What changed in this filing

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Item 1. Financial Statements

2022-05-04 compared with 2021-10-28 · 134 added, 224 removed, 586 unchanged (38% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In millions, except per share data)

1 unchanged sentence

Net realized and unrealized investment gains (losses):

Net realized gains from sales and other

Net realized gains (losses) from sales and other

Net change in fair value of equity securities

Impairment recoveries (losses) on investments

Impairment losses on investments

Total net realized and unrealized investment gains (losses)

5 unchanged sentences

Interest expense

Loss from repayment of debt

Other operating expenses

22 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In millions)

1 unchanged sentence

Available-for-sale securities:

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

Changes in net unrealized losses on investment securities:

Having no credit losses recognized in the

5 unchanged sentences

Net change in net actuarial loss

Total other comprehensive income (loss), net of tax

Comprehensive income (loss)

Total other comprehensive loss, net of tax

Comprehensive loss

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

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

September 30,

(In millions, except share data)

8 unchanged sentences

Deferred acquisition costs

Deferred income tax asset

Assets of discontinued businesses

14 unchanged sentences

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive income (loss)

Retained earnings

7 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(In millions)

4 unchanged sentences

Balance at beginning of period

Settlement and prepayment of accelerated share

repurchases and other

Settlement of accelerated share repurchases and other

Balance at end of period

2 unchanged sentences

Balance at beginning of period

Net appreciation (depreciation) on available-for-sale

Net depreciation on available-for-sale securities

Balance at end of period

3 unchanged sentences

Balance at end of period

Total accumulated other comprehensive income

Total accumulated other comprehensive income (loss)

Retained Earnings

Balance at beginning of period

Cumulative effect of accounting change, net of taxes

Balance at beginning of period, as adjusted

Dividends to shareholders

11 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended

September 30,

Three Months Ended

(In millions)

2 unchanged sentences

Net realized and unrealized investment (gains) losses

Loss from repayment of debt

Net amortization and depreciation

7 unchanged sentences

Change in expenses and taxes payable

Cash received for MCCA refund, partially offset by payments made to policyholders

Net cash provided by operating activities

8 unchanged sentences

Proceeds from exercise of employee stock options

Proceeds from debt borrowings, net

Dividends paid to shareholders

Repurchases of common stock

Repayment of debt

Other financing activities

14 unchanged sentences

and other insurance and non-insurance subsidiaries.

These legal entities conduct their operations through several business segments discussed in Note 8 – “Segment Information.” The interim consolidated financial statements also include the Company’s discontinued operations, consisting of the Company’s former accident and health and life insurance businesses.

These legal entities conduct their operations through several business segments discussed in Note 8 – “Segment Information.” The interim consolidated financial statements also include the Company’s discontinued operations, consisting primarily of the Company’s former accident and health and life insurance businesses.

All intercompany accounts and transactions have been eliminated.

3 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 nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year.

The results of operations for the three months ended March 31, 2022, 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 25, 2022.

New Accounting Pronouncements

Recently Implemented Standards

In October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) Update No.

2020-08, Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs .

This guidance clarifies, for each reporting period, that an entity should reevaluate whether a callable debt security with multiple call dates is required to amortize any premium to the next call date.

The updated guidance is effective for annual and interim periods beginning after December 15, 2020 and should be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities.

The Company implemented this guidance effective January 1, 2021 , and it did not have a material impact on its financial position or results of operations.

In January 2020, the FASB issued ASC Update No.

2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) .

This ASC update clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting when using the measurement alternative under ASC 321.

This update also clarifies the accounting for certain forward contracts and purchased options accounted for under ASC 815.

The updated guidance is effective for annual and interim periods beginning after December 15, 2020.

The Company implemented this guidance effective January 1, 2021 , and it did not have a material impact on its financial position or results of operations.

In December 2019, the FASB issued ASC Update No.

2019-12, Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes .

This ASC update removes certain exceptions to the general principles in ASC 740, Income Taxes , including intraperiod tax allocation when there is a loss from continuing operations, foreign subsidiary treatment under certain conditions and for calculating interim income taxes when the year-to-date loss exceeds the anticipated loss.

This update also clarifies and amends existing guidance related to changes in tax laws, business combinations and employee stock plans, among others.

The updated guidance is effective for interim and annual periods beginning after December 15, 2020.

The Company implemented this guidance effective January 1, 2021 , and it did not have a material impact on its financial position or results of operations.

