cash used in financing activities primarily resulted from the repurchase of common stock and, to a lesser extent, from two quarterly dividend payments to our shareholders.

During the first six months of 2020, cash used in financing activities primarily resulted from two quarterly dividend payments to our shareholders and from the repurchase of common stock.

Dividends to common shareholders are subject to quarterly board approval and declaration.

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.

During the first six months of 2021, as declared by the Board, we paid two quarterly dividends, each for $0.70 per share, to our shareholders totaling approximately $50.6 million.

We believe that our holding company assets are sufficient to provide for future shareholder dividends should the Board of Directors declare them.

At March 31, 2021, THG, as a holding company, held approximately $326.2 million of fixed maturities and cash.

At June 30, 2021, THG, as a holding company, held approximately $449.3 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.

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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.

The Board of Directors has authorized a stock repurchase program which provides for aggregate repurchases of our common stock of up to $1.3 billion, including a $400 million increase to the program on May 11, 2021.

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

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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.

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

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.

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.

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.

In addition to the shares repurchased under the October 2020 ASR, during the first six months of 2021 we repurchased approximately 0.9 million shares at an aggregate cost of $118.6 million.

As of June 30 , 2021, we had repurchased 7.3 million shares under this $1.3 billion program and had approximately $405 million available for additional repurchases.

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.

At March 31 , 2021, we had borrowing capacity of $130.1 million.

There were no outstanding borrowings under this short-term facility at March 31 , 2021;

At June 30 , 2021, we had borrowing capacity of $118.5 million.

There were no outstanding borrowings under this short-term facility at June 30 , 2021;

however, we have and may continue to borrow, from time to time, through this facility to provide short-term liquidity.

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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.

We currently have no borrowings under this agreement and had no borrowings under this agreement during the first three months of 2021.

We currently have no borrowings under this agreement and had no borrowings under this agreement during the first six 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.

At March 31, 2021, we were in compliance with the covenants of our debt and credit agreements.

At June 30, 2021, we were in compliance with the covenants of our debt and credit agreements.

Off-Balance Sheet Arrangements

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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 2. Management’s Discussion and Analysis