Recently Issued Standards

In March 2022, the Financial Accounting Standards Board issued Accounting Standards Codification (“ASC”) Update No.

2022-02, Financial Instruments – Credit Losses (Topic 326) (“ASC Update No.

This guidance amends ASC Update No.

2016-13, Financial Instruments – Credit Losses (Topic 326);

Measurement of Credit Losses on Financial Instruments , (“ASC Update No.

2016-13”) which the Company implemented effective January 1, 2020.

This ASC update eliminates the recognition and measurement guidance for Troubled Debt Restructurings (“TDRs”), while enhancing disclosure requirements for certain loan refinancing and restructurings.

Additionally, this update requires that an entity disclose current-period write-offs by year of origination for financing receivables and net investments in leases.

ASC Update No.

2022-02 should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, which has the option to be applied through a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

For entities that have adopted ASC Update No.

2016-13, this update is effective for fiscal years beginning after December 15, 2022, including interim periods.

Early adoption is permitted for those entities that have adopted ASC Update No.

The Company does not expect the implementation of this guidance to have a material impact on its financial position or results of operations.

Fixed maturities

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

September 30, 2021

March 31, 2022

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.

September 30, 2021

March 31, 2022

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 September 30, 2021 and December 31, 2020, including the length of time the securities have been in an unrealized loss position:

September 30, 2021

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, 2022 and December 31, 2021, including the length of time the securities have been in an unrealized loss position:

March 31, 2022

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions)

Proceeds from sales

For the three months ended September 30, 2021, we recognized net recoveries of $ 0.1 million, consisting of recoveries on mortgage loans of $ 0.7 million, partially offset by impairments on fixed maturities of $ 0.6 million.

For the nine months ended September 30, 2021, we recognized net impairments of $ 0.1 million, consisting of impairments on fixed maturities of $ 0.8 million, partially offset by recoveries on mortgage loans of $ 0.7 million.

For the three months ended September 30, 2020, the Company recognized $ 0.8 million of impairments, consisting primarily of additional credit losses on mortgage loans, partially offset by recoveries of credit losses on fixed maturities.

For the nine months ended September 30, 2020, we recognized $ 27.9 million of impairment losses, consisting primarily of $ 19.1 million on fixed maturities and $ 6.6 million on mortgage loans.

Impairments on fixed maturities included $ 16.5 million categorized as intend-to-sell and $ 2.6 million of credit-related losses.

At September 30, 2021 and December 31, 2020, the allowance for credit losses on mortgage loans was $ 7.1 and $ 7.9 million, respectively, and the allowance for credit losses on available-for-sale debt securities was $ 0.2 million and $ 0.1 million, respectively.

For the three months ended March 31, 2022, the Company recognized impairments on fixed maturities of $ 0.9 million.

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

At March 31, 2022 and December 31, 2021, the allowance for credit losses on mortgage loans was $ 7.1 million and the allowance for credit losses on available-for-sale debt securities was $ 0.9 million and $ 0.3 million, respectively.

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

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

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

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

In addition, other qualitative market data relevant to the realizability of contractual cash flows may be considered, including current conditions and reasonable and supportable forecasts.

Mortgage loans – the Company estimated losses by applying expected loss rates, which are based on historical data.

Embedded in expected loss rates are mortgage risk ratings and risk factors associated with property type such as office, retail, lodging, multi-family and industrial.

Risk ratings, based on property characteristics and metrics including the geographic market, are predominantly driven by estimates of loan-to-value and debt service coverage ratios.

Ratings may be adjusted to reflect current conditions and to incorporate reasonable and supportable forecasts, such as volatility of cash flows and valuation.

Equity securities

Equity securities are carried at fair value and all increases or decreases in fair value are reported in net realized and unrealized investment gains (losses) on the Consolidated Statements of Income.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions)

Net gains (losses) recognized during the period

net gains (losses) recognized on equity securities sold

during the period

Net unrealized (losses) gains recognized during the period on equity

securities still held

net gains recognized on equity securities sold during the period

Net unrealized gains (losses) recognized during the period on equity securities still held

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability, i.e., exit price, in an orderly transaction between market participants.

The Company emphasizes the use of observable market data whenever available in determining fair value.

Fair values presented for certain financial instruments are estimates which, in many cases, may differ

significantly from the amounts that could be realized upon immediate liquidation.

Fair values presented for certain financial instruments are estimates which, in many cases, may differ significantly from the amounts that could be realized upon immediate liquidation.

A hierarchy of the three broad levels of fair value is as follows, with the highest priority given to Level 1 as these are the most observable, and the lowest priority given to Level 3:

9 unchanged sentences

Level 3 securities include issues for which little observable data can be obtained, primarily due to the illiquid nature of the securities, and for which significant inputs used to determine fair value are based on the Company’s own assumptions.

The Company utilizes a third-party pricing service for the valuation of the majority of its fixed maturity securities and receives one quote per security.

The Company utilizes third-party pricing services for the valuation of the majority of its fixed maturity securities and receives one quote per security.

When quoted market prices in an active market are available, they are provided by the pricing service as the fair value and such values are classified as Level 1.

Since fixed maturities other than U.S.

Treasury securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value for those securities using pricing techniques based on a market approach.

Treasury securities generally do not trade on a daily basis, the pricing services prepare estimates of fair value for those securities using pricing techniques based on a market approach.

Inputs into the fair value pricing common to all asset classes include:

42 unchanged sentences

and contract structural support features.

Generally, all prices provided by the pricing service, except actively traded securities with quoted market prices, are reported as Level 2.

The Company holds privately placed fixed maturity securities and certain other fixed maturity securities that do not have an active market and for which the pricing service cannot provide fair values.

The Company determines fair values for these securities using either matrix pricing utilizing the market approach or broker quotes.

Generally, all prices provided by the pricing services, except actively traded securities with quoted market prices, are reported as Level 2.

The Company holds privately placed fixed maturity securities and certain other fixed maturity securities that do not have an active market and for which the pricing services cannot provide fair values.

The Company determines fair values for these securities using either matrix pricing, which utilizes the market approach, or broker quotes.

The Company will use observable market data as inputs into the fair value techniques, as discussed in the determination of Level 2 fair values, to the extent it is available, but is also required to use a certain amount of unobservable judgment due to the illiquid nature of the securities involved.

15 unchanged sentences

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

September 30, 2021

March 31, 2022

December 31, 2021

14 unchanged sentences

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

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

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

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

If upon review, the Company is not satisfied with the validity of a given price, a pricing challenge would be submitted to the pricing service along with supporting documentation for its review.

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

If upon review, the Company is not satisfied with the validity of a given price, a pricing challenge would be submitted to the applicable pricing service along with supporting documentation for its review.

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

During the first three months of 2022 and 2021, the Company did not adjust any prices received from its pricing services.

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

As previously discussed, the Company utilizes a third-party pricing service for the valuation of the majority of its fixed maturities and equity securities.

The pricing service has indicated that it will only produce an estimate of fair value if there is objectively verifiable information to produce a valuation.

If the pricing service discontinues pricing an investment, the Company will use observable market data to the extent it is available, but may also be required to make assumptions for market-based inputs that are unavailable due to market conditions.

As previously discussed, the Company utilizes third-party pricing services for the valuation of the majority of its fixed maturities and equity securities.

The pricing services have indicated that they will only produce an estimate of fair value if there is objectively verifiable information to produce a valuation.

If a pricing service discontinues pricing an investment, the Company will use observable market data to the extent it is available, but may also be required to make assumptions for market-based inputs that are unavailable due to market conditions.

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

September 30, 2021

March 31, 2022

(in millions)

19 unchanged sentences

Total investment assets at fair value

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 September 30, 2021 and December 31, 2020, the fair values of these investments were $ 154.1 million and $ 172.8 million, respectively, approximately 2 % of total investment assets.

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

At March 31, 2022 and December 31, 2021, the fair values of these investments were $ 142.5 million and $ 139.5 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:

September 30, 2021

March 31, 2022

(in millions)

10 unchanged sentences

(in millions)

Three Months Ended

September 30, 2021

Balance July 1, 2021

Three Months Ended March 31, 2022

Balance January 1, 2022

Total losses:

Included in total net realized and

unrealized investment gains

Balance September 30, 2021

unrealized investment losses

Included in other comprehensive loss-net

depreciation on available-for-sale securities

Balance March 31, 2022

Change in unrealized losses for the period

1 unchanged sentence

assets held at the end of the period

Three Months Ended

September 30, 2020

Balance July 1, 2020

Included in total net realized and unrealized

investment gains

Included in other comprehensive income-net

appreciation on available-for-sale securities

Balance September 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)

Nine Months Ended

September 30, 2021

Three Months Ended March 31, 2021

Balance January 1, 2021

4 unchanged sentences

depreciation on available-for-sale securities

Balance September 30, 2021

Balance March 31, 2021

Change in unrealized losses for the period

1 unchanged sentence

assets held at the end of the period

Nine Months Ended

September 30, 2020

Balance January 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 September 30, 2020

Change in unrealized gains for the period

included in other comprehensive income for

assets held at the end of the period

There were no transfers between Level 2 and Level 3 for the three months ended September 30, 2021 and 2020, or for the nine months ended September 30, 2021.

During the nine months ended September 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 3 liabilities held by the Company for the three and nine months ended September 30, 2021 and 2020.

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, 2022 and 2021.

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.

September 30, 2021

March 31, 2022

December 31, 2021

6 unchanged sentences

Small issue size

Credit stress

4.5 - 6.8% (6.5%)

8 unchanged sentences

Lease structure

Credit stress

1.9 - 3.1% (2.7%)

3 unchanged sentences

market multiples

2.5 - 8.3 (5.4)

Internal price

7 unchanged sentences

Each unobservable input is based on the Company’s subjective opinion and therefore inherently contains a degree of uncertainty.

Significant increases (decreases) in any of the above inputs in isolation would result in a significantly lower (higher) fair value measurement.

Significant changes in any of the above inputs in isolation would result in a significantly lower or higher fair value measurement.

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 nine months ended September 30, 2021 and 2020 has been computed using estimated annual effective tax rates.

Income tax expense for the three months ended March 31, 2022 and 2021 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 $ 59.3 million and $ 41.7 million for the nine months ended September 30, 2021 and 2020, respectively.

federal income tax expense of $ 24.7 million and $ 21.3 million for the three months ended March 31, 2022 and 2021, 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 2017.

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

The audit of the Company’s Massachusetts corporate excise tax years 2017 and 2018 commenced in June 2021.

Pension Plans

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

Three Months Ended September 30,

(in millions)

Pension Plans

Interest cost

Expected return on plan assets

Recognized net actuarial loss

Net periodic pension cost

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions)

3 unchanged sentences

Recognized net actuarial loss

Net periodic pension (benefit) cost

Net periodic pension cost (benefit)

Other Comprehensive Income (Loss)

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

Three Months Ended September 30,

Three Months Ended March 31,

(in millions)

Changes in net unrealized gains (losses) on investment

Net unrealized gains (losses) arising during period for

Net unrealized losses arising during period for

those having no credit losses in Consolidated

Statement of Income

Net unrealized gains (losses) arising during period for

Net unrealized losses arising during period for

those having credit losses in Consolidated

Statement of Income

Amount of gains realized from sales and

Amount of (gains) losses realized from sales and

other recognized in Consolidated Statement

1 unchanged sentence

Consolidated Statement of Income

Amount of additional impairment (recoveries) losses

recognized in the Consolidated Statement

Net unrealized gains (losses)

Pension and postretirement benefits:

Amortization of net actuarial losses

recognized as net periodic benefit cost

Other comprehensive income (loss)

Nine Months Ended September 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

Consolidated Statement of Income

Amount of additional impairment losses

recognized in the Consolidated Statement

Net unrealized gains (losses)

Net unrealized losses

Pension and postretirement benefits:

1 unchanged sentence

recognized as net periodic benefit cost

Other comprehensive income (loss)

Other comprehensive loss

Reclassifications out of accumulated other comprehensive income were as follows:

Three Months Ended

Nine Months Ended

September 30,

(in millions)

7 unchanged sentences

Net unrealized gains (losses) on investment securities

Net realized gains from sales and

Impairment recoveries (losses) on investments

Net realized gains (losses) from sales and

Impairment losses on investments

Total before tax

Tax benefit (expense)

Continuing operations;

Discontinued operations - life businesses

Amortization of defined benefit pension

5 unchanged sentences

Benefit (expense) reflected in income, net of tax

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 and nine months ended September 30, 2021 and 2020.

Segment Information

The Company’s primary business operations include insurance products and services provided through three operating segments:

Commercial Lines, Personal Lines and Other.

Commercial Lines includes commercial multiple peril, commercial automobile, workers’ compensation, and other commercial coverages, such as management and professional liability, marine, Hanover Programs, specialty industrial and commercial property, monoline general liability and surety.

The Company’s primary business operations include insurance products and services provided through four operating segments:

Core Commercial, Specialty, Personal Lines and Other.

Core Commercial includes commercial multiple peril, commercial automobile, workers’ compensation, and other commercial lines coverages provided to small and mid-sized businesses.

Specialty includes four divisions of business:

Professional and Executive Lines, Specialty Property and Casualty (“Specialty P&C”), Marine, and Surety and Other.

Specialty P&C includes coverages such as program business (provides commercial insurance to markets with specialized coverage or risk management needs related to groups of similar businesses), specialty industrial and commercial property, and excess and surplus lines.

Personal Lines includes personal automobile, homeowners and other personal coverages.

2 unchanged sentences

holding company and other expenses, including certain costs associated with retirement benefits due to the Company’s former life insurance employees and agents;

and a run-off voluntary property and casualty pools business.

The separate financial information is presented consistent with the way results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

and run-off voluntary assumed property and casualty pools and run-off direct asbestos and environmental businesses.

During the first quarter of 2022, the Company disaggregated its former Commercial Lines segment into the aforementioned Core Commercial and Specialty segments.

Prior periods reflect this new presentation.

This presentation is consistent with the way results are regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company reports interest expense related to debt separately from the earnings of its operating segments.

8 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

(in millions)

Operating revenues:

Commercial Lines

Core Commercial

Personal Lines

2 unchanged sentences

Operating income (loss) before interest expense and income taxes:

Commercial Lines:

Underwriting (loss) income

Core Commercial:

Underwriting income (loss)

Net investment income

Other expense

Commercial Lines operating income

Core Commercial operating income (loss)

Underwriting income

Net investment income

Other income (expense)

Specialty operating income

Personal Lines:

Underwriting (loss) income

Underwriting income

Net investment income

9 unchanged sentences

Net realized and unrealized investment gains (losses)

Loss from repayment of debt

Other non-operating

Income from continuing operations before income taxes

1 unchanged sentence

(in millions)

September 30, 2021

March 31, 2022

December 31, 2021

Property and Casualty Insurance Companies

Property and Casualty

Assets of discontinued businesses

The Company reviews the assets of its Property and Casualty Insurance Companies collectively and does not allocate them between the Commercial Lines, Personal Lines and Other segments.

The Company reviews the assets of its insurance companies collectively and does not allocate them between the Core Commercial, Specialty, Personal Lines and Other segments.

Stock-based Compensation

As of September 30, 2021, there were 1,982,890 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.

As of March 31, 2022, there were 1,384,101 shares and 2,311,068 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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions)

2 unchanged sentences

Stock Options

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

Nine Months Ended September 30,

Information on the Company’s stock option activity for the three months ended March 31, 2022 and 2021 is summarized below.

Three Months Ended March 31,

(in whole shares and dollars)

9 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

(in whole shares and dollars)

7 unchanged sentences

Outstanding, end of period

In the first nine 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 three months of 2022 and 2021, the Company granted market-based awards totaling 19,057 and 37,348 , 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.

2 unchanged sentences

These units have the potential to range from 0 % to 150 % of the shares disclosed.

Included in the amount granted above in 2021 and 2020 are 14,501 shares and 13,532 shares, respectively, related to market-based awards that achieved a payout in excess of 100 %.

These awards vested in the first quarters of 2021 and 2020, respectively.

Included in the amount forfeited above in 2022 are 1,282 shares related to market-based awards that achieved a payout below 100 %.

These awards were forfeited in the first quarter of 2022.

Included in the amount granted above in 2021 are 14,501 shares related to market-based awards that achieved a payout in excess of 100 %.

These awards vested in the first quarter of 2021.

The Company also granted performance-based restricted stock units in 2022 and 2021, totaling 28,897 and 21,401 , respectively, which are based upon the Company’s achievement of return on equity objectives.

These units have the potential to range from 0 % to 150 % of the shares disclosed, which varies based on grant year and individual participation level.

Increases above the 100% target level are reflected as granted in the period in which performance-based stock unit goals are achieved.

These units have the potential to range from 0 % to 150 % of the shares disclosed.

Increases above the 100% target level are reflected as granted in the period after which performance-based stock unit goals are achieved.

Decreases below the 100% target level are reflected as forfeited.

There were no performance-based awards that vested in 2021.

Included in the amount granted above in 2022 are 7,988 shares related to performance-based awards that achieved a payout in excess of 100 %.

These awards vested in the first quarter of 2022.

Earnings Per Share and Shareholders’ Equity Transactions

1 unchanged sentence

Three Months Ended

Nine Months Ended

September 30,

(in millions, except per share data)

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Per share effect of dilutive securities on net income

Diluted earnings per share for the three months ended September 30, 2020 excludes 0.8 million issuable under the Company’s stock compensation plans because their effect would be antidilutive.

Diluted earnings per share for the nine months ended September 30, 2021 and 2020, respectively, excludes 0.2 and 0.6 million 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 $ 381 million available at September 30, 2021.

Diluted earnings per share for the three months ended March 31, 2022 and 2021 excludes 0.1 million and 0.2 million shares, respectively, issuable under the Company’s stock compensation plans because their effect would be antidilutive.

T he Board of Directors authorized a stock repurchase program which provides for aggregate repurchases of the Company’s common stock of up to $ 1.3 billion.

Under this program the Company had approximately $ 345 million available at March 31, 2022.

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.

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The Company is not required to purchase any specific number of shares or to make purchases by any certain date under this program.

On October 29, 2020, pursuant to the terms of an accelerated share repurchase agreement (the “October 2020 ASR”) the Company paid $ 100.0 million and received an initial delivery of approximately 0.8 million shares of its 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, the Company received approximately 45,000 shares of its common stock shares as final settlement of shares repurchased under the October 2020 ASR.

Liabilities for Outstanding Claims, Losses and Loss Adjustment Expenses

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

Nine Months Ended

September 30,

Three Months Ended

(in millions)

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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 $ 6.0 million and $ 8.2 million in 2022 and 2021, respectively.

For the nine months ended September 30, 2021, net favorable loss and LAE development was $ 56.7 million, primarily as a result of net favorable Commercial Lines development of $ 34.6 million and favorable Personal Lines development of $ 23.1 million.

Commercial Lines favorable development was primarily due to lower than expected losses of $ 13.1 million within the workers’ compensation line, primarily in accident years 2014 through 2019, and to lower than expected catastrophe losses of $ 12.0 million for hurricanes, tornadoes, and other storms in accident years 2018 through 2020.

Personal Lines favorable development was primarily due to lower than expected losses of $ 20.1 million in the personal automobile line, driven by lower personal injury protection and bodily injury losses primarily in accident year 2020.

For the nine months ended September 30, 2020, net favorable loss and LAE development was $ 26.1 million primarily as a result of net favorable Commercial Lines development of $ 30.9 million, partially offset by unfavorable development in the Other Segment.

Commercial Lines favorable development was primarily due to lower than expected losses of $ 25.6 million within the workers’ compensation line in accident years 2016 through 2019 and, within other commercial lines, $ 15.3 million within the marine line primarily in accident years 2017 through 2019, partially offset by higher than expected losses of $ 10.6 million in the commercial automobile line driven by higher personal injury protection and bodily injury losses, primarily in accident years 2017 through 2019.

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

For the three months ended March 31, 2022, net favorable loss and LAE development was $ 6.0 million, primarily as a result of favorable Specialty development of $ 13.2 million and favorable Core Commercial development of $ 6.4 million, partially offset by unfavorable Personal Lines development of $ 13.6 million.

Specialty favorable development was primarily due to lower than expected losses within the marine, specialty industrial and commercial property, professional and executive, and surety lines.

Core Commercial favorable development was primarily due to lower than expected losses in the workers’ compensation line.

Personal Lines unfavorable development was due to higher than expected losses of $ 13.9 million, in the homeowners line, primarily due to higher severity and longer cycle times in repair activity, primarily related to claims incurred in the fourth quarter of 2021.

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 lower than expected losses in the workers’ compensation line.

Commitments and Contingencies

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In addition, the Company is involved, from time to time, in examinations, investigations and proceedings by governmental and self-regulatory agencies.

The potential outcome of any such action or regulatory proceedings in which the Company has been named a defendant or the subject of an inquiry or investigation, and its ultimate liability, if any, from such actions or regulatory proceedings, is difficult to predict at this time.

The potential outcome of any such action or regulatory proceedings in which the Company has been named a defendant or the subject of an inquiry, examination or investigation, and its ultimate liability, if any, from such actions or regulatory proceedings, is difficult to predict at this time.

The ultimate resolutions of such proceedings are not expected to have a material effect on its financial position, although they could have a material effect on the results of operations for a particular quarterly or annual period.

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